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On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013.
We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future.
The small-cap index closed at 11,087.07 on December 31st, 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date.
This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period. 
This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today”.
Of course external events have pla…
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Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions.
We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information.
The small-cap index closed today (17th December, 2013) at 6,150.65 with an indicated price to book value of 1.04.
The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today.
The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013.
This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year.
In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:       1)“The market has a tendency to over-react to negative news”:  The m…

Under the Radar: India's Small-Cap Equities (Part Two)

About a year ago, we analysed the valuation of India's small and mid-cap indices to determine whether they were attractive for purchase by investors (see post below).
Our analysis revealed that the indices appeared undervalued by historical standards.
We decided to have another look at the current valuations of the indices to recap performance and determine the price attractiveness today.
When we wrote our post last year, the small-cap index closed out at the level of 5,550.14.
The closing level today is 7,006.73 – resulting in a gain of over 26% in a little over a year.
So, how does this level stack up against the basic fundamental metrics of the underlying businesses?  Here’s a summary of the valuations sourced from the BSE website:

Table 1: Annual valuations (2006 to 2012) Year High Low Close Price/ Book value 2006     7,872.80    4,480.45     6,892.32            2.05 2007  13,376.80    6,001.33  13,348.37            2.78 2008  14,239.24    3,221.70     3,683.11         …

Under the Radar: India’s Mid-Cap and Small-Cap Equities

Indian stock markets have been one of the worst performers in 2011 – worse than their BRIC peers, worse than the rest of Asia and far worse than the US with the leading indices declining about 25% during the year.  Foreign investors in India have also suffered substantial declines of nearly 20% in INR currency value.
There appear to be several reasons for the market’s dislike for Indian equities in 2011, which include persistent inflation (including food inflation, which constitutes the major proportion of the typical Indian household), political paralysis (e.g. rollback of foreign investment in retail etc.) and global concerns about the solvency of several Eurozone countries.
As a result, estimated GDP growth for the next financial year has been revised downwards from about 8% earlier in the year to about 6% now - with many market commentators wondering whether this rate of growth is India’s ‘new normal’.  This is still, however, substantially higher than global average.
The world h…