Trade in the stock market

 How to trade in the stock market: A guide for beginners

The stock market is a highway that leads you to opportunities for wealth creation. The share market has the potential to give you enormous profits. On the other hand, volatility is a critical part of the share market. As an investor or trader, you may see profits and losses, ups and downs. So, it is important to learn how to trade in share market as beginners.

What is stock trading?

Trading typically means buying and selling shares in the secondary market on the same day. So, it is necessary to get an understanding of the primary and secondary markets.

·         Primary market: A primary market is where companies issue new securities and offer them to the public. So, the transaction happens between issuers and buyers.

·         Secondary market:In the secondary market, you can buy and sell shares that are issued in the primary market. The transaction takes place between seller and buyer. The stock exchange or broker acts as an intermediary in the secondary market.

Read more:How the share market works in India

Now, if you buy and sell a share on the same day, the transaction is called intraday trading. At the end of the day, the trader books either a profit or loss.

Process of stock trading for beginners

The following tips will help you begin your journey in stock trading:

1) Open a demat account:

To enter the share market as a trader or investor, you must open a demat account or brokerage account. Without a demat account you cannot trade in the stock market. The demat account works like a bank account where you hold money to use for trading. The securities you buy are maintained electronically in the demat account.

2) Understand stock quotes:

The price of a stock moves on the basis of any news, fundamentals, technical analysis, and so on. By gaining knowledge about these aspects, you can enhance your knowledge of stocks and stock markets. This will help you to figure out the right price to enter or exit a trade.

3) Bids and asks:

A bid price indicates the maximum price you are willing to pay to buy a stock. The ask price is just the opposite. It represents the minimum price at which the seller is willing to sell the stock. To ensure a profitable trade, it is important to decide on the correct bid and ask price.

Read more: Share market timings

4) Fundamental and technical knowledge of stock:

Study the fundamental and technical analyses of the stock to plan your trading. Fundamental analysis evaluates a security by measuring its intrinsic value. It considers various dynamics including earnings, expenses, assets, and liabilities. Meanwhile, technical analysis evaluates the stock based on the past price and volume chart of the stock to predict future potential.

5) Learn to stop the loss:

Volatility is an implicit characteristic of the share market. So, it is important for a beginner to understand the way of preventing heavy loss. While executing a trade, you need to set a stop loss price to minimise the loss. Failure to put a stop loss may damage your capital heavily.

6) Ask an expert:

The share market is unpredictable. Nobody can predict a stock price accurately. But taking advice from an expert helps beginners make the right trading decision. It guides you to make the right choice.

Read more: Day trading options

7) Start with safer stocks:

A big capital loss in the beginning may bring your confidence down. A wise choice is to start with the less volatile stocks. That may give you a slow start. But those stocks are more likely to sustain a good performance even in adverse conditions.

Share market investments can be tricky. You can take the first step to trading success by opening a demat account. Next, work on developing adequate knowledge of the stock market. This will help you to work against the odds and beat stock market volatility.

 

All you need to know about share market timing

Time is more valuable than money, so goes the old saying. After all, what’s the point of investment if you miss the most opportune moment! So, it’s absolutely necessary to know the share market timings to make informed decisions. There are some simple and easy steps to remember every detail of such timing. The two major stock exchanges in India—the Bombay stock exchange (BSE) and the National stock exchange (NSE)—follow the similar timing. All other minor stock exchanges in different cities usually follow suit. The share market stays closed on Saturdays and Sundays. It, however, stays open from 9.15 am to 3.30 pm for the rest of the days without any breaks for lunch or tea.

Read more:Share market holidays

Share market sessions in India

Here is a step-by-step guide on how to convert physical shares to demat.

What is share market timing? It’s that time window that tells us for how long stock market stays operational. The Indian stock exchange is usually divided into three sessions a day: the normal session, pre-opening session, and the post-closing session.

Here’s a brief outline of a day in the stock market:

Normal session:

It runs from 9.15 am to 3.30 pm. Trading activities are mostly performed during this part of the day. This session adheres to the bilateral matching system. It means that a transaction concludes when the buying and the selling prices are equal.

Pre-opening session:

This session starts at 9.00 am and ends at 9.15 am. Though it may not look it, this brief window plays a vital role in controlling the volatility of the market. This session can further be divided into three sub-sessions:

Order entry session:

This session takes place between 9 am and 9.08 am. It’s the time for placing orders to buy or sell stocks. The investor can also modify any previously placed order during this period.

Order-matching session:

The four minutes between 9.08 and 9.12 is the time for matching the orders. When the orders are considered compatible? It's the point when the maximum price of the buy order is equal to or more than the minimum price of the sell order.

Buffer: The remaining three minutes from 9.12 to 9.15 are kept as a buffer so that the transition from the pre-opening session to the normal session is smooth.

However, these 15 minutes are often not utilised by the traders. This makes the market more volatile.

Read more: How the share market works in India

After the normal session, the market closes at 3:3 0pm. In the following 10 minutes, the closing prices of stocks are determined. The weighted average of the prices between 3:00 pm and 3:30 pm is declared as the closing price.

The post-closing session:

The duration of this session is from 3.40pm to 4.00 pm. Traders can place buy or sell orders at the closing price throughout this session.

It should be noted that the pre-opening and the post-closing sessions work only for cash trading.

Other notable share market timings

The timing for commodity trading (MCX) is between 10 am and 11.30 am. For the agri-community (NCDEX), normal trading takes place from 10am to 5pm. In these cases, the weekends—Saturdays and Sundays—are off.

You can place trade orders even after the closing time, but the orders stay pending. These orders fall under AMO—i.e. after the market order.

Apart from these regular share market timings, the Indian stock market runs a special trading session around Diwali. It’s known as Mahurat trading. The exact timing for this session is declared a few days before the festival. It usually takes place in the evening.

In a recent declaration, the Securities and Exchange Board of India (SEBI) has declared that stock exchanges can extend the session for the trading of equity derivatives till 11.55 pm.

Read more: What is IPO in the share market?

Last but not least

Timing is everything whether you are a day trader, who trades within a day, or a position trader engaging the capital in a stock for an extended period. From placing the order to buying or selling stocks, correct timing puts you in an advantageous position.

If you plan to open a trading account, you can opt for Kotak to secure handsome profits.

 

HOW DOES SHARE MARKET WORK?

Share market works in the following order:

1. A company gets listed in the primary market through an IPO.

2. Shares get distriuted in the Secondary Market

3. The stocks issued can be traded by the investors in the secondary market.

4. Stock brokers and brokerage firms are entities registered with the stock exchange which offers you to buy particular share at said price

5. Your broker passes on your buy order to the exchange, which searches for a sell order for the same share.

6. The process takes T+2 days i.e. you will get your shares deposited in your demat account in two working days.

The stock market is one of the largest avenues for investment. As many as Rs. 6 lakh crore-worth stocks have been traded in the two stock exchanges in India on some occasions. Stock market investing is often called a gamble. It would cease to be a gamble if you understood the basics of the share market.

But before starting, you might want to get acquainted with a few market-related concepts.

HOW SHARE MARKET WORKS:

In the previous section, you were introduced to the different market participants and other share market basics. Let’s try to stitch these narratives together and understand how the stock market works.

·         A stock exchange in the platform where financial instruments like stocks and derivatives are traded. Market participants have to be registered with the stock exchange and SEBI to conduct trades. This includes companies issuing shares, brokers conducting the trades, as well as traders and investors. All of this is regulated by the Securities and Exchange Board of India (SEBI), which makes the rules of conduct.

Read more about New stock market rules by SEBI

·         First, a company gets listed in the primary market through an Initial Public Offering (IPO). In its offer document, it lists details about the company, the stocks being issued, and so on. During the listing, the stocks issued in the primary market are allotted to investors who have bid for the same.

Click here to read about the trends of the Indian IPO market.

·         Once listed, the stocks issued can be traded by the investors in the secondary market. This is where most of the trading happens. In this market, buyers and sellers gather to conduct transactions to make profits or cut losses.

·         Stock brokers and brokerage firms are entities registered with the stock exchange. They act as an intermediary between you, as an investor, and the stock exchange.

·         Your broker passes on your buy order to the exchange, which searches for a sell order for the same share. Once a seller and a buyer are fixed, a price is agreed finalized, upon which the exchange communicates to your broker that your order has been confirmed.

This message is then passed on to you. Even at the broker and exchange levels, there are multiple parties involved in the communication chain like brokerage order department, exchange floor traders, and so on. However, the trading process has become electronic today. This process of matching buyers and sellers is done through computers.
As a result, the process can be finished within minutes.

HOW YOUR ORDER IS PROCESSED

·         However, there are tens and thousands of investors. It is impossible for all to converge in one location and conduct their trades. This is where stock brokers and brokerage firms play role.

·         Once you place an order to buy a particular share at a said price, it is processed through your broker at the exchange. There are multiple parties involved in the process behind the scenes.

·         Meanwhile , the exchange also confirms the details of the buyers and the sellers to ensure the parties don’t default. It then facilitates the actual transfer of ownership of shares. This process is called settlement. Earlier, it used to take weeks to settle trades.

Now, this has been brought down to T+2 days. For example, if you conducted a trade today, you will get your shares deposited in your demat account by the day after tomorrow ( i.e. two working day).

·         The exchange ensures that the trade is honoured during the settlement#. Whether the seller has the required stock to sell or not, the buyer will receive his shares. If a settlement is not upheld, the sanctity of the stock market is lost, because it means trades may not be upheld.

·         As and when trades are conducted, share prices change. This is because prices of shares – like any other goods – are dependent on the perceived value. This is reflected in the rise or fall of demand for the stock. As demand for the stock increases, there are more buy orders. This leads to an increase in the price of the stock. So when you see the price of a stock rise, even if it is marginal, it means that someone or many placed buy order(s) for the stock. Larger the volume of trade, greater the fluctuation in the stock’s price.

You must’ve heard about the volatility in the market. Here are the 4 reasons that have created the current volatility in India.

HOW TO INVEST IN SHARES:

To invest in Share market you need to follow below steps:

Step1: Know your investment requirements & limitations

Step2: Decide on your investment strategy

Step3: Enter the market at the right time

Step4: Do the trade

Step5: Monitor your portfolio

Step 1

First, understand your investment requirements and limitations. Your requirements should take into account the present as well as the future.

The same applies to your limitations. For example, you just got a job and earn Rs. 20,000 a month. Your limitation could be that you need to set aside at least Rs. 10,000 for instalment payments for your car, and another Rs. 5,000 for your monthly expenses.

This leaves aside only Rs. 5,000 for investment purposes. Now, if you are a risk-averse investor, you may prefer to invest a larger portion of this amount in low-risk options like bonds and fixed deposits. This means, you have only a small portion left for stock market investing – Rs. 1,000. Further, take into consideration your tax liabilities.

Remember, making profits on short-term buying and selling of shares incurs capital gains tax. This is not applicable if you sell your shares after a year.

So, ensure that your cash needs don’t force you to sell your shares on short-term unnecessarily. Better to take a wise well-thought decision, than attract unnecessary costs in the future.

To better plan your finances you can delve into Financial Planning. Here are the benefits of Financial Planning.

Step 2

Once you understand your investment profile, analyse the stock market and decide your investment strategy. Find out which stocks suit your profile. If we continue the above example, with a budget of Rs 1,000, you can either choose to buy one large-cap stock or multiple small-cap stocks. If you need an additional source of income, opt for high-dividend stocks.

If not, opt for growth stocks which are likely to appreciate the most in the future. Deciding the kind of stocks you wish to collect is part of your investment strategy.

Here’s a step-by-step guide to create your personalized financial plan

Step 3

Wait for the right time. Have you ever seen a cheetah or tiger hunt? They lie low for a while waiting for their prey, and then they pounce. Exactly the same way, time is of utmost importance in the stock market. Merely getting the stock right is not enough. Your profits will be maximised only if you buy at the lowest level possible. The same applies if you are selling your shares. This needs time. Do not be impulsive.

You might be interested to do some analysis while you’re waiting. Here’s your guide to analysing stock market.

Step 4

Conduct your trade either online or on the phone through your broker. Ensure that your broker confirms the trade and gets all the details right. Recheck the trade confirmation to avoid errors.

You can also use Kotak Securities’ KEAT Pro X that allows you to track the markets live as well as buy and sell securities online in real time.

Step 5

Monitor your portfolio regularly. The stock market is dynamic. Companies may seem profitable one moment, and not-so profitable the next due to some unforeseen factor. Ensure you regularly read about the companies you have invested in. In the case of some unfortunate situation, this will help you minimize your losses before it is too late.

However, this does not mean you panic every time the stock falls. A stock’s price will fall at some point in time, because there will be some investor in the market with a shorter investment horizon than you. So, he will sell his stock and pocket whatever profits possible in that shorter time. Patience is a key virtue in the markets.

One of the basics is to hedge your investments against the market volatility. You can read up 5 ways to hedge y

A Quick Guide To Day Trading Options

Day trading, as the term suggests, is the act of buying and selling securities or other financial instruments over the span of a single day. The prices of stocks, bonds, commodities, and other instruments may shift during a day. You could make a profit by using those price shifts as leverage.

To understand how the process of day trading options works, it is necessary to first gain an understanding of what options are.

What are options?

Options are contracts that allow you to buy or sell a certain number of shares at a specific price. This is known as the strike price. You must also make the trade within a predetermined date, which is the expiration date.

Read more: Intraday trading rules

Types of options

It is necessary to differentiate between the two types of options: call options and put options.

·         A call option gives you the right to buy a stock at the strike price on or before the expiration date.

·         A put option allows you to sell a stock at a specific price on or before the expiry of the contract.

The stock that you buy or sell through an options contract is the underlying asset. The price at which you acquire it is the premium. This premium rises with the increment in value of the underlying asset.

Options contract: Points to remember

·         An options contract gives you the right but not the obligation to buy or sell the underlying asset.

·         The contract determines the price at which the underlying asset is to be traded.

·         The date of expiration is pre-specified by the contract.

·         Such a contract usually covers 100 shares of an asset. But the number may vary in case of a stock split or merger.

Read more: How to do intraday trading

How does options trading work?

Both the call and put options involve a buyer and a seller. The seller is also known as the writer.

Suppose you buy a call option at a premium of Rs 2 per share that gives you the right to buy 100 shares of ABC stock with a strike price of Rs 50 per share. Say, the current market price of the stock is Rs 48.50, and you have one month until the option expires. Now, imagine that the stock price rises to Rs 58 per share at some point within this month. Should you choose to, you can still buy the shares at Rs 50 per share, as specified by the call options contract.

As the price has increased by Rs 8 per share, you make a profit of Rs 800 (i.e. Rs 8 x 100 shares). But keep in mind that you bought the option at a premium of Rs 2 per share. This amounts to Rs 200 for 100 shares. So, your actual profit is Rs 600 (i.e. Rs 800 – Rs 200).

Now, consider the case of a put option. Your profit here depends on the depreciation in the value of the underlying asset. Say, you buy a put option for Rs 100 that allows you to sell 100 shares of a stock at Rs 40. You can make a profit only if the stock price falls to less than Rs 40.

As an options buyer, you are not obligated to buy or sell the security. But the writer of the options has to buy or sell the security at the strike price.

Read more:Intraday trading formula

Day trading options: How does it work?

A day trader has to complete the trade within a working day. If you are trading in options, you must keenly watch for movements in the stock price. This will allow you to buy or sell the assets at the optimum time. But what if you do not wish to buy or sell right away? You can still trade by selling the options. Time is of the essence here.

Benefits of day trading options

1. Options cost less than the actual stock price. This means you can invest in more stocks while risking less.

2. There is no liability when you buy or sell a security. In a losing situation, you lose only the premium.

3. Options contract prices may rise more than the stock prices they represent.

4. Options trading can be profitable when other financial instruments are failing.

Disadvantages of day trading options

1. The options market is less liquid. So, the bid-ask spread (i.e. the difference between the lowest price and the highest price) is often wider in case of options than stocks.

2. The price movement is restricted by the option premiums.

3. The loss of time can also decrease the gains.

 

Difference between Stock Market and Share Market

Generally, people enter the financial market to enjoy a bit more income. Thus, they lack knowledge of the money market terms. It is difficult for a newbie to understand terms such as ‘share’, ‘stock’, and ‘equity’. But not having a clear understanding can be a problem.

An investor should be familiar with these terms well before they start investing. Being aware of their meanings helps you invest wisely. In this article, we will talk about stock market vs share market and see what their differences are. A new investor may not always know the difference between stock market and share market. As a result, their vision gets blurry. Let’s break the terms into parts and see their meanings first.

Read more: Share market timings

Meaning of share market

The term ‘share’ is associated with investment options like mutual funds and limited partnership. But both markets are based on the same thing—trading.

·         Shares are units of the total valuation of a company. For instance, if you invest in a company, you will receive a certain number of shares, depending on the money you invest.

·         The share market is a market where a company offers its shares to raise funds and continue the growth of its business. It is a place where an investor can buy part ownership in any company.

·         It is a platform to buy and sell shares.

·         In general, shares refer to stock ownership of a particular company.

·         When you buy the shares of a company, you become a ‘shareholder’ of that company. For example, when someone claims to own shares in a company, it means they have invested in a specific firm and is a shareholder of such a firm.

·         An investor also enjoys a part of profits earned by the company through dividends.

·         If the business does not perform well, the investor also needs to bear the loss.

Read more:Share market holidays

Meaning of stock market

The stock market, also known as the stock exchange, is a place where stocks, equities, and other securities and bonds are actively traded.

·         The term ‘stock’ is used to mean the ownership certificate of any company.

·         A stock market provides the infrastructure to trade in a secure and controlled manner. The stock market brings the stock seller and buyer together.

·         The Securities and Exchange Board of India (SEBI) regulates the stock exchanges in India. Hence, fair pricing and transparency of transactions are assured.

·         A stock cannot be bought or sold if it is not listed with a stock exchange. In the stock market, stockbrokers trade companies’ stocks, securities, and bonds.

·         India’s two principle stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

·         The market tracks demand and supply of stocks and sets its price accordingly.

Read more: How to trade in the stock market

Difference between stock market and share marke

Even though these terms are used interchangeably, they differ in their modes of operation. A share market or a stock market is essentially a market where various kinds of bonds and securities are traded. The price of a company’s stock depends on the demand and the supply of that stock. A company can issue shares directly, but it cannot issue stocks in such a manner. When a number of shares are put together, it is called stocks. Also, keep in mind that shares can have a small value, while stocks will always have a significant amount of value. These are the major differences between stock market and share market.

Now that you know the how the stock market is similar to and different from the share market, trading is even easier. Click here to open a demat account and start trading today.

 

Here’s why equity rules the roost and will continue doing so in the coming decade

Publish Date: November 2, 2018

Move over real estate, gold and fixed deposits. The smart money should be on equity now. At least that’s what the internationally-renowned investment bank — Morgan Stanley — is telling us.

According to them, equity will be the best-performing asset class over the next ten years. It believes equity can generate 16%-17% returns in the coming decade due to higher economic growth and better corporate earnings.

Going by Morgan Stanley’s forecast, your investment is likely to double in about four-and-a-half years’ time!

But what about other asset classes like real estate and gold? More than 85% of Indian families have invested their wealth in them, according to a survey conducted by the Reserve Bank of India last year.

Surely, they can’t be all wrong, can they?

CLUNKY INVESTMENT

The previous generation may have sworn by real estate, but millennials have become wary of investing in them.

Although there is no empirical data, the on-the-move millennials find real estate investments to be a hassle. That’s because buying a property is physical and time-consuming. You need to do a lot of legwork and fight bureaucratic hassles to get a property registered in your name. The entire process of researching for a home to taking care of the legalities seems long-winded and tiring.

Plus, a lot of millennials don’t want to get sucked into a debt trap. They don’t want to pay hefty loans every month and cut back on the comforts of life like the previous generation did.

Another factor is that a lot of youngsters don’t want to be tied down to one particular city. They are far more willing to move cities and countries in hope of getting a better job. In such cases, a real estate investment can be a drag on their ambitions.

LOSING SHEEN

Rain, hail or shine, gold has been an all-weather friend for Indian families. But the last few years have severely tested this friendship.

A quick look at the numbers suggest that newer asset classes like equity have generated far better returns compared to gold.

Data collated by Bloomberg, State Bank of India and Value Research suggest that while equity grew 11.09% in the five years, gold shrank by 0.8% in the same period!

The extraordinary aspect is that the last five years were not even the best time for equity. In fact, between October 2013 and June 2015, equity slumped to its lowest three-year moving average ever!

Same is the case with fixed deposits. Many Indians put their money in them because they were assured of decent returns over time.

But then again, recent data suggest that equity would have been a better option in the last five years. That’s because fixed deposits grew at 6.85% in the same time period.

This shows that while equity investment would have doubled your money in around six-and-a-half years’ time, fixed deposits would have taken close to 12 years to do so.

Even money market mutual funds pale in comparison to equity: it gave 7.71% returns compared to equity’s 11.09% over five years.

MOVING WITH TIMES

But, isn’t equity risky? They can be. But they generally tend to be risky over a shorter period time. Just for perspective, while fixed deposits and gold grew by 5.75% and 1.63% respectively over a week’s time, equity was far more volatile and increased at a modest 1.04%.

But, the volatility associated with equity usually flattens over the long-term. As you read earlier, equity provided better returns over a five-year period. In fact, it also performed better than the two other asset classes over a three-year period.

Another driving factor is that it has become easy to invest in stocks. Thanks to technology, people can put their money in stocks while they are on the go. Unlike with real estate investment, they don’t have to run from pillar to post to put their money in stocks. All they need is a mobile phone.

Not very long ago, a lot of people would accuse stock investing to be expensive. But that’s not too true anymore. These days, you can actually invest in stocks for as little as Rs 500!

The only flip side is that you need to do some research before investing in equity. You should understand the dynamics of a stock market before you embark on your investment journey. The end result is always sweet though: if you get it right, the returns can be much higher than if you had invested in any other asset class.

 

o    Dealing with market flip-flop

Just a few weeks ago, there were ‘doomsday sayers’ all around. They said the Indian rupee is all set to fall to Rs 80 to the US dollar. They predicted oil surging to $100 per barrel in international markets. India being a net importer, it was considered as a major problem. The rupee touched historic lows and oil prices were soaring. The government was asked to cut duties on fuel by the opposition.

Cut to today.

There is a dramatic change in the external situation. Oil prices have tumbled from record highs in international markets. Fuel prices have been cut to some extent by the government. The Indian rupee is off record lows.

The above sequence followed a rally in the market that took benchmark indices to a record high.

Related read: 4 things to know about Sensex hitting an all-time high

·         Crude is not bad now

The recent global crude oil price fall is a big positive for India’s macroeconomic position, assuming oil prices stay at current levels. India’s external position depends significantly on oil given its influence on several key variables—a US$10/bbl change in crude oil prices results in 55 bps (or 0.55%) impact on the current account deficit. Oil prices are down over $20 a barrel. Over the last six weeks, the global per barrel Brent crude oil prices have fallen from $86.28 to $63.3. The price of Brent crude oil declined by 36.31%, between October 3 and November 21. This decline is going to reflect in petrol and diesel prices in India, to a considerable level. As a result, the airline and logistics companies are going to get benefitted. Low fuel prices induce a higher consumption of goods. This will have a positive impact on the overall sentiment in the market.

Related read: The Impact of Crude Oil Prices on Indian Stock Markets

·         The Stabilizing Rupee

A few months ago, as oil prices touched new peaks, rupee value touched new lows. As crude oil slipped to new lows, rupee became stronger. As the import cost gets reduced, the stress on foreign currency flows eases. This has a positive impact on the current account deficit and it is likely to narrow if prices remain low. This results in reduced demand for foreign exchange and a rupee appreciation. Cheaper imports also benefit industries importing raw materials for production. This will bring down their production cost and thus, increase the prices of their stocks. Two examples of such industries are the paint industry and the lubricants industry.

Further, stable macroeconomic conditions also attract foreign investors. As the foreign investors gain confidence, India’s balance of payments position improves. Foreign investors have been net buyers in Indian equity markets in November 2018.

Related read: The positive side of rupee depreciation

·         IT and Pharma Stocks

As the IT sector is intensely export based, the earlier fall in rupee value has given a considerable push to their earnings. A weak rupee has given a boost to prices of stocks of IT giants like Infosys, TCS, HCL Tech, Tech Mahindra and NIIT Tech. However, a rally in the rupee induced a fall in IT and pharma shares. The challenge for the Reserve Bank of India is to reduce the volatility in the currency markets. If the rupee value keeps appreciating sharply, RBI may have to make an intervention by buying US dollar and selling the rupee. Foreign investors and currency markets do not like volatility.

Related read: 5 things to learn from Infosys, TCS results

·        

o    What Oil at $50 a Barrel Means for the World Economy  Read more

o    Rupee could trade at 69-72 by March if oil remains soft: UBS  Read more

·        

$60

The price of Brent crude oil declined by 36.31%, from $86.28/bbl on October 3 to $63.3/bbl on November 21. As the price of crude oil declined, Indian rupee gained strength. This considerable decline in crude oil prices is going to have a positive impact on India’s current account deficit. It currently hovers around 2.5% of the gross domestic product but could narrow below 2% in 12-18 months if oil prices remain around $60 per barrel mark. This is good news for India’s rupee, inflation and interest rates.

 

o    What can you do when markets are volatile?

Publish date: 14th September, 2018

Stock markets have been considerably volatile for the last few weeks. In just past three days, benchmark indices have registered a sharp decline. Investor sentiments are affected by a combination of global economic and political factors. Rupee depreciation has also hugely impacted the securities markets. Taking into account the current scenario, we can say that Indian securities markets are facing volatility, both, domestically as well as globally.

Click here to read about market volatility that had previously occurred this year.

Here are a few tips on dealing with the current market volatility.

Buy low

Recently we witnessed a record growth in Q1 GDP data, high economic growth expectations by the IMF and World Bank and, the recovery signals shown by IIP figures. All these figures show that there is nothing wrong with the Indian economy. People continue to buy cars or consumer goods and spend money on travel within the country. Therefore, if share prices are tumbling amidst a panic across the board, it may be a good idea to buy stocks that rely on India’s economic growth. Click here to read about what current Q1 GDP data says.

Don’t panic; Stay invested

Markets are based on investor sentiments. Currently, domestic as well as global uncertainties have made the investors panic. The markets got dragged down further, as investors tried to close out their positions at any price. By looking at the historical data of SENSEX or Nifty, you will find that market marches forward in the long-run. Market volatility is inevitable and is a short-term condition. Thus, staying invested for a long period will be the wise thing to do during a volatile situation. Click here to read about the reasons why you should not be afraid of market volatility.

Defensive Stocks

Stocks of the companies that are not affected by economic trends are called defensive stocks. These stocks are safer than cyclical stocks, provide constant dividends and stable earnings. Generally, these are companies selling utility goods, weaponry, medicines and even insurance. No matter what the market condition is, consumers of these products cannot afford to cut-down these. Therefore, whenever faced with market volatility an investor should opt for defensive stocks. Click here to read more about cyclical and defensive stocks.

Currently, the global market volatility has had a contagion effect on Indian defensive stocks life the IT companies. Under these circumstances, it would be wise to do some research on the company’s business before investing even in defensive stocks.

Systematic Investing with diversified asset allocation

Still, if the market volatility scares you, invest in mutual funds and diversify your risk by investing in the different asset class. With the help of Systematic Investment Plans (SIPs), you can purchase units of mutual funds at lower prices. This can also be the right time to start investing for your long-term financial goals. Click here to know more about mutual funds.

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§  Will not let manipulators to cash in on market volatility: SEBI   Read more

§  Volatility back with a bang: How to make the most of the opportunity    Read here

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15.3

India VIX has seen a spike of more than 9%; reached 15.3 points on 12 September 2018. India VIX is an index to measure expected volatility using prices of Nifty Index Options – a derivative instrument. It thus helps quantify the sentiment on the market. VIX is an index that measures the expected price fluctuations in index options over the next 30 days. There is an inverse relationship between India VIX and markets. The current breakthrough in India VIX is likely to add pressure on the market. Read more about VIX here. Read here about why you should worry about the VIX figures.

 

o    Finding Value in Midcap Stocks

Publish date: 31st August, 2018

Since the beginning of 2018, midcap shares have witnessed a dramatic underperformance in comparison to large caps. While analysts crunch data and offer reasons, as an investor, you need to get your basics right. Amidst the fall, you may hear that there is an opportunity to buy some solid performing ones. But before you press that ‘buy’ button, hold on and understand the basics of valuation.

Midcaps are companies that have a market capitalization (total market value of its outstanding shares) between Rs.5,000 crore and Rs.20,000 crore. The potential for today’s mid-caps to grow into future large-caps attracts investors. However, unlike the larger-cap stocks, where a lot of information is available, information is inconsistent on midcaps. As the investor is unable to analyse these stocks, they are not much popular among investors.

Related Read: Why mid-caps may outperform large-caps

Mid-cap companies have potential to give handsome returns with 3-5 years investment horizon. Even while relating risk with size, midcaps offer a middle path. There are riskier than small caps and comparatively less risky than the large caps.

Related Read: Understand stock market risks

Evaluating a Midcap stock

o    Valuation: The stock value is a function of its stock price and the number of shares. It is advisable to have a higher margin of safety or, to seek value that can ride out volatility. The margin of safety is the difference between the price you pay and the stock’s intrinsic value. Say, if the stock is quoted at Rs. 80 whereas, its intrinsic value is Rs.100, the margin of safety will be 20%. Higher safety margin means, lower risk and higher potential for growth.

Related Read: All you need to know about value investing

o    Management quality: For Large-caps, you can find in-depth coverage and research. Thus, you can be sure about the quality of their management. However, mid-cap companies are generally under-researched. Thus, you need to be mindful of whether the company has the management bandwidth to take it further.

Related Read: Why Tata Motors can be a ‘value’ buy

o    Value vs Price: Two ratios to be careful about are price-to-earnings (PE) and price-to-book value (PBV). An investor must be careful with the value traps of stocks with low PE or PBV. A high priced mid-cap stock may also be valuable. One must look at the previous profits by the mid-cap companies. While studying the company’s business, one should be sure that the net profits are a product of its business operations.

Related Read: Important ratios to use while analysing your portfolio.

o    Potential to Grow: Can you believe that Infosys and Airtel were once lesser-known companies. Today’s mid-cap company can be tomorrow’s large-cap company. To know a company’s growth potential one must focus on its return on equity (ROE), debt-equity ratio, interest coverage ratio (ICR) and, its institutional holdings. Growth potential and strong fundaments are what make the stocks buyable. Read more about return on equity here