The term undervalued stocks is used to refer to those stocks that presently operate on the stock market and are available at a market price that is placed lower than their intrinsic value. The intrinsic value of stock refers to what its true value is and is discerned via a number of calculations and analyses including but not limited to the discounted cash flow method. Many times, stock can be undervalued owing to a number of reasons. Read on to understand why stocks are undervalued in India.
Why are Stocks Undervalued in India?
Several stocks in India have been undervalued owing to one or more of the reasons listed below.
- The markets are sluggish – A more obvious reason is that when the broader view of the economy is weak, it has a direct impact on investor confidence which dips leading to a subsequent fall in aggregate demand. As a result, varied businesses are likely to dip as well.
- Intense short-term issues – While such issues might not be damaging enough to bring down a business or company, intense short-term issues are capable of wreaking havoc on the market value of a stock and can lead to undervalue of stocks. Investors have to be smart to recognize that this undermined value is limited for a small period of time and there will be a rise.
- Insignificant company following – In the event that a company is small and doesn’t have a significant number of analysts eyeing its potential, it can be undervalued owed to lack of exposure to it. Investors ought to pick up the slack of these analysts and invest in these companies as they can prove to be lucrative investments.
- Companies with complex inner workings – These companies don’t provide adequate explanations or understanding of their inner workings. As a result, investors aren’t always able to catch on to their line of work which can lead to a lack of interest. As a result, the stock of such companies can be undervalued.
- Cyclical fluctuations – It is important for investors and traders alike to understand that the stock pertaining to certain industries is known to fluctuate over varied quarters owing to varied performance across the same. Therefore, shares may only be undervalued for certain times.
Conclusion –
Online trading allows for investors and traders to make buy, hold and sell decisions with ease. Some of the most undervalued stocks can prove to be the most profitable in the future. Due diligence is required to spot the best-undervalued stocks.
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