Non performing stocks.

Discussion in 'Ask A Query About Your Stock Picks And Portfolio' started by kharb, Aug 15, 2015.

  1. kharb

    kharb Well-Known Member

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    I have many non performing stocks which were star performer of last bull market like IVRCL,JP Associates,Punj Llyod as I did not sold them in time when I was in huge profit ,but presently under loss.Similarly I have metal stocks like Hinadlco,Vedanta,Tata steel which are down 50% of my purchase price of long back .I have also Reliance Power ,Reliance Capital, Reliance Infra and R Com also of last boom of 2007.Although I do have many winners like private bankning,pharma,textiles,housing finiance, IT,L&T etc also,but I want advice what should I do of these black sheeps.What of these should be sold and what are worth waiting.
     
    Last edited: Aug 15, 2015
  2. Meenakshi Razdan

    Meenakshi Razdan Administrator Staff Member Moderator

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    There is a knowledgeable article about the future of metal stocks in ET (Meltdown in China has metal stocks sinking in India). The article quotes experts that the near-term future for metal stocks is bleak owing to the slowdown in the global economy. Also, these companies have high debt which makes it difficult for them.

    Infra stocks like IVRCL, JPA and Punj Lloyd appear to be in the same situation owing to their high debt and sluggish economy.

    As a principle, it may be better to change the investment philosophy so as to invest only in secular growth companies (i.e. defensive stocks that are not affected by the vagaries of the economy) such as Pharma and FMCG and avoid cyclical stocks like metals, textiles, etc. Also, one may decide to completely avoid companies with high debt levels (such as in excess of 1:1).

    If you do decide to change your investment philosophy then it is a good idea to make a clean break, sell all the stocks that don't match that philosophy and invest the proceeds in which you can be reasonably sure of success in the long-term.
     
  3. kharb

    kharb Well-Known Member

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    Thanks Meenakshi,I was also thinking on same lines,just wanted some logical support before booking loss.As I am already invested in private banking ,housing finance,L&T,Reliance Industry,Infosys ,TCS.I am also invested in FMCG ,ITC,HUL,Asian Paints and in pharma Sun and Lupin.I am now interested to buy from this money in one auto or auto ancillary,one or two small or mid cap FMCG and one or two small or mid cap pharma stock.Pl suggest if I am thinking in right direction .Or any other suggestion for qualty small or midcap long term strory.I am a very long term buyer and love to buy and hold.
     
  4. Investor2008

    Investor2008 Member

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    I dont think none of the fmcg companies are cheap. They are over valued. Make sure you invest on companies which are having value and also selling cheap. Cyclical stocks you need to get out once you made some profits . Dont do the same mistake by investing in big valuations . Your rturn would be flat or you have to book losses wgen you invest in high valuations
     
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  5. kharb

    kharb Well-Known Member

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    I think if we get some good growth company even if valuation slightly on higher side,in long term it still can give return.Main issue is long term growth of company and qualty of management .That why I want to get into some good small or mid cap in FMCG ,Auto ancillary and Pharma .
     
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  6. Srouta Mukherjee

    Srouta Mukherjee Well-Known Member

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    Good point. Stick to top quality stocks only always
     
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  7. kharb

    kharb Well-Known Member

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    Ye ,but I want stock specific suggestions .What can be those qualty management growth oriented mid & small cap FMCG,Pharma and Auto ancillary stocks.
     
  8. Investor2008

    Investor2008 Member

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    Do a research on sona kayo Steering system
     
  9. kharb

    kharb Well-Known Member

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    Sold IVRCL,Hindalco,Vedanta out of my non performing added additional more of Indu Sindh Bank and Sun Pharma .Still thinking of existing JP Associates Punj Llyod,Reliance Infra,R power Tata steel,R com etc in which I am stuck for last 8 years.Now I am more convinced that we should not have more stocks in portfolio.Idealy now I think it should be between minimum 10 and maximum 30 and average around 20.More stocks are added only when we dont select after proof analysis and with conviction.Meenakshi Rajdan has still to suggest some good mid ,small cap Pharma,FMCG and auto ancillary stock picks.Other members are also requested to contribute.
     
    Last edited: Aug 21, 2015
  10. dineshkapoor27

    dineshkapoor27 Active Member

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    @kharb I think its best that you make your own decisions on what the next story is going to be. Everyone will have their own opinions and will try to convince you. Pick the story you believe in strongly and go ahead with it. am going to say my story which I believe in. I believe that there will be a huge infra push by the govt and that include roads, ports, housing, power projects (renewable), mining etc. So I am betting on the companies which cater to them and have decent balance sheets. I am buying infra cos, cement, HCV companies (like Tata Motors), Housing finance companies, aluminium cos (yes, thats my contrarian bet) etc. I believe Pharma, FMCG are overbought (there might be some stories in the middle which might be worth buying into) so I dont believe I will gain big from these sectors as of now. In auto ancilliary space I like companies which are turning around or are undervalued. I like jBM auto (because of its bus production business which is about to begin). Sona Koyo and Motherson will be my other bets in that space.
     
  11. stockguru

    stockguru Active Member

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    Regarding the slowdown in metal commodities, miners and metal producing companies might be under a lot of stress due to the global slowdown but at the same time it would provide a wonderful opportunity to companies who consume these commodities as this would mean their raw material cost would go down significantly which could either mean they could reduce their prices and/or they could increase their profit margins.
     
  12. kharb

    kharb Well-Known Member

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    People have lot of discussion,which stock to buy.We also discuss a lot about booking profit.But I want suggestions from members of this form,when to dispose a share due to non performance .Most of time we ends up loosing 90 to 95% in stocks in hope of turn around.I had lost heavily between 50 to 95% in stocks of JP,Punj Llyod,Rel power, IVRCL,Rel Infra,Rel Capital,Tata steel,Vedanta,Hindalco and many more in false hope of early turn around..How to decide about selling a stock due to underperformance to avoid loss of higher percentage.
     
  13. bholu

    bholu Active Member

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    You can look at both Pvt. and PSU banks..the govt. has shown some intent,anyways if the metal stocks recover banks will recover earlier ...elevated debt levels, high losses per quarter are the signs that you sell a stock...if you have lost 50-95% then you held on for too long ...no point worrying now ...among the stocks you hold ...look at the management quality and then hold on ...where management quality is in doubt sell the stock
     
  14. bholu

    bholu Active Member

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    BoB, PNB, Syndicate Bank, JSPL, Oberoi Reality, Federal Bank, MBL Infra, prestige estates, anant raj, ongc, M&M Financial, city union bank, icici bank, noida toll, tata global, nmdc, nalco (some stocks where valuations look very reasonable...cannot say they will give blockbuster returns but as the popular quote of experts is - risk reward looks favorable:D
     
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  15. kharb

    kharb Well-Known Member

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    The question is not what to buy.It is when to sell due to non performance. In bull market of 2007 JP ,Punj,HCC,IVRCl were higher flyer.Then UPA govt paralysis was blamed for problems of infra.Modi govt came and almost all analysist said ,now on infra will do well.Even I heard Shanker Sharma of first globel to talk bullish even at 90 rupees.Even Shameer Arora said that if Modi govt come,JP etc will fly more than HDFC bank,although he did not recommend it.Nothing happened.So when non performer stock go down ,we think it is correction..After that there are positive noise about turn around by management and analysts. We keep on holding stock,but stocks becomes 1/3.After that replacement cost theory and value buying is adovocated. We continue to hold and it goes to 10% of peak price.Then we think it has gone down below the price it deserves.We waste more time and ultimately sell it at 5%.How to protect significant downfall.
     
  16. stockguru

    stockguru Active Member

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    @kharb The one thing that is common in all the companies that you had loss is that amount of debt these companies have is very huge. When companies have huge debts on their books the promoters usually have pledged some shares in lieu of that debt. If the situation doesn't improve and stock prices go down margin calls get triggered and the lenders start to sell the shares that they have which were pledged by promoters resulting in further downside. The point I am trying to make is that avoid companies having high levels of debts or make sure the debt levels of the companies are reasonable enough. If you are interested in a turnaround story and if the company is deep in debt buy it with the capital that you can afford to lose. Turnarounds when happen are fantastic but they don't happen often enough so the risk is high since you would be buying a company with weak fundamentals on betting its future would be better than the present day.
     
  17. bholu

    bholu Active Member

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    We are responsible for our investments...if you choose to listen to experts and ignore fundamentals then you would loose money ..I can not imagine how anyone can compare HDFC Bank with JP..the point made by stockguru is very accurate ...elevated debt levels are mainly responsible for a company's downfall..a good promoter will never allow debt levels to go beyond comfortable levels...we have seen it again and again JP, GMR, Lanco, Suzlon, etc etc...if you are smart enough and track investments regularly you can avoid mistakes of the past
     
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  18. kharb

    kharb Well-Known Member

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    True ,now even Rikshawala,rahdi wala,chaywala,my driver also knows that never buy a company with high debt.But usualy what happens most of compnies goes for huge debt and capacity expension during peak of their business cycle.When these compnies were raising debt,every body including so called experts were singing songs of infra sector.Only after these high debt stocks were lower to 1/5 of price, then only this general knowledge become common even to experts also.I have heard Raamdev Aggarwal recommending to buy Central Bank of India at more than 200 rs and expecting it to go to 1000 on strength of its large no of branches.After that it went down to 50 rupees and recently I heard Raamdev Aggarwal speaking as expert on banking NPA and advocating Buy Right and Sit Tight.I bought central bank on Raamdev advice thinking I bought right and Sit Tight till it goes to 50 due to NPA and I booked my loss.I have lot of respect for Rammdev Aggarwal and all stock market stars although I keep on critcising them along with their failures, as you can not expect them every time right.Generally all type of expertise is available after huge set back.No body or even so called experts are predicting huge losing sector or stocks of tomorrow,They will appear after small investers had taken a hit.Although I have sold my many stocks with huge debt and expecting to sale rest also.But as now every one has become expert to advice against high debt,I am afraid compnies with high debt may perform on back of lowering interest rates to prove me and experts wrong on high debt theory.I wish we have more future experts like next Rakesh Jhunjhunwala and R K Damanis etc type and less of Postmartum Type Experts who can explain and come out with Logic after stock has gone down by 80 % .I wish this form will create such expertise among its members ,who can predict tomorrow winners along with tomorrow losers.Salute to those upcoming experts in advance.
     
    Last edited: Aug 26, 2015
  19. stockguru

    stockguru Active Member

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    @kharb Well I can understand your frustation. Debt is a two edge sword. There have been companies who have used debt to their advantage and then there are companies who have lost everything because of it. If you look at these companies some maybe just unlucky because the industry they are in happen to go in downturn resulting in huge interest costs which they are not capable to pay back. Well this thing happens and this thing will happen in the future as well. Many industries are cyclical in nature and they go through their period of boom and bust. Auto ancillaries are in high growth phase and some of the companies that are in that sector are having huge valuations right now. Maybe when the cycle changes you might get them back in single digit P/E as one could have gotten before this cycle began. The time infrastructure were raising debts it was in upswing and hence everyone was raising their claims but then the whole industry fell apart and in a sense people like you and me can't do anything about it. When the whole industry is going through a downturn you would expect companies having high amounts of debt suffering the most. This is the risk that is and will always be associated with equities and one should keep that in mind. In the benefit of hindsight if you want to have the safest possible investment stocks I would suggest you buying companies with strong pedigree and market leaders in their industry. These companies might not give you the giant returns that some of midcaps or small caps may give but you would be certain that most of the time you wouldn't lose in them the kind of money as you would in other smaller companies. Also one more point I would like to say maybe this could help you identify some opportunities.The point you made about companies going for debt and expanding their capacities during peak of their business cycle is something that an investor should avoid looking into. There are smarter companies who actually do the reverse. They expand their capacity when their sector is in downturn. Usually they do it if they have some amount of cash on their balance since raising huge debt in a downturn wouldn't be feasible for them. There were a few companies who did it in height of downturn in 2008 so by the time their expansion is completed the cycle would have been reversed and they would be ready for the next upswing in their sector. If you could find any such companies who is investing in itself during height of downturn you should really take a look at it. Chances are that since the whole industry is in downturn you might actually get a bargain.
    Happy Investing :)
     
  20. kharb

    kharb Well-Known Member

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    I have learnt my lessons hard.Never keep loosers in your portfolio.Always keep on removing weeds out of folio.If any company start faultering,it is better to come out of stock.We are small share holders.We have opportunity to change companies like hats unlike permoters.No need to sentimently attach to stocks as inspite of all said and done,companies belong to permoters.Keep only performing stocks and winners in terms of growth and qualty managements.Start with some what bigger portfolio may be upto 30 to 40 maximum after proper study.After every 2 to 3 years weed out losers in terms of performance and book loss.Invest that money in winners of portfolio. Keep on repeating like this.This way after 10 years U will be left with 10 to 20 winners for long ride..
     
    Last edited: Aug 28, 2015
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