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The falling Knife Portfolio

by Abhishek   ·  February 8, 2019   ·  

The falling Knife Portfolio

by Abhishek   ·  February 8, 2019   ·  

Many companies gets into trouble sometimes and their stock prices drops heviliy in short time. Some of the troubles are temporary and company gets out of them and the stock prices recover as well, but many troubles are permanent and company never recovers. It not easy to find whether the company can recover or not.

If the company gets out of the trouble the stock can multiply. Investing in such companies is high risk high return affair. To experiment with the falling knives companies I am here making a falling knive experimental portfolio of 10 companies and will see how they perform over a couple of year period. Not including any troubled company , we will see some fundamentals as well so that that there is some possibility of reocvery.

We will need a strike rate of 50% to make positive returns. Out of 10 , 5 should atleast double, 2 might go no where and 3 might go bankrupt. If half of the companies does well we can make a return of 20% on the portfolio.

Since these are the companies in trouble. I will not put more than 10,000 and won’t average any stock in case if it falls further.

  1. Reliance Infra CMP 110

The company is one of the largest infra company in India. The stock price has fallen from 500 to 110. Fall is mainly because of one of the Reliance group company Rcom going bust. What is positive for the company is that it has an order book of 20,000 crore and current market cap is 2500 crore. The companies balance sheet has improved in the last 3 years and its debt has gone down from 30,000 crores to 16,000 crores. Considering the size of its order book the current market cap of 2500 gives the hope of recovery.


2. Reliance Nippon Life asset management CMP 155

This company is in the mutual fund business. It is a debt free company with 49% holding of Japenese Nippon. Mutual fund is also a growing business. Since this company also belongs to ADAG group, it also fell with them

3. Punjab National Bank  CMP 75

This crashed after the Nirav Modi scam burst out. This is the 2nd largest PSU bank in India. Govt. is infusion capital , bank has good branch network to attract CASA deposit and currently trading below its book value.

4. Tata Motors Price 153

Tata Motors recently posted very bad results. Results are bad because of one-time asset impairment adjustment. This adjustment won’t happen in the coming quarter. Chances of Tatamotors positing loss in next quarter are least.

5 Yesbank Price 170

This bank got in trouble after the management issues and alleged NPA divergence from RBI. In the past, the bank has done very well. The stock has already corrected enough to discount the NPA divergence. Management problems are also getting solved.


6 Indo count cmp 38

This stock has fallen over 85% in the last 2 years. Fall has been due to bad set of numbers. Companies export were hurt badly due to rupee appreciation, destocking in US and some forex losses. The sales figures are improving from the last few quarters and there are chances of revival

7. Rain Industries cmp 130 

The stock is down more than 80% from the high trading at just 0.3x of sales. Which makes it quite cheap.

8 Birla Soft cmp 100

This is a demerged entity from KPIT. Probably because of institutional selling it can come down. Currently trading in single digit PE which looks quite unfair. 

These are the 7 stocks as of now more later on..


Please note, The above article is only educational in nature. It is my opinion and not a stock recommendation. All investors are advised to conduct their own independent research into individual stocks before making a purchase decision.

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