Exits are any day a very tricky problem in investing. I have not come across any one who has got it very good consistently.
I think while the time of investing, we should have a thesis for possible triggers for selling. Conventional wisdom has it that as long as growth continues it does not make sense to sell irrespective of valuations. (unless they go absolutely out of whack.) Similarly in technicals, most authors say that we should follow the trend of the stock price and exit only if the trend is broken. But in markets like the current markets, many a times trend reversal happens very fast and its often difficult to get out.
A recent example was Neuland labs. I had earlier mentioned about a possible head and shoulders pattern when the stock price was around 1900-2000. Even after that the stock price stayed range bound and there was distribution (clear now in hindsight ) going on. And ever since the poor q1 fy 22 results stock price has been going down on a daily basis with 5% down circuits. And volumes too are very low which tells me that there are no buyers. So in such stocks we want to be nimble and get out and maybe leave something on the table for others. How to differentiate a neuland from other stocks is a different question. I think valuations were frothy and the fall from its all time high of around 2800 was steep and there was no attempt to regain those levels.
Personally I have been observing the markets for any signs of trouble and since past few trading sessions one thing that I find worrying is the loss of momentum in small and midcaps even as the indices continue to march ahead.
If I were to consider investor psychology as I perceive it, there was a lot of momentum and song and dance in small and midcaps when indices esp nifty was finding it difficult to break past 16000. And suddenly as nifty has crossed 16k levels, small and midcaps have shown loss of momentum. If this continues for a few more trading sessions then I would be worried and maybe form a definite view to plan an exit strategy.
What is your view on Laurus Labs… from the business outlook perspective… Any view whether the company may see significant competition by the time it’s caex comes online
Sir,
I remember you calling correctly the loss of momentum and distribution in small and mid caps in 2017. The large caps and the index kept going up and there was carnage in small and mid caps. Time to be really cautious as smart money may be moving out of frothy mid and small caps. Thanks for the alert.
Hiteshji, I agree on your observation and I have observed that these indices have been doing this relay race & catchups since many months now. Maybe this time there could be something definitive, but cant say…
Could you please let us know that if you plan any exit strategy, will it be for your entire portfolio (core + momentum) or only momentum or purely stock specific…
Neuland is on a downward spiral and I don’t think exit is easy. Maybe at some point of time there can be a chance to exit but at what price remains to be seen. The targets of head and shoulders pattern are around 1200-1300. Again I do not know how low this one can go or whether these targets are achieved or not.
Fundamentally I think this is a lumpy business so maybe a good quarter or two can change sentiments.
Personally I believe in cutting losses quickly as I usually do not want to incur opportunity costs. I do not want failed short term investments to become long term investments.
However if your holding period is very long then there may be a case for holding on and maybe even add more once stock stabilises and forms a sort of bottom.
@Shankar Laurus has been well discussed in the relevant thread. I do not have much more to add. It continues like a well oiled growth engine.
hiteshbhai, biggest reason i think of loss of momentum can be multiple IPO. IF 1 OR 2 LACS CRORE goes to IPO and they are subscribed 100 of times then naturally money is blocked for few weeks . and all this money is of maximum small investors who were prime reason for boom in small cap. once multiple IPO till aug 20 ends then we should be care fully watch that momentum picks up or not.
I remember you saying ,that in a crash or correction its the small caps first that go down first ,what is your take on holding small cap that have rallied 2x to 3x should we hold onto it or sell partially and reenter later given the current scenario?
We cannot generalise on any space (small,mid or large cap) in terms of when to sell or hold. I think we have look at each company and its prospects and then take a call. Many a times rallies in stocks are not done even after going up 2 to 3 times…
There are certain times when one has a clear indication that a run up has reached levels where profit booking is warranted or fundamentals indicate that stock prices have run up much ahead of earnings. Those are the times when one has to take a call and book profits or maybe partial profits.
In the current scenario, I think there are a lot of stocks which have run up much beyond the justification of their earnings and future prospects. But the good thing is these stocks are undergoing time and price correction and that is a sort of healthy sign.
But personally speaking I have started turning a bit cautious in some of my holdings where I feel run ups have overreached earnings.
The current market has been showing a lot of sector rotation from time to time and there are healthy rallies in some sectors which provide decent returns if our entry points are good. So in a way it remains a stock picker’s market.
Regarding taking a stance regarding market direction, I still cannot figure out where things are headed, so I would keep on a watchful mode and keep watching out for signs of trouble or resumption of this madcap bull run in small and midcaps.
MFI sector remains under pressure of defaults and write offs. These are the after effects of Corona and maybe other sins committed in the past. When these concerns recede needs to be seen.
I was initially quite bullish on private banking space and had got into smaller private banks but results have not panned out as expected and once I saw that things were not panning out as expected I got out.
Bigger private banks like ICICI bank and Axis bank seem to have caught market fancy and are making fresh all time highs.
Coming to MAS fin, it remains one of the better run MFI companies with good management but I do not track it on a consistent basis.
What is your view on last 10 days , mid-small cap correction.
Few folks are calling it carnage , but in my view most of stocks which even though had positive YOY but had subdued QOQ are having10%-20% correction. This also resonates with my earlier observation on quarterly performance and its correlation with stock price. I believe Its excess froth which is going out because results are not able to match over expectation.
The last few days of correction/carnage in small and midcaps was long overdue. There was a lot of froth in some names where a lot of narratives were built around a company’s prospects and outrageous valuations were justified in the name of “long runway for growth” or something similar. Making money had become too easy few weeks back. Whenever this happens its a precursor to a correction. Thankfully, the indices are in good shape and within a nifty uptrend, we have a small and midcap correction. Last couple of days there has been a lot of cleansing and catharsis and a lot of stronger companies with good prospects and tailwinds have bounced up strongly today.
After such a strong market correction, sometimes it takes a few days of range bound/small rise type of movements for stocks to build a base. And post these sometimes rallies resume.
I think ideal thing to do is to look out for stocks which have suffered least damage or which have bounced back from supports or stocks which have retested breakout levels and bounced off strongly. These kind of corrections are ideal times to get rid of non performers from the portfolio and add possible winners.
You seem to be having a bee in your bonnet about quarterly performances and stock prices. While it may be correlating in some cases, it may not always be so. Stock prices are governed by a variety of factors and not only quarterly results. Market is a forward looking animal and if future prospects are good and markets are convinced about that, stock prices move up irrespective of lacklustre quarterly resuts. A recent example is pokarna which corrected post quarterly results only to bounce back strongly as investors who follow the company might be confident that the newly commissioned facility is going to take the company on a strong footing within a quarter or two.
Let me thank you for your unrelenting guidance to the investing community. People charge fees for this. May be you are leaving money on the table
Would be great to have your thoughts on Steel Sector- TATA Steel, JSW Steel. Is it only cyclical or some structural change is there.
Aside to - your “bee in bonnet” comment - I am not stubborn on my quarterly result score correlation. Its just one of the parameters I use to see fundamental momentum. It is working for me so far so good.
Its difficult to predict cyclicals and when they peak. Every time the cycle reaches closer to top the theory doing the rounds is "this time its different ".
There might be more juice left in the rally in steel and metals but I would not like to get in at these elevated levels.
Simple thing to remember in cyclicals is to buy at high PE (because a quarter or two or more of losses near bottom of cycle will deflate earnings and inflate PE ) and sell on low PE. (because peak sales and peak margins nearer to tops will inflate earnings and deflate PE) Atleast thats what I remember what Peter Lynch advised on cyclicals.
The mid cap cement stocks, likes of Orient, Sanghi etc. have gone up 30-50% in past 2-3 months. Would appreciate your views on - if there is enough steam left in them. Can those be longer term plays?
You being from the healthcare field what is your view on rising businesses from this field like HCG, Naayana, Aster DM and Max Healthcare ?? Do they have potential to provide good returns over a longer term say 3-5 years ?
Could you please share your view on Aurobindo pharma correction since last one month? It hadn’t soared much as well in this bull market compared to other pharma companies. We see Pharma sector correcting/being flat lately after an year rally .If this trend continues, do you think it even further effects Aurobindo pharma stock?
As per quarter 1 21-22 result company has repaid 32 CR loan to ARC.
Promoter has released pledge share also.(source BSE disclosure by Company)
Started Job work for Remdesivir drug for reputed Indian pharmaceutical company.(source annual report 20-21) and advertisement on news paper dtd 17.04.21 https://www.lykalabs.com/
Increasing capacity by 50% and ready by second half of current financial year.
Following is abstract of last Annual Report
“To meet the increase in demand for lyophilised products the company has embarked on an expansion project of its Lyophilization Plant at its Ankleshwar factory. This Project is likely to be completed in 9-12 months with a 50% enhancement in capacity for lyophilisation.
Company has received permission to manufacture and marketing of Liposomal Amphotericin B Injection 50 mg/vial from Government of India, Directorate General of Health Services, New Dehi.”
Fail to understand how company can repay loan of 30 CR having turnover of 48 CR for Ist qtr.
Sir your view on the company as having deep knowledge of pharmaceutical sector ?
Can it be considered as fundamental turnaround story.
Invested in last month looking to momentum in the stock though still learning technical analysis
) going on. And ever since the poor q1 fy 22 results stock price has been going down on a daily basis with 5% down circuits. And volumes too are very low which tells me that there are no buyers. So in such stocks we want to be nimble and get out and maybe leave something on the table for others. How to differentiate a neuland from other stocks is a different question. I think valuations were frothy and the fall from its all time high of around 2800 was steep and there was no attempt to regain those levels.
