Consider these 9 things before investing in mutual funds!

‘Don’t judge a book by its cover’ is something that a stock market investor should keep in mind every day. Investors should not judge a stock by its name. In fact, an investor should understand the company’s business before investing. Even renowned value investor Warren Buffett has time and again advised that one should never invest in a business that he cannot understand. Yet, we see many investors blindly following the herd or buying stocks on hearsay.

Take the recent case of investors accumulating shares of oxygen suppliers amid reports of demand for medical oxygen set to rise following a surge in COVID-19 cases.

March 10, 2021, when India recorded over 20,000-fresh coronavirus cases marked as the beginning of second-wave, National Oxygen has rallied 63%, Gagan Gases surged 47% while Bhagwati Oxygen and Linde India have soared 20% and 14%, respectively, since then. During the same period, benchmark equity indices have plunged over 5%, wiping off more than Rs 6.2 lakh crore of investors’ wealth.

But in the midst of a rally in oxygen shares, an NBFC named Bombay Oxygen Investments Ltd has rallied over 113.06% from Rs 10,957 on March 10, 2021, to Rs 23,346 as of today. What’s interesting about this company is while its name has oxygen in it but it is not in the business of oxygen. A simple visit to companies’ website an investor would have come to know that the Company’s primary business was manufacturing and supplying Industrial Gases which has been discontinued from 1st August 2019.

The company has been issued a Certificate of Registration from the Reserve  Bank of  India, Mumbai dated 31st December 2019 for carrying on the business of Non-Banking Financial Institution (NBFC) without accepting Public Deposits.

Commenting on the price movement market expert Ambareesh Baliga said: “In a raging bull market anyone giving a tip works decently well one makes money for a while. But when an investor starts losing a huge chunk of money is lost, which is why investors should do their basic research and understand the company. As when the markets start coming down an investor who has bought on hearsay panic as they don’t know what they have bought.”

On April 8, the BSE had sought a clarification from the company on significant movement in its share price, “in order to ensure that investors have the latest relevant information about the company and to inform the market so that the interest of the investors is safeguarded.” To this, the company had replied, “there is no pending information or announcement which may have a bearing on the price movement of the company. Therefore, the movement in the share price of the company is market-driven and the company is in no way connected with any such movement in price.”

On April 20, the shares of the company are locked in a lower circuit.

“Investors should exit the stock even at a loss as soon as the lower circuit opens. Nobody knows how much it will fall as the stock used to quote at Rs 10,000 and that price its market capitalisation works around Rs 150 crore making it an illiquid smallcap company,” added Baliga.