Stock Market is very dynamic, an investor might tend to wish for an increase in the value of his investments. But no one can expect the share price of a company to be high all the time. Risk is a constant and inevitable fact in the stock market.
Lately, a trend is being seen in beaten-down stocks. The risk to reward characteristics of these stocks have untapped potential as the rate of return is fairly good. Beaten down stocks are stocks that are not fully recovered. Because the prices of the stock have dropped almost in half. Due to this, these can be identified from the indices very easily and this is why it said that they have potential. The stock market saw the highest point of its growth in January, it took a massive fall in light of COVID-19 pandemic. Currently, the stock market is climbing back up. It is safe to say that it has recovered almost 46% which it lost previously. The mid-cap index saw a 48% and Small-cap index at 56%.
The recent news from The World Health Organization about the effects COVID-19 had a huge impact on the stock market. When news of the virus started to emerge back in December, The Indian stock market continues to grow without any pitfalls. But when India was affected, following the increase in the number of deaths the investors lost confidence in the market. Reserve Bank of India came up with a lot of supporting and lending plans to support some important sectors of the country like MSME, rural economy, and NBFC. This created a positive hope in the market. Other sectors were also encouraged by RBI’s initiatives and contributed in the FDI and FPI to throughout the sectors.
The real question is, can investors consider beaten-down stocks?
Understanding the history of the company which issued the shares, evaluating the problems that the company is facing and suggest an appropriate solution that may trigger and automatic recovery. In the case of a regular investor, this may not be possible. But an educated investor will have the resources to make contact with the business and present his findings accordingly. At the end of the day, it is the investor’s right to have an opinion in the company’s operations because it is his/her money that the company is using as capital. The risk-Reward ratio of beaten-down stocks is trending in the current stock market due to the extensive possibility that can be leveraged from it, provided so-called shares can be located. Always invest after studying about the company, it is always productive to do so rather than investing randomly and expecting a return.
The beaten-down stocks lack momentum. So, in and out research about a possible recovery should be the baseline in which the consideration should be given. Identification of the company’s downfall should be studying to induce growth. This Is where the real potential of beaten-down stocks resides.
