Finally, Its all About Quality!
As per the data available for 2021, the month of June not only witnessed the maximum number of stocks hitting their fresh 52-week highs but also a huge number of stocks hitting their respective lower circuits. This clearly implies that the market is rewarding quality momentum stocks while punishing the speculative ones that have rallied without any fundamental justification. This behaviour of the market is healthy and will encourage investors to tilt towards quality stocks with inherent strong fundamentals. Talking about the momentum in the market, I am sure you must have noticed the eye-popping gains in sugar stocks.
Sugar has become the new steel lately. Such cyclical phases are unpredictable though they bring in some unusual performances. While the fundamentals are there to support the secular rally in sugar stocks, it is advised to take some money off the table. Move to minimal allocation to such cyclical sectors and do not go overboard even if the promise of outperformance is too large to ignore. Meanwhile, to focus on what the current issue of Dalal Street Investment Journal has to offer, it is a special one since we have presented the financial performance of the ‘Top 1,000’ companies across various industries in India.
This will help you to identify the emerging trends in profit margins, sales and net profits in these companies represented across 25 industries. Other than the financial numbers, an overall insight has been provided on the key sectors. We hope you will find this useful. Do share your feedback. Our cover story, ‘Special Situation Investing’, talks about the unique investing opportunities that become available during company structuring and book closure periods. Also, as the merger and acquisition activity grows in India and a trend for buybacks continues, investors should gear up for harnessing returns from some special situations that become available for investing.
In our other special story, we thought it would be interesting to check if we have any ‘meme stocks’ in our backyard i.e. the Indian equity market. Read our special story and understand what exactly meme stocks are and how to identify them. To take a larger perspective, at the current levels it looks to me like there is a little fatigue in the market with lack of vigour in the bulls. The outperformance by healthcare and IT indices is a signal of the market getting defensive. It would make sense to cut leverage and stay agile in such markets. Being patient and going slow on fresh investments is advised for the moment.
The market appears to be consolidating before it sets off in a new direction. Continue to treat dips in the market as accumulation opportunities. To give you an overview of the bullishness in the markets, I have never seen Infosys double in price in one year except in CY 2009 and during the dotcom bubble era. Infosys in the past one year is up by more than 114 per cent! The potential in the market remains strong as we can see several stocks waiting to break out from their key resistance levels. However, it may take a while to realise this potential.
In the short term some tactical investment decisions may add that valuable alpha to your portfolio. For long term investors let these market blips not unsettle you as you continue to hold your conviction stocks to play the long game. Surely enough, continue to stay away from speculative stocks as they end up destroying wealth in both the bear and bull markets. As said in cricket parlance, keep the eye on the ball and stay tuned to your favourite DSIJ for guidance and in picking up quality stocks.
RAJESH V PADODE
Managing Director & Editor