Indian Railways’ catering, tourism and online ticketing arm – Indian Railways Catering and Tourism Corporation (IRCTC) was in the news recently for all the wrong reasons.
Ministry of Railways decided to impose 50% convenience fee sharing which resulted in stock tanking 29% intraday.
Later Govt decided to Withdraw the decision which resulted in stock recovering.
But before that withdrawal decision, You guys must have gone through blogs and tweet threads on IRCTC. How experts came out of closets shouting “I told you so”.
“This is what happens when you invest in a PSU. This is what happens when you invest in a 200 PE stock”.
Lets put ALL this hue and cry in perspective.
IRCTC is up 3x in last 12 months. It was 4x a few weeks ago and therefore any momentum product with weekly rebalance timeframe would have exited even before this yoyo happened.
For sake of example, lets say you have a monthly rebalance and the government did not withdraw the revenue sharing.
The stock is in FNO and therefore the price discovery would happen rather fast.
Whats the DAMAGE
A 50% cut in revenue should ideally result in 50% cut in price action, ofcourse momentum works equally well on both sides and therefore expect even worse exit, say 60-70%
At 70% cut, you would have gotten your exit at Rs 254.
Presuming you got in at Rs 400 (actual entry in 01 of my systems), this exit will be a loss of 3.19% at portfolio level. (Assuming a 5% entry position)
Hell, lets say we could not get an exit at all and company ceases to exist. Even with bankruptcy, our portfolio takes a hit of 4.57%
Let these numbers sync in for you to understand the GAME. Individual stocks and stories DO NOT MATTER. For a momentum investor they are all means to an end. They are just instruments.
We don’t care 01 goes to the moon and other bites the dust.
And as for PE and other narratives, keep in mind, as per William o Neil study, majority of multi bagger stocks in US did their multi bagger journey when they were exorbitantly priced. (PE of 60-400)