Pledging shares as margin to leverage investment

[meekinvestor]

Its ironical that many inexperienced investors invest when the market is on a high- they often invest too late. I can recall everybody investing in IREDA in 2024, when it was 284. IRFC was 217. Both in July, '24. If you observed that they appeared grossly inflated, they looked at you like you were being a wet blanked, to be politely ignored. Also, you could be told that IREDA and IRFC were different. Market had discovered them. Those were the heydays of PSU stocks.
In contrast, everybody is afraid these days. We invest when the market falls slightly. Then when it falls in a cascade, we lose the nerve. The abyss seems bottomless. Like the ad says, ‘dar sabko lagta hai, gala sabka sookhta hai’.
But when you see that L&T is down from 4418 on the 23rd Feb '26 to 3342 today, 23rd March, and then you read the statement of L&T management, “The company said over 95% of its project sites in West Asia are functioning normally. Only a small number of sites have been temporarily paused as a precaution, with no evacuation of personnel,” you are compelled to think something is awry. (Please also seehttps://www.business-standard.com/markets/news/larsen-toubro-falls-22-in-march-so-far-here-s-what-the-analyst-suggest-126032300287_1.html).
L&T is just an example. Of course, no recommendation. Bank nifty has fallen today. So has the pharma index.
If they have any connection with the Iran-US war, I am not aware.
So, yes, when aditya.lathe says, “Stocks can continue to trend downward for no reason, despite them being hugely undervalued even after a prolonged bear market,” he is being eminently sensible.
But then his observation would apply to all purchases during a bear phase, and not merely to buy on margin. As [Cshar] (Profile - Cshar - ValuePickr Forum) says,

@Cshar

“You buy shares in MTF or delivery, how the stock would know if you are holding asset in delivery or MTF?”

So, it seems to me that standing on the sidelines at a time like this goes against my instinct. Is there a fear of loss, yes. Only a few thousand more because I have bought by using my shares as margin.
I am grateful to all who helped me in my journey. I will surely share the results. We learn together. Often from differing sources. Equally often with different results.
The stocks mentioned are just examples. No recommendation for and against.
I am invested in L&T. Made after the recent fall.

[gsapte]

It is very common “to stay away from shares” when they are cheap and “feel interested” when shares are trading at high value. This is human behavior and it will remain so for long time.

There are many stocks now which are trading at much lower valuations after 1-2 years.

L&T has exposure to Middle East, and some portion of their Order Book is exposed to that region. What we need to analyze it, is it so big that, stock should correct from 4400 to 3300 yesterday. L&T Management is experienced and they have navigated many such Ups and Down in past 30+ years.

At 4400, Was the stock slightly overvalued ? Based on my analysis, it was slightly looking Risky at those valuations as they were above last 10 Year or 5 Year Median valuations (P/E, P/B, EV/EBITDA, MCap/Sales).

At 3300, it is much less risky as Valuations are now well below 5 Year Median. If an Investor is comfortable with current valuations, moderate position can be built (May be 25% to 50%) and continue holding. Downside could be there in short term but in long term I think, Upside could be more than Downside.

Same is True with Maruti, it has corrected from 17300 to 12300 yesterday. Look at its last 5 Year and 10 Year Valuations from all angles, read the news and you can decide whether it is less Risky now or not.

Eventually, during any war, all stocks correct irrespective of the impact of war on those businesses or not. When war slowly comes under control, Market adjusts the valuations to more meaningful levels. We have seen that happening in last 3 decades.

I am holding L&T, but have booked partial profit above 4200 and Now at 3300 or Below, it looks fairly valued to me hence views are biased.

[meekinvestor]

Is there a certain way to go about choice of stocks in margin investing?

[ChaitanyaC]

I think lesser volatility can be considered one criterion. Relatively predictable movement of price is better than volatility.

Even with fundamentally strong businesses, if price does not move, one absolute burden is the interest we pay each day. So, in addition to buying at a relative low, some idea about price movement is also important, I think. Not to mention, the role market environment plays.

Also, I think, it is better to build positions with time, instead of buying at once, if we are new. Because, a big fall can still happen even if we buy at a low price. So, the bigger the position, the higher will be the risk, if things don’t go as expected.

Investing as we all know is about businesses; MTF, I would say, is also about price as there are calculations involved.

I am also new to this. I am also experimenting due to limited availability of funds and numerous opportunities. I took a few trades in Titan. So, do take my views with a pinch of salt.

@Cshar Can you add anything more? Your previous posts were insightful.

[Cshar]

Staying with strong stocks is advisable in current markets though valuations in mid & small caps are quite compelling buys, buying small quantities and holding it longer is a better strategy. In momentum stocks ultra short with max two days is better. Will not advice building large position untill you can think of holding stock with a 40-50% fall. I have seen cheap stocks going dirt cheap currently hence taking a call based on PE looks myth.

Averaging with small quantities is best to get some surplus gains apart from PF. Current market texture has gone worst and we are still awaiting large IPO pipeline hence secondry market may remain muted. Dont go beyond 10% of PF as its very difficult to control your greed as capital looks easily available and downturn plays double sword with MTM loss and interest.