1. India is in a Low RoE Phase.
2. Looking at India’s RoE for last 25 years, we can say that we are in lull period, but we can’t say how long this period may extend.
3. Every economic cycle contains seeds for another cycle and it goes on. So, if today we are at 15% ROE after some years we will be again at 20+% RoE (thereafter again at 15%).
4. Investments, generally, pay-off well only when they are made during lull period, as cost of Investment (CMP) tends to be low in this phase.
5. At what price, one should Buy 15% RoE is subjective, depending on the options available to deploy the capital, interest rate, inflation and various other things.
6. Today Equity is cheap, tomorrow it may be cheaper by another 10%, but in 5 yrs it has potenti get priced 300% higher. As during Low RoE phase market assign low PE and in high ROE phase market assign high PE.
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