I saw a Malayalam movie Drishyam, which I consider as the one of the best Indian movies in the last decade (being a movie-buff, I eagerly await its re-make in Hindi). The hero of this movie constantly evolves brilliant strategies to escape from the 'punishment'.
I saw a Malayalam movie Drishyam, which I consider as the one of the best Indian movies in the last decade (being a movie-buff, I eagerly await its re-make in Hindi). The hero of this movie constantly evolves brilliant strategies to escape from the 'punishment'.
Many retail investors quite often hear listed companies procuring "orders" for their manufactured products from the vendors and react to such news by chasing those stocks at 5% to 10% higher levels, if not more. However, in most cases, the stock prices of those companies fizzle out within few days. It would be wise to seek answers for the following 4 questions before investing solely based on such news flows:
What is the share of new order in company's total annual sales?
Is it a new order or repeat order from the existing customer?
Does it change the figure of cumulative orders already existing on hand significantly?
Is it for a single year or split over several years?
A company announces "successful" procurement of an order, immediately the stock spurts 8% only to fall 8% in the next few days. It was not able to sustain the sudden jump in prices as the value of order was worth just 3% of its annual sales!
It is difficult to understand the purpose of announcing order procurement when it is a repeat order from the existing customer. In some cases, the new orders for the company's products do not change the figure of cumulative orders on hand significantly.
Sometimes the order from a single source may be substantial, but it may be meant for delivery of the output over several years in the future! Recently a company announced procuring an order worth nearly 8 times its annual sales, but the "vendor's" budget shows a pathetic allocation for the full year. Obviously the order could be for several years in future, but that clarity was missing in the press release! Its stock price falls more than 5% in the next few days.
Drishyam's hero not only constantly develops defensive strategy, but also uses the entire team (his own family) to escape the 'punishment'. Hero finally succeeds as he also foresees the potential weak point in his own team and develops a secret strategy to counter this gap as well. Unfortunately the kind of volatility we see in the domestic equity markets makes the environment much tougher (than what this hero faces) for the retail investors.
Hence, they should at least try to seek answers for those 4 questions mentioned above before reacting to the news of "order procurement".
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