EQUITY VALUATION AND PORTFOLIO CONSTRUCTION: A FUNDAMENTAL ANALYSIS OF SELECTED INDIAN EQUITIES

Abstract

This Major Research Project is a deep-dive into equity valuation and portfolio construction, applying investment banking-grade analytical frameworks to ten publicly listed Indian companies. The study was motivated by the observation that while India’s equity market has grown tremendously, rigorous and transparent bottom- up valuation work remains inaccessible to most retail investors. The ten companies span six sectors: BSE Ltd. and CDSL (financial infrastructure), Hindustan Zinc (metals and mining), MTAR Technologies (defence and aerospace), J&K Bank (banking), NTPC (power generation), Cipla (pharmaceuticals), Persistent Systems (IT services), JBM Auto (auto ancillary and electric vehicles), and Titan Company (consumer lifestyle and jewellery).

For each company, except J&K Bank, this study constructed a Free Cash Flow to Firm (FCFF) based two-stage Discounted Cash Flow (DCF) model using audited financial data from FY2017 to FY2025. The Weighted Average Cost of Capital (WACC) was estimated using the Capital Asset Pricing Model (CAPM) with beta estimated through a comparable company approach. For J&K Bank, the Excess Return Model was applied, which is the appropriate methodology for financial institutions. Comparable Company Analysis using EV/EBITDA and P/E multiples was conducted alongside the DCF to triangulate values.

The headline valuation findings reveal significant divergence across the universe. CDSL, at a current market price of ₹1,200, appears deeply undervalued against a DCF intrinsic value of ₹2,197, representing an 83.1% upside. J&K Bank at ₹140 trades below its book value of ₹150, with an Excess Return Model fair value of ₹244, implying 73.8% upside. NTPC and Persistent Systems offer 29.3% and 20.3% upside respectively. On the other side, MTAR Technologies and Titan Company trade at extraordinary premiums to DCF values — not because they are poor businesses, but because the market prices in growth runways extending well beyond the five 6

year explicit forecast horizon.

At the portfolio level, a conviction-weighted ten-stock model portfolio was constructed and plotted against the Efficient Frontier derived from 4,000 Monte Carlo simulations. The portfolio delivers a beta of 0.43 (defensive versus Nifty 50), a Sharpe Ratio of 0.55 against the benchmark’s 0.50, a Treynor Ratio of 24.2 versus 9.3 for the Nifty, a Jensen’s Alpha of +3.4%, and a 95% one-year Value at Risk of -13.8% against -21% for the benchmark. Security Market Line analysis confirms that CDSL, Persistent Systems, J&K Bank, and NTPC generate the largest positive alphas above CAPM expectations. Sensitivity heatmaps validate that BUY recommendations for CDSL and NTPC hold across most combinations of WACC and terminal growth rate assumptions.