Volatile Share Market Gives Rise to Imperfections in Share Prices and Mispriced Investment Opportunities
Share markets in India and share prices never move in a straight line because of market volatility. This simply means every correction in the share prices offers an opportunity for an investor to buy more at discounted prices.
Consider it as a sale at your favourite store. Now, what would we usually do when we come across a 30% or 40% or even 50% off sale on our favourite brands? The obvious answer is to buy more. Isn’t it? The same principle applies in the share market too. However, what happens, in reality, is just the opposite.
Most share market investors panic at first sight of correction and end up selling their stocks for losses. As mentioned earlier, investors who look at market correction as an opportunity to buy stocks trading below their intrinsic value can create significant wealth.
How stock market volatility gives rise to imperfections in share prices resulting in mispriced opportunities?
Share prices depend on multiple factors, but the most primary consideration is the number of buyers and sellers. When there is a high demand for a stock, i.e. a high number of buyers the price of the stock is bound to increase, on the other hand, when there is a low demand for a stock, i.e. a high number of sellers, the share price is bound to decrease.
In the long-term stock prices of companies listed in the share market in India are decided on the basis of earnings of the company. When a company does well in terms of sales and revenue, the value of the company is ultimately reflected in its share prices. However, in the short-term, share prices are influenced by multiple factors such as political, global instability, rise in oil prices, terrorist attacks, the threat of armed conflicts etc. to name a few.
To help better understand this, let’s take a look at an example from the past:
Post the announcement of the FPI surcharge in Budget 2019, Foreign Portfolio Investors (FPI’s) & Foreign Institutional Investors (FII’s) who have been one of the biggest drivers of share market in India started selling stocks.
This resulted in a free fall in the Indian markets with the benchmark Nifty 50 correcting from 11,788 in June 2019 to 11,023 in Aug 2019. However, post the rollback of the FPI surcharge by the government the benchmark index Nifty 50 bounced back quickly and touched 11,877 in October 2019.
If one looks back in history, there are many such examples of market correction triggered by domestic and global events which have resulted in a significant correction in share prices. An important point for an investor to note here is that irrespective of the correction in stock market indices and share prices there are no fundamental changes in good quality stocks.
For example, if the stock price of a company which is fundamentally sound, in terms of consistently growing revenues, is well managed, has low or zero debt, and has scalable business model, corrects as a part of the overall market correction due to temporary domestic or global events but has a potential to bounce back in the foreseeable future, thereby delivering good returns in the medium term.
How Research & Ranking can help you in identifying and investing in shares trading below their intrinsic value?
Using a winning combination of technology and in-depth research, Research & Ranking’s team of experts will help you to identify and invest in those fundamentally sound stocks which are trading below their intrinsic value and have the potential to multiply investor wealth by 25-50% over the next 6-12 months.
So essentially you will receive investment recommendations of 10-12 fundamentally sound businesses; i.e. one stock recommendation each month. However, at times you may also receive two investment opportunities in a month. Along with the stock recommendation, Research & Ranking will also provide you with a detailed research report which highlights the rationale behind the analysis and the upside potential of the stock.
It will also include information such as:
- The price range in which the recommended stock has to be purchased and exited.
- A short update every six months until the recommendation to exit to track earnings growth/major events in the stock/industry.
- A quarterly fact sheet to capture open and closed positions, profit booked/accrued of the portfolio stocks.
- Alerts via SMS, email & updates on your personalized dashboard and mobile app.
To summarize, Research and Ranking’s Mispriced Opportunities Strategy offers investors an excellent opportunity to capitalize on the fluctuations in share prices by investing in good quality stocks trading below their intrinsic value. Such stocks have very strong fundamentals which can help them outperform with time.
For more information, visit https://researchandranking.com/
