INSUBCONTINENT EXCLUSIVE:
NEW DELHI: If you are among the investors who are stuck with their smallcap bets, you might want to consider four key aspects before
deciding on whether to stay put or run away from the underperforming stocks
Porinju Veliyath of Equity Intelligence, often called the smallcap czar of Dalal Street, says he is still holding on to a few
underperforming stocks in his portfolio, as the decision to sell them to shift to other opportunities hinges on not just return, but many
The first, he says, is to see whether the original investment thesis has been jeopardised permanently or delayed indefinitely, which would
make shifting a better decision than waiting, Porinju said in a letter to clients on Thursday.
The decision, Porinju said, would also depend
on what would be the implicit cost of liquidating the investment in a sentimentally depressed market devoid of buyer participation.
Besides,
there is also the question of whether there is an alternate opportunity with potential upside that can compensate the drawdown in the stocks
contacted Porinju for further comments on the subject, but he refused, saying the letter was self-explanatory.
He insisted that reports
suggesting that his PMS was being unable to meet redemption demand were incorrect.
A tough economic and regulatory environment in India has
Many potential largecaps may also die small, as fundamentals of many of them, deemed fragile, are on a downward spiral
The smallcaps enjoyed a dream run from 2013 through 2017.
Porinju said even though he was cognisant of the many challenges that the economy
over 50 per cent of investor wealth since January 1, 2018
Many brokerages have stopped coverage of nearly 335 companies in the smallcap segment in last one year, while fewer analysts are covering
another 225 companies.
Last month, smallcap-focused PMSes met with the biggest disappointment, as none of the 16 schemes from a sample of 43
PMSes could create wealth for investors.
A strong mandate for the Modi-led BJP government in the general election, back-to-back policy rate
cuts and a fiscally-prudent Union Budget have failed to lift sentiment on the smallcap counter.
Porinju said he expected the elections to be
a turning point for equities, but the positives of the continuity at the Centre was lost thanks to the market-unfriendly provisions in the
Budget, at least for the near term.
He said a significant recovery in smallcaps looks inevitable, but would not give a time frame
indirectly referring to the income-tax surcharge in the high income bracket, as well as the proposal to increase minimum public float of
listed firms to 35 per cent from 25 per cent.