- Wealth PMS (50L+)
From January 1996 to January 2008, Nifty 50 saw 17 days on which Nifty 50 went up by 5% or more. 2008 was an outlier thanks to the high volatile and we registered 14 days in that single year. 2009 saw 2 such days, one just before election results were to be announced and the bigger one when post the election result announcement.
Just take a look at this chart to see how long its been since we have had one of these days
Since 2009 elections, Nifty hasn’t seen one such day in the last 10 years. That streak was broken today when Nifty got launched itself thanks to the tax cut announcement by the Finance Minister.
One swallow doesn’t make a summer and hence yet there are pivots in periods of time when we see a change that catches the majority off balance and in a way, this is one such move.
Over the weekend, there will be deeper analysis of how this will impact companies, the winners and losers among a host of other analysis. In this post, lets focus on what we should do. Has the bull market truly begun, is it time to average those big losers or buy more of the winners.
Stocks had been bludgeoned so much since the beginning of 2018 and those that were beaten the most are roaring back with a vengeance.So, if you are one of those who were waiting on the sidelines, have you missed out an opportunity or is the opportunity pretty much available even now?
Capital Trust over the past month and bit more has rallied from a low of 45 to today’s close of 143. Yet, it’s still down 75% from its peak. This is a familiar story for a lot of stocks.
As of yesterday’s close, 70% of stocks traded on the National Stock Exchange were down 50% or more from their all time highs. 32% of stock were trading 80% or more down from their all time highs.
It would be a long road to recovery for most of them, but they do all recover if and when markets finally recover? Let’s take a look at data from the last time stocks fell as hard as we have done from January 2018.
That would be 2011 when Nifty fell 25% from its highs, Nifty Midcap 100 fell 37% and Nifty Smallcap fell 40% from its 2011 peak. Similar to what we are observing today, it was a long time before the new highs were seen.
We shall analyse the performance of stocks by first filtering for stocks that had fallen 50% or more from its peak by the end of 2011. We shall then look at where the stocks traded in March of 2014 just before we hit a new all time high on the Nifty 50 Index.
As of the last day of 2011, 74% of stocks were trading more than 50% below their all time high while 37% were trading 80% or more from their all time high. In other words, the situation then as we are today was similar.
Let’s fast forward to March 2014. This is 27 months post the high Index had reached in 2011. How did the stock that were down 50% and 80% or more had moved.
Of the 535 stocks that qualified under the 50% to 80% bracket, by the beginning of March 2014, more than 48 were gone. While some were voluntary delisted, many were compulsory delisted by the exchange. Of the remaining stocks were 221 stocks were positive while 265 were negative.
Among the 446 stocks that were down 80% or more at the end of 2011, 60% remained in negative zone while the rest were positive. Odds worse than for stocks in the -50% to -80% bracket.
What about Stocks that had fallen 20% or less by the end of December 2011 you may ask and here is the answer.
Of the 63 stocks that were down less than 20% from their all time highs as of end December 2011, 5 were delisted by March 2014. Of the rest, 42 ended in positive territory while 16 counted themselves in the negative zone. In other words, 87% of stocks that continued to be listed were in positive territory 2 and a few months hence.
When we look at markets, business or even life, we are knowingly or unknowingly playing odds. Today has been a spectacular day for the markets and especially those stocks that had been thoroughly beaten down. Bad stocks have good days and vice versa. As much as it’s nice to rest on the day’s gains, it’s also important that one sits down and looks at stocks in one’s own portfolio and whether they continue to merit an inclusion. Be where the odds are, not where you need to make the odds work for you.