Sensex at 50,000: Warning signs of an overheated market
Most economic data points and indicators show that Indian stock markets are overheated
Illustration by Siddhant Jumde
Very often, headline numbers do not divulge too many details. To let the numbers do the talking, it is important to dive deeper. Also, it is difficult to accurately estimate any measure without studying its long-term trend and comparing it with other relevant indicators. Business Today looks at some such indicators such as price-to-earnings (P-E) ratio, market cap-to-GDP ratio and corporate fundraising to gauge market sentiment and portray the state of the economy.
Fundamental statistics such as P-E ratio are popularly studied in two forms, trailing and forward, to determine the valuation of a stock or an index. Trailing P-E is calculated by dividing the current market value by earnings per share over the previous 12 months. Forward P-E looks at a company s likely earnings per share for the next 12 months. A