(This appears in Deccan Chronicle – http://epaper.deccanchronicle.com/articledetailpage.aspx?id=9339913)

As you try to exit the mid caps and you find that the scrip which was so easy to buy, is not shifted to “T to T” or “Cash” segment, selling becomes a full time operation. Enjoy the ride, take some money off also. )

THE BULL MARKET INVESTOR

I read a nice quote, which said that today’s stock prices are roaring so fast that the prices have landed in to the future. It carries a very subtle message. Markets celebrate every buy order with an uptick in prices. Bad news is greeted with ‘oh, it means the worst is over, let us buy NOW’. Every stock is a buy.

This is a market which gives you no time for thinking. The temptation to avoid process is very high. You sit down with the financials of a company and if you stupidly look at the price movements before you finish your analysis, you would despair.  Welcome to 1991. Welcome to 2000. Welcome to 2008. Welcome to 2017.

However, in this noise, I am trying to figure out some themes that will play out over the next few years.  Some of the factors at play, include:

  1. GST implementation could take two years to stabilize, but it does not seem to have dented corporate profits. Life goes on. And things shift from unorganized to organized. Things get better, bar the shouting;
  2. Consumption is the principal driver of the economy. Consumption that is aided and assisted by easy finance;
  3. Infrastructure spend is just beginning. On a scale that is unprecedented. There is a lot of action lined up;
  4. Company profitability can only go up from here;
  5. Liquidity is set to rise still higher as the FIIs will come back and domestic participation is rising day by day;
  6. PSU Banking sector looks set to bounce back to business as recapitalization plans announced, thereby increasing availability of funds for growth;
  7. Debt laden companies are getting a second life as banks are in a hurry to ‘resolve’ things and carry on with life;
  8. Valuations are not being discussed. As stock prices keep hitting new highs, the target multiples and prices also move up correspondingly;

The market mood is extremely buoyant. Mid cap stocks are the flavor. A small chat on a WhatsApp group and there is a ‘gap-up’ opening. Some speculators drop out. The seasoned punters get in and out, using a combination of inconsistent strategies (fashion for the times) to keep enlarging their portfolios. All that is needed for a price jump stretches from something earthshaking as announcement of quarterly results or a big brokerage house research report or the news of some contract coming the way of a company (does not matter that it is the routine business of the company) or the appointment or sacking of a key person or a celebrity mentioning the stock on social media.

In this bull market, there is no need for news to be earnings boosting. Mention gets a few percentage up on the stock any way.

And the ‘rumorists’ are having a field day. One speculative item in the social media and the stock price does high jumps. And then after a few days, a quiet ‘denial’ to the exchanges. The sheer magnitude is such that law enforcement will not just be able to catch up.

As a desperado in the stock markets, one has to now ‘anticipate’ which stock or group of stocks will be the prime & price movers on any given day. And the winner of the daily lottery is the one who has the best ‘hunch’ or the best ‘source’. And all the action is in the mid-cap and small cap space.

So what does one do? Either we are brave and ride the surf. Keep our eyes on the screen without blinking and press the ‘buy’ and/or ‘sell’ buttons without bothering to think about any ratios or business. I can see that this has become an occupation for many. Whether one makes profits or losses will depend on the character. In this day trading, you have to be brutal about not keeping a stock with you for long and be in love with prices rather than the company. This way, you also get to test your temperament.

For the more sober persons, who do not have a heart that is strong enough to bear the pressure, or for those who cannot spend the time needed, life becomes simpler. It is a good time to shift some money to large caps from mid caps. Not all sections of a market are equally valued. The large cap stocks will be less volatile. Will fall less than the mid caps, should the tide change. Correction can take two forms.  One is by prices going down to make valuations reasonable. The other one is by prices stuck in a range and earnings catching up over time. In effect, both mean that the ‘prospective’ returns for the asset class is lower than what one would like, at this point in time.

 

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