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    Book losses to make profit. PMSes show the smart way to tread stocks slump

    Synopsis

    The price-to-book value for Nifty has come down to 2.35 from 3.75 in December end.

    Investor-1---TSThinkStock Photos
    Amit Jeswani of Stallion Asset, whose midcap-focused portfolio is down 17 per cent year to date, has also booked losses.
    As the merciless stocks selloff eroded massive value from every equity investor portfolio, Dalal Street fund managers for the rich turned it into an opportunity to overhaul their portfolios, getting rid of the dud stocks and picking up steady performers at dirt cheap prices.

    As blue chips lost 30-40 per cent of values, Indian PMS managers even booked losses in certain bets, in some cases going up to 25 per cent, as they tried to keep some powder dry.

    Aveek Mitra, Founder & CEO at Aveksat Financial Advisory says he has managed to keep a substantial amount of cash, and that does not mean he has exited many positions profitably.

    “We have booked losses up to 20-25 per cent and came out of the market, because we thought it is better to survive for tomorrow than try to see what the market is doing,” he said.

    Mitra says stock valuations hold no meaning at this point. He would deploy the money only after the market has found its bottom.

    Several Nifty50 stocks have fallen up to 77 per cent. Index stocks IndusInd Bank, Tata Motors, Vedanta, Zee Entertainment, Hindalco, Axis Bank and Bajaj Finserv have taken heaviest blows in this selloff, eroding over half of their value till now.

    As valuations of these stocks have come down sharply, Nifty50 now trades at a price-to-earnings ratio of 18 times, down from 28 times it quoted at its peak level at the start of the year.

    Similarly, the price-to-book value for the index has come down to 2.35 from 3.75 in December end.

    Amit Jeswani of Stallion Asset, whose midcap-focused portfolio is down 17 per cent year to date, has also booked losses. He said he does so even in a rising market when there is an opportunity to switch to better stocks.

    “There is no one in this world who would not have made mistakes in a bull market. The only way to correct them is now. You switch out of your mistakes and get into better stocks. You should switch even if you have to book losses. Because if you are booking losses on one counter, you are also buying another at a discount,” he said.

    Jeswani shared a simple formula to get rich: ride out two bull and two bear markets in next 10-15 years and you will make a lot of money.

    He advised investors to buy debt-free, consumer-oriented companies, for whom they think the ongoing problem would not last beyond one quarter and growth will be back from the next quarter.

    Only three Nifty stocks are in the positive for this calendar year – Hindustan Unilever, Dr Reddy’s Laboratories and Nestle India.

    Ajay Bodke, CEO-PMS at Prabhudas Lilladher and G Chokkalingam, Founder of Equinomics Research also underlined the importance of cutting losses.

    “The biggest problem with retail investors is that they hesitate to book losses. If there is a systematic risk or stock-specific risk, one should not hesitate to book losses. What is important is the opportunity cost of money, not your cost price,” Chokkalingam said.

    An opportunity cost refers to the returns that one could have earned had s/he invested the money in another instrument.

    Bodke blamed the recency effect for such human behaviour. He said investors always think of the price they bought a stock at, but not the price where it can go to.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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