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| Edited By: G Chokkalingam |Source: DNA |Updated: Mar 22, 2018, 02:40 AM IST
In the Indian equity markets, many "education stocks" have become a source of education for the retail investors. A few days back, Core Education had announced results for both March and June 2016 quarters. It posted a net loss of Rs 446 crore on revenue of Rs 35 crore for the March 2016 quarter and again a net loss of Rs 53.70 crore on a revenue of Rs 26.62 crore for the June 2016 quarter. Now this stock is suspended.
Educomp, which used to trade at around Rs 740 in March 2010, now trades at around Rs 13, a fall of 98% even after a long period of nearly 6 years. Another education stock, Everonn, which was trading as high as Rs 700 in October 2010, now trades around Rs 21, a fall of 97%.
The magnitude of wealth destruction in these thematic plays is a grave concern for those retail investors who invested in these stocks at such peak prices. Unfortunately, such thematic wealth destruction is not new to the Indian equity markets. In the mid-1990s, aquaculture played out in the secondary markets and there were more than a dozen aquaculture stocks, some of them used to trade in strong triple digits also. Now only one aquaculture stock trades actively on the market.
Later, we saw several more themes playing out in a big way and finally destroying the wealth of the retail investors once for all. Bubbles in IT stocks in 2000, infra theme in 2006-2007 and, oil producers and oil drilling companies on the eve of oil price shooting up to $147 a barrel in 2008, etc., are some of the examples.
Avoiding wealth destruction is a prerequisite for wealth creation. Contain expectations on return from the equity markets – try taking out profits the moment valuation comfort zone is broken. Never chase the stocks which have already become multi-baggers unless valuation is still appealing. Most recent example is a sugar stock, which moved up 16-fold (1600%) within last 52-weeks – those who bought at such peak price have already lost 40% of their capital. It is doubtful whether they would get back their capital in their lifetime.
It is true that always the stock markets create wealth in the long-term. But, remember that it is not true for all individual stocks. Hence, always stick to stocks of quality management, balance-sheet and business model along with valuation comfort. Names would keep changing – but many more themes would continue to play out in the markets in the future. But never forget "the education from education stocks."
