PE has two sides.
Highe PE is generally considered only due to price increasing beyond logical limit.
But there is a denominator too. High PE is also due to temporary decrease in earnings due to many temporary reasons. So We first needs to find out if high PE is due to increase in price or due to decrease in earnings. And if its due to decrease in earnings, then we have to analyse if its temporary decrease or business model is crumbling. With this understanding, can you verify whether above High PE are pertaining to which reasons?
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I agree that in some cases PE is high due to temporary phenomenon such as margin contraction or consumer slowdown.
What triggered above post is while I was going through the list of companies in my watchlist that can be considered as good quality business, in most cases valuation seems to be stretched. I donât mind paying extra premium for quality but even after that I donât feel confident enough.
For example last year I have taken shelter under PSU due to better MOS and dividend while growing at fair rate, I thought looking into IT as it is underperforming for a while but no companies available at under 20 PE in that case as well.
Again I know PE is not the only parameter but in case such as IT PE and Div yield is usually a good indicator when you can consider adding them in portfolio and what worries me, as I mentioned in the above post, is that people are becoming very confident about paying a 70 PE for businesses like Kalyan Jewellers
For example, in case of LTI mindtree , PE is 39 but if its earnings arr depressed from last 2-3 quarters compared to earlier period, then Its PE is not reflecting the correct picture. May be real PE is less than 20 but due to depressed earnings ,its showing 39. Just check its earnings compared to earlier periods and PEs too
Thank @Mudit.Kushalvardhan for your inputs and I completely agree with your points.
LTI, MapMyIndia and even Affle in IT, Varun bev in FMCG, Polycab in cables and few other companies are growing and that justifies the PE.
Again PE was included because it is an easier parameter to gauge compared to sales/mcap and opportunity size etc.
Itâs just that the increasing number of IPOs, QIPs, and the overall market mood, where almost everything is priced to perfection, coupled with very high returns in Mid/Small caps, worries me a bit.
I understand that itâs difficult to time the market, which is why Iâm not selling my existing positions. However, currently, I am a bit cautious about adding new positions with very high conviction, so for now, I wonât add anything all at once
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Hi
There are so many cos that are cheaper and growing at good rates than what you have mentioned. I will just share 3 examples from my own folio where trailing PE is <15 and last 3-year EPS growth was >15%. Now I dont know what next 3-year growth will look like.
Godfrey Phillips: 14x and 22% growth
Chamanlal Setia: 10x and 31% growth
Geekay wire: 12x and 59% growth
If you just run this query on screener you will find 426 results. So there are plenty of opportunities, the only question then is if you are looking at the right place.
Good luck with your investing journey and do share you ideas 
Cheers
Harsh
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Thank you so much @harsh.beria93 for your input, I love your portfolioâs thread and keep looking for ideas from there.
Got interested in Rice companies as there are mainly 3-4 major brands out there and most of those trading at reasonable valuations. Yes, I am looking at Chamanlal and KRBL (aware about CG issues)
Just going slow and reading more companies in detail. I can stay invested only if I have enough confidence in my holdings and feel confident about it.
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What about LT foods? Its numbers are better than KRBL and seems better placed as major business is exports. Just one query: Reason for fall from Rs.90 to Rs.19 between Jan 2018 to Aug 2019? What happened during this time to have such a steep fall? Also ROCE is less than 20âŚBut at 15 and increasing trend.
Yes looking into it.
Apart from all the information available on valuepickr, if we do Dupont analysis to summarize
- KRBL operates at higher margin
- Chamanlal has better efficiency
- LT foods uses financial leverage better
LT foods and Chamanlal trading almost at ATH while KRBL is ~ half compared to ATH due to CG issue.
Not able to understand lower valuations for these companies in spite of strong brand and higher market share.
Still not convinced though to take position in any of these but tracking it closely
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Update â Junâ24
Nifty is still positive, but its performance has lagged in four out of the last five years. All other indexes have given returns of more than 25% in most recent years
Looking at some other data :
If we consider the top 500 companies, Niftyâs contribution to PAT is 56.49%, but its share in market capitalization is 47.86%. The midcap segment looks stretched, followed by the small cap segment.
From the perspective of PE, midcap and small cap are again higher compared to their historical PE. If we consider the median PE, it is 53.6 for midcap and next 50, whereas it is 44.6 for small cap.
Now looking PE with growth
Growth has been better in recent times, leading to higher PE ratios. However, Nifty has mirrored the return of growth. Therefore, Nifty offers better prospects compared to other indexes when considering both growth and valuation.
Allocation :
| Category | Percentage |
|---|---|
| Stock | 21% |
| Equity MF | 12% |
| Debt MF | 42% |
| FD | 6% |
| Gold | 3% |
| Cash | 4% |
| Other | 13% |
I wanted to go a bit defensive, so I am almost out of Next 50, Mid and Small cap.
I sold all mutual funds except Nifty 50 and PPFAS Flexi Cap, and for now, Iâve parked the money in a debt fund
Equity Portfolio:
| Invested Price | Current Price | Allocation | ||
|---|---|---|---|---|
| 1 | NSE:ITC | 240 | 434 | 16% |
| 2 | NSE:HDFCLIFE | 567 | 607 | 13% |
| 3 | NSE:ICICIGI | 1,243 | 1,860 | 16% |
| 4 | NSE:HDFCAMC | 2,082 | 4,221 | 12% |
| 5 | NSE:KOTAKBANK | 1,757 | 1,845 | 10% |
| 6 | NSE:MUTHOOTFIN | 1,017 | 1,803 | 4% |
| 7 | NSE:SUNDARMFIN | 2,336 | 4,587 | 4% |
| 8 | NSE:NAM-INDIA | 273 | 661 | 4% |
| 9 | NSE:CDSL | 1,026 | 2,319 | 4% |
| 10 | NSE:JYOTHYLAB | 231 | 472 | 3% |
| 11 | NSE:GLS | 699 | 911 | 3% |
| 12 | NSE:CMSINFO | 398 | 521 | 3% |
| 13 | NSE:HCLTECH | 1,385 | 1,517 | 6% |
| 14 | NSE:BIKAJI | 552 | 708 | 2% |
| 15 | NSE:BECTORFOOD | 1,281 | 1,432 | 2% |
Average up in core portfolio where some stocks corrected during election result day.
Added:
Glenmark life science :
Business : High ROE and ROCE business
Growth : Decent growth of 14% in the last 3 years
Valuation : ~8k market cap and 15 PE with 3.5% div yield
Balance Sheet : No debt and 2.4K reserves
Holding : Promoters holding ~82%, with individual shareholders decreasing over the years
CMS Info :
Growing topline ~15% and bottom line ~29%
Decent margin of more than 25%
Very good management, growing in different areas and focusing on service
Trading at a reasonable valuation of 17PE, 6k Mcap, growing steadily. Lower valuation due to concern around the cash management business as cash in the economy is reducing
Hangover of promotor sale is over, now owned completely by institutions, showing strength in the market and not correcting much.
HCL Tech:
Short to Medium term bet.
Usually, when a stock reaches ~3.5-4% div yield, It offers reasonable safety and decent returns.
Bikaji :
Added as part of core portfolio, with plans to add more going forward.
Plan to add FMCG, IT to the portfolio as it is heavily tilted towards financials.
Preference for packaged food is increasing, and Bikaji has a good portfolio expanding into various categories.
Like the management as they are targeting slow and steady growth, with possibilities to enter into QSR space like Haldiram.
At more than 50 PE, it looks a bit expensive. But added at 7 times to sales. Given the long runway, I am okay to pay more and will add in small tranches.
Mrs bector:
Almost similar thesis as Bikaji
Exit:
Amara Raja : Booked profit in Amara Raja, technically it is poised very well. But honestly, I donât understand the business in detail. I have no idea whether it will win in the battery wars. I added because of safety when the price was around 600.
I needed to raise some cash, so I sold it as I want to hold businesses where I have confidence and better understanding of the business.
Did some transaction in between but kept on profit booking and added it into core portfolio.
Mistake :
Exited from some stocks too early such as Cochin Shipyard, Rites, REC etc. Those were bets keeping in mind of margin of safety and Div yield. Booked profit after ~2x but I had no clue back then how crazy things could go. Again , I donât have too much regret of it as those were the short/medium terms bet as replacement of FD.
What worked:
Even after booking profits here and there, I managed to stay in the market and build a core portfolio.
Plan for next half of the year:
After COVID, all we have observed is that buying ignored stocks will eventually lead to gains. We have not seen any sizable correction. Many promoters are selling out, the quality of IPOs coming to market is questionable, and relatives are calling me saying they are investing in power/manufacturing funds. These are a few things that keep me cautious for now
I would like to invest more in stocks/MF to the existing portfolio, but as I said earlier, I will add Mid/small cap when there is a broader correction in the market. Untill then, the plan is to be in Large cap and Debt fund. And keep taking small bets in between.
At the end thank you so much everyone for all your guidance and support.
@harsh.beria93 @basumallick @hitesh2710 @Donald @ranvir @hardik_shah1 @Investor_No_1 love hearing your thoughts on this forum.
and special thanks to @ayushmit for screener, being focused more on quantitative side, getting all these data through screener is just awesome.
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