'Sell part of your portfolio where you're making good money, especially in small caps and mid caps.'
'The money which you take home is yours. The money which is there on paper is not yours.
Independent market expert Ambareesh Baliga tells Prasanna D Zore/Rediff.com that retail and SIP investors must sober down and book partial profits.
Explaining how expensive stock valuations are, Baliga cites the example of the Indian Railway Finance Corporation, a part of the much-fancied railway sector in the current bull market:
"I was trying to convince people that it can't go down; from Rs 20 levels the downside is limited.
"I would have given a target of about 36. If you had asked me to be slightly more aggressive, I would have been able to give a target of more than Rs 50. =
"Today that Rs 20 stock is at Rs 140.
"And look at their (IRFC's) business, nothing has changed. Nothing has changed in the last 18 months. They are doing the same old business. How do you justify these (kind of crazy valuations)?"
The concluding segment of a two-part interview.
- Part 1 of the Interview: 'New Investors Won't Digest Such Falls'
If the pressure on the markets continues, then perhaps SIP investors would throw the towel in.
Possibly. Possibly.
What kind of SIP money is being channeled into markets every month?
SIP money is about Rs 17,000 crore (Rs 170 billion) which is coming in every month.
Every month? So if one were to look at this amount cumulatively over the years, then it would be a huge amount?
About Rs 2 lakh crore is flowing into the market only through SIPs. Forget people who are investing directly in mutual funds, forget the people who are investing directly in the markets. This is only SIP money.
How were you looking at valuations when Nifty crossed 21,000 mid-December (2023) and within 20-odd trading sessions (by January 16), it quickly notched up another 1000 points to 22,000 and again back to 21,600 at closing on January 17?’
Let me tell you, even as of now, I won't say the valuations are too expensive for the blue chips and the large caps; there (in this space), one can say valuations are high, but still justifiable to a certain extent.
Valuations are stratospheric levels as far as mid-caps and small-caps stocks are concerned. There, there's nothing called valuation. People were only looking at momentum (the prices of many mid-caps and small-caps doubled, tripled, quadrupled in a very short span of time during 2023).
Look at all these railway stocks and defence stocks. There is a story, no doubt, but on a story, how much will you push up?
I'll just give you an example of one stock called IRFC (Indian Railway Finance Corporation); you can call it a railway stock because they finance railways, but then this was a dud about a year and a half, two years back. Nobody would touch it.
I was trying to convince people that it can't go down; from Rs 20 levels the downside is limited. It's a very good dividend play. And every year it is growing at about 25 to 30 per cent. At least that is what you can expect: 25 to 30 per cent growth (in profits) every year. So, with just 20 per cent upside (in the price of the stock) every year, it is a good portfolio stock -- buy and forget about it.
If not anything, you'll get dividend and people were not convinced to buy it.
Today that Rs 20-stock is at Rs 140 (seven times jump, which is equal to 600 per cent jump in two years) in 18 months. In my wildest dreams, I would never have imagined such compounding. I would have given a target of about 36 (from Rs 20, which is still a huge upside of nearly 90 per cent).
And if you had asked me to be slightly more aggressive, I would have been able to give a target of more than Rs 50. And today it's at 140, 3x book value, which was 18 months ago quoting at a discount to the book value. And look at their (IRFC’s) business, nothing has changed. Nothing has changed in the last 18 months. They are doing the same old business. How do you justify these (kind of crazy valuations)?
I have to ask you this question, because I don't know when last the bank Nifty corrected 2 per cent and Bank Nifty 4 per cent in one session, sort of wiping out gains of almost a month.
What would be your advice to retail and SIP investors after today's fall?
For SIP investors who are just blindly, month-after-month-after-month, investing in markets passively oblivious of the market frenzy and unjustifiable valuations as they have conditioned themselves to look only for long-term gains (over 5-10-15-20 years) and not worry about one-off selloffs like we witnessed...
I had put a tweet saying that all these investors are seeing their wealth multiply, their net worth multiply much beyond their imagination, day-on-day, week-on-week.
But to check if you would have really added to your wealth or added to your net worth, the test for that is not the end of a bull market. The test for that is the end of the next bear market.
Say, for example, you have invested Rs 20 lakh (over a longer period) and today your net worth is Rs 1 crore. Does that Rs 1 crore remain Rs 1 crore at the end of the next bear market?
That's the real test because your net worth would have come down to possibly Rs 60 lakh at the end of the bull market but in most of the cases, that Rs 60 lakh becomes Rs 15 lakh at the end of the bear market because you wouldn't have been able to survive that bear market.
Every day you're seeing lower levels. Finally, somewhere you give up your confidence, you give up your patience and you say, okay, I don't want to do anything with the markets; let me sell everything and get out.
People are looking at that Rs 1 crore today without taking money off the table. Investors should at some point of time say, 'This is it. Let me not become too greedy. I made enough money. Let me take some money off the table.'
I'm not saying (recommending/suggesting) sell the whole portfolio. It's not possible to sell 100 per cent, but sell part of your portfolio where you're making good money, especially in the small-cap and the mid-caps, where everyone around is saying is expensive but still going up; where you are not able to justify (expensive valuations) exit, book your profits.
Take the money home. The money which you take home is yours. The money which is there on paper is not yours. It can change.
And it can change very quickly...
And, psychologically it's much easier -- at the end of the day, market is more of a psychological game. Psychologically, it's much easier selling on the way up (as liquidity is abundant) than selling on the way down (in panic there is no rational price discovery and prices just melt downwards).
You are unable to sell on the way down because you've seen a higher level; while selling on the way up the only issue which you face is regret (as prices keep moving higher and investors regret booking out earlier). But if you are able to manage your regret, you'll be a winner.
While going down, if you sell along with the regret, you also have losses...
No. While going down, you're not able to sell. You are being forced to sell.
If you're given a choice, you'll not sell because if you have seen (your share price at Rs) 100, you'll not be able to sell at Rs 80. Unless your banker or someone forces you to sell at Rs 80, you'll not sell. You'll say, 'No, let me wait. It's gone to 100. Let me wait for 90.'
And that Rs 90 doesn't come. He'll see Rs 70 or Rs 60.
Retail investors shouldn't get into this waiting game. They should take some profits of the table, at least take your capital out.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this QnA or an attempt to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
