Be Wary of the Highs

Be Wary of the Highs

It is well said that “the trend is the investor’s true friend”. The current trend in stock prices clearly indicates a divergence in the performance of large-cap, mid-cap and small-cap companies. A point to note is that the broader markets have been underperforming the large-caps recently. To get a deeper perspective, if we observe the performance of the 690+ constituents of the BSE Small-Cap index in the past one week, as many as 525 out of the 696 index constituents are trading with negative returns. It indicates that almost 75 per cent of the BSE Small-Cap index constituents are in the negative territory with at least 56 stocks down by more than 10 per cent each. 

In fact, I can notice that many of the popular small-cap stocks that rallied a lot recently have been taking a beating with their share price falling. This price action does not indicate a reversal in trend but cleaning of excesses in the markets. Always remember that the stock market is quite rational in the long run! Meanwhile, this issue is a special edition as we bring to you the leading CFOs of corporate India and their views on the state of the economy and the various industries crucial to the growth of India. CFOs are financial masterminds and their insights can be very useful for investors. I am very glad to bring forward this issue at an opportune time when the economy and share market are going through a lot of innovations and structural changes.

Indeed, exciting times cannot be better narrated than by the financial leaders of corporate India and hence this CFO issue is one of our favourite offerings from DSIJ. It is a busy season for market participants as the companies are reporting their earnings. It is easy to lose count as there are a plethora of winners and laggards currently reporting their performance for the quarter. Hence, in our cover story we have taken up the analysis of 1QFY22 results and distinguished the top performers from the poor ones with the aim to make it easy for investors to decipher the trends in earnings.

Momentum investing is always relevant no matter what the market conditions are. But does it work most of the times? Find out the answer in our special story on momentum investing and its relevance in the Indian markets. In our previous issue we had cautioned about the IPO frenzy and highlighted why one needs to be more vigilant. In addition, I want you all to remain alert as the broader markets are showing signs of a divergent trend. If we look at Nifty and decide to invest in the broader markets – something that many novice investors will tend to do – the losses can be heavy.

As the debate gets trending on whether the momentum is shifting from mid-cap and small-cap stocks to large-caps, it is not only time to remain stock-specific but more importantly to increase the research and due diligence to distinguish true quality amongst the many imposter stocks riding the bull frenzy today. Keep enthusiasm in check and avoid leveraging. While the Bull Run is not over yet, the trend reversal can take everyone by surprise. Continue to book profit and exit poor quality stocks as they will be the first to take a beating. Holding some cash at this moment may not be a bad idea as several exciting investing opportunities await us ahead. Wishing you all and your families a very Happy Independence Day!

RAJESH V PADODE
Managing Director & Editor

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