Is the Indian stock market overvalued?

As of September 2024, there are signs that the Indian stock market is currently overvalued. Several indicators suggest this: 1. **Price-to-Earnings (P/E) Ratio**: The P/E ratio for the Indian stock market is around 26.5, significantly above the long-term average of about 17-18. This places the market in the "expensive" category across various timeframes【16†source】【17†source】. 2. **Buffett Indicator (Market Cap-to-GDP Ratio)**: India's market capitalization has grown rapidly, reaching around $5.5 trillion in August 2024, with a market cap-to-GDP ratio of over 1.4. This is significantly higher than its historical average of 0.83, signaling overvaluation【15†source】. 3. **Other Valuation Metrics**: Indicators like the Shiller PE and BEER (Bond Equity Earnings Yield Ratio) also suggest that the Indian market is experiencing overvaluation【16†source】【17†source】. While some sectors may still offer growth potential, caution is advised, as the current market levels reflect a mix of "rightful optimism" and "mistaken euphoria"【15†source】. read less