Avoid Injury

Stock prices can sometimes fall like a brick, but that does not mean you can bottom-fish. Here’s how you can avoid a costly plunge.

- Kundan Kishore

If you have ever been tempted to buy a stock that has dipped sharply, think again. Sure, there are many stocks where investors press the panic-sell button because of some negative news. Some may even fall to levels that may look extremely cheap. But remember that there’s a lot of volatility out there, and sometimes volatility in negative news-driven stocks can continue for a long time. 

If you have been watching the markets, you may have seen that stocks such as Punjab National Bank (PNB), Gitanjali Gems, Fortis Healthcare, PC Jeweller, Lupin and Sun Pharma have been in choppy waters for some time now. So, question that inevitably pops up is — have their prices fallen far enough to warrant an investment?

While these stocks may look tempting, it is good to know the risks before taking the plunge. Retail investors, particularly, must hold back at these seemingly good opportunities, because ultimately they can turn out to be bad investments. Investors should run these stocks past a checklist before hitting the buy button. Here’s what they can look for.

Holistic View

Look at the unfolding PNB saga closely. It has several moving parts with investigating authorities attaching properties, forensic auditors assessing the quantum of the loss, and market pundits debating where the bottom can be. To top it up, Nirav Modi made a few noises about how his hands are tied and he did not get enough time to pay the dues. It might seem that PNB can make up the loss by attaching Modi's properties.

However, this could be a trap. Instead of hurrying to trade, figure out the cause of the crisis. There is always going to be uncertainty around the event. It's better to wait for the events to unfold.