This ratio measures the value of all the stocks listed on Indian exchanges against the GDP and is used by analysts to see if the stock market is rightly valued.
As a thumb rule, when the ratio moves well above 100 per cent, stocks are said to be expensive and when it is far below 100 per cent, stocks are assumed to be cheap.
Based on the GDP growth April 2017 market cap to GDP stands at 80%, while this is an improvement from the 64 per cent recorded in 2012-13, the current level is slightly less than half of the 149 per cent recorded in the bull market frenzy of 2006-07.
For instance companies within the agriculture sector contribute close to 2 per cent of the total market capitalization of BSE-listed companies. The contribution of agriculture to the GDP is much higher at 17 per cent.
