| Topic : Indian Stock Market Guide |
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Banking & Insurance Professionals |
Primetime News |
Investment Hub |
3 more ...
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Activity:
23 views;
last activity : 07 07 2010 15:18:54 +0000
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Investors Biases
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Not A Single Reason
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Gambling by the High networth investors
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Biased Investing like
Investors tend to invest in rumoured companies which tends to stay in news with some or the other reasons.
By doing this Stocks go over valued.
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When Market Spreads rumours Like Failure of ICICI Bank
We knew that ICICI had a significant Market share and it was clear that RBI had to act as the lender of Last Resort and would not have allowed ICICI to failed But the rumours spread wide and hence the Shares saw an Under Valuation in spite of good Balance Sheet Value
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The question is about what is causing high and low valuations and not how we measure it (as mentioned by Vipin). There are various psychological/behavioural reasons which lead to over/under valuations. Some of them are:
1. Over-reaction due to news: Due to weak/strong earnings, the stock's price may get under/over valued for a short period of time due to over reaction. We often see stocks soaring high or very low during earnings surprise/shock. The news can be buying interest by another company like BoR.
2. Expectations/Growth Forecasts: Growth stocks tend to be overvalued due to inbuilt expectations that the growth will be continued in future. However, this may not be sustainable for a long time. Infosys is one example. Had a dream run earlier and was battered badly in last few years.
3. Investor Overlook: Sometimes non-performing stocks are so badly battered that they start trading below their asset value (i.e. P/B < 1). Stocks often keep trading below their asset values for significant amount of time before going up due to lack of investor interests.
Regards,
Abhijeet Bhandari
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Urvish it is very broad topic even each point has broad topic to discuss. In short i am discussing some of points:- 1) Dividend Yield:-When yields are very low, stocks prices are by definition high - and frequently overvalued as well and vice versa. 2) PER(Price earning ration):- PER is simply the market price of the stock or index divided by the corresponding EPS. Formally we says the stock is dear when it is selling at a relatively high PER, and conversely, is cheap when selling at a relatively low PER. However, this is a too simplistic interpretation, because it does not take into account the average PER of the particular industry, nor the prevailing PER level of the market as a whole. In any case here are a couple of unconventional ways of interpreting the PER of a security. Firstly, the PER is the reciprocal of the capitalization rate of the investment. For example, if a stock has a PER of 15:1 - and assuming the EPS remain stable, then an investor is theoretically earning 5% on his investment (1/20 = 5%). Another way of looking at it - but again assuming the EPS remains stable AND all the earnings are paid out in cash dividends to the investor - it will take the next 20 years for the investor to have recouped his entire initial investment. Therefore, the higher the PER, the more time risk exposure the investor is facing. Conversely, the lower the PER, the lower the risk. 3) Market Value Vs Book :-If the price of the stock is far below its book value per share, the stock is considered undervalued and therefore should be purchased & vice verse... AND MANY MORE....... IT MEANS THERE IS NOT SINGLE REASON FOR UNDER AND OVERVALUED OF STOCKS |
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Take for example, value locking and unlocking, they do it to increase the value of the share of the company...nothing else....telcos need lot of money now...so they are selling and the market is under pressure....well i have lot of reasons....if you have 100 crores...or a mutual fund is sitting on a cash...they can do anything...and other follow....thats it |
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Esha Ma'm i wasnt comparing that was an "Example"..... |