Nearly 200 BSE500 stocks more than double investor’s wealth during Modi’s tenure; time to sell?

In the last five years of the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi, as many as 197 of the BSE500 stocks surged over 100 percent.

Three of them—Minda Industries, Bajaj Finance and KEI Industries—gave over 1,000 percent return in the same period.

Stocks that rose 100-900 percent include Bajaj Finserv, Tata Metaliks, Avanti Feeds, Indiabulls Ventures, IFB Industries, V-Mart and Sonata Software, among others.

However, the headline indices were not able to keep pace with these stocks as Nifty and Sensex gave a modest 50 percent return during Modi's tenure.

In the same period, there were more than 30 BSE500 stocks that fell 50-80 percent that include Bank of India, Syndicate Bank, Reliance Infra, Reliance Power, Jaiprakash Associates and Reliance Communications, among others.

“Nearly 200 companies in BSE500 more than doubled the investors' wealth during Modi's first term and we will see many more companies giving a handsome return in next five years. In our opinion investors must invest in companies with a high standard of corporate governance with reasonable valuations,” Aatish Matlawala of SSJ Finance & Securities told Moneycontrol.

“We prefer to pick companies where management has a clear focus and are expected to benefit from government policies,” he said.

Table: Top 21 of the 197 stocks that gave over 100 percent returns during PM Narendra Modi's tenure. 

This leads to the million dollar question that what should investors do with stocks that have more than doubled their wealth in the last five years?

Experts suggest, if someone has held stocks for more than five years, the right strategy would be to follow a 20 percent correction rule that could be the stop loss.

“The fact remains that these stocks have more than doubled in the last five years. Hence there is a trend in place and one should rather hold but also make sure there is a stop loss that is in place once the counter-trend rally appears,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“That comes to be around 20 odd percent. In this kind of scenario where stocks continue to rise and create wealth, there is a correction pattern that takes place which usually lasts for around 15-18 percent. Investors should make sure that this 20 percent criterion is being met,” he said.

Nadeem further explained that if this gets violated, we can be sure that the corrections are not bought and the smart money is leaving the stock.

“Look at HDFC, Bajaj Finance or Maharashtra Scooters—every correction is bought. But, at the same time, Indiabulls Ventures fell from Rs 700 to Rs 340. So, that is the point which is critical when you remain invested,” he said.