On the IRCTC train and sleeping passengers
We all know India will have its first high speed train sooner or later. But there is no harm in imagining a trip on a high speed train. Once you board a high speed train, it doesn’t stop. The train reaches its destination within a specified time without any problem. We trust this super high speed train because, at least, history shows that accidents rarely happen. Now let’s get off the high speed train.
The stock exchange is not a high speed train. Market participants should understand this and instill it with a pinch of salt. Accidents happen, and every time they happen retail investors are caught off guard. We witnessed such an event when IRCTC (NS 🙂 stock started to fall during the second half of the trading session on October 19th. She fell sharply and in a fraction of minutes. We are very sorry for the traders / investors who boarded the IRCTC train on October 19th or even before and took a nap during their trip. The script attempted to bounce back the next day early, but succumbed to increasing selling pressure. The IRCTC train derailed instead of continuing to travel on elevated tracks.
The historical evolution of the IRCTC’s share price
What happened in the IRCTC stock was far from beyond euphoria. Let’s take a look at the IRCTC stock price chart from the start of calendar year 2020. Looking at the stock price chart, we realize that the script was trading at reasonable levels (around Rs 1,002.7) until January 24, 2020. But something happened and the stock literally skyrocketed from that date. The script grew by around 92%, trading at Rs 1,930 on February 20, 2020 (isn’t that weird !!) before starting its downhill journey. The stock lost 54% of its value on March 27, 2020. Later, it continued its steady advance and reached levels on February 20, 2020 a year later in March 2021.
Announcement of stock split and sequels
The IRCTC mania began after the company announced a 1: 5 stock split in August 2021. The train of action was at full throttle until sudden pauses were applied in the second. half of the October 19 trading session. The fundamentals of the company are intact and he has a monopoly business. Online ticket booking experienced strong growth in the second quarter of fiscal 2022. The opening up of the economy, the lifting of restrictions and the upcoming holiday season bode well for the growth of profits. But does that mean you should pay Rs 344 for every rupee of IRCTC earnings per share (or EPS)? The stock’s PE reached 344x when it traded at its peak. It showed that thousands and thousands of retail investors are chasing the action. The price of the script hit a record high of Rs 6,396 on an EPS TTM (last twelve months) of Rs 18.57. The price / earnings ratio simply means that the market is willing to pay for every rupee in earnings per share. Even based on BPA FY2020 of Rs 32.07, IRCTC’s PE was found to be 200x.
SEBI ban in the M&O segment
SEBI temporarily banned IRCTC from the futures and options segment on NSE on October 20. The stock was banned because it had exceeded the 95% market position limit. A market-wide position limit is set by an exchange which corresponds to the maximum number of contracts that can be opened at any time. Whenever a script exceeds the 95% market position limit, the exchange places a temporary ban until the position in the contract falls below 80%.
Key points to remember for retail investors
Dynamic trading is not a bad idea. But participants must still act as rational economic consumers in the stock market. We will not say that the momentum should not be continued at all. But what matters is the selection of stocks for such a trade. Remember the sharp rise in the Tata Motors share price after a fundamental overhaul. We’re sure many would have benefited from that momentum even after falling after hitting a 52-week high. Even news-based trading is not a bad idea. Vodafone Idea (NS 🙂 stock traders know this well. Future Retail (NS 🙂 stock traders also tasted it two weeks ago. Atul Ltd’s Epoxy Resin Game was also an opportunity for traders to try their luck two weeks ago. You should look at the PE ratio before you start dynamic trading. In the end, what matters is a mental health check. Many stocks, including mid-cap IT stocks, are trading at sky-high PE ratios that won’t last long.
The markets will give you the opportunity to taste and build wealth. Remember that patience is a must for building wealth.