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The Impact of Recent Crash on Microcap Millionaires Portfolio - Views on News from Equitymaster
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  • Jan 8, 2016 - The Impact of Recent Crash on Microcap Millionaires Portfolio

The Impact of Recent Crash on Microcap Millionaires Portfolio
Jan 8, 2016

As China's economic clout has gone up over the years, so has its ability to influence global stock markets. We were served yet another reminder of this new reality when the Indian markets plunge sharply in reaction to the meltdown in Chinese stocks.

So much so that the Sensex is now trading close to its 52-week lows, down 8% in the last one year and down 16% from the all time highs it reached in March 2015.

As is the case more often than not, the reaction we believe is mostly knee-jerk in nature and does nothing to alter the long term fundamentals of our country. And therefore, such corrections should be seen as an opportunity to get into fundamentally strong stocks at attractive prices rather than stay away from them.

With this important piece of advice in mind, let us try and understand how this impacts our MCM portfolio.

On a broader allocation level, we have always maintained that whenever the Sensex trades at below 18x price to earnings, we will be 75% in equities and 25% in cash.

As of writing this, the benchmark index is perched precariously close to this level. It is at 18.5x right now. And if it does close the gap by the time our next rebalancing exercise is due (February 2016), we may have to shift more money to equities and recommend brand new stocks for the portfolio.

If it doesn't, the portfolio will remain at 50:50 and there will be less churning in the portfolio.

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