When to buy a stock and when to sell it?
Finding a stock may often be easy for investors but deciding when to buy or sell it may be difficult for them. Let us look at the recent past first. Nine months back markets started going up, after better than expected second-quarter results. (Sept 2020). The valuations had become very attractive and huge liquidity started chasing blue-chip stocks on the back of low-interest rates. The first COVID wave took everyone by surprise. The government, the health workers, the citizens and the industry. The response was abrupt. The resulting lockdown stalled the economy. After conquering the first wave, everyone relaxed. The second wave was another surprise. However, during the last 4 months Feb 21 to May-June21 (Market made a new high around Feb 15 and then refused to go up), it was fairly easy to put forth the argument that the market is in no mood to take COVID second wave seriously. The first wave was an unknown devil and the markets panicked. However, the second attack was the known devil. We knew how to fight it through vaccination (which had already started) and social distancing. Even though the authorities were a little lax in tackling the second wave initially, they are much better prepared now, for the third wave if and when it comes. During the second wave, even though the number of cases crossed 400 k in our country, the market did not crash, it just consolidated and was range-bound. This was due to the fact that the lockdown was localized and not nationwide. The low of the budget day was not violated. Sector rotation was seen with information technology, pharma, consumer goods, specialty chemicals and insurance sector which kept on doing well alternately. As the second COVID wave subsided and the number of active cases dropped, markets surged to make a new all-time high. The skeptics who were waiting for the crash to happen and the market to reach 40,000 levels of Sensex and 11,000 for Nifty; are now predicting 75,000 Sensex and 20,000 Nifty in a years time. However, there is always a concern when every participant in the market turns bullish. Let us first look at the logic: Why this is the right time to sell:  1. It is always prudent to book profits in the market. The age-old saying, strike when the iron is hot. No one has gone bankrupt by booking profits. 2. The penny stocks have started moving up like Jacks bean stock. No share can sustain a vertical meteoric rise. The crash is imminent. It has always happened in the past. It can happen now! The retail investor normally starts chasing stocks that are low priced and which become red hot in every bull run. Every penny stock is looked at, as a future multi-bagger(sic!). The simple logic retail investor follows is the confirmation bias. If there is an upper circuit to stock and more than 5 to 10 lakh buyers waiting to get the shares, the retail concludes that it must be worth buying. Normally the stock is not available till someone wants to offer delivery. Once this distribution happens, the stock remains stagnant for the next few months. I will give you one simple example out of many. Suzlon (Nothing against the stock except that their problems are not yet over) - the stock first hit the upper circuit in this bull run on December 11 2020 at 3.85 and thereafter kept on hitting upper circuits to reach Rs 8.45 on Jan 8 2021, when it hit upper and lower circuits both. Till June 16, even after 5 months, this high was not broken. 3. The first red flag to the bull run took place on June 14 following a tweet from Sucheta Dalal about something fishy happening in one industrial group. The market connected this with the Adani group stocks which had seen an exponential rise in the last one year. The stocks are still crashing. This must be the first dent to the unabated bull run. More such stories may follow. 4. The crude oil is rising and it has broken the barrier of 70$ per barrel. Every economist knows that India as a country suffers the most when oil prices are high as it can fuel inflation. Further, the government is in no mood to reduce the taxes on fuels even though the price is close to three figures. 5. If not now, but by the end of the year, the inflation will loom large in the economy. It may become difficult for RBI to hold the interest rates. If interest rates rise, the share prices and the markets may not sustain. 6. In any case, the small caps have reached the earlier top of 2017-18 and many shares have made multi-year highs. The chase of stocks in certain sectors has run ahead of their fundamentals. The valuations would be sustainable only if the earning growth and the order book sustain or move up from these levels. 7. Even though the Fed has promised to hold the rates till 2023, the stand is getting more hawkish than before. Inflation is already up in the US and following the same, the bond yields are inching up. 8. Commodity prices have hit the roof spoiling the profitability bandwagon of most of the consuming industries. The entire consumption basket including agri commodities and metals has gone up. Unless the price rise is passed on to consumers, profitability will go down. Whether enough demand exists to pass on the price rise is a moot question. All the above reasons may compel a borderline pessimist to sell his entire holding. Let us explore. Let us look at why to buy at this level or at least keep a hold on your stocks. 1. The COVID numbers are falling and the lockdown has ended. If this was one reason for the stagnation of the economy, the opening up will give a fillip to many sectors like hospitality, airlines, construction, consumption and consumer discretionary. Thus, other sectors are likely to move the baton hereon. 2. The global markets are very strong and give a tailwind to our markets. On the back of huge liquidity poured into the world economy by the FED, the Japanese, and the European nations the buoyancy continues. 3. The interest rates in the US are inching up, but are still low. They hover around 1.55 to 1.6 percent. The bond yields in Europe are negative. This has fueled all speculative markets which include commodities including gold, silver, iron and steel, nonferrous metals and off course stocks. 4. The entire share market has gathered wonderful momentum. As it is very normal to get small corrections when the markets make new all-time highs every day, the underlying bull run becomes stronger. The bull run can therefore continue. 5. The quarterly earnings of 2 out of 3 companies that are relevant, are better than expected or in line with expectations. Even though there are skeptics who believe that first-quarter earnings of the current year may not be very encouraging, the market thinks that the industry will still perform due to innovation, cost reduction and pent-up demand in many sectors. 6. The GST numbers have been robust and have consistently been above Rs one lakh crore during the last few months. 7. To top it all the advance tax collections and the entire collections of direct taxes have risen by 100 percent this year. This is a direct indication of the coming year being a block buster year. 8. The rural India has been bestowed with sufficient rains over last two years. The crops have been robust and water reserves more than sufficient. Even the current year's monsoon forecast has been robust at 100 percent of normal. To add to the sentiment, the government has raised the support prices for all the crops to the tune of around 5 percent. As if this was not enough the agri commodities all over the world are at all time high giving enough legroom for exports. This bodes well for Industries with a rural focus. 9. There is no point in fighting the markets or fighting the uptrend, just because you are unable to digest the same. Industries like steel have come out of a multi-year down cycle. Indian Pharma, API and specialty chemicals space has a unique blend of capability and capacity expansion with trustworthy quality supplies to the international community in comparison to the trust deficit with China. In conclusion, we can summarize as follows:  1. The bull run is not yet over. Barring minor hiccups, the stock markets have a very high probability to move up further in line with the GDP projections as the operations are normalized. 2. The banking industry is not yet out of the woods. Private banks like ICICI, Axis, HDFC bank (even the smaller RBL) have raised capital through QIP and are making aggressive provisions for doubtful debts. The public sector banks are getting merged and with Government support and adoption of technology, would be ready to take up the rural challenge. The Kisan Credit card scheme initiated by the Government will be a vital tool to further spice up the rural economy. 3. Once banking industry joins the bull bandwagon, new multiyear high can be round the corner. 4. However, It may be prudent to book profit in small and mid-cap stocks selectively. The least one can do is not to make fresh purchases in stocks with unsustainable valuations without proper analysis. (In small cap space)  5. There are many pockets of opportunity in the market which are still investible. A prudent investor can locate them and put his money there. The Gas story, specialty chemicals story, fintech story and the digital revolution are still intact. 6. Simplest solution is asset allocation. The profits to be booked periodically and locked in fixed income to protect downside if any. 7. One should sell highly speculative stocks if decent profits have been made. Holding them further in profit or loss depends on your risk appetite and deep pocket. 8. There are new stories and narratives which are introduced through interested quarters in social media. These present new arguments to buy the dud stocks to entice the gullible retail investor. It will be most prudent to stay away from the temptation. 10,000 shares bought @ Rs 3 in a worthless stock is still Rs 30,000 down the drain. The author, Bhushan Mahajan, is the founder and CEO, at Arthbodh Shares and Investment Pvt. Ltd. The views expressed are personal