Stock prices don’t lie. Or do they?
So, for instance, markets were distressed during August and the first few weeks of September. Then, the finance minister surprised the markets with a corporate tax cut on September 19th. This worked like a shot in the arm and the market immediately recovered a lot of lost ground. But does that mean that the health of corporates has actually improved? How seriously should you take these price spikes?
We studied the stock price movement of BSE 500 constituents from September 03, 2019 up to October 09, 2019. Further, we analyzed how have they fared before and after the announcement of corporate tax cuts.
Purely going by the number of stocks generating negative returns between September 03, 2019 and September 18, 2019, the sentiment on the Dalal Street was extremely bearish before the government surprised the Street with revolutionary tax rate cuts.
Like the oceans push out all dirt to the shores during the high tides, news-driven market rallies send even the fundamentally weakest stocks through the roof. But once the excitement in the news is absorbed, markets come to terms with reality.
Between September 19, 2019, and September 27, 2019; 379 stocks (of BSE 500) generated positive returns. However, 394 stocks yielded negative returns between September 30, 2019 and October 09, 2019. Moreover, out of 379 stocks that had generated positive returns (between September 19, 2019 and September 27, 2019), 156 gave up more than 50% gains between September 30, 2019 and October 09, 2019.
So, what can we read into all this?
Now that we are approaching the result season, the market will soon forget about the positives of macro-level announcements and start weighting the stock opportunities on a case-to-case basis. After all, macro-level positives don’t change the fate of companies automatically.
This is why stock selection matters a lot. Take advantage of market rallies to improve the quality of your portfolio. Staying with losers hoping that they will recover simply because the market does, isn’t a very constructive approach.
As they say, turnover is vanity, profit is sanity and cash is a reality.
We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:
We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.