Are Indian stocks in bubble territory?

Whenever something reaches lifetime highs, questions are asked whether the asset class in question is in bubble territory. Indian equities would certainly qualify to be at the receiving end of such a scrutiny. Both Nifty and the Sensex are being seen flirting with their all time highs with consistent regularity these days. The latest such episode occurred yesterday as the Sensex crossed the psychologically crucial mark of 22k. Given the momentum though, we won't be surprised if more gains are in the offing.
This thus begs the question of whether the Indian equities are anywhere close to being in bubble territory. Well, as the bubble specialist Jeremy Grantham would acknowledge, this question can be answered in two ways. One is of course statistically and the other is to look at certain behavioural tendencies amongst market participants.
Let's deal with statistics first.


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