Synopsis
Net margin is a useful metric. It tells you how much profit remains after costs, interest, and tax are deducted from revenue. But it does not tell you whether the sector is structurally tough. It does not tell you whether management has pricing discipline. It does not tell you whether the company has survived a crisis that killed competitors. It does not tell you whether the business can reinvest. It does not tell you whether low margin is a weakness or simply the price of operating in a hard but defensible industry. It does not necessarily tell you whether the stock is worth picking up in the market.
Before you proceed further, read the long synopsis again. It tells you two things. The first is about business, and the second is about a reality of the stock market – and how stock prices move in the short term.Let’s start with the second. There is a high probability that the Indian stock market will underperform other emerging markets. Why we are saying this needs to be seen in two contexts. The first is that there is a high probability that
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