Global Indices

I normally devote most focus on domestic markets but while checking the performance of global indices (Link to the BBC article I read) yesterday I was somewhat surprised by the extremely poor performance of the Indian stock market (BSE SENSEX). The index as a whole is down 24.6%, making it one of the worst preforming markets of 2011. An even more alarming fact is that the INR (Indian Rupee) has become 17.5% weaker against the dollar in 2011. Making the real rate of return of the SENSEX -42.1% a quite astonishing move downwards. In 2011 Indian companies earned 1003 points on the SENSEX, which is 7% of the index value. Since most companies in the SENSEX do not pay dividends (Yield of 1.2%) a majority of these earnings were retained and improved shareholder equity by 5.8%. Therefore as its stands today the SENSEX is a jaw-dropping 47.9% lower than at the beginning of the year.

Remember cheaper does not always mean better, nor does it mean that the SENSEX will recover in 2012, but it is certainly something investors should keep in mind. One of the most accredited experts on valuation Aswath Domodaran (Link to his blog) has said that situations such as these provide opportunity. His rational being that there are fundamentally sound companies traded on the SENSEX that obtain a majority of their revenues globally and are therefore largely protected from the general state of the Indian economy. The stock of these companies however is exposed to the wrath of the general SENSEX index. Meaning that the stocks of these companies goes down with the SENSEX which reflects the state of the Indian economy, when in fact these stock are for the most part independent of the Indian economy and are exposed much more on the global economy. Over the next few months I will try to identify some of these companies and may take positions in them.