India Pakistan Comparison 2010

[TechLahore]

Tech Lahore before you jump up to add your 2 cents, I would like to know your views about Riaz's argument.

1. Indian markets are bloated and overpriced. A correction waiting to happen.

2. The accounting system of Indian companies is a gimmick.

3. The market cap to GDP of India is equal to unity and thus overpriced.

Thanks in advance

1. Not in the short term, but I think there is a mid-term correction risk, yes.

2. Don't know enough about this. Yes, the Satyam scandal made the headlines but I really don't know much about the intricacies of Indian corporate accounting. If I am not mistaken, there was some auditor hanky panky involved in the Satyam case too? But again, I don't want to generalize.

3. I don't want to speak negatively of the SENSEX, but personally I would rather invest in a market where the MCAP << GDP because I believe in value investing. The US is somewhat of an outlier because of its stability and historic ability to attract massive amounts of capital from all around the world... therefore, I would rather not compare the SENSEX or KSE to American markets.

 

[ramu]

1. Not in the short term, but I think there is a mid-term correction risk, yes.

2. Don't know enough about this. Yes, the Satyam scandal made the headlines but I really don't know much about the intricacies of Indian corporate accounting. If I am not mistaken, there was some auditor hanky panky involved in the Satyam case too? But again, I don't want to generalize.

3. I don't want to speak negatively of the SENSEX, but personally I would rather invest in a market where the MCAP << GDP because I believe in value investing. The US is somewhat of an outlier because of its stability and historic ability to attract massive amounts of capital from all around the world... therefore, I would rather not compare the SENSEX or KSE to American markets.

Good to know where you stand.

 

[Agni 5]

Netsol is not blue chip. Netsol is also not even close to being the largest Pakistani company. Just goes to show that listing on the NASDAQ doesn't mean a company is a top performer or the "largest".

Aside from the US market, a huge number of Pakistani companies are active in the UAE, over 6,000, in fact.

6,000 Pakistani companies operating in the UAE. Pakistanis have invested 6.7B Dirhams in Dubai real estate. | TechLahore

Post 1998 and sanctions etc. I don't think many business men from Pakistan have looked at the US as a safe destination for their capital. On the other hand, in the UK, there are several large Pakistani companies, for example, the Billionaire, Sir Anwer Pervez' Bestway Group:

Anwar Pervez - Wikipedia, the free encyclopedia

Pakistani companies such as OGDC, PTCL, PSO, Nishat Group etc all have billiion+ $ market caps even though they are grossly undervalued. If you apply South Asian average P/Es to the KSE, you will see that a significant number of Pakistani companies (including the above named) will automatically exceed the Fortune 2000 threshold. In fact, several of them are/have been on the list in the past.

Coming to IT, since you used the Netsol example, one of Pakistan's bigger tech companies, Wordcall, sold roughly half the equity in some of its operations (they have several subsidiaries) to OmanTel for almost $300M. It's current estimated valuation is between $650 and $1B.

Wateen Telecom is another tech company which recently IPO'd and has a valuation in the hundreds of millions of dollars. The Warid/Wateen consortium easily crosses a billion.

Netsol is the only software company listed in KSE. I don't see any other software companies in KSE.

Listed Companies : The Karachi Stock Exchange

 

[ramu]

OK, let me explain this amazing magic ratio of GDP to Market cap.

GDP and market cap are correlated but tells nothing about a country with only a small percentage of public limited companies when compared to the companies that are privately held. The market capitalisation of a company that is held privately is not defined and the number of such companies are atleast 3 times the number of companies that are available for the general public to have shares.

Even today, Indian public rarely participate directly in the secondary market and look at investment in share market as a gamble. With less than 5&#37; of the population participating in the secondary market, the market cap is a non issue and has nothing to do with the GDP figure. The ratio is affected by a large extent with no economic change but a simple conversion of privately held companies announcing IPOs.

TechLahore, Riaz: I am sure you guys want to show your country in good light but that will be counter productive if you come up with unusual theories not acceptable in any economic forum.

Bottom line : I think you guys are trying too hard to find a problem with the Indian economy.

 

[TechLahore]

TechLahore, Riaz: I am sure you guys want to show your country in good light but that will be counter productive if you come up with unusual theories not acceptable in any economic forum.

What theory of mine are you referring to? You might be looking too hard to find a critic...

 

[ramu]

What theory of mine are you referring to? You might be looking too hard to find a critic...

Your theory of value investing based on GDP to Market cap !!

 

[Agni 5]

I don't see any co relation between market cap to GDP.

Company market cap is based on companies future earning potential.

GDP is current and just happened for whole country.

 

[TechLahore]

Your theory of value investing based on GDP to Market cap !!

It is not my theory.

Stock Market Capitalization To GDP Ratio

In simplest terms, if you think of the mcap of the main national bourse as the "valuation" of the country, and the GDP as the revenue, analyzing ratio is as rational as arriving at corporate valuations as a multiple of revenue. There are other factors, of course, just as there are in corp valuations, but ceterus paribus, there is a correlation.

 

[Agni 5]

It is not my theory.

Stock Market Capitalization To GDP Ratio

In simplest terms, if you think of the mcap of the main national bourse as the "valuation" of the country, and the GDP as the revenue, analyzing ratio is as rational as arriving at corporate valuations as a multiple of revenue. There are other factors, of course, just as there are in corp valuations, but ceterus paribus, there is a correlation.

Market cap based on revenue is bs. Market cap is based on profit. company can go bankrupt or lose significant market cap if it is a loss making company. Example citi bank.

Take the example of Microsoft.

market cap: 271b
revenue : 60b

Walmart

market cap: 200b

revenue : 408b

 

[TechLahore]

Market cap based on revenue is bs. Market cap is based on profit. company can go bankrupt or lose significant market cap if it is a loss making company. Example citi bank.

Take the example of Microsoft.

market cap: 271b
revenue : 60b

Walmart

market cap: 200b

revenue : 408b

So every company that has negative earnings but substantial revenue is valued at zero dollars? That is nonsense.

The examples you give are from entirely different industries, subject to entirely different multiples and business realities.

 

[Agni 5]

So every company that has negative earnings but substantial revenue is valued at zero dollars? That is nonsense.

The examples you give are from entirely different industries, subject to entirely different multiples and business realities.

Here is another example

Lot of airlines go bankrupt even they have revenue because of high competition, low margin and high input or capital intensive business.

Take the case of American airlines. They are world's one 1 carrier in terms of revenue.

market cap: 2.5b
revenue : 20 b

If company losses earning and has revenue. It will trade(market cap) at its book value level.

 

[RiazHaq]

Market cap based on revenue is bs. Market cap is based on profit. company can go bankrupt or lose significant market cap if it is a loss making company. Example citi bank.

Take the example of Microsoft.

market cap: 271b
revenue : 60b

Walmart

market cap: 200b

revenue : 408b

Talking about profit, shares of Indian companies on BSE are trading at twice the price-earnings multiples of KSE companies. What it means is that Indian shares are overvalued relative to their Pak counterparts.

So the combination of the high market cap to GDP ratio and high PE ratio again reinforces the fact that BSE shares are nearing bubble stage, and less likely to grow than KSE shares...essentially repeating the record of the last decade when KSE significantly outperformed BSE.

 

[Agni 5]

Talking about profit, shares of Indian companies on BSE are trading at twice the price-earnings multiples of KSE companies. What it means is that Indian shares are overvalued relative to their Pak counterparts.

So the combination of the high market cap to GDP ratio and high PE ratio again reinforces the fact that BSE shares are nearing bubble stage, and less likely to grow than KSE shares...essentially repeating the record of the last decade when KSE significantly outperformed BSE.

Have you heard of term PEG. (Price/Earnings To Growth ratio). Please read

PEG ratio - Wikipedia, the free encyclopedia

You will understand the valuation.

 

[RiazHaq]

Have you heard PEG. (Price/Earnings To Growth ratio). Please read

PEG ratio - Wikipedia, the free encyclopedia

Having lost the argument on both market cap to gdp and price-earnings ratio, now you are clutching for the straws by looking for other measures.

Please offer you data and make you argument about Indian companies PEG versus Pak companies PEG ratio. Without data, talking about it is meaningless.

 

[Agni 5]

Having lost the argument on both market cap to gdp and price-earnings ratio, now you are clutching for the straws by looking for other measures.

Please offer you data and make you argument about Indian companies PEG versus Pak companies PEG ratio. Without data, talking about it is meaningless.

Who lost the argument for market cap to gdp?

It is bs theory. I gave above three examples.

Do you know Palestine stock exchange has higher return than KSE. It has provided 20% return from inception.

Do you thing PSE is better than KSE? Even both countries run on AID.

BSE and KSE are in different category. They can't be compared.
As some one said reliance industry alone is worth more than entire KSE.

Valuation depends on future earnings and earning growth.