The Hindu Business Line : Value-buying props up momentum stocks

Kolkata, Jan. 23 As panic subsided and sentiment turned upbeat, Tuesday’s downbeat momentum stocks became subject of Wednesday’s value buying; along with that improved liquidity flow also turned the tide.

Retail investors, who were literally barred from buying by their brokers, could managed to participate to an extent today. Institutions, which normally avoided the momentum counters and left it for the day-traders, also aggressively purchased these counters as their valuations got knocked off substantially in the last few sessions.

Value-buying

“On an average, these stocks lost 50 per cent of their peak value; some counters, such as Chambal Fertilisers and Nagarjuna Fertilisers, even came down to one-third of their recent highs. These levels, in tune with their fundamentals, provided value opportunity,” said Mr Ajay Jaiswal of Angel Broking.

He was of the opinion that it was more of a value-buying activity rather than the day-trading jigs that was behind the recovery of the so-called momentum stocks.

By definition, momentum stocks are generally given greater leeway in their P/E ratios by the speculators and traders, who drive them up. Thus, price-action and operator-driven volumes influence the activity in the momentum stocks.

Margin requirement

A large number of retail investors, who could not afford increased margin requirement in some of the momentum stocks, today found the going lot easier as they got the credit for improving value of their overall portfolio, said Mr V.K. Sharma of Anagram Stockbroking.

According to market sources, a number of operational factors contributed to market’s return to normality. Brokerages, which on Tuesday insisted on ‘cash-only’ mode for buying by their clients and resorted to position square-offs even when they presented cheques to meet the mark-to-market margin requirements, on Wednesday readily accepted cheques.

The operational head of a large broking firm admitted that aggressive trading in proprietary account also helped recovery in prices of stocks, including momentum counters.

According to Mr Gul Teckchandani, an investment strategist, the momentum stocks move up and fall faster than others without any change in their fundamentals. “Today’s recovery in these stocks is no big deal,” he felt.

Today, recoveries, from their Tuesday’s lows, in these momentum stocks varied between 10 and 100 per cent. Top among the category on Wednesday were Ansal Properties with a recovery of 99 per cent, Lanco Infra (97 per cent), RNRL (86 per cent) Edelweis (79 per cent), Essar Oil (76 per cent) and Rajesh Exports 70 per cent.

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