From a 57% Fall to Gains of 168%. This is What a Smallcap Rebound Really Looks Like

Jul 7, 2020

Richa Agarwal, Research analyst

This edition of the Profit Hunter is about the journey of a smallcap...one that we recommended in March 2020. That was before the lockdown, 13, March 2020 to be precise.

Coronavirus Sell-off Offers a Rare Opportunity to Own This Brand Leader - That was the title of my report.

When we made the recommendation, we were aware of a major disruption happening. There was scare surrounding the Coronavirus. Although the lockdown was something we could never see coming. I was still taking crowded local trains to reach office.

What we liked about the company was its presence in an essential category and its market leadership in a niche food segment.

We were not thinking about where the stock price would be a week, or even a month ahead. That's a guess best left to gamblers and speculators.

And there is no dearth of these in the markets, as the recent market crash and rebound suggests.

Anyway, coming back to this specific stock...

Here's is how the stock moved post our recommendation.

When the Stock You Buy Falls 57% in 9 Days


The chart does not make a pretty sight. As you can see, the stock we recommended fell 57% in 9 days flat.

Most investors press the panic button (stop loss) well before seeing such losses in their portfolio.

But not us. We had a distinct advantage.

We had spoken to the management. We understood the company's product and the fundamentals.

Most importantly, we recommended it for the long term...from a good 3 to 5 year perspective.

We ignored the noise and continued to maintain a Buy view.

Advertisement
  India's Next War  
   
  Recently, both China and Pakistan have started amping up tensions at the border.

So, now India faces a possible 2-front war scenario.

And this calls for a heavy deployment of future-ready and highly advanced weapons at our borders.

We are talking next generation tanks, guns and even high-tech equipment like drones.

Now unlike in the past where all this money was spent with foreign companies, now, it's being redirected to Indian companies.

For a few Indian defence companies...this is a mega growth opportunity.

And for investors... it's a rare opportunity to make potentially huge gains as select defence companies see their growth, and therefore stock prices, potentially shoot up.

To learn everything about this new, and huge, opportunity, Click Here to join Equitymaster's Explosive Profits Summit.

At this exclusive summit, you will also get to access details of what we call our #1 defence stock pick.

It's a potential 10x opportunity in the long term.



We hate spam as much as you do. Please read our Privacy Policy & Terms Of Use.

By submitting your email address, you also sign up for Profit Hunter, a Free-for-life newsletter from Equitymaster, which offers the most profitable investing ideas in India
 


To be sure, we did get some flak for the under-performance and for not cutting the losses as stock continued to make new lows everyday, starting from the day after the recommendation.

But with over a decade of experience, we have become stoic enough to the mood swings of the market, and to stand by our process.

And guess what?

Our patience and our process was rewarded well before our expectations.

As you can see from the chart below, this niche market leader rebounded 135% in less than a month.

As I am writing this, it is up 168% from the lows in March...and up 17% from our recommendation price.


The reason I shared this with you today is to show you what a rebound could look like in smallcaps. Yes, it's nothing short of a roller coaster ride.

By the way, this is not just a one off example.

Two other smallcap stocks we recommended during the lockdown are up 55% and 54% respectively.

#1 Small-Cap Stock: Biggest Opportunity in the Indian FMCG Market

We were lucky to some extent, as such gains in a short time have been more because of the market rebound rather than any significant change in the fundamentals of these stocks.

But if it had not been for a process which we know works most of the time, we might not have had the conviction to hold the stocks amid a downturn, or even to recommend any.

You see, we do not count on market sentiments. We make our recommendations keeping in mind the fundamentals and the management quality. If they are intact, it is bound to be reflected in the stock price in the long term.

That said, the pandemic has added a fresh filter to our process.

This filter tests if the business is strong enough to survive a second wave of Coronavirus infections...and even emerge stronger from it.

Now there are only a few companies in the listed space that clear this filter, let alone smallcaps. But it is better to hold quality than add more quantity amid a volatile market.

Betting on such essential smallcaps that clear this filter will not just spare you from false rebounds, but will set you on road to generational wealth.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

Recent Articles

I Trust Tanushree to Do a Jim Rogers and Unlock Huge Gains from Defence Stocks October 19, 2020
The set up that made Jim Rogers famous is now up for grabs in India.
Why India's Drone Revolution is a 4x Profit Opportunity October 16, 2020
My research on India's leading defence companies brought me to one major player in drone manufacturing.
Here's How You Can Join India's Ascent in the Global Drone Revolution October 15, 2020
'The Chinese drone market is 14 times that of India's. Billions may flow into Indian drone companies too. Don't miss out on this wealth creating opportunity.
The Biggest Wealth Creating Opportunity that No One is Talking About October 14, 2020
The defence sector has gone under the radar despite positive developments. Here's why this sector can't be ignored for long...

Equitymaster requests your view! Post a comment on "From a 57% Fall to Gains of 168%. This is What a Smallcap Rebound Really Looks Like". Click here!