Time for a Breather
The markets are on a roll. Small-caps and mid-caps are outperforming along with real estate stocks. While we already know this, what we do not know is whether this trend will continue going forward for the rest of the year and whether there will be a rotation in sectors. These very uncertainties are what make the equity market intellectually exciting and extremely engaging. Here is where the thesis of being engaged in the markets on an ongoing basis rewards investors. Engaging is not just about buying or remaining invested. It is also about profit booking on a regular basis.
If buying quality stocks is an art in the equity markets, then booking profits regularly in a timely manner is a specialised art that only few have mastered. In our cover story we have touched upon this delicate art of profit booking, which can be made relatively easy by following certain indicators and patterns in the equity markets. We have highlighted in simple language the various aspects of profit booking that one needs to observe and take help of. In continuation to the topic on profit booking we have also explained in one of our special stories the psychological aspect of why selling stocks is more difficult that buying stocks.
Our other special story talks about the sector that the whole of India is watching with keen interest – automotive. The automotive sector is on the cusp of innovation and disruption since the established players are slogging it out in the markets to not only increase their market share but to also remain relevant. I was impressed to see the way automotive ancillaries have performed in 2021, so far. At least 13 companies manufacturing automotive ancillaries have seen their share prices rising more than 100 per cent in 2021. This is an impressive performance from a sector that investors were cagey about a year back.
While we have seen at least 86 companies from the BSE Small-Cap index more than double their price in 2021, our recommendation is to stick to the basics for now. The trend in textile companies is improving as the economy is opening up and the government is keen on boosting this industry as it creates huge employment opportunities. We may see textile as the new sugar soon. That said, one can include such positive trending stocks in a portfolio to provide the tactical edge for the medium term. Consider only those stocks that are growing their businesses on ground and are showing gain in market share while maintaining profit margins for now.
The logic of buying such strong quality companies is simple: these companies do not require a bull market to push their stock prices higher. Good businesses shine in the long run no matter what the market sentiments are. While it appears such an easy task to decide about the stocks to buy during a bullish phase, it becomes more imperative to engage an advisor now. An advisor can guide you with his or her vast experience, especially when one tends to get carried away in such vibrant market conditions.
One should avoid fancy strategies linked to AI and robot trading practices as their algorithms are new to the market. They have only seen the bull run and are yet to be tested in a bear phase. At DSIJ, we are a big supporter of the ‘keep it simple’ strategy in equity markets. Stay focused on quality businesses, remain diversified, use time-tested techniques and avoid too much experimentation with the way you pick stocks and strategies to outperform the markets. We have mastered these principles over the years and built our own proprietary research model to beat the markets. So, take a breather and identify opportunities to book profits on a regular basis as you continue your journey on maximising the overall returns from the markets.
RAJESH V PADODE
Managing Director & Editor