Strategy:What should you do? - II

I hope you have read my previous post by now.

Do you sell everything you hold in a bear market? That’s a tough one to answer.

I wouldn’t advice a complete sell-off, but hold those which you think can grow well over a period of time. The following factors would be critical to your decision:

- Fundamentals of your stock
- Holding period
- Returns expectation
- Price at which you entered the stock


First, the fundamental of your stock is very important. For example, Bharti Airtel was probably one of the best picks in telecom some time back. Though nothing has changed much since then, it’s not a value buy at current levels. For one, it has entered a new business (DTH) which would squeeze its margins for the next 5 years at least. Second, I believe its ARPUs have peaked. From here, it could go into a consolidation phase with slower growth in ARPUs if not deteriorating growth rates. Looking at these factors, its probably headed lower considering the market fundamentals. I would probably re-visit the stock for long term below 400 levels.

If my holding period for the stock is around 10 years, I would probably part-hold Bharti Airtel and add more at lower levels (thereby cost-averaging). I would hold because revenues aren’t declining as yet for the stock. The new business would dent margins in the short term, however would contribute to greater profits towards the end of my holding period. However, for someone with a 2-3 year view or maybe lesser, it’s not the best stock.

The current bull-run has already seen spiraling growth in the stock. From here, it may not give you something like what you have seen in the past. Remember, the stock rose from Rs 30 levels in 2002! I would probably pick the stock as a safer pick for the long term with medium risk. It can still give you 30% YOY if you are inclined to hold for a decade or maybe when the next Bull Run emerges!

All said and done! If you entered the stock(in this case Bharti Airtel) at the peak (or its current 52-week high), you would be better off selling the stock at current levels (600+) and enter at sub-400 levels. For one, you would hardly see any returns on the stock for the next 3 years. Its not known to be a good dividend payer, so you need to think twice before retaining something which doesn’t pay you for long! It’s like working for an employer for free in expectation of strong growth ahead!