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Monday, July 18, 2011

Fundamentally weak stocks took investors for ride

In past days, few fundamentally weak stocks got listed on the bourses; some of those gave awesome listing gains but finally eroded investors money.
This all happens due to artificial price rigging by market manipulators also known as operators in capital market parlance; and often promoters of the issue are also hand in gloves with these operators.
Modus-operendi  is simple , operators buy and sell shares to each other and raise the share price to higher levels, and this is where gullible investors get trapped.
Investors perceive the rising price as an indicator of robust stocks and buy it. When many investors flock in, this is the time for operators to exit, and with the exit of operators share prices start falling.
Such practices are common where issue size is small and issue lists on only one national stock exchange, especially on BSE.
When a stock is listed on both national stock exchanges this ensures better price discovery and lesser scope for the manipulation.
But even in case of a stock listing on both national exchanges, there were many cases where price rigging took place.
 Timbor home gave fantastic return due to artificial price rigging but presently stock is trading at  ì 40.55 which is 36.5 % discount to its issue price.

VMS industry share was issued at  ì 40 but  presently trading at ì  15.25 which means investors have lost around 62% of their share capital.Shekhavati poly Yarn too had simialr story.
Investors who invest for listing gains often gets trapped as  such stocks fall with lower circuits giving no way for investors to exit.

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