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Posted: 01/Apr/2011 at 7:32pm
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Joined: 20/Sep/2009
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Posted: 02/Apr/2011 at 6:53pm
Originally posted by subu76
Hi BasantJi,
I'd like to borrow your mind on these two seemingly contrary thoughts which we often discuss on TED.
1. It's a cyclical. It will do well when the economy recovers.
2. It did well during the last bull market. It will not see it's old price for a long time. Implies this was a fad during the last bull market.
e.g. Aban
I think pt 1 is about EPS and pt 2 is about P/E.
Shouldn't pt 1 triumph over pt 2. After all earnings is the key?
How important is the fad value of point 2?
Originally posted by basant
Excellent argument. But most of the time the rerating in PE never takes place because everyone and his brother is already invested. Ask anyone on the street whether he has bought into real estate and construction and the answer would tilt towards Yes,
Now these people look to get out when their price is reached and therefore PE Rerating is very diffcult and that is why it would take years for the EPS to come up and neutralise that effect.
Originally posted by subu76
To restate Basant Sir's argument as i understood it.
PE rerating for yesterday's fallen angels is a difficult proposition.
I think this is what we saw with Infy.
Originally posted by basant
Yes, once a sector shows lower growth then it takes years for the market to be convinced about the growth again.
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