Is making money in market so easy?

Last week, the market cap of entire BSE listed stocks touched a life-time high of over Rs.120.40 lakh crore. In same week, there was news in the media that a doctor wanted to stop practicing and spend time in share trading.

Many young people recommend stocks on the social media in the morning and some of them move up substantially by close of the markets on the same day – in the process, hundreds of “equity stalwarts” are created overnight. Initial Public Offers (IPOs) are oversubscribed nearly 100 times and some of them make huge profits on debut in the secondary markets. Making money on the Dalal Street for “some” seems to be easy. Is it so?

A few developments last week provide good insights in this context. Shares of China Huishan Dairy Holdings Co sank by a record 85% in a single day in Hong Kong before the company halted trading. The sudden crash wiped out about $4.1 billion in market value. On the domestic front, a mid-sized infrastructure company reported a revenue in poor single digit for the first half of FY17, but a net loss of Rs 1,169 crore. Its debt and other liabilities exceed Rs 14,000 crore. Its stock price has crashed 92% gradually from its 2-year peak price. Further, a stock of defensive sector touched 52-week low after eroding over 52% of its market cap from its peak price within a year.

These are not isolated instances in our markets. There are a lot more such episodes even in this bull market.

The mutual fund managers raised their allocation to the banking sector to an all-time-high of over Rs 1.2 lakh crore at the end of February. However, various media sources report about top bank executives (vice-chairman to MD/CEO levels) selling their own shares in large private banks recently.

Capital mobilisation through the IPO route hit a six-year high at over Rs 20,000 crore in FY17. In the next few months, IPOs worth over Rs 20,000 crore are hitting the markets. Also, a large number of companies are rushing to the markets to raise money through Qualified Institutional Placements and Rights Issues.

In this bull market, it looks like making money in the stock market is a child’s game. However, making money and also retaining the gains, and avoiding destruction of wealth consistently are actually quite a tough job.

While long-term bull run remains intact, sucking out a large chunk of liquidity by the smart people from the markets remains a major risk factor in the short-term. Also, holding on to individual stocks at super-rich premium valuation would keep gains only an illusion unless profits are realised.

The writer is founder & managing director, Equinomics Research & Advisory Pvt Ltd