Focus on Traded Value, Not on Volume


A lot of stuff people pick from somewhere which are not clearly thought through and then they keep promoting it. In the era of social media, bad news is anyone can propagate anything, but good news is anyone can come and correct it. This increased information flow to discerning mind is a good thing but for mediocre, it is a kiss of death. The era of only limited stuff with stamp of “expert” is gone where you had only selected things to look at.

Often people say a particular stock has low volume hence it can be operated (manipulated) so one should stay away. First of all, what is manipulation? Nobody seems to be able to define it but everybody seems to be talking about. Every other day you will find someone saying this is a operator driven stock and so on.

One alleged expert has been commenting against a stock called Wendt India.

Wendt India is JV between Wendt Gmbh (A 3M group company) and Carborundum Universal (A Murugappa group company which has Chola Fin, Tube Invest, CG Power, Coromandel etc).

Argument is about low volume.

Well, MRF may also have low volume. Does that mean MRF can be operated?

That is why considering the traded value which is price multiplied by volume is key; not only volume. Can you compare a stock that trades at 10 and a stock that trades at 10000 by just looking at volume? It will be fair if you add the price also in the mix.
If that part of considering the Traded Value makes sense then think about market cap. Company with 35000 cr market cap will not have same traded value as 1500 cr market cap. Should you expect same traded value despite having vastly different market cap? No.

Ideally, you should look at Tradable free float market cap. Two companies may have similar market cap but vastly different total traded value because free float is different. What is free float? Free float is calculated as stake left after removing the promoter and institutional stake. We like to look at tradable free float which is 100 – (promoter stake + DII + FII + Public with 1%+ stake). This is to remove all the holding that is in tight hand and arrive at more realistic picture. 12000 cr free float market cap will have much bigger traded value compared to 300 cr free float market cap even if market cap is similar.

Now let’s come back to our example of Wendt India. Market cap of 1806 cr. 75% stake with promoters and 6.79% with FIIs while DIIs are zero and no one has more than 1% in public shareholders. That means you have 18.2% as tradable free float. This is just 330 cr. Even if the stock trades just 1000 shares a day since price is at 9000 it is worth 90 lakhs which is close to 0.3% of Tradable Free Float. This is how you are supposed to look at liquidity and whether stock is just behaving as it should or something abnormal is going on.

Never fall for any authority but always try to understand why something is happening from first principles. You should always consider liquidity before taking the trade otherwise slippages will add up fast but do not start adding operator and all in your thinking.

Wendt India. MCap ₹1806Cr. CMP ₹9032 Tradable Float MCap ₹330 Cr 

Wendt India is a leading manufacturer of Super Abrasives, Machining Tools, and Precision Components. It is a preferred supplier for many of the automobile, auto component, engineering, aerospace, defense ceramics customers for their Super Abrasive Tooling solutions, Grinding & Honing Machines, and Precision components.

Courtesy – TradingView. Click image to embiggen.

They have declared blockbuster earnings with highest quarterly numbers and stock in turn has reacted with huge volume big up move on dailies which led to SVD on the daily candle.

Such stocks are not generally meant for some 5-10% gains but they are good to add on dips and hold for 6-12 months to see the substantial gains. Since stock is from capital goods, a sector that we have been bullish since middle of 2021, it can do really well.

Do let us know what you think about total traded value vs volume and Wendt India in comment section. Which other sector from capital goods sector you like? Happy Investing.

Disclaimer: Posts on the platforms of BN are our perspective on the market. These are purely meant for learning purposes. The perspective provided should not be construed as investment advice or solicitation to trade. We may have positions in the stock mentioned. You agree to make no trade relying on the above contained information fully or partly. By using the content, you agree to these T&Cs.

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