- Sensex, apart from serving the general purpose of indicating stock market’s mood, also broadly reflects the growth of the economy as a whole.
- In the first chart, 20 year data is plotted for GDP on one axis and Sensex on another axis. Sensex line closely follows the slope of GDP. However, since it also reflects the market psychology, for brief periods, Sensex enters & exit from over or under valuation zone, but it broadly remain in line to GDP.
- In the second chart, GDP & Sensex data are plotted and a linear regression line is drawn for Sensex. Right most data is current expected GDP of FY16 & current Sensex, which is below the regression line, indicating that the general market are slightly undervalued compared to the GDP.
India’s 20 year GDP at Current Prices & Sensex
Regression Trend of Sensex and India’s 20 yrs GDP