- India is in a Low RoE Phase.
- 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.
- 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%).
- 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.
- 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.
- Today Equity is cheap, tomorrow it may be cheaper by another 10%, but in 5 yrs it has potential to get priced 300% higher. As during Low RoE phase market assign low PE and in High ROE phase market assign high PE.