Market Matrix: Indian Stock Market and Nifty, Sensex expected levels this year
By krsna Khandelwal - A Stock Market Vedic Theory proponent
Friends,
You were given an analysis as per the 17 Mar 06 most traded stocks (BS 200) yesterday in terms of market capitalisation, PE multiples and P/BV ratio together with RoCE . The findings were discussed in detail to find meaning in to it. I have in the mean time sorted the BS 200 (the most traded stock covered by the Business Standard) as per trading on 22 Mar 07 and I am pleased to post the finding hereunder for your benefit and making sense out of it:
* Out of the 200 most traded 91 have scaled above Rs 5000 Cr market capitalisation in each case ( last year the number of such companies was 74 out of total 200).
* Of the 91 as many as 61 companies had PE ratio in excess of 15 ( last year such companies numbered 55 out of 74).
* Of the 91 as many as 49 had the P/BV ratio of more than 5 ( last year such companies numbered 40 out of 74).
* Of the 91 as many as 53 had RoCE in excess of 15% ( last year such companies numbered 28 out of 71).
The result conform to the popular impression that the market values have gone up , that the return on capital employed has improved and that book values have improved as while additional 15 stocks crossed 5000 m/cap mark only additional 9 stocks were added in terms of more than 5 price to book value and only additional 6 stocks were added to the list in terms of price to earnings. Still more importantly 25 companies improved their return on capital employed adding to the figure of 28 last year and making the total of such companies as 53. On all three parameters the improvement has reflected and there fore it may be safely said that the markets in Mar 07 were not way off the real strength in comparison to Mar 06. The rebounding has come about on solid ground and if the results are generally OK the upward bias in the markets will be noticed. The passage of time gives strength to companies fundamentals as the profits retained are deployed and the new capacities add to turn over. The profitability is not the only basis for the better market price, the capacity to generate revenue and other likely things impart strength to share price.
The Panch Tattva Teknik appreciates all this and therefore give very accurate rating to companies. Last year the Indian corporates gave fantastic performance and supposing the growth rates are maintained even at half the rate of last year, the year is bound to close above 4500 Nifty points and above 15000 Sensex points . My recommendation to you all is to be increasingly in to equity every pasing day.
Hari Om
BIRDINFO Stock Rx - A Vedic Prescription for stock market
Monday, April 09, 2007
Market Matrix: Indian Stock Market and PE,P/BV & RoCE of companies
By krsna Khandelwal - A Stock Market Vedic Theory proponent
Friends,
Let me take this occasion to give you the result of an interesting study of the top 200 traded items covered by Business Standard on 17 Mar 2007.This is to find out as to how many of these companies had the market capitalisation of over Rs 5000 crs, how many had PE ratio of more than 15, P/BV ratio of more than 5, and how many had the RoCE of more than 15%. The following facts emerged :
A) Out of the 200 companies, 74 companies were found to have more than Rs 5000 crs market cap.
B) 55 companies of the 74 had PE ratio in excess of 15.
C) 40 companies of the 74 had P/BV ratio of above 5.
D) 28 companies of the 74 had more than 15% RoCE.
The PE of 15, P/BV of 5 and the RoCE of 15% have significance in the sense that the ratios beyond this are mostly due to extra weightage given to companies in respect of the P/E and P/BV ratios. The 15% RoCE mark is significant in the sense that a healthy company should be returning more than this much and returns below this are mostly now favoured for good discounting. The following is the verbatim reproduction of what I thought at that time an year earlier (we will analyse after undertaking similar study as per the Mar 07 figures):
[These figures give very alarming state of Indian Economy in terms of some thing not happening which should actually happen. In case we justify the PEs of more than 15 as being OK for an up-beat economy, how do we explain that returns of more than 15% on the capital employed have not attracted capital investment in businesses of these companies but only have attracted investment in to already issued capital stock of companies. Surely, the RoCE of more than 15% is attractive enough for investors in an atmosphere where bank rate is 6%, long-term yield have been under 7% on govt. paper and PLRs of banks have been under 11%.
It may have been OK if it was just the beginning year of better returns. The RoCE is good for about two years now. Let us suppose the time leg is always more pronounced in big and developing economies than there is going to be substantial addition to productive assets to the present assets. This would expand production in those lines of businesses hence the supply will improve. In a short span of time this additional supply can be absorbed at a lower pricing only, denting the bottom line after servicing of the freshly employed capital. This would distort the ratio further and would erode the capacity of company to maintain the debt equity ratio making enterprise too risky for investment in both ways i.e. in shares and in business.
Besides above the P/BV ratio of more than 5 for almost half of the 74 companies under study reflects price distortion on account of optimism at the highest level. Since the BV tends to catch up with price in the long run, the dividends would have to declare at minimum possible level. Since the dividend yields are already ridiculously low for most companies, with improving share prices dividends have to increase in absolute terms at least, if not as a percentage of the market price. The increased dividend distribution level will not allow the book value to catch up with price in long run. The patience of the investor will thus be tested in times of bad political atmosphere and in times of the inflationary pressures and more so in times of recessionary economic scene.
I have tried to explain to the people in a manner where only common sense is applied, one need not be an economic wizard to understand it.
Lastly, I would draw attention to the fact that not even 50% companies have market cap of over Rs 5000 crs out of the most traded 200. This is the reason the supply of stocks is insufficient to satisfy the need of the investors who have earlier made hefty profits in last three years and have tasted blood. Their blood will be on street if they do not check flow in to the limited pool of Indian stock market, be foreigners, and be Indians.]
After going through above you may well nigh understand that inspite of the dream returns that the year 06-07 posted in terms of the PAT and sales the indices could not maintain the ratio of advance. The weakness was embedded in the euphoric mood of the market in earlier times. You may well assess the fall out in case of the weaker profits in the year 06-07. My advice to you all generally had been to remain cautious against this back ground study added to which other matters that have been discussed from time to time. The result of the study based on March 07 figures would be brought before you on 10 Apr 07.
Hari Om
BIRDINFO Stock Rx - A Vedic Prescription for stock market
