A Brief summary of the Micro/Small/Midcap Carnage

Is Hindustan Copper in your list due to expected Copper bull run? I under the Aksh to be there is due to the data usage explosion. Though my pick in the sector is Sterlite Tech.

These stocks are not there because of improving fundamentals or favourable sectoral tailwinds…but because of potential upside breakout…As an when the said breakout happens, we should then analyze the fundamentals and decide whether the stock is worth investing or not…

In January 2017 I had selected BEPL as the breakout stock but did not buy it because of somewhat bearish mngt comments in the annual report…

Aksh Optifibre has an upside breakout on close above 39…only on upside breakout examine the fundamentals of Aksh in detail and then decide whether you would like to invest in it.

As of now I would advise a blank slate approach…if we shortlist stocks now, then there is a possibility of us buying stocks in anticipation of breakout…investors are told to fight greed and I think one form of greed is trying to buy a stock at a very low price… usually this kind of greed gets investors snared in value traps…

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Good information but It is difficult to wear an investor and trader hat. The variables are in numberable …The only solace is in any point of history markets through there lifetime have always beaten inflation…a diversified or savvy investor will always survive.

Based on my personal experience, always buy the fear with 2-3 years view at least.One of the example was DHFL was smashed brutally by the market in Dec- Jan 2016 correction and stock has been a multibagger without loosing much sleep. At the same time , one will loose some sleep if the had bought HEG, Graphite or prakash industries as they are cyclical and one has to be very vigilant . We will always find good opportunity all the time as market always provides it. Just keep looking as Avanti was a great buy at 1200 levels and be flexible with stock selections. Consumption theme will always work and need some luck as well.

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I’m in agreement with you. At least for me, the more intricate portions of investing are beyond my comprehension. I may be wrong, but I think that for most investors, it may be prudent to invest in leading, well known names and not meander in the frightening lanes of smaller companies. Because trying to extract market outperforming returns by sacrificing peace of mind and by extension, sleep, is not a task worth indulging in. I too was delusional. But, now I’ve realised that preserving purchasing power and a little more is my objective. This recent meltdown has helped me regain my attention on my craft. For me, that’s the silver lining.

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Not sure if it can be done, but was wondering, if the participants can post stocks, which they bought in the recent downfall, and more importantly the thought process behind those buys…

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I try to follow a process as mentioned below for selection of companies which I would like to invest

  1. Try to find all that is negative about the company starting from high debt to pledged shares to related party transactions to promoter dishonesty. If you find any of these then try to stay away from that stock even if it is showing growth signs, a good sector.
  2. If you find a company which has good potential to grow and/or in a good sector and/or management is honest then try to find what can go wrong with that company. This way you will be prepared if those circumstances occur then you will be in a position to take decision to sell that stock

Above process allows you to stay away from bad stories eventually.

The below article from Abhishek Basumallik summarizes this very well.

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I was looking at M1, M3 etc. (at trading economics) money supply in India as that could be a measure of how much domestic money is available…

Ratio of M1 money in 2018 and in 2013 is 1.66, CAGR of 10.6%

Ratio of M3 money in 2018 and in 2013 is 1.75, CAGR of 11.8%

In 2013, nifty made a low of arnd 5400 on fundamental bad news… That low for 2018 is between 9000 (1.66 * 5400) and 9450 (1.75 * 5400)…now suppose there is not that amount of selling in 2018, the lows for coming years also move with CAGR of between 10.6%-11.8%…for ex. 10000-10500 is the low for 2019

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Pardon my technical charts knowledge. Are you saying that HC is in the list coz there is a technical breakout expected? And that upon the breakout, we should look at its fundamentals? This an interesting stuff. What is the breakout price are you expecting?

Hind copper sells it’s products in India as per the price of copper on London Metal Exchange…that’s as per the company’s stated policy.

Thus the performance of Hind copper is linked the global copper cycle…and the only possible way for investors to map the copper cycle is through technical analysis. It’s almost impossible for an individual investor to analyze commodity cycle fundamentally

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Thanks alot for this information. I was unaware of this.

Hi Mehnaz, do you look at technicals only or also at fundamentals along with it? From moneycontrol data, MCap of Hind Copper is 6600 crores and even in their best years (again from data available on moneycontrol), their peak profit was around 350 crores. There hasn’t been much equity dilution either so I wonder how this stock ever traded at 500. That would have been insane PE for a cyclical stock. Are they going in for some huge capex that would bring huge profits in future?
Disc. Not invested. Interested from learning perspective.

There are presentation about the capex plan added on another topic. However, to my mind, it still does not address the concern over extremely higher PE especially when the company management is typical PSU management. A perspective in this regards would really help.

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You guys have still not got what I am trying to say…my point is there will be quite a few stocks that may breakout after the market fall is done with…and among those stocks, it is for us to pick a few fundamentally good stocks …preferably stocks with good sectoral tail winds and mandatorily companies having good mngt…

Hind copper is perhaps one such stock…SAIL is definitely such a stock…there will be others too…we can prepare the list at end of June quarter…

Technically, when I see the long term quarterly chart of Hind copper, I see the stock moving along the lower forkline…it has a first breakout point @ 75 and then @ 110…and once it leaves the lower forkline, it is then headed towards the middle forkline …you can see how high the eventual target can be…


If you do not like hind copper fundamentally…then you skip it and move to some other stock…or it may be that we will know the real reason when Hind copper is trading above 200+…its not necessary for mediocre investors to fully understand and grasp each and every development in the market and economy…just ignore what is outside your circle of competence and move to next stock on the list…

why is it so difficult to accept that we may not be great investors…

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Yes…Hind copper is under massive capex and the mngt says that the eps may jump to 2 rupees by fy20…still not good e,nough to propel the stock price to 200…300+ levels

On the other hand, Anil Agarwal - the metal czar wants to takeover Hind copper from Govt…he says that it can be another success story like Hindustan zinc…It may be recalled that hind zinc became a multibagger ( 40x I think) after takeover. … .and also do remember that Anil Agarwal plays the metal cycle to perfection

I think the real value is somewhere between the above two extremes

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On similar lines in todays moneycontrol

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Mehnaz, he is saying 2 rupees eps so that no one calls him mad. No one can predict what kind of eps it will post when structurally mutliple things are happening in its core business sector.

Hind copper if it has to be judged should be judged in 2022. Its not a short term play and only the most patient one’s should enter.

@The_Confused_Consult, @raj66,
The first rule of valuepickr is civility. I am deleting all the posts that I believe where no important investment discussion is not present and basic civility is not maintained.

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@The_Confused_Consult, @raj66

Guys as abhishek said, take a chill pill. We are not here on an ego trip. The essence of VP forum is learning and sharing. There can be friendly banter but the line of disrespect and abuse needs to be watched very carefully.

Learning comes only from having humility.

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Well, When the stock goes up we hear only the best news about the company and when it goes down it is only the bad news. When AVANTI went up and up, opinions were something on these lines - Shrimp feed is a wonderful business and it deserves FMCG valuation. Momentum has been built up and it was way overvalued. When a stock goes up, no one disscusses about the risk associated with the company. Now when gravity is back in action, the price is returning to normal level. Now you hear only bad news - AVANTI is a commodity business and it faces lot of headwinds. When a fundametally good stock goes up, it brings all those momentum chasers which again will shoot up the prices to next level. Problem here is no one can estimate how far it can go both on the upper and lower side. Even technical analaysis looks behind the past prices and tries to identify support and resistance. It is impossible to predict the low or high price.

So what then ?

Someone said that dont buy small caps above 4-5 PE. It is possible only if you were in 2009 or 2013. For instance, you have analysed AVANTI and you beleive it is a good business. Lets say it trades at 15 PE. As the price goes up, earnings also catches with the price and PE is still range bound around 15. You already feel bad as you know the company very well and still could not invest in it due to the PE . Now all of a sudden, the raging bull lifts the PE from 15 to 45 and you feel like you have missed a golden opportunity though you very well knew about the company. Now all you hear is only good news and wonderful prospects. You could not resist your urge and you jump into the boat. What follows is a complete suprise and the price falls as if like no price is low price. You come out thinking that you will buy at much lower price or any other anchored price which I am sure you would never be able to do it.

So what course need to be followed ?

I think there is no specific rule here and it is quite based on your experience. What I do is I will maintain Equity - DEBT portfolio as suggested in Intelligent Investor. I take NIFTY PE as reference. With Long term NIFTY PE as reference, I will reduce equity and increase DEBT when the PE is on the higher end. When PE comes down below the long term average I will slowly move from DEBT to equity.

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