Over 150 stocks in Nifty500 index gave multibagger returns in last 5 years; should you buy or book profits?

The return-hungry retail investors are always looking for stocks that have given consistent returns not just in 1 year but over a period consistently.

Not all stocks in the Nifty500 index more than doubled investors' wealth in the last 5 years, but some stood out on a 5-year, 2-year and even 3-year time frame.

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There are as many 150 stocks that rose 100-3,800% in the last 5 years, which include names like ACC, PTC India, Motilal Oswal, Tata Chemicals, Tube Investments, VIP Industries, and Bajaj Finserv, etc. among others.

For reference, we have picked a list of 36 out of 150 stocks in the Nifty500 index that rose more than 500 per cent, which include names like MindTree, Alkyl Amines, APL Apollo, V-Mart, Jubilant FoodWorks, Adani Transmission, and Titan Company, etc., among others.

The next big question in front of investors is – should they book profits if they are holding these stocks in their portfolio or for new investors should they deploy fresh capital at current levels?

Experts are of the view that some of the companies, which have done well are market leaders and will continue to carry the momentum in the near future as well.

For someone who plans to add fresh money in some of the momentum stocks should do only with a long-term horizon, they say.

“Many of the companies given in the list has shown consistent growth in profit and has been able to stay ahead of completion through innovation,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities, said.

“Companies like APL Apollo Tubes, Astral Ltd, Jubilant FoodWorks Ltd, Bajaj Finance Ltd, Titan Company Ltd, Relaxo Footwear Ltd, etc have been able to consistently offer newer products and services to the customers and thus able to deliver strong growth. Companies like these will deliver consistent return going ahead,” he said.

Investors should shortlist those stocks that have the potential to grow with strong fundamentals can be good for long term investment.

Gaurav Garg, Head of Research at CapitalVia is of the view that when prices run ahead of the data, it simply means momentum.

“Fresh Investment Time horizon can play an important role. If someone is looking for short term investment, then momentum stocks can be a good choice. From long-term point of view underperformed quality stocks, with strong fundamentals and potential to grow can give a good return,” he said.

What should investors keep in mind?

For retail investors, the checklist of picking momentum stocks should be simple – the focus should be on growth, management quality, own research, valuations, debt levels as well as follow risk-management practices.

We are in a strong bull market, where majority of the market is doing well and good thing is that rally in most stocks is driven by strong fundamentals. However, some exceptional cases are there while there is a concern of valuations in some of the quality names as well, suggested experts.

“It is not necessary that those who have performed well will continue to do well or will underperform and those who haven't performed may do well,” Santosh Meena, Head of Research, Swastika Investmart Ltd, said.

“The uptrend is intact but things won't be as easy as it was last year therefore investors have to be very selective to generate better returns from here. Investors should focus on those stocks which have a strong growth outlook and valuations are not stretched,” he added.

Mayank Kaushik of Trustline Securities gave 9 rules/parameters while investing -

1) Investors should do financial due diligence and research before making any fresh investments and consult any financial expert or advisors.

2) Next, always go for the diversification of their portfolio by investing in those sectors/asset classes that are not at all correlated.

3) If ready, investors should start their investment journey via investing in large-cap debt-free quality stocks instead of buying cheap and low-quality or penny stocks from the stock market at reasonable valuations or corrections.

4) Investors should continuously keep watching steadily outperforming companies delivering good numbers with positive management commentary and gaining market share in different sectors and may accumulate them via SIP mode.

5) If earned some substantial/windfall profits in a particular stock(s) then, it is advisable to partially or fully book the profits.

6) Investors should sit on some cash and keep waiting with patience for reasonable corrections in markets to accumulate stocks.

7) Investors should do risk management and trade with a Stop-loss. So, they must assess the risk as per the financial risk profile in this overvaluation scenario.

8) Don’t act on listening/hearing others. Thereby, it will prevent investors from being a part of the herd mentality.

9) Always remember that research patience and education mixed with experience are the right ingredients that can help traders/investors accumulate wealth in long term.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)