Worst stocks become the best

The recent stock market rally which has delivered close to 20% returns in just one month, has surprised many market watchers. A quick look into the stock returns reveals that laggards over the past year delivering best returns.According to BSE 500 data, which constitutes 90% of the market capitalisation on Indian bourses, the best returns came from those stocks which lost heavily in the preceding 365 days.

Dividing all the stocks in the BSE-500 in groups of fifty, showed that the top 50 stocks delivered 52% gains (on an average ) in the last 30 days and also boasted of 57% losses in the last 365 days — the worst returns.

ET reports:a stock like Financial Technologies, part of the top 50 group, definitely gained 61% in just 30 days but has incurred 58% loss in the last one-year period. This analysis not only holds true for the top 50 stocks but progressively for the next 400 stocks: As the average 30-day gains reduce, so do the average 365-day losses.

The second 50 stocks recorded 36% gains in the 30-day period but also clocked 56% losses in the one-year period .This continues for third, fourth, fifth and sixth fifty stocks.

One needs to bear in mind that India's bear markets have historically lasted 30 months on average and longer than India's bull markets. The market is more likely to crawl rather than spike out of its current trading band that is getting a bit wide," said the head of equity of a foreign brokerage.

Stock Repurchase or Share Buyback--

The term literally refers to a company’s move to repurchase its own shares. By doing so, the company reduces the number of its shares available in the open market. 

This will lead to the rise of earnings per share (EPS) and the return on assets of the company, indicators on the balance sheet of an improvement in the performance of the company. As an investor, it will mean an increase in his/her stake in the company. The companies generally indulge in a buyback when they feel that their share price in the market has fallen drastically. At other times, it may simply be a way of using excess cash. However, there are also cases when this may be an attempt at preventing a takeover of the company.

But the question is how a company repurchases its own shares??A company can buy back shares either using tender offer or in an open market buyback . Under the first method, the company issues a tender offer with details regarding the number of shares that the company plans to repurchase and indicates their price range. An investor keen on accepting the offer needs to fill the form & send it back to the company. 

But the most common share repurchase method is the open-market stock repurchase,(especially in US) representing almost 95% of all repurchases. According to SEBI guidelines, if the company has decided to accept your shares, then it needs to intimate you in 15 days after the closure of the offer.

Any details regarding buybacks are available from the stock exchange as it is mandatory for the companies to intimate them of such resolutions or on the SEBI website.