Valuing the S&P BSE SENSEX: All is Fair in Love and Markets


(Dinesh Sairam) #1

I was always amazed at how Prof. Aswath Damodaran could find methods to Value anything that moves (Kidding, of course). One of those moments came a few months back, when I saw and read the way he came with an innovative method to Value the S&P 500 Index based on a sort of Dividend Discount Model: Valuing the S&P 500

After many months of idle admiration, here’s my naive attempt at replicating that model. I have tried to find the Market-implied Fair Value of the S&P BSE SENSEX using market metrics like Dividend Yield, Risk-free Rate and Equity Risk Premia. All comments and criticisms are solicited.

The Model (You can download the file via File -> Download As)

I also made a blog post on the same:

What with debates raging on about whether the broad market indices are overvalued are not, I thought this would be the perfect time to do this. I hope this sparks some interesting conversations.

Yours truly,
A humble student of Valuation


(axiskumar) #2

respected sir,

Please write some more details in DCM method in valuemotion…i am really struggling to know which value bought it from annual report of which column…

Please re-write blog to understand layman like me


(Dinesh Sairam) #3

Hi,

I have provided the following screenshot in the blog, which shows where the information have been picked from:

Immediately below, I have mentioned where I have obtained this information:

I will explain in short where I obtained all this data:

2017-18 Q4 Report / Full Year Results

Sales
Previous Sales
Operating Income
Depreciation
Minority Interests (Actual Minority Interests of 4.27 multiplied by 4.5, the Basmati Rice industry’s average P/B Ratio)
Equity
Debt
Cash
Cash Equivalents
Number of Shares

Other Online Sources

Cost of Debt (AA Rated Corporate Debt instruments are trading at a range of 7.5%-8.00%)
Company Beta
Industry Beta (Kohinoor and LT Foods)
Industry D/E (Kohinoor and LT Foods)

Assumed

Tax Rate (Assumed at 25%, the Corporate Tax Rate in India)
Indexed Returns (Long-term CAGR of NIFTY chosen over the short-term CAGR which is too high at 25%+)

If you still have doubts regarding a specific figure, please reach out to me,


(Dinesh Sairam) #4

Sorry about the double post. I made a blog post of the same, to help clear up things about how I went about doing this:

Blog post link added to the original post as well.


(axiskumar) #5

Sorry to say this…none of the fields i am able to understand where to pick up…


(Dinesh Sairam) #6

I’m not sure how I can help you further. I’ve provided a screenshot. I’ve given a note of where I’ve taken the data from.

I’m sure if you go through the Q4 Report, you’ll notice the figures.