It is always advisable to avoid the stock with huge debt burden at all time.
The bull rally witnessed during the last six months in the market have seen an upsurge of nearly 16 percent on the backdrop of increasing confidence of retail investor in the Indian market coupled with excess liquidity.
Despite stretched valuation in the market, the bullish sentiment among the market participant continued to remain on a positive trajectory.
The reviving fundamental structure of the Indian economy and aggressive approach of government towards reforms has played a critical catalyst to transform the market into a bonanza.
Although the correction phase taking place at a moment on the backdrop of GST implication, the long-term story remains on bullish trajectory.
The domestic market during the past 6 months was attractively priced to reap the benefit of the higher economic growth projection as anticipated by the market.
Since most of the mid & small cap stocks are a good proxy to play out the economic growth, many of these stocks doubled the investors’ wealth.
The sector reforms that came under the government’s agenda actually made a noise in the market as mutual fund managers and retail investor took a huge bet on such stock to garner the value of lower price and reviving growth rate of specific stocks.
Regardless of the bull phase during the last six months, there were few stocks at negative trajectory which eroded investors’ wealth by a huge margin.
Given the rising pressure on debt obligation turning into NPA, this poises a major hurdle for the company to adhere to their servicing.
As bank classified loan into NPA category, many investors started to dump such stock giving a knee-jerk reaction. Similarly, the downturn was followed by weak growth in business against the expectation coupled with the lack of business viability in long-run.
What should investors do?
Currently, the Indian market is at that phase of Americans Industry revolution during the late 1940s where reforming economy played out well for the retail investors.
For an investor to reap the benefit of reviving the economy, they should select a stock with sound fundamental business.
It is always advisable to avoid the stock with huge debt burden at all time. It is also prudent to book profit or exit from stock if the particular stock has reached its peak or there is no buying support.
The market has already upsurge by 16 per cent in the current fiscal year thus limiting the upper movement in short-run.
However, a much-needed correction after months of the rally in the market on the backdrop of GST implication is a healthy sign for investors to partake in the market.
The medium to long term story of the market is currently at a positive curve. As GST regime develops over a period of time, the stable crude price and control over the domestic inflation in a current fiscal year is expected to deliver a stronger growth from the next coming quarters to boost the market by 20-23 per cent in this fiscal year.Disclaimer: The author is Founder & CEO, 5nance.com. The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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