They become more volatile and act more irrationally. Here are some examples
The quarterly and annual results announced by companies are keenly watched by the analysts in the stock market. There is a lot of analysis that is done during pre and post result period by fundamental analysts. Buy, sell or hold decisions are driven by these results as well. But results are not just about these analyses. The results season brings some interesting behavior of the stock market out in open. In fact results announced by the companies shatter many of the established logic on which the market operates. Let us have a look at some unusual behavior of the market during the result season:
Option contracts become riskier than the underlying: Option contracts are often pitched as derivatives contract which have a limited loss with an unlimited potential gain. While the loss of the buyer remains limited to the premium paid by him, the gains are potentially unlimited (in call option only technically). However, what people often fail to notice is that during the results season the options contract becomes more risky than the underlying and cause severe loss to the option buyers. Though loss remains limited, the severity of loss is so huge that entire wealth of the investor may be wiped out.
Let us look at result announced by State Bank of India (SBI) during 2nd quarter of current financial year. On the date of announcement of the result, the SBI stock fell by 3.98% while the call option contract value was eroded by 80.80% for the strike price of 2350. In terms of amount, fall in the stock price was more than the option contract, however in terms of wealth erosion the option value was almost completely wiped out. For a trader, the results season is a lesson for adopting an appropriate trading strategy where positions should be created both with call and put option to avoid any unbearable loss of exposure in only call or put option.
Low beta stocks temporarily turn into high beta stocks: Risk averse investors often opt for low beta stocks because they believe that low beta stocks will protect them against any significant downward movement in the market. However, the results season defies this logic. Low beta stocks also become high beta stocks during the results season. If you compare beta of a stock based on the last six months’ data with a beta calculated seven days prior to result and seven days post result, beta of the stock goes up significantly. Even stocks like ITC start showing beta more than 1.
It often happens that a low beta stock cause significant loss to the investor who had entered into the stock thinking that losses will be limited. While this phenomenon may be temporary, an investor needs to know and understand this erratic behavior of market.
Market reacts to results and ignores analysis: It is frequently observed that better-than-expected result causes the stock price to go up significantly. This is the result of reaction rather than analysis. So after a sudden spike in the price, the stock price starts moving southwards and very often stabilizes to pre-result price. When ITC announced its 2nd quarter result for the current fiscal, the stock price zoomed up to Rs299, which was the 52-week high for the stock price. After sometime post the result, the stock price retreated to Rs278 level. This fall of around 8% from peak was not because of any strong fundamental reason. Recently, the ITC stock crossed the price of Rs299 because of sudden bull run in the market.
This aspect of unusual behavior of the stock market shows that investors need to read much more than the immediate impact of result. Stock selection needs to be based on analysis. For traders this kind of movement may create profit opportunities but investor’s decision should not be driven only by temporary spike.
There are many other cases of unusual behavior of the stock market during the results season like increase in volume of transactions, increase in speculation, etc. The results season is the season when aberrations become the rule and defy time-tested logic. No wonder, analysis should rule over reaction during this period.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
Using transparency law like the RTI Act, one can obtain crucial information and help lakhs of daily commuters across the Mumbai suburban network, says activist Samir Zaveri who doggedly fights for the rights of those who are affected by corruption or the sheer apathy of railway officials
Accidents, corruption and chaos are everywhere and Mumbai with its population of over 1.25 crore is no exception to this. The once efficient suburban rail network is the lifeline of Mumbai, however over the past two decades, it is creaking under the weight of passenger influx, corruption and lack of investment in upgrading infrastructure. The extraordinary crowding of trains and poor commuter facilities as stations makes the Mumbai suburban train system so prone to accidents that nearly 10 people die in railway mishaps everyday - a figure that would have made front page news anywhere else in the world but meets with apathy in India. In this situation, one individual works relentlessly to help improve passenger facilities, introduce ambulance services, ensure that accident victims are given immediate medical aid and taken to the nearest hospital so that people do not bleed to death. Speaking at Moneylife Foundation, Mr Zaveri cited innumerable examples of small victories and key successes to encourage people to come forward and use the Right to Information (RTI) Act to deliver better services for ordinary Mumbaikars. What makes Mr Zaveri's dedication more remarkable is that he lost both his legs in a railway accident when he was just 16. Had he not been helped in time by some kind souls, he would have bled to death like thousands of others, he say. It explains his untiring efforts to reach aid to victims in the first "golden hour" after an accident during which a live can be saved, otherwise too many people simply bleed to death on the way to a hospital or waiting for help.
Mr Zaveri identifies a few key problems. First, the non-avialabillity of ambulances at most local stations. He describes a long fight to have a medical room started at Dadar. Sadly, the absence of follow up vigilance by communters has ensured that railway officials now use it as a rest room. Railways and police also hesitate for sending the victim to nearest hospital unless it is a government hospital, despite orders from the Bombay High Court, Mr Zaveri said.
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On hard won battle of Mr Zaveri is to ensure that accident victims are taken to the nearest hospital, rather than a government hospital that may be far away. Thanks to his efforts the Bombay high court has directed railway authorities to take arrange to get victims admitted to the nearest hopsital even if it is a private one, but such is the apathy of railway offiicals, that this is rarely followed. In fact, it is Mr Zaveri who follows up on accident victims to check which hospital they have been taken to and inform them of their rights.
This apathy leads to many tragic deaths on the way to hospitals. Between 2002 and 2012, Mumbai's local train network witnessed 36,152 deaths while 36,688 people were injured, making it one of the most dangerous rail network across the world.
While help for accident victims is a big part of Mr Zaveri's effort, an obvious corollary is the scandalous extortion and robbery of railway passengers that he reports. He narrated several true stories about ticket collectors or the railway police extorting money from railways passengers. In many cases, he has managed to help victims of theft by working with them to file complaints and follow them with with a RTI application if required.
"All it needs is an application and a Rs10 court fee stamp", says Samir Zaveri, trying to get more people involved in the huge war that will be required if corruption in the railways has to lead to systemic change rather than episodic results.
One of Samir Zaveri's biggest triumphs has been his expose of a fake bail bond scam run by none other than Railway Protection Force (RPF) personnel at Kurla station. In fact, he found to his horror that the railways were running a fake court, where a constable or official posed as judge and issued fake bail bonds to let off hapless travellers, after robbing them of their hard earned savings. Since an official looking bond was issued to them, most people presumed that they were genuinely punished and very few had the knowledge or ability to fight the corrupt system.
Samir Zaveri too was nearly defeated by the corrupt cabal, who had the audicity to try and implicate him in fake cases with dangerously serious allegations of kidnapping and murder.
It is to his credit that he fought it out with a whole team of well-wisher and activists who helped him navigate the courts and then help from numerous sympathetic judges.
A case is pending before the court and the Central Bureau of Investigation (CBI) has sought permission from the Magistrate’s Court for conducting scientific tests on 12 accused personnel of RPF. In the fake bail bond case, the RPF was compelled to dismiss one of its inspectors and also to suspend 21 of its personnel.
Mr Zaveri, a self-taught expert, with a strong support network of well-wishers, has used the Right to Information or RTI Act very effectively to obtain some incredible information that benefited railway commuters. He also narrated his experiences while dealing with victims, rail administration, police and hospitals.
An interesting feature of the Moneylife workshop was that several activists who have been fighting corruption, over-crowding and other railway related issues were present today to support Mr Zaveri. Among these was a Mr Deepak Gandhi, president of Mumbai Suburban Passengers Association who has been fighting the cause of railway passengers for 50 years. Mr Gandhi, like Mr Zaveri made the point that unless more railway commuters get involved and choose to join the efforts to pressure officials to improve the system, nothing would change. Madhu Kotian, president, Mumbai Rail Pravasi Sangh who was present at the meeting also said that getting more people to join the movement against railway apathy was key to improving Mumbai's transport system.
At the end of the session, most people who attended, decided that those concerned about the state of Mumbai's railway system would meet on the first Saturday of every month, to exchange notes, support one another's activities and find ways to take up more issues through different persons. Those interested in being a part of this may please write to Moneylife Foundation at [email protected] This event was supported by www.karmayog.org
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