" This time it is different" How many times have you heard this refrain about the stock markets, both on the way up and down? It has never been different in the history of stock markets till date. Why should it be any different now?
"What goes up must come down and what comes down must go up again." This statement is more likely to hold true about the stock markets.
The sharp correction in stock prices since the beginning of 2008 and the continuous volatility in the stock markets have unsettled the nerves of investors who are wondering as to whether it makes sense to invest in the stock market now.
In such turbulent times everyone seems to forget the time tested advice of investment experts to buy when others are selling and do the reverse when the contrary happens. It needs a really mature and brave stock investor to put this into practice.
In the recent history of the Indian stock markets, there have been many instances of stocks of strong and high performing and well managed companies being hammered on negative news flow that had little to do with the fundamentals of the concerned companies. This could be because of some Government action, the legal hurdles the company faced, the perceived shrinking of the markets of the companies, potential competition from associates turned competitors and so on.
The sudden negative perception of the companies’ future made the investors nervous and they resorted to panic selling of the stocks leading to a sharp decline in their prices. But for a mature investors, who understand the intricacies of the market, such dumping of stocks of companies that are otherwise fundamentally sound provide a great buying opportunity since they know that it would be a question of time before the stocks bounce back.
Opportunity knocks
Lets take a few examples from the Indian stock markets which show that many of the present day blue chip companies such as ITC, Ranbaxy, Dr Reddy’s, Hero Honda, TVS (Suzuki) Motor and more recently Orchid Chemicals, Mundra Port, Suzlon Energy etc had come under the hammer because of some reports involving the companies. The list is by no means exclusive and there is no guarantee that this phenomenon would not repeat itself in the future. But investors who are nimble enough to seize the opportunities and who are unnerved by the temporary adverse factors surrounding the stocks may make windfall gains.
Long back, in case of ITC, it was the excise duty related issue that led to large scale selling in the counter. But the stock was able to tide over the temporary bearishness and from being a tobacco product manufacturer, ITC has evolved into a versatile player in the hospitality/paper products/ and FMCG space as well. In case of Hero Honda and TVS Motor, it was the perceived adverse impact of the their technology partners entering the two-wheeler sector on their own that led to large selling in those counters. Both the Indian companies, particularly Hero Honda, have come up trumps.
Ranbaxy stock has off and on been subjected to hammering for different reasons but had been able to bounce back. In the latest instance, after the announcement of being sold off to a Japanese drug company and an open offer to be made at a hefty price of Rs 737 per share, reports of action by the US Justice department in mid-July saw frenzied selling in the counter and the share price dropped from around Rs 530 to Rs 409 in a matter of days providing a good opportunity to long term investors to get into the stock. The share closed at Rs 522.55 in the NSE on Friday, far lower than the buy back rate yet better than the lows recorded in July.
Recently Amtek Auto Ltd announced merger with its group company Amtek India Ltd and the merger ratio is 44 shares of Amtek Auto for every 100 shares of Amtek India. But Amtek Auto shares that were ruling around Rs 222 (FV Rs 2) in mid-July have come down by about 20 per cent since then to around Rs 181 now. Amtek Auto had said that the amalgamation would result in ‘emergence of a strong and focused consolidated entity to manage the business more advantageously and thereby increase in the |
