This Was a Large Cap. But Was It Safe? - Chart Of The Day 9 November 2018 - Equitymaster
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This Was a Large Cap. But Was It Safe?
Nov 9, 2018


Talking about finding quality in large-cap stocks...

If history is to be believed, companies classified as large caps have also failed the test of 'quality'.

Surprisingly, the current mood in the market is to dump the entire mid and small cap space and buy large caps in the name of quality.

Many fund managers believe, in uncertain times like this, one should stick to quality large cap stocks.

Well, to an extent, I agree with them.

But for me... irrespective of market sentiment or market cap, sticking to quality stocks is the only mantra.

I mean look at the recent examples like Vakrangee, Punjab National Bank, PC Jeweller. If someone would have mistaken market cap for quality, he would have paid a hefty price.

In January 2018, PC Jeweller's market cap was in north of Rs 200 billion.

So, if your metric for safety and quality was market capitalisation then this company may have qualified.

However, once the Vakrangee episode broke out and there were serious questions on PC Jewellers corporate governance practices, the frenzy was over.

It is a small cap now, with a market cap of around Rs 50 billion.

That's where Tanushree's safety first approach to investing comes handy. She strongly believes all large caps are not necessarily blue chips.

She judges 'Safety & Quality' by looking at metrics like long term ROEs, robust operating cash flows, lean balance sheets, managements credibility, and transparency in the books of accounts etc.

You can sign up for Tanushree's StockSelect recommendation service here.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - These Are the Kind of Blue Chips You Should Invest In

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