How do I know if a stock is a falling knife?

Markets the world over have been correcting owing to multiple reasons

1. Covid-19 linked disruption (logistics, semiconductor, etc.)
2. Inflation (commodities like Crude Oil, Cooking Oil, etc.)
3. Interest Rate Hikes around the Globe
4. Uncertainty linked to the outcome of the Ukraine-Russia War

Despite this, there are some stocks that are corrected beyond the requisite need. The reasons for the same

• Disruption of the Market that the company caters to
• Contraction in Profit Margins
• High Debt with no direction to reduce it
• High dependence on a single market
• Lack of clarity regarding the business model
• Lack of roadmap to profitability
• Ad-hoc decision making

Taking these reasons, multiple companies from Pharma, e-commerce, fintech, banking, etc. fall into this ambit. These stocks have corrected in excess of 25–20% in the past 6–9 months.

Consider the reasons listed to evaluate which stock falls in the “falling knife” category.

Stick to quality over speculation and use the dips to accumulate as the bear market is going to bring dividends for mid to long-term investors.

Hope this helps

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Happy Investing!!