Market is giving one of the rare opportunity to get quality stocks at bargain prices. Remember, such opportunities do not last for long! Since beginning of 2018, we have seen severe correction in broader indices. As on date, BSE Small Cap & BSE Mid Cap Index is down by 28% & 20% respectively from their all time high made in January last year. Steep fall in broader indices have hurt sentiments and created panic for many of retail investors who got into market during last couple of years. Its important to know, whether you would be able to hold on your equity investments, think to exit if stock market tanks further or accumulate good companies available at reasonable to attractive valuations after a long time.
Its always wise to be greedy when others are fearful. Fall in stock prices of small caps and mid caps by 40% to 70% from their peaks use to happen during panic times, if a particular company turns multibagger delivering 3x to 5x or even 10x type of returns on your investments in period of 3 to 7 years, it can easily fall by 40% to 60% or even more from its 52 week high during tough times which arises due to profit / loss booking, series of negative events / news flows and severe sell off due to panic across markets. Below are some of the major reasons of severe fall in stocks prices of small & mid cap stocks since beginning of 2018:
ii) Introduction of Additional Surveillance Measures by SEBI to curb volatility
iii) Auditors exit from various companies on fear of stringent action from authorities
iv) Unfavourable macros with increasing crude oil prices and depreciating rupee
v) Trade war fears between US and China, rising interest rates, continuous selling by FIIs
vi) Panic in market due to IL&FS default on debt repayments
vii) Concerns in market due to severe sell off in large caps stocks like Zee, Tata Motors
viii) India’s economy registering lowest growth of 5.8% in the Q4 FY19 in last 5 years
ix) Contagion risk arising due to recent default of Rs 1,000 crore by DHFL
x) Ongoing NBFC sector crisis due to credit squeeze, over-leveraging, excessive concentration and massive mismatch between assets and liabilities.
Whenever, Small Cap Index delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. While Nifty and Sensex which are hovering near their life time high, Small & Mid Cap Index have underperformed by wide margin. The divergence between Sensex / Nifty and Small & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.
Its important to understand that long term gains come in equities with such short term pain. We have seen such a severe correction in small and mid cap stocks after 2011. With continuous fall in stock prices during this year, valuations of many small caps and mid caps become attractive to reasonable. In fact, many good companies are available at valuations which look very attractive considering the earning growth these companies are expected to deliver over next 2 years and as the tide will turn we will see same set of companies will turn out to be multibaggers. This is not the time to sell in panic, but to accumulate good companies available at discounted valuations. Moreover, we believe broader market has already bottomed out in Feb 2019 post Pulwama attack and is now forming a base, hence we can see renewed buying interest in small & mid caps once sentiments improves. Bad sentiments will not last for ever, its time for long term investors (2-5 years) to start accumulating good quality stocks which after a long time are becoming available at attractive valuations.
Most of the liquidity in small & mid caps has dried up and found its way to large caps over last 17 months. At this juncture, large caps looks fairly valued or expensive in terms of valuations, however small & mid cap companies with robust businesses look attractive to reasonable and can reward long term investors in big way. In fact, some of the worst times to get into the market turned out to be the best times for long term investors and same seems to be applicable now for Small & Mid Caps.
We are glad to share that more than 5,000 users have downloaded our Potential Multibagger - Techno-Funda Stock Pick 2019 Report. We released Techno-Funda Stock Pick 2019 (Potential Multibagger Stock) Report on 12th Dec 2018. The stock selected under this report is a small cap company having multi-bagger potential with market capital of less than 500 crores and is available below our recommended price. We are glad to inform you that the company (our Techno-Funda Stock of 2019) has recently declared its March quarter results reporting stellar growth in top line as well as bottom line. At current valuations, we find limited downside risk with significant upside. Stock has the potential to deliver multi-bagger return over next couple of years.
“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
- Sir John Templeton
Techno-Funda Stock Pick 2019 (Potential Multibagger Stock) report is a detailed report which covers company's background, Industry outlook, positive developments, financial performance of the company along with peer group comparison, key concerns & risks, technical analysis, fundamental analysis and Saral Gyan recommendation.
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i) Multibagger Stocks SIP - Effective Way to Create Wealth
ii) Are you Investing in Potential 5-Bagger in 5 Years Stock?
iii) Six High Quality Small & Mid Cap Stocks to Buy Now
Team - Saral Gyan.