Thanks for leaving the comment. Your approach to intrinsic value was a good read. I think any analysis one does needs to be put in proper context of its objective. I tend to believe standalone analysis on few variables does not show a proper picture. Few comments:

(1) My observation is about “fair valuation” and not “intrinsic valuation”. I have mentioned many times on this blog, fair valuation is what I would be willing to pay (which is not necessarily intrinsic valuation).

(2) At the time when this post about SENSEX fair value was posted, SENSEX was in the range of 15000 to 15600. Since then index has moved to 17000. So assuming 14.2% overvaluation on Oct 4, then even at 16000, the overvaluation would come down to 6% to 7%. Does it make sense?

(3) In your valuation approach, you have used certain assumptions about various growth percentages. With those assumptions, I would tend to believe 6% to 7% can be easily be attributed to standard deviation or error rage. Unless you think 14.2% is a finite point without any range.

(4) trying to calculate intrinsic value of the index is very dicey subject. because index have both good and crap companies. Plus the way SENSEX gets revised every year, with additions and deletions, survivorship bias is very critical. I have observed that SENSEX tends to throw out companies with temporary bad performance, only to take it back after few years.

Again, please note, I am not critiquing the growth and ROE approach you have used. I think that is one way at looking at it.

Numbers are just numbers. They do not tell you anything. It is the interpretation in a given context what makes them useful.

I just finished SENSEX fundamental valuation estimating its intrinsic value based on fundamentals, if interested can download from
http://www.scribd.com/full/20584628?access_key=key-di0w6tj1vuu7xxhn2f6

yes, it is likely, but not necessarily true.

Best Wishes,

Good summary and pretty unique way to compare with SENSEX. Since you are value investor does it mean there could be opportunities in Capital Goods, IT, and Telecom?

thank you in advance.

Newbie

It is time consuming. But then, hard work pays off. And who said, success comes easy

Best Wishes,