Walk into any conversation among active retail traders on Indian exchanges, and it will not take long before certain stock names come up repeatedly, regardless of the broader market mood. Discussions around the Suzlon Share Price and the Idea Share Price feature prominently in this category, both counters having become fixtures among the most actively traded stocks by volume on the National Stock Exchange and the Bombay Stock Exchange. Understanding why these particular names attract such consistent retail attention, beyond their individual business stories, offers useful insight into the psychology and mechanics that shape trading behaviour among India’s growing base of retail investors.
The Pull of Affordable, Liquid Stocks
Both these companies are at a price range that suits any small investor who wants to buy a decent share of any particular company. This has always been a big plus for these papers, as many retail investors are relatively new to stock market investing and for them it is more lucrative to have a bigger share of any given stock, rather than just a couple of shares in a more expensive counter.
High Liquidity is another plus, which is very much in demand nowadays due to the fact that both these papers are extremely popular among day traders. The high trading volumes mean that it is relatively easy to buy/sell any given shares without having a big impact on the stock price with your trading activity.
Emotional Appeal of the Papers
Both these companies have a huge upside potential, which is very attractive to many investors. Some of the companies have been through a troubled period and have undergone some major recapitalisation procedures recently. This kind of scenario always generates much interest from the retail trading community, as many people like to speculate on the turnaround stories of the companies, rather than invest into a stable business with a consistent earnings record.
Moreover, turnaround stories always seem to get much more press coverage, as compared to any other news regarding the companies. Any positive development from the company, no matter how small, seems to get tremendous press coverage, which in turn creates much demand for the security.
Double Edged Sword of High Trading Volumes
Much like with any other story, there is a flip side to the high volumes phenomenon. The higher the trading volumes are, the more traders tend to get interested in the given security. However, traders are not investors, and many of them will unwind their positions in the given stock at a certain point, no matter how strong the turnaround story is.
This development is usually much less positive for the retail investors, as many of them will get lured by the hype and the easy liquidity. This means that many of them will get into the long trade at the wrong time, namely when the day traders are already looking to lock in their profits.
Social Media and the Growing Popularity of These Papers
The growing popularity of these particular counters has seen the emergence of numerous online forums, dedicated to a certain stock. Many investors get tempted by the buzz around a certain stock and get encouraged to get involved in trading this particular security.
Many forums allow their members to set target prices for certain stocks, and these targets often get achieved within a relatively short period of time due to the growing popularity and the corresponding increase in trading volumes. This in turn leads to even more investors getting involved in trading this stock, with many of them speculating rather than investing.
Looking Past the Noise to See the Real Picture
For the uninitiated investor who gets tempted to get involved in trading these kinds of securities, it is vitally important to separate the noise from the real story. Any turnaround stock has many different stories, which made it into the public domain. It is vital for the investor to check the fundamentals and the corresponding news releases, which impacted the stock price in order to see the real reason for the security’s popularity.
Much like with any other stock, it is vital to keep a close eye on the quarterly reports of any given company. One should also try and see how much of a price impact do the news releases have on the stocks, in order to separate the investors from the traders. If the fundamentals of the given company are strong enough and the stock price keeps increasing, you should consider getting involved in this stock. However, if the company is not as strong as it seems, it is best to leave it alone.
The popularity and trading volumes of a given stock say very little about the actual strength of the company. Many companies, which are now the laughing stock of the market, were actually quite popular 2-3 years ago. This popularity can be in the form of high trading volumes, no matter how relevant they are to the company’s potential for growth. This is something to be careful about when investing into any given stock, and especially when buying into a turnaround security.
A Disciplined Approach to Turnaround Stocks Like These
For the retail investors who wish to take advantage of the popularity of such papers, it is a good idea to set stop-loss orders and invest only a small percentage of your portfolio into any given counter. Moreover, it is always a good idea to leave your emotions at the door of the trading floor, as impulsive decisions rarely lead to profit.
Both these companies are viable investments, which require the same amount of analysis as any other securities. Much like with any other stock, it is important for the investor to take a dispassionate look at the situation at hand. By taking into account the reasons why a given stock is so popular, you will be better at separating the investors from the traders and making the right decision concerning buying/selling a security.
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