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Aarati Krishnan

A sketchy news of a big order, restructuring or the magical word — divestment — is all it takes for a barely-heard-of-stock to take off into the stratosphere, with investors queuing up to place buy orders.

WHAT is it about a bull market that turns jaded investors into ardent believers? The same investors who are sceptical of turnaround stories "let us wait till the results" or monsoon plays "the rains will boost incomes only after a time lag" in a moribund market are willing to bet their shirt at the barest hint of good news about a stock in a bull market.

A sketchy news of a big order, restructuring or the magical word — divestment — is all it takes for a barely-heard-of-stock to take off into the stratosphere, with investors queuing up to place buy orders.

The spectacular stock market rally of the past six months has many positives; but it has certainly had the rumour mills working overtime. One need only glance through the message boards at various investment advisory Web sites for a ringside view of how rumours lure investors into buying stocks that they would not have touched with a barge pole in their saner moments.

It may be an excited appeal to buy a languishing textile company's stock on expectations of big export orders or a vague hint of a possible divestment for fertiliser stocks with Gujarat prefixed to their name.

Or speculation about a windfall for a company from sale of investments or real-estate. There appear to be a number of investors who are willing to buy into stocks based on vague rumours, without probing even a little into it. Thoroughly verifying a rumour may not be possible without an actual tête-à-tête with the management, which is impossible for most investors.

Homework is easy

But it is often quite simple to check if a rumour at least has an actual basis in facts. For instance, the first step in checking out whether a company is on the verge of a windfall from sale of real estate or investments, may be skimming through its latest balance-sheet to know if it, indeed, possessed any undervalued assets on the latest balance-sheet date.

Policy-related developments were a wild card until recently, but the Internet (for instance, www.nic.in) is a good reference point for the latest developments on policy issues such as divestment.

For instance, a quick reading of the divestment Web site — www.divest.nic.in — will arm you with the information that the two partly state-owned fertiliser companies (Gujarat State Fertiliser Company and Gujarat Narmada Valley Fertilisers) are not among the candidates on which the sale process has even been initiated.

This suggests that even if the Gujarat Government decides to divest its stake in the two fertiliser companies, the event is still a long way off.

Shrinking inside information

Few equity investors will fail to understand the thrill of believing that you have unearthed a piece of prized inside information that the market is yet to discover.

But with the market regulator and the stock exchanges tightening the screws on disclosure of material information, the scope for gleaning such inside information, especially on events such as export orders or corporate actions such as restructuring has narrowed considerably.

On the widely-tracked large-cap stocks, there is likely to be little of note that is outside these disclosures. What little information has slipped past the notification to the stock exchanges is likely to have been ferreted out by the financial dailies by way of newsbreaks.

Last in the race

It may be naive to suggest that these regulations have effectively snuffed out leakages of inside information. But given that there are hordes of better-informed investors (the investment research houses, brokers and mutual fund managers), whose job it is to interact with companies and trade on that, it is unlikely that any piece of vital information will percolate to the retail investors before the stock prices have captured much of the action.

On the widely tracked stocks which make up the index or the A group, this is a certainty. There may still be room for tidbits of inside information in case of small- or mid-cap companies that do not take compliance too seriously.

But in these cases, investors have to reckon with the possibility that three out of four pieces of "inside" information may be fabricated by those anxious to offload their own holdings of the stock.

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