Nikhil Kale - - Team MoneyWorks4me
It was October 2009 and the MoneyWorks4me.com team was busy valuating companies which had released their latest quarterly results. This was a time when Sensex was hovering around 17,000 levels. All news items suggested a probable correction in the markets. Even we thought that the Sensex PE was on the higher side. But there was no way to be sure. This made us think. How can we say for sure whether the Sensex is actually overvalued? Was it really time to sell your stock because of the fear of another correction?
We are used to seeing the Sensex fluctuate every minute. It may be due to news, sentiments, rumours about Anil Ambani attending Reliance Inds. AGM, the world celebrating China’s move to free their currency and other such events. All of us experienced this when the Sensex reached the all-time high of nearly 21,000 in January 2008. And then we saw absolute mayhem in the later months with the index hitting 8,500 in November 2008. The market then rose only to double-dip in March 2009 before it regained composure. Then, within 6 months the Sensex had doubled. In retrospect, all of us love to say, “I told you man. 21,000 was THE peak!” But, at that time most of us stood starry-eyed, believing Sensex would touch 30,000.
And so the question arose. Can we find “The Right Value” for the Sensex?
We at MoneyWorks4me are ardent followers of Benjamin Graham who said, “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” Over a longer period, the market will invariably reflect its intrinsic value based on its earnings. But is there “a weighing machine” which can give us the intrinsic value for the market as a whole? We at MoneyWorks4me provide the intrinsic value (MRP) for all listed Indian companies. So, wasn’t having an intrinsic value for the Sensex as a whole the next logical extension? If we could do this, we would have a tool that could enable us to enter stocks at bargain levels and help us exit when things start getting over-exuberant!
The task at hand was huge. But we knew we were on to something big here. So, we got to work! A lot of work actually! We read voluminous data on the Sensex. We got real time and historical data from the BSE website. We analysed and valued the Sensex companies, crunched numbers and skipped our lunch! But we were determined, more than ever, to find the solution. And we got the solution! It is
Sensex@MRP – The Right Value for the Sensex!
A solution which could help you ascertain whether the market is over-reacting or under-reacting, whether it is grossly depressed or irrationally exuberant. A solution which could help you not lose your shirt in the Stock market and infact can help you make handsome returns.
We were ecstatic. We finally had our lunch!
But how exactly did we find the solution? And do we have any proof that the solution works? Yes, we do! But let’s not jump the gun. All these questions will be answered in the next blog.
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Team-MoneyWorks4me
Aliya Sayyed
the information given by money works4me is very good and indeed its helping investor in creating wealth and lot of knowledge for many who are recently entered in stock market.
Basics boss, basics are to be / should be the cardinal rule for stock selection. Right company, passionate management working as if nurchering their baby, thoughtful decision making, “doing what they know and knowing what they do”, ability to earn and willingness to share- both traits displayed by them. These are factors outside the annual report. earn for a lifetime by investing in them at their first/second gear stage, and then drive the third and top gear of multiple gains.
Ca. Dinesh Kotecha / Vasai
First of all would like to congratulate the team of money works4me for their good finding,which will helpful to the invester in trading at correct timings.
Thanks a lot. We hope to continue this in the future and ensure that more and more people invest sensibly in the stock market.
You are spot on in your observations. We also believe in these things and consider them while evaluating individual companies.
Thank You Sir. Do check out our story in Outlook Profit magazine and give your feedback.
The efforts put in by the moneyworks4me team, to accomplish a task as herculean as attempting to accurately follow a market index, is certainly laudable!
Just out of curiosity – Why the Sensex? Is the Nifty not a better indicator? Its a broader market index and certainly more liquid. If the F&O contracts (as per defn) hold some credence, the Nifty is certainly heading towards the 'market rated' price (an MRP in itself, albeit arrived upon differently) 🙂
Either which ways, kudos to the efforts put in by the team. Will be on the lookout for updates in this space.
PS: I am slightly prejudiced about BSE products, including their Index 🙂 Thus the rant.
Sunil
@sunildrajan
Thank you Sunil for the encouragement. Sensex was just a starting point taken due to its wide following as the benchmark of the Indian economy. Our aim is to have a similar MRP for all the indices present. And of course the next index in our sight is Nifty. We hope to come out with a Nifty@MRP soon.
Why did you focus your effeorts exclusively on the sensex. Why not other exchanges as well.
Sensex was just a starting point taken due to its wide following as the benchmark of the Indian economy. We have now come out with a report on Nifty@MRP similar to Sensex@MRP. You can get the report by becoming a fan of our page on Facebook. Click the link given below to go to out fanpage
http://bit.ly/a1xoOK
Its the most ridiculous thing to search on mother earth, the value of the sensex. The sensex is made of companies and the dynamics change as companies come in and go out, 75% based on market cap, whats the point chasing an index, you would rather buy the stock lower before it becomes part of the index. Its best to remain stock specific rather than looking at the index, just take a look at the 52 week highs many stocks are making and we haven’t seen the high of 21000, interestingly the current market cap of all companies is higher than now as compared to when the index was 21000, so please stop fooling yourself.
Dear Sir,
This is a great effort. Like you mentioned in the beginning of this article, it is the idea which is not only fascinating but will also benefit thousands of investors in this country. Good approach. I read with interest most of your blogs and article. Thanks for the yeomen service.
Thanks a lot for your appreciation and encouragement! Our mission is to educate the retail investors about the best way to invest in stocks. And we hope to get better and better at doing it. Do keep on reading our blog and encouraging us!
Sensex is the bellwether for anyone tracking the market. Though it is composed of just 30 companies, it is a good gauge of the overall market mood. So, if the Sensex gets hit, there is a very high chance that even the smaller companies get clobbered. Any major movement in Sensex affects almost all the other stocks. And as investors wouldn’t we be better off knowing whether there has been a fundamental change in the Sensex companies or it is just the market sentiments in play. If the Sensex crosses the Sensex@MRP most of the companies will very likely be overvalued and will be quoting above their MRP as well. It thus helps us to ascertain whether it is the earnings growth which is driving the Sensex or has irrationality taken over. We are confident that it can allow many investors to take better decisions while investing in stocks.
Commendable, what parameters do u use to calculate MRP
MRP is primarily dependent on the earnings capacity of a company. You can read more on which parameters does MRP depend on our post on MRP. Please find the link given below
http://bit.ly/b24Pv9
Do post your feedback and queries!
Such a tool will definetly help in maximising gains and minimising losses…..
Such a tool will definetly help in maximising gains and minimising losses…..