My Shorting Portfolio

Stock Opportunities
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Am starting this thread to share the stocks where I am short.

Well it is a contrarian apprach .While everyone shares their portfolio, the stocks where they are bullish but I am sharing my portfolio of companies where I am bearsih)

As we all know, life as well as market moves in cycles - from pessimism to optimism, from dooms-day scenario to euphoria , from low liquidity to high liquidity - I try to follow these cycles .

If one is wise, he/she should move with the cycles rather than showing foolish brevity of standing against the tide of the time ( yes there can be times when trend might not be clear)
We’re in the market to make money. Money can be made on long side , but it can be made on shrot-side too. ( and it is legal, that’s why have FnO)

Plan to share my exits from these positions too -time-to-time .

Also sharing logic here why I am short in these stocks , can give technical based analysis also but sadly this platform does not allow technical charts ( apart from only one thread)

List :point_down:

  1. Tata Chemicals
  2. Deepak Nitrite
  3. Cipla
  4. IPCA

The reasons for above are common :
a) Overall market sentiments are down
b) Peers of these sectors are already down ( stocks move in a herd )
c) Valuations are discounting next 3-4 years of Capex as well as growth
d) World seems to be getting into slow-growth phase (if not recession) ,so projected growth of these companies would be off-track , opposite to previous projections.
e) Inflation is leading to pressure on margins
f) Technical structures are telling that we’ve made near-term tops

  1. Infoedge
  2. Dixon
  3. IndiaMart

Apart from above given reasons for the 1st 4 stocks , there are 2 more reasons for these to correct -
a) All technology/internet related companies are correcting world-wide , valuations are coming to realistic levels (Nasdaq as well as Chinese internet businesses)
b) Start-ups are struggling now to raise fresh funds

  1. PVR
    From pre-covid days, sales is down to 1/3rd , borrowings are up by 4 X. Even if the old-sales come back, interes costs are going to be a big dampner on EPS .

Would love to hear counter-views.

Disclaimer: I was bullish till February and came to 70 % cash position by Feb-end). And above are my personal views, no suggestions here. Sharing the views to get counter-views.

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Borrowings of PVR increased 4x not due to increased borrowing but rather due to IND AS adjustment to capitalize lease rent liabilities. It is simply an accounting technicality. If anything , their competitive position has become stronger after the Inox merger

India mart has already fallen 60 percent. It now trades at 40 times earnings - no where near bubble territory.

Most of the businesses you have shorted are fundamentally very strong in their industries. None of them are leveraged substantially - many are cash rich. Based on my perception, none of them are likely to be frauds either. Shorting fundamentally solid companies based on macro and technicals can go badly wrong. Look at page Industries - very expensive stock trading near all time highs even in the middle of a bear market.

The downside in most of the stocks is very limited compared to the upside over the long term.

Based on your rationale, it seems like you are led much more by macro and technical view rather than by individual company fundamentals. I would recommend that if you want to short, you would find less risky opportunities in shorting the index or currency pairs.

Also this is hardly a contrarian trade anymore - if anything being bearish is the new consensus trade.

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Well, thanks for giving your views. That’s the purpose of sharing my short-portfolio .

But I disagree that being bearish is not a contrarian view as of today. Let me use your arguments only to prove that you’re not having a bearish view ( so at least my approach is contrary to you :grinning:)

  1. You yourself saying that prices have already fallen too much, that means you’re no longer bearsih.
  2. If something is trading at 40 PE and you can still justify it, that’s not a bearish view
    3.If one can justify a huge leveraged company at current PE, again that’s not a bearsih view.

I think you won’t deny that shorting strong fundamental companies is definitely a contrarian approach.

And I don’t belive in bleeding ( except in life-saving sugeries)today to save myself in long -term ( because everyone would be dead in long term ). If I can buy something cheaper by waiting little more, I would prefer that approach.

One more thing we should keep in mind that benchmark of PE need to change as per the liquidity status of the markets. Something may look chep at 20 PE in a bull makrket but the same thing can look expensive in a bear market. We should look at PE in relative terms,wrt market as well as in context of sector.

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I agree partially with @vivek423 views. But looking at individual chart structures, there are some stocks that look quite weak on charts and my guess is that if markets start going down, these will be the ones to tumble the most.

Just to give an example, the time to short indiamart was when it broke the double top/distribution range below 6800-6900. Now at price levels of 4500 I am not too certain about where the stock can go from here.

Dixon has a head and shoulders breakdown and recent retest of breakdown zone at around 3900 gave a good opportunity to short.

Deepak Nitrite. I was keenly watching this one to see the reaction to the fire incident and see if the recent swing bottom around 1800 is broken. But stock price did not go down too much closer to 1800 levels and so maybe the bad news has been digested above previous bottom. Still need to watch the price movement for next few days and see how it goes.

Infoedge recently retested its breakdown zone of 4100-4200 and started falling again. That seems weak and might be a candidate to short. (if one has that kind of mindset. )

Ipca has a breakdown below 900-925 and seems weak.

PVR I think suffers from a change in environment induced by Covid. Folks like me who were regular viewers of movies in multiplexes have now started avoiding going to multiplexes mainly to avoid Covid like risk and more importantly because I love the content options I have on OTTs. If people now have good options of viewing content on OTTs, whey should they prefer to go to expensive multiplexes and see movies about whom they are not too sure, whether they are worth watching or not. However to me the chart of PVR does not show significant weakness. Maybe you can find something on EW, which induces you to put it up on shorting list.

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Thanks sir for your views.

Infoedge, Dixon ,Indiamart are not new short positions for me. I shared the technical charts few weeks back in other thread ( before that was closed). But i still belive that there is more scope of correction in these names.

Rest of the positions are new -initiated last week only ( on B wave bounces in most of these as I am expecting C waves)

I have shared the technical charts for these new positions in 52 Weeks Thread ,that’s waiting for your approval to go public.

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One question on PVR .

If borrowing amount is an adjustment or an accounting entry (having no real impact) , what about interest cost ? It has gone up from 124 crores (fy18-19) to close to 500 crores in FY 21.Is that real or that’s also an accounting entry !

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I agree with all your views but Deepak Nitrite not much downside due to technical reasons. It may dip but will recover faster.

40 PE is not cheap.

Currently markets are deliberating about smoke (hint) of recession. Recession fire (definite event) will come or not will time tell.

Cheers

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I didn’t know one could short stocks. Do you just sell and hold that position in zerodha ?

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The thought of shorting a stock is not good enough. You also need to know how to short using F&O.
Which strike price to trade, whether to collect premium or pay it, strategy to be used, the effect of volatility, decay in premium, etc.

Honestly, I got scared by the complexity of F&O. It’s not easy and not for a regular investor.
Can you share how you decide on all these things?

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Well -for shorting you need to have few skills .

A) Understanding how FNO works
B) These are leveraged positions ( not in cash) ,so huge psychological churn as ups and downs can be really nerve-wrecking.
C) If possible understanding technical understanding of charts to plan exit /entry

Good way to short the stocks is in Futures. One can short via options also but that is a dangerous game. Because in Options (call,puts) not only your view should be correct but timing is also important. Because your view may play out but if it does not work in limited time period, you may loose the premium due to time-decay,

In short, shorting is a game of skills- behavioural, technical as well as fundamentals.

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In shorting , I don’t look for more than10-20% fall . And that is enough as these are leveraged postions , the gain ( or loss) can be in multiple of % ge fall ( rise)

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And I’m curious how do you short it? Do you do it in F&O because in normal equity trading you dont have the option, so how do you do it?

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if I look at all of the stocks that you stated and looking they are all leveraged bets then the highest upside and downside look with tata chemical.

There if they announce their battery Capex firm plans your capital can easily be wiped down as their 30-40% move in the near term can be possible that is a risk that can happen and they have major cash to fund the CAPEX so the market reacting negatively for that is very very unlikely also if the future plans of EV battery start to look weak then can hurt the stock and gain good also note it is still trading better then its past valuations so can correct and make you good gains.

For tech stock, the upside to downside doesn’t look that good to me other than Dixon that I can’t comment much and somewhat same with PVR there some interest rate change and commentary can make you good returns.

In the case of Deepak, the recent fire can help you but also can burn you.

When we loom at Cipla other than any countryside risk in their markets like South America and us FDA major short term risk might not be that much but the same goes for the upside also.

Ipca I will not comment much as have not been that interested in the company.

In the case of IndiaMART, the long term position of saas and platform is still there and the cash that they will get and what they hold will help but a recent acquisition may benefit you if they take any goodwill loos in there recent investments but how distributed they were so the significance of that might be quite uncertain but can be a good gain and somewhat similar can also play with info edge they can also take this notional loss in there startup investments so if you are playing for that then you can easily multifold your investment if it playsout.

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You probably haven’t seen prior bear markets
Any announcements of capacity is not bought into like people used to buy during bull markets.

Any good news doesn’t move the stock other than probably good quarter profits but even those don’t amount to much because markets are forward looking and whatever good quarter profits don’t sustain

The reason profits don’t sustain is policy changes ensure demand for products is reduced

In the face of reduced demand profits suffer

Even Tesla has announced a stop on hiring, it gets very painful

One of the stocks mentioned are not on f&o and I was wondering if there is any other way to short other than f&o

There are many shorting candidates
Anything with a suspect cash flow that has done well during the bull market will fall without a floor until the remaining holders decide they would rather write off their investments than selling

There are some companies where demand can’t be killed. Like essentials, those tend to do well. There are companies that are not in essentials and can still maintain their sales and profits. Technical analysis and relative strength will give you some of these names specially now when everything is falling

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The interest cost is not 500cr - again that is an accounting entry where some of lease rentals appear below the EBITDA line. This change was made somewhere just before covid in IndAS. You can look at the cash flow status. You will see interest paid is 125cr compared to 100 pre covid

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It seems that maximum people don’t understand shorting or may be most of the people in this platform don’t understand the various different ways to profit from the markets.

We have scalpers ( who make money by tiny moves as small as 10 paise on either side ) , we have intra-day traders ( who intend to earn 1-2% during intraday moves) , we have swing traders ( who invest for few weeks to few months to earn 5-10% ) , we have index traders ( who only go long and short on various indexes - can be for intraday, intraweek or for few weeks/months ). All these guys are not concerend about macro or long term views of the markets or of the companies they trade -in.

Apart from these we have MF, PMS ,Hedge Fund guys . These guys earn by investing for others. It is not their own money. Many a times their obejective is to earn a minimum level of return to get their annual bonuses or monthly paycheck.Also these guys are goverened by certain regulations so their hands are tied and they can’t take certain actions.

Then there are HNIs . They can be value investors ( buy when a company is still to be discovered or market is giving a deep discount ) or momentum investors or long-term investors.

Market is made of various kind of players - many are concerenced about micro moves whereas many just focus on macros.

One should find a style that suits his/her aptitude, risk-taking capacity, financial position and goals . All styles can make money if one tries to acquire specific skills.

Buy and hold ( good fundamental companies ) is just one style of investing . And this strategy requires to study fundamentals , find good compnies.

My Shorting Portfolio :
Although I consider myself as a long term investor, I hold companies for years.

Shorting/getting long in futures in my case is to take advantage of the micro ( short-term) trends of the market , to follow the sentiments in the sector and to find where valutaions look high as compared to peers and relative strength wrt sensex. And take advantage of 5-10% of up or down move. ( sometimes in FnO I short the companies where I have long term holdings as i belive that they’re worth holding for but in short-term I also want to take advantage of corrections/falls in the share prices of those companies)

Although there are people who go long and short on certain asset classes or stocks for months or years ( recall The Big Short movie) and happen to make huge capital.

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Would be adding Axis Bank and Canara Bank in my shorting portfolio.

Plan to intiate positions in coming week if overall market seems conducive for this .

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Nice strategy, how is the tax aspect handled in case of F&O? If I am not wrong the filing complaince has become very tedious with entry of each and every transaction needed? How do you plan to handle that or rather what’s best way to handle tax complaince for those doing F&O? Thanks

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My long term portfolio as of now ::

As mentioned before, I sold 70 % of positions in February. Currently holding the following:

  1. Greenpanel
  2. UshaMartin
  3. Poonawala Finance
  4. IIFL Finance
  5. IEX
  6. Acrysil
  7. Deepak Nitrite

Sold 50 % quantity of these in February.

Apart from the above,I had the following stocks ( where I made 100 % exits )
8. Tata Motors
9. Steel Strip
10. Balrampur Chini
11. DCM
12. Cholamandlam Finance
13 .Godrej Property
14 .Tata Chemicals
15 .Tata Power
16. Mastek
17. Mindtree
18. Infoedge
19. TCS
20.GMR
21 .Vedanta

Might enter again if I find reasonable valuations or may switch to new ones when market trend becomes positive .

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Tax liabilities are very high in FnO. But these days most of the brokerages provide nic reports so filing is not so difficult. Rest of the work is handled by CA.