Bears eradicate Bulls from Dalal Street
In my last piece, I had proudly proclaimed that Bears have been eradicated from Dalal Street.
As usual, I was wrong.
The Bears had merely staged a strategic retreat so as to lull our guard. As soon as we turned our backs, the Bears launched a vicious and no-holds-barred attack on Dalal Street.
The attack has inflicted incalculable and irreparable losses on the Bulls. It may take several months for the wounds to heal and normalcy to return.
Yeh sab mille hue hai ji! Wounded by the small and mid cap indices Indian investors have to now tolerate the Pepper and Salt being rubbed by the bigger ones – Nifty and Sensex.
— Basant Maheshwari (@BMTheEquityDesk) July 12, 2018
#sensex #Modi #adhia #Sebi If we exclude the market cap of top 10 stocks, the remaining over 4,000 stocks listed on BSE have lost a whopping Rs 16.70 lakh crores since January 2018! More than 300 stocks have fallen anywhere from 50% to as high as 90% from one-year high prices
— NTD Nilesh Dedhia (@ntdmagic) July 19, 2018
DID YOU KNOW? @BloombergQuint
Sensex is up 7.5% YTD but BSE500 down 0.3%
Only 86 BSE500 stocks outperformed SENSEX YTD returns
Only 132 stocks gave positive returns on YTD basis
369 stocks on BSE500 gave negative returns
Nearly 140 stocks are down over 25% Year to Date
— Yatin Mota (@YatinMota) July 12, 2018
Nifty & Sensex close to all time highs. Midcaps & Smallcaps near 52 week low, Down 60-70%.
Retail Investors: Abke Sawan Me Yeh Shararat Humare Saath Hui, Ek Humara Ghar Chhod Ke Saare Seher Me Barsaat Hui.
— Prem Doshi (@StocksResearch) July 20, 2018
In fact, the situation is so grim that Samir Arora, the distinguished fund manager with Helios Capital, had to instruct his vast follower base, to generate inspirational quotes so as to prevent novices from bolting.
Looking at the state of our market, we desperately need new inspirational quotes.
— Samir Arora (@Iamsamirarora) July 16, 2018
However, few were in the mood to comply with Samir Arora’s directive and the inspirational quotes were few in number.
My PMS Fund is the worst performer in the last 5 months
Porinju Veliyath, who is one of the de facto commanders of the Bulls Army of Dalal Street (‘BADS’), is one of the worst affected by the savagery of the Bears.
On the earlier occasion, Porinju made public the performance of his PMS Fund. He revealed that the Fund has under-performed in FY18 and in Q1FY19.
While the under-performance is FY18 is tolerable, the loss in Q1FY19 is a hefty 18.54% even though the Indices delivered a positive return.
This under-performance may spill over to Q2FY19 as well given that the star stocks in the portfolio such as LEEL, Va Tech Wabag, Kaya etc are continuing to bleed.
No strategy is evergreen, equity investors have to go through good and bad times to create long-term wealth. Sharing EQ performance on popular demand? pic.twitter.com/RhNaMlciKx
— Porinju Veliyath (@porinju) July 4, 2018
In his latest interaction with Anuj Singhal and Ekta Batra, Porinju reeled out frightening statistics about the extent of loss suffered by stocks.
He pointed out that out of 3000 companies, 1700 companies have gone down beyond 40 percent, 1300 companies have fallen by 50 percent from the recent high and 750-800 companies have fallen by 70 percent.
“This year we are down, we are the worst performer among the fund management companies in India,” Porinju added with a rueful shrug of his shoulders.
However, he was also quick to add a reminder of his past performance.
“I am a fund manager who has been delivering 45.2 percent CAGR for the last five calendar years,” he stated in an emphatic manner.
I am embarrassed at the NAV fall. But there is no redemption pressure in PMS
Porinju candidly admitted that even he is surprised at the steep fall in the NAV of the PMS Fund.
“It is true that clients who have joined in last 8-10 months or maybe one year, when they look at the price today or NAV today, it is little embarrassing even for me,” he said with a sheepish smile.
However, he assured that this is a “passing phase” and that “many of the stocks will go through new highs”.
“I am very confident about them,” he emphasized.
Porinju also offered the soothing information that though the first time clients “don’t understand market dynamics much,” they are not panicking and demanding their moneys back.
“There is absolutely no redemption. Every month even in May and June we have net inflows,” he said.
No doubt, this speaks volumes about the confidence that Porinju’s clients have in his stock picking abilities.
Retail investors are gaining wisdom & common sense! Equity Intelligence too witnessed net fund-inflow during the panic months of May & June. https://t.co/QGYXDp5CWi
— Porinju Veliyath (@porinju) June 29, 2018
Irrational exuberance caused stocks to be given lofty valuations
Porinju explained that the reason for the savage crash in the stock prices of small and mid-cap stocks is because their prices had been driven up to unsustainable levels by irrational exuberance and euphoria.
“There was euphoria. Small and midcap stocks had been sustainably going up for the five years,” he explained.
He also pointed out that investors had started thronging Dalal Street as it started to peak.
“The natural tendency of lot of people is to come at the peak of the markets, big money comes in at that point of time, that euphoria nobody will rule out,” he said.
Naturally, euphoria coupled with big money gushing in is a recipe for disaster.
Forget large-cap stocks, Exciting times to buy small and mid-cap stocks
Porinju was asked whether in view of the savage crash in small and mid-cap stocks, the proper strategy now is to buy large-cap stocks.
However, he categorically ruled out the strategy.
“This is a time for midcaps and small caps,” he thundered with a defiant look in his eyes.
“After this big fall I think this is the most exciting time when I look back in the last five years. Now is the time to really look into and load selective mid and small caps,” he exclaimed.
“It is a wonderful time to pick small and mid-cap stocks with a very high margin of safety than the top quality stocks today,” he added.
Crash in unsustainable. Markets will reverse soon
Ekta Batra rightly asked Porinju to define a time frame within which we can expect small and mid-cap stocks to revert to their glorious days.
Porinju came out with all guns blazing.
“It is overdone already, so it can happen any time, it can start tomorrow, maybe Monday, I don’t know,” he said, his eyes sparkling and his voice quivering with excitement.
“This is a huge unusual crash and the money is hiding, the money is attempting to hide behind the 15-20 stocks. This won’t sustain,” he added.
Mid & small-cap carnage seems overdone. Paranoia will vanish soon. Money hiding behind top 15-20 stocks will soon start looking for rational valuations.
— Porinju Veliyath (@porinju) July 19, 2018
(Porinju with the Toyota Land Cruiser Prado)
Forget buying HDFC, Bajaj Finance etc, Small-caps will outperform
Porinju reiterated his pet theme that small and mid-cap stocks will outperform blue-chip stocks and deliver multibagger gains.
“Most of them would go beyond their earlier peaks and they will outperform this current HDFCs and Bajaj Finance or HUL or TCS by significant margin,” he said.
Porinju has once earlier proved his theory by recommending a buy of FCEL in place of blue-chips like HUL, Nestle, ITC and Colgate.
While the blue-chips struggled for breath, FCEL sprinted forward like a champion runner and delivered mind-blowing multibagger gains.
— Porinju Veliyath (@porinju) September 7, 2017
Whether his prophecy comes true this time as well remains to be seen!