In the past few months, PSU Banks including SBI have had a stellar run up. Some of the smaller banks have gone up nearly twice to thrice in a matter of few months. After these kind of run ups, its normal if these take a pause and undergo time and or price correction. That is what we are seeing in this space. Personally I expect the rally in PSU Banks to continue after the short to medium term correction gets over. As of now I have them only in my watchlist.
We have had a market which keeps on awarding the favorites tag to one sector after the other. If one were to list the sectors that have shown fancy in past few rallies, mostly post Covid, it has been pharma, chemicals, chemical ancillary, textiles, sugar, IT, steel and metals, cap goods, PSU banks and PSUs, autos, defence, tyres lately, … you name it and most of the sectors have had a sectoral rally that have lasted a few weeks to few months. Those investors who have kept looking out for the next sector to catch fancy and have been able to latch on to these at early stage, and more importantly been able to exit after strong run ups (not necessarily at top, but near tops) have seen good returns.
There are other investors who have not recognised the fabric and fancy of the markets that we have had since past 2 years have suffered. I see many investors still holding bulk drugs companies like Laurus, chemical sector stocks etc. We have to realise that sectors like bulk drugs, chemicals etc are basically commodity companies that were having a good time due to sector and company specific tailwinds. But once the froth sets into these companies, they are often treated as structural growth stories and given valuations which are given to them. From recent memory I can quote a few names like Clean Science, Tattva Chintan, GMM Pfaudler, HLE Glasscoat, etc quoting at valuations much higher than even structural stories like good quality private banks, or FMCG kind of companies. Many of these companies have lost their fancies and have corrected to varying degrees.
Post the correction in these names, on valuation basis, they may appear attractive when they start quoting at 52 week lows, or multi year lows, and downsides may appear low, but making serious money in these kind of names would be difficult. It is very important to know the specific triggers that can play out while buying these kind of names. Otherwise just buying them because they have corrected say 70-80% from their tops is what I call ” HAIL MARY” kind of investment style. Many investors feel that they are contrarian investors when they buy these kind of companies. In these kind of investments, basic idea is to try to buy cheap and hope things turn around in your favour. Sometimes these type of things play out if the investment horizon is long enough, but most of the times its HOPE investing. Real success in contrarian investing comes when you are contrarian but more importantly are RIGHT. Getting this combination is very difficult and very few suceed at this. If one can master this art, then there is tremendous amount of money to be made. I know a few investors who excel in this art, and have seen their success firsthand, and have been lucky to learn from and interact with them. The other option is to try to learn technical analysis and try to pick up sectoral fancy in its infancy and get in early. For me all this stuff is work in progress. Some hits and some misses.
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