Is the Indian cricket team ‘fairly valued’?

Exactly a year ago, India won the Cricket World Cup, amidst a lot of fanfare and hysteria. At that time, the Indian cricket team could do no wrong. They were on top of the ICC one day rankings and looking invincible. Today, the situation is vastly different, with the team fielding brickbats rather than collecting bouquets…

Being connected with the stockmarket for so long, I view various situations through the prism of stocks and markets. Hence I cannot help noticing a few parallels between a stock and the cricket team’s performance :

1. When we won the World Cup, the media was in raptures, stating that this is a cathartic moment for Indian cricket, we have exorcised the ghosts of the past, etc. There was immense faith being reposed in the capabilities of the dynamic captain, M.S.Dhoni and his stewards and blue sky predictions were made regarding future successes.

This is similar to a stock quoting at an all time high… The number of cheerleaders far outnumber the doomsayers. Every analyst on the street has a “Buy” recommendation. While the rising price may be surely based on some good performance in the recent past, all future predictions acquire a parabolic shape, often severed from rationality.

2. The Indian team was bestowed with gifts and other monetary rewards. Advertisers were willing to pay top dollar either for entering into or renewing endorsement contracts. Also, the advertisement rates for the Indian Premier League (IPL) games shot up as broadcasters extrapolated this performance into potential increased viewership for Season IV of the IPL. These high rates apparently did not deter marketers who were falling over themselves to piggy-back on the team’s success. The Board of Cricket Control of India (BCCI) and the broadcasters (and the cricketers, of course) happily raked in the moolah.

This happens in the case of popular companies too as they attempt to take full advantage of the positive investor sentiment and the ensuing high valuations. They do this either by using their highly valued stock as a currency for takeovers or to go on a fund raising spree as the market is more than willing to fund them. The entire ecosystem, comprising company managements, investment bankers, stockbrokers etc. benefit at the expense of investors who end up carrying the can once the froth peters out.

3. The subsequent performance of the Indian team in England and Australia shattered all rosy predictions as the team set one record after another for disastrous losses, both in test matches and one-dayers. Once the negative spiral commenced, the usual blame game began. There were also rumours of a rift between the captain and some senior players, team morale sank to all time lows, etc. Also, fans began turning their TV sets off and advertisers’ exuberance turned into scepticism.

Similarly, stocks which become too popular, usually end up disappointing investors, as they are unable to live up to the fancy expectations that everyone has. Once some underperformance is noticed, the very stockbrokers and media who worshipped it, now pillory it. It also leads to a swift descent from lofty to pedestrian valuations. This is often accompanied by the exit of a few star performers (either for greener pastures or as scapegoats).

Cricket fans too are now baying for the blood of some senior members, asking why are they still playing and not retiring. However, all is not lost yet…The team still occupies the third position in both, the test and one-day rankings, which is not bad at all. However, this is similar to investors feeling cheated when Indian Gross Domestic Product (GDP) grows at 7% instead of 8%. The IPL Season V which begins today, may bear the brunt of this disappointment.

On a positive note, although expectations have been toned down and some senior stalwarts have moved on, there are some youngsters who hold out hope for the future.

Currently, the team’s valuation is much lower than that of April 2011.  Only time will tell whether the current value is “Fair Value” or not…

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