Stock market outlook: What BEER ratio, Buffett Indicator, India VIX, valuations hint at

After Nifty and Sensex's 8-9 per cent rise in 2025 so far, there is only a limited scope for rerating ahead, Axis Securities said in its monthly note. Style rotation and sector selection are keys to generating alpha, as earnings expectations from the broader market remain intact, the domestic brokerage said. 

"In our base case, we revise our March 2026 Nifty target to 25,500  by valuing it at 20 times on March 2027 earnings. Based on the expectations of the earnings upgrade starting  from Q3FY26 onwards, we see upside risk to our target," Axis Sedcurities said

India VIX
The current level of India's VIX is below its long-term average, indicating that  the market is currently in a neutral zone, neither panic nor exuberance. While the medium to long-term outlook for the overall market remains positive, Axis Securities said one may see volatility in the short run. 

"Hence, we recommend investors maintain  good liquidity (10-15 per cent) to use any dips in a phased manner and build a  position in high-quality companies (where the earnings visibility is quite high)  with an investment horizon of 12-18 months," it said.

BEER ratio
The relationship between bonds and equity is defined by the BEER ratio, or bond-earnings yield ratio, which is calculated by dividing the benchmark 10-year bond yield by the earnings yield of the benchmark index. A ratio of 1 means that both equity and bond market have equal level of perceived riskiness. At present, it is at 1.3 against the long-term average of 1.2. 

Indian bond yields have corrected by 30 basis points since November 2024, the start of the US Fed's Rate cut cycle. A consumption boost, fiscal consolidation in the Union Budget, and rate cuts by the RBI indicate some cooling off in bond yields. 

"After correction in the equity market, the Bond to Equity Earning Yields ratio is now  trading slightly above the long-term average," Axis Securities said.  

Buffett indicator
This indicator, named after legendary investor Warren  Buffett, suggests that the m-cap of listed companies in a country should not exceed the country's own GDP. If it does, the market is deemed expensive. 

India’s total market cap-to-GDP is trading at 138 per cent, above its long-term average - (rebased after the FY25 GDP of Rs 324 lakh crore released by the government on 1st Feb’25). 

"However, at projected levels of nominal GDP for FY26, the Mcap/GDP ratio translates into 125 per cent (fairly valued). As per the Union Budget 2025-26, the  FY26 GDP assumption is pegged at Rs 356.97 lakh crore," Axis Securities said.

"Historically, similar upward earnings momentum was witnessed in FY10 earnings immediately after the GFC crisis, leading to the Market cap to GDP ratio of 95-98 per cent. With a positive earnings momentum in the current cycle, we will likely see higher MCap-to-GDP ratio levels in the upcoming quarters," Axis Securities said.