Monday, August 24, 2015

Why India is still expensive Sensex @ 25,000 ( just 20% down from peak )

Munger uses opportunity cost as a very frequently used tool.

Munger opines that if you have the opportunity to purchase an investment that is better than 98% of all businesses, then you can use it as a filter to automatically eliminate the other 98%.

Ultimately in the long run, investing world is full of toads that do not transform to princes.

I wrote in 2013 about Unilever Nepal @ 10,000 NPR / share. The company is growing @ 20%, not less than it grows in any other emerging country.

Now, after two years of irrational bull market (not backed by productivity improvement) companies are over priced on every continent.

Unilever Nepal (where FII investment is not allowed) is also trading at reasonable valuations (22 PE from 12 PE two years back) on back of 20% growth, it looks quite affordable. 

The company has lions share of FMCG market in the country, pays out 100% of dividends, in fact, Royalty is also paid as dividends, hence a minority investor wins more. This years' dividend is whopping 990 Rs a share giving a 4% yield on closing market price of 26,000 Rs yesterday.

Year Revenues Net Profits Crores * # of Shares** Earning Per Share *   * In Nepal Rs
2002 6.75 920,700 73  ** Face Value 100 Nepal Rs (Hindustan Unilever owns 80%)
2003 Growth 25% 4.25 920,700 46.28 40 Rs Dividend
2004 9.31 920,700 101.38
2005 12.7 920,700 138.3
2006 18.91 920,700 205
2007 23.81 920,700 259 220+ Rs Dividend
2008 145 26.3 920,700 286 250+ Rs Dividend
2009 214 33.5 920,700 364 300+ Rs Dividend
2010 290 51 920,700 555 350+ Rs Dividend
2011 337 61 920,700 664 400+ Rs Dividend
2012 420 70.26 920,700 763 680 Rs Dividend
2013 472.47 83.13 920,700 903 760 Rs Dividend
2014 920,700 1000 860 Rs
2015 920,700 1200 990 Rs Dividend

Not bad, the price has gone up 150% in two years + dividend yield is 4%, and company continues to look cheap..


While I appreciate you may not be able to buy Unilever Nepal, but any citizen of any country can still buy NSE Kenya (on they way to become my biggest single holding anywhere) which has 100% control over equity (futures, commodity, derivatives soon) markets in Kenya.

The company is expected to grow over 25%. INR / KES equation does not look that bad. You will be astounded to note the PE ratio, 12 times earnings. This is not an asinine FY25 scenario, its TTM earnings. I wrote about this opportunity here . Serious enough people would act rather than analyse

Having found near monopolies at 12 and 20 times earnings with same country demographic and growth characteristics as India, these companies will be drowning in cash, wouldn't you call that opportunity cost. These companies are proverbially as strong as the a Portfolio of Three Companies Munger keeps talking about. 

You have 15% growers like Blue Dart trading @ 80 times earnings, 3M at 100 times earnings, a 15% growing Asian Paints at 65 times earnings, and a troubled Zero growth Commodity Stock Exchange MCX (just because its monopoly) at 45 times earnings. If India is not expensive, then which countries' equities are expensive? I see, you are asking me to buy 3rd tier companies. I wrote to a number of people whom I advise to expect Zero returns in India in next two years. IMO India is still very expensive.


  1. Very True Amit. Lately the small cap mania we had in India was actually looking scary . Its a Déjà vu of 2006,2007 where every paanwala started giving recommendations to buy all those power , infra shares . Only difference is that Twitterwalas took place of paanwalas.Haha.

    1. You said it all, micro caps did better than small caps, which did better than mid caps which did better than large caps. Time to permanently lose money in micro caps now.

  2. agree amit. still doesn't look cheap. could you tell how does one open an account there?. two more questions.
    1. looks like hul is not listed there. are u referring to some other company?
    2. isnt there a risk of cheap reaming cheap?

  3. Hi Amit, For my sake and for the sake of all who read ur blog and wants to purchase shares of NSE kenya, who might have a query in their mind.
    How do one purchase shares of NSE Kenya? if u can detail out please

  4. To Invest in Africa you can open account from IMARA

  5. Hi Amit,

    How would you attribute scarcity of quality companies listed in Indian market for this high valuation.
    Sorry if my question is naive


    1. Dear Fasil

      Quality companies are always scarce.

      There are less than 100 listed companies on earth which have done 22% CAGR in sales and profits, and 22% ROE for the past five years.

      Its time for some reality check and period of under-performance



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