Zerodha | Nifty: How expensive is Nifty? Zerodha co-founder Nikhil Kamath explains using 2 indicators

“India may be many things, one thing we still aren’t is cheap relative to historical price multiples,” Kamath tweeted.

1) Index PE ratio
The below chart shows that India is one of the most expensive stock markets in the world as Nifty is trading at a PE multiple of 19.9, which is higher than S&P 500’s 18.95 and Nikkei 225’s 18.79. The index PE ratio is calculated by dividing the index market cap by gross earnings. A higher PE ratio indicates a more expensive market. Key indices of other markets like UK, Japan, Shanghai, Brazil and Germany are much cheaper.

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2) Buffett Indicator
Started by Warren Buffett, the Buffett Indicator is nothing but a ratio calculated by dividing the market cap by the country’s GDP. A higher Buffett Indicator suggests a more expensive market. Data, as shared by Kamath, shows that the Buffett Indicator for the world’s largest market, the US stood at 138.9 per cent and Japan’s 113 per cent. While India at 94 per cent is still cheaper than the above two markets, it is more expensive than that of the UK (89 per cent), Brazil (53 per cent), Germany (47.4 per cent) and China (58.7 per cent.)

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Earlier in an interview with ETMarkets, the broker and money manager had said that only time will tell whether or not this is a bear market. “However, to keep things in perspective, the markets have still not corrected to the levels before the euphoric rally we witnessed last year,” he had said.