Let's do our homework - before the inevitable next crash!

Our markets crossed the hallowed 21000 levels driven by FII liquidity, but there is hardly any big retail participation to be seen. Domestic money is lying on the sidelines as MFs continue to be net sellers.All market crashes are accompanied by big retail frenzy. This time will be no different, I guess. So we still have some time, but what’s stopping us from getting prepared with a shopping list!

This is in the scenario of a secular crash where everything is deliciously cheap and you would love to help yourself to large meaningful helpings!So go ahead and name your top 5 small cap picks that you will be happy to hold for 3-5 years.

There is one condition. When you name a stock, you will need to include brief rationale justifying your choice. As an example

1). Manjushree Technopack

  • Dominates PET bottling niche, higher margins on scale economies -industry best
  • 30% CAGR growth visibility - proxy play on CSD/beverages market
  • Good financial discipline in a very difficult industry is a competitive advantage
  • Conservative focused management, Demonstrated track record of delivering on commitments

This should be an interesting exercise, post which we can refine a shortlist.

Hi Donald

We investors have seen the crash during the times of Harshad mehta, Ketan parikh,9/11, 2006, 2008 and now expected…when!! OR is it too early to ask this question?

Most of small caps have appreciated 100-400% in last three months. Value pickr’s threads have exploded to astronomical profits.

Any fall in broader market can reduce our portfolios drastically.

I request experts/ in-depth analysts to post their opinions on WHEN SHOULD THE PROFITS BE EN-CASHED.

warm regards,


Following file shows charts of historical P/E and P/BV of Sensex, Nifty, BSE-100 etc based of your selection (it will ask you to enable the macros)-

I think it is trailing P/E (not forward P/E) but even then that is **very **useful.

As on 27th Aug. 2014, the sensex P/E(trailing) is 20.75 which is high for current economic scenario. But when GDP growth rate was higher, sensex has notched trailing P/E of upto 25 too.

^ Good news is BSE-500 index is trading at quite cheap(historically speaking) at 17.55 as on 27th Aug.

So the large-caps have run up more than the broader market.


There are a few things that you can do

1). Track Nifty PE, PBV, and Div Yield form the link above.

We need to start getting cautious from when Nifty PE crosses Median+1 Std Dev; roughly 17+4 = 21: Need to start taking out money when this starts reaching Median+2 Std Dev 17+8 =25; Indian Market has never survived beyond 27/28 (Year 2000/2008) if you study the last 15 years Nifty data statistically. In other years has crashed after crossing 26.

We have shared these data-points and discussed this aspect a couple of times in different threads. Search for

a) Nifty PE crosses 24! A statistically informed Entry/Exit model

b) Calibrating Exits from your big winners

2). Anecdotally, we will start seeing Times of India headlining stocks, lakhs and lakhs of demat accounts being opened daily, dizzying heights being crossed daily, every tom dick and harry stock flying with or without reason, every idle conversation at home or office or parties turning to the stock market. That’s also the time to correlate with above statistical models and take out substantial money as we see the frenzy building up.

3). What we are seeing now is probably nowhere near the frenzy ( I only remember something of the 2007/8 build-up) so it will be fun to see how the build-up happens. As always it is prudent to book profits periodically and having the stomach (not get caught up in the greed completely to extract the last bit of juice) to leave enough on the table - saying ab mera pet bhar gaya hai :slight_smile: (my stomach is full, taking more will certainly prove unhealthy for me).

4,. Rest assured, we have a responsibility to keep alerting the community on a stock specific basis for VP Portfolio stocks. We will ask you to book profits like we have done for Astral and Atul Auto not at one go but stagger - maybe 20% on every call

And obviously on an overall market basis, when things reach the frenzy, we will again put our wits together to advise the Community accordingly - based on our models, anecdotal corroboration, and what we see/hear senior investors doing.

I think as of now we are in the skeptical period …where onnground things are yet to turn around( read good news) also the frenzy takes place when their is a continuation of good news around …like high gdp growth …strong rupee …surprise good results and low interest rate scenario ( as bought out all will be avb on TOI :slight_smile: )…maybe next year onwards we have to gear up for the frenzy …and start booking out …individual stock ideas continue to deliver even in such scenario cause of a basic strong underlying sustainable force or trend …which if we have conviction on …we should always stick to…( like the construction sector play like cera astral kajaria supreme behaved even in the tough times )



I guess we can assume that BSE-500 index represents the broader market.

I tried seeing historical P/E charts of both BSE-500 and Nifty-50 indexes on the same screen. Both curves are almost exactly same till about March-2013. That means that whenever

)- Nifty is trading at its Median P/E values, BSE-500 (broader market) too trades at its median P/E

)- Nifty is trading at its Median +/- 1/2 Std Dev P/E values, BSE-500 (broader market) too trades at its respective applicable values.

But from around March-2013, Broader markets have started to considerably underperform the nifty.That still is very much the case. I wonder why.

Interesting to note the deviation of more than 2 points between Nifty and Sensex PE. While Nifty pe is 20.75, Sensex pe is not even 18.4. Does this mean that some of the companies included in Nifty, but not present in Sensex are doing extremely well and distorting the NIfty pe.

we could also maybe look at weight of sectors. For ex. these are weights of each of the 50 companies represented by Nifty index (weights are updated every 3 months i guess based on change in Market cap) -


did a rough calculation of sector wise weight for Nifty -

Bank - 20

oil, gas, metals, power - 28

IT - 18

Pharma - 6

FMCG - 9

auto, cement, realty - 14

Sensex may have higher weight-age for lowest performing sectors like oil, gas, metals, power.

Thanks a lot donald, Vicky, Gyan.

Some of the nifty stocks are better performers, however our approach of fucussed on individual stocks vs sectors is paying well.

Link: http://www.quantspartner.com/Market_PE_PBV_Yield_as_per_BSE_NSE.xlsm

**very **useful.

Thanks Vicky

The all time high for BSE small cap index is 14000, we are still at only 10,000 in 2008, so there is a min 40 % upside for it to reach cross prev all time high.

So, can we say it is still in bear market ?

or we are in a new ull market, then small cap index need to significantly cross prev all time high and make new highs with higher tops and bottoms.

So, it to peak, we need to achieve, 18k or 20k + in this makt, before it starts trend reversal.

Even if it reaches 14k, some of the stock ( esp VP stocks) can still double, triple from here ?

What has been the pass co relation or relative outperformance of nifty bull mkt peaks and bse small cap peaks in a bull mkt ?

or this is not a relevant question or unrational way of looking at things ?

All comments r welcome !

Looks like the link has expired; would be appreciated if any of the boarders could repost the xlsm.