Investing Reflections On India

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:              1)   “The market has a

About a year ago, we analysed the valuation of India's small and mid-cap indices to determine whether they were attractive for purchase by investors (see post below). Our analysis revealed that the indices appeared undervalued by historical standards. We decided to have another look at the current valuations of the indices to recap performance and determine the price attractiveness today. When we wrote our post last year, the small-cap index closed out at the level of 5,550.14. The closing level today is 7,006.73 – resulting in a gain of over 26% in a little over a year. So, how does this level stack up against the basic fundamental metrics of the underlying businesses?  Here’s a summary of the valuations sourced from the BSE website: Table 1: Annual valuations (2006 to 2012) Year High Low Close Price/ Book value 2006     7,872.80    4,480.45     6,892.32            2.05 2