Stock Market

Fishing in troubled waters proves costly for investors

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Trying to catch a falling knife? Chances are that you would bleed.

That’s the unequivocal message of the Yes Bank saga.

Investors trying to catch ‘falling knife’ stocks, such as GTB, Kingfisher Airlines, Jet Airways, DHFL, Manpasand, Jain Irrigation, Sintex, PC Jewellers and Yes Bank, would have been wiped out. Retail investor holding in many of the troubled stocks has seen a steady increase during the downfall.

The number of retail shareholders in Yes Bank increased from 9.18 lakh in December 2018 to 16.64 lakhs in December 2019 despite the stock plunge from Rs 200 to Rs 45.

Retail investors held 48% in Yes Bank at the end of the December quarter, compared with 8.8% in June 2018. The number of retail shareholders in Jet Airways increased from 88,445 in December 2017 to 1,50,581 in June 2019 when the stock price fell from Rs 820 to Rs 22.52.

Similar was the case in several stocks such as GTL in 2010, Jaiprakash Associates in 2008, Kingfisher Airlines in 2007 or Manpasand Beverages in 2017.

There are a number of cases where the stock never rebounded to the original price for decades since they started falling. Retail investors have been buying shares which have been offloaded by either the institutional players or promoters — both of whom are probably better informed.

Most retail investors are averse to booking loss on their portfolio holdings when they see prices of their holdings drop; they would typically look at adding or averaging out their positions irrespective of the reasons for fall in share price. Some of these companies are ailing but retail investors have been tempted by falling prices, mistaking declines for cheap valuations. “As the share price declines sharply, they appear to be cheaply valued,” said G Chokkalingam, CEO, Equinomics Research - Advisory.

“Most investors think they can make handsome return once the stocks rebound, which is not the case in most of the stocks.” Analysts suggest to simply ignore these stocks and try to find fundamentally strong companies. “Retail investors are not able to understand the extent of the problem in these companies.

Typically, they benchmark their view on stock price than fundamentals, which have deteriorated in case of these companies,” said Abhimanyu Sofat, head of research, IIFL Securities.




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Category: Stock Market


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