Corelation between company's performance and it's stock price

General
1

Hi All,
There is a general rule that if the company performs in a great way it’s stock price goes up and vice versa.
However, on 6th Nov 2015, I came across a perplexing scenario wherein the company performed horribly but then too, it’s stock price went up considerably.
I’m talking about BoB(Bank of Baroda). It’s Q2 profits tanked by 89% and the NPA quality also worsened like anything. Still, the stock went up 5%/
On the same day, SBI came out with it’s quarterly results and beat the street estimates. The SBI stock price went up 5%.
So, my question is that, in both the cases the stock went up 5% irrespective of the company’s performance. So what a retail trader should make out of this?
What is the rationale behind this?
Or is that the market is a place wherein the big players i.e. the institutional investors have all the say and they can rig the market any which way they want and we (retails traders) are just here to be fooled.

Please shed some light on this.

Thanks.

2

Like they say, buy rumours sell the news.

Typically when trading on the markets, it is best not to trade the news. There are analysts sitting out there who can figure out the news much before it happens. If you react on the news, and try to do short term trades, then not a good idea.

But yeah, if you are in it for a long term, then news is important.

So for example, 2 months before the lot size went up on NSE, brokers/analysts knew about this move as SEBI had put up a white paper asking for response. From Nov, the lot size went up, which would hurt the revenues of brokerage firms. This will show up in its results only after two quarters, say by March 2016. So if you read the news in April 2016 that the results were bad, and hence I want to short a broking stock for short term, hmmm… u r too late… That news is already factored in the price. If the result is not as bad as expected by the analyst, that day the stock might actually go up.

Hopefully u get the point.

Best,

1 Like
3

Thanks a lot, Nithin for explaining by example.
So, the horrible results were already factored in the stock price of BoB before they were announced. Yeah, get the point now.
In stock markets, from what I’ve seen, events happen and then the analysts come up with their theories as to why it happened.
What also feels awesome is that the CEO himself is replying to the client queries and this client-centric approach is one of the most prominent reasons people including me love Zerodha.
Thanks again:)