When it comes to assigning PE multiples to stocks, an important element to consider is whether the business is cyclical or secular in nature. The latter is given a higher multiple due to the certainty of cash flows and, hence, better capital management. As the Indian economy grows and consumer preferences change, some businesses are still cyclical in nature – but the element of cyclicality has come down. Essentially, overall demand has grown to an extent where the sales they used to achieve in good times 10 years back, they are able to achieve in the off season now. As a result, the street has been re-evaluating them with a bullish bias. But then came valuation saturation. These stocks then moved in a sideways range. But they were still outperforming bearish markets.
