Investing in the stock market requires a lot of homework at the pre-investment stage while finalizing the stocks for investment. A good number of stock market investors look at the valuation and sentiment regarding the stock at the time of investment. In fact a good number of investors ignore the high valuation of a stock if the market sentiment on that stock is bullish. We have seen that happening with Adani Group shares in the post-Covid rally, while various other overpriced stocks like Vedanta, Tata Power, DLF, Avenue Supermarts etc have failed to attract investor interest in recent years. The problem has not occurred.
For such stock market investors, Nitin Kamath, Founder & CEO, Zerodha has an easy way out Investment Lesson to be seen. Advising stock market investors to understand what high valuations can sometimes mean, Nitin Kamath said that high valuations are mostly a result of exaggerating the size of the opportunity. He said high valuations are harmful and suggested investors not to take exceptions as the rule.
Nitin Kamath from his official Twitter handle shared his views on companies with valuations, “We celebrate valuations, but the more I talk to founders, the more I am convinced that high valuations are harmful. High valuations mostly The result of exaggerating the size. Of chance. Of course, there are outliers, but they are the exception, not the rule.
at unrealistic valuations that can add up to Adani Enterprises, Adani Ports and others Adani Group Stock investors, Founder and CEO of Zerodha said, “It is sad to see businesses that could have otherwise done well because they raised money at unrealistic valuations. Higher valuations lead you to spend more, hire more and make random bets.” Founders lose out. Interest if assumptions about total addressable market (TAM) do not materialize, and it is not possible to grow fast enough to justify valuations.”
Check out Nitin Kamath’s tweet below:
Nitin Kamath further added that unfair TAM assumptions are a big problem in India as the revenue opportunity other than lending is limited to the top 20 million Indians (~1.5% of India). And there is a multitude of moneylenders.
On how to combat this problem, the Zerodha founder said, “…undervaluing and raising only what is necessary, I think, helps founders stay focused and increase the odds of building a successful sustainable business.” Will help.”
Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint. We advise investors to do due diligence with certified experts before making any investment decision.
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