Markets continue to move on its own with a select few large-caps holding pushing the markets higher while the overall market is absolutely in a horror state.
Small-cap index since January 2018 was down by nearly 40 percent. Going forward, either the large-caps should correct or the overall market should recover. We feel the chances of latter happening pretty soon in a steady matter.
Distress selling, hopefully, is set to get over in the near-term. The only problem with the retail investors is that they enter markets at the peak and leave when it is actually the time of entry.
There’s silence everywhere including all those investing based on WhatsApp groups conversations and renowned web forums. Gone are the days when there used to be so much of discussion.
It only means aversion to equities. It also means the bottom is not far. People who can endure this notional loss and stay put in a high conviction would be big winners once the next cycle starts.
Forget all macro and let’s concentrate on something which matters to investors now:
1) Track 3 things – Earnings, Earnings, Earnings
Well, to start with. There’s no bull or bear market these days as the cycle has shortened. Previously, it would be 5 years of bull market and a bear market with the same proportion of time. But, at present, the phases have become much more frequent.
Wherever there will be growth, the market would pay a premium. Long-run stocks go up only for three reasons. 1. Earnings 2. Earnings 3. Earnings- Peter Lynch.
2) In a good market the PE gets re-rated
Nothing actually changed over the last few months, but at the point of penning this note, the broader market is in a horrible state with a nomenclature of companies down about 30 percent to even 80 percent from their 2018 peaks.
The good part is that a lot of quality companies with time would not only move back to their old highs but would make new life highs as well. The bad part is that over 80 percent of the companies wouldn’t hit their previous high for the next many years. The greed and fear syndrome in the market is back in vogue with this time being the latter.
In a good market the PE gets re-rated and vice versa on the reverse. Soon the albatrosses would find their junks desolated venue to make northward ways for the quality one. Your patience will get tested but a conviction would be wildly rewarded.
3) Hold on as the market would get re-rated
If you are anxious about your portfolio but possess good quality companies with solid growth ahead backed by robust pedigree, soothe your nerves by fathoming the simple thing.
The country is happy to grow by 6-7 percent yet the companies in your portfolio would grow at a minimum 20-25 percent. A few will grow by 40-50 percent CAGR for the next 3-5 years.
That’s serious growth folks. It is only a matter of time before sanity comes back to the markets with eventual re-rating of good stocks irrespective of small, mid or large-caps.
4) Understand of business is the key
When we go and speak to the management of a specific company or visit their plants in person, it is a completely different scenario. Everyone seems to be working overtime.
The order books are full, there are more queries than ever. New employees are getting recruited, plants are being expanded which takes you to a different state of mind altogether.
The ideology remains simple, try to have that feel of lucrative business ownership and stock markets would automatically be a different place for you.
5) Growth stories, stocks will make you richer
Avanti Feeds adjusted everything and moved from Rs 7 to Rs 3,000 in a matter of 8 years. Nalanda capital swallowed a chunk of Page Industries during the era of 2007 at Rs 600 only to exit partly at around Rs 25,000 recently.
Symphony moved from Rs 2 to Rs 1,200 almost in the same period. Enough of listening to these sob stories. It is high time you avail the bragging rights by just simply staying put in the companies you own as long as their growth story is intact. With time, they can only make you richer.
Next Multibagger Themes
Forget about looking at the past but let’s also understand where will the future multibaggers come from. Which could be the next set of massive wealth creators?
Well, future multibaggers are going to come from those companies who solve climate change, or precision medicine to cure cancer. Water purification and anything related to organic or anything where there is the scope of value-added products should do great too.
The Indian aviation sector posted the fastest full-year domestic growth rate for the fourth consecutive year. Not sure about the airline stocks, but we feel that it is way better to play the proxies and that would make serious money for the investors. We are also high on the API and manufacturing theme.
It fascinates us to the core after sensing so many of the gullible retailers who are happy locking their money in FDs for decades, generating absolute post-tax peanuts but refrains to give a bit of time to the best wealth generation asset in the world.
(Arun Mukherjee and Soumya Malani, who hail from Kolkata, are partners in Equity Wealth, a SEBI-registered investment advisory firm. Arun, a college dropout by choice, entered markets at age of 14. Soumya holds a Masters from London School of Economics and Political Science (LSE))
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