Feb 2025

Summary

Here are 8 reasons or situations when you should sell your equity shares. And a few reasons to hold on too. With the Indian markets in a correction over the last 5-6 months, its time to ask a loaded, important, yet difficult question. When should you SELL your stock?

I assume here that you are a long-term investor. You are growing your equity stocks from a 2-3 year perspective, and also want to see it meet your big financial goals.

The Indian equity markets peaked recently in Sept 2024, and we have seen a 10%+ correction, which has been sharper in mid & small cap shares. If you are considering a Sell decision on your stocks, this Note may help you frame the decision against the environment, your context and your longer goals. After all, it is very difficult to Time the Market. In stocks it is important to think contrarian. It makes more sense to decide for yourself on your sell decision, execute on it and be satisfied with it.

On a personal note, my favorite holding period for a stock is forever. This is a wisdom gained from the greats of investing. However there are some practical and real situations that we can face. The Indian market is more volatile than the ones the greats live in. These are the situations where you need to think of the Sell decision and take a call. Here they are:

1. You need the Cash urgently 

The best of well-laid-out plans can get interrupted. It could be a medical condition. Or education admissions time. Or it could be a desired real estate asset that has become available. Go ahead, and sell. You have earned the luxury of encashing your Demat balance. In fact the whole point of investing is to meet your financial goals. Just balance out this expense/ investment against your other financial goals, and decide.

Embed from Getty Images

2. Maintain your asset allocation 

Asset classes are varied such as Direct Equity, equity MFs, debt/ bond MFs, Gold ETFs, real estate, FDs, insurance and cash. You may, in consultation with your ‘Investment Adviser’ have agreed to maintain your asset classes in a certain proportion. So when the time comes to re-allocate, its possible that selling of Equity is the call by the agreed formula. This is good, and can help you align your portfolio risk with your personal risk appetite and objectives.

3. Switch to a stronger share 

For a long-term Direct Equity investment portfolio, you start investments with a chosen set of stocks. Read up and track them. And always be on the lookout for a better investment idea. If one comes by and you are convinced, make a switch from a weaker stock to a stronger one. It could be from the same industry. Or even an industry change. Doing this, you now have a stronger stock portfolio.

Embed from Getty Images

4. Tax considerations 

In India any listed stock investment when sold at a profit after holding for one year constitutes a Long Term Capital Gain (LTCG), which is taxed. The period of holding should be noted & considered before deciding to Sell. Investors may also consider the converse situation. A Short Term Capital (STC) Loss can be declared in case a loss is booked in an equity investment for a period less than one year. This can then be set off against a STC Gain, in the same year or (by carry forward) in the next few tax years.

Speak to your Chartered Accountant before using this strategy. This is in fact close to the financial year end for us in India, so do your Tax planning folks !!

5. Exceptional gains from a stock 

If you are invested for the long term in a number of stocks, you may be witness to a stock that has recorded massive recent gains, which are excessive, and difficult to justify on the basis of fundamentals. It may be time to book partial or even full gains in the stock. Things happen. Shares can appreciate suddenly and unexpectedly. This is a good problem to have. Greed may stop you from doing this. This is where good advice from your Equity Service can be useful.

(JainMatrix Investments is a Research Analyst firm that offers and tracks 3 investment strategies for its subscribers, 1) The Large Cap Stocks, 2) The Mid and Small Cap Stocks and 3) The Satellite Stocks.)

6. Business has deteriorated (but does not reflect yet in the price) 

You got some good equity research, assessed an opportunity and the risk, and decided that XYZ stock was a great investment. Six months later, something unexpected happened. Maybe one of your investment assumptions went wrong, or an industry specific regulation change, or such. And the future doesn’t look so good for XYZ now. Review the situation with inputs from your Equity Adviser. Bite the bullet. If justified, take the Sell call. Don’t get married to your stocks. You have to be solid yet nimble in your long-term investment decisions. Get out quickly to minimize your losses.

Embed from Getty Images

7. The share price has fallen sharply 

Markets, and shares, by nature are volatile. If the share you hold has seen a sharp fall in price recently, this needs to be analysed. If the fall is due to temporary reasons, like some bad publicity over a minor issue, a temporary technical correction or such reason, then it can be ignored. It may even be a good point to accumulate more shares. But if the reason for the fall is found to be due to a ‘fundamental’ deterioration, then again it may be time to exit.

8. The market changes direction for the worse 

Sometimes the market reaches an inflection point and changes direction. If it is positive like last year’s General election results, then its good for your portfolio. But if it is negative then it may be time to exit, at least partially. This is a tough call to predict. Here again, you can review the situation with inputs from your Equity Service.

Having said all this, it is in the nature of stocks to see long periods of both under and over performance. The market is very very inefficient, and this gives Value and Growth investors in India lots of opportunities.

The Converse, a few reasons why you should NOT Sell your stocks in these times:

1. You can get Ten-baggers only if you leave your high-potential appreciating stocks alone and let them fly.
2. The budget 2025 is considered by many to be a dream budget, mixing lower personal income tax with fiscal discipline, while continuing to fund capex. If in this third term, the Modi government delivers on their potential, promise and visibly bold approach, the party for Indian investors should continue.
3. For a long-term investor, a short-term correction of say 10-12% is not something to worry about. Markets move in a ripple or zig-zag fashion in the short term, and a healthy correction is the setup for the next phase of upmove.
4. Valuations for the Indian indices are just above the average. If the investment cycle continues like the last 2-3 years, earnings will accelerate and valuations may stay above average for a long period.

Overall Opinion

• Stay positive.
• Book partial gains in some stocks.
• Temper future expectations from Indian Indices after the run-up since covid.
• Watch for cues from the 2025 budget.

But as usual there are no easy answers.

Happy Investing,

Punit Jain, JainMatrix Investments

Do you find this site useful?

• Visit the SUBSCRIBE page to find how you can get more. Click LINK
• Register Now to get our Free reports and much more, on the top right of this page, or by filling this Signup Form CLICK.

Disclaimers

• Investors new to our Research Analyst service can look at our OFFERINGS, and sign up using the PRICING AND PAYMENT OPTIONS link, to grow their Direct Equity investment portfolios.
• This note has been prepared by JMI, and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JMI. This report should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JMI has not independently verified the accuracy or completeness of the same. Neither JMI nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.
• Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from a financial planner or RIA Registered Investment Advisor.
• JMI has been an equity investment adviser commercially since Nov 2012, and a SEBI certified and registered Research Analyst since 2016, under SEBI (Research Analysts) Regulations. Registration granted by SEBI, and certification from NISM in no way guarantee the performance of the Research Analyst or provide any assurance of returns to investors.
• Any questions should be directed to punit.jain@jainmatrix.com. Name of the RA as registered with SEBI – Punit Jain, SEBI Registration No. INH200002747. Logos / brand name –