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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Is ASI heading to 6500 level???

Is ASI heading to 6500 level???

+22
yoyo
Tiger
smallville
RichDad
ISURU
lokuayya
gann
Rstock
RockStock
ashlee
mono
JennyFunny
sanjeewa88
UKboy
duke
wiki
Light of Hope
Academic
shaankh
Genting
dinusha.kiwulegedara
mra
26 posters

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1Is ASI heading to 6500 level??? Empty Is ASI heading to 6500 level??? Tue Jul 19, 2011 2:19 pm

mra

mra
Manager - Equity Analytics
Manager - Equity Analytics

Is ASI heading to 6500 level???

2Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 2:27 pm

dinusha.kiwulegedara


Senior Equity Analytic
Senior Equity Analytic

YES

That's true my broker said It could be dropped around 6500.. level

3Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 3:06 pm

Genting


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

I think we may see another 50 point drop tomorrow and then bouncing back on the other day. It may not go to 6500 level. even if its goes it may not stay there that long.

This is my view and I am not an expert.

4Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 3:14 pm

shaankh

shaankh
Manager - Equity Analytics
Manager - Equity Analytics

will come down to less than 5000. then foriegn fuds will come

5Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 3:17 pm

Genting


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

shaankh wrote:will come down to less than 5000. then foriegn fuds will come

affraid

6Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 3:26 pm

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Genting wrote:I think we may see another 50 point drop tomorrow and then bouncing back on the other day. It may not go to 6500 level. even if its goes it may not stay there that long.

This is my view and I am not an expert.


Truth is bitter. Realizing bitterness is even more bitter.

ASI was below 3000 in late 2009 when the bull run started. By now ASI has increased more than by 2 times. Do you think companies in the CSE have improved operational performance (after removing non-recurring capital gains) to justify ASI 6500?



Last edited by Academic on Tue Jul 19, 2011 11:22 pm; edited 2 times in total (Reason for editing : early 2009 corrected as late 2009)

7Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 3:44 pm

Genting


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Academic wrote:
Truth is bitter. Realizing bitterness is even more bitter.

ASI was below 3000 in early 2009 when the bull run started. By now ASI has increased more than by 2 times. Do you think companies in the CSE have improved operational performance (after removing non-recurring capital gains) to justify ASI 6500?

You have raised a really good point

Shall we have small survey to find out what should be the correct ASI to represent the correct status of the companies?

Most of us must be having EPS of each company and we can use nominal PE ratio to find out the nominal market price of those shares and then find out what will be ASI.

Once cannot do it alone, few of us can get together and share the calculations.

8Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 3:59 pm

Light of Hope


Vice President - Equity Analytics
Vice President - Equity Analytics

Academic wrote:
Genting wrote:I think we may see another 50 point drop tomorrow and then bouncing back on the other day. It may not go to 6500 level. even if its goes it may not stay there that long.

This is my view and I am not an expert.


Truth is bitter. Realizing bitterness is even more bitter.

ASI was below 3000 in early 2009 when the bull run started. By now ASI has increased more than by 2 times. Do you think companies in the CSE have improved operational performance (after removing non-recurring capital gains) to justify ASI 6500?

most of the fundamental stocks have come down comparatively, more than the ASI. Thanks illiquid runs and penny stock runs, ASI still managing to stay up there. if the ASI to drop further more to justify company earnings, I am scared to think where will the fundamental stocks end??? probably at levels where they were, when ASI was 3000???

9Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 4:18 pm

wiki


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Academic wrote:
Genting wrote:I think we may see another 50 point drop tomorrow and then bouncing back on the other day. It may not go to 6500 level. even if its goes it may not stay there that long.

This is my view and I am not an expert.


Truth is bitter. Realizing bitterness is even more bitter.

ASI was below 3000 in early 2009 when the bull run started. By now ASI has increased more than by 2 times. Do you think companies in the CSE have improved operational performance (after removing non-recurring capital gains) to justify ASI 6500?
Is it always necessary to improve operational performance by two fold to justify price index at this particular moment. Cant it be justified by future earnings..

10Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 4:41 pm

duke


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

wiki wrote:Is it always necessary to improve operational performance by two fold to justify price index at this particular moment. Cant it be justified by future earnings..

When you buy a coconut for planting do you pay for coconuts for couple of years of harvest. No. You just pay the price of the coconut. At the moment CSE stocks are like that. You're paying for years of harvest at the present price levels.

11Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 5:50 pm

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics

duke wrote:
When you buy a coconut for planting do you pay for coconuts for couple of years of harvest. No. You just pay the price of the coconut. At the moment CSE stocks are like that. You're paying for years of harvest at the present price levels.


Good point Duke,
Some investors like to think that all the complanies at cse have only 1000 shares per counter to trade.
So they buy the shares well in advance to aviod the last minute rush.

12Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 7:17 pm

sanjeewa88

sanjeewa88
Manager - Equity Analytics
Manager - Equity Analytics

Is there a correct way to calculate the over valued level of ASI?

( I meant something scientific or statistical)

13Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 7:24 pm

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

wiki wrote:Is it always necessary to improve operational performance by two fold to justify price index at this particular moment. Cant it be justified by future earnings..

Wiki you have a valid point. Future earnings can justify share prices. That is why I didn't say operating performance should be doubled to double ASI. We may look at macro changes and form expectations on future performance and value shares. That is what happened from 2009 May through 2010 September. And the market has proven the expectations formed didn't realize so far (for example look at BFI and hotel sectors excluding their one time gains). This is, partially, one reason for this decline. Therefore we expect companies to show year-over-year (YoY) growth in performance in order to extrapolate future performance (as speculation period is over). That is why I say current performance is important. See g is a key input for P/E calculation.

Tailing P/E = (1-b)*(1+g)/(r-g)

Forward P/E = (1-b)/(r-g)

Where: b, r and g are retention ratio, required rate of return and growth rate. And g = ROE*b

duke wrote: When you buy a coconut for planting do you pay for coconuts for couple of years of harvest. No. You just pay the price of the coconut. At the moment CSE stocks are like that. You're paying for years of harvest at the present price levels.

I do not agree with you. The parable buying a coconut is not comparable to purchasing a share. By purchasing a share you get exposure to future events of the company. So you buy not only present but also future (even you are a day trader, once purchased a share, you are exposed to any positive or negative events happen in the company until you sell it). That is current value of a share partly depends on future events that would happen in future.

However buying a share is comparable to buying a coconut estate. When you purchase a coconut estate you buy the exposure to future coconut price fluctuations too. If you have any idea into price of one acre of a coconut estate and a bear land you would realize my argument. Even after adjusting for current harvest and wood value of coconut trees, there is a premium on coconut estate. The concept is much more clear if you think of a tea estate.

In nutshell, share valuation is futuristic, however, futuristic view should be backed by current performance or solid arguments, not just mere speculation like we had during last couple of years.



Last edited by Academic on Tue Jul 19, 2011 7:48 pm; edited 1 time in total

14Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 7:35 pm

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

yea lets try and do a ASI fair value calculation survey..

15Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 7:37 pm

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

sanjeewa88 wrote:Is there a correct way to calculate the over valued level of ASI?

( I meant something scientific or statistical)

Yes. Estimate values for b, r, ROE for the CSE as a whole. For this you may take average retention ratio in CSE listed companies form their annual/quarterly reports as b. For r you may take TB rate plus a spread. Also calculate average ROE from annual/quarterly reports. Substitute these inputs into the equations in the above post and get the value for P/E ratios.

If corresponding P/Es in the CSE are greater than calculated value market is overvalued and if smaller CSE is undervalued.

Hope this may help you.

16Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 7:46 pm

JennyFunny


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

@ Academic..great piece of info..

17Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 8:05 pm

mono

mono
Vice President - Equity Analytics
Vice President - Equity Analytics

academic i don't buy the overvalued argument one bit. I can name a number of shares that are trading 20-30% below fair-value which keep coming down. If the market is fundementally overvalued the first thing that's going to happen is investors moving money from overvalued shares to undervalued shares. But we're seeing selling across the the board shares which are both over & undervalued. I say credit crunch + IPO & right issues.

18Is ASI heading to 6500 level??? Empty Comparing Current and Justified ASI Tue Jul 19, 2011 8:07 pm

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

Note I made a correction to equations in the previous post.

Further, if you want to see whether ASI is overvalued follow following steps.

1. Get summation of total earnings in all listed companies for the past year.

2. Substitute into E of trailing P/E equation.

3. Take E to right hand side.

4. The value for P you get now is the justified value for market capitalization.

5. Divide it by base market capitalization. This is the justified value for ASI. ( see how to calculate base market capitalization here http://forum.srilankaequity.com/t6328-how-is-asi-is-calculated#42969 )

6. Compare justified ASI with current ASI and take your decision.

19Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 8:18 pm

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

mono wrote:academic i don't buy the overvalued argument one bit. I can name a number of shares that are trading 20-30% below fair-value which keep coming down. If the market is fundementally overvalued the first thing that's going to happen is investors moving money from overvalued shares to undervalued shares. But we're seeing selling across the the board shares which are both over & undervalued. I say credit crunch + IPO & right issues.

Yes. You know during last couple of years almost all shares went up without any concern for fundamentals. This loose connection between fundamentals and share prices would disappear as new market participants and the market mature. But surly not overnight! Also among others what you mentioned, sentiments too play a role that may correct eventually, IMHO

20Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 8:23 pm

ashlee


Manager - Equity Analytics
Manager - Equity Analytics

Well I should thank both Academic and Mono for enriching the forum.. There is always something new to learn from your discussions.. I have been in the market for 5 years but my knowledge about these technicals is below average.. This is really good stuff for people like us and the newbies.. Good luck..

21Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 8:24 pm

RockStock


Manager - Equity Analytics
Manager - Equity Analytics

Markets are always intelligent, (not always the investors) In SL as well as globally. When they are over valued then follows the corrections automatically. some times they get over corrected in the same way they have got over heated. Just like a movement of a pendulous. My experience in markets is around 10 years, and I have seen plenty of such pendular movements.
if one can remember the longest bear period from 2007-2009, we know many people/companies who invested in those periods(where others were runing away) earned millions. JKH was below 60 those days with very low P/E.

History repeats and CSE heading another bottom of a sinuous wave and some day will reach the peak as well.

If acadamic was talking only about overvalued stocks like CLND,LOFC,GREG and many hotel stocks etc , then I can agree 100 %. but as mono mentioned there are many undervalued quality stocks with low p/e ratio even you disregard the earnings from non-operating income. My opinion is, at this stage we can't use the blanket statement "CSE is heavily overvalued" which I believe is misleading. we can find plenty of good and great opportunities at CSE

22Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 8:26 pm

Rstock


Senior Equity Analytic
Senior Equity Analytic

It has to go up after elections, I think. Investor confidence should be the key.

23Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 8:36 pm

Academic


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

RockStock wrote:Markets are always intelligent, (not always the investors) In SL as well as globally. When they are over valued then follows the corrections automatically. some times they get over corrected in the same way they have got over heated. Just like a movement of a pendulous. My experience in markets is around 10 years, and I have seen plenty of such pendular movements.
if one can remember the longest bear period from 2007-2009, we know many people/companies who invested in those periods(where others were runing away) earned millions. JKH was below 60 those days with very low P/E.

History repeats and CSE heading another bottom of a sinuous wave and some day will reach the peak as well.

If acadamic was talking only about overvalued stocks like CLND,LOFC,GREG and many hotel stocks etc , then I can agree 100 %. but as mono mentioned there are many undervalued quality stocks with low p/e ratio even you disregard the earnings from non-operating income. My opinion is, at this stage we can't use the blanket statement "CSE is heavily overvalued" which I believe is misleading. we can find plenty of good and great opportunities at CSE


Who says gems are not there in SL (except Jafna which is a limestone formation). When I say "whole" it is on average. Just calculate and see what is the on average situation. If market is overvalued as a whole, it should go down as a whole. Simple as it is.



Last edited by Academic on Tue Jul 19, 2011 8:54 pm; edited 1 time in total (Reason for editing : Added two sentences.)

24Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 9:27 pm

gann

gann
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

ASI will stop dropping when you stop selling. simple as that. lol!
remember here at cse you cant short. onlyway the market could go down is by panic selling.

25Is ASI heading to 6500 level??? Empty Re: Is ASI heading to 6500 level??? Tue Jul 19, 2011 10:21 pm

lokuayya


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

@gann , said it correctly ,Investors are selling ,Selling no stop.
Why they are selling,because the fear of credit clearance,diluting fear(rights and ipo).lack of confidence in the system.

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