In IT services there is only one company with high barriers to entry. There is only one Goliath. and that company is TCS. It is bigger now than the next 2 IT services companies in India put together.

TCS's barrier to entry as it consistently grows at 15/16% each year, is its ability to create its moat, built around training and re-retraining 2.5 lac people every year. It's the world's largest trainer/retrainer of white-collared professionals.

That's given TCS enormous resilience. It doesn't matter whether cloud computing is in flavour or application dev and management is in flavour or SAP is doing well or Salesforce is doing well, TCS has turned itself into a giant Elephant who is super nimble.

Marrying scale with nimbleness is one of the toughest challenges in corporate life and TCS has pulled that off which makes it the sole clear Gorrila in Indian IT services.

PE or P/B or EV/EBITDA have no bearing or have zero predictive power when it comes to investing over a period of 1, 2 or 5 year periods. Standard PE multiples don't work in India.

In companies where capital intensity is low, say TCS, the 'E' is a good proxy for cash generation because TCS doesn't need to reinvest that much in CAPEX, but say with Tata steel, the 'E' is a futile number. Tata Steel needs to do heavy CAPEX to generate future growth.

So while TCS' profits are no more than 4 or 5 times Tata Steel's profits, TCS's FCFs are 11 times Tata Steel's FCFs. The result is over the last decade TCS consistently grows business earnings at 15/16%, in the last 10 years, Tata Steel's profit growth is Zero.

So the capital intensity is something the 'E' does not capture. A low PE does not mean the stock is underpriced and a high PE does not mean the stock is overpriced. The one factor that helps everybody predict the future stock price is FCF growth over the next decade.

If you can predict future FCF growth over the next decade you pretty much got 70% of the analysis right.

If a co can grow FCF at 25% over the next 5 yrs I'll be happy to buy even at 25 times earnings. But if the same company were to grow FCF at 25% over the next 15 yrs it becomes 80 times the earnings and if it can grow FCF at 25% over 25 yrs the company becomes 280 times earnings.

Now just to put it in perspective, Pidilite has grown FCF by more than 25% for the last 25 years. That means In 1997/98 had you bought Pidilite at 280 times earnings you would've still been a very happy shareholder.

As a result, in most of these High-quality franchises, like Nestle, Asian Paints, Pidilite, Divis Lab, one can buy at triple-digit PE multiples and they would still be cheap.

So longevity is very important. How long can a business generate superior FCF is not something that most investors are able to get their heads around. Nifty is of no interest to me because 90% of the companies in Nifty can't generate RoC above their cost of capital.

All successful companies all across the world are by definition monopolies. The word monopoly has been misunderstood as one having a -ve connotation. Monopoly does not have a -ve connotation.

It means a dominant provider who has managed to erect barriers to entry that its rivals cannot compete. Companies like Pidilite and Nestle completely dominate. Similarly in consumer durables financing, 85% Mkt share lies with Bajaj Finance.

99% of businesses that you and I would know of in the stock market are not able to dominate anything and therefore they struggle to generate RoC above their CoCl which means they can't generate FCF which means they can not create value for their shareholders.