Every sector goes through a process of ups and downs. First co | Stock Shiksha

Every sector goes through a process of ups and downs. First come optimism with few first moving players. Those first movers are always overvalued as there is less competition with high potential.

Second phase is high competition when many players jump into the market because of high growth potential. This is the time when everyone tries to participate in rising sector. New players come with offer to lure customers. Government also comes with regulation for malpractices and price cap. Now doing business is tough because of high competition, high cost of capital, tighter regulation. Companies started posting loss in the hope later they would be profitable business.

Now third phase starts which is consolidation as small pocket business feel the pain and its difficult to run business now. At the same time, one big player with big pocket size ruin the party like Reliance Jio did. Small players now vanished or merged with bigger players. Again there few players only in the sector and then we see profit coming to these left companies.

Diagnostic sector EV are in second phase with increasing competition. Tougher regulation will make difficult to run business further. Online gaming will see the same sooner or later. Online retailing is going through tough competition.

My point of view is that always be aware of this cycle when you invest in new emerging sector. So that you can be able to value companies