Of the infinite varieties of price corrections that can happen in the market, there are two very interesting varieties:
Case 1: Stock price corrects with loss in earnings momentum; in other words, limited growth of sub 10% for the next one year
Case 2: Stock price correction with/out loss in earnings momentum - One of those events that happens out of fear on near term news
ING Vysya Bank (PCR to increase), Dr. Reddy's (no near term US pipeline), Bajaj Corp (temp. slowdown in almonds oil), VST Tillers (Big miss) and Torrent Pharma (Amortization of an acquisition) - Interestingly, all of these are strong companies with temporary issues. Also, Gateway Distriparks, in hindsight, suffered from the same issue. All of these constitute Case 1 Companies
Yes Bank (corrected 50% from the peak), Just Dial (Corrected about 40% from the peak), MT Educare (about 30% from the peak), ITC (25% from the peak), Tech pack (in anticipation of forex issue) and IPCA labs, Kaveri and Bayer (El nino prediction by the analyst brethren) etc. etc. constitute Case 2 Companies
Of course, we have to overlay valuations on top of stock price corrections to see each of them constitute growth at reasonable price. Just Dial does not pass muster given that valuations were insane prior to the fall and after the fall, notwithstanding the market leader status, bluesky growth, vc bets within the company.
Question then becomes how to bat under these two circumstances.
It seems a trader would do far better in Case 2 kind of companies while an investor with tons of patience will fare better in Case 1. Unanticipated catalysts seem like leading unanticipated windfalls - eg. GDL, somany ceramics; In other words, both these set of companies have a place in any portfolio, proportions could differ based on individual preferences.
Case 1: Stock price corrects with loss in earnings momentum; in other words, limited growth of sub 10% for the next one year
Case 2: Stock price correction with/out loss in earnings momentum - One of those events that happens out of fear on near term news
ING Vysya Bank (PCR to increase), Dr. Reddy's (no near term US pipeline), Bajaj Corp (temp. slowdown in almonds oil), VST Tillers (Big miss) and Torrent Pharma (Amortization of an acquisition) - Interestingly, all of these are strong companies with temporary issues. Also, Gateway Distriparks, in hindsight, suffered from the same issue. All of these constitute Case 1 Companies
Yes Bank (corrected 50% from the peak), Just Dial (Corrected about 40% from the peak), MT Educare (about 30% from the peak), ITC (25% from the peak), Tech pack (in anticipation of forex issue) and IPCA labs, Kaveri and Bayer (El nino prediction by the analyst brethren) etc. etc. constitute Case 2 Companies
Of course, we have to overlay valuations on top of stock price corrections to see each of them constitute growth at reasonable price. Just Dial does not pass muster given that valuations were insane prior to the fall and after the fall, notwithstanding the market leader status, bluesky growth, vc bets within the company.
Question then becomes how to bat under these two circumstances.
It seems a trader would do far better in Case 2 kind of companies while an investor with tons of patience will fare better in Case 1. Unanticipated catalysts seem like leading unanticipated windfalls - eg. GDL, somany ceramics; In other words, both these set of companies have a place in any portfolio, proportions could differ based on individual preferences.
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