Don't buy on rumours, just focus on basics

MUMBAI : If you knew that a stock trading at Rs 20 will get an open offer of Rs 42 in two weeks, will you buy it? Thousands of investors did on April 4 following an “announcement“ on monaycontrol.in that Infosys is set to acquire 32% in Total Exports through an open offer on April 18.The website recommended investors to buy Total Exports in bulk: “We highly recommend buy call on Total Exports with a target of Rs 50 within a month. Every trader must buy in bulk 5,000-10,000 shares“.

Turns out the announcement was false just like the website monaycontrol.in, which closely resembled the financial news portal moneycontrol.com.

Total Exports has not made any such announcement. Though seasoned investors would have seen through the fraud, many small investors fell for the trap.

The share price of Total Exports shot up to Rs 21.40 as speculators rushed in. The average daily trading volume of Total Exports shares, at an average 1.4 lakh over the past 30 days, shot up to 8 lakh shares the day the fake announcement was made - a humonguous 470% increase. The stock slipped to Rs 20.15 after it was realised the news was fake. The scrip hit the lower circuit again on Tuesday , dipping 5% to Rs 19.15.

Such incidents are not rare. Despite monitoring by regulator Sebi, local markets are fertile ground for stock price manipulators. They especially use tiny stocks such as Total Exports with puny market capitalisationof Rs 15.44 crore. These stocks are easy to manipulate because of low equity base.“It is a systematic racket to target small investors who are deprived of quality information,“ says Alok Churiwala,CEO,Churiwala Securities. While it is difficult to rein in such operators, investors need to be cautious.

Do you also chase market rumours? Here are some basic rules that can help you avoid the traps laid by manipulators. First, stick to prominent stocks that enjoy sufficient liquidity -regularly traded in large quantities -and are covered extensively by analysts. Thinly traded stocks are hotbeds of manipulation, as are tiny companies on which there is limited information.

Second, you should be sceptical of hot stock tips. Vaibhav Agrawal, vice-president of research at Angel Broking, says investors should ignore rumours and buy on the basis of fundamental attributes of a company. “Don't buy stocks based on random tips. There are several illiquid stocks that are susceptible to price manipulation,“ he warns. Investors should also avoid stocks hat are doing well without any im that are doing well without any improvement in their financial fundamentals. A big spike in price without any accompanying justification is a red flag, signalling that an operator is manipulating the stock. If your broker is pushing you to buy a stock, do your own equity research before you invest. He could be peddling the stock on behalf of someone with vested interests.Finally, it is always up to you to make an informed judgement.