Was there any stock manipulator working hard last week on Kitex Garment?

Kitex Garments stock price plunged 17% yesterday and was trading around Rs 410 per share. In a weeks’ time stock price climbed up to Rs 540 and then dropped down to Rs 410 yesterday on a very healthy volumes. We were not sure of sustainability of its spurt of 20% in the stock price last week.

As an investor in the Kitex Garments business, we took this rare opportunity to offload all our stocks when stock price climbed above Rs 500. I feel for all the investors who had bought this stock last week above Rs 500. But there is little good news for you. I also feel for investors who did not offload their holdings and did not banked on this rare opportunity.

With what happened with Kitex Garments last week, I take two important insight from this situation:

  1. Lack of knowledge within investors
  2. Watch out for market manipulators in the market

Lack of knowledge within investor

Investors are taking decision without looking for the facts. This is resulting into burning their own cash and resulting as an expensive mistake. I understand it takes conscious effort to control your emotions during these circumstances. But if you do not practice then you will find yourself behind in this game.

When all this event was taking place, I knew exactly what the intrinsic value band of Kitex Garments was for 2018. Clearly we realised that it is trading at expensive premiums for 2018. Our next logical step was to find 2019 intrinsic value band and what could be the benefit we could achieve by bonus shares.

The next minute we called up our accountant to understand exactly what most benefits we can get by issue of bonus shares. Within one hour we collected all the available facts and ran probability of different scenarios that can play. The stock price was trading at premium of 2019 band and most benefit we could get from issue of bonus shares was 6%. We pulled our trigger and sold our holdings in the Kitex Garments.

The good news for Kitex Garment shareholders is that it is still a good quality stock and its stock price is back trading in 2018 valuation band. So maybe a good time to look at your portfolio management and capital allocation of this stock in your portfolio.

Watch out for market manipulators in the market

The kind of volatility with high volumes in the Kitex Garments raise suspicion of market players playing their game in the market and destroying the value. National Stock Exchange (NSE) straight away asked for explanation on the spurt in its volumes to Kitex Garment on 20th April.

Few investors are keen to lodge complaint as it is time consuming and we do not have evidence to back up allegation. But that should not stop you to ask stock markets to investigate and give explanation to your allegation. It is very hard these days to buy or sell any stocks in the stock market without identifying yourself.

Think about it. Your complaints will make stock market more vigilant and will scare manipulators to enter in the market. The other way you can teach lesson to these manipulation directly is to not react and take wise decision.