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‘Uninformed critics’ caused stock crash: Govt

business Updated: Oct 31, 2008 21:16 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
‘Uninformed critics’ caused stock crash: Govt

An internal study by the Finance Ministry has found fluctuations in the share price movement of major companies during the last few months which it squarely blames on irrational behaviour fanned by “uninformed critics” and “so-called commentators.”

A top finance ministry official, who did not wish to be identified, said the study looked at a sample of companies that are included in the Sensex 30 and NIFTY 50. “These include both public sector and private sector companies and they cover the whole spectrum of industry and business,” he said.

The study found that despite healthy increase in net profit in both the quarters the prices of these stocks declined steeply during April 1, 2008 to October 24, 2008.

“The behaviour of the market borders on irrationality. Some of these irrationalities are fed by uninformed criticisms and commentaries by the so-called experts,” the official said.

The price/earnings (P/E) ratio has also declined sharply, the official said. P/E is the relationship between the stock price and the company’s earnings, and is the most popular metric of stock analysis.

It gives an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings.

“What is the explanation for this kind of behaviour in the market? In fact, there is no explanation for investors to sell the stocks of these companies,” the finance ministry official said.