Fairval

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Stocks now coming below book

Posted by fairval on October 11, 2008

Mint pointed out yesterday that 25% of BSE500 stocks are quoting below book value now. The average P/B for BSE500 is around 2 at the moment. If I recollected correctly, at the start of this bull market, P/B was less than 2, maybe around 1.5 or so. Can it reach those levels? It can, if say we have a sideways market for another 4 quarters or so. A little downward correction in P, and upward movement in B, we can get to a P/B of 1.5 or so.

But, even now, many quality stocks are below book. For example, Hindalco. Unless i checked something wrong, it is quoting at a price of Rs 80, which gives it an M Cap of around Rs 9800 crore. Its book value is Rs 190. I dont know how the co got to be so cheap, last I saw it used to quote above Rs 150. These level are cheap considering the company has cash of around Rs 9000 crore (tho there is debt of maybe over Rs 7000 crore).

Chennai Petroleum at Rs 160 is almost 60% of book, gives 10% dividend yield. Tata Chemicals quote at book, and is has a dividend yield of 5.6% at this point. IDFC has come down to book value. Most banks are well below book. Central Bank is almost half its book. Gujarat Ind Power is come down to Rs 45 or so, around 0.6x book.Deepak Fertilisers is at 70% of book, and 6% dividend yield.

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