De-jargoned: Re-rating (2024)

Stock market index S&P 500 in the US gained about 30% in 2013, one of the best years for US equities in recent times. The rally in the US market was supported by the improving fundamentals of the economy. The US economy expanded at a healthy rate of 4.1% in the third quarter of 2013. But this is only one part of the story. The cyclically adjusted price-to-earnings ratio (or the Shiller P-E) for the S&P 500 is above 25 compared with the historical mean of 16.5. This simply means that stock prices have gained more than the earnings would have warranted.

In fact, as The Economist recently highlighted, the profits for corporate America went up by $39.2 billion in the September quarter compared with a rise of a $66.8 billion in the previous quarter (see: Solving the puzzle, The Economist, 4 January 2014).

The London-based newspaper also noted: “The big gains of 2013 were caused by investors re-rating the equity markets rather than because of the profit fundamentals."

What is re-rating?

Re-rating in the stock markets simply means that investors are willing to pay a higher price for shares, usually in anticipation of higher earnings in the future. What re-rating of shares does is that it expands the P-E ratio. Here is an example. If shares of company A are trading at 100 per share with earning per share at 10, it also means a P-E of 10. But if the share price shoots up to, say, 200 and the earnings per share also goes up to 15, the new P-E will be 13.3, which is higher than the 10 in the previous period. If the market is willing to pay a higher price compared with earnings for the shares of company A, it will be termed as re-rating of shares by the market.

This re-rating, or expansion in valuation, can happen for a company, or for the entire market, due to a number of reasons such as improvement in the demand situation, pick-up in the general economic activity or favourable policy decisions.

Interestingly, the expansion in the valuations in the US has happened at a time when the growth in the profitability of companies there is expected to moderate. Therefore, it is possible that, more than the earnings growth, it is the easy availability of money that is driving the stock prices.

Though the US Federal Reserve has decided to reduce the pace of its asset purchase programme, it will still be buying assets worth $75 billion per month from the marketplace and is expected to keep its policy rates near zero in the foreseeable future.

The India story

The S&P BSE Sensex in India is trading at a P-E of 17.75 compared with its 10-year average of 18.42. The P-E expanded in January 2008 to over 27 as it was argued that India with its high growth deserved higher valuations. But such high valuations could not be sustained due to the global financial crisis followed by the problems in the domestic economy.

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Published: 08 Jan 2014, 07:24 PM IST

De-jargoned: Re-rating (2024)

FAQs

Are self-evaluations legal? ›

Though a board self-evaluation is not required by law, it must be conducted within the dictates of applicable law.

How to write self-evaluation sample answers? ›

🙌 Problem-solving self-evaluation examples
  • I am flexible and adaptable. I find it easy to go with the flow and find creative solutions as new problems arise.
  • My ability to find effective and efficient solutions to problems has been a strong suit in the previous quarters. ...
  • I am proud of my knack for problem-solving.
Jan 4, 2024

Are self reviews worth it? ›

A self-assessment, when completed without bias and with the goal of improvement, can be an excellent performance review tool for both employees and management. It can help employees reflect on their strengths and weaknesses and create goals that will fuel personal and professional growth.

Why do employers make employees do self-evaluations? ›

For true insight into the strengths and weaknesses of each employee, you also need to get their individual points of view. An employee self-evaluation is the ideal solution. It allows each team member to highlight what they think are their strongest and weakest points.

Can I refuse a performance review? ›

Answer: Yes, but refusing to sign a write-up can lead to consequences.

What are the cons of self-evaluation? ›

  • 1 Bias and distortion. One of the main challenges of self-evaluations is that they are subject to bias and distortion. ...
  • 2 Lack of feedback and guidance. ...
  • 3 Lack of motivation and accountability. ...
  • 4 Lack of support and resources. ...
  • 5 Here's what else to consider.
Sep 27, 2023

What are the 5 words for performance review? ›

Simple, Direct, Honest, Personal, And Blunt: How The 5-Word Performance Review Works Wonders.

What could have been a better answer in appraisal? ›

How to answer appraisal questions?
  • It's important to be honest and reflective.
  • Highlight your achievements, the challenges you've faced, and how you've overcome them.
  • Focus on specific examples to illustrate your strengths and areas for growth.
  • Be open to feedback and willing to discuss ways to improve.
Jan 12, 2024

What is an example of a self-evaluation phrase? ›

I believe that the last <performance period> has been full of learning and development for me. While I was able to <quick snapshot of achievements>, I acknowledge that I need to pay attention to <areas of improvement>. I believe that this focus will help me <intended outcome for improvement>.

Why are self-evaluations so hard? ›

Inadequate equipment, information, memory to provide a self-review – an employee might find it hard to remember the projects or tasks performed in the last year; it might happen he or she has worked for too short of a time to have anything important to share in a self-review; last, but not least, if there is no ...

Should I be honest in my self evaluation? ›

Personal evaluation for performance reviews allows you to outline what you've been doing at the company before your manager takes a go at it. It requires honesty, proper planning, positive attitude, and a lot of introspection.

What should I say in my self review? ›

Make sure you reference your accomplishments in your review and highlight what you did well. For areas that need improvement, provide additional context for any questions you think your manager might ask, and share any details about how you approached a project or situation that shed light on its outcome.

How to answer self-performance review questions? ›

Tips on writing self-evaluations
  • Be honest & objective. Ideally, staff members should share a balanced view on areas of growth and praise in their self-evaluations. ...
  • Highlight growth, not just accomplishments. ...
  • Acknowledge areas for improvement. ...
  • Use specific examples & data.

How to end a self review? ›

Voice your ambitions: It's important to end the self evaluation on a positive, aspirational note. Employers love employees who take career progression seriously and are excited about their job.

How do you describe yourself in a performance review? ›

It's essential to include a section that details your accomplishments and positive attributes in your review. To do this, use the personal and professional skills you have written down to guide how you present your accomplishments. When writing, be sure to address the following: Include facts and figures.

Is self-evaluation required by ADA? ›

A public entity that employs 50 or more employees must retain its self-evaluation for three years. Other public entities are not required to retain their self-evaluations, but are encouraged to do so because these documents support a public entity's good faith efforts to comply with its title II requirements.

How accurate are self-evaluations? ›

Self-evaluation research has firmly established that people are not very accurate in evaluating their own abilities or performance. In general, they tend to overestimate their capacities (Dunning et al., 2004, Mabe and West, 1982, Stone, 2000).

What is self-evaluation privilege? ›

Under this privilege, information is privileged if: (1) it results from a critical self-analysis. undertaken by the party seeking protection; (2) the public has a strong interest in preserving the free flow. of the type of information sought; (3) the information is of the type whose flow would be curtailed if.

Are self assessments biased? ›

The widely observed positive bias on self-evaluation is mainly explained by the self-enhancement motivation which minimizes negative feedbacks and emphasizes positive ones.

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