Mid Caps Melts…

There is a saying, “Sell in May & go away”. Markets proved it right this year. It gave back gains made in April. Mid & Small caps lead the fall. They lost 6.5 to 7%, rising concern among conservative investors to move away from the markets.

While not all portfolios melt the way the indices did. The leaders of the current market are in Chemicals, Electrodes and Construction sectors. Stock holdings in these sectors, preferably the leaders in them stood out strong.

Right stocks at the right time are the need of the day. As Crude oil is reaching for highs, currency depleting & bond yields on the rise, the major concerns that shook the markets. Stocks that had gone up beyond fundamentals took the larger beating.

Adding fuel to the fire was the Karnataka election results which brought more confusion and lots of challenges for the next year’s general elections. Media started giving their share of bad news that, opinion polls show only 47% of our population now willing to give BJP the next term.

Yet there were gems still available in the hay stack. Newspapers reported that, stocks like HEG, Graphite grew strong on their fundamentals. These stocks stood the test of selling pressure.

Stocks that the experts were bullish on like Ashok Leyland, M&M Finance & Escorts – all of them showed more strength on the upside. We have all these in our portfolio which has helped us lose only half of what the markets lost. In April we had 11% gains, double the gains made by the broader indices like the SENSEX.

When markets corrected, we are holding strong with lesser loses. Our portfolio has given back about 3%. Such small and consistent strength over the years have helped us make 200% gains in the last 5 years.

Consistence in holding the top positions for every time periods is an even bigger challenge that fund managers face. This is because of some committed stock not behaving the way it has to or the fund manager holding a view that largely differs from the market.

In this space, we held strong. We were not emotional on our positions. We are not judgemental when entering or exiting a position. Just followed the system and we have consistently outperformed all the other funds in the diversified category.

Last year financial sector had bigger exposure in our portfolio, now we are shedding weight in there. We have been adding a slew of stocks in the consumption and construction sector. With such kind of elite stock picking and commitment to follow the system rules with the highest discipline, we are confident that the outperformance will continue.

I met a couple of top fund managers, whose are now foreseeing a flat year for India. The expectation is that, it will take about 12 to 18 months before bullishness returns to our market. Checking with the patterns in the market now to find if we have to retreat from equities and move to debt or reduce equity exposure. I found that, though there is not much upside from here for the markets. It is not showing weakness as what is perceived by the managers.

It can have another small rally, which can break the 36K on the SENSEX where it will go weak. For this to happen Crude has to retreat, Currency has to get strong. As of this writing both have done that, while it is not over yet. They will rise again, breach the high and then turn down. That is where the markets will manage to reach for a new high.

There is going to be a lull, while before getting there, lets accumulate the gains provided so that, we have a better edge when the tide turns against us.

We are planning to move out of equity exposures in Mutual funds and move capital to Equity savings till the 2019 election fever is over and hop in, into the next leaders at that time. So, markets are going to be tricky and strong players will take the advantage to maximise their gains.

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Ramesh Sigamani

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