The year 2020 passed in a blur. While it started on a positive note, the Coronavirus pandemic and the subsequent lockdowns brought about an economic slowdown in the country.Even the financial markets buckled under the global effect of the pandemic. The BSE and NSE, which were at their highest values at 42,273 and 12,362 in the first month of January, fell by 38% when the pandemic struck.The tourism, hospitality and entertainment sectors also fell by more than 40% due to lockdowns and transportation restrictions. (Source: https://www.researchsquare.com/article/rs-57471/v1.pdf).Though the markets are regaining their luster slowly, investors are confused about where to invest in 2022 for maximum gains. What do you think?Though 2020 was a roller-coaster, investors are eyeing the year 2022 with hope. Investment in 2022 is primarily guided by the recovery of the financial markets after the pandemic as the industry is waking up and normalcy is being restored.Certified financial planners have also pitched in their recommendations for investments in 2022. Here are, therefore, some of the lucrative investment opportunities for 2022
For most risk-loving investors, stock trading and investing into direct equity always holds attraction. Even though the equity market suffered losses in the beginning half of 2020 on the pandemic fears, the market is correcting itself and as of the market closing time on 27th November 2020, the NSE and BSE are already at their pre-COVID levels of 12,968.95 and 44,149.72 respectively. (Source: https://www.financialexpress.com/market/stock-market/).
The boost in the stock exchange was largely due to the promise of the COVID vaccine which is almost in its ready stages. This has resulted in positive market sentiments globally and so, direct equity is once again looking good.
Moreover, history has been a witness that the stock market always bounces back even after a crash, whether it was the Harshad Mehta scam or the 2008 crash. If you invest over a long term period, direct equity is known to yield exponential returns.
Have a look at how the stock market has performed over the last 30 years –
For investors who do not like direct exposure to equity but want to invest in a diversified portfolio, mutual funds are the best solution. Mutual funds are beneficial because –
They help you own a diversified portfolio
They come in different variants and you can choose a scheme that is relevant to your investment preference and risk appetite
ELSS funds allow you the benefit of tax savings on your investments
They are professionally managed to allow you to invest in the best stocks and instruments
You can invest in mutual fund schemes as low as Rs.500 making them ideal for small-time investors too who want market exposure with limited savings
Given these benefits, the mutual fund market is another avenue that you can explore. In fact, equity mutual funds are less risky compared to direct equity because of the diversification that they provide.
As far as returns are concerned, some equity funds have even outperformed the stock market in several instances. For example, Invesco India’s Growth Opportunities Fund, a large and mid-cap fund, has consistently outperformed the S & P BSE Index over the years. Have a look –
So, as far as returns are concerned, you don’t have to worry. You can also choose SIPs to invest every month in a disciplined manner and build up a substantial corpus over a long-term horizon.
In fact, the mutual fund industry has become so popular, that investors are increasingly investing in the avenue to bank upon its returns. The AUM of the mutual fund industry has, therefore, consistently grown over the years –
Have you invested in the National Pension System introduced by the Government? If not, you can consider it in 2022. The reasons? Let’s see –
#1 – It helps you create an earmarked corpus for retirement
#2 – The scheme is market-linked promising inflation-adjusted returns
#3 – You get lifelong incomes in the form of pension after maturity
#4 – Investments into the scheme are tax-free under Section 80CCD (1B) up to Rs.1.5 lakhs
#5 – Additional investments, up to Rs.50, 000 can be claimed as a deduction under Section 80 CCD (1B)
Moreover, if you choose the new tax regime and if your employer contributes to the NPS scheme on your behalf, such contributions would be allowed as a deduction from your taxable income for up to 10% of your basic salary and dearness allowance under Section 80CCD (2).
Besides the market-linked returns, the additional tax benefit, both under the old tax regime and the new one, tilts the scales in favor of the NPS scheme.
You can invest in the scheme for long-term capital accumulation for your retirement. On maturity, you would be allowed to withdraw up to 60% of the accumulated corpus as tax-free income which would also be tax-free in your hands.
So, if tax-saving and retirement planning is your goal, you cannot go wrong with the NPS scheme.
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4) Invest in Fixed Deposits (FD)
This is the avenue for traditional investors who are averse to any kind of market risk and want secured and safe returns. Fixed deposits have been an Indian favorite for a long time and this favor is not going to end anytime soon.
Even though the interest rate on fixed-income instruments, including fixed deposits, has been slashed in recent times, fixed deposits continue to find investors for the safety that they promise.
The popularity of fixed deposit schemes, especially when volatility struck during the pandemic, increased and the trend is expected to continue in 2022.
So, if you want to be safe with your investments, you can choose fixed deposit schemes. However, do not dedicate a large portion of your investment to fixed deposit schemes.
Direct about 5% to 10% of your investment in fixed deposit schemes and the rest should be invested in other market-linked avenues. If you are choosing fixed deposits, here are some tips which you can follow –
Invest in 5-year fixed deposit schemes offered by banks and post offices. These schemes allow tax-saving on investment under Section 80C
If you want higher returns, opt for fixed deposit schemes offered by NBFCs (Non-Banking Financial Companies)
Compare the rate of fixed deposit schemes across institutions and choose the scheme which has the highest rate
Do not withdraw your deposits before the completion of the tenure. It would attract a withdrawal penalty which would reduce your interest earnings.
For risk-free returns, you can also choose debt mutual funds which would help you earn inflation-adjusted returns and also earn the benefit of indexation if you redeem your funds after 3 years.
5) Invest in Unit Linked Insurance Plans (ULIP)
While the primary objective of insurance plans is to offer financial protection against premature death, Unit Linked Insurance Plans (ULIPs) serve a dual purpose. Besides allowing insurance coverage, these plans also help you create wealth, a la mutual funds.
ULIPs work on the model of mutual funds. The premium that you pay is invested into different funds of your choice. Each of these funds invests in the capital market depending on the fund’s objective.
For example, equity funds invest in equity stocks while debt funds invest in debt instruments. Depending on the growth of the underlying assets, the NAV of the fund grows and you can earn returns on your investments.
In case of death during the policy tenure, you get higher of the sum assured or the fund value and on maturity, the fund value is paid. The distinct advantages of ULIPs are as follows –
Invested premiums qualify for tax deduction under Section 80C up to Rs.1.5 lakhs
A single policy gives you the option of different types of investment funds to choose from – equity, debt and hybrid. You can invest in one or more funds as you’re your investment preference. Moreover, you can switch between the chosen funds during the policy tenure depending on the market movements. This switching is completely tax-free and almost all ULIPs allow free switches up to a specific number of times
Partial withdrawals from the fund value can be made from the 6th policy year. These withdrawals are also completely tax-free in nature
The death benefit received is completely tax-free
If the premium paid is up to 10% of the sum assured, the maturity benefit received on maturity is also completely tax-free under Section 10 (10D) of the Income Tax Act, 1961
Moreover, the charges involved under ULIPs have also been reduced in recent times pitching them as a favorable product against mutual funds.
6) Invest in Real Estate
This avenue is for those investors who want to bank on the growth in the real estate market. In 2019 the real estate market was valued at Rs.12, 000 crores, and it is expected to reach Rs.65. 000 crores by 2040.
In 2019, real estate investments amounted to Rs.43, 780 crores, and the number is expected to increase in the coming years. (Source: https://www.ibef.org/industry/real-estate-india.aspx) The introduction of RERA, reduced interest rates on home loans, and the need to own a house are the major driving factors for the growth of the real estate industry.
Housing is one of the basic needs of individuals and if you want to create an asset, you can explore the real estate market as the pandemic has led to a reduction in the prices which would be good for you.
Moreover, if you avail a home loan to invest in a home, you would be able to avail of tax benefits under Sections 80C, 80EEA and 24 on the principal as well as on the interest payable on the loan.
The loan would also improve your credit score and allow you to own your dream house. So, if you have considerable funds at your disposal, opt for real estate either for owning your house or for the creation of an asset.
Gold is another investment avenue that you can consider if you are looking to hedge against volatility and uncertainty. Gold holds a traditional value for Indian investors as festivities, weddings, and gifting is marked with physical gold ornaments and jewelry.
From an investment point of view, however, different avenues are in vogue in recent years with the availability of gold ETFs, gold mutual funds and, the all-new, digital gold.
These gold investment avenues are getting much attention because of their safety, liquidity and ease of investing in small amounts.
When it comes to returns, gold is a safe haven, especially if you are looking for long-term savings. Gold gives cyclical returns and when the markets are volatile, gold is looked upon as a safe investment avenue and its prices surge.
The very recent example is the COVID pandemic wherein the prices of gold jumped in April and May when the pandemic struck India. Moreover, over the last few years, gold has outperformed Sensex in terms of returns. Have a look –
So, you can consider gold as an investment avenue but invest in Gold ETFs or gold mutual funds for liquidity and safety of storage rather than physical gold. You can also trade in gold through these investment avenues and book returns when the price of gold climbs.
2022 is supposed to be a breath of fresh air for the Indian economy and the financial markets as the effect of the unprecedented COVID pandemic is expected to ebb.
Use the afore-mentioned 2022 investment opportunities and make wise investment choices to grow your wealth especially if the pandemic ate into your portfolio in 2020. Plan your investment strategy for 2022.
Understand the avenues before you choose them and then pick suitable options based on your investment need, financial planning in 2022, and, most importantly, risk profile. Also, monitor your portfolio regularly so that you can make changes to it as per your changing financial needs and market dynamics and keep your portfolio profitable in all seasons.
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The stock market holds an attraction for many investors, both budding and seasoned. While for budding investors the stock market can prove to be an avenue for quick returns, for seasoned investors, the stock market is an avenue for wealth creation. In fact, after the pandemic, the popularity of stock trading has intensified further as the numbers indicate.
As per the data furnished by CDSL and NSDL, the two primary depositories in India, active Demat accounts increased by 10.4 million in the year 2020.
Moreover, in the third quarter of 2020, retail ownership of 1500+ companies listed on the NSE jumped by 9%, which was the highest since March 2018.
While the stock market popularity is increasing, its technical aspects should not be ignored.
The stock market has the potential of delivering attractive returns but only if you invest in it wisely.
The stock market for beginners might look like a challenging platform and so, there is a need to simplify it.
So, here are some important principles of stock trading for beginners, which should be kept in mind when investing in stocks –
1. Principles of stock trading for beginners
Invest your surplus funds
While investing is good, you need to pay your bills too.
So, meet all the necessary expenses to arrive at your disposable income, i.e. the income earned minus the expenses. This disposable income is your savings which you can invest in stocks and other avenues to generate returns.
These savings, or surplus, can then be invested in the stock market.
Do not go all in
When you are starting your journey in the world of stock trading, you need to be very careful.
Start with baby steps so that you do not expose all your savings to the volatility of the equity market.
Moreover, when you start with small steps, you can also learn the ropes without too much to lose.
So, even when you have a considerable disposable income or surplus to invest, don’t go all in. Start with testing the waters of stock trading. Invest in a few stocks at a time.
Do not put all your savings in the stock market. If there is a sudden tumble, you would suffer a considerable loss.
Expose a part of your savings to the stock market. The rest of your savings should be allocated to other investment avenues which would give a diversified portfolio.
This would ensure that even if the stock market is in a downturn, other investment avenues deliver returns on your investments.
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Do not borrow to invest
This is the worst mistake that many failed investors have made.
When the stock market is giving good returns, many investors want to maximize the growth potential.
If they have limited savings at their disposal, they resort to debt to invest. Their belief is simple – they can earn good returns on the borrowed money and make an additional gain.
Does this belief work? It might not, especially if the stock market turns volatile.
The stock market is highly dynamic. While it might be scaling new heights, a small factor can reverse the trend and make it volatile.
Spotting this trend reversal is difficult, and for beginners, it can prove to be impossible.
So, borrowing to make more money is a fatal flaw. Invest only what you can spare from your income. No matter how high the share market is climbing, never get tempted to borrow. You never know when the tables can turn.
Speculate with your money, not with others’ or you might not only suffer a loss but also find yourself in debt when the market tumbles.
Be careful when picking the right stocks
There are more than a thousand stocks trading on the stock exchange. Can you invest in all?
To earn attractive returns from the stock market, you need to choose the right stocks for your portfolio.
The choice depends on your investment strategy and the profit-generating potential of the stock.
There are three main types of stocks in the share market –
Large-cap stocks belong to companies that have a high market capitalization. Such companies are established companies that are financially stable.
Mid-cap stocks belong to companies that have a medium market capitalization. Such companies are in their growth stage or in the stage of establishing themselves in the industry.
Small-cap stocks belong to small-cap companies, i.e. companies that have just listed on the stock exchange and are on their way to growth.
Large-cap stocks have the most stable profile while small and mid-cap stocks are volatile.
As a beginner, you can pick large-cap stocks for lower risks.
Also, when investing in stocks, make a technical and fundamental analysis of the company.
In other words, check the stock’s past trends, its previous highs, and lows, growth, etc. Moreover, check if the company has strong management, has the potential to grow or not, has financial stability, etc. This assessment would help you know which stocks might generate a profit on your investment.
What is right for your friend, colleague or neighbor might not be right for you. You need to make investment decisions based on your investment strategy, financial goals, risk profile, etc.
You should not be driven by herd mentality. Even if the herd is following a particular stock, assess the stock first before you invest it. Don’t invest because others have done so.
You need to make sure that the stock that you pick matches your investment needs, not others’.
Stock investing is not a magic wand, spin it and you get rich. It needs patience.
If a stock is doing well, don’t be in a hurry to sell it off and make a profit. It can deliver higher returns if you allow it to grow.
Similarly, if the market suddenly turns volatile, don’t panic.
The stock market experiences cycles of volatility but if you are patient, the market rebounds and recovers. Take the pandemic for instance.
While the market became highly volatile when the pandemic struck, it has doubled up now that the pandemic’s scare is subsiding.
You need to be patient if you are investing in the stock market because it is a roller coaster ride with many ups and downs. If you can be patient in challenging times, you would come out the other side a winner.
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Have a long-term vision
Though the stock market can deliver quick returns, time can multiply the returns further.
Moreover, if the market becomes bearish, you need to give it time to recoup the losses and enter the bullish trend.
Stock market investing is not a short-term game. If you really want to really earn a return from stock investing, give it time and see your portfolio grow exponentially.
Diversification is the golden rule of investing. In simple terms, diversification means allocating your investments into different avenues. While portfolio diversification means investing in different types of assets, when it comes to diversification in the stock market, it is all about the types of stocks that you pick.
To diversify in the stock market, invest in large-cap, mid-cap as well as small-cap stocks. Moreover, choose stocks of companies in different industries like IT, metal, pharmaceutical, FMCG, etc. Do not invest in only one company.
When you diversify, the volatility risk of one type of stock is offset by another. Not all stocks might fall. Some might fall while some might rise. The returns earned from rising stocks, thus, balances out the loss suffered from falling ones.
For instance, during the pandemic, stocks across most sectors fell but the pharma and FMCG sector stocks grew due to high demand.
So, when you have a diversified portfolio, you can mitigate the volatility risks of stock investing by investing in different types of stocks.
Lastly, monitor and track your portfolio on a regular basis. This is important for two reasons. One, you can see which stocks are performing well and have the potential to grow so that you can make additional investments in them.
Two, you can keep a tab on non-performing stocks and weed them out of your portfolio so that you don’t incur an opportunity cost by staying invested in them.
So, track your portfolio regularly to watch how your investment is performing. It would also give you an idea of the corpus that has been created so that you can plan your financial goals.
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2. How to start trading in stocks?
To start trading in stocks, you need three things –
A Demat account
A trading account
Bank savings account linked to the trading account
The Demat and trading accounts are opened with a depository participant authorized by SEBI (Securities and Exchange Board of India). A trading account is linked with your bank savings account.
Any buying or selling in shares is done through the trading account. The Demat account is like a storehouse wherein the shares that you buy are stored in a dematerialized (electronic) format.
Also, you need a broker through whom you can buy or sell shares. As per SEBI’s rules share trading in India can be done only through brokers.
When it comes to stockbrokers, there are two main types of brokers that you can choose from –
Full-service brokers are those who charge a fee for their services. Moreover, they might also charge a brokerage on each trade that you place. For the fee charged, however, full-service brokers provide their expert recommendations on the stocks that you should pick.
They also help you create a diversified portfolio and advise you on stock investing by picking the right stocks on your behalf. For beginners, full-service brokers can prove to be a good choice for expert guidance on stock investing.
Discount brokers have become the rage in recent times as they charge minimal or zero brokerage on your trades. They only charge a low fee when you join them and after that, no brokerage is charged on equity trading. However, discount brokers might not give you expert guidance on picking the right stocks and help you with your portfolio.
3 Things To Keep in Mind While Investing in Stock Market
3. Tax implication of stock trading
Before you start stock trading, you need to understand its tax implication as well.
Stocks are equity instruments and so, they attract equity taxation. If you sell off a share within 12 months of buying it, any returns earned from the transaction would be called a short-term capital gain.
Such a gain would be taxed at 15%. On the other hand, if you sell off a share after 12 months of buying it, the returns earned from the transaction would be called a long-term capital gain.
Such a gain would be tax-free up to Rs.1 lakh. However, if your gain exceeds Rs.1 lakh, the excess would be taxed in your hands at 10%.
For example, say you bought 10,000 shares of ABC Limited on 1st January 2021 at Rs.50/share. In June 2021, you sell off 6000 shares at Rs.70/share. Thereafter, on 2nd February 2022, you sell off the remaining 4000 shares at Rs.80/share. The tax implication of these trades would be as follows –
For June 2021, the period of holding is less than 12 months. The gains earned would be Rs.20/share. Total gains would be Rs.120,000 (6000*20) which would be taxed at 15%. So, on the June 2021 trade, you would have to pay a tax of Rs.18,000.
For February 2021, the holding period is more than 12 months. The gains would, thus, be called long-term capital gains. The gain would be Rs.30/share which would amount to Rs.120,000 (4000*30). Gains up to Rs.1 lakh would be tax-free. The excess gain of Rs.20,000 would be taxed at 10% and the tax liability would come to Rs.2000.
Tip – Long-term stock holding is also beneficial from the tax point of view. It gives you the benefit of long-term capital gains tax wherein gains up to Rs.1 lakh can be claimed as tax-free income. As can be seen in the above example, though the gain is the same in both cases, the tax liability is lower in the case of long-term capital gains compared to the short term.
When it comes to stock trading, there is no restriction on who can trade. You just need to be 18 years and above and have a valid Demat account, trading account and bank savings account to start trading in stocks.
If you are a housewife or a student, you might not have a regular source of income. If you have a part-time hustle or if you save regularly, you can start trading in the stock market.
However, be careful when picking stocks. Choose stocks after understanding their profit potential. Also, be disciplined in your investing habits. Do not panic when the stock market suffers volatility.
Be patient and wait for the volatility to pass. If you exercise patience, you can end up multiplying your investments with time.
Also, students and housewives should invest only what they can spare. Do not invest all your savings into stocks. Keep some aside for other avenues too since the stock market is a risky place. If there is a downswing, you might lose your savings and be in the red, a situation that is best avoided.
5. Stock trading for working professionals
For working professionals, stock trading can be a good way to accumulate wealth for future financial goals. When you are young and you have a source of income, you can set aside a part of your income for stock trading, every month.
Invest small amounts every month and slowly create a diversified portfolio. Since you are young, you can afford equity exposure and create wealth over a long-term horizon.
Follow the aforementioned principles of stock trading whether you are a beginner or a seasoned stock investor. Do not speculate too much but invest in other avenues as well to create a diversified portfolio that does not depend only on the stock market for wealth creation.
6. Making money from stock trading
Stock trading is an avenue that is seen by many as a way to make money. Well, given the recent rally in the stock market, both BSE and NSE, the profit potential cannot be ignored. However, you should also remember the risks involved in stock trading.
When trading in stocks, here are a few tips to make money –
Choose established stocks that can weather out small volatilities
Keep an eye out for the quarterly reports of companies to know which company is earning profits and the future prospects
Keep yourself updated about the latest news and happenings of the stock market. There is something new every day and you need to be updated about the latest developments to ensure that your portfolio remains relevant even in changing markets. Koppr helps you stay abreast of all the latest stock market news. Install the Koppr app on your phone and check the daily happenings.
Learn the technicalities of the stock market to learn how to spot opportunities and make money. Here too, Koppr can prove to be helpful. There are various learning resources on the Koppr app which can help you learn the nitty-gritty of the stock market
Ride out market volatilities and invest with a long-term horizon
The bottom line
Trading on the stock exchange is simple. However, before you start your journey, learn the basic principles of stock trading. Know how the stock market works so that you can use it to your advantage to make money. Learn the tips and tricks of stock trading and become a smart investor.
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The share market has become a popular investment avenue for many due to the attraction of good returns. It is a marketplace where shares are bought and sold. The stock market is a significant factor in the economic development of a country.
It is volatile and reacts to various indicators of economic growth such as inflation, GDP, corporate earnings, and more.
Investors invest in the stocks of a company to benefit from the growth of a company. For their investments, they can earn dividends and capital returns.
But to understand the concept of the stock market, you need to, first, understand the concept of shares.
So, let’s explore –
What are Shares?
The capital of a company is divided into equal units of finite numbers of instruments known as a share. Each share represents per-unit ownership of the company. If you invest in a share, you are said to be investing in the company.
For example, say a company issues 1 lakh shares and you invest in 10,000 of them. In such a case, you would be said to own 10% of the company.
For your investment in a company’s shares, you are rewarded. If the company earns a profit, a part of such profit is distributed in the form of dividends to shareholders. Moreover, if the company grows, the value of its shares also grows.
This gives you capital appreciation on the invested amount.
Why do companies issue shares?
Issuance of shares is considered to be one of the easiest, advantageous and successful ways to raise funds for operation and growth. Besides the primary reason for raising funds from the market, there are many other reasons why companies issue shares. Some of the common reasons are as follows:
To get funds to purchase assets and equipment
To get funds for establishing and developing new projects or products
To increase its inventory
To pay off the debts or to redeem its debentures
To increase its flexibility and liquidity
For the purpose of merger and acquisition
To get market visibility
Types of Shares
There are different types of stocks that are traded in the Indian stock market. These shares can be classified on the basis of various parameters. The parameters of the classification of the stock and the different types of shares under each classification are discussed below:
1. Types of shares on the basis of Stock classes
Stocks classified on the basis of classes are primarily of three kinds. They are as follows:
a). Equity shares
Equity shares are ordinary shares of the company which provide voting rights to the shareholders. These shares are also called common stock. Profits are distributed on equity shares in the form of dividends but the dividend is not guaranteed.
It depends on the profit earned by the company in a financial year. Moreover, in the case of liquidation of the company, equity shareholders are paid at the end.
The assets of the company are used to pay off the creditors and liabilities. Thereafter, preference is given to preference shareholders who are paid off for their investments. Once the preference shareholders are paid off, equity shareholders get the residual assets of the company.
Equity shares suffer considerable volatility and price fluctuations but also have the potential of giving attractive returns too.
b). Preference shares
Preference shares are the shares for which the shareholders receive preferential treatment.
The dividends are paid on such shares at a guaranteed rate before a dividend is declared on equity shares.
The preference share capital is paid before paying the equity share capital at the time of winding up of the company. Preference shares do not carry any voting rights and they cannot participate in the decision-making matters of the company.
However, if the dividend in respect of a class of preference shares has not been declared or paid by the company for a period of two years or more than two years, then such class of preference shareholders will be entitled to vote on the resolutions and shall have voting rights.
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2. Types of shares based on voting rights
Shares might or might not carry voting rights. As such, they can be differentiated on this parameter as well. Here are the types of shares based on voting rights.
a) Differential voting rights shares
Differential voting rights equity shares are the common equity shares that do not have voting rights. These shares are traded in the stock exchange like other regular equity shares but at a discounted value and carry higher dividends in comparison to ordinary equity shares. A company planning to offer differential voting rights equity shares is required to fulfill the eligibility criteria before issuing it.
b) Shares with voting rights
These are equity shares that have full voting rights. Shareholders owning these types of shares can vote on the managerial and executive matters of the company. They can vote at the company’s meetings and play a part in the management of the company.
Stocks of companies might have different trading features. This, further, differentiates shares. Have a look –
a) Derivative stocks
Derivative stocks are stocks that are offered with an inbuilt derivative option.
These stocks are contracts that derive their value from underlying assets. Derivative stock comes with a ‘call’ or a ‘put’ option.
A call option offers the option of buying back the stock by the company at a certain price on a certain point in time whereas a put option provides the holder to sell the stock to the company at a certain time and a certain price.
b) Hybrid stocks
Hybrid stocks are nothing but preference shares that give you the option to convert them into equity shares after a specified time and if specific conditions are met.
So, when the shares are preference shares, you cannot trade them on the stock exchange.
But, if you opt for conversion and the shares are converted to equity shares, you get the option of trading them on the exchange for a profit.
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4. Types of shares on the basis of market capitalization
Market capitalization refers to companies’ total shareholding. The market capitalization of a company is calculated by multiplying the total number of shares outstanding in the market with the current market price of the stock of the company.
The market capitalization of the company is one of the significant factors to know the financial position of the company.
The Association of Mutual Funds in India prepares a list of companies based on their market capitalization. This list determines which companies are large-cap, which are mid-cap, and which are small-cap.
Then, depending on its classification, the company’s stocks are also classified in the same category. Have a look –
a) Small-cap stock
Small-cap companies are those that rank 251 and above in the market capitalization list issued by AMFI.
These stocks have the potential for good growth in the future and are a good choice for investors who are looking forward to investing their funds for the long term.
Investors who are willing to withstand price volatility and are not particular about current dividends can invest in small-cap stocks and make significant gains.
b) Mid Cap stocks
Midcap stocks are the stocks offered by companies listed between 101 and 250 on AMFI’s list. Such companies are those that are in their growth stages and have the potential to grow in the future.
Mid-cap stocks, thus, provide the benefit of attractive growth potential.
These companies have a good track record of consistent growth. When it comes to volatility, mid-cap stocks are less volatile than small-cap stocks.
c) Large-cap stocks
Large-cap stocks are the stocks of established enterprises which are also known as blue-chip companies with large capital reserves at their disposal. These companies are ranked from 1 to 100 on AMFI’s list.
Large-cap companies have already made a name for themselves in the stock market and they are market leaders.
As such, these companies have the capacity to withstand extreme market conditions without going bankrupt. Large-cap stocks, thus, are stable compared to mid-cap and small-cap stocks.
They offer high dividend income and give moderate returns on your investments.
8. Types of share on the basis of payment of dividend
The dividend is one of the most significant factors in the share market. They are mainly two types of shares on the basis of payment of dividends. They are as follows:
a) Income stocks
Income stocks pay a higher dividend in comparison to growth stocks. Income stocks show that the company is making a good profit and is stable enough to afford the payment of consistent dividends.
These stocks are named income stocks as the stock pays higher dividends to investors translating it to higher income. These stocks include preferred stocks.
To find the stocks offering higher dividends, investors can use the share dividend yield measure to calculate earnings per share from the investment.
b) Growth stocks
Growth stocks, as the name suggests, are the stocks issued by the companies which re-invest the earnings of the investors enabling the funds to grow faster.
These stocks do not yield higher dividends but offer long-term capital appreciation. The share value increases with the growth rate providing higher returns to the investors.
Growth stocks are a good choice for investors who are looking to invest their funds for the long term and not as a source of income. Risks involved in growth stocks are generally higher.
So, when investing in stocks, assess the type of stock that you are picking. Moreover, here are some stock investing facts that you should know about.
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Facts to know about shares and the share market
Shares are risky investment avenues that, though have high profit potential, can cause considerable losses too. So, you should have a healthy risk appetite to absorb possible losses. Try and invest with a long-term horizon so that you can reduce the risks of stock trading.
Have a diversified portfolio of stocks so that you can spread the volatility risks across different sectors of the economy.
Shares are traded on different types of stock exchanges. The National Stock Exchange and the Bombay Stock Exchange are the two major stock exchanges in India.
Stocks can be brought through a depository participant by opening a Demat account. Depository participants are intermediaries between an investor and the depository authority.
There are two types of dividend, interim and final dividend depending on the classification of stocks.
Shares are freely transferable by the shareholders and can be sold to another party.
There are two types of shareholders i.e primary shareholders who purchase the stock when the company issues it and secondary shareholders who purchase the stock from the stock exchange in the secondary market.
Shares are held in electronic mode in a dematerialized form through a depository and a depository participant.
Companies can issues shares at their face value or at an amount higher than their face value. The difference between the amount of share price and its face value is called share premium.
Buying and selling of shares, whichever type that you choose to trade in, attracts tax if you make a profit.
Here’s how the tax treatment works –
If you sell the stock within 12 months of buying it, the profit earned would be called a short-term capital gain. Such a gain would be taxed at 15%.
If you sell the stock after 12 months of buying it, the profit earned would be called a long-term capital gain. Such a gain would be tax-free up to Rs.1 lakh. However, if the gain exceeds Rs.1 lakh, the excess gain would be taxed at 10%.
Dividends earned from stocks are taxed at your income tax slab rates.
The bottom line
The stock market is a technical platform where thousands of shares are bought and sold every day. Understand how the market works before you start your stock trading journey.
Also, when picking stocks for your portfolio, do a detailed analysis of the stock to ensure that it is profitable and would give a good bang for your buck.
Also, understand the different types of stocks available in the market and choose those which align with your investment needs and preferences.
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There are many investment avenues that you can use to create wealth for your financial goals. Among the different avenues, stock trading is quite popular among investors. Stock trading, in the simplest form, means buying and selling stocks from the stock market. It is a popular mode of investment because –
It has a high return potential
It can create wealth over long-term horizons
It is a highly liquid avenue
Moreover, the stock trading activity is done online through an online Demat account. You can place buy and sell orders through a licensed broker to trade in stocks.
Thanks to the development of technology, the advent of the internet, and the increased use of Smartphones, your trusted brokers are now available right at your fingertips.
Yes, you heard it right! Stockbrokers have developed their own apps that allow stock trading through your Smartphones. This is not only convenient but quite simple too.
There are dozens of stock trading apps on the market. But which is the best stock market app?
Here are 6 of the best app for the stock market which you can consider for your stock trading journey. You can easily compare and choose the best stock market apps for beginners among them.
Claiming to be the number one broker in India, Zerodha started its operations on the 15th of August 2010. Popular among traders, 6+ million clients place millions of orders through the application’s powerful ecosystem.
Zerodha contributes over 15 percent of all Indian retail trading volumes. According to Ashley Coutinho’s article written on 5th September 2021, Zerodha has 45,43,870 active clients which capture 19.09% of the market share.
Unique features of Zerodha
Here are some aspects which set Zerodha apart from the other stock market apps for beginners –
Besides stocks, you can trade in futures and options, commodity derivatives, IPOs, bonds and Government securities, currency derivatives, etc.
Zerodha was awarded Economic Times Start-up of the Year 2020
You can learn the technicalities of stock trading with Zerodha’s Varsity, an educational platform for investors and beginners
All investments that are delivery-based trading are completely free of cost.
Flat INR 20 or 0.03 percent, whichever is lower will be executed per order for every intraday trades that are done across asset classes such as equity, commodity, or currency trades.
All direct mutual fund investments are absolutely free.
Offers you a brokerage calculator that helps you evaluate the fees and other taxes imposed on trading.
Provides you with trading tools such as Kite, Console, Coin, Varsity mobile, and Sentinel for facilitating your trading.
Zerodha’s interactive portal ‘Z-Connect’ covers almost every query of the client in form of blogs, illustrations, and interactive articles. Apart from that users can always reach out to Zerodha via email and phone.
Trading in stocks is affordable if you follow the buy-and-hold approach. You don’t pay any brokerage on delivery trading.
The account opening process consumes a lot of time.
Covers only the Indian stock market.
Credit / Debit cards cannot be used for deposits and withdrawals.
Groww intends to make investments in India, easy, fast, and transparent. It has 10 million-plus customers handled with 100+ team members. Backed by Ribbit Capital, Sequoia, Y Combinator, Kauffman Fellows, Propel Venture Partners, and Kairos, Groww is operated from Bengaluru.
Unique features of Groww
Here are some salient facts to know about Groww as a trading app –
Besides stocks, Groww also allows you to invest in gold, mutual funds, US stocks, futures and options, and fixed deposits
You can download the app on your Android phone, iPhone as well as on your computer and sync your account across platforms
For any help, query, or feedback, you can connect with Groww’s efficient customer service department online.
Account opening and maintenance are absolutely free with Groww.
For equity brokerage, Groww charges INR 20 or 0.05 percent whichever is lower.
For Futures and Options brokerage, Groww charges INR 20 per executed order.
It has a simple pricing model.
The application offers professional management of shares, real estate, gold, bonds, etc.
Investing via UPI is possible.
You can have portfolio insights by using Groww via the website.
The service allows you to compare three mutual funds at the same time.
Users can view their SIP history on the application.
Groww’s investment products offer no option to trade in the commodity, and currency segments.
It offers no call and trade services.
Groww does not provide any stock tips, research reports, or recommendations.
There is no margin trading facility or margin against shares.
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Started as an idea to make trading easier and cheaper, Upstox currently has 50,00,000+ investors. This platform is backed by Mr. Ratan Tata and Tiger Global management. Upstox Pro platform was launched with a big focus on mobile and powerful trading platforms in 2016. Since then, Upstox has committedly worked for making investments easy as well as accessible to everyone, not only via the web but also via mobile.
Unique features of Upstox
Backed by reputed names in the industry, Upstox also has the following salient aspects that investors should know about –
With a single platform, Upstox allows you to trade in stocks, futures and options, NFOs, commodities, IPOs, and mutual funds
Started in 2016, Upstox has delivered relevant solutions to lakhs of its customers
You can open a Upstox account online with minimal hassles
There are hundreds of charts and technical analysis tools that help you pick the right stocks to create a quality portfolio
Upstox does not charge a single penny when trading mutual funds and IPOs.
The platform charges INR 20 or 0.05 percent, whichever is lower on Equity Intraday, Futures, and Options, Currency, Commodity, as well as Equity Delivery.
You can check out the detailed brokerage rates on Equity, Currency as well as Commodities on Upstox’s website.
Complete KYC procedure and IPV is available over the web. So, the work that usually takes one to two days or at times even weeks, gets done within minutes.
Upstox provides you with all the tools you need while trading such as brokerage calculator, Span calculator, options builder tool, etc. All of these make trading with Upstox extremely easy.
The platform answers all the queries of customers within a very short span of time. Users can also reach out to Upstox using its online ticketing system.
Call and trade with Upstox are chargeable at INR 20 per trade.
A particular order called Good Till Cancelled (GTC) is not supported in the Delivery segment.
With 750+ service managers, 3000+ Sharekhan centers in 600+ cities, Sharekhan’s human as well as an online network helps you trade effortlessly. The platform is backed by BNP Paribas – a French international banking group, the largest bank in Europe, and seventh-largest in the world when calculated based on total assets.
Sharekhan is the 3rd largest stockbroker in India. Its services are not only limited to retail customers but also expanded to institutions. The platform has designed attractive prepaid trading plans for high volume customer that reduces brokerage fee notably.
Unique features of Sharekhan
Here are some of the notable features of Sharekhan –
Sharekhan is a full-service broker in India. This means that it charges brokerage on every trade in stocks that you place through it. However, for the brokerage charges, the app offers professional advice and guidance in picking the right stocks.
You can open an online Demat account within 15 minutes with its hassle-free application process
You can consult with experts and professionals to learn the skills of stock trading and to build your wealth
Sharekhan uses fundamental and technical research philosophies to help you invest right
Sharekhan charges INR 400 for Demat accounts after the first year of free service.
It offers trading as well as Demat account opening entirely free.
Other charges depend on the type of account that you open and the security that you trade-in.
Calling as well as trading is completely free.
You need to pay absolutely no charges for fund transfers made from banks to trading accounts or the other way round.
Using Sharekhan users can have online classroom sessions for beginners as well as advance traders without paying a single penny.
Being a part of Sharekhan is being a part of a huge chain across India.
Its trading platform, Trade Tiger is available for free.
You can invest in different types of securities and assets with a single account
The platform doesn’t offer a typical three-in-one Demat account.
You cannot place an order after trading time.
Brokerage charges are much higher compared to other stock market app for beginners.
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5) Motilal Oswal:
Available in Hindi, Gujarati as well as Tamil, Motilal Oswal has 22,00,000+ happy customers. The company was awarded as the best local brokerage firm in India at the Asia Money Brokers Poll 2020. Founded by Ramdeo Agarwal in 1987. Motilal Oswal currently has more than 30+ years of being in the Indian stock market. Since its inception, to date, they have burgeoned as a firm that currently serves:
High net worth investors
The firm has its presence in 2200+ locations and invests a significant amount of its profit in research and analysis.
Unique features of Motilal Oswal
Motilal Oswal also boasts of some unique features that list it among the best trading apps in India. Here’s a look at these features of Motilal Oswal –
It offers you good trading platforms that are useful for all kinds of traders.
The company has a decent amount of franchise network.
It has a fund transfer facility with more than 60 banks.
Motilal Oswal is a very established name in the Indian stock market.
Its research reports are considered to be the best in class.
The delivery brokerage of Motilal Oswal is 0.5 percent.
Its Intraday and Futures charges are 0.05 percent.
Options will cost you INR 100 per lot.
Commodities will cost 0.5 percent and INR 20 per lot.
The firm doesn’t charge a single penny for opening a trading/Demat account as well as maintaining it annually. However, its Demat account’s annual maintenance charges are INR 441.
You can freely open an account and also not get charged with maintenance for the first year.
You get a free personal trading advisor for choosing the right stocks to buy
Expert stock recommendations can be availed free of cost
You can invest in IPOs, NFOs, ETFs, commodities, gold, mutual funds, and futures and options besides stocks
You get free research reports on leading stocks. These reports help you to make the right trading decisions to maximize your wealth.
Does not offer a three-in-one Demat account.
Its brokerage is a little bit on the higher end than other broker firms.
Each one of the above-mentioned applications has its own specialty. So, ask yourself a very important question before deciding the best stock market app for yourself i.e., what are some of the most vital features a trading app should contain? Then choose an app based on its benefits, pricing, and the securities that it offers to trade-in. With these 5 apps, however, you cannot go wrong.
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How to start investing with these apps
After you select from the best stock market apps in India, the next step is to start investing in stocks. To do so, here are the steps that you should follow –
First, select the app with which you want to start your trading journey
Download the app from the Google Play Store or Apple Store
Open your account by entering your details. These details include your name, age, address, mobile number, email ID, PAN Card number, Aadhaar card number, etc.
You also need to mention your bank account name, branch name, IFSC code, and bank account number to link your bank account with your online trading and Demat account
You would have to verify your details using OTP sent to the mobile number and/or the email ID that you registered when filling in the online account opening form
If any account opening fee is to be paid, the same should be paid through your net banking account or UPI ID
The last step is to submit your documents and a digital signature. Most apps allow you to upload your documents online. Your signature can also be uploaded online on the app’s platform
Once the account opening form is filled and the documents are uploaded, the stock trading app would verify your details and open a Demat and trading account in your name
Some apps might open the accounts within minutes while some might take 1 or 2 trading days for the same.
Watch Our Video on Stock Market Investing
When you start your stock investment journey with any of these apps, here are few things that you should keep in mind –
If you are a beginner, check the historic price trends of the stocks before you pick them. Research the stocks thoroughly so that you don’t go wrong in your choice. Many apps offer research reports and recommendations which you can peruse when picking stocks.
Be patient with stock investments. The equity market is volatile. The stocks that you pick might become bearish. Try and hold onto them. They might recover with time and give good returns.
Opt for diversification so that you can invest in stocks across market sectors for maximum profitability
Keep abreast of the latest news and stories of the stock market. This would give you an insight into the right time to buy and sell stocks.
In fact, the last point is quite important. The stock market is an ever-changing universe. You need to know what is happening in the market daily so that you can change your position in stocks. Moreover, you should get your trading queries resolved with the help of experts. One app that lets you do this is the Koppr app.
6) The Koppr app – making a difference in stock trading:
With the Koppr app, you can plan your finances and get complete guidance on stock trading. The app also features the latest news that you can use to stay informed. Get access to –
Also, for any queries and help, you can connect with Koppr Tribes, a platform that brings you together with other stock investors and experts –
Lastly, you can take financial courses, test your knowledge by participating in quizzes, attend live financial workshops and do more with your investment journey. Have a look –
So, besides the apps for stock trading, Koppr can be the best complemental app to enhance your knowledge about the avenue. Download the Koppr app and stay updated with the latest happenings in the market which not only affects stock investments but also other avenues like mutual funds, bonds, gold, etc.
With a diversified portfolio, you need to be an all-rounder investor with knowledge of different avenues and how they are affected by market movements.
Koppr lets you do just that. So download the Koppr app and start stock trading with complete knowledge of the stock market. After all, knowledge is a powerful thing, a factor that can make or break your portfolio.
Stock charts or stock market charts are real-time or historic price charts for different stocks, bonds, or any asset for that matter. These are a graphical representation of prices over a period of time for different stocks and other assets.
These stock charts portray the price movement in the form of lines, candlesticks, bars, and others. You can understand the price trends and any reversal in the trend following these charts.
These charts are also integrated with technical indicators to provide the buy and sell signals. You can find the highest or the lowest price within a given span, for instance, 1 year or 5 years, and similar metrics on the charts.
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2) Types of stock charts
Before you learn how to read stock charts, you need to know how many types of charts are there as you first need to identify the type of chart you are going to read. There are mainly 5 types of charts that are used in the technical analysis. They are –
1. Daily Bar Chart:
It is one of the most popular charts which provide multiple information like opening price, closing price, and highest and lowest price of the day.
There are verticals bars that represent the range of price of the asset. The horizontal line which is going towards the left is for the opening price and the horizontal line going towards the right is for the closing price.
2. Head and shoulder charts:
This chart is for understanding whether the price trend is going to reverse or not. It is a reversal chart pattern. There is a “Top” which is formed at the highest point of an upward movement and when the upward trend is about to end. There is a “Bottom” which suggests the downward trend is about to end and that is depicted by the lowest point on the downward trend.
The higher peak in between smaller peaks are known as the “head” while the other peaks are known as “shoulder”
Thus, this chart is known as a reversal chart as it is unlikely that it would follow the previous trend as the Top and the Bottom marks the end of that particular “trend”.
3. Line charts:
These charts are the most commonly used and easy-to-understand charts in technical analysis. The ‘X’ axis of the graph represents the time and the ‘y’ axis represents the price.
These charts are mainly used to depict the closing price of each day of the asset. The closing prices are plotted and a line is formed.
As you can see in the line chart above for ABC Company (hypothetical), the closing price for 5 days has been depicted in the chart. The closing price on day 1 was Rs. 100 while the same on the 5th day was Rs. 117. To check the exact value on the chart, you need to move the cursor on the exact date.
4. Candlestick charts:
The candlestick charts are advanced technical analysis tools. These are a bit complex but once you understand they can help you a lot in analyzing the price trend and other factors affecting the price of the stocks/ assets.
These charts use green and red/pink boxes to indicate the market trend. The green boxed form when the closing price is higher than the opening price (bullish) and red or pink boxes form when the opening price is higher than the closing price.
The thin line below and above the boxes shows the highest and lowest price of the day.
5. Point and figure chart:
In these charts, you will find ‘X’ and ‘O’. The price in these charts is plotted against the change in direction. When the price rises, ‘X’ is formed and ‘O’ in case of a fall in the price of the asset.
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3) 5 Things to look for in a chart
There are certain things you need to first identify and understand for reading charts –
1. You need to first identify which type of chart it is. Whether it is a bar chart, line chart, candlestick, or any other as mentioned in the above section.
2. Check the ticker above the above where the company’s information is mentioned and all other necessary details.
3. The next thing you need to do is to choose the time frame for which you want to check the chart. There are daily charts, weekly charts, monthly charts, and charts for the last five days, 6 months, 1 year, 5 years, and 10 years, and maximum time frame. You can select the 1-year time frame and the price movement that had happened in the past year will be visible on the chart in front of you.
4. By moving the cursor on a specific day or bar, candle, you can find out all the information related to that particular day or time.
5. You must check the volume of trade besides checking the price movement. This will help you understand the momentum of the price movement.
4) Volume Analysis
As mentioned above, volume is a key factor in analyzing charts and predicting tend in the market. In every chart, you will find the volume more or less. This is because of the reason that volume is a key technical indicator.
The volume patterns you need to know for reading charts are as follows –
1. Market up with High Trade Voume= Bullish Trend:
On days when the market is going up and the trading volume is high indicates a bullish trend. It usually means that the price of the stock will continue to increase.
2. Market down with Low Trade Voume= Bullish Trend
On the other hand, if the volume of trading is low on a day when the market is going down, also indicates a bullish market. This is because of the fact that not many investors/ traders are participating in the market when it is down and thus it is a temporary slowdown and correction which is not going to last for long.
3. Market down with High Trade Voume= Bearish Trend
Now if the volume of trading is high on the days when the market is going down (stock price decreasing) then it indicates a bearish trend or a market when the whole market is selling.
4. Market up with Low Trade Voume= Bearish Trend
Finally, if the volume is low on days when the price is going up also suggest a bearish market to persist and the increase in the price is just a short-term counter-trend retracement.
So, volume is crucial because just by looking at the price no one can anticipate whether the trend is going to persist or reverse but when you monitor price movement along with the volume of trading, it can give you a clear picture of the market.
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5) Trend Analysis
So, charts are basically for analyzing and anticipating market trends but to understand the trend and analyze the same? Here are the details of analyzing the trend in few simple steps:
1. Persistency of the trend:
The first thing you need to see is for how long the trend is persisting. No trend will be forever, it will change over time. If any trend is continuing for a long time and there hadn’t been any retracement as well (not significant corrections) then it is a sign of being alert for a trend reversal soon.
2. Volatility of the stocks:
Some stocks are stable while others are volatile. If you are trading a volatile stock, then even within a long-term trend, the graph will be going up and down regularly. You need to focus on the long-term for all these volatile stocks and need not consider the changes in the short term.
3. Signs for trend reversal/ momentum indicators:
Some certain signals/ indications suggest a potential reversal in trend. You need closely observe and analyze those indications. Especially momentum indicators help you recognize if the trend is going to reverse or not based on the volume of trading.
If you can analyze and anticipate the trend in the market, you can easily trade any asset smoothly. However, anticipating it requires precision and fine observation skills.
Stock market charts without any technical indicators are just like graphs to look at. Yes, you can check them and analyze certain things but if you want to make them helpful in your daily trading, then you need to integrate the technical indicators in your charts. Here is a list of two basic and most important technical indicators to use with stock market charts.
1. Moving averages:
The first one is the moving average. It is a key tool in technical analysis. The average stock prices over some time are plotted on the chart for analysis.
There are different types of moving average as well mainly depending upon the time frame. There are 50-day moving average, 200-day moving average, and others. The 200-day moving average is one of the crucial ones in chart analysis.
If the trader is bullish about any asset/stock then he or she needs to check whether the stock price was above the 200-day moving average of the stock price or not. On a chart, the 200-day moving average has to be plotted, and then the daily price movement has to be monitored.
On the other hand, if the trader is bearish, then he or she would want to price to remain below the 200-day moving average.
If the price crosses the 200-day moving average from below then there is going to be a bullish market reversal. While if the price line cuts the 200-day Moving Average from above, then a bearish trend is going to start.
2. Support and resistance:
Another important technical indicator to know about when reading charts is support and resistance levels. These two levels also help in identifying any upcoming trend reversal.
The support level is the level when the demand for the stock is too high to let the price of the stock fall. The resistance level is the level on the upward side where the selling pressure is high and doesn’t let the price move up that level.
It helps the traders to buy at the support level price and sell at the resistance level price and earn profit out of it. If there is a price-breakout for any stock having very strong support and resistance level, then it indicates a further price movement in a similar direction.
For instance, the resistance level of ABC stock is Rs. 1000 and for a long-time, it was trading below Rs. 1000. However, now the price has finally reached Rs. 1010, this means the resistance level has been broken. This indicates a further price rise for ABC Company’s stock.
As you know by now, the important things to check in a chart, let’s try to read the chart given below. It is a Tata Motors Ltd. chart on 27th of July, 2021.
1. It is a candlestick chart
2. The opening price for today is Rs. 293
3. The last closing price was Rs. 292.5
4. This means it opened today at a higher price than last trading session
5. The volume of trading is 25.6 Million
6. The 50-day moving average is Rs. 325.63 while the 200-day moving average is Rs. 262.03.
7. The price has cut 50-day moving average from above which signifies a bearish trend and as you can see in the chart, the price is dropping for Tata Motors.
8. The volume on the days when the price is decreasing is higher which also suggests a bearish trend.
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8) 6 Other IMPORTANT information you can find in a chart
1. Dividend yield:
In some charts, you can also find the dividend yield of the company. The dividend yield is the percentage of return on the dividend. This is calculated by dividing the dividend received annually by the market price of the stock at present.
2. Dividend per share:
Similarly, there can be dividends per share also represented in some stock charts. This is the annual dividend paid by the company to the shareholders.
3. 52-week high and low:
These 2 numbers are very important to the traders. You can find these 52-week highs and low often in most of the charts either at the top or the bottom.
The 52-week high is the highest price reached within the past 52 weeks or 1 year. Similarly, the 52-week low is the lowest price of the last 52 weeks.
4. Price to Earnings Ratio:
The P/E ratio may be also found on some charts as it is a key metric for stock analysis. It is derived by dividing the market price of the stock by the earnings per share (EPS) for the last year.
5. Net change:
This is another metric given in any stock chart and it is the change from the previous day’s price. In the chart given above, the net change is -0.25% which keeps on changing as the price of the stock changes.
6. Market capitalization:
Most stock charts also include the market capitalization of the company. This is the value of the total number of stocks outstanding.
For instance, if there are 1000 outstanding stocks of a company and the market price of each stock at present is Rs. 100 then the market capitalization of the stock at present is Rs. 100,000.
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So, reading charts is a bit tricky, however, you can learn to read them and then use them for your daily trading. If you want to learn how to read stock charts and pick stocks wisely and trade, then you can enroll in technical courses at Koppr.
1. Stock Market Basics
2. How to pick stocks?
3. Futures and Options
4. Fundamental Analysis
5. Value Investing
6. Intraday Options Buying Strategy
7. Nifty Hedged Short Strangle
8. Options Spread and Options Chain
9. Learn how Scalp Trading Works, etc.
You can choose the course according to your interest and enroll for the same if you wish to learn about the different stock market strategies that can help you build your stock portfolio.
Charts can be extremely helpful in daily trading as they have all the required information in one place and you can just check everything on that single page.
Moreover, if you can integrate the technical indicators and use real-time charts, it can provide you with buy and sell signals too.
Moreover, like Benjamin Graham said in his book, the Intelligent Investor that “An intelligent investor is a realist who sells to Optimists and buys from Pessimists”. After reading all the stock charts, you will realise how true this quote is!
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There is an old saying “Look before you leap” and this fits perfectly when you are investing in stocks. However, in-stock investment, mere looking won’t be enough, you need to dig deeper using multiple analytical tools and resources, and techniques for making your investments full-proof.
The stock analysis involves multiple techniques to find out whether an investment is right for your portfolio or not. If you are a trader, then you can use technical analysis tools to find yourself the best stocks to trade for the day.
Investing in stocks without thorough research about the company, stock price, and market trend can lead to a huge loss. For a good investment, you need to know about the stock you are putting your money into.
This is quite similar to buying an expensive asset, for instance, a car. Don’t you compare multiple cars within your budget and then choose the one which suits your requirement the best?
Stock investment is nothing different, you need to find the best stocks for your investment goals and profile and you need stock market analysis techniques for the same.
In this article, you will find different aspects of stock analysis. The article will have different stock market analysis techniques, metrics, and tips for investors, stock analysts, and anyone who wants to learn about stock market analysis.
Stock analysis is a process and involves multiple steps. It starts with the collection of data from different company documents and then finding the required information from them. T
hen comparing that information and analyzing multiple metrics and risks involved in the stock investment.
The steps are discussed in detail below –
1) Collection of financial data and company information
The first step in stock analysis involves document research. You need to pull out multiple documents that the company files with SEBI. The documents should include financial reports – quarterly, annual, and other financial data.
The balance sheet, P/L statement, and the cash flow statement of the company are key documents that need to be studied for qualitative research.
This will help you find out the revenue they are generating, their expenses, profit, and how they are handling cash flow. These documents are the basic requirement for beginning your research.
If you are not able to find the documents by yourself, you can ask your broker to find them for you. Often you can find the financial reports on the trading terminal you are using as a brokerage house upload the same on the trading software.
However, you can find them easily on the company’s website anytime.
Choice of analysis
The next step is to decide whether you want to do fundamental analysis or technical analysis. This choice depends on whether you are trading stocks or investing in them.
If you are investing for a longer duration, you must go for fundamental research, and if trading, then technical analysis with a bit of knowledge about the company’s financials can help.
a) Fundamental analysis:
Fundamental analysis of stocks is about finding the intrinsic value of the stock and evaluating whether it is overvalued or undervalued. It is assumed that the market value of the share doesn’t always reflect the actual value of the company.
So, fundamental research is performed to find the right value. If the share is undervalued, then there is a scope for investment.
Fundamental analysis can be further categorized under two section namely –
i) Quantitative analysis involves the numbers and ratios that can be obtained from the financial statements of the company. For instance, the profit, revenue, sales numbers, or the P/E ratio or debt/equity ratio, and others.
This analysis can be very simple as well as highly complicated given the nature of the data you are analyzing. Quantitative fundamental analysis helps in understanding the entry and exit points in the stock market.
ii) Qualitative analysis involves the factors that affect share price but cannot be expressed in numerical form. For instance, management decisions, competition in the industry, the performance of the directors in the company, and other similar factors.
Decisions taken by the management can easily swing the price of the share but these factors intangible, unlike quantitative factors. However, qualitative analysis is also crucial for evaluating the value of the share.
There are multiple components of fundamental analysis which you need to be aware of before you start analyzing the stocks. They are –
Earnings per share or EPS which measures the profitability of the company
Price to Earnings Ratio or P/E ratio which tells about the valuation of the share is correct or not.
Price to Book Ratio or P/B Ratio which is also used for finding the valuation of the company.
Debt to Equity Ratio or D/E ratio that says about the indebtedness of the company.
Return on Equity or ROE tells about the profit generated using the equity invested by the shareholders.
There are other metrics that we will be discussing in detail in the latter part of the article.
Now let us see how to do fundamental analysis or how you can find the intrinsic value of the share which is the primary goal of fundamental analysis.
So, there are three processes out of which you can choose the one that suits your requirement.
If the company is pretty new, or you are not able to fetch all the details about the company then you can opt for relative valuation. In this process, the market price of the share of its peer companies is first taken into consideration.
Then the price is compared to the peer company’s fundamentals like sales number, net income, or book value of equity. The ratio which is obtained is applied to the company you are researching.
These ratios are known as price multiples and can be used for finding out the relative value of the question share.
ii) Present Value Models
This is a discounted cash flow method where the projected future earnings are discounted by a specific rate to get the present value of the share.
Apart from free cash flow, dividends or residual income can also be discounted for finding the value of the shares.
This is the most popular method of finding the intrinsic value of shares under fundamental analysis.
iii) Asset-based Valuation:
Finally, we have asset-based valuation which involves the company’s assets and liabilities. The market of total liability of the company (excluding equity) is deducted from the total value of the asset of the company to derive the value of total equity.
However, this is an obsolete and rarely used method.
In fundamental analysis, you need to keep few things in mind apart from finding the intrinsic value. You need to –
Check and analyze the prospects of the company, its business plans, expansion ideas, and others.
Check the debt of the company and also compare the same with the peer companies.
A study of the rival companies is necessary for fundamental analysis.
This analysis involves market price movement, historical prices of the stock, and other statistics available in the stock market itself. if you are wondering how to do technical analysis of stocks, then here are few insights about the same.
The basic idea behind Technical analysis is to identify the market trend and predict whether the price is going to increase or fall. Here, historical data are used for predicting future prices.
Some of the most popular technical analysis tools include –
i) Moving Average:
This is used for understanding the average price movement in the stock. It is tough to keep a track of the original price movement daily, so taking an average helps. You can use the simple moving average or the exponential moving average.
While the former is calculated by taking the closing prices of the stock for a given period and summing them up and then dividing it by the number of days for which the prices are included.
The latter uses the weighted-average method and prioritizes the recent prices a little more by weighing them more.
ii) Support and Resistance levels:
These are used to understand the price trend of the share. Whether the stock is bullish or bearish.
If the support level is broken, which is the lower end of the price (the demand is high enough to keep the price above this level) then the stock is being bearish and can fall drastically.
On the other hand, the resistance level is about the maximum price level where the selling pressure is maximum and if that is broken, then the stock becomes bullish and can increase in price exponentially.
There are multiple charts which include candlestick charts, line charts, bar charts, and others to understand the trend in the market and for the stock in question. The charts along with trading indicators can help you understand the entry and exit points in the market.
There are many other different factors and tools which are put to use by the traders for stock analysis.
Metrics for analysis
In the above two-section, you have read a little about the metrics which are used to determine the price of stock while performing stock analysis. Here we will discuss the most important metrics which are used in the analysis process of stocks.
Price to earnings ratio is one of the most important metrics that are used by analysts for stock analysis. This is derived by dividing the market price of the share by its earning per share/EPS.This is used for comparing companies within the same industry and having similar prospects in terms of growth and revenue generation. This metric suggests the amount of amount (share price) the investor is willing to pay for earning $1 out of the company’s recent earnings.This metric might be a little flawed as well as analysts often focus on the short-term, so better use other metrics along with the P/E ratio for correct evaluation.
It is the value which the company has earned in a specific duration say in a year by selling its products or services.Revenue is another top metric that needs to be analyzed when researching the stock/company as it says a lot about the company’s operation. Revenue can be divided into operating and non-operating revenue.Operating revenue is generated from the business the company does and thus it tells about how well the year went in terms of sales and profit generation.
Earning Per Share is one of the crucial metrics that are regarded as stock market fundamentals and it is derived by dividing the recent earnings (net income) of the company by its outstanding shares (shares available for trading in the stock market).EPS helps in comparing the company’s profitability with other companies as the earning is divided into the number of shares. However, this earning can include the dividend as well which the company may not pay to the shareholders.In such a case, automatically the EPS increases but then it doesn’t show a perfect picture of the profitability of the company as the shareholders are being deprived.
This is the amount that is left after paying all the operating expenses, depreciation, and taxes out of the revenue generated. So, if this number is increasing on a year-on-year basis, then the company is growing and vice versa.
Return on Equity helps you understand how much the company can generate with the shareholder’s equity. It is expressed in percentage and derived by dividing Net income by shareholder’s equity.
Return on Asset is the profit generated by using the asset of the company. it is also expressed in percentage and derived by dividing the net income by the value of the total asset of the company.
Price to Book Value or ratio helps investors find the high-growth companies which are undervalued. This ratio is derived by diving the market price of the share by the book value of the company. Book value means the total amount that can be retrieved if all the assets of the company are sold and the liabilities are paid off.
This ratio is about the price to earnings growth which tells us about the growth in earning of the company and the stock is considered to be valuable if this ratio is less than 1. It is derived by dividing the P/E ratio by the growth rate of twelve months.
3) Market analysis:
Stock analysis is beyond numbers. If you want to thoroughly analyze the stock and the company, you need to focus on the below-mentioned factors as well –
i) Competitive Advantage:
Long-term investors want assurance of the durable competitive advantage of the company. Whether the company can sustain itself in the long run or not, whether its parent company can protect it if such a scenario arises, pricing power and many other factors are being considered before investment.
ii) Market trends:
Industry or market trend plays a great role in the stock price movement. If the industry has the potential to grow in the future, then the stocks in it would share the same or at least a part of its growth.
For instance, the industries which are expected to outgrow others in the future include Artificial intelligence, fintech, healthcare, cloud computing, and similar industries. So, investing in the stocks of these industries can be profitable in the long run.
iii) Analysis of the management:
Finally, one of the most important thing that the investor and the analysts need to consider is management’s performance.
A company is run by the management and thus their experience, performance, expertise needs to be carefully analyzed.
iv) Risk analysis:
Whether you opt for fundamental analysis or technical, you need to do risk analysis before actually investing in the stock.
You need to analyze the risks of investment such as the emergence of a potential competitor, new technology making the business obsolete, or poor decisions by management and others. All these negatively affect the business and thus you need to have a provision in your investment plan for the same.
v) Putting everything together:
So, once you have done your research, it is time to put everything on the platter and evaluate and take the call. You need to have the context right and put your research together according to the context of your investment.
If you are looking for long-term investment, you need to check the durable competitive advantage, management’s performance, along with quantitative metrics. If you are looking for a short-term investment, then the numerical metrics can be enough along with market trend analysis.
Stock analysis is a non-negotiable factor while investing in stocks. If you are wondering how to analyse stocks by yourself, then you can follow the above-mentioned steps and you can conduct your research.
There are innumerable metrics that you can put to use but you need to relate your research to your investment goal and for that, you need to find the context of investment right.
Both quantitative and qualitative factors hold equal importance while investing and thus you cannot overlook either.
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