INSUBCONTINENT EXCLUSIVE:
Going with the flow is no big deal
The real test is when you need to take your boat up the stream
This life mantra applies everywhere, even in the equity market.
Market mavens on Dalal Street enjoyed their good times over the past four
years and fetched good followers on social media when midcap and smallcap ideas were selling like hot cakes
Even since market sentiment turned jittery since the beginning of 2018 amid challenging macroeconomic headwinds, these same experts are
finding it difficult to generate alpha for investors.
For a difference, they are being honest and are admitting it
The Nifty Midcap100 and Smallcap100 indices are down up to 21 per cent from their respective highs hit in January 2018, while Nifty itself
is down 3 per cent to 10,768 as of June 7 from its high of 11,171 hit on January 29
Smallcap czar Porinju Veliyath, who shot to limelight in the last bull run aided by his bold and aggressive bets in the smallcap space, was
first to accept his wrong calls in a letter to his clients, after being caught unawares by the extent of value erosion in his portfolio
within a short period.
Last week, Ambit Capital acknowledged its worst buys and sell calls of past 12 months.
The brokerage said Tata Power,
Dish TV, oil marketing companies, VA Tech Wabag, DB Corp, Greaves Cotton, Bharat Electronics and PI Industries were among its worst
‘buy’ calls, and some of these stocks have tumbled up to 40 per cent in last 12 months.
The financial services firm also accepted that
D-Mart owner Avenue Supermarts, Jubilant FoodWorks, Bajaj Finance and United Breweries were among the worst ‘sell’ calls it took over
Some of these stocks have since rallied up to 180 per cent.
With a 175 per cent jump, Jubilant FoodWorks is the best performing stock in
“Stellar SSG growth plus margin expansion has helped this stock grow 175 per cent in last 12 months
Confession: It is the best performing stock in our coverage,” Ambit said in a note.
Ambit Capital’s Chief Executive Officer Saurabh
Mukherjea resigned last month after an eight-year stint
There were some speculations in the market linking Mukherjea’s resignation to his contrarian calls going wrong
However, Ambit Holdings’ Group CEO and founder Ashok Wadhwa later clarified that Mukherjea’s exit from the firm was ‘amicable’
Market veteran Aveek Mitra, founder and chief adviser at Aveksat Financial Advisory, accepted his wrong calls in a tweet dated June 6
“We at aveksatequity.com advised our equity advisory members to sell stocks continuously in December 2017 and January 2018
We invested in a few new stocks and kept a few where valuations seemed alright
Now a few of those are down from our advised levels
We do not claim to know why, but we buy more.”
The continuous fall in the market has left the midcap and smallcap universe a sea of red on
More than 80 per cent of these stocks have eroded up to 92 per cent of investors’ wealth so far this calendar.
Value investor Abhishek
Basumallick says these types of confessions that market pundits are making right now is a good trend.
“Introspection into one’s process
However, we need to remember that short-term price fluctuations do not make one right or wrong,” he said.
Some of Porinju’s stocks like
Liberty Shoes, Shalimar Paints, LEEL Electricals, Cimmco have slipped up to 53 per cent so far this calendar
LEEL Electricals has plunged to Rs 136.60 on June 7 from Rs 287.60 on January 1, whereas Cimmco has declined to Rs 72.90 from Rs 126.
His
other stock picks such as Emkay Global Securities and Palash Securities are down over 40 per cent on a year-to-date basis.
“We have
nothing much to do right now, in a market environment which absolutely lacks buying interest, but wait patiently,” Porinju wrote to his
clients about the underperformance in his PMS since January this year.
These mistakes do happen in the professional life of equity fund
Once or twice in career this mistake is unavoidable, says G Chokkalingam, Founder Equinomics Research and Advisors.
“Two issues are
important: First, before investing largely in smallcap and microcap stocks, we professionals need to follow this strategy only for those
investors who can take very high risks
Also we need to ensure that their risk profile matches this kind of investment strategies
Secondly, before investing we need to ensure that management quality, balance sheet and valuations of these smallcap and microcap stocks are
comfortable,” Chokkalingam said.
