The global markets meltdown has pulled the valuation numbers for Indian corporates to its lowest in the past five years. An FE study reveals that 204 of the BSE-500 companies are now quoted below their FY08 book values?assets minus liabilities.

In other words, the net worth of these companies per share is more than the price at which they are quoted. This, when the average return on this net worth (for the BSE-500 universe) is 18%, more than the prime lending rate of banks. The list of companies quoting at a discount to their book values includes names like Tata Steel, Tata Motors and GE Shipping. Shares of banks like ICICI Bank, Dena Bank and Bank of Baroda, which have sound operations, are quoted below the book value.

Though this appears to be best time to pick bargains, a section of analysts believe that the new set of earnings numbers due in FY09 will see an erosion in the book value of several companies.

?If earnings fall in the coming quarters, it should surprise nobody. We expect broad market earnings to decline by 15-20% in FY10 and ROE (return on equity) to decline from 22% at its peak to 16% in the coming 18 months,? says a Morgan Stanley strategy report.

Meanwhile, the report says, the BSE Sensex constituents have, on aggregate, grown earnings five-fold in five years from Rs 24,700 crore to Rs 1,21,500 crore, but it is not incorrect to call this an earnings bubble. Corporate India is sitting on record margins, record financial income, and a high base of earnings. Moreover, financial leverage has risen, operating leverage is turning negative, and asset turn is dropping, the report adds.

But this is not just a phenomenon restricted to India. Global stocks have fallen so high that 2,267 companies are offering profits to investors for free. That?s eight times as many as at the end of the last bear market, when the shares rose 115% over the next year.

Bank of New York Mellon Corp in New York, Danieli SpA in Buttrio, Italy and Seoul-based Namyang Dairy Products hold more cash than the value of their stock and debt, as the slowing world economy wiped out $32 trillion in capitalisation this year. Companies in the MSCI World Index trade for an average $1.17 per dollar of net assets, the lowest since at least 1995, and 39% sell at a discount to shareholder equity, data compiled by Bloomberg shows.

Cash-rich companies allow investors to pay nothing for future earnings streams, providing opportunities to buyers worried about deflation, according to Jean-Marie Eveillard. Microsoft Corp. and Novo Nordisk A/S, which generate the most money compared with debt, can expand even if lower consumer demand erodes profits.