'CLARIFICATION' TO RUMOURS - BRINGS CLARITY OR MORE CONFUSION?
By Ruma Dubey
Rumours. They have the power to ignite an entire forest and reduce it to either ashes or spread the flames to other forests around, engulfing all as it catches the drift of more wind. These rumours are a strange thing – markets cannot function without them and sometimes, it is the tool used by the manipulators to ride high and leave the rest high and dry!
The trend is to buy on rumours and sell on facts. The moment a rumours emerges, people scramble to buy and take positions, like as though they are at the starting line of a race; albeit a short race. But the moment, the actual official word comes in from the company, be it a confirmation of the rumour or denial, the stock plummets. So the actual happenings in the company has little to tempt the trader, it is only rumours which help them play the market.
Companies too cannot paint themselves as being victims of these rumour mills; sometimes the rumours originate from them and sometimes they give wind to these rumours too. And when rumours emerge, companies take an awful lot of time to issue a denial too, especially when the rumour is good and giving wind to its stock price. Or sometimes, even when the stock price plunges, the management plays deaf and dumb.
The stock exchanges now have a rule wherein the moment a stock price shows unexpected price movement or volume rise, they issue a letter/email to the company, asking them to issue a clarification. But here also many companies play truant. Instead of issuing a clarification immediately, it gets issued after market closure, after all the price movement and volumes have had their field day.
Take the case of Tilaknagar Industries. On 24th March, the company which was hitting a new low consistently sjnce 18th March, bounced back with some 3 times surge in volumes. There were unconfirmed news reports that Africa’s leading producer of liquor, Distell group, is in talks with Tilaknagar to buy some of its brands. The company is sitting on a debt of around Rs.800 crore and the “news” was that it hopes to raise Rs.250 to 300 crore from the sale. The company was “reportedly” earlier in talks to sell a minority stake to Pernod Richard and Suntory but it did not go through, which is why the talks with Distell group.
The stock exchange sought a clarification from the company at 11.45 PM on the same day and the company issued a clarification by 14.02 and it was a very wishy-washy clarification – it stated, “We are unable to comment on market speculation and wish to clarify that given the nature of TI's business, sector dynamics and to make business progress, the Company at several time points is exploring various types of business associations, tie-ups, relationships etc. across players in the domestic and international markets, which may or may not fructify. Should there be any material development that requires us by law to make any formal statement in any manner in connection with any such activity that may transpire, the Company will comply, share and make the announcements at the appropriate time in line with the best practices disclosure guidelines.” So was this a denial or a clandestine way of saying that something is indeed cooking? Thus instead of dousing the fire, it actually gave more wind.
Then there was Adani Enterprises. On 12th March, there was a news item saying, "Adani, GVK Power get clearance for port expansion in Queensland." Naturally, the stock price jumped up. The stock exchange sought a clarification on the same at 12.47 the very same day but Adani issued a clarification only on 13th March, that too only by 14.40.
Or the case of Pantaloon Fashion. On 23rd March, there was a news item stating, "Birlas may merge retail arms with Pantaloons". The very same day the exchange sought clarification at 12.44 but by the company the company issued a clarification, it was well past market closing time, thus allowing the rumour to simmer for that session at least.
Remember the case of Elder Pharma? Two years ago, it was consistently in the limelight for some days on rumours that it was on the sale block. The company issued a clarification that it had no plans to sell the company but the very same year, it sold off its domestic formulation business to Torrent Pharmaceuticals for Rs.2,004 crore on slump sale basis.
Today there is really no good news coming from India Inc as such. The media and analysts wear not just one thinking cap but many of them and put one and one together and come up with four! Markets react instantly, like quicksilver to any such seemingly good news and it is up to us to react logically to these rumours. The basic thing to observe is the stock price – whether the price reacted to the news or the price made the news, rising much before the “rumours” started making news.
Rumours are usually about sale of unit, merger or acquisitions, promoter being involved in a scam or IT raid, corporate governance issues, fund raising plans, pledged shares and till a few days ago, it was the delisting theme which was rife with rumours. And how does one react to such unconfirmed news? If the rumour is good, obviously stay put but if the rumour is a serious corporate governance offence, back track and look at its past track record, credibility of management and then take a call.
Read between the lines – if the report calls it a rumour, it most likely means it has emerged from thin air but if the report says “unconfirmed news” it could mean that the report had a source. The line between the two is very thin and it is ultimately only logical and unemotional thinking which will help you separate the chaff from the grain.