Will I ever be able to buy the stocks?

Did you ever feel the déjà vu? You log on to a website or tune into the TV and hear the stock you wanted to buy has gone UP three days in a row. You quiz yourself if you should invest tomorrow. The next day, when you see the stock move up again, your consciousness seeks to reconsider if it is right to invest your hard earned money into the stock now. However, if the stock came down that day, your anxiety makes you wonder if it really has a story in it for you to take a position. Don't worry, you are not alone.

Asset classes are important. So are event classes. It is a well known fact that stocks over react, both on the upside as well as the down side. Without going back long into history let me take the instance of IFCI. When the 26% stake sale was on, the stock moved all the way from 50 levels to 120 levels. This was under constant circumspection of the analysts who were readjusting their fair value as the stock flew in the open blue sky. When the event busted, it retraced to 70 levels reacting sharper than the fair value deserved. Now, it has moved back to 90 levels. Wonder if one had invested in the selling frenzy? Ditto for Gammon India when the Hyderabad flyover incident happened and for Deccan Chronicle when the increase in debtor days was discovered by the market. These are the opportunities and one should always carry some liquidity to capitalize them. The event may be for a stock in particular or for the markets in general. Even if a person catches 80% of the volatility, that should make good returns.

Do such opportunities exist? The analysis supports it. Volatility of each of the 5000 stocks listed on BSE has been calculated. Though this volatility (change in 52 week high and low compared to the current stock price), is not the ideal one to see the stock movement, it is the easiest to understand. In 2003, there were 5 stocks above Rs 30,000 cr market capital, 18 between Rs 10,000 cr and Rs 30,000 cr and 2105 below Rs 10,000 cr of mcap which had volatility greater than 50%. For 2004, the numbers are 9, 20, 2176; for 2005, they are 9, 23, 2228; for 2006, they are 20, 40, 2446 and for 2007, they are 46, 64, 3824. Irrespective of a person’s penchant for market cap, the volatility of the stocks gives enough buying opportunities. As numbers indicate, 2007 has witnessed 57% increase in number of stocks that have volatility greater than 50%. Infact, there are 1531 stocks that provided opportunity every single year for the last five years.

Market falls provide the best opportunity for investment in a sound structural market like ours especially when factors that lead to the fall are non-Indian. Ever year, over the last five years, has provided such opportunities and these are increasing by the year due to increased volatility. In Feb-Mar of 2007, Nifty fell 13%; in Jul-Aug 2007, it fell 11%; in May-Jun 2006, it fell 30%; in Jul & Dec 2006, it fell 7%; in Oct 2005, it fell 12%; in Jan 2005, it fell 8% and in May 2004, it fell 24%. Therefore, there are buying opportunities that present themselves and it requires patience & courage to take advantage of them.