Investment Valuation in India

At the crux of this entire political conundrum, the core issue, which lays quite forlorn and forgotten is the nuclear issue. Today the politicians might have turned it into an opportunity to topple the UPA Govt but few remember that it all started with the nuclear deal. Surely few of these politicians would have actually taken the effort to read the 82-page nuclear deal and tried to understand what it is all about. Somehow that does not come as a surprise at all! So without getting into the “political” angle of it, let us take a look at what exactly is this nuclear issue. What would India gain if UPA wins the vote and what we stand to lose if the deal gets cancelled? What exactly is nuclear power? Nuclear power is generated using Uranium, which is a metal mined in various parts of the world. It produces around 11% of the world's energy needs, and produces huge amounts of energy from small amounts of fuel, without the pollution that you'd get from burning fossil fuels. W...

Markets Correlation with the Trust Vote Nov 7, 1990 VP Singh Lost 1381 (sensex on vote date) +3.7% Sensex up 2.2% next day at 1412 May 28, 1996 AB Vajpayee Resigned before motion 3636 (sensex on vote date) -0.5% Sensex up 2.9% next day at 3740.40 April 11, 1997 HD Dewe Gowda Won 3634 (sensex on vote date) +1% Sensex down 1.2% next day at 3589.70 April 17, 1999 ABVajpayee Won 3327 (sensex on vote date) -6.9% Sensex up 3.7% next day at 451.4 July 22, 2008 Manmohan Singh Won 14104.2 (sensex on vote date) +1.83% Sensex up 5.94% next day by 836 points at 14942.28 Ref: www.ndtvprofit.com

When most investors think about the fundamental value of a company, they usually think of the price to earnings ratio. The P/E ratio tells you how much you are paying for each rupee of a company's earnings (profit). It is popular because it's easy to understand, but in some situations it can be misleading and is not a substitute for real fundamental research. Still, it is a useful tool for valuing an individual stock and can also be used to help you form an opinion on the likely future direction of the stock market as a whole. Understanding the Price to Earnings Ratio The P/E ratio is simply a mathematical calculation. It is the current price of one share of stock divided by earnings per share. The first thing to understand about the P/E ratio is that it is designed to value a share of stock, not a company, and stocks are priced per share. The P/E ratio tells you what the market is willing to pay right now for anticipated future earnings, assuming that the earnings remain const...

SEBI has made rules for valuation of securities by Mutual Funds. Lets look at the valuation Equity Securities for now. Mutual funds shall categorise the securities according to the following norms 1. TRADED SECURITIES : When a security (other than Government Securities) is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the selected stock exchange or any other stock exchange, as the case may be, on the earliest previous day may be used provided such date is not more than thirty days prior to valuation date. 2. THINLY TRADED SECURITIES : (i) Thinly Traded Equity/Equity Related Securities : When trading in an equity/equity related security (such as convertible debentures, equity warrants, etc.) in a month is less than Rs. 5 lacs or the total volume is less than 50,000 shares, it shall be considered as a thinly traded security and valued accordingly. Where a stock exchange identifies the "thinly traded" securities by applyi...

Well I know thats a similar title as the previous post.... but just didnt want the previous one to get lengthier. We have a come a long way from 130's to 13000's from the 80's till date. That's a 1300 times increase in 20 years. Thats a 26% CAGR in-spite of the fall from 20,873 (8th jan'08) to 13,635 (18th July'08). Mr Amitabh Chakraborty 's (President, Equities, Religare Securities; CFA; FRM) views on the markets are as follows (extracts): Limited downside from now. Sensex to be in the range of 10500 to 14500 this year There is a slow down of growth but not de-growth Estimate sales grwoth is 29% while estimated PAT growth is 18% Capital Goods sector looks good . the Banks look sluggish but may still come out surprisingly well. RBI should ease the rates by the year end. Oil should trade in the range of $100-110 per barrel. FED should hike rates by december leading to money flow from commodities to Equities. Political condition should be OK and the Government...

Hi guys, This saturday (19th July '08), I attended the All India Conference on Capital markets organised by the ICAI at the Taj Bengal, Kolkata where dignatories of the Capital markets arrived and presentade their views on the markets and the road ahead. I was pleasantly surprised to note that almost all the speakers (trust me, they are the big shots in the industry) are positive on the marekets ahead. I am keen to highlight some of the points Mr Nilesh Shah (Deputy Managing Director, ICICI Prudential AMC, managing close to US$14bn, a CA Gold Medalist and a Cost accountant) came up wth. What went wrong with the markets? High Oil Price (India has the highest Oil import to GDP ratio) Higher Trade Deficit (weaker Rupee) Higher Inflation (backed by higher subsidy burden) High Fiscal Deficit High Interest rate Slowing Growth Traders are short and investors are sitting on cash Rising oil prices (India currently pays $50bn for oil annually) Clearly nothing has been going good for the ec...

This is for all CAs in Practice or those who want to obtain a Certificate of practice. We all know what a Practicing CA does. But most of who are not in practice would know that there are a lot of restrictions on a practicing CA. The olst important of them is that a Practicing CA is not allowed to enter into any other business without the prior approval of the CA Institute/council. However, This is not the case any more. Although the council still maintains that a member holding Certificate of Practice (CoP) has to take prior approval, there has been major relaxations. The Chartered Accountants Act states that ;- A member of the Institute shall be deemed “to be in practice” when individually or in partnership with Chartered Accountants in practice, he, in consideration of remuneration received or to be received- (i) engages himself in the practice of accountancy; or (ii) offers to perform or performs service involving the auditing or verification of financial transactions, books, acco...

It was an unusual request for healthcare giant Dr Reddy's Laboratories (DRL). In 2006, Catherine Dulak, while relocating to India from the US with her husband who was to join DRL, insisted on bringing her seven pet cats along. The pharmaceutical company got the feline beauties shipped pronto in customised cages made on the basis of the specifications set by airlines and government agencies. From feline imports to gastronomic solutions to worklife balance, India Inc is ready to offer the moon to prepare the ground for a smooth blend of Indian operations with the acquired outfits. While non-Indian Infosys workers freshly recruited and posted in India get a chef specially flown in to cook food according to their taste buds, dal and curry are making their way into the office canteens of a Chinese company acquired by Mahindras. Welcome to the world of mergers and acquisitions and cultural integration. As India Inc's appetite for companies on foreign shores grows, it is fast realisin...

We all know and are worried about the weakening Rupee against Dollar. But RBI may let Rupee weaken against Dollar even if its inflationary in the short term. Besides, weakening Rupee is expected to reduce volatility on the external front. India is witnessing a High Current Account Deficit. this means that on a trade weight basis, there is a downward pressure on Rupee. Some (including the new Govt supporter the Samajwadi party) are asking the Govt to appreciate Rupee using Forex Reserves. But if Rupee is kept artificially high, it will widen the deficit by encouraging imports although it will make oil imports cheaper. This would lead to instability in the economy. Globally, economies are expected to follow tight monetary policy and the there are still signs of the US getting into a recession. This has led to a great uncertainty on the flows of funds globally. China was expected to appreciate Yuan and this led to hot flows of money in China. Consequently, this has led to instability in C...

A good financial modeler has the discipline of adhering to a list of guiding principles to help ensure that the development of the financial model achieves the desired results. By following these simple steps, a financial modeler should be able to build a financial model that is simple, accurate and most importantly consistent, to help build confidence in a financial decision making process. Financial Modeling Discipline can be acquired in all 3 stages of the financial modeling process: Specification Stage Design Stage Build Stage Specification Stage Be very clear on the effort involved and the dependencies before committing to deadlines - the financial modeling exercise is usually on the critical path! Get the algebra right — make sure all revenues, cash flow inwards and assets are positive while expenses, cash outflows and liabilities are negative. This will ensure that we rarely use the minus sign in formulae and can use the sum() function. Avoid all calculations that will cause cir...

A good financial modeler should also be aware that besides the most commonly used Discounted Cash Flow (DCF) approach and Market Multiples approach, there are a number of alternative financial valuation techniques that can be used to provide different viewpoints in a financial modeling and valuation exercise. Alternative valuation techniques, when used in combination with the DCF or Market Multiples approach, allow investors or business owners form a holistic view through multiple perspectives on the value of the business under consideration. Alternative valuation concepts include Asset Replacement Cost and Control Premium. Asset Replacement Cost Assessing the adjusted cost of replacing the useful assets of a business is a useful way of valuing capital intensive businesses such as those in the infrastructure and industrial related sectors. Control Premium The term “Control Premium” refers the the extra that typically must be paid to gain operating control of the business. An acquirer w...

Security Analysis Security analysis is about valuing the assets, debt, warrants, and equity of companies from the perspective of outside investors using publicly available information. The security analyst must have a thorough understanding of financial statements, which are an important source of this information. As such, the ability to value equity securities requires cross-disciplinary knowledge in both finance and financial accounting. While there is much overlap between the analytical tools used in security analysis and those used in corporate finance,security analysis tends to take the perspective of potential investors, whereas corporate finance tends to takean inside perspective such as that of a corporate financial manager. Equity Value and Enterprise Value The equity value of a firm is simply its market capitalization; that is, the market price per share multiplied by the number of outstanding shares. The enterprise value, also referred to as the firm value, is the equity va...