Revaluation call: Don’t write off businesses challenged by sunrise rivalry
It seems that over the past decade or so, a whole host of stocks and sectors have been written off by investors. Newspapers, linear television, thermal power, anything related to the internal combustion engine, offline travel agents—the list is long. However, in the real world, many of them are still ubiquitous.
Take India’s newspaper circulation, for example. It has remained intact over the past decade. Over 75% of electricity consumed in India is still generated from thermal plants and over 99% of all vehicles on Indian roads still have internal combustion engines.
The disconnect between what we see everyday versus what markets perceive stems from the fact that investors have convinced themselves that in a few years, these stocks and sectors will cease to exist. They would have been replaced by a newer, better product or service that is being rapidly adopted. So digital news will vanquish newspapers, renewable energy will supersede thermal power plants and electric vehicles will render the combustion engine obsolete.
Stock markets have a tendency to get excited by shiny new things, extrapolate rapid adoption into the future and write obituaries of extant products and services. What follows is an investor stampede out of such challenged spaces, causing severe valuation contractions. In certain cases, explicit investor mandates prohibit investments in these challenged sectors, and that quickens the exodus.
Stocks and sectors being declared terminally ill is not a new phenomenon and markets are often right in their assessment of the future. However, if one were to correctly bet against prevailing wisdom with respect to either the extent or pace of decline, there is a lot of money to be made. Yet, most investors suspend
. Read more on livemint.com
