Failure of Securities Firm

Its due to research firms shouting the targets that some of the stock don't perform as expected or upto their true potential, especially those that has Low volumes and that are not much volatile.

Due to research reports published by some small financial advisory on shares that has relatively lesser volumes in trade, the stock performs less as traders try to take the benefit out of such reports and stocks.

This is how it goes. I will try to explain it via example:

A research firms gives targets of a stock A to Rs 50.00 in 6 months. Stock A is not highly liquid and it trades with very thin volumes daily. Value of stock A is Rs 30 currently.

Traders know retail investors will buy and have increased interest in the share as it has been recommended publicly by research firm. Millions of users read the research report. Even if 10% of the investors invest in the stock, the volume increases quite significantly,

Traders enter at the time the report is released, say at band of Rs 30.00-35.00 but a huge quantity along with retail investors buying some.

Now, retail investors enter even at a level of Rs 37.00-38.00 sighting the targets Rs 50.00 which is still good and they then have the increased confidence in the share as the share has performed good after few days of report with good volumes.

Traders are ones who even consider profit of Rs 3.00-4.00/share very much due to their holding capacity. Traders tend to Exit at Rs 36.00-38.00 while retail investors is still thinking of Rs 50.00 price target.

Then the stock suffers a bit in that range only for sometime but that consolidation is  long. People start to think that there is not much potential left in the share unless there are some news. 

The retail investors tend to sell at some minimal Loss after a span of 3-4 months. But when the good results come the share will again start the journey as the stock has remained attractive. 

The moral of the story is 'Time is the key'. Don't invest because some research report says, try to figure out on your own after reports, which is the right time to BUY.

Examples of such stocks which I feel were not able to move up due to Research Reports that came out : Sudar Industries, Arvind Remedies, JVL Agro.

If you check the chart patterns of the 3 stocks, they were similar and the stock was in momentum and then came the research report, due to which the stock was unable to go up. So, my advice to all is to pick the stocks very carefully. You can do it by either

1. Selecting the stock with high liquidity and which has huge volumes.

2. The shares which does not have any research report associated to it lately.

Advice: If you have bought a particular share for a short term target e.g. Sudar Industries (when it was very illiquid) which is not much liquid and a research report comes regarding it, better to book profit while its on upmove, else even the profit that you were making will be wiped off.