Stock valuations, measured in terms of priceto-book value (P/BV), of a third of the 50 companies making up the Nifty index are at their five-year lows, signalling a prolonged bearish phase at the market.
A low P/BV ratio could indicate a stock is undervalued, but analysts do not see a buying opportunity in the Nifty stocks as yet because they expect the bearishness to continue.
P/BV is a ratio is used to compare a stock's market value to its book value and is calculated by dividing the stock's current closing price by the latest quarter's book value per share. A low P/BV ratio could mean that a stock is undervalued. It could also mean that something is fundamentally wrong with the company.
About 15 Nifty stocks, including heavyweights Reliance Industries, Bharti Airtel, Larsen & Toubro, NTPC, and Bharat Heavy Electricals, were at their fiveyear low P/BVs of 1.62, 3.11, 3.03, 1.95 and 3.01, respectively, on January 4 compared with peaks of 4.17, 7.75, 9.28, 3.09 and 9.34. Of the 15 stocks, three - Reliance Communication, Reliance Power and Reliance Infra - belong to the Anil Ambani group.
Usually, P/BV of 1-2 is considered fair to reasonable valuation. A ratio of above 2 indicates overvaluation; below 1 suggests attractive valuation. "In the time we are passing through, when many stocks are trading at P/BV of lower than 1.5, investors are still not ready to put in money due to external factors. Our market is fairly valued at the current level, but mood continues to be negative across the world," said Saurin Shah, MD of Saurin Financial Services.
Kishor Ostwal, CMD, CNI Research, said in a bearish market, price-to-book value has no relevance. He said P/BV will be a guiding factor for investors with a 12-36 month horizon. But, Shah feels P/BV is relevant as institutional investors always take it into account while making investment calls.
Source: www.economictimes.com
Thanks,
Gaurav Agarwal
Head Dealer
DENIP Consultants Pvt Ltd
No comments:
Post a Comment