Friday, October 31, 2008

Are stock markets efficient?

I would like to describe story of a company named Gulf Oil Corporation. The company had following consolidated profit/loss account in the last 5 years:


At the height of 2003-2008 bull run in May 2006, the market capitalization of the company was around 3385 Cr, the same is around 231 Cr after a split of 5:1 and price correcting to INR 30. What the f**k? I don't know if any real estate is involved in this. The same is the case for MMTC. MMTC hardly had profits of around 200 Cr last year but its market capitalization was 2.84 lakh Cr (more than ONGC which earned profits of 20000 Cr last year) in November 2007. Even today it has a market cap of around 65000 Cr, this is more than ITC which earned 3200 Cr as profits last year. If the market has overpaid for these stocks on upside, it is bound to underpay for many other stocks on the downside. Be ready to buy those.
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