Should You Hold or Sell Your Shares in JP Associates?

As of today, I hold 3000 shares in JP Associates at Rs. 35. The current market trading price of the stock is around Rs. 13-14. Based on my analysis, I believe that holding the stock might be a wise decision, given the historical price movements and potential market trends.

Technical Analysis

From a technical perspective, the stock has the potential to reach Rs. 24-25 within the next year. According to my analysis of the half-yearly 6-month chart, Rs. 25 is the next resistance level. However, the stock's fundamental health needs to be closely monitored, given the company's debt issues.

Market Momentum and Sector Trends

The infrastructure sector is currently experiencing a positive trend, and stocks such as Rel Infra and JP Associates nearly doubled in value since December 2020. It is crucial not to miss this market momentum. Instead of waiting for too long to recover your losses, consider investing in other sectors like Steel, IT, and Pharma, which offer long-term growth potential.

Fundamental Analysis

Fundamentally, this stock should be approached with caution due to the company's heavy debt burden. For instance, the company's balance sheet for FY20 shows net borrowings of approximately Rs. 5000 crore against a total equity of Rs. 7830 crore. This debt-to-equity ratio is concerning, especially in a sector as volatile as infrastructure.

Despite the unfavorable fundamentals, there are some positive aspects. The share price of Rs. 35 is relatively low, making it a technically attractive buy. However, the company's performance is currently dismal, and the price is unlikely to move upwards in the near term.

Opportunities and Risks

If you decide to sell, you can expect to receive around Rs. 3000 per share. Given the current stock price, you might question whether to continue holding the shares or seek a better use for your capital.

According to reliable analysts, the company’s permanent assets are valued at about 2.5 times the debt. This suggests that if the company were to be sold to a reputable group, such as Reliance JSW or Aditya Birla, the share price could rise significantly. However, the timing of this potential event is uncertain.

For now, the stock is in a downward Impulsive Elliott Wave 3. Therefore, using the balance capital in other stocks might be a strategic approach, avoiding risky stocks that perform well in bull markets but fall sharply in corrections.

Conclusion

The decision to hold or sell your shares in JP Associates ultimately depends on your investment goals and risk tolerance. If you have faith in the infrastructure sector and the company's long-term potential, holding could be a viable option. However, if you prefer more uncertain or high-growth stocks, reallocating your capital to other sectors might be a wise move.