By Mr. G.Chokkalingam, Equinomics Research & Advisory
Pvt Ltd
In my experience, a vast majority of small investors do not create
substantial wealth in a consistent manner. It is partly due to the fact that
they do not understand their own strength!
For many of them "share price movements" become the guiding
force – if fundamentally sound stocks do not move in line with the market or
fall despite market rise, they become "boring" stocks & they tend to offload them in the markets.
The unique opportunity in the domestic equity markets, as per the long history
of domestic equity markets, is that small individual investors alone can enter
the good value stocks / or multi-baggers with significant weights in their
portfolios at the initial stage of market-cap cycle itself.
Wealth creation...!
While for them the "size" (market-cap) of a stock doesn't
matter, it is most relevant for the institutional, especially for the foreign
investors, who can not enter small-sized companies at the incubation stage
considering their large investment appetite.
The stock price of CEAT moved up from Rs. 99 a share in September 2013 to
nearly Rs. 1000 in November 2014, and during the same period the stakes held by
the Foreign institutional investors (FIIs) rose from mere 0.03 % to about 25%.
The marketcap of CEAT on free-float basis moved up from mere Rs. 198
crore in September 2013 to over Rs. 1,813 crore in November 2014 when the stock
price moved up more than 10 fold from the level seen in September 2013.
For many institutional investors "size" (market-cap) matters
most, more than the run-up in the stock prices before their entry due their
large appetite. It is not unique with CEAT or to the current bull run - there are many more examples in the past,
encompassing several industries.
Manappuram Finance had a market cap of just Rs. 175 crore in March 2008
and at that time the FIIs had a mere 3.95% stake in the company. The same moved
up to 30.25% in December 2010 when the market-cap of Manappuram jumped to a
whopping 38 fold to Rs. 6,718 crore!
Similar is the case with TTK Prestige whose market-cap spurted 33 fold
from Rs. 132 crore in March 2008 to Rs. 4,422 crore now, while the FIIs' stake
moved up 2.27% to 20.32% in the same period!
There are many more such classic stories such as Phoenix Mills & City
Union Bank, whose market-cap rose 55 times & 24 times respectively in the
last 10 years while the equity stakes held by the FIIs increased from almost
zero to 33% & 23% respectively.
Many small investors miss out such opportunities because many of these
stocks remain quite illiquid at the beginning stage of
"wealth-creation" cycle while actually the size doesn't matter for
them.
They also need to learn that the risk to investments in such stocks
doesn't arise from the "liquidity" or "size", rather from
the 'stock idea' itself. Liquidity and also market-cap expansions follow, if
the stock idea (business) succeeds.
The investment risk arises from staying long, only if the idea (business
or company) itself fails to deliver. Hence, a word of caution - the art of
staying long & continuous accumulation for averaging down the cost of
acquisitions is applicable for smaller sized companies, only if the
fundamentals and business remain strong.
Mr. G. Chokkalingam,
Founder & Managing Director
Equinomics Research & Advisory Pvt Ltd
18- 3/A, Ekta CHS, Shiv Dham Complex
(Opp to Oberoi Mall)
Filmcity Road, Malad (East)
Mumbai - 400 097
Phone: +91 22 - 2849 2942,
E - mail id : chokka.g@equinomics.in
Equinomics Research & Advisory Private Ltd
Investment Adviser
CIN:U67190MH2014PTC252252
SEBI REG. NO. INA000001712
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