Why IRCTC shares plunged over 31% in two days? Is it the right time to buy?

In a major setback, the stock price of the Indian Railway Catering and Tourism Corporation (IRCTC) plunged sharply on the stock market on Wednesday. At the time of closing, the share had tumbled over Rs 1,020 or 18.71 per cent to Rs 4,432.35.

Notably, the stock saw a steep decline of 15 per cent just before the closing of Tuesday's session, surprising the investors. The stock had hit a record high of Rs 6,393 during early trade on Tuesday, taking the company's market capitalisation to over Rs 1 lakh crore.

Why are IRCTC shares falling?

The stock price of IRCTC has been falling continuously for some time. There has been a loss of Rs 4,000 crores to the investors from the shares of IRCTC. Now, the National Stock Exchange (NSE) has banned IRCTC on the Futures and Options segment (F&O), leading to a steep fall. The reason for the ban is that the stock crossed the 95 per cent threshold of the market-wide position limit (MWPL). 

NSE puts a temporary F&O ban on stocks where the MWPL exceeds 95 per cent and it remains in place till the positions on the contract are below 80 per cent.

In the early trade on Tuesday, there was a huge rise in the stock of IRCTC and it reached a price of Rs 6,396, which was a record high level. However, it later declined sharply and closed at Rs 5,455. At the same time, in the early trade on Wednesday, it fell 20 per cent to Rs 4,377. That is, the stock witnessed a fall of about 31 per cent from the record high.

Along with IRCTC, shares of eight companies have also been banned. These include Vodafone Idea, Indiabulls Housing Finance, Sun TV, BHEL, National Aluminium, Escorts and Amara Raja Batteries. All of them have been banned by the National Stock Exchange on Futures and Options (F&O). Apart from this, stocks like Punjab National Bank (PNB) have also been included in the ban list of F&O by the stock exchange. With this, the total number of shares in the ban list has gone up to nine.

Notably, IRCTC's stock has given 20 times returns in the last 2 years, after which investors are booking profits in it. 

Should you buy IRCTC shares now?

With the share prices nosediving, many investors are wondering if this is the right time for fresh entry into the trade. Santosh Meena, Research Head, Swastika Investment, says that IRCTC's stock is seeing a decline since the record high of Rs 6396. The fundamentals about the stock are still strong, but the valuations about the stock are high. Valuation is the only concern about the stock. At present, the stock has fallen below its psychological support level of Rs 5,000. There may be a further decline in this. If the stock comes at a price of Rs 4000-3800, then it is advisable to buy the stock again from here. The price of Rs 4000-3800 is the critical demand zone for the stock.

IRCTC has been a return machine for investors. The stock was listed on the stock market on October 14, 2019. The company had fixed an upper price band of Rs 320 for its IPO. The listing of the stock was also done in the market at Rs 644. Whereas on the day of listing, the closing was done with a premium of Rs 729 i.e. 128 per cent. On Tuesday, after 2 years of listing, the share of IRCTC reached a price of Rs 6,396.