Sectors are different: Cyclicals, banks and where P/E misleads
Why steel, metals and sugar stocks look cheapest at the top of the cycle, and why banks are judged on NPAs and margins instead of P/E.
One rulebook doesn’t fit every sector
| Measure | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Salesmoney from customers, ₹ crore | 4,000 | 3,800 | 4,200 | 4,100 | 6,200 |
| Net profitleft after interest and tax, ₹ crore | 220 | 180 | 260 | 230 | 1,150 |
| ROEnet profit ÷ equity | 7.3% | 5.8% | 8.0% | 6.8% | 26.7% |
| P/Eshare price ÷ earnings per share | 14 | 16 | 12 | 15 | 4 |
Steel, metals, cement and sugar companies ride price cycles. In a boom their profit explodes, so the P/E looks tiny right at the top. Banks are different again: they borrow by design, so judge them on bad loans (NPAs) and lending margins, not debt to equity.
What to look for
- Cyclicals: judge them on profit in a normal year, not a boom year.
- Very low P/E after a record year: often a peak, not a bargain.
- Banks: look at NPAs, net interest margin and CASA, not P/E alone.
Buying cyclicals when the P/E is high (profits depressed) and selling when it’s low is an old rule of thumb.
This steel company trades at a P/E of 4 after a record year. Is it cheap?
- Not necessarily: profit is at a peak that may not last, so the low P/E can be a trap
- Yes, a P/E of 4 is always cheap
- No, steel companies can never be cheap
Show the answer
Not necessarily: profit is at a peak that may not last, so the low P/E can be a trap. Profit jumped five times in one year on high steel prices. If prices fall back, profit drops to its usual ₹200–250 crore and the real P/E is closer to 20.
What the numbers showed
FY24 profit of ₹1,150 crore was about five times a normal year. That one-off boom is what made the P/E look so low.
Buying cyclicals when the P/E is high (profits depressed) and selling when it’s low is an old rule of thumb.
Practise Sectors are different, free
Reading about it is step one. In MarketSeekho you look at a company’s numbers, make a call, say why, and get graded on your reasoning, not luck.
Common questions
What is Sectors are different?
Steel, metals, cement and sugar companies ride price cycles. In a boom their profit explodes, so the P/E looks tiny right at the top. Banks are different again: they borrow by design, so judge them on bad loans (NPAs) and lending margins, not debt to equity.
What should I look for in sectors are different?
Cyclicals: judge them on profit in a normal year, not a boom year. Very low P/E after a record year: often a peak, not a bargain. Banks: look at NPAs, net interest margin and CASA, not P/E alone.
This steel company trades at a P/E of 4 after a record year. Is it cheap?
Not necessarily: profit is at a peak that may not last, so the low P/E can be a trap. Profit jumped five times in one year on high steel prices. If prices fall back, profit drops to its usual ₹200–250 crore and the real P/E is closer to 20.
How can I practise sectors are different for free?
MarketSeekho has a free four-page chapter on Sectors are different (learn, answer a question, spot it in a company’s numbers, then make a call) and an unlimited Cheap or expensive? practice game graded on your reasoning. No sign-up or money needed.