Cautious day for markets

Blog meant for 22 Dec 2017 Friday

Dear Friends

Flat day for our markets today as it closed 4 points lower.  Global cues were quite positive in Europe tonight and the US markets are marginally lower as of now.

Markets have been very volatile since it is very close to life time highs and hence investors are very cautious about direction of markets.

The analysis for Short term as per technical analysis is as follows:

Nifty is in Hold zone. The indications for individual stocks are –

THE HOLDS ARE- MARUTI, INFOSYS, TITAN, HDFC BANK, ITC, VEDANTA, HINDALCO

THE DON’T BUYS ARE – TCS, SBI, RELIANCE

BUY – HDFC

WAIT TO SELL – AXIS BANK, YES BANK

WAIT TO BUY – ASIAN PAINT

SELL – M&M

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Today, M&M shares started trading after bonus. Investors who were holding shares will be getting bonus shares in the ratio of 1:1. This means, 1 share bonus for every 1 share held. 

This is the reason that the share price fell by 50% to adjust for the bonus issue.

For example, the share price of M&M yesterday was around Rs.1540. Let us assume that an investor held 1 share and hence his total value of M&M was 1 X 1540 = Rs.1540.

Since M&M has given a bonus, the investor will effectively have two shares (1+1) of M&M from today. (Please note that your demat account may take 7-10 days to reflect this bonus share)

To ensure that the total value of shares held is still around 1540, M&M shares have to fall. 

Today, M&M shares closed at 742 per share. Hence, total value is 2 X 742 = Rs.1484 which is a minor difference compared to yesterday’s value.

This is how bonus issues or share splits work in the Stock Markets.

Bonus issue only means free additional shares. Many investors confuse and assume that bonus issue results in the value of the shares held to double or increase immediately.

The news about this bonus issue had been announced around 1-2 months back.

Many of our Workshop participants emailed or sent us messages expressing shock on why the share price of M&M has fallen by 50% suddenly and whether we should sell the stock etc.

When we buy and hold a small handful of stocks such as the bluechips suggested in the Workshop, we should be aware about all news, information and announcements about those companies. If we do not keep track about such things, we do not deserve to be in the Stock Markets since we are not taking enough time to monitor/supervise our investments.

Imagine that your stock market investments is like an extra child of yours. Just like how we keep track of all things about our children, we should take enough time and effort to know about the companies in which we have invested in.

Just like how we regularly visit a plot of land that we own, however far it is, to ensure that it is free from encroachments and to know about what developments are taking place in the vicinity, we should read regularly about the companies whose stocks we hold.

We also receive emails or meet participants of our Workshop who say that they are too busy that they cannot read our blog everyday. Our blog takes no more than 5-10 minutes to read every night and if we do not make the time to keep track, it is safer to not invest in Stock Markets since not keeping regular track of our companies may be dangerous for our financial health!

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All the best!

Dr Bharath Chandra and Rohan

Please do not comment on the blog. Any questions or clarifications can be asked by sending us an email with your registration number given to you during the Workshop. Questions without quoting registration number will not be answered.

(The above comments are only the personal views of the authors of this blog. Please do your own research before taking any investment decisions. The reader of this blog must understand and take full responsibility for the Profit or Loss made by taking actions based on the above views)