Ceo Journal

  Whether it be debt or equity, in general, the level of risk is lower when investing in bigger companies. This got further exacerbated in the backdrop of the pandemic, smaller companies with their lower levels of resilience and limited sources for raising financing resulted in positive economic outcomes for larger players. Their already high market shares got a further fillip as suppliers, distributors, financiers, customers all resorted to ‘safer’ and ‘trusted’ brands. Apart from growth, this enhanced market share provided a cushion against lock-downs, lowering demand during the pandemic, says Varun Kapur Yes Bank .  

This thesis is visible in the outsized returns over the last one year (during which there were 2 lock-downs) generated by these large private players with high market shares in their respective business segments (equity returns mentioned below exclude dividends): Bajaj Finance – 95% L&T – 79% Asian Paints – 74% Pidilite Industries – 71% Titan Industries – 63% As per Varun Manmohan Kapur Now market share is sticky, owing to the number of intermediaries involved and the ‘trust’ factor, once created gets difficult to displace in the short term. So large caps with large market shares in their segment’s pre-pandemic are expected to yield the benefits of such enhanced market share over the medium term. Certainty of cash flows, vendor payments, debt servicing, employee retention will all play to their benefit. These outsized market shares owing to the pandemic can throw off conventional valuation matrices like P/E, EV/EBITDA as ‘growth’ (despite their already large base) is...