on Dalal Street, that’s cues.

Cues are signals or triggers arising out of events, policies or actions that can guide decision making about buying or selling a stock. They could range from insider information about a company’s plans on the drawing board to rains and droughts and even the weirdest of projections about how a nation’s good performance in the soccer World Cup can turn sentiments for the better in that economy.

One of the wackiest cues in the world of stock markets is the linkage between butter production in Bangladesh and the S&P 500, the leading indicator of US markets. It says S&P 500 rises or drops at double the rate of percentile rise or drop in butter production in the South Asian nation.

Markets clamour for cues, to be the first to know about anything related to a company, a sector or the broader economy and business environment. Be it about a company winning a new contract, the claim of a CEO to drive his firm to a leadership position, a policy change related to an industry, sales figures of one leading firm in a business or simple gossip about who a business honcho dined with in the previous evening.

And why not? After all, a business can change course any moment and businesses drive stock markets. The problem is cues are very often self-defeating. They are more so in the case of small investors.

For instance, the auto industry has had multiple negative cues beginning with the excise duty hike in the Union Budget, high inflation, rising interest rates, tough competition in the small car segment and rising raw material costs. But in the past four months, the BSE auto index outperformed the broader market, rising 11.90 per cent compared with 6.33 per cent rise in Sensex. Almost all auto and auto ancillary stocks are up between 2 per cent and 24 per cent.

Reliance Industries has had everything going for it since the day the Supreme Court gave a verdict in its favour in the gas dispute with RNRL. From the peace pact between the brothers that freed the Mukesh Ambani group to expand to a range of new areas, including telecom, power and financial services; to its foray into shale gas exploration in the US, it’s raining good news on every front. But the stock is barely up 3 per cent since the day of the agreement on May 24 while the Sensex has risen 8 per cent during the same period.

Momentum play, or reacting to a trigger in the market is like a tightrope walk. It’s not everyone’s cup of tea to make money from stock cues. Definitely not for retail investors, say market veterans. While none of the above triggers seem to have worked well, the fact is stocks always react to cues some way or the other. There are people who make money on them and then there are those, mostly retail investors, who lose theirs.

“You need to have clarity, must understand cycles and the many implications of an event in order to capitalise on it,” said Anil Advani, head of research at SBI Cap Securities.

“In most cases, markets react to an event before time. For instance, the bit about decontrol of oil pricing was built into stock prices much ahead. There was little left when the decision came. It’s important to figure out whether the market has reacted to a cue before time or it will react in line,” he said.

Rising markets, especially if it is after a downturn, are fertile grounds for myriad corporate actions such as merger or demerger, acquisition, capacity expansion, fund raising, stake sale, bonus issue, stock split, share delisting and others.

And each action will have a cue for the market. “M&As are tricky. We generally go for re-rating of a stock depending on the impact of an action on the top line and bottom line, and how it strategically opens up or closes new opportunities for the company,” said Dipen Shah, head of research at Kotak Securities.

A cue can be good or bad for a stock, industry or a market, subject to the condition that other variables remain constant, which is never the case. That is why gullible investors get beaten in the game.

“Retail investors are at a disadvantage on this in the sense they may not have the data and research support to decide whether a certain cue is going to be value accretive or value dilutive,” said Shah.

Financial implications apart, one needs to see whether what is happening is strategically positive or negative. Some events may even have impacts on managements, Shah pointed out.

Intricate data management has made research and stock valuation quicker and algorithmic applications today figure out market sentiments faster than ever before.

Institutional investors are more resolute and rock steady in their responses to market cues. “We follow a certain process and discipline. First of all, we stick to a stock universe and within that if a news trigger warrants a portfolio optimisation, the buy side research team takes a fundamental view on that after doing an impact analysis. It can and does happen on a daily basis,” said Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance.

Institutional players have mandates to invest money in the market for longer time horizons, something a small investor may not have.

“Short-term impact of a move generally wears off over time. It requires one to be nimble-footed. It’s safer to look for the ones that have a long-term impact. For this, one needs to look at the bigger picture,” Advani pointed out.

There is a plethora of data in the market. Converting them into information and then into action requires hard work. Handling stock-specific cues is tricky. One action of a company management may have many permutations, often hard to decipher. Triggers that impact an entire industry or the broader economy as a whole are less risky and handy. That, of course, till the time the next reversal happens.

“It’s an involved process. Be it stock-specific, sector-specific or market-specific, one really doesn’t have a preference. It doesn’t make decision making any simpler or safer or reliable,” Shanbhag added. “I think, a retail investor should be more focussed on his investment objective and have an asset allocation plan tailored to that objective.”