Be alert : Don't blindly follow stock research reports, do your research - take proper guidance

IMP-ost : 19th Nov, 2012

www.i-securesolutions.in : Investment planning : Stock market

Be alert on Research reports

Life for an investor is not easy. First there are over 5,000 listed companies in India that he needs to choose from. Information on all of them is not easily available at all times. Some stocks are not covered by most research houses so identifying their investment criteria and concerns is a daunting task
. And some stocks are covered by so many research houses that identifying the good analysis from the bad is another uphill task. And if each of the research houses is considered to be in top 10 this task becomes even more difficult. The worst thing is when each house has a contradictory view on the same stock. What does the investor do during such times?

An article carried by Business Standard gives examples of such problems.

For instance Infosys Ltd is considered a 'Buy' by one house, a 'Hold' by another, a 'Neutral' by third and a 'Sell' by fourth.

Given that each of the four research houses is a renowned name one would wonder as to whose call to go by. Situations become more difficult when research houses come out with 'sensational' reports on a particular company. For example leading brokerage Macquarie accused HDFC Ltd of aggressive accounting. The report release was followed by negative sentiments surrounding the stock of HDFC. Eventually the management aggressively countered the report. The point is that research reports can cause wide swings in investor sentiments. Therefore they do play an important role when it comes to share price movement.

However, one must remember that these movements are temporary and therefore short term in nature. Eventually the fundamentals of the company catch up. If the fundamentals are strong and the management is clean, then the stock could still turn out to be a profitable investment. If the reverse is true, then the stock would turn out to be a disaster.

The bottom line remains the same. While one can use the information contained in research reports and news articles, it is essential to use this information only as a basis for forming your own judgment.

Just blindly following the report without doing your own study can turn out to be a disaster. When investing in a stock it is crucial to do your own homework. There is absolutely no substitute for that.

Source : Leading newsletter