@hitesh2710 sir ji , Is there any proven strategy of selling stocks at say (10 -12% from 52 week high ) and gather cash before such event.
Not having cash hurts.
We are experiencing a totally new situation due to the scare induced by Corona. When and where the carnage ends is anybody’s guess. The only lines that help in these times is “This too shall pass”.
Markets have been falling relentlessly since a few days without any signs of respite and not even intra day bounces. These are unprecedented situations and at some point of time will stop but till that time we need to keep our self discipline and hopes alive.
Ideal thing is to wait out on the sidelines. If one is invested and has no cash then there is no recourse but to bear the pain and wait for things to settle down. Till that time it might be a good idea to stay away from markets and think about other things. Or work on companies where there is highest conviction. For those with little or a lot of cash it might make sense to wait till the dust settles and then only venture out a buy. Or else there has a clear logic to what we buy based on future growth (with little or no impact of Corona like situations) earnings, dividend yields, cash flows, etc.
Personally I am just sitting back and watching things. If and when things normalise, the idea should be to get rid of the laggards and get into good companies which also have corrected a lot. But currently due to extreme volatility and low liquidity that also is not possible so its better to sit and wait.
Difficult to offer solace and hope in such a scenario but the only silver lining here is that the timeline for viral infection to clear will be restricted to few months after which businesses should start getting on their feet slowly. India as of now has not been affected to a great extent but here too I have my fingers crossed. No use speculating on things not in our control. At a personal level everyone should avoid crowded places, unwanted travelling and take personal precautions which should prevent us from getting infected.
65 Likes
Hiteshji,
Today’s market movement baffles me completely on logic. The market was going down on various concerns and it was understandable. It moved down in the same trend, it commenced it’s sharp downward journey today also.
Suddenly the market jumped up while there has been no improvement in Corona virus situation .It’s rather spreading though slowly in India.Only the silver lining has been downward prices of crude, but it has been going on for the last few days. Understanding this move would help me for the future.
Could you give your understanding of this move or the possible causes?
1 Like
These are volatile times for the global markets where fear predominates. Any negative newsflow and stocks can tumble significantly. And after prolonged bouts of selling there will be oversold market conditions which will induce sharp upmoves too. But as long as the overall trend remains down, one has to be cautious in going overboard in buying.
Coming to specific move on Friday, its difficult to decipher the precise reasons for such moves. And in an increasingly interconnected world there will be no dearth of newsflow. The idea should be to focus on individual companies and assess which are the ones that provide good long term opportunities (considering this Corona phenomenon will be having a definite timelines of a few quarters or months. )
9 Likes
Hi Hitheshji,
What is your current stance on Glaxo pharma? After the poor previous quarter results, any greenshoots in the company’s fundamentals?
1 Like
Hello,
What is your view on Manappuram finance, even after steller results and increasing gold prices it now < 8 PE. What is the risk market is factoring?
Hi Hiteshji ,
What’s your opinion on the impact of corona virus on financial sector. I feel the shutdown of malls & other public places in major indian cities will impact business as a whole & may lead to increased NPA going forward.
Can you throw more light on impact on bajaj finance & HDFC bank (both of them looks attractive at present valuations)?
Manappuram is correcting in line with the general markets. When there is a meltdown as is happening currently its the exactly opposite of a roaring bull market.
Just as in bull markets there is fear of missing out, here there is fear of missing out on selling. so people flock to sell anything they can irrespective of how good the company is or how good the prospects are. There is only one overwhelming feeling and that is to sell whatever can be sold. Add to that margin calls etc which might be triggered by bear markets, and you have sharp cuts across stocks.
@red2red In case of glaxo I cannot see the greenshoots you mention as I think it will take atleast a few quarters before anything positive comes up. Till that time its wait and watch. Meanwhile because of generalised corrections I feel there are and will be plenty of mouthwatering opportunities to buy stuff. First one needs to see where there is any semblance of support and then take a call.
3 Likes
Hi sir what I have noticed from the February month of this year is all financial institutions ( pvt banks and nbfc) are correcting… This looks more like markets trying to discount the future npa that is going to build around them due to this disruption in the current economy… I feel this de rating may stay… Maybe companies like bajaj finance may stop trading 7times book…
Or is this beating happening because of yes bank fiasco and indus ind bank pressure…people loosing faith in private banks?.. Wanted to know your view points in private banks and nbfc
Hi @hitesh2710,
Any thoughts on Indusind Bank? The general numbers available on the public domain do not seem to warrant such a fall. Are there any specific reasons that is not very visible.
Note: Invested in Indusind Bank and watching the fall now.
This may purely be happening because of corona scare.Anyone looking at rain industries.
The NBFCs were hit out of shape long time back when they were hit by the crisis. Some of them survived the crash and now have started tumbling down. A lot of financials that were holding firm like Bajaj Fin, HDFC twins, Kotak, smaller names like AU bank, MAS, etc have now started correcting in real earnest. This usually happens at the fag end of capitulation.
I think the recent fall probably is factoring in rampant spread of Corona in India and a closure of a lot of businesses. Panic has no logic. So its difficult to figure out what is leading to this kind of meltdown.
Markets tend to overdo things both on the way up and down.
Indusind bank seems to be getting hard so also is Bandhan. And a lot of other private banks.
Prudent course remains to be on sidelines and watch when the horror show shows signs of ebbing.
23 Likes
I watch global macros closely and I have great interest in Economy, Psychology, History, Politics apart from Stock market. In my humble opinion, many people are still underestimating economic impact on global economy due to Coronavirus. I strongly believe that available datapoints suggest that there will not be V shaped fast recovery as most speculators/analysts are saying but rather L shaped slow recovery for economy and markets. Here are my observations.
Economic impact due to Coronavirus will be huge as entire countries are locked down. Initially people thought that its just China’s problem. But later Italy, Iran and South Korea had to face massive Coronavirus outbreak. Italy was locked down. Currently Spain and France are under lockdown. Also US, European Union and most countries worldwide have asked people to avoid nonessential travel and stay at home as far as possible to avoid Italy like situation. This situation is still developing.
This affects global supply chains. Second order effect is as people are barricaded at home, demand would suffer. So debt ridden companies and small business owners will find it difficult to survive. So banks will have bad loans. Also job losses will increase as business face losses or shut down. So naturally people will save more and spend less hurting economy more.
2008 didn’t have entire countries world over locked down for almost 3 months (e.g. - China). For consumer demand/supply to return back to normal levels, we may consider at least 6 months in each country. This is unprecedented situation. There will be recession in almost every country. Also as one country’s economy say Italy’s and US’s suffers, it’s demand from recovered country like China will also suffer. This is called feedback loop and is contagious affecting global economy.
President Donald Trump himself said that Americans should avoid gatherings of more than 10 people. Trump said the worst of the coronavirus outbreak may not peak until August and conceded that the U.S. may be headed for a recession.
The San Francisco Bay Area lockdown and national guidelines signal a rapid escalation of government and business efforts to halt the coronavirus spread via restrictions that will slam the brakes on economic activity. Trump said the focus for now must be on halting Covid-19. United States Treasury Secretary Steven Mnuchin has warned Republican senators that the country’s unemployment rate could hit 20 percent if they failed to act on a proposed coronavirus rescue package and there will be lasting economic damage.
US and EU is shutting down at lightning speed as schools and businesses instruct people to go home and wait the new coronavirus out. That is having a huge ripple effect on the economy as people curtail spending on almost everything but medicines, groceries and hand sanitizer.
The pace at which all of this is happening is unprecedented. In 2008, it took 274 days for the stock market to enter the dreaded “bear market” territory. It took 24 days to enter a bear market now.
Also to add fuel to this fire, there is oil price war started by Russia and Saudi Arabia. If oil prices remain at these low levels below 50$, lot of US shell oil companies will go bankrupt. Banks will have to deal with increasing bad loans.
Fed has slashed rates to zero. But this is an act of desperation and it shows how coronavirus situation is affecting US economy at a lightning speed and will have dire consequences on US economy over next few quarters. The Fed last cut rates to zero during the global financial crisis just over a decade ago.
In China, Retail sales plunged 20.5% during January and February over the same period in 2019, industrial output was down 13.5%, and fixed asset investment fell by nearly 25%. All 3 data points were much weaker than analysts were expecting, and the decline in industrial production was the sharpest contraction on record. The data for March could be even worse.
If US and Europe suffer, then entire world will suffer and India is not insulated from that and hence the market is crashing quickly since last 15 days.
In my humble opinion, this not a time to buy the dip. There are already enough signs that 11 year bull market is ending. There will be time correction. Bear markets have three stages - sharp downward movement, reflexive rebound and a long downtrend. This too shall pass. But we need to wait and watch next 1-2 quarters very carefully before deploying any money in stock market and then also buy in a staggered manner.
Please read below articles to get more clarity about this Coronavirus impact on economy and how it affects many industries.
https://www.washingtonpost.com/business/2020/03/14/recession-economy-coronavirus-jobs/
https://www.washingtonpost.com/business/2020/03/11/layoffs-coronavirus/
https://edition.cnn.com/2020/03/16/economy/china-economy-coronavirus/index.html
Disc: Not a buy/sell recommendation. Please do your own due diligence.
55 Likes
Thanks Hitesh. What stock rings the bell in the category of defensive.
Also in small and mid caps - where you think the values are emerging.
Dhaval - good analysis and really resonate lots of point logically.
You said bear market has 3 phases - sharp downward movement, reflexive rebound and than continual downwards.
What amount of time was spent as such in last L shaped recovery? Any perspective you might have with respect to recovery.
Also I am preparing the list of stocks which will get benefit from 2/3 year bear market phase - essentials, medicines ? Can you highlight such area ?
Here is an interesting fact just to take this conversation ahead and come out with sone useful pointers so as to navigate this downturn…
The last time s and p corrected 30% once in 1987 and once in 1970 33and 36% respectively it took s and p about 20 months to take back the previous high from the low… When s and p fell above 40% once in 74 and 2002 48 and 49% respectively it took s and p about 60 months to take back the previous highs… The time when s and p fell 50% in 2009 (56% to be precise) it took s and p around 46 months to take back the previous highs…
So I feel if we jump in too early to catch the falling knives we might regret it and tell it as an experience to our children or juniors…
I feel waiting for things to cool off assessing and then jumping would make sense…
There is another group of people who say that we wait and watch and by the time we realise it the train would have already passed…
I still feel buying in a staggered way would be the best way to go forward… Nibbling would be the right word…
Also this is the phase where engines are changed…
ie the leaders of the next bull markets will swap places with existing ones that are battered… @hitesh2710 bhai ur opinion regarding this??
6 Likes
Dear Dhaval,
These are perfectly rational arguments and points. And things may well play out this way. Having said that, let me present a counter view. Over the years, I’ve realized one thing. Just like things surprise on the downside when the going is good (e.g. no one priced in a pandemic), things surprise on the upside when the outlook looks bleak. I remember how I felt in 2008-09. It was as though the financial system itself would collapse. Prices fell to such lows, it felt surreal. Had to pinch myself. But I managed to keep buying (at that time had a small corpus, so it was not so stressful). Those buys really helped! I have since stopped second guessing how macros may play out. If prices are low (versus my perception of long term value) and the company is likely to survive (strong balance sheet), I buy - even if staggered.
Necessity is the mother of invention. Who knows, just like the virus came out of nowhere, a cure or vaccine may also come out of nowhere. There is so much at stake that human ingenuity may come up with something in a super-crunched timeline. And then sentiment would change rapidly, with markets being forward-looking as usual.
My view is likely to be biased towards optimism, since I’m invested. Plus I don’t want anyone to be sick. Still, I thought I’ll present this counter view. In one line it is “Things aren’t as good as what they seem; they aren’t as bad as what they seem".
Now, let me ask you one thing. The critical assumption you make is that you can wait and enter at lower prices. I give it to you that maybe you could handle that emotionally. But what if you just can’t - because markets are forced shut? Just like the virus came out of nowhere, this is something you may not have factored at all. You think you can buy lower, but markets are shut. And you may well kick yourself for having missed these prices, because by the time markets open again (weeks or months later), you will not see anything like today’s prices. Think that’s not probable? Look at these.
Philippines has already shut markets indefintely:
There are debates about this even in the US:
That’s why for me the big question is “Are there businesses that are already mispriced today, including offering a good margin-of-safety?”. If yes, I start the buying - at least in staggered fashion.
All the best!
19 Likes
First of all, Apologies Hitesh Sir. I don’t to want to hijack this thread. I just thought of penning down my thoughts and write a post as ValuePickr forum has contributed a lot to my learning. But now this discussion is stretching too far. 
It would take at least 1 year before any vaccine is ready for public use.
In March 2008, Bear Sterns failed in US and markets also fell. The bear market was confirmed in June 2008 when the Dow Jones Industrial Average had fallen 20% from its October 11, 2007 high. That time those who bought the dip still faced almost 40-90% erosion in their investment over next 1 year till March 2009 depending on the company they invested in. Bear Stearns failure was precursor to Lehman Brothers collapse in September 2008 which caused big market crash in September 2008.
So instead of jumping in at first market fall in March-April 2008, if one had waited for at least 2 quarters for situation to unfold and started buying in a staggered manner in September 2008 when most people were discussing about ongoing recession and were very pessimistic, it would have improved his returns. Regarding this, one can read veteran investors experiences of 2000 and 2008 crash from one of the best books on investing in Indian stock markets that I like a lot - “Masterclass with Super-Investors.”
Even in case of dotcom bubble, from its peak in March 2000 Nasdaq fell 78% by October 2002, giving up all its gains during the bubble. It was a time correction of almost 2 years and L shaped recovery after bubble started bursting in March 2000.
I don’t know what will happen this time and how much longer this correction/crash will last. Only God knows about future. But based on lessons from market history, generally in bear markets where global economy is affected, things get much worse before they return to normal, case in point being 2000 and 2008 crash. In current scenario, Coronavirus situation is still developing and if we assume worst case scenario, US or India or some other country may go into lockdown in next 1 month. Hope for the best but prepare for the worst.
I am an amatuer investor and I learnt a lot from Hitesh Sir’s wisdom. I personally like his opinion that “Prudent course remains to be on sidelines and watch when the horror show shows signs of ebbing”
I personally think that, its better to watch at least next 1-2 quarters very carefully and then buy quality businesses that one like in a staggered manner.
All this being said, each investor has his own buy/sell/hold philosophy and one may stick to what worked well for him in the past. The key is to systematically buy debt free or less debt quality businesses with ethical promoter having large opportunity size for at least 5-10 years without worrying about time correction which may possibly take 1-2 years who knows. One needs to read annual reports and do his own research with independent thinking to have conviction so that even after buying in staggered manner, if your investment falls by further 30-60%, one does not panic and exit market. So I have no recommendations on that front.
Even veteran investors like Ramesh Damani and Ramdeo Agarwal have contrasting views about buying in current market situation.
NYSE president had a logical argument on these calls for market shutdown.
“Closing the markets would not change the underlying causes of the market decline, would remove transparency into investor sentiment, and reduce investors’ access to their money. This would only further compound the current market anxiety.” I don’t think anything like this will happen in US or India. Even if it does, there will still be ample time to buy the stocks over a period of at least next 2-3 quarters.
@PiyushMehta, I hope this answers your queries.
9 Likes
Parkhi - FOMO (Feeling of missing out) is never good for investors. We get into the stock when we see deep value. We dont want to rush in the market feeling that access to it will be closed.
Thanks Dhaval. I agree with you and Hitesh to wait on the sideline. See for the signs to ebb down. There will be ample of opportunities to buy. Key is when we are spoilt for the choices and see value in everything, what is the right buy with limited resources at our disposal.
I am trying to make your observations objective.
- Debt/Debt Free Business - Indicated by Deb/Equity ratio
- Ethical Promoter - Insider trading, Pledged Shares, Past History
- Large Opportunity Size - Sector/Industry specific - Which Sector do you foresee opportunity in extended downtrend (pls answer)
- Buy Staggered Manner - How staggered. Say after Margin of Safety Calculation, I decide the stock price to be Rs. 100, its at 90. Buy 10% of position. Wait for price to correct and enter again at 80% (Throw some light)
Agree about annual report reading and independent thinking for conviction. Thanks once again.