When to sell? What are the parameters to look at before selling a stock? These are the questions that Sujan Rao, working in an Indian
company, asked after seeing a sharp rise in the equity markets. With over 90% appreciation in the Sensex since March this year, a large segment of the investor community is in a fix on whether to sell or hold.
While the views are divided as far as the direction of the market is concerned, SundayET has some insights on the parameters to look at before exiting from any stock.
SundayET has been telling its reader that they should have a return estimation before buying any stock and hence the best time to exit is when your target is achieved. However, if one expects further upside due to any development, it makes sense to go for partial profit booking.
Also, according to Anil Chopra, group CEO, Bajaj Capital, if the target return fixed for a particular stock has been achieved one should exit. For example, if you have invested in a stock at Rs 100 per share with a target return of 20% in one year and in case stock appreciates to Rs 120 in two months then it is wise to exit that stock and book profit.
Since it is difficult to buy stocks at the bottom, experts suggest opting for systematic investment plan (SIP), where investors make periodic investments rather than putting a lump sum amount. Similarly, it is impractical to sell at the top and hence one should go for systematic selling plan (SSP) and at every level of the upward rally investors should book some profit.
However, it is not advisable for investors to decide on selling triggers right at the beginning.
Valuation of the company is another parameter to look at for deciding whether to hold or sell the stock. Although, it may be possible that a stock goes up further even after reaching the fair valuation, experts suggest that investors should sell once the stock price goes beyond the fair value.
Also, one has to look at the options available. If you find any other investment option more attractive compared to your current investment in a particular stock, you may consider switching. The market trend, which is mostly driven by sentiments, is crucial. According to Kapur, frontline stocks are usually less volatile than mid caps. They may offer less return than mid caps but have a relatively higher safety level.
Mid caps generally do well only in very firm and positive markets. Some of the large cap stocks like realty majors also have a high beta and are very volatile. The moment the sentiment in the market changes or uncertainty starts creeping in, it is better to exit all mid-cap and high beta stocks regardless of whether the target one has in mind while investing has been achieved or not.
In addition, according to Vineeta Jain, head research & index management at Eastwind Capital Advisors, when one notices that insiders are
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Key to maximising returns
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selling stocks substantially, it is better to exit from that stock. Also, one should exit from companies which do not react positively to good news coming in or do not fetch higher valuation even after showing impressive quarterly results.
When it comes to investors of mutual funds, parameters to take a sell call may differ a bit. Investors need to evaluate the performance of the invested schemes on a regular basis. The moment there is any major discrepancy from the benchmark indices and peers, one can consider an exit.
The performance of a mutual fund is dependent on the capability of the management team. Hence, any change in the ownership or fund management team may impact the fund performance. It is advisable to avoid schemes where the management team has been changed recently even if the schemes of that company were performing well because the past performance and track record is no longer relevant.
Mutual funds are managed by fund managers and logically a buy or sell call should be taken only by them, however, partial profit booking may be done in case of extraordinary returns even if the scheme is doing much better than peers and the benchmark. This is just to be cautious and safe as usually very high performing schemes in bull markets take a lot of risk and suffer in a big way when the market sentiment reverses.
Unit-linked insurance policies (ULIPs) are for long-term products, but with the sharp rise in the stock market, the net asset value of ULIPs also goes up. And as part of balancing the portfolio one may consider a switch to conservative portfolio, whereby a part of the equity exposure is shifted towards debt instruments.
Given the current market condition, Kapur says, "It makes a lot of sense to switch to a conservative portfolio and reduce your equity exposure. Insurance anyway is a conservative investment option where safety scores over return."
company, asked after seeing a sharp rise in the equity markets. With over 90% appreciation in the Sensex since March this year, a large segment of the investor community is in a fix on whether to sell or hold.
While the views are divided as far as the direction of the market is concerned, SundayET has some insights on the parameters to look at before exiting from any stock.
SundayET has been telling its reader that they should have a return estimation before buying any stock and hence the best time to exit is when your target is achieved. However, if one expects further upside due to any development, it makes sense to go for partial profit booking.
Also, according to Anil Chopra, group CEO, Bajaj Capital, if the target return fixed for a particular stock has been achieved one should exit. For example, if you have invested in a stock at Rs 100 per share with a target return of 20% in one year and in case stock appreciates to Rs 120 in two months then it is wise to exit that stock and book profit.
Since it is difficult to buy stocks at the bottom, experts suggest opting for systematic investment plan (SIP), where investors make periodic investments rather than putting a lump sum amount. Similarly, it is impractical to sell at the top and hence one should go for systematic selling plan (SSP) and at every level of the upward rally investors should book some profit.
However, it is not advisable for investors to decide on selling triggers right at the beginning.
Valuation of the company is another parameter to look at for deciding whether to hold or sell the stock. Although, it may be possible that a stock goes up further even after reaching the fair valuation, experts suggest that investors should sell once the stock price goes beyond the fair value.
Also, one has to look at the options available. If you find any other investment option more attractive compared to your current investment in a particular stock, you may consider switching. The market trend, which is mostly driven by sentiments, is crucial. According to Kapur, frontline stocks are usually less volatile than mid caps. They may offer less return than mid caps but have a relatively higher safety level.
Mid caps generally do well only in very firm and positive markets. Some of the large cap stocks like realty majors also have a high beta and are very volatile. The moment the sentiment in the market changes or uncertainty starts creeping in, it is better to exit all mid-cap and high beta stocks regardless of whether the target one has in mind while investing has been achieved or not.
In addition, according to Vineeta Jain, head research & index management at Eastwind Capital Advisors, when one notices that insiders are
BSE
Why realty is good investment
Key to maximising returns
How to gauge market movements
What moves the stock markets?
selling stocks substantially, it is better to exit from that stock. Also, one should exit from companies which do not react positively to good news coming in or do not fetch higher valuation even after showing impressive quarterly results.
When it comes to investors of mutual funds, parameters to take a sell call may differ a bit. Investors need to evaluate the performance of the invested schemes on a regular basis. The moment there is any major discrepancy from the benchmark indices and peers, one can consider an exit.
The performance of a mutual fund is dependent on the capability of the management team. Hence, any change in the ownership or fund management team may impact the fund performance. It is advisable to avoid schemes where the management team has been changed recently even if the schemes of that company were performing well because the past performance and track record is no longer relevant.
Mutual funds are managed by fund managers and logically a buy or sell call should be taken only by them, however, partial profit booking may be done in case of extraordinary returns even if the scheme is doing much better than peers and the benchmark. This is just to be cautious and safe as usually very high performing schemes in bull markets take a lot of risk and suffer in a big way when the market sentiment reverses.
Unit-linked insurance policies (ULIPs) are for long-term products, but with the sharp rise in the stock market, the net asset value of ULIPs also goes up. And as part of balancing the portfolio one may consider a switch to conservative portfolio, whereby a part of the equity exposure is shifted towards debt instruments.
Given the current market condition, Kapur says, "It makes a lot of sense to switch to a conservative portfolio and reduce your equity exposure. Insurance anyway is a conservative investment option where safety scores over return."
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