A market for book lovers?

A significant number of Indian companies are faring very well in terms of a metric that Warren Buffett swore by early in his career.

Of the many figures that can be used to assess the health of a company, one that Buffett used to attach a great deal of importance to is the ‘book value’. The book value of a company represents its net value as reflected in its balance sheet.

A steady increase in book value reflects a company’s ability to create long-term shareholder value, as well as strong financial health and efficient management practices. Typically, there’s a positive correlation between a company’s book value and its market value, and hence its share price.

Now, a consistent growth in the book value of listed Indian companies has been one of the key factors that have contributed to the Indian market’s outperformance. Indian companies have demonstrated remarkable stability and consistent growth over time, as borne out by the table below.

Over the long term, more than three-fourths of the companies in the Nifty 50 index have shown positive growth in their book value. What’s even more extraordinary is that of the 39 companies with a positive growth in book value over the last 20 years, 7 companies (i.e. roughly 18%) managed to deliver book value growth in every single one of those years, despite global challenges such as the Global Financial Crisis and the COVID-19 pandemic. Such outcomes highlight the exceptional stability of these businesses.

If we cast a wider net and look at the Nifty 500 index, we still see impressive figures that suggest that such strong book value growth isn’t restricted to the cream of the crop, but is instead a phenomenon that’s visible across the broader Indian market.

Around two-thirds of the companies in the Nifty 500 posted book value growth over the last two decades, and roughly 16% of such companies posted book value growth in each one of those 20 years!

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.