Value investing......

I am back after a long gap. I feel now is the right time to relook portfolio and add value to the portfolio….

Current state of the market

We are currently faced with unprecedented global financial crisis. The fall of large institutions and housing crisis in US has resulted in collateral damages globally. The slowdown has been witnessed in India which is reflected in decline in export growth, real estate demand, commodity prices and slowdown in several industries.

To deal with the current crisis and to provide impetus to economic growth Government has taken several initiatives like reduction in interest rates, providing banks easier access to liquidity and fiscal stimulus package.

An opportune time …

Believe that with correction in the market, global meltdown and slowdown in the economy, we are currently positioned at a point similar to April – Sept. 2003 on following parameters:

Economic cycle:* The industrial production growth was around 6% during April – Sept. 2003 and the IIP numbers are in similar range during April – Sept. 2008

Valuation:* The trailing P/E multiple during April 2003 was hovering around 10x and same is the case currently.

Sentiments: Investors were averse to investing in the market and easy credit was made available to kick start the economy. Government has taken initiatives to improve credit offtakes.

*Source: Bloomberg 

Wealth creation through “Value Investing”

Take advantage of current market condition by adopting the approach of “Value Investing”.

“Value Investing” is defined as buying stocks of company with strong management capabilities where

• traded prices are at a discount to their value of assets OR

• there is a potential of high dividend yield or earning yield

Criteria

Primary criteria for choosing the stocks for “Value Investing”

• Price to book value less than that of BSE Sensex OR

• Earnings yield (inverse of P/E) higher than that of BSE Sensex OR

• Dividend Yield higher than that of BSE Sensex

Though this requires a lot of analysis and patience, one has to start somewhere and there is no better time than this to start investing. Instead of making a huge purchase on a single day accumulate stocks, that you think will add value to your portfolio, on a daily basis.