“For Tata Motors, prima-facie, I would say that it is a quotational loss because it is a huge franchise and the value will come back,” said Raamdeo Agarwal of Motilal Oswal
If you invested Rs 10,000 in Tata Motors at the beginning of the year, chances are that your investment is now reduced to Rs 6,339, as per the closing price on July 6. The stock has seen one of the worst falls among Sensex companies, down 36 percent in 2018.
Tata Motors, which was quoting at Rs 431.20 on December 29, 2017, slipped sharply to Rs 273.35 on July 6, 2018, a fall of 36.6 percent. The slowdown in domestic sales, as well as lingering concerns of the impact of Britian's exit from the European Union ('Brexit'), weighed on sentiments.
However, investors have nothing to worry as it is not permanent value loss and can be referred as quotational loss, which in other words means that the value will come back, according to Raamdeo Agrawal, co-founder of Motilal Oswal Financial Services said in an interview with CNBC-TV18.
Permanent capital loss refers to a massive fall in stock price because the value of the underlying business is significantly eroded while quotational loss is merely a short-term fall in the stock price with the underlying value broadly intact.
According to Raamdeo’s letter to shareholders, quotational loss in a stock offers an excellent buying opportunity due to a unilateral lowering of valuations.
“For Tata Motors, prima-facie, I would say that it is a quotational loss because it is a huge franchise and the value will come back. Tata Motors has become very aggressive in the recent past to gain market share,” said Raamdeo.
“Even though we are not invested in the stock but it looks like it is a quotational loss and the value will come back,” he explains.
Another sector which suffered massive correction is the oil & gas space. The oil marketing companies are down 40 percent in 2018 and it looks like a quotational loss weighed down by high crude oil prices.
“The OMC franchise is very sturdy. The government can only influence 1/3rd of the profit while rest of the profit is refining or pipeline profit, etc. But, in the mood of pessimism, markets become irrational and what fear can do to stock markets even a third world war cannot do,” explains Raamdeo.
After a stellar 2017, it has become slightly tough for money managers who are managing a large sum of money to beat the index, highlights Raamdeo.
“The index has been brilliant in 2018 and it has been tough for us to beat the index on 12-month basis convincingly. We did a wonderful job in the first three years but the table has turned slightly,” added Raamdeo.Defining quotational loss, Raamdeo said that it is more like a correction. "Whenever corrections happen they are usually deep and if we look at Warren Buffett's portfolio from 1965 to 2018...I think the portfolio corrected by 70 percent 3 times," he said.