According to a research by Kotak Institutional Equities, excessive interest in predicting quarterly results, cognitive biases and the inability of industries to accurately estimate their own performance are behind the ‘awkward valuation’ of consumer stocks.
“We believe the Street needs to review its valuation approach and rationale for consumer stocks,” said Sanjeev Prasad, head of institutional equities at Kotak and one of the authors of the report.
According to the report’s data, most consumer stocks are trading at 40-60 times the one-year-ahead price-to-earnings ratio, which is a measure used to verify whether a stock justifies its earnings. “Despite a disproportionate share of positive ratings, most consumer stocks have delivered poor returns over the last 3-5 years,” Mr Prasad said.
He said popular perception missed changes in companies’ business models as they expected “quarterly earnings to reach 2010 levels”, used historical valuation benchmarks even after they became irrelevant, and were overly focused on quarterly results driven by consumer demand.
“The fact that stocks have gone nowhere for years is not troubling anyone, the reasons behind this are serious cognitive biases and companies’ overconfidence about their ability to predict events in the age of climate change and technological disruptions, and misperceptions among analysts and investors about their ability to predict growth based on stock prices and companies’ guidance,” the authors said.
published – November 20, 2025 10:33 PM IST
