There is another strong indicator which shows that the Indian markets (Stock, house,..) are in for a big correction. This time its using the dividend yield. The inverse of dividend yield is the price of a share divided by its most recent payout.

The measure can be thought of as a dividend-payback period, with a 10 percent yield implying a 10-year horizon for return of capital to the investor discounting any gain or loss from a change in the stock price.

“The concept is simple,” Rosgen says. “Assuming no increase in the payout ratio, no rise in dividends, how long will it take investors to get the current outlay back in the form of dividends?”

According to Rosgen strategy focus letter here ..

* Average dividend payback in Asia ex is getting shorter — Pakistan and Taiwan
have the shortest dividend payback periods of just 16 and 22 years. In the case of
Taiwan, this is just 17% above the all time low. Media at 16 years and banks at
21.1 years are also very attractive. Banks are only trading at 13% above the all
time low set over the last 20 years.

* Stay away from India with 72-year payback; energy & materials at over 36 years —
In times of economic uncertainty, we think buying long duration/payback stocks
will lead to disappointments. Short duration/payback stocks with good long-term
growth potential are the way ahead, in our view. We provide a list.

In January, the Indian market was trading on a duration of 113 years. Whilst this is in itself a very long time, the longest ever for India in over 18 years, it is an investment which most readers (we believe) will not see the final payment off, nor their children if any, but potentially their grandchildren will receive the final payment. In January, India had the longest duration, and it proved to be unsustainable; we remain underweight.

Why does this matter you may ask? In an uncertain economic environment,
most investors would rather own a short duration/payback asset than a longer
duration/payback asset. The here and now (i.e. will I be here to see the final
payback payment?) is much more important that what you may receive at some
distant point in the future. India with a 113 year duration/payback in Jan 2008
was just a generation too far for most investors to extrapolate.

So its better to hold shorter duration return instruments over longer term payback instruments.