Definition
Market Cap to GDP (Buffett Indicator)
The Buffett Indicator compares the total market capitalisation of all listed companies to a country's GDP, gauging whether the market is over- or under-valued.
Named after Warren Buffett, who called it 'the best single measure', this ratio (total market cap / GDP) shows how richly the stock market is valued relative to the real economy. A ratio around 75-90% is often seen as fair; well above 100% suggests the market may be expensive.
For India, the indicator has historically hovered around 80-110% but has risen sharply in recent bull runs, prompting valuation debates. It is a broad, slow-moving signal, not a timing tool, and should be read alongside interest rates and growth prospects.
Related terms
- Market CapitalizationMarket capitalisation is the total market value of a company's shares, calculated as share price multiplied by the number of shares outstanding.
- Intrinsic ValueIntrinsic value is the estimated true worth of a business based on its fundamentals and future cash flows, independent of the current market price.
- Margin of SafetyMargin of safety is the practice of buying a stock at a meaningful discount to its estimated intrinsic value to protect against errors and bad luck.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.