Even as Nikhil Murali’s total stock portfolio has been eroded by close to 15 per cent, there are a few scrips in his kitty that have given him considerable gains in 2011. Some lucky stocks like Bata and Jubilant Foodworks, among others, have helped him offset losses.
The Sensitive Index (Sensex) of the Bombay Stock Exchange (BSE) and the BSE-500 index fell 24 per cent and 28 per cent, respectively, last year.
But both Bata and Jubilant went up, by 46 per cent and 20 per cent, respectively.
Murali is wondering if he should book profits in these stocks and, maybe, buy a few stocks now trading at low valuations but likely to help him gain, going forward.
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The good part is that even in the most beaten down sectors, there have been some select stocks that have given not just positive, but considerable, returns.
Of the Business Standard 200 stocks, 25 gave positive returns last year.
These include Bajaj Auto, which went up three per cent (BSE Auto index was down nearly 10 per cent); PowerGrid, which rose two per cent (BSE Power index was down 32 per cent); and Hexaware, which gained 28 per cent (BSE IT index was down 12 per cent).
Many like Murali must be wondering what should their investment strategy be if they own such scrips that have outperformed broader markets and given positive returns.
Prateek Pant, head (products & services), RBS Private Bank, says one should hold on to defensive stocks, considering the prevailing uncertainties in global and domestic economic environments.
“With the upcoming key events in the developed world and the outcome of local elections, we expect some good opportunities in risky assets that could be used to build positions for long-term structural growth, at very attractive multiples. With an interest rate cycle reversal around the corner, one could evaluate positions in interest rate-sensitive sectors,” advises Pant.
Market advisors say it is not the best time to shift from stocks that have done well to those beaten down and likely to see an uptick this year.
Capital preservation is most important at the moment.
Stocks that have given good returns last year are those that have generated good numbers and will continue to do so in this year. So, hold on to these.
“This is not the right time to shift. Once there is more clarity from Europe and once the central bank starts cutting rates, the risk appetite of investors is likely to return. This will take another three to four months. Those counters that have been profitable in 2011, when the markets were down, will continue to be profitable this year, too, because of strong fundamentals and good cost management,” says Pankaj Pandey, head of research at ICICI Direct.
However, if you believe a stock has run its course and cannot go up further, or might slow down from here, book profits and invest in scrips available at cheaper valuations.
High risk-taking savvy investors, who have reached the desired target price, can take this route.
Otherwise, investors should not time the market, but invest with a long-term horizon.
“It depends on what call you are going to take on the stock. If you are of the view that the stock is richly valued and the impending rate cut or the depreciating rupee is likely to have a negative impact on the scrip, it is best to exit with profits and look for better bargains,” says certified financial planner Arnav Pandya.
