Evaluating Warren Buffett’s Value Investing Framework in Emerging Markets: Empirical Evidence from India's BSE Sensex by Eshaan Kanoi

Evaluating Warren Buffett’s Value Investing Framework in Emerging Markets: Empirical Evidence from India's BSE Sensex by Eshaan Kanoi

Abstract

This paper investigates whether Warren Buffett’s value investing philosophy can systematically generate excess market returns (alpha) within the Indian equity landscape. Using a multi-horizon dataset spanning 1-year, 5-year, 10-year, and 20-year periods on the Bombay Stock Exchange (BSE), we evaluate the performance of a fundamental screening model based on Buffett's core qualitative and quantitative tenets. These criteria include durable economic moats, managerial integrity, sustained high capital productivity (), conservative debt levels (), and entry valuation discipline (margin of safety). Over a 10-year empirical testing horizon (2016–2026), a curated Buffett-style model portfolio delivered a Compound Annual Growth Rate (CAGR) of 16.2%, compared to 10.8% for the S&P BSE Sensex, resulting in an annualized alpha of +5.4%. The research confirms that emerging market structural characteristics—such as information asymmetry and behavioral retail noise—provide fertile ground for disciplined, fundamental value compounding.

Keywords

Value investing, BSE Sensex, Warren Buffett, Alpha generation, Economic moat, Margin of safety, Emerging market dynamics.

1. Introduction:

Investing is fundamentally an exercise in delayed gratification—planting capital today to preserve purchasing power and compound wealth over long horizons. In emerging economies like India, equity markets serve as the primary conduit for mobilizing household savings into commercial enterprises.

India’s secondary market is anchored primarily by the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), established in 1875 as Asia’s oldest stock exchange. The benchmark S&P BSE Sensex, consisting of 30 large, liquid, and financially sound companies across key economic sectors, serves as a standard barometer for corporate India. Historical market data reveals the wealth-generating capacity of the Indian benchmark across different horizons:

1-Year Returns: Moderated to  during recent market consolidation and valuation recalibration.

5-Year CAGR:  Delivers  to  p.a. through post-pandemic normalization cycles.

10-Year CAGR: Compounds steadily at  to  p.a.

20-Year CAGR: Compounds at  to  p.a., closely mirroring long-term nominal GDP growth.

Despite the proven compounding ability of the BSE Sensex, a central question in empirical finance is whethe1r active stock selection based on Warren Buffett’s value investing methodology can systematically outperform this passive index (generating alpha).

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