Piggy back on fund buying??

Tata Sons bought Praj industires at Rs 252 in Sep 2007. The current stock price is Rs 170. Is it a right investment now?Reliance MF buys CCL Products at Rs 291 in Sep 2007. The current stock price is Rs 190. Is it s good time to buy?

One of the favorite ways to make a shopping list is to look at stock prices that are at a discount to the level at which funds have entered. While this may work in many cases, it may also fail in many. This is purely because of market conditions. While in Sep 2007 the mood was gungho with FII money coming, the time horizon funds may be looking would be lower. But once the markets turn bearish as they did now, the business fundamentals of the stock owned kicks in. All the assumptions made earlier will be questioned right from cost of capital to terminal value. Most importantly the embedded stories that are not entirely known to the market. Remember, most mutual funds do not out perform the market. So, should we have faith in their judgement. Though most talk about long term, the reality is that the churning is high in the funds. For all you know you may be stuck with a security dumped by your anchor fund. Hence, it is pertinent for one to understand and have belief in fundamentals of the stock before buying it - be it at a discount or a premium, be it for long term or short term.