Finding Intrinsic Value of Some Stocks Listed on the National Stock Exchange (NSE) Under Principles of Benjamin Graham

Abstract

The paper is focused on verifying the value investment approach recommended by Benjamin Graham by comparing factor the price-to-book ratio of shortlisted few sector- wise companies listed on the National Stock Exchange of India. Graham suggested that stocks with low price-to-book ratio can potentially be valuable investments as they do not carry major risk of under-performance and appreciate in the long run. The value investing approach is predominantly followed by Warren Buffett – Chairman, CEO of Berkshire Hathaway Inc., who is consistently ranked among the world’s wealthiest people and considered to be one of the most successful investors in the world. This approach is used internationally for investment analysis in the stock markets but it has not been specifically examined to suit the Indian scenario. Our study shows that this approach is unreliable for making investment decisions because the stocks with low price-to-book ratio did not generate high returns. The returns were lower than the average returns of the sector and hence Graham’s value investing principle is inconsistent with the Indian capital market.