Analytical: A vast segment of the investing community believes that investing in quality businesses is the ultimate recipe for investing success. The belief is that valuations matter less since premium valuations ascribed to quality companies is justified. However, reality is more nuanced than that.
For example, if you consider Nestle India's stock price movement over a 10-year period (January 2013 to December 2022), the stock quadrupled from 14,900 to over 20,000, with healthy compound annual growth rate (CAGR) returns of 15.1% (ex-dividends). The company's earnings growth happened at high return on capital employed, or ROCE, (10-year average ROCE of 56%) and valuations expanded to 90x trailing PER.
However, if we look at the stock's performance between March 2015 and March 2016, the stock fell approximately 31%; significantly higher than Sensex's 10% fall in the same period. This underperformance was primarily led by a sharp decline in earnings. Prolonged underperformance has also been seen in other quality companies in the past, i.e. HUL (January 2001-March 2010; April 2020-December 2022), Hero Moto (November 2015 to December 2022), Sun Pharma (July 2014 to December 2022), Symphony (November 2014 to December 2022), etc. What is common in these phases for the referred companies is growth slowed down and ROCES compressed.
Denne historien er fra March 15, 2023-utgaven av Mint Mumbai.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent ? Logg på
Denne historien er fra March 15, 2023-utgaven av Mint Mumbai.
Start din 7-dagers gratis prøveperiode på Magzter GOLD for å få tilgang til tusenvis av utvalgte premiumhistorier og 9000+ magasiner og aviser.
Allerede abonnent? Logg på
Will exceed direct tax collection target for this fiscal
The government expects to exceed its ₹22 trillion direct tax collection target for this financial year, going by the current trend in tax receipts, Central Board of Direct Taxes (CBDT) chairperson Ravi Agarwal said on Monday.
Govt may widen eligible age for PM internship scheme
According to early talks, the age criterion is likely to be widened from 21-24 currently, to 18-25
Sep workforce participation rises in urban areas
For males, the jobless rate fell from 6.0% to 5.7%, while for females, it dropped from 8.6% to 8.4%
Electronics among top Apr-Oct exports
India's merchandise exports continued their upward trajectory during April-October, with 21 of the top 30 sectors registering growth in value terms, buoyed by rising global demand for Indian goods.
Three neighbouring countries show interest in Gati Shakti
A little over three years since its 2021 launch, PM Gati Shakti may soon go global with as many as three neighbouring countries showing an interest in the platform and the government planning to showcase the technology in Europe and the US.
FM makes a case for cheaper bank loans
Piyush Goyal earlier asked to skip food prices in rate decisions
Delhi stares at more dusty days as strict curbs set in
After imposing the toughest curbs after pollution levels shot through the roof, the national capital is left with few options, as weather predictions pointed to more dusty days ahead.
Quick Edit: The market's green role
The world needs to bend its rising curve of carbon emissions, a goal that's proving elusive. Adding to the challenge, US climate policy is likely to flip back into neglect mode next year.
Growth shouldn't suffer for want of a market fix
Packaged food companies should drive a food-processing revolution and run a campaign for substitution of fresh-veggie demand. It'll crush price volatility and open up space for rate cuts
We should reform import tariffs to boost Make in India!
Tariff reforms to resolve duty inversions can arrest the 'cost competitiveness leak' of Indian manufacturing
