Don't consider investing in FCL now, it is risky at the moment
23 Jan, 201913 min read
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FINEOTEX CHEMICAL LIMITED delivered massive losses on Wednesday. It returned -1.4% to close at 38.65. On a day when the overall market breadth was 70%, it closed higher than 74% of the market. In comparison, the benchmark NIFTY-50 index closed today at -0.0084%.
FCL showed a down trend over the last 3 months. During this period FCL returned -9.06% and saw a maximum drawdown of -28.59%. It has been unusually choppy during this period. Long term investors are better off avoiding investing in FCL till volatility reduces and a clear trend emerges.
FCL has been outperforming the NIFTY-50 index in recent time. Over the last 3 years and 1 month, FCL underperformed the NIFTY-50 index on 57% days.
FCL returned losses on 69% days in the last three months. During this time, it delivered on average -0.06% per day. It delivered it's best daily return of +19.91%, during this period, on Monday, 14 Jan, 2019. There was initially a bullish trend during this period which started on 5 Nov, 2018 and went on till 7 Nov, 2018. The bullish trend returned +5.11% to investors. This was followed by a bearish trend that started on 1 Jan, 2019 and ended on 8 Jan, 2019. This bearish trend lost -6.71% of investor capital.
On monthly basis, FCL delivered losses in more months over the last year, than profits. FCL delivered profits in more months than NIFTY-50 index. FCL significantly outperformed NIFTY-50 index in Apr 2018, when it returned +30.29% compared to +6.56% returned by NIFTY-50 index during it's best month in the last one year - Jul 2018. FCL and NIFTY-50 index, both had periods of 2 consecutive profitable months. It is interesting to note that both FCL and NIFTY-50 index significantly outperform during months when quarterly/annual results are announced.
"All intelligent investing is value investing - acquiring more that you are paying for. You must value the business in order to value the stock.
FCL is becoming more volatile overall. In comparison, the NIFTY-50 index is seeing a fall in volatility. During the last three months, there was a significant fall in FCL's volatility from 24 Oct, 2018 to 11 Jan, 2019. While there was a significant fall in the NIFTY-50 index's volatility from 31 Oct, 2018 to 5 Dec, 2018.
Advanced/professional short-term investors should note that FCL has significant negative skewness in it's return distribution. This indicates that FCL is very risky for short-term investment and can significantly underperform for long durations.
FCL has more chance of extreme outcomes than the NIFTY-50 index. Therefore, FCL must receive a lower allocation than NIFTY-50 in your portfolio. NIFTY-50 index usually has shorter drawdown period than FCL.
On a general note (since you are interested in FCL), if you are an investor in ~HOMEAPPLIANCES, you need to be extra careful (consider limiting your exposure or diversifying) as it is extremely unpredictable and therefore risky.
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