We have recommended a buy on this stock in May 2021. The stock has since then moved up by over 109%. We are moving the stock to a Hold recommendation in Prime Stocks.
The price action in the Nifty 50 index, and the broader markets in particular, have been extremely bullish. The overbought scenario in the short-term breadth indicator was resolved by a sideways consolidation in price. This is a major sign of strength indicating that prices could power higher. In a downtrend or a weak market environment, the overbought breadth would typically lead to a sharp price correction, which will in turn lead to a cool off in the breadth indicator.
Consumer durables, a key consumer category, bore the brunt of Covid as companies lost two business seasons in FY21 and FY22 to lockdowns and supply disruptions. As demand took a hit, the sector lost its sheen, especially white goods and small appliances, leaving investors disappointed over the last 2 years amid a soaring market.
Small caps are always alluring to the investor. Everyone knows that it is difficult to make quick money in large well-known and well-researched stocks. We all want to find that small gem which turns a lakh of rupees into crores. The most money is made in such cases when we can spot a company that will turn out to be a market-leading name in five to ten years. Today, the investor population has increased dramatically. Besides, information is available to everyone. This makes small cap investing both interesting and risky.
With an investment portfolio of $5 billion, Rakesh Jhunjhunwala (RKJ) has left a rich legacy behind him. While he started the journey with a modest capital that compounded over 3 decades, it is a record that may find it hard to be broken. In the words of his close aide Ramesh Damani, a proponent of compounding, it is over 50% CAGR in 35 years.
We are now moving the stock to a ‘hold’. That means it will no longer be in our buy list. This means you need not take further exposure to the stock. Do not sell it. Simply hold it. We will let you know if it is time to exit.
Recent regulatory developments have prompted us to issue a SELL call on this Prime Stock.
Consumer durables is a category that stands between staples and lifestyle goods. This category has been hit on one hand by Covid-led lockdowns, and on the other by inflation eating into margins and hurting demand. The category has seen a more severe impact as it is neither buoyed by the non-discretionary nature of staples nor by the quick demand rebound that lifestyle consumption tends to see.
Apart from corporate capex, production linked incentive (PLI) of the government and China-plus-one strategy, the manufacturing space is also undergoing a transition. Companies that have already invested or are now investing to meet the above demand triggers are readying themselves for future growth. This capital goods stock is one such superior player.
Consumer durables bore the brunt of Covid-induced lockdowns. However, with input prices cooling off & improvements in the demand scenario, we think you can play the revival in the sector with this Prime stock.
In the previous update that we published on the possible levels for the Nifty 50, we expected a retest of June lows. This, however, did not play out. Contrary to expectations, the index marched higher, a gain that even managed to break the then-mentioned upper reference level 16,800. Interestingly, the downside trigger level of 15,350 was not even challenged!
The stock has corrected 15% since our recommendation. We initiated our call just a day before the Q4FY22 results when the industry scenario was getting significantly better for the General Insurance companies post Covid.
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