Should you buy Bombay Dyeing on news of the sale of land ?

3 min read

Bombay dyeing recently made a significant announcement regarding the sale of their Worli land for 5200 crores. This news has created a stir in the market, resulting in a surge in the stock price from Rs140 to Rs168. As an investor, it is crucial to understand the implications and potential opportunities this sale presents.

One of the primary considerations is how Bombay dyeing will utilise the proceeds from this land sale. A substantial portion of the funds is expected to be used to pay down their debts, which currently amount to around 3500-4,000 crores. However, this leaves limited capital for other ventures. Therefore, it is essential to monitor how the company strategically allocates this money.

From a chartical perspective, it is interesting to observe the stock’s reaction to the news overnight and in the morning. The initial market response is often a crucial indicator of the stock’s short-term trajectory. In this case, the stock has already experienced a significant increase from its recent lows in March, rising from Rs50 to nearly its current price. This rally suggests that the market may have priced in the news, limiting the element of surprise.

It is important to exercise caution and closely monitor the stock’s behavior from this point forward. If the stock continues to build upon its recent gains, it could be an indication that there is more potential upside. On the other hand, if the stock fails to maintain momentum, it may be wise to exercise caution.

Let us try to rewind a bit !

Investors should also consider the long-term history of Bombay dyeing’s land sale expectations. These plans have been circulating for the past 15 years, and the stock has experienced significant fluctuations due to the anticipation. In 2008-2009, for instance, the stock reached 180 before dropping to 20. It then stagnated for nearly a decade until it rose from Rs45 to Rs300 in 2016-2018. However, the anticipated real estate sale did not materialize, leading to another decline in the stock.

This history serves as a reminder that narratives in the market can sometimes mislead investors, designed to attract more participants before the interested parties unload their shares. It is crucial to remain vigilant and not solely rely on market narratives. By focusing on price action and chart patterns, investors can make more informed decisions.

For those with a shorter-term trading mindset, it may be prudent to consider taking advantage of potential breakouts in the stock price. The recent breakout at 143-144 levels, resembling an inverted head and shoulders pattern, presents a favorable opportunity for a medium-term trade. Setting stop-loss levels at the recent lows of 126 can help manage risk and protect capital.

On the other hand, long-term investors should be aware of the time and patience required for such developments to materialise. The Bombay dyeing land sale, for instance, took 15 years to come to fruition. It is impractical to wait for such extensive periods for returns on investments. Therefore, it is crucial to distinguish between market narratives and price action when making long-term investment decisions.

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    Should you buy Bombay Dyeing on news of the sale of land ?