Free Report: Multibagger Stock Ideas 2020

Why Promoters Are Not Panic Selling

Sep 13, 2019

Radhika Pandit, Research Analyst

Last week my husband and I had dinner at one of our favourite restaurants - Smokehouse Deli - in Phoenix Mills. It specialises in continental dishes.

It had shut down for the last couple of months for renovation. Since we were regular clientele, we received a message informing us that the restaurant has opened again in its new avatar.

Last Friday, we made a reservation. The waiters showed us around. It was a new layout and a different decor.

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And there were some changes in the menu as well. Of course, their popular dishes were available. But some new dishes were also included.

I decided to go for the regular, which is the herb crusted John Dory, but my husband wanted to try out something new. He decided to order a veg burger with a rajma-type filling.

When he pointed out the dish to the waiter, he vehemently shook his head. He told my husband not to try that dish and recommended the Gnocchi with sweet potato crisps instead.

I was surprised. Why is a waiter giving an opinion on what we decide?

But then I gave it some thought. Come to think of it, waiters are the best people to ask if you are not sure what to order.

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They have been working at the restaurant for a while. They know which dishes are popular or the ones which are well prepared. In a way, you could say they are insiders. They know better.

A similar logic applies to the Indian stock market as well.

When we talk about tracking smart money, we don't only consider the actions of super investors or big mutual funds.

We are interested in the what the company 'insiders' are doing too. By insiders, we mean the company promoters.

Promoters either increasing or maintaining stakes in their companies, is one of the 'smart money' parameters we look at while recommending stocks to our Smart Money Secrets subscribers.

Why is promoter activity important?

Typically, promoters or founders own the majority stake in the company and run the business too.

Now, owners running their own business have perfectly aligned incentives. Since their livelihood is dependent on the businesses they run, they are very proactive and dynamic in running them.

They strongly believe in focusing on the long term growth prospects of their businesses rather than get carried away by short term developments.

Which explains why they are not perturbed by the meltdown in the markets in recent times.

Given the economic slowdown in the country and other adverse global factors, investors have been pulling money out of equities in droves. Foreign portfolio investors have been at the forefront of this propelled by the FM's proposal to tax the super-rich (a decision which has now been reversed).

But promoters have stayed put. They have not resorted to panic selling. At least not in the stocks we have recommended in Smart Money Secrets.

They believe in the long-term potential of their businesses.

Every business has its share of ups and downs and in the same way, the economy too goes through upcycles and down cycles. It is a matter of riding it out.

Now, while most promoters have held on to their stakes, some super investors we follow have pounced on this opportunity to buy more of the stocks already in their portfolio.

A case in point is super investor Rajeev Thakkar. Two of the stocks in which Rajeev has increased his stake have already been recommended in Smart Money Secrets.

What's more, Sarvajeet and I have also taken advantage of the market correction and recommended an increased exposure in 5 stocks from 50% to 100%.

The two stocks in which Rajeev has increased his stake are part of our list of 5 stocks to buy.

Both Sarvajeet and I are of the view that this is a great time to start putting money into quality stocks or increase exposure to the good stocks in your portfolio, if you haven't done so already.

Warm regards,

Radhika Pandit
Radhika Pandit
Co-editor and Research Analyst, Smart Money Secrets

PS: Rahul Shah, Co-head of Research at Equitymaster, will show you how to potentially double your income in a reasonable period of time. Read more about Rahul's Automatic Income strategy.

PPS: We have recently published a premium report on our top 5 stock recommendations for our subscribers. If you haven't subscribed to Smart Money Secrets can do so here.

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