While the Sensex and Nifty hold high, you can see some good stocks fall 40-50% depending on specific reasons.
People focus on and follow such stocks for a short period of time. Generally, no one recommends such shares. Investors themselves avoid stocks fearing risk. But often you can see such stock at a skyrocketing price after a few months or years and end your decision to avoid the stock. Investing in stocks that are no longer performing well is known as transition investing. Let's look at it in detail.
The following are the basic reasons behind falling stock.
1: Scam and fraudulent activities in the company's financial records.
2: Mergers, acquisitions and organization expansion decisions.
3: Loss due to depreciation of Rs.
4: Heavy foreign debt burden. (As FCCB - Foreign Currency Convertible Bond).
5: Indian pharma companies faced issues due to foreign regulations.
6: Increase in defaulted bank loan
Let's see some examples for the above reasons.
Scam and fraud activities
Well, one known example is the decline in Satyam Computers stock in 2009. The stock also trades below Rs. 10. Later in 2011, 17 shares of Satyam Computers were replaced by shares of 2Tech Mahindra. In October of 2011, Tech Mahindra had a minimum price of Rs. 24. If you had invested in Satyam in 2009, it would have been a definite shot gain.
Mergers and acquisition
In June 2013, Apollo Tires acquired an American company called कूपर Cooper Tire & Rubber and. The stock was trading at Rs 90 during this announcement and it merged about 40% later. But now, in 2017, the stock is trading above Rs.240
Depreciation of Rs.
The rupee against the dollar was around Rs.68 during the previous year. Due to this, the oil company suffered the most losses. BPCL, which traded at Rs 300 in July 2013, fell to Rs 200. But now, in 2020, BPCL is trading around Rs.461 due to price appreciation.
Large foreign debt
In 2012, foreign exchange and convertible bonds (FCCB) were a hot topic as many frontline companies raised funds through foreign bonds. This includes Tata Motors, Tata Steel, JSW, Suzlon and Sintex. When the rupee depreciated, share prices fell sharply. But now, these are among the top-performing stocks.
Foreign regulations imposed on pharma companies
Ranbaxy and Wockhardt are good examples of companies that bounced back from issues related to foreign regulations. In the last 8 months, these stocks have risen by more than 50%. Strides Arcolab, which traded at Rs.900 in December 2013, announced a dividend of Rs 500 per share. The stock fell to Rs.360 and now it is trading at around Rs.508.
Default bank loan
Most public sector banks traded at very low prices last year due to high NPAs (nonperforming assets), a measure of bad loans given by banks. Loans that were never recovered were heavily burdened by those banks. Now, share prices have appreciated around 80%.
The share of the United Bank of India was above Rs.80 at the beginning of the year. The bank stated problems with the financial records, due to which the price was Rs. Fell to 7.75. Syndicate Bank has suffered a recent slump due to the action of some people within the company. One must wait to see if the bank is about to come out of this unfortunate situation. MCX, FDL, and NTPC are some examples of companies we are able to get out of the issues and provide reasonable benefits to our investors. Public sector companies that have dropped around 40–50% may give good returns in a few years.
You can always be tempted to invest in stocks, given that you have traded at a high level. Before hurrying to buy shares, analyze the reason for the decline. Work on the possibility of the company recovering from such an event or cause. Can the problem be fixed by the company? What are the circumstances of the company to get back on track and perform well? Is this just a temporary issue? Government involvement is likely to be a positive sign to resolve company issues. If you are confident enough about the ability to face the company and solve the problem, then you can very rarely reduce the investment opportunity.
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| Is it Right to Buy the Best Stock when the Price goes Down? |
The following are the basic reasons behind falling stock.
1: Scam and fraudulent activities in the company's financial records.
2: Mergers, acquisitions and organization expansion decisions.
3: Loss due to depreciation of Rs.
4: Heavy foreign debt burden. (As FCCB - Foreign Currency Convertible Bond).
5: Indian pharma companies faced issues due to foreign regulations.
6: Increase in defaulted bank loan
Let's see some examples for the above reasons.
Scam and fraud activities
Well, one known example is the decline in Satyam Computers stock in 2009. The stock also trades below Rs. 10. Later in 2011, 17 shares of Satyam Computers were replaced by shares of 2Tech Mahindra. In October of 2011, Tech Mahindra had a minimum price of Rs. 24. If you had invested in Satyam in 2009, it would have been a definite shot gain.
Mergers and acquisition
In June 2013, Apollo Tires acquired an American company called कूपर Cooper Tire & Rubber and. The stock was trading at Rs 90 during this announcement and it merged about 40% later. But now, in 2017, the stock is trading above Rs.240
Depreciation of Rs.
The rupee against the dollar was around Rs.68 during the previous year. Due to this, the oil company suffered the most losses. BPCL, which traded at Rs 300 in July 2013, fell to Rs 200. But now, in 2020, BPCL is trading around Rs.461 due to price appreciation.
Large foreign debt
In 2012, foreign exchange and convertible bonds (FCCB) were a hot topic as many frontline companies raised funds through foreign bonds. This includes Tata Motors, Tata Steel, JSW, Suzlon and Sintex. When the rupee depreciated, share prices fell sharply. But now, these are among the top-performing stocks.
Foreign regulations imposed on pharma companies
Ranbaxy and Wockhardt are good examples of companies that bounced back from issues related to foreign regulations. In the last 8 months, these stocks have risen by more than 50%. Strides Arcolab, which traded at Rs.900 in December 2013, announced a dividend of Rs 500 per share. The stock fell to Rs.360 and now it is trading at around Rs.508.
Default bank loan
Most public sector banks traded at very low prices last year due to high NPAs (nonperforming assets), a measure of bad loans given by banks. Loans that were never recovered were heavily burdened by those banks. Now, share prices have appreciated around 80%.
The share of the United Bank of India was above Rs.80 at the beginning of the year. The bank stated problems with the financial records, due to which the price was Rs. Fell to 7.75. Syndicate Bank has suffered a recent slump due to the action of some people within the company. One must wait to see if the bank is about to come out of this unfortunate situation. MCX, FDL, and NTPC are some examples of companies we are able to get out of the issues and provide reasonable benefits to our investors. Public sector companies that have dropped around 40–50% may give good returns in a few years.
You can always be tempted to invest in stocks, given that you have traded at a high level. Before hurrying to buy shares, analyze the reason for the decline. Work on the possibility of the company recovering from such an event or cause. Can the problem be fixed by the company? What are the circumstances of the company to get back on track and perform well? Is this just a temporary issue? Government involvement is likely to be a positive sign to resolve company issues. If you are confident enough about the ability to face the company and solve the problem, then you can very rarely reduce the investment opportunity.
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