Do Low Price Scrips Deliver Higher Returns?
Lay investors fall for low price scrips probably assuming the low cost will fetch them returns that are higher than high price stocks. So which one is better? DSIJ Team digs out the facts to find the answer for you
For ages, retail investors, not only in India but across the world, have shown their fascination for low price scrips. Indeed, the lure for low price scrip is tempting for small investors as the underlying notion is that a low price scrip grows faster and hence wealth is created at a faster rate.
To put things in perspective, we thought of studying the stock price performance of low price scrips and high price scrips for the current year on an absolute basis. Markets are scaling new highs and the macro-environment has never been this good for markets. Global markets too are on a high, with major benchmark indices touching new peaks. In such a scenario, stocks across market capitalisation tend to perform well and cross their 52-week highs or trade close to their 52-week highs.
For the purpose of this study, we wanted to check how many shares are trading near their 52-week highs in the current market. We selected top 1,000 companies based on market capitalisation for our study and filtered the companies that have regularly reported ROE for the last five years (including ROE for year ended March 31, 2017). After applying this filter, we had 653 companies left for analysis. The companies were segregated into four categories based on their current share price.
We wanted to see the average returns generated by shares within these four price-band buckets, for which we calculated year-to-date (YTD) returns of each stock and then calculated average returns within each category.
It is interesting to note that almost 83% of the companies having share prices above ₹1,000 are trading between 80%-100% range of their 52-week highs. Such a high percentage of shares that are trading close to their respective 52-week highs indicates that the market rally is broad-based.
Another important aspect that gets highlighted here is that the average returns for the scrips with their current market prices higher than ₹1000 stands at an impressive 50 per cent on a YTD basis, which is significantly higher than 27 per cent, which is the average returns