Investment Valuation in India

Generally speaking, value is often used to refer to the "price" at which the asset is sold in the market. However, particularly, in case of investment analysis, the price of the asset is different from its intrinsic value. Let's understand this in simple terms. If you've been walking in the desert without water for 2 days, you'd be dying of thirst. In such situation, a glass of water would be invaluable for you. Although the price of a water bottle is Rs 20, you could be willing to pay even Rs 100 for this bottle. So for you, while the price is Rs 20 but its value could be as high as Rs 100. The Investment characteristics of the asset are major determinants of value. The Intrinsic Value of any asset is the value of the asset assuming that the valuer (analyst or investor) has complete understanding of the asset's investment characteristics. For any investor, the intrinsic value reflects his true value of the asset.

The Discount Rate is a general term referring to any rate that is used in finding the present value of a future cash flow. it reflects the return or compensation required by an investor for a) delaying consumption (represented by the risk free rate) and b) assuming risk of cash flow Different discount rates may be used for different expected future cash flows. This is possible due to varying rates of inflation and other factors that may affect the future cash flows. However, for simplicity, generally a single discount rate (required rate of return) is used in most cases to discount future cash flows to appear at the present value of future cash flows.