The single largest investor in Indian stocks is thinking of booking profits. Are you? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

The single largest investor in Indian stocks is thinking of booking profits. Are you? 

A  A  A
In this issue:
» Will the 9 trillion US dollar denominated debt change the Fed's mind?
» Are we staring at a snowball effect in global financial crisis?
» The role that banks are playing in the crisis
» ...and more!

Interviews with top fund managers, market experts and investing gurus are laced with anecdotes about how they came across their best picks. Needless to say, the questions that these answer also revolve around what are called 'buy ideas'. To put it differently, investors typically wish to pick the brains of gurus on how to select stocks. And that job, well done, certainly assures most of the investing returns. But according to us, unless you are Buffett, and willing to hold each of your stock forever, knowing when to book profits is as important. And therefore it is as important to know, when the successful investors sell. More importantly, what are the criteria that they use to sell stocks and book profits.

However, very few investors actually track selling activities of reputed fund managers, investors and investing gurus. Let alone picking their brains about their plans to book profits. And at a time when market sentiments are buoyant, the interest around profit booking ideas is naturally low.

Now, this is not to say that you should blindly buy and sell exactly the stocks that big investors are buying and selling. For their reason to do so may be entirely different from yours. For instance, Buffett's decision to buy shares of Tesco and then offloading them within a year at 50% loss did not qualify by his own value investing principles. But the investing legend lost no admirers by admitting his 'mistake'. And fortunately for him, he could afford booking the losses, which comprised a miniscule portion of his portfolio.

Retail investors, on the other hand, need to focus on booking profits in order to safeguard their portfolio returns. Knowing when the valuations are ripe or that the earnings prospects are lagging are essential to take profit booking decisions. Now, LIC, which is the single largest Indian investor in stocks, has shown some contrarian trends in its investing activities. Apart from the fact that the insurer typically subscribes to almost all PSU disinvestments, its decision to invest and book profits in stocks are independent of government mandate. And in this context, its decision to start booking profits in 2015 seems a very pertinent takeaway for investors.

It is not the kind of stocks that LIC offloads that should interest you. For the reason and valuations at which the insurer may have bought the stock may be very different from yours. However, it certainly means that the time is ripe for you to evaluate your portfolio and weed out stocks that are overvalued and do not offer sufficient risk adjusted returns even from a long term perspective.

Are you evaluating your portfolio for profit booking opportunities? Let us know your comments or share your views in the Equitymaster Club.

--- Advertisement ---
Profiting From Small Companies Is No Longer A Game Of CHANCE!

Earning substantial returns from small companies is no longer a game of CHANCE.

Our past 6 plus years' track record has shown that the growth stories can be consistent and phenomenal too!

Just look at these numbers...

250% in 2 year 1 month...
119% in less than 3 months...
143% in 9 months...

And there are many more like these!

So what is the secret of our success when it comes to small caps?

Well, we have come up with a way to identify high potential small companies much before others catch a scent of them.

And this enables our subscribers to make big returns from small companies that are still unknown to most investors.

To know how YOU could do the same easily too, click here...

And please don't assume that we are ignoring the elephant in the room when we think of possible profit booking in Indian equities. The FIIs, which have a disproportionately big weightage amongst investors in Indian stocks, are known to be fair weather friends. And at the slightest hint of discomfort in India or more comfort in external markets, they will not hesitate to book profits. The possibility of the US Fed raising interest rates can be the biggest opportunity for FIIs to take the flight to safety.

Now, as per Bloomberg, borrowers outside the US owe as much as US$ 9 trillion dollar denominated debt. And raising US Fed rates will mean that the cost of this gargantuan leverage will go up thereby halting global recovery, if any. Hence the US Fed may want to keep delaying the rate hike. However, as and when the rate hike becomes a reality, the FIIs will join the group of profit booking investors in Indian markets. And that itself could take a toll on valuations.

02:40   Chart of the day
With all the crisis', busts and recessions that have incessantly gripped various parts of the world since 2008, investors the world over have become a jittery lot. But as anxious as they may feel about all the funny things that are going on in various economies, today's chart shows that the stock of the world's financial assets has continued to grow through all the ups and downs during this period. It also breaks down the financial assets into stocks, bonds and government debt.

Starting from US$ 211 trillion in 2006, the grand total of the globe's financial assets now comes up to US$ 294 trillion in all. Further, while the total value of stocks constitutes US$ 69 trillion of this today, an overwhelming majority of this is not stocks but fixed income type securities like bonds, loans and sovereign debt. But what investors need to be wary about is the fact that more than 50% of total global financial assets are in bonds and loans that are unsecured and uncollateralized. All the more reason why any crisis will have snowball effect on asset prices.

World's financial assets continue to grow

With the roots of the crisis that has put much of the developed world in a tizzy finding itself in un-securitized lending, a recent Financial Times report draws attention to the need of the hour. Countries like the US and the UK must crack down on banks and financial institutions that have an important role to play in creation of the uncollateralized securities. And most of this with the intent of facilitating money laundering. Thus while the last time around, the Too Big to Fail Banks were bailed out, we wonder how long will the banks continue with their misdeeds in the hope of more bailouts.

The Indian stock markets closed on a strong note today on the back of sustained buying activity across most index heavyweights. The BSE-Sensex closed higher by almost 290 points today. Gains were largely seen in FMCG and pharma stocks, while realty stocks found themselves on the losing end today.

04:50  Today's investing mantra
"If calculus or algebra were required to be a great investor, I'd have to go back to delivering newspapers." - Warren Buffett
Today's Premium Edition
Hawkins versus TTK Prestige: How have they fared in recent quarters?
Stocks of both these companies have been under pressure of late. But has that made them attractive propositions now?
Read On...Get Access
Recent Articles:
Why NOW Is the WORST Time for Index Investing
August 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)
August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
This Company Beat the Business World's 'Three Killer Cs'
August 16, 2017
And what it has in common with beating the stock market too.
Let's Hope This Correction Continues
August 14, 2017
Last week's correction is making a number of Super Investor stocks look a lot more attractive...

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee.

Equitymaster requests your view! Post a comment on "The single largest investor in Indian stocks is thinking of booking profits. Are you?". Click here!



Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
For the terms and conditions for research reports click here.
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: Website: CIN:U74999MH2007PTC175407