Asia stocks hit 5-year low on recession fears
The bleak outlook, which is hitting sectors from South Korean chip makers to US auto makers, comes amid renewed worries about the global financial system
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India stocks: Equity Risk Premium
In case some of you are wondering about my 20% discount rate in the post: India Stocks: Bank Nifty offering good value
I have used the work of Varma/Barua June 2006 where good work was done in re-creating data series to allow a robust calculation of an equity risk premium for India. They came up with 12.5% ERP and I have used a 7.5% risk free rate going forward...so we have a 20% discount rate.
The overall indices can also be ball-parked using this method. If we assume:
* 10% reduction in EPS for the indices in 2009-2010
* 15% earnings growth rate for next 10 years and 10% thereafter
* Discount rate of 20%
Then we get the following fair values for the Indices:
Nifty 2460 Sensex 8600
Lee