Today, we are going to talk about few important points regarding “How to make money from stock market” in India . Before I post any tutorial on the stock market working and its understanding, I am trying to give answers to some of most common questions which are important for all the investors and even the beginners generally ask these questions before anything else as they are directly related to the ability of stock market for generating wealth for the investors.
When to buy good stocks?
The most important question in stocks market is when to buy the stock and when to exit out of it because this is the process which determines the profit or loss to an investors. I personally thinks that if fundamentals are and future prospects looking bright for a particular company and it is supported by internal and external factors for the future growth, it can be bought any time without considering the price of the stock.
Obviously people should use the dips for entering into any stock and the best time for buying any stock is when the stock is down and cash flow in coming days looking positive.
Regarding selling the stocks, I would say that if the investment is for long term there is no particular date or target which should be followed for exiting from the stock, it should be held tightly until the fundamentals are intact. People should worry about 10-20% ups and downs, if you are optimistic about the stock you should hold it without worrying.
Myself invested in Infosys around 1.5 years back and stock was trading sideways without any investors interest and suddenly all bad news started flowing regarding the management and the CEO. The CEO of the Company resigned and few shareholders also pointed out some corporate governance issues.
Considering all this stock continued to fall and at one pint of time it was giving 24% loss with all bad was still there in the market. After few days, company announced buy back at price which 17% higher from the price clocking at that time. It was an excellent offer and I could also earn around 14% return had I been tendered my shares in the Buyback, but I didn’t.
Gradually, things started getting better with the time and the company also gave a good amount of dividend including one interim dividend and after few days stock was trading 7% higher than buy back price with all bad news getting over and stocks again came on the buying tip for all investors and same analyst who were saying that it will come upto 500 rupees started giving higher targets with buying rating to the stock.
Still I believe that I could have bought it when the stock was down so that today I would have been enjoying 40% gain within a year.
But do you really think that a stock which has all negative in it and stock is going down for a long time now, would you invest in that, probably not, a sound investors wouldn’t for sure. Therefore I also didn’t invest when the stock given the sharpest cut.
But honestly speaking if you are getting a return of more than 20% (including dividend) that too from one of biggest company in India with minimum risk and promising future ahead, you would love to take it. The Company is still standing tall in this falling market where all the stocks are corrected up to 20%, and this is your ultimate win.
List of some excellent stock available in Indian stock market is given in my following post:
How to make money from stock market for beginners in India?
It is always important to the investors to study and do proper research on the company’s business and its future outlook before putting any money in that company. Since now the market is going through a small bad patch, still Investors are advised to invest wisely without giving much value to the current pricing and the percentage of fall which stocks have seen in last 2 months. Important is to try to find out stocks which have potential first to sustain for next 20-30 year and grow with a acceptable CAGR for next 5-7 years.
Since it is very difficult to predict the future beyond 5-6 years its always better to find out some stocks which will grow with health pace for atleast 5 years and review your investment after every 3 years to keep yourself in updated and changing outside environment.
Further it is also important to keep track of quarterly and annual numbers of the stocks to keep you updated about the ever changing fundamentals of your portfolio stocks.
We should always keep remember that making money in stock market is not that easy as it seems to the traders because one wrong trade may impact you so badly that it will force you to leave the market with heavy losses in your hands.
Many investors have made good money out of the market but for creating wealth in the market one has to invest for long term only. Even the traders who generally trades for short term they should also understand that a big chunk f their portfolio should consist of the portfolio stocks which are fundamentally strong and have good reputation and presence in their respective field. However, if they want and have the tendency to play in the market to earn some short term gain they should also consider those stocks which are fundamentally good. One should understand that the fundamentally good stocks also gives opportunities for traders to earn short term gain.
The second most important thing they should understand is always invest in human, I mean to say that the best investment is investment in people. Investors should look for those companies which have good visionary management who is keen to create value for investors while keeping the company on growth track.
One foremost example for this can be a company from large cap which has always created value for its investors and given excellent return for almost a decade now. Name of this company is Motherson Sumi, and many investors might have benefitted out of this stock. If you deeply observe this company they are professionally managed and works in a 5 year target plan which they always try to achieve with their aggressive managerial decisions and visionary outlook. Company is planning their future position 5 year advance.
The recent 5 year plan of this company has been very aggressive and to some extent looks out of reach for the company but the short cut this company as taken are notable and falls right in the path of their target. They have acquired some big companies outside India which will certainly add value to both top line and the bottom line of the Company.
The second best practice this company is following is to diversify its portfolio of products and they don’t want to rely heavily on a single product or single market. This gives a comfort to the Company that in case of adverse market conditions for any particular product or for any particular territory, it would not hit the company badly as other products or markets may compensate for it.
Let’s talk about the fundamental analysis of stocks. Basically fundamental analysis is a study to find out the fair value or intrinsic value of the stock and for further forecasting the future price of shares based on the current or past parameters of the Company. In Fundamental analysis we have to closely examine the financial data, Company’s management (its potential and past performance), competitive forces, business outlook (future for supply and demand for company’s products or services), corporate governance condition, and industrial outlook.
Fundamental analysis completes with the study of following three areas:
- Macro-economic data outside environment
- Industry specific research and its future growth factors
- Company’s data study as mentioned in above paragraph.
It is always advisable to check each and every criterion about the stock while doing analysis because it gives you an idea that why one particular stock is trading at a PE of 10 and why the other one from the same industry in trading at PE of 25. Stock market gives value to every point in different ways then it depends on your senses that how much you rely on which factor and which factor you can discard.
For example some analysts focuses on management quality more than anything else and some believe that we should not buy any stock, demand of which are going down, they are least bother about the future demand of that particular products because as per them we should not predict anything beyond 2-3 years. While you will find some analysts who believes that just check if the Company can sustain for next 15-20 years and if it can with god growth drivers, the stock will end up giving good return in long return.
It depends on person to person but it is always advisable to check each and every factors while doing fundamental analysis and decisions should be based on the combination of all factors.
Technical analysis is gained a huge popularity in recent days because of its reach to understand the investors’ behavior and trade on the basis of current trend in the stock without giving much value to Company’s fundamentals. Technical analysts have come out with their own method of predicting company’s short term target and based on different charts, trend, stock price averages and buyer’s and seller’s interest. Their area of focus remains on the stock trend and the signals which the trend is generating based on the demand and supply of the stock.
It has become excellent tool for the short term investors as it caters the need of human nature to gain profit without taking hassle of studying and researching about businesses.
As per Technical analysists the stock price itself is reflecting the fundamentals of the Company and its all depend on the current demand in the stock market which take the stock price up or take it down. To a large extent they are correct.
For safeguarding Investor’s interest, technical analysts always suggest to put a stop loss every time for every stock which investors are buying for trading. This gives them a comfort to play around a reasonable window for upside and downside.
What Return to expect from the stock market ?
Stock market is a place which can give best return among all investment option with risk of loosing 100% of the capital infused. It is important to note that while there are chances that some of your equity market investment can also make you rich there is also a possibility that you may end up loosing all your hard earned money.
It is always advisable that use only that money in the stock market which you have extra and you would not need it in near future.
Now the question comes to everyone’s mind is how much risk we are carrying while putting money in the equity market and the answer for the same is you are having a risk of 100% of your capital employed. But just think about the potential gain from the equity market, its not 100% it is unlimited. May be 1000%, may be 10000% may be more than that, it depends on the Investors stock selection and patience.
There are investors which have converted their Rs. 10K to humongous 560 crore rupees. I have posted a video on Youtube regarding an example on ‘How to make money from stock market’ and same can be checked on the below link:
As I have mentioned in my video there is no upside limit but the downside of the stock is limited to 100% only, there are many good stocks available in the market which investor needs to find with their deep study and research.
Lok Sabha Election and stock market
The 2019 general elections are also not far away and whole opposition has been united to stop the ruling party to take the chair again and in pursuit of this many painful facts and cases may come up to enlighten the flame of their intention. Political parties will also try to do their best to defame the current government to gain election gains.
The above process has already been started after the recent bank scams opened up and we are quite sure that in next few months more of them will be disclosed. The positive thing for the people is that the ruling party has still stand clear of any such fraud and accusation.
In view of the coming election we are of the view that the stock market will have bumpy ride for few more days and the next elections will decide the further course of market as the worst phase in Indian political system towards the end of last government’s tenure which was a coalition government, still haunt the masses