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CARE Ratings: Does the Market Crash Impact PEG? - Views on News from Equitymaster
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CARE Ratings: Does the Market Crash Impact PEG?
Mar 2, 2016

As you understand, stocks recommended in The India Letter are supposed to benefit from the economic tailwinds of one of the seven Megatrends.

However, as I have pointed out in the Frequently Asked Questions, the earnings of these high growth companies are unlikely to have a secular uptrend. Their earnings will be subject to company specific and economic hiccups. While this will not do away with the company’s moat or the benefits expected from the Megatrend, investors may have to calibrate the return expectations from the stock based on earnings growth.

Hence unless the earnings performance of a company is consistently in line with our estimates we will have to, from time to time, review the PEG estimates (price to earnings growth) of the stocks. It is on the basis of such review that we will be able to update you on whether you should increase your exposure to the stocks or not.

In February 2016, we sent out a special report reviewing the PEG for three of our past recommended stocks - Suven Life Sciences, Kaveri Seeds and Kitex Garments.

Please allow us to also clarify that the Best Buy Price is an indicative price limit at which we will have to review the upside to the stock and recommend investors to increase their exposure. Investors buying more of the stock purely on the basis of the stock touching the best buy price may end up taking the risk of the buying the company without taking into account the earnings risk, if any.

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