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Fools rush in

Vikas WSP returned more than 650% between December 2011 & August 2012. We try to find out why...

Vikas WSP is one of the country's largest manufacturers and exporters of guar gum powder. Suddenly, the company hit a jackpot which caused its stock price to jump from ₹10 in December 2011 to a high of 76.55 in August 2012, giving shareholders more than 650 per cent in return. What led to this stupendous rise? First, B.D. Aggarwal, one of the promoters of the company, informed market participants that he would be raising his stake in the first quarter of FY13. Secondly, the company was in the news in July due to the recent discovery of a new usage of guar in US: the recent discovery that guar gum could stiffen water so much that it can be used as essential ingredient for mining oil and natural gas in a process called hydraulic fracturing. Thus, investors jumped at the news without bothering to conduct simple research and background check of the company.

The company has a checkered past which involved irregularities such as window dressing, failing to address investor complaints and failure to pay dividends. Vikas WSP was delisted from the bourses in October 2001 for suspected malpractices in the form of abnormally high margins and wrong export turnover of ₹233 crore. The company subsequently got re-listed again in August 2007. Now the question that arises is this: will the promoter who had put all the money of his shareholders on stake in the past, carry on the business with honesty now that the company is poised to make more money?
Most of the times the choice of our stocks is governed by external factors. We end up buying those stocks which are 'trending' on the news channels or pink papers; caring little for whether they fit the bill in terms of our investing needs or not. Retail investors often pick up a stock because they are induced to do so and not because they have studied a particular stock in detail. How many times have you called up your broker to buy a stock based on your own independent research and by not getting influenced by somebody else's recommendations? One should indeed take insights and consider available sources but the final decision should be one's own. Something for Vikas WSP's observers to note.