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Tuesday, July 16, 2019

Free Report - Small / Mid Caps & Long Term Investing!

Dear Reader,

We are experiencing lot of hopelessness along with fear towards equities in 2019.  The reason is the carnage in stock prices of many well-known established companies over last 18 months. Retail investors have taken the back foot and lost their faith and conviction towards investing in small and mid caps. We understand that it is really frustrating to see the Sensex and Nifty at all time highs while the BSE Small Cap and Mid Cap indices hovering at much lower levels compared to last year.

Since Jan 2018, Nifty and Sensex delivered positive returns of 10% and 8% respectively, BSE small cap index slumped 31%, while BSE mid cap index dropped 20%. Though these numbers tell us what the overall index lost, individual small and mid cap stocks were touching 52-week lows every other day and individual damage to most of the stocks in this category was to the tune of 50-60%, some even more than that.

Despite that we are quite excited about opportunities emerging in small and mid cap space. You may argue that most of small caps and mid caps have wiped out your hard earned gains over last 2 years. In fact those who invested in small and mid caps in past 2 years are sitting on significantly higher losses and may be thinking to stay away from them.

However, we beg to differ. We firmly believe that these are the opportune times to invest in broader markets and not in large caps. The negative sentiments around small and mid caps have brought excellent businesses down to historically low valuations. The fall in stock prices of many small caps and mid caps by more than 50% from their peaks has not happened for the first time. This has happened in past and companies with good business fundamentals have always bounced back strongly.

Staying invested may be easier said than done when the markets are in bear grip, but it is a necessity for long-term wealth creation. Patience will pay rich dividends to those investors who learn to weather the storm. In fact, investments made in right set of companies during bad market conditions rewards long term investors in much bigger way.

Multibagger Small & Mid Caps - Long Term Investing ReportTo make our readers understand the benefits of investing in small caps and mid caps during bad times like we are experiencing now, we have released - Multibagger Small / Mid Caps and Long Term Investing Report recently on 10th July 2019. 

The objective of this report is to make our members understand why its utmost important to invest in equities keeping a real long term view and becoming a discipline investor by investing in equities during good as well as bad times. We are confident that this report will reinforce your believe to stay invested during these turbulent times in broader markets and build your conviction further encouraging you to invest in small and mid caps with good business fundamentals.

Broadly, Multibagger Small / Mid Caps & Long Term Investing report covers:

1. 6 Major Reasons for Decline in Small & Mid Caps
2. Budget 2019 - Steps towards easing Liquidity Crisis
3. Benefits on Investing in Small & Mid Caps during Bear Phase
4. The Bulls, The Bears & The Farm
5. Long Term Charts of Small & Mid Caps (Hidden Gems & Value Picks stocks)
6. Release of Special Report - Potential 5-Bagger in 5 Years in July 2019

To receive our Multibagger Small / Mid Caps and Long Term Investing report, simply fill up the form below. Once submitted, you will receive the report directly in your inbox. 

If you are unable to view the form, click here to fill it online to receive our Multibagger Small / Mid Caps & Long Term Investing report directly in your inbox.

When overall market sentiments are negative like we are witnessing now, quality businesses also face the heat. As bad stocks go down, good stocks go down with them too. But good companies make a stronger come back once economy cycle starts its upturn. Though it was a combination of issues that affected the broader markets, we can largely peg this mayhem to 6 major reasons:
Reasons for Decline in Small Mid Caps

1. SEBI Mutual Fund Re-Categorisation: Nearly everyone can agree that mid and small caps were rallying uncharacteristically and the prices were being built up without actual fundamental backing for most of FY18. However, SEBI’s new rules for mutual funds acted like the trigger point for the bubble to burst. In October 2017, SEBI mandated mutual funds to group their equity schemes under large, mid and small caps based on market cap of the stocks the scheme has invested in. For instance, a large cap scheme should have minimum 80% investment in large caps and a mid cap fund should have at least 65% of its assets in mid caps. This also required managers of large and mid cap funds to stick mainly to the top 250 stocks in the market. This forced active funds to trim their portfolio weights in such stocks.

2. Long Term Capital Gain: In Union Budget 2018-19, Finance Minister Arun Jaitley's announcement to tax LTCG stunned both markets and investors. The Finance Minister proposed to tax LTCG exceeding Rs 1 Lakh at the rate of 10% without allowing the benefit of any indexation. Imposition of Long term capital gains tax while keeping STT intact has resulted in double taxation, this has impacted the overall participation in Indian capital markets, by domestic as well as foreign investors.

3. Corporate Governance Concerns: Adding to the woes of mid and small cap stocks were corporate governance issues coming up in individual stocks. These problems were contained not only to stocks like PC Jewellers, Infibeam and Vakrangee but also to darlings of stock markets like Infosys, ICICI Bank, Yes Bank, DHFL among others. However, mid cap and small cap category of stocks were the worst hit, with investors pulling no stops while selling off their holdings in these stocks. Bad governance in a few stocks definitely destroyed the value of majority of stocks in this category.

4. Additional Surveillance Measures (ASM): SEBI introduced ASM in a bid to safeguard investors from excessive volatility in individual stocks. Under ASM, stock exchanges released a list of 109 stocks on 31st May’18 on which additional trading curbs were imposed. Liquidity in stocks which were put under ASM plunged drastically along with the decline in share prices. Stocks under ASM are subject to 100% upfront margins and 5% circuit limits, these curbs prompted traders to sell their holdings in these stocks due to immediate margin requirement triggering crash in stock prices.
5. ILFS Default & Liquidity Crisis: NBFCs raise short-term loans of between three and six months duration, using Commercial Papers (CPs). On the other hand, the businesses they lend to (home loans, commercial purpose loans, vehicle loans etc.) are long-term ones. This is referred to as asset-liability mismatch. To maintain their funding, NBFCs must keep issuing CPs at regular intervals and roll over earlier loans. However since the IL&FS crisis erupted, banks have been averse to lending to the NBFC sector, which has put them in a tight spot. Amidst all this, there were series of downgrades of NBFCs by credit rating agencies which further dented market sentiments.

6. Companies with Pledged Shares: The fear around companies with high pledged holding began after promoter of Essel Group failed to bring fresh shares as collateral to make up for the slump in prices of the group stocks. Later, the shares of ADAG companies, Suzlon, Jain Irrigation, Cox & Kings witnessed heavy selling as some lenders dumped their stock in open market due to unbearable debt and default on payments. Institutions wish to stay away from companies where the promoter has huge borrowings against the shares as there is fear that these companies are in a vulnerable position. Banking & financial stocks like Yes Bank and DHFL continue to hit new lows on fears of default and contagion risks.

Coming back to the current situation, the BSE small cap index is down by 31from its peak made in January 2018. The liquidity crisis in NBFCs, the DHFL and IL&FS defaults, series of rating downgrades by rating agencies, lenders dumping stocks of debt laden companies have taken the steam out of small caps. Fear and misinformation has shattered investor’s confidence and hence quality businesses are back to cheap valuations.

Budget 2019
To ease NFBC liquidity crisis and get economy growth back on track, Government is in process of taking all possible corrective measures. In Budget 2019, Finance Minister Nirmala Sitharaman announced that the government will provide a one-time six months partial credit guarantee to public sector banks to buy high-rated pooled assets worth Rs 1 lakh crore from NBFCs. This will provide the much-needed liquidity to NBFCs, they can thus liquidate their portfolio and meet their liabilities in a timely manner.

Moreover, below are the few announcements made in the budget which certainly qualify as steps in the right direction.
  • Recapitalisation of banks to the tune of INR 70,000 crores
  • The Credit Guarantee Enhancement Corporation to be set up in FY20
  • The action plan put in place to deepen the market for long-term bonds 
  • 2% interest subvention for all GST registered MSMEs
The focused impetus for sustainable job creation via targeted investment in infrastructure will have a ripple effect on secondary and tertiary employment. Overall, it was an uneventful but visionary budget marked with a long-term 10-year plan while retaining focus on immediate priorities.

The Bulls, The Bears & The Farm

Bull and Bear of Stock Market
A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook”

A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".

The Other Animals on the Farm - Chickens and Pigs

Chickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk.

Pigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits.

What Type of Investor Will You Be?

There are plenty of different investment styles and strategies out there. Even though the bulls and bears are constantly at odds, they can both make money with the changing cycles in the market. Even the chickens see some returns, though not a lot. The one loser in this picture is the pig. Make sure you don't get into the market before you are ready. Be a long term discipline investor and continue to invest systematically during bull as well as bear phase of market cycle and never invest in anything you do not understand.

Many retail investors started investing in small and mid cap stocks during bull phase of broader market (2014 – 2017) and getting worried now about their investments looking at losses they are bearing due to carnage in stock prices during ongoing bear phase (2018 – 2019). Those who believe they made a mistake by investing in small and mid caps and think to exit booking losses due to fear of further loosing hard earned money, do think about this old stock market saying: "Bulls make money, bears make money, but pigs just get slaughtered!"

We strongly believe that ongoing bear phase in broader market is a great time to buy good quality small and mid size companies that have been beaten down. No one is talking about small caps these days and that’s the strong reason why we should invest in this segment. It’s wise to be greedy when there is fear surrounding small and mid caps. This is not the first time small caps have fallen out of favour and then gone on to recover smartly.

BSE Small Cap Index went up by 69% in 2014 and during this year numerous small and mid cap stocks turned multibagger delivering mind boggling returns. Scenario was similar in 2017 when BSE Small Cap Index rallied by 58%, later broader market went into bear grip with significant sell off in many small and mid caps due to expensive valuations and series of negatives developments as pointed out earlier.

The  correction has given investors an opportunity to sieve through and find good quality stocks which are backed by strong balance-sheet and robust cash flow. The broad underperformance of the small and mid-caps seems to be overdone and interesting bottom-up opportunities are now available in this space across sectors. Earnings revival could also set the ball rolling in terms of re-rating these categories of stocks.

Under this report, while looking at long term charts of the companies with good businesses, you will realise that investors who entered in market by investing in small and mid caps during last 2 to 3 years have pain in their portfolio however those who invested in bad phase of market in 2011 - 2013 like that of today are still holding plenty of multibaggers in their portfolio. That is why its important to invest in equities keeping a real long term view. In fact, during turbulent times, we must increase investments / equity allocation in small / mid size companies which have good business fundamentals to get rewarded in big way in long run.

Stay Invested & Keep Investing for Real Long Term. Bcoz "If you want your Money to Grow, Equities is the only Way to Go"

We are pleased to inform you that you can grab discount upto 30% and valuable freebies on our subscription services under Saral Gyan 9th Anniversary Offer. We suggest our members to consider current situation (post severe correction in small & mid caps over last 18 months) as a buying opportunity and invest in high quality small and mid cap stocks.

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1. Maximum discount up to 30% on combo pack subscriptions
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3. Value Picks Flash Back Report - To be released in Aug'19
4. 5 Stocks - Potential 5-Baggers in 5 Years Report Update - To be released in Jul'19
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Saral Gyan 9th Anniversary Offer 
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Team - Saral Gyan