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Playing by the Book and more

Nov 5, 2008

Playing by the Book
That stocks on Dalal Street have been beaten and hammered out of shape is probably old news. But allow us to put some numbers to it. As per an analysis on most actively traded stocks (1,600 to be precise) published in a leading business daily, around 55% of the stocks are currently being valued by the stock market below their book value! What this essentially means is that if one buys into the complete equity of these companies and sells the assets in the open market, one could take home a pretty handsome profit. The study further reveals that the discount to book value increases as the market cap decreases. In other words, there are quite a few mid-cap and small-cap firms that are trading at a steep discount to their book value.

While the current opportunity to buy into stocks with attractive growth prospects is indeed once in a lifetime, we would like to add that book value could be a misrepresentation of the true value of the company in quite a few cases. For example in companies with technologically obsolete plants, actual book value could turn out to be a lot less than what the balance sheet might imply. In other cases where companies have a lot of real estate bought many years ago, book value could turn out to be a lot more understated. Similar study needs to be conducted on other assets like inventory and receivables. Thus, while investing in a company based on book value, don't just go by the book.

Democrat 'Obama' is the new US President
The citizens of the most powerful nation on earth have settled a debate on the most turbulent political battle in recent times. A Democrat will finally move into the White House after a long wait. Barack Obama will take over from George Bush and will become the 44th US President, the first ever African- American to do so. Although the US Presidential elections is one of the most watched global events, its intensity has increased manifold this time around as it has coincided with a financial crisis of epic proportions.

Just to put things in perspective, a survey by the International Herald Tribune (IHT) revealed that six out of every 10 voters cited the economy as the most important issue with things like the Iraq war and health care being put firmly on the back burner. As far as its impact on India is concerned, many experts are of the opinion that irrespective of who moves into the White House, Indo-US relations are only likely to strengthen given the global geo-political climate and economic power shift that is currently underway.

Few takers for 'Incredible India'
When people start tightening their purse strings, they cut back hugely on discretionary expenses. And what else could be more discretionary than tourism. Despite the rupee shedding one fifth of its value in recent times, slowdown in developed economies has started taking its toll on the Indian tourism industry.

Furthermore, terrorism related fear, especially in the aftermath of the terrorist bombings in big cities recently are also not helping matters. As per a leading business daily, travel firms and hotels in India are expecting businesses to drop 10% to 20% in the travel season that started in October.

In fact, sensing the trend of negative new bookings especially for leisure travel, most of the companies engaged in such activities have already started tightening their belts. Although these companies are looking at new markets to offset decline from the Europe and US, the overall growth might still be negative. Whoever thought India is immune to global economic slowdown, try asking these companies.

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