With increasing retail participation in Indian equity market, there is a strong inflow into small cap universe. Such is the impact that small caps have beaten large & mid caps, second year in a row. Most people have jumped in this narrow space to search for next multibagger stock. While it is difficult to spot a multibagger from pure data analysis, it can be little easier if you are actively taking a note of economic trends around you. At AI, we are sharing our view & personal experience on this.

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Market is going up everyday & touching new highs. I am sure you will be happy to see your portfolio grow stronger than ever. However, it will be different challenge when market slides down. As humans, we have affinity towards profit and aversion to loss. However, the fact is that loss occupies more space in our mind than profit. Markets are bound to go up & down and as ace investor, we should be ready to deal with both situations. So, do you have a loss containing strategy? If not, we are sharing some of our thoughts & explaining its impact, if not managed properly.

 

MArketSensex & Nifty are creating new all time record high every day. Market is optimistic & mood is euphoric. While many people have a reason to rejoice this bull run, there are a bunch of folks who are very worried & confused about if this is a time to invest more or sell more or do nothing? At AI, we have been receiving a lot of such queries about our view on current market condition, so here is our view.

IT IndustryInformation Technology Industry has been around since 1970s when a mini computer was not really mini in size! Fast forward to 2017, a lot has changed and it will keep on changing in future as well. Such is the nature of this industry. Most of the industry leaders are not listed on Indian stock exchanges, rather they are listed on American stock exchanges. As an investor, you might be thinking how to ride such trends & possibly make most of the listed companies in Indian stock exchange? Additionally, there are visa issues & a general downtrend in all IT stocks. Allow us to explain in simpler language as we do at AI. It’s a little longer article, so we are publishing it on weekend. Happy reading!

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We have heard of averaging down a stock in case it’s price falls significantly below the initial buying price but do you average up your stock? If not, AI strongly recommends you to do it for your top bets.

Averaging up a stock is buying more shares in case stock price moves significantly above initial buying price.

As human beings, we are driven by emotions and tend to bother too much about stocks that are in loss as compared to the once which are in profit. It’s a very normal behavior for all of us but do we know exactly when to average down or average up? Mostly, its driven by our feeling of the day & amount of money in hand rather than based on solid logic. In this article, we will try to understand the benefits of averaging up which is specially important for long term small cap investors.

It’s been a year since pharma sector has been testing investor’s patience. Nifty Pharma index is down with -9.87% since last 1 year. Return remains dismal even if we extend our horizon to 2 years. This fall has been more severe in case of individual stocks.

As an angry investor, you must be searching for the person who told you that pharma never goes down since people will keep popping medicines. But stocks continue to go down, lets dig out why?

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This is an economic story of a middle class person in India (perhaps across the world). He (no offence ladies) earns day & night, gets food, pays bills and save a little in the bank. He continues this for many many years after all he has been told by parents to work hard & live an honest life. But after many years, he realizes that after so much efforts, he is just able to meet ends and a little bit of savings here and there. He is never sure if he is financially independent or not. But wait, what went wrong here? I did what everyone else is doing and as hard as it gets.

Well, the answer lies in our “not so perfect” education system. We are taught Moral Science, History, Chemistry & what not (trigonometry yikes!!). Alas, no one teaches us the concept of Money, how it gets created or recycled but every time ends up in the hands of rich people (Confession: I have read Rich Dad Poor Dad). Money Management is a mandatory skill for everyone but for some strange reasons, only Commerce students get it. Coming back to this article, how to get ahead of this rat-race & create a little bit for ourselves is essential.

It can take a whole day to explain but then picture says thousand words, I don’t have any animation today but have a table which represents events during an imaginary football match between You and Rest of Economy. Wear your specs, over to the table.

Recently, DSPBR Micro Cap fund restricted fresh purchase or SIP. It created a lot of inconvenience to people who were planning to start new SIP or a lumpsum investment. It was followed by Mirae Asset Emerging fund also to restrict fresh purchase. We believe more small cap funds can join them in restricting fresh fund inflows. The reason fund managers are giving is that they can not find stocks to park fresh inflows.

But why is that so? Let’s try to understand.

Lets say DSP BR Micro cap has 5,800 cr as on today. If average small cap stock has a market capital of 500 cr. In that case, if fund has to deploy even 1% of their cash into a stock, they will end up buying 58 cr worth of stocks and result in owning more than 10% of that company. Also it is not practical to buy 10% shares in less liquid stocks simply because there are not enough shares on the exchange.

Another logic given by investor is that they can invest in more stocks and own lesser percentage in those stocks? This is also not possible since if they start doing it, they will end up buying all kinds of stocks which they do not want to do. Also managing so many stocks is an added burden on fund performance.

This is the same reason why Warren Buffet says he finds Indian markets less liquid to park his money. Since his slice of investment converted into indian rupees is till too much for even large caps indian stocks.

So what do small cap investors do now?