More than two-thirds of midcap and smallcap stocks on the National Stock Exchange (NSE) are down 20% or more from their respective 52-week highs. The main reason for the decline in mid and small cap stocks is their high valuation. Generally, when the valuation is high, there is a decline.
Poor September quarter results and selling by foreign institutional investors (FIIs) are also the reason. Till now, due to the bullish market, investors would be making money from midcap and smallcap stocks, but now they need to pay attention to some fundamentals.
Which to keep and which to sell?
- During a correction in the market, it is difficult to decide which stocks to hold and which to sell and book profit or exit. Investors should understand the difference between a price correction due to changing market conditions and a share decline due to a company's business-related problems. Selling good shares is not a good strategy in case of temporary decline due to national and international issues. When to sell, when to hold and when to buy depends to an extent on the investor's strategy and the condition of the stock.
- While deciding to buy, sell, hold or increase investment in any stock, one should pay less attention to the market conditions and more attention to the fundamentals and stock value of the concerned company. It is possible that even if the market valuation is high, a well-valued stock is worth buying. Or the stock has the ability to give good profits even if the market falls.
When to sell?
- On cash requirement: If investing for short term. If the shares are not at a loss, you can sell them if needed.
- On Completion of Target: If the price target set for the stock is achieved then it should be sold or profit booked.
- Stock Position: If the stock seems to have reached its maximum height, you can exit it.
- Unreasonable Profit: If a stock has increased by more than 25% without any solid reason, profit booking should be done.
- Company Status: If the promoters are selling their shares in large numbers, the company is suffering continuous losses and the market conditions are not favorable, then it is better to sell.
When to buy?
- Good assessment: A good stock is sold for less than its actual value (appraisal). Or if it has fallen far below its 52-week high, then it is a good time to buy.
- Financial Results: Every company listed in the stock market declares its financial results every 3 months. If the estimate is good, you can buy shares even before the quarterly results. Otherwise, you can buy shares if the quarterly or annual results are good.
- On arrival of IPO: If a reputable unlisted company is launching its IPO, research its market position. Then after looking at its grey-market price you can decide to buy it.
When to hold?
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
