The Hindu Business Line : Identifying price targets

Based on your recommendation, I purchased Sesa Goa and Gujarat NRE Coke. Though you had mentioned the target price of Rs 1,200-1,250 for Sesa Goa and Rs 112-120 for Gujarat NRE, the probable time period within which it would be achieved is not mentioned. It is also quite perplexing that despite strong fundamentals, the share price of these companies is not moving up. What is your take on this behaviour of the stock market?

Though we have had a considerable degree of success in identifying price targets, we do not fancy identifying probable time periods within which it could be achieved. We are not aware of any approach or methodology that has yielded consistent results in terms of identifying the time frame within which a particular move is likely to transpire.

Getting to the question about the share price of fundamentally sound companies not moving up, investors need to realise that fundamentals do not always matter in deciding the direction of the share price movement. The more crucial aspect is what the majority of the market participants perceive about of the fundamentals of the company concerned.

If they perceive that a company is fundamentally sound and also undervalued, the share price would move up as the demand for the company's shares increases. It should, however, be mentioned that sooner than later, the stock market does tend to identify undervalued stocks and stock price does catch up with fundamentals. In some cases, this discovery happens quite early and in others, it takes a while.

The important concept in technical analysis is to identify what the majority of the market participants are interested in, and try to coast along with the tide by taking exposures in those stocks. To explain this concept, let us consider the recent market fancy for sugar sector stocks. Irrespective of the underlying fundamentals, the share price of almost all sugar-producing companies has recorded fancy gains in the recent months.

By identifying this trend early, had investors piled on to sugar stocks, the returns would have been far better in the recent months. The essence to successful trading is to develop a liking for what the majority of stock market likes. The outlook for Sesa Goa and Gujarat NRE Coke would be covered next week.

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