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Showing posts with label Indian Stock Market. Show all posts
Showing posts with label Indian Stock Market. Show all posts

Sunday, October 6, 2013

Do Not Invest in Indian Equities

An advice to investors who are still cashing out and staying off from Equities.

Are you investing in equities? If we look at current scenario, many retail investors are either afraid of investing in equities or have been cashing out after the recent run-up in stock market.

Many experts and advisers on television and other media advise retail investors to invest in equities, but to no avail. There is absolutely no interest in equities at the retail level and mutual funds, too, are seeing record redemptions.

As it happens, retail investors are helping markets more by staying out than by investing in equities, so, from a purely selfish point of view, we (current equity market participants) do not mind if you stay away from equities. Keep your money in low-interest bearing savings accounts and this will help bank raise cheap funds. Then, while you earn taxable 9% per year in fixed deposits and 4% in savings accounts, we will continue to buy HDFC Bank, IndusInd Bank, Yes Bank and the like, which are up 3.5 times, 11 times, and 5 times, respectively since December 2008. Also, remember to pay all your EMI installments on time so that retail loans made by the private banks do not get into trouble and we can continue to do well owning their stocks.

Indian retail investors are more or less completely out of equities, and would rather buy gold instead. So, keep buying gold so that we can do better than you by owning stock in Titan Industries and other jewellery companies. You should not care at all that while the gold that you bought is up 2.58 times in four years, the stock of Titan Industries, which sells gold to you, is up 6.9 times during the same period. If Rakesh Jhunjhunwala had bought physical gold instead of shares in Titan when he did, he would not be a billionaire today.

In fact, go ahead and buy real estate, taking mortgages from HDFC and LIC Housing Finance. How else would we have made 2.8 and 5.7 times in these stocks in five years? And when you do buy these apartments and houses, do insist on using the best construction material – cement, sanitary ware and so on. It is only because you do not buy equities and spend on real things that we could make 192% on ACC and 4.5 times on Hindustan Sanitary ware since 2008. A house is not done until it’s painted, so remember to keep a good budget for decorative paints from Asian Paints (stock is up 4.8 times in four years).

Why should you invest in equities when you can buy insurance products? This world is interesting precisely because we think differently from each other – while you are happy buying insurance, we are happy owning shares in companies that sell you insurance. Thanks to you, shares in Bajaj Finserv are up 6 times in value and shares in Max India are up 2 times in the past four years.

Follow your heart and we will follow you. If you like going to malls and spending time there please do some shopping as well – some of us own shares in Phoenix Mills, which is up 2.7 times since 2008. In fact, it may be time for you to upgrade your car. Why buy equities when you can spend the same money on a new car or motorcycle? Let us do the more boring job of continuing to own stocks in Maruti and Bajaj Auto, which are up 2.9 and 10.8 times, respectively, since 2008. Why not add your name to the waiting list for an Enfield this year while we own shares in its manufacturer, Eicher Motors, which is up 12 times since 2008?

Life isn’t just about making and investing money; it’s important to enjoy life’s little pleasures. So go watch a movie at the multiplex and much some popcorn while you are there. Meanwhile, we will buy shares in PVR (up 6 times in four years). You’d rather spend time at home in front of the television? We’ll still love you – shares in Zee Telefilms and Sun are up 3 and 3.5 times because of loyal viewers such as you. Call for pizza delivery at home – Jubilant Foodworks (which owns Domino’s) is up 5.4 times since its IPO in 2010.

While you’re in the mood to be sinfully self-indulgent, don’t make any resolutions to give up smoking or drinking. You may not want to invest in equities, but spare a thought for investors in these stocks. Your actions so far have helped these investors make 3.8 times in ITC, 10.3 times in United Breweries and 2.2 times United Spirits in four years but they still look for your continues patronage of these businesses.

We wish you a very happy and healthy life. In case if you fall sick in 2014, take comfort in the fact that you are helping investors in stocks of companies such as Dr Reddy’s (stock up 4 times) and Cipla (stock up 3 times).

We invite you over to our side but still love you for choosing instead to be loyal customers of the businesses we own.

Now it’s up to you to decide who you would rather be – part owners of Indian companies or just their loyal customers.

Friday, October 4, 2013

Are you Investing in Indian Stock Market?

Unfortunately, many investors who are seduced by the lure of easy money try to become "active" investors before they have the skills, the resources, or the appropriate intellectual framework to do so.

This is not to say that investing in stocks is extraordinarily difficult, It is not!

However, beating the market on a regular basis is far from easy and requires that an investor bring to the investing process a singular discipline, knowledge, or passion that will allow him to rise above the herd.

Like in any other competition, not everyone can win! In fact, for every amount of money that outperforms the market, somebody else's money is not doing quite so well!

How can you tell if you are ready to become an "active" investor?

Not an investor who buys and sells stocks on a regular basis, but active in the way the academics mean it, someone who selects his own stocks.

It is not like there is a licensing process or anything. In fact, there is not even a formal course of instruction.

Much like parenting, you tend to find out if you are really cut out to be an investor only after you have made a pretty substantial commitment.

In our opinion, you should not be investing in stocks:

1. If you need the money within two to three years at the least.

2. If you don't like to do math.

3. If you use the word "play," "gamble," or any similar speculation-oriented word when you describe your investments.

4. If you think indexes matter more than what companies you own.

5. If you are unprepared for volatility.

A lot of people look at the returns for the stock market only to turn pale at the first loss. If you cannot stand to lose money, you should not own stocks.

If you think you will only ever buy stocks that go up, you are not perfect. No system is perfect. No provider of advice is perfect.

You can and will lose money at some point during your investment career. You can minimize this loss only if you do your homework and are careful about valuation.

But money lost is money lost.

Wednesday, August 22, 2012

Market Timing May Be Dangerous

Market timing may be the two most dangerous words in investing, especially when practiced by beginners.

Market timing is the strategy of attempting to predict future price movements through use of various fundamental and technical analysis tools.

The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is obviously better than if you have to buy the stock on its way up.

Buy Low, Sell High

Market timers are the ultimate “buy low and sell high” traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock’s price.

Most market timers operate on a longer time line, but may move in and out of a stock quickly if they perceive an opportunity.

There is some controversy about market timing. Many investors believe that over time you can’t successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.

Market Timers

Other investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range.

Unfortunately, stock prices do not always move for the most logical or easily predicable of reasons. An unexpected event can send a stock’s price up or down and you can’t predict those movements with charts.

The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, became market timers.

Next Big Thing

Every one had a hot tip about the next “big thing” and investors were jumping on stocks as they shot up. Unfortunately, most of these rockets came crashing down just as quickly and many investors held on way too long.

The disastrous result was an exact reversal of what they hoped. In the end, it was a case of “buying high and selling low.” You don’t need to know much about investing to know that’s not a successful strategy.

For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.

If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is a close to market timing as most investors should get.

Saturday, July 16, 2011

Beating the Market with your Stock Investments

Do you want to “beat the market” with your stock investments?

That seems to be the goal most pundits tout, especially if they are selling a sure-fire, guaranteed system to do just that. But, is simply “beating the market” with your stock investments a worthy goal or are there other considerations?

First, we need to define “the market.” Most everyone considers the Sensex the bogey for the stock market. This is not always a good choice, since it is heavily weighted with large cap stocks.

Small Cap Stocks

If you are comparing the results of a small or mid cap stock or group of stocks, the Sensex is probably not the best choice, since large caps stocks don’t necessarily move to the same influences that drive mid and small cap stocks.

We could go on with a number of other reasons that the Sensex may not be the best choice as a representative of the total market, but it ignores the main question of setting expectations for you stock investments.

If your goal is long-term growth, the companies that will take you there may not be concerned with beating the market each quarter.

Shareholder Value

Companies that focus on building shareholder value for the long term make decisions that may effect earning in the short run, but add value in the long run.

For example, investing in new technology can curb profits in the near term, but pay off in the future. Companies that are willing to shed unprofitable divisions and close product lines that no longer meet earnings goals take losses in the current year, but position themselves for a better future.

If you are only concerned about beating the market every quarter, you may be investing in companies that are sacrificing their future in the interest of meeting some artificial short-term goal.

Sunday, June 5, 2011

Company Size Matters in Investing

In investing, like many other things, size does matter. Some investors limit their selections to certain size companies, while others spread their money across the size spectrum.

Company size is just one aspect to consider when evaluating a stock; however, it is important because large and small companies react differently in the market.

Let’s define size before going any further. There are two ways you can classify a company by size: revenue and market capitalization.

Defining Size

Most people don’t use revenue because differences in industries distort how large or small a company is based solely on revenue.

Market capitalization or market cap is the standard measure of company size. You compute market cap by multiplying the number of outstanding shares by the current stock price.

For example, if a company had one hundred million shares of common stock outstanding and a current stock price of Rs. 45 per share, its market cap would be Rs. 4.5 billion (100,000,000 x 45 = Rs. 4.5 billion).

This calculation lets you do an “apples to apples” comparison with any two or more companies.

Finding Market Cap

You can find the market cap of any stock reported on most quotes you find on the Internet such as rediff money. Simply enter a symbol and the market cap is among the data reported.

Investors categorize companies by market cap and place them under one of these labels – although there is not universal agreement on the exact cutoffs.

• Micro Cap

• Small Cap

• Mid Cap

• Large Cap

• Mega Cap

Many people only use three: small, mid and large.

We have come to like these five because of the two high and low extremes. Investing at these two levels is so different that it warrants separate categories.

In the Mega Cap category, you have the Reliance and Infosys and in the Micro Cap category, you have the (name one).

Expect Volatility

If you invest in the micro and small cap markets expect volatility and failure.

At the same time, Reliance and Infosys were once both small companies that could easily have gone under. While there is great risk in the micro and small cap market, there can be great reward.

A company’s survival is not guaranteed by size; however, it helps to be a fairly large fish if you are going to swim in the big pond. Small companies are risky investments, but can pay big rewards.

Sunday, September 19, 2010

Sensex Inching Towards All Time High Zone

We expect the market to remain firm as even advance tax numbers were higher than that of last year, with the positivity from the global front, we are steadily approaching near the all-time high zone and are likely to extend the up move in the coming weeks with required consolidation for the sustainable move.

In the past week, Indian markets continued their strong momentum and scaled new highs. The Sensex and Nifty reached levels last seen in January, 2008, backed by robust inflows from FIIs.

The momentum of the market has been very strong. It is likely to remain so unless there is any significant negative development in the global space. 

Profit-booking cannot be ruled out in the coming days, as the market has risen very fast in recent sessions and many blue-chip stocks are trading at lifetime high levels. However, those corrections should be taken as an opportunity to get into the market.

The market would be keenly watching the meeting of the US Federal Reserve scheduled on September 30. The US Federal Reserve is expected to launch a stimulus package at its meeting, seeing the worrisome situation of high unemployment and weakness in construction activity as indicated by the latest Fed Beige book finding. Though any rate hike is not expected, assessment of the economy and indication of future steps would be important for market direction.

The market remained positive in four out of five trading days in the previous week.

The Sensex ended the week at its best level since January 17, 2008. During the week, the Sensex recorded a gain of 4.2 per cent, its best weekly rise so far this year. The market is sustaining the rally as inflows from overseas investors is coming in relentlessly and in the coming days too, this rising spree is likely to continue.

FIIs infused a whopping Rs 11,300 crore (or $2.43 billion) into domestic equities in the first fortnight of the current month, taking their total investment so far to over Rs 70,000 crore.

Monday, September 13, 2010

Are you Investing in Indian Stock Market?

Unfortunately, many investors who are seduced by the lure of easy money try to become "active" investors before they have the skills, the resources, or the appropriate intellectual framework to do so.

This is not to say that investing in stocks is extraordinarily difficult, It is not!

However, beating the market on a regular basis is far from easy and requires that an investor bring to the investing process a singular discipline, knowledge, or passion that will allow him to rise above the herd.

Like in any other competition, not everyone can win! In fact, for every amount of money that outperforms the market, somebody else's money is not doing quite so well!

How can you tell if you are ready to become an "active" investor?

Not an investor who buys and sells stocks on a regular basis, but active in the way the academics mean it, someone who selects his own stocks.

It is not like there is a licensing process or anything. In fact, there is not even a formal course of instruction.

Much like parenting, you tend to find out if you are really cut out to be an investor only after you have made a pretty substantial commitment.

In our opinion, you should not be investing in stocks:

1. If you need the money within two to three years at the least.

2. If you don't like to do math.

3. If you use the word "play," "gamble," or any similar speculation-oriented word when you describe your investments.

4. If you think indexes matter more than what companies you own.

5. If you are unprepared for volatility.

A lot of people look at the returns for the stock market only to turn pale at the first loss. If you cannot stand to lose money, you should not own stocks.

If you think you will only ever buy stocks that go up, you are not perfect. No system is perfect. No provider of advice is perfect.

You can and will lose money at some point during your investment career. You can minimize this loss only if you do your homework and are careful about valuation.

But money lost is money lost.

Friday, September 10, 2010

Why to Invest in Stock Market?

Traditional investments like fixed deposits are good and safe and one must have a part of their savings invested in such risk free options. However, your portfolio is not complete and balanced in the absence of stock investments.

If invested wisely, you can minimize the risk of loss in stocks and increase the earning potential of your hard earned money.

Here are some statistics for you:


As compared to fixed deposits, investments in equity will pay 26.5 percent higher returns in 5 years. Even for a longer term, investment in stocks pay higher returns even in comparison to real estate and gold.

To begin with, when you purchase equity in a company, you must ensure that the stock prices are reasonable. If you over pay for stocks of a company, naturally you will have to wait longer to make profits on them.

This is because, if you buy stocks at a time when the prices are soaring at unreasonable levels, you will have to face an immediate setback when the market comes to normal levels, and the stock price drops to its average range.

To understand if the stock price is reasonable, you have to understand how stock prices are determined. The price for a stock depends upon the demand for it amongst buyers. The base line of a stock price is its EPS (Earnings per Share).

The market price of a stock is generally a multiple of its EPS. The multiple depends upon the demand the stock fetches. Demand for the stock depends upon company's reputation, customer relations, financials, current news feeds, economic environment in general, political news, market sentiments etc.

If you are new to the stock market, it is best not to buy stocks when the market is influenced by a certain news feed as market sentiments prevail over logic at such times.

For example, the Sensex shot up in mid 2009 after the Congress led UPA Government was elected in the Parliament. Such price upheavals are temporary in nature.

A calm market is good for new investors. If you are looking at stocks as an investment it is best to hold stocks for long term. Further, one should invest in good companies with sound management.

Investing in stocks for the long term

If you invest in stock of good companies for the long term, say 5 years, you will most likely earn good returns on your investment. This is because, a good company with a stable history and excellent growth charts, will grow over time.

Its EPS will also move in a forward direction as the company grows. Over time the demand for the shares will also increase and so will the PE multiple. Therefore, your initial investment will multiply over time if you hold on to the stocks. Also, companies pay dividends and issues bonus shares. These factors add to returns.

Option of investing through mutual funds

If you are vary of investing in stocks or are confused about the company where you should put your money, the option of mutual funds may be right for you.

This way you can invest in stocks of different companies, though indirectly, and gain the benefits of the stock markets without having to research stocks, study the market etc.

Fund houses have researchers and experts to study and analyse stocks.

You automatically have a diversified portfolio since mutual funds invest in multiple companies and different industries- this reduces the risk factor. Further you can make a modest beginning since most mutual funds are available for a small investment of Rs 5,000. You can start SIP (systematic investment plan) with as low as Rs. 500 a month.

Sunday, August 15, 2010

Advantages & Disadvantages of Buying an Index

Advantages of Buying an Index

Indexes are a nice way to gain exposure to certain markets or sectors without having to corner the market in stocks. It’s easier to buy a commodity index instead of buying barrels of oil, some cattle, and a few bags of wheat. You can gain exposure to the overall performance of a market buy buying the appropriate index basket.

Disadvantages of Buying an Index

While an index is designed to emulate a certain market, it doesn’t mean it’s 100% accurate. Just because you buy a foreign market index in a certain region doesn’t mean your basket will move exactly with the economy of that region. There are many factors that can alter the course of a market that sometimes an index can’t reflect, at least not immediately.

Filling a basket order is not always the easiest process either. While it is easier to buy an index than 4,000 industry stocks, that doesn’t mean you always get your target price. If you use market orders, you will eventually fill your basket, but you may not get the desired price. Or if you use limit orders, you may not get all the shares needed to fill the basket.

And not all indexes are liquid. Meaning it may be difficult to trade in and out of certain index positions. Then again, the same thing can be said for certain securities as well.

Monday, July 12, 2010

Global Fears - How Indian Stock Market Performs?

We know this for a fact that Indian markets have always been impacted by global factors. So whether it is weak unemployment numbers in the US, or liquidity concerns in China, stocks in India have taken the hit. And as we see now, the economic situation globally isn't cheery at all! The three bugbears that are impacting sentiment are - Europe, US, and China.

Let's look at each one of them.

Europe: It's cloudy in Europe as of now. And not just the weather, we are also talking about the economic situation in several Euro nations. Right from Greece in the south to Spain and Portugal in the west, these countries are facing a severe debt crisis. In fact, the crisis facing the region's single currency (Euro) is by far the deepest in its short history. Governments there have created an emergency fund to deal with the crisis, but measures still seem short given the magnitude of destruction it can cause. Rising unemployment, political turmoil, cuts in government spending and falling consumption are the biggest risks this region faces over the next few years.

US: It's an age-old story in the world's richest and most arrogant financial economy. The worst part is that those who caused this crisis in the first place are not ready to apologise and take lessons from their misdoings! Financial regulations are trickling in but these mostly seem like half measures. The US government is still willing to bail out big companies. And the central bank is ready with its presses printing loads of dollars to tide over any cash crunch. In short, the Americans are trying to get over the crisis fast using measures that caused the crisis in the first place! So, the situation remains hopeless in the US.

China: This elephant seems to be dancing wild. Many now fear that the Chinese economy is going to come to a screeching halt. And China seems to have emerged as the biggest worry for the global economy and markets. The country is trying to cool down the bubbles that seem to be forming in its realty and stock markets. This cooling off is being seen by many as a sign of sharp slowdown in demand for commodities. Even the slowdown in Chinese consumer demand is being feared.

So, here were the concerns that are rocking global markets, including India.

Coming to our own issues, the key ones here are - rising inflation, huge government deficit, and fear of higher interest rates. On the brighter side however, there are factors like oil price deregulation (even if it seems like a token measure) and good monsoons.

As far as corporate performance is concerned, there is no doubt that good sales and profit growth are back in vogue. Companies are also looking at paring down their debt and thus lower pressure on their balance sheets. Weak commodity prices are also seen as leading to margin expansion for manufacturing companies. Consumer demand is picking up for companies in the auto and FMCG space. Though property demand is yet to pick up pace, we have almost lost hope there, given builders' greed that is keeping real estate prices artificially high.

So overall, the internal situation in India is somewhat mixed.

How will the stock markets perform given all these factors?

We believe Indian markets may also feel the heat of the global crisis sooner than later. But isn't a correction in stock prices expected (and not feared) in this year?

See, we all fear corrections. And we all feel the ardent need to do something when a correction like event strikes, even if we expect it to be just a minor one. Like selling some stocks, fearing the markets might go down even further.

But then, we believe that after the sharp rise in stock prices we saw in 2009, a correction this year should be expected and not feared. Corrections are just a normal part of stock markets and do not alter the overall bull market trend. And given the way India's economy and companies are evolving, the markets will definitely be in for a good time (notwithstanding the normal hiccups) over the next 5 to 10 years.

One must also never try to time a correction. It is nearly impossible. Anyone can give into fears, pessimism, and crowd mentality. But what distinguishes a successful investor is discipline and patience.

Sunday, July 4, 2010

Dont Count on Stocks for Short Term Goals

Over the short-term, stocks can be battered or buoyed by any number of market-changing events. Announcements about inflation, interest rates and other economic news – good or bad – can push the market up or down.

World and domestic events can also have a negative or positive influence on the market.

None of these events are within the control of companies or investors. Good, financially-strong companies can watch their stock fall with the rest of the market or their sector through no fault of their own.

This is why stocks are not appropriate investments for people who will need access to their money in the near future. Volatility can shrink your investment at just the time when you need to cash out.

Savvy investors know that stocks are for the long run and are willing to watch the day-to-day fluctuation knowing that good stocks will prove their worth over time.

As you approach the time when you will need to cash out of stocks, you should begin shifting assets into more secure investments such as fixed income instruments like bonds, bank CDs or other more stable products.

A good rule of thumb is to begin the transition from stocks to more stable products when you are two to three years away from needing the money. Use your good sense and judgment on when to begin the transition.

If you don’t have to move all your cash out of stocks at once, you can stagger the transition over a period of months and years.

Don’t let yourself be trapped in the situation of needing a big gain in your stocks at the last moment to reach a financial goal. This risky behavior may make achieving your goal out of reach if the market moves against you.

Friday, July 2, 2010

Is a down market the best time to buy stocks?

Buying Stock in a Downturn Market

Conventional wisdom says observant investors can pick up bargains when a serious downturn sinks good stocks along with the weak ones.

In fact, there is an old Stock Market saying that goes “buy on fear, sell on greed.”

The trick is identifying good stocks amid the damaged ones. Frequently, serious downturns hit some sectors of the market harder than others. A damaged stock is one that has been beaten down so much it will take a long time to regain its place in the market.

When the dot com bubble burst, it took down many good stocks with it, but it also damaged some companies so badly they never recovered and eventually merged or went out of business.

It is important to be thoughtful when looking for bargains in the middle of a down market. A big question is how far down is the stock going to drop before turning around. This is a difficult, if not impossible question to answer. Predicting the bottom of a market is a guessing game at best.

One way to get a sense of when to buy is by looking at the rate of a stock’s decline when compared to its industry sector and the market as a whole. What you are looking for is a stock that is not declining at the same rate as its peers or the market.

Source of Information

A good source of price information www.moneycontrol.com.

You can look at virtually any listed company or index and receive price information on a daily, weekly or monthly basis.

Historically, the biggest gains have come when the market makes the turn upward. Staying invested or finding some good companies (competitive advantage, low debt, a market that will rebound quickly) may be a good strategy for long-term investors.

However, you can’t know the precise moment a true upturn begins so consider if you have the time and emotional temperament to ride out more rough times before the market returns.

A good rule of thumb is be prepared to hold the stock a minimum of five years and possibly more.

The real question you must answer is: do you believe in the Indian economy and its ability to deliver the high growth rate and are you patient enough to wait for market back on track after a downturn?

If the answer is yes, then buying stock in a downturn can be good long-term investment.

Saturday, June 19, 2010

Understanding Market Timing?

What Is Market Timing?

Market timing is an investing strategy in which the investor tries to identify the best times to be in the market and when to get out. Relying heavily on forecasts and market analysis, market timing is often utilized by brokers, financial analysts, and mutual fund portfolio managers to attempt to reap the greatest rewards for their clients.

Proponents of market timing say that successfully forecasting the ebbs and flows of the market can result in higher returns than other strategies. Their specific tactics for pursuing success can range from what some have termed "pure timers" to "dynamic asset allocators."

Pure timing requires the investor to determine when to move 100% in or 100% out of one of the three asset classes — stocks, bonds, and money markets.

On the other hand, dynamic asset allocators shift their portfolio's weights (or redistribute their assets among the various classes) based on expected market movements and the probability of return vs. risk on each asset class. Professional mutual fund managers who manage asset allocation funds often use this strategy in attempting to meet their funds' objectives.

Market Timing Has Its Risks

Although professionals may be able to use market timing to reap rewards, one of the biggest risks of this strategy is potentially missing the market's best-performing cycles. This means that an investor, believing the market would go down, removes his investment Rupees and places them in more conservative investments. While the money is out of stocks, the market instead enjoys its best-performing month(s). The investor has, therefore, incorrectly timed the market and missed those top months. Perhaps the best move for most individual investors — especially those striving toward long-term goals — might be to purchase shares and hold on to them throughout market cycles. This is commonly known as a "buy-and-hold" investment strategy.

Though many debate the success of market timing vs. a buy-and-hold strategy, forecasting the market undoubtedly requires the kind of expertise that portfolio managers use on a daily basis. Individual investors might best leave market timing to the experts — and focus instead on their personal financial goals.

Friday, June 18, 2010

India - Ready for Multi Decade Bull Market

Indian stock market for investors could be a multi bagger. A 20-bagger!

Yes, that's what the US stock markets returned between 1981 and 1998, believed to be the best period ever for the US stock markets. Similarly, between 1978 and 1989, the Japanese stock market turned out to be a near 8-bagger. Please bear in mind that these were returns from the broader markets and there were many stocks in these countries that turned out to be 30, 40 and even 50 baggers. Clearly, if one could identify a multi decade bull market early, there could be no better place than equities.

So, is there any such bull market taking shape anywhere in the world right now? If one were to listen to Rakesh Jhunjhunwala, one of India's most successful investors, there is a multi decade bull market making its presence felt right here in India. "India is on the verge of unprecedented multi decade growth. Choice of asset class will decide the return. I have allocated 100 per cent of my portfolio to equity asset class", Rakesh Jhunjhunwala opined at a recent seminar. He further added that investors should look for long-term growth prospects and growth-drivers of companies where they invest, rather than getting carried away by short-term apprehensions.

We completely agree with above statement and couldn't have said it better. While the Indian economy is likely to grow at strong rates well into the future, it is only those companies that constantly churn out products that meet the needs of India's large population, and also does it profitably, will survive. Hence, investors should always be on the lookout for such small to medium size companies which are strong multibagger candidates and can provide exponential gains on investments in years to come.

Thursday, June 17, 2010

India - A Nation for Investors

An unprecedented boom in the stock market, combined with the ease of investing in stocks, led to a sharp increase in public participation in securities markets in last two decades since 1990s . The annual trading volume on the Bombay Stock Exchange soared significantly.

Public participation in the market has been greatly facilitated by mutual funds, which collect money from individuals and invest it on their behalf in varied portfolios of stocks. Mutual funds enable small investors, who may not feel qualified or have the time to choose among thousands of individual stocks, to have their money invested by professionals. And because mutual funds hold diversified groups of stocks, they shelter investors somewhat from the sharp swings that can occur in the value of individual shares.

There are dozens of kinds of mutual funds, each designed to meet the needs and preferences of different kinds of investors. Some funds seek to realize current income, while others aim for long-term capital appreciation. Some invest conservatively, while others take bigger chances in hopes of realizing greater gains.
Attracted by healthy returns and the wide array of choices, Indians invested substantial sums in mutual funds in last one decade, but it is still too low if compared with developed countries.

We believe this is the decade of India in terms of Equity investments. For developed countries like US and Japan, old investors have already experienced the full decade of bull run but for country like India it has yet to come.

Monday, June 14, 2010

Stock Market Myth

Over time, the market has averaged about a 15 % return annually.

How many times have you heard this statement or one like it to justify investing in the stock market? The statement is sometimes used to suggest that investing in the stock market will earn you a 15 % return if you leave your money in long enough.

The problem with statements like this is that they are half-truths, often used out of context with beginning investors who don’t understand the complete truths.

Problem One

The first problem is the statement suggests that you should expect a 15 % annual return from your investments in the stock market. Really? Which investments?

People unfamiliar with investing may assume that buying a few (or one) stocks will set them up for this famous 15 % return.

Problem Two

What Market?
The second problem is what do they mean by “the market?” It wasn’t the Sensex in 2008, because it didn’t return 15 %. You can buy mutual funds that track large portions of the market like the BSE 100 or S&P CNX 500, but they didn’t perform any better.

The fact is that by investing in individual stocks you are not buying “the market,” so what the market does is of little concern to you.

Your focus is on the portfolio you create and how it will perform in the future, because that’s all that matters. If you want to keep score by comparing your gains to those of some benchmark like the Sensex, Nifty or S&P CNX 500, feel free to do so.

However, keep in mind investing is not about beating a benchmark. It is about securing your financial future. If the S&P CNX 500 is up 2 % and your portfolio is up 3 %, that will be little comfort when you need real Rupees to spend in your retirement.

Being a long-term investor, you should focus on buying quality stocks that will meet your financial goals. Investments based on sound research in strong fundamental companies in the right sector tends to outperform the indices in a long run.

Saturday, June 12, 2010

Investing in Bull & Bear Markets

Are we in a bull market or a bear market and should you care?

The financial and popular media is fascinated with labeling markets as bulls or bears as if that somehow describes what is happening to your stocks.

It is true that market risk – the danger that a declining overall market may affect your stock – is real. However, investors who have done their homework know the difference between a general market decline and something wrong with their stock.

Some High and Some Low

Look at any bear market and even at its lowest point you will find stocks that do quite well. Similarly, in any bull market there are stocks that do poorly.

A rising or ebbing tide does not necessarily raise or lower all the stocks in a market.

When the overall market is declining or rising significantly, the intelligent investor has a real advantage over the person who has invested on a whim.

If you know the company behind the stock, you will be able to judge whether the stock’s price decline is simply a reflection of the market’s general pessimism or a signal that something is fundamentally wrong with the company.

Decisions

Armed with this knowledge, you can then decide whether to:

  • Sit tight and let the market work through its problems
  • Take advantage of the price decline and add to your holdings if you believe nothing has fundamentally changed with the company
  • Sell before the loss becomes worse
Whatever your decision, you are armed with information to make an intelligent decision.
In a bull market, your stock may take off with the market, which is not necessarily a bad thing. However, you may be concerned that the stock will become highly overpriced and will suffer a significant drop when the bull market ends.
Options
Here are some options:
  • You could sit tight and let the market work thorough it problems
  • You could sell some of the shares (see example below) and buy back the stock when the price falls back to reasonable levels
  • You could sell all of the shares for a profit
You can protect yourself from the danger that the bull market had overpriced the stock so badly that it might fall below its true value in a correction several ways.
Strategy
Here is one strategy. Say you own 500 shares that you bought at Rs. 25 per share. The bull market, and nothing else, has pushed the price up to Rs. 40 per share.
You want to hold the stock, but are concerned that a market correction might drop the price below Rs. 25 per share.
You sell 250 shares at Rs. 40 for a gross of Rs. 10,000. Assuming you have held the stock less than one year, capital gains tax takes 15%, leaving you Rs. 8,500, which you stick in a money market fund.
When the market correction comes, you buy back shares at a lower price. For example, say the stock fell to Rs. 20 per share. Your Rs. 8,500 profit will buy you 425 shares.
You now own 675 shares of the stock and have reduced your average cost from Rs. 25 per share to less than Rs. 22 per share and you didn’t take a penny out of your pocket.
250 shares @ Rs. 25/share = Rs. 6,250

425 shares @ Rs. 20/share = Rs. 8,500

675 shares @ Rs. 21.85/share = Rs. 14,750
Whatever course of action or inaction you choose, the intelligent investor always works from a position of knowledge. If you know the company and its industry, you will not worry about whether it’s bull or bear market.

Thursday, June 10, 2010

Don't try to time bottom of Stock Market

It’s hard to know what the stock market is going to do in normal times, however it is almost impossible to predict market direction in the midst of chaos.

The Sensex sets record high after record high and some investors see a straight line upward into the future or the Sensex gives up 10 percent of its value in a week and the same investors see a death spiral to the poor house.

How is an investor to know what to expect when the market is moving decisively in one direction?

Stock Market Runs:

Bull markets can run for years and so can bears. Unfortunately, there is no absolute way of knowing when a bull will stop or pause or when a bear market will take charge and begin sucking value out of everything.

Investors in the 2008 – 2009 market know it can happen relatively quickly. The Sensex lost almost 60 percent of its value during this bear market following the subprime crisis and global recession.

Was there a day when the market turned? Was there a time when the switch flipped from bear to bull?

Stock Market Switches:

It doesn’t happen that precisely, but as investor confidence in the economy and the geo-political situation returned, the market sentiment switched to buying equities.

Sensex & Nifty experienced upper circuits when UPA wins, equity investors were surprised by such an upmove. Thanks to letting the hype out of the market, many formerly overpriced stocks now started looking reasonable. That’s one way a bull market starts.

Over the years, market callers have made a living off investors who believed these people had some system that would tell them when the market would turn from bull to bear or bear to bull.

The idea is that if you know in advance you can make profit by trading accordingly.

Most serious investors don’t waste their money on these services, rather they stay invested and adjust portfolios as needed.

Research shows you are better off remaining in the market than trying to time an entry and exit on when the market might turn. When the market does rebound, most gains come quickly. Investors who miss this entry, miss most of the upturn profits.

The lesson is it’s better to stay in the market than trying to time when it will turn.

Thursday, June 3, 2010

History of Indian Stock Market

Formation of various Stock Exchanges in India

In the year 1920, a stock exchange was established in Madras called “The Madras Stock Exchange”. “The Madras Stock Exchange Association Pvt. Ltd.” was established in the year 1941. The Lahore Stock Exchange was formed in the year 1934. However, in the year 1936, after the Punjab Stock Exchange Ltd. came into existence, the Lahore Stock Exchange merged with it.

In Calcutta, a second Stock Exchange by name “The Bengal Share & Stock Exchange Ltd.” was established in the year 1937 and likewise in the year 1938, Bombay Stock Exchange also witnessed the formation of a rival Stock Exchange in the name of “Indian Stock Exchange Ltd.”

The U.P. Stock Exchange was formed in Kanpur and the Nagpur Stock Exchange Ltd. in 1940. The Hyderabad Stock Exchange Ltd. was incorporated in the year 1944. Two stock exchanges which came into being in Delhi by the name “The Delhi Stock & Share Brokers Association Ltd.” and “The Delhi Stocks & Shares Exchange Association Ltd.” were amalgamated into “The Delhi Stock Exchange Association Ltd.” in the year 1947.

The depression witnessed after the independence led to closure of a lot of exchanges in the country. Lahore Stock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bangalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act after it was enacted were Bombay, Calcutta, Madras, Ahmedabad, Delhi, Hyderabad, Bangalore and Indore.

Later during 1980’s, many more stock exchanges were established such as Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982), Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990), Coimbatore Stock Exchange and Meerut Stock Exchange.

A new phase in the Indian stock markets began in the 1970s, with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies, which created a surge in retail investing. The early 1980s witnessed another surge in stock markets when companies such as Reliance, which created a new equity culture, accessed the capital markets.

Formation of Sensex (BSE)

Sensex, the 30-stock index of the Bombay Stock Exchange, was introduced in 1986 constituting stocks of large and established companies from different sectors. The base year for the index was 1978 -79.

During 1990s, India witnessed radical changes in its policies regarding Foreign Direct Investments and Foreign Institutional Investments as part of the liberalization policies. In 1990, the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 marks in 1992.

The up-beat mood of the market was suddenly vanished with Harshad Mehta scam. It came to public knowledge that Mr. Mehta, also known as the “big bull” of Indian stock market, diverted large amount of funds from banks through fraudulent means. Millions of small-scale investors became victims to the fraud as the Sensex plunged shedding 570 points.

Formation of Securities & Exchange Board of India (SEBI)

To prevent such frauds, the Government of India formed The Securities and Exchange Board of India or SEBI, through an Act in 1992. With the act, SEBI became the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers, investment advisors etc. The objective of SEBI is to protect the interests of the investors in securities and to promote the development of securities markets and to regulate the securities markets. The scope and functioning of SEBI has greatly expanded with the rapid growth of securities markets in India.

Formation of National Stock Exchange (NSE)

While going global, it became a necessity to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others.

NSE enables fully automated screen-based trading mechanism which strictly follows the principle of an order-driven market. Trading members are linked through a communication network which allows them to execute trade from their offices. The prices at which the buyer and seller are willing to transact will appear on the screen and when the prices match the transaction will be completed. It ensures greater functional efficiency supported by totally computerized network.

Within one year of the onset of equity trading at NSE, it became India’s most liquid stock market. Further, NSE is said to have generated a dynamic process of change in the securities industry. It directly spawned new institutions like the Clearing Corporation and Depository and played a vital role in injecting new ideas into the securities markets such as derivatives trading.

Formation of BOLT System

In 1995, the BSE also replaced its open outcry trading system with totally automated trading known as the BSE Online trading, or BOLT, system. The BOLT network was expanded nationwide in 1997.

Decade in building one of the best stock market across globe

The last decade of 20th century has been exceptionally good for the stock markets in India. In the back of wide ranging reforms in regulation and market practice as well as growing participation of foreign institutional investment, stock markets in India have showed phenomenal growth in the 90’s. Investor base continued to grow from domestic and international markets.

Stock markets became intensely technology and process driven, giving little scope for manipulation. Electronic trading, digital certification, straight through processing, electronic contract notes, online broking have emerged as major trends in technology. Risk management became robust reducing the recurrence of payment defaults. Product expansion took place in a speedy manner. Indian equity markets now offer, in addition to trading in equities, opportunities in trading of derivatives in futures and options in index and stocks. Even modern financial instruments like ETFs are showing gradual growth.

Within five years of introduction of derivatives, Indian stock markets now are ranked first in stock futures and fourth in index futures. Indian stock markets are transaction intensive and thus rank among the top five markets in this regard. Stock exchange reforms brought in professional management separating conflicts of interest between brokers as owners of the exchanges and traders/dealers. The demutualisation and corporatisation of all stock exchanges is nearing completion and the boards of the stock exchanges now have majority of independent directors. Foreign institutions took stake in India’s two leading domestic stock exchanges. While NYSE Group led consortium that took stake in the National Stock Exchange, Deutsche Bourse and Singapore Stock Exchange bought equity in the Bombay Stock Exchange Ltd.

In today’s global scenario that witness the flow of capital and goods without borders, India is keen to go along with the trend with its reforms like improving the investment climate by allowing more and more foreign investors to invest in equity and debt markets, allowing Indian companies to issue ADRs and GDRs in international exchanges and enable them to raise resources through wide range of financing routes as well as permitting Indian companies and individuals to invest abroad.

Wednesday, June 2, 2010

Indian Stock Market Indices - Sensex & Nifty

Sensex & Nifty are more often interpreted collectively with different market records, as both indices are the roots of the Indian stock market. Representing the BSE and NSE respectively, Sensex & Nifty mirror the value of a company in the active stock market.

A group of 30 companies marks Sensex whereas Nifty exhibits the performance of 50 companies. If you read or listen to any Sensex news, Nifty news automatically follows, as the Indian market is incomplete without the figures displayed at these two stock exchange bases. Given the high volatility of the indian stock market represented by the Sensex & Nifty, the layman may find it difficult to understand the fluctuating nature. With expertise, this drawback can be negated.

BSE Sensex puts a close attention on Indian companies and corporate conglomerates like Reliance, Tata, Bharti Airtel, DLF Limited, HDFC, Grasim Industries etc. These companies are the active part of the cluster of thirty companies which run with this index. Index weightage is derived and calculated by using "free-float market capitalization" strategy that proved to be very effective in long run.

As an investor, you can stay informed about the rise and fall of stock prices by watching either Sensex news or the Sensex index. Making intelligent assessments and acting consequently to be successful in the stock market. The BSE has over 6000 companies in its listing, the greatest number in the world. With its 134 plus years of market presence and given its breakthrough role in the formation of the Indian capital market, Sensex has come a long way and the era of the Indian stock market is calculated from the day of the founding of the BSE. Any investment involves the risk factor and the BSE is no exception. Similar is the case of NSE. Stay updated with the latest performance of the Sensex & Nifty to experience a winning rim.

Market fluctuation is obvious in the Indian stock market, and if you are finely tuned to investment strategies, you will definitely gain. Many investment and stock broking platforms like Reuters India provide effective advices and quotes including the A-Z of the performance of Indian markets and world markets. Moreover, the stock recommendations displayed at such platforms, can bring a difference in your investment approach.