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Many analysts and brokers are talking about start of great Bull Run. I have also read and heard about the index hitting 6700 levels in a year!

Let’s get clear with what index is even before understanding those numbers. Well, the index is simply a
weighted market, capitalisation weighted, index of prices of companies that make up that particular index. What that means is that as company prices move up and down, if they’re in that particular index they’ll move the index’s value.

For example, NIFTY index is made up of 50 heavy weight companies and represents almost 65% of total market capitalisation of the whole Indian equity market.

The whole mechanism or working of index is based on price movements in the market. Many investors focus on the index before investing. My advice to all of them is to think again; maybe they are focusing on wrong things.

Predicting price of any stock or index is like predicting the weather forecast for tomorrow. Some investors believe they can predict short term share price movements. We don’t have those skills (and are yet to be convinced that others do).

Many analysts are thinking that NIFTY is trading at the fair value today and are expecting an earning growth of 15 -18% for the 2013-14 financial year. Looking at those earnings growth they are predicting market to be in range of 6300 – 6700 (NIFTY).

Thirty one companies out of 50 companies that make NIFTY index had reported their half yearly results and we have witnessed so far an average growth of 10% in their earnings for the year end 2013 compare to year 2012 (We were expecting earning growth in range of 8 – 9%).

ACC

AMBUJA CEMENT

ASIAN PAINTS

AXIS BANK

BAJAJ AUTO

BANK OF BARODA

BHEL

CAIRN INDIA

DR REDDYS

GAIL

GRASIM

HCL TECH

HDFC

HDFC BANK

HERO MOTOCORP

HUL

ICICI BANK

IDFC

INFOSYS

ITC

KOTAK MAHINDRA

LARSEN

M&M

MARUTI SUZUKI

NTPC

PUNJAB NATIONAL BANK

POWER GRID

RELIANCE

SESA GOA

TCS

WIPRO

From the basket of those 31 companies, so far we found only 5 businesses that are trading at discount to its intrinsic values for the year end 2013 and you can conduct further research.

NAME

MARKET
  PRICE

IV

DISCOUNT

P/E(2013)

BANK OF BARODA

Rs 743

Rs 1227

39%

7.14

BHEL

RS 229

RS 284

19%

8.18

CAIRN INDIA

RS 334

RS 493

32%

6.42

GRASIM

RS 3361

RS 4436

24%

7.71

PUNJAB NATIONAL BANK

RS 755

RS 1201

37%

5.14

We also found eight companies that are trading at really unbelievable price as per our view.

NAME

PRICE

P/E(2013)

HDFC

RS 766

22.53

HDFC BANK

RS 630

22.50

HUL

RS 533

35.53

ICICI BANK

RS 1079

15.41

ITC

RS 283

28.30

LARSEN

RS 1675

19.25

MARUTI SUZUKI

RS 1465

28.73

RELIANCE IND

RS 807

14.16

As a value investor I think NIFTY is over stretched on its values. Even though there are few patches in NIFTY for further research. I don’t know where market will go tomorrow, but at these prices we are sitting tight and observing market very closely.

What do you think? If you have any views on the above discussed businesses or any insight, please do share with us your rationale behind it.