A lot of new investors have entered the equity market for the first time in the last two years and this is probably the first major correction they are witnessing in their portfolio. While sharing his advice with these investors, market veteran and Delhi-based investor Ashish Chugh said most investors enter the market in the bull phase when things are looking all good and exit in a bear phase where news flow is all negative. Don’t ever make that mistake.
In an interaction with Business Today, he added that from the posts on social media to his interaction with many new investors, it looked like many of them were just chasing stock prices without much understanding of the company fundamentals and valuations. Chugh's views came at the time when the benchmark equity index BSE Sensex is down over 15 per cent since it scaled an all-time high of 62,245.43 on October 19 last year.
“Bear markets are a great learning period. They change your perspective about investing. Most investors get seduced by rising stock prices and are focused towards returns and stock price – they never think about risk management. It is only a bear market which makes you think and rethink your investment style and strategy, sobers you down and you evolve as a better investor and this process is unending,” he said, adding that an investor cannot control the markets – what you can control is your reaction to the markets.
The market watcher believes that predicting the macros is futile. There are so many moving parts which are beyond anyone’s comprehension or control and are impossible to predict.
“Even if you are right in predicting the event, it would be impossible for anyone to predict the market’s reaction to the event – maybe the event is already priced in when it happens. The singular focus therefore should be on the business one is invested in, the investment thesis and whether that thesis has changed with the fall in stock price,” Chugh said.
He also advised investors not to just focus on the companies in their portfolio but across the board. There may be various other businesses with good potential where stock prices have fallen from the highs and are at attractive valuations – do study such companies.
“Focus on valuations of business is critical -- remember a good company may not necessarily be a good investment. Your intensity of research should go up during a bear phase in the markets. My firm belief is your research coupled with an independent thought process is what it takes to make you a better investor,” he said.
Earlier, stocks like Avanti Feeds, Bajaj Finserv, Maharashtra Scooters, Natco, Heritage Foods, Thirumalai Chemicals and TCI helped him to achieve financial freedom over the years. He started on his journey as an investor in 2000, after he pocketed degrees in electronics engineering. He also got an MBA degree before quitting his family business after a very short stint.
On asking about the investment strategy and stocks on which he is zeroing in right now, the equity investors said he always followed a bottom-up approach to investing in stocks. However, he refrained from naming any specific stocks in the interaction.
For him, 3 Qs matter the most in investing. Chugh said, “Quality of business, quality of management and quality of balance sheet are important. The long-term growth potential of the business is important. My approach, however, is to look for companies having strong moats or entry barriers or operating in a niche or manufacturing products for global markets with cost or technology advantage here. My thought most of the time is to invest and hold the business for a few years. I generally look for these opportunities out of companies in smallcap space. I am also open to investing in businesses with strong fundamentals but going through a rough patch due to various factors temporary in nature. I wish to reiterate that focus is always on the balance sheet rather than P&L while investing,” he added.
Latest additions in the portfolio
Commenting on some of his new additions to the portfolio, Chugh said he has included companies where business is seasonal and majorly in the summer months.
“The reason is their earnings saw a steep drop since last two years have been washouts as far as summer month sales are concerned because of the first lockdown in 2020 and the second severe Covid wave in 2021. Their stock prices have been lying low due to low profitability in the last 2 years and hopefully with this summer being normal will witness huge growth. Some of these companies may not be good just for the short term but also for the long haul,” he added.
He also added some companies which are largely oriented towards exports where India has a cost or competitive advantage and these companies benefit due to the China factor. Chugh also gave importance to stocks of the companies in new-age technologies where there is potential.
“The key here is the potential of the business and sensible valuations. Some technology companies are doing a great deal of innovation – these may not be world-changing but given that the market cap of the company is a few hundred crore, these would be quite meaningful,” the market watcher said, adding he also invested in some pharma companies which are innovating and have repaid their debts and where profits for last one or two quarters took a hit due to high raw material costs and consequently their stock prices have come down significantly.
Chugh holds a cautious view about investing in initial public offerings since he finds similar companies already listed available at much better valuations.
“My experience in the past is that more than 80 per cent of the IPO companies would be available at between 50 to 80 per cent below their IPO price over the next 3 to 5 years,” he said.
The market maven further added that these are just a few illustrations. The domestic stock market is a stock pickers paradise. “There are many good opportunities available – companies with good potential which have become attractive after the recent deep correction,” the independent market investor said.
Note: Ashish Chugh is an independent individual investor. He is not registered with Sebi and does not offer investment advice.
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