Dhanteras has always been associated with making valuable purchases, right from bronze utensils to silver idols of gods and goddesses, to gold and diamond jewellery. And as the country welcomes Goddess Lakshmi, many also take this as an occasion to make smart investments in mutual funds, health and insurance policies, and the stock market too.
We caught up with the Chief Business Officer of Reliance Securities Mr Rajeev Srivastava, to tackle the often considered intimidating and volatile Indian stock market. This Dhanteras, he’s helping Indian women understand the basics of stocks that you must know about in order to invest intelligently.
1. Can you help us understand what exactly are stocks and how does the stock market work?
An equity stock is a share of a public listed company traded on the stock exchange where the price changes every minute concerning the overall demand in the market. Equity stock represents a long term, a growth-oriented investment that can show high volatility in performance, depending on how the underlying business is performing. There is no assurance of a return to the equity investor since the value of the investment is bound to fluctuate over a period of time.
A stock exchange facilitates stock brokers to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers.
India’s premier stock exchanges are the Bombay Stock Exchange and the National Stock Exchange.
2. What is an appropriate amount of time one must spend in research?
Research is a continuous process of identifying sectors, companies, their products; its overall market share and profitability ratios to decide whether the company is overvalued or undervalued. Ideally, one should keep updated regularly about the current trends and allot minimum one hour every day for reading various news, financial magazines, company reports or discussion with people to know the momentum in markets.
3. How should women start putting resources into stocks?
As a beginner, one should start investing through the SIP route in mutual funds or SIP of the basket of stocks at regular intervals of markets movement. The regular purchase would bring the cost of average down and increase the returns in the long term.
4. Consider this example: Suppose Riya bought a stock for Rs 200. Right now, it’s trading at Rs 150. What should Riya do next?
Riya should decide before buying whether she is buying for short term trading or investments. If the stock bought has strong fundamentals, lower debt and consistent earning profits then she can hold the investments and add more in declines.
5. How can one get hold of a company’s financial report and other related information?
There are a lot of financial resources websites which display the current financials, shareholding pattern, quarterly results and a lot of brokerage houses cover the top 100-150 stocks on a regular basis from where we can come to know the desired information required. Company management interviews investor presentations and Annual reports are being uploaded on the exchange and respective company websites.
6. There are thousands of companies that are listed publicly in the Indian stock market. How can you understand which one to choose?
Well, initially one should focus on the NSE 200 companies’ basket which is 90% of the total market cap listed and choose the sectors from the list. Identify from the broad list sectors and choose the companies from the sector. One should follow some basic principle of companies wherein there is consistent growth in revenues and profits, lower debt, zero pledge by promoters shareholding, free cash flows and promoters follow strict corporate governance.
7. What are IPOs and should one invest in these?
IPO’s are initial public offerings being raised by the companies wherein they require capital to fund its operations and expansion. It is called the primary market where issuers give securities to all types of investor’s and dilute their holdings to facilitate regular trading in the secondary market on exchanges. One should invest in IPO’s if it is priced in line with the sector valuations, strong management, raising money for business expansion to achieve higher profits.
8. What is the difference between small caps and large caps? Which is more profitable?
The difference is being laid out based on the market cap wherein the top 100 companies are large caps, from 100-250 companies are midcaps and rest are small-cap companies. Large-cap companies are more profitable and they command higher valuations as they are well researched by industry experts, broking houses and have large institutional holdings.
9. What kind of stocks must one avoid?
One should avoid companies with high debt, higher pledge of own holdings of promoters, inconsistent profit growth, and companies which regularly diversify their business into unrelated industries at the cost of their existing profit earned from their core sector.
10. 5 expert tips for women who are looking forward to investing in the stock market?
It is a known fact that women can plan and allocate money better as they are running their regular household expenses and believe in higher savings compared to men.
- Choose a well large research-backed broking house to know more about investment products and trends on regular basis.
- Determine your goals, invest gradually and diversify your investments.
- Invest regularly as SIP in mutual funds or a basket of stocks.
- Invest in well-known companies with minimum risk and avoid higher trading.
- Track the performance on a half-yearly basis.