Investment in Indian Sectors: Price Multiple Perspective

Abstract

The case presents a situation wherein an investment company based out of US wants to increase returns to its investors and how it chooses to invest in emerging markets. Then the case proceeds with a unanimous decision by the management to invest in Indian economy. It shows how the fund manager goes about selecting the valuation technique namely, Relative valuation for decision making. There is a comparison being shown of relative valuation versus discounted cash flow (DCF) technique and why relative valuation is chosen over DCF. Further, it shows how the fund manager analyzed various sectors based on price multiples. The sectoral analysis of 18 sectors of BSE 500 Index has been done for a total period of 1990–2010 and three sub-periods. The case also highlights the importance of normality test before making decisions on the basis of summary statistics of price distributions. Finally, the case provides a decision situation to students in which they have to decide which sectors to choose for the investment and they are also required to provide a rationale of their choice.