Why Valuation Is More of an Art Than a Science?
In investment banking, valuation is the heartbeat of every deal. Yet, no matter how advanced our models get — DCFs, trading comparable, precedent transactions — valuations are rarely absolute truths.
Why valuation is more of an art than a strict science
1️⃣ Assumptions Drive Outcomes
A small tweak in growth rate, WACC, or terminal value in a DCF can swing valuations drastically. It’s not about the formula, but the judgment behind assumptions.
2️⃣ Market Sentiment Matters
Numbers don’t capture investor psychology. Take Zomato’s IPO (2021) — traditional valuation metrics suggested it was overpriced, yet strong market sentiment around India’s digital consumption story drove overwhelming investor demand.
3️⃣ No Two Companies Are Truly Comparable
When using comps, we assume similarity. But in reality, every company hasa unique strategy, management quality, and market positioning. For example, Paytm’s IPO struggled because the market didn’t see it as comparable to global fintech giants, despite ambitious narratives.
4️⃣ Deal Dynamics Influence Value
In M&A, valuation isn’t just about spreadsheets — it’s about negotiation, synergies, timing, and sometimes even egos at the table. The HDFC–HDFC Bank merger (2023) is a perfect example: while numbers justified it, the strategic vision of creating a financial powerhouse elevated the deal’s significance.
Takeaway
Valuation is not about finding a “perfect number” but about telling a credible story with numbers — one that convinces both the client and the market.
