Saturday, 29 September 2018

What to Do in NBFC Stocks Now

The recent IL&FS crisis has seen many NBFC stocks fall, with DHFL losing more than half its value. As always, investors are confused about what they should do. Should they hold onto their NBFC stocks? Should they buy them or buy them more? 

Analysts and brokers are turning “cautious” of the NBFC segment, which is natural for them, given their work profile. If they turn bullish on NBFC stocks and they fall more, they lose face. If they rise from here, they can always say that they were cautious, not bearish. All in all, there are no easy answers for our average investor.

Crazy things happen in the market and the crash in NBFCs is one of them. But at the same time, you should avoid the temptation of rejecting whatever is happening as complete bullshit. You must acknowledge the fact that you are dealing with uncertainty and things can certainly go against your judgement. 

So what to do? 

Do you own NBFCs? If yes, no need to sell them. 

Should you buy more of an NBFC in your portfolio? Check your investment strategy. Does it allow you to buy more? If you have already reached your maximum allocation to a NBFC stock in your portfolio, you shouldn’t buy more, no matter how attractive it looks.

Should you load up on NBFCs, given their attractive valuations? Use your good judgment. Don’t make any one sector a large part of your portfolio.

Should you make an entry into the NBFC space if you don’t have any stock of that sector? Absolutely. The current mispricing is an opportunity to add this sector to your portfolio.

Finally, as a general rule, don’t allow the market to tell you when to buy or sell. Do so when your strategy permits so. What if you don’t have a strategy? Well then… that’s the real crisis.  

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