Without even going into the nitty-gritty, shares (or any asset for that matter) get overvalued when the anticipation is much more than real growth.
Indian share market isn’t as overvalued as it once was. Over the course, with few significant corrections, it’s not too away from its real valuation. However, this picture changes from time to time.
Certain events take place that put anticipation at peak. And this defies the fact that very few people invest in share market (it’s very high compared to other investment avenues though). The price booms even with no immediate and actual flow of cash.
Another thing to note is that today, PE norms have changed drastically. We have seen new marks of Price/Earning ratio, which has become the new normal. They are the new benchmark that significantly sways individual and institutions’ decision-making.
Another reason why Indian stock market seems overvalued more often than not is because it’s really difficult to measure the overvaluation. There aren’t any concrete tools and resources available that can vouch for the real numbers. The ones that do exist, even they don’t guarantee efficient result.
This is one biggest reason why I caution every new investor. It’s fairly easy to lose yourself in the numbers and percents without knowing that they are bloated.