Reading Markets Through Buffett Lens

There is a virtual consensus among experts that Indian stock markets are very close to a bubble territory. The retail investor is cautioned, asked to be alert and advised to stick to asset allocation and quality of stocks for investments. While these are genuine, one needs to study if the market is uniformly overvalued or the valuations have become euphoric only in certain pockets. Also, to find whether it has lost all sync with the economy.   In an interview to Fortune magazine in 2001, ace investor Warren Buffett had said that the single most important indicator he follows for long-term valuation of stocks was the ratio of market capitalisation to GDP. This was later termed as the ‘Buffett Indicator’. For the US, the Buffett Indicator stands at 230 per cent and it changes every day. This is 85 per cent above the historical average, suggesting that the market is...