Art of extrapolation - 1
It is a normal practice of market analysts (especially buy side analysts) to extrapolate historical data for validating their pre-drawn conclusions. For example, there are numerous research reports and messages which rely on “low per capita consumption” and “moat” in India to make a strong case for buying a particular stock or sector. Based on this, many “new businesses” (and some established businesses) are given astronomical valuations. In this context, I find it pertinent to note the following: · In the early 1990s, the number of Indian citizens using air transport for travelling purposes was extremely low. There was only one civil airline, viz., Indian Airlines. Then the civil aviation business was opened to private competition. Within a span of 2yr several private airlines started business, e.g., Sahara, NEPC, Damania, East West, Modiluft etc. All these ended as bankrupt in less than a decade. In the second tranche, some more p...