The Hindu Business Line : Tech Tools

I have seen some stocks, which are fundamentally sound showing consistent profits and paying dividends to the shareholders, but as far as their share price is concerned they are stuck in a range for some time.

Could you please tell me (in technical sense) what went wrong with Finolex Industries, Alok Industries, Welspun India, Cosmo Films.

Out of these, I have held Finolex Industries and Alok Industries for a long time but exited from them after they showed no movement. Alok Industries moved from Rs 60 to Rs 75 for long period of time despite showing consistent profits.

Right now, I hold 300 shares of Cosmo Films. Please advise me what should my approach be towards this stock. Altaf Hussain, Srinagar

The answer to your question lies in Eugene Fama's Efficient Market Hypothesis, where it is stated that stock prices reflect the effects of information based on events that have already occurred and events that the market expects to take place in the future. In an efficient market, where information is freely available to all, the price of a security is a good estimate of its true intrinsic value.

In other words, though we might be analysing a security based on the data available to us, there are other participants who are evaluating the same security on the basis of their knowledge of the company's past and the events that are expected to impact the company in future.

The best indicator of a stock's true worth is its price. It is from here that the stock markets adage, "you can not argue with the ticker" originates.

If the stock prices are going nowhere in spite of your analysis pointing towards a bright future for the company, it is best to give greater weightage to what the price is telling you.

There is nothing wrong with the technicals of the companies you have mentioned above — Alok Industries, Welspun India, Cosmo Films or Finolex Industries. These stocks are moving sideways over the long term.

A shift in market's perception is required to make the price breakout of the upper boundary.

Within this long-term range there will be many intermediate term up moves and down moves, lasting many months that can be utilised by investors to move in and out of these stocks. Cosmo Films is moving in a range between Rs 50 and Rs 120 since 2003.

Long-term charts indicate weakness. There is immediate support at Rs 85.

If this support is breached, the stock can head towards Rs 76 and then to Rs 60. We advise switching from this stock and contemplate re-entry only if the price closes firmly above Rs 140.

Lokeshwarri S. K.

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