Use surplus cash and have a lot of patience.
A couple of weeks ago, when Andhra Pradesh Paper (AP Paper) sold 53 per cent stake to US-based International Paper for $423 million, most paper companies’ stocks hit the upper circuit.
And, within days of the news, there were talks of a re-rating in this sector. This sudden interest surprised many. But, as Ambareesh Baliga, chief operating officer, Way2Wealth, explains, “If it is not a big sector, there isn’t much interest in it. These come into focus only when there is some activity.”
There are several sectors that are not tracked actively, but find themselves in the limelight suddenly. These include paper, shipping and textile. There is interest in the latter for the last seven-eight months. Even the aviation sector was not tracked actively by analysts till the 2008-09 boom.
For those, who wish to invest in such sectors that are not well-tracked, it could be a serious challenge. While money could be made as these are definite multi-baggers in good times, there could be long periods of lull. Importantly, there is little interest from the analysts, leading to little research available for investors.
For instance, since the AP Paper deal, stock prices of many companies have gone through the roof. AP Paper’s share price has risen 90 per cent (closing April 4). Similarly, Aurangabad Paper and Sirpur Paper have risen 59 and 32 per cent, respectively.
But it is difficult to convince market experts that retail investors should also participate in the rally. Like Baliga says, “Investors would be better-off in midcap stocks, rather than investing in sectors that are not well-tracked.”
Many of these sectors are not in the listed space, and even if these are, these are not well-tracked. “Such sectors are mostly looked at by private equity firms or high net worth individuals (HNIs) because these are better prepared and enter well in advance to earn good gains,” says Prashant Prabhakaran, executive director, IIFL. On the other hand, retail investors land up entering these in the last part of the rally and, sometimes, even at peak valuations.
Entering at the right time of cycle is important in these sectors. However, it is difficult for retail investors to identify which cycle the sector is in. And, this is why experts advise only HNIs invest in these sectors.
If a retail investor wants to invest, he/she should have a high risk-taking ability and should experiment with surplus cash only. Also, he/she should have a lot of patience, as it might take time for the sector/company to do well and give good returns, explains Baliga. And, for stock-picking, you may need help from a professional.
| OFF-BEAT COMPANY STOCKS |
| * Not enough research is available on these stocks |
| * Need professional help to identify such stocks for investment |
| * Can be multi-baggers over time |
| * Use only surplus money to invest in these (up to five per cent of portfolio) |
| * May have to hold these stocks for long to earn good returns |
Are these sectors good contra bets, then? “Provided you identify the cycle well in advance,” says Prabhakaran. For instance, if you enter a stock when it has already moved up 30-40 per cent, which mostly takes a good year to happen, you could see a correction and get stuck in it. But, if you enter when the cycle is just turning and investor interest is in its initial stages, say the stock is up 5-10 per cent, you are likely to be on stronger ground.
“For preliminary research, we advise investors look at macro factors than financials, as the latter may not be easy to understand,” says Kiran Chheda, an equity analyst.
