All That Rises Sans Reason Can Fall Very Quickly
It is foolhardy to think that a stock or a series of stocks should move up and stay up because of technical reasons. A case in point was the move in technology stocks mid-week, noticeably that of Tata Consultancy Services Ltd. I heard a lot of chatter that the buyback acceptance ratio was rumoured to be 100 percent, and the price was higher than the current market price then. People also said that because the HCL Technologies Ltd. buyback price was higher, it was good to buy the stock because HCL Technologies' acceptance ratio could also be higher!
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While it might not be a bad arbitrage play, it would have been absolutely foolish to think that these stocks would stay up because of the buyback impact. Stocks don't create wealth due to technical factors. Neither should an investor buy portfolio stocks because a buyback offer is slightly higher than what the current market price would be.
Yes, there are contrarian players. Morgan Stanley's Ridham Desai reiterated his point about technology being a dark horse, but that view is over the long-term.
For the short-term, anything that went up due to misunderstood technical factors had to come off, and technology stocks have done just that.
Niraj Shah is Markets Editor at BloombergQuint.
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