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Basics About Fundamental Investing and Stock Market.
A Mega Thread ( 80+ tweets) --
A Bonus Included --
Inspiration -- @FI_InvestIndia @RichifyMeClub @Vivek_Investor
Let's Get Started --
A Mega Thread ( 80+ tweets) --
A Bonus Included --
Inspiration -- @FI_InvestIndia @RichifyMeClub @Vivek_Investor
Let's Get Started --
Introduction to Stock Market --
Stock market is a place where people buy/sell shares of publicly listed companies.
It offers a platform to facilitate seamless exchange of shares.
Stock market is a place where people buy/sell shares of publicly listed companies.
It offers a platform to facilitate seamless exchange of shares.
In simple terms, if A wants to sell shares of Reliance Industries, the stock market will help him to meet the seller who is willing to buy Reliance Industries.
However, it is important to note that a person can trade in the stock market only through a registered intermediary known as a stock broker.
The buying and selling of shares take place through electronic medium.
The buying and selling of shares take place through electronic medium.
Why you should consider investing in share markets?
Potentially Higher Returns
Investing in share market gives you an opportunity to earn potentially higher returns on your investment.
Thus, venturing here gives you a chance to compound your money in the long run and accumulate wealth for various life goals.
Investing in share market gives you an opportunity to earn potentially higher returns on your investment.
Thus, venturing here gives you a chance to compound your money in the long run and accumulate wealth for various life goals.
Beats Effect Of Inflation
Inflation is the general rise in the price levels in an economy with time.
It eats into the value of your investments and the purchasing power of your money.
Inflation is the general rise in the price levels in an economy with time.
It eats into the value of your investments and the purchasing power of your money.
A food item costing Rs. 100 today may cost Rs. 120 next year.
The returns from bank FDs or PPF can hardly beat the effects of inflation.
Hence, they cannot effectively combat the effect of inflation.
The returns from bank FDs or PPF can hardly beat the effects of inflation.
Hence, they cannot effectively combat the effect of inflation.
Diversification.
Diversification is a core mantra of investing.
In the share market, there are different types of assets like debt securities, common stock, preference shares, large-cap stocks, mid-cap stocks and small-cap stocks among others where you can invest
Diversification is a core mantra of investing.
In the share market, there are different types of assets like debt securities, common stock, preference shares, large-cap stocks, mid-cap stocks and small-cap stocks among others where you can invest
You can invest in a range of securities to diversify your risk.
So, in case returns from one goes down, the other can balance it out.
However, itâs important not to overdiversify as it will not all any real value to your investment.
So, in case returns from one goes down, the other can balance it out.
However, itâs important not to overdiversify as it will not all any real value to your investment.
Simple and flexible.
Investing in the share market is not complex.
All you need is a disciplined approach to investing for the longer term and a little bit of research about the businesses you want to invest in.
Investing in the share market is not complex.
All you need is a disciplined approach to investing for the longer term and a little bit of research about the businesses you want to invest in.
You can do it yourself or take the help of a broker.
All you need is a trading and demat account.
Similarly, as share market investment do not have any lock-in period, you can buy and sell shares at any time whenever desired.
All you need is a trading and demat account.
Similarly, as share market investment do not have any lock-in period, you can buy and sell shares at any time whenever desired.
So, keeping in mind the higher returns and an ability to beat inflation, share market investments can prove to be a smart decision.
Major Stock Exchanges in India
There are two main stock exchanges in India where majority of the trades take place -
Bombay Stock Exchange (BSE) and
the National Stock Exchange (NSE).
There are two main stock exchanges in India where majority of the trades take place -
Bombay Stock Exchange (BSE) and
the National Stock Exchange (NSE).
National Stock Exchange (NSE)
NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed companies.
It was established in the year 1992 and is located in Mumbai.
NSE has a flagship index named as NIFTY50.
NSE is the leading stock exchange in India where one can buy/sell shares of publicly listed companies.
It was established in the year 1992 and is located in Mumbai.
NSE has a flagship index named as NIFTY50.
The index comprises of the top 50 companies based on its trading volume and market capitalisation.
This index is widely used by investors in India as well as globally as the barometer of the Indian capital markets.
This index is widely used by investors in India as well as globally as the barometer of the Indian capital markets.
Bombay Stock Exchange (BSE)
BSE is Asiaâs first as well as the oldest stock exchange in India.
It was established in 1875 and is located in Mumbai.
It has a total of ~5,295 companies listed.
BSE is Asiaâs first as well as the oldest stock exchange in India.
It was established in 1875 and is located in Mumbai.
It has a total of ~5,295 companies listed.
BSE Sensex is the flagship index of BSE.
It measures the performance of the 30 largest, most liquid and financially stable companies across key sectors.
It measures the performance of the 30 largest, most liquid and financially stable companies across key sectors.
Different Market Participants
There are a lot of individuals and corporate houses who trade in a stock market.
Anyone who buys/sells shares in a stock market is termed as a market participant.
Some of the categories of market participants are as follows:
There are a lot of individuals and corporate houses who trade in a stock market.
Anyone who buys/sells shares in a stock market is termed as a market participant.
Some of the categories of market participants are as follows:
Domestic Retail Participants-These are individuals who transact in the markets.
NRIâs and Overseas Citizen of India (OCI)-These are people of Indian origin who reside outside India.
NRIâs and Overseas Citizen of India (OCI)-These are people of Indian origin who reside outside India.
Domestic Institutions-These are large corporate entities based in India (for example: LIC of India).
Domestic Asset Management Companies (AMC)-The market participants in this category would be mutual fund companies like HDFC AMC.
Domestic Asset Management Companies (AMC)-The market participants in this category would be mutual fund companies like HDFC AMC.
Foreign Institutional Investors-
FIIs are Non-Indian corporate entities such as foreign asset management companies, hedge funds and other investors.
FIIs are Non-Indian corporate entities such as foreign asset management companies, hedge funds and other investors.
Regulator of the Indian Stock Market
Securities Exchange Board of India
Securities Exchange Board of India (SEBI) is the regulatory body of the Indian Stock Markets.
Securities Exchange Board of India
Securities Exchange Board of India (SEBI) is the regulatory body of the Indian Stock Markets.
SEBI ensures the following:
The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business fairly.
Corporate houses should not use markets as a mean to unfairly benefit themselves.
Small retail investorsâ interest is protected.
The stock exchanges (BSE and NSE), brokers and sub-brokers conduct their business fairly.
Corporate houses should not use markets as a mean to unfairly benefit themselves.
Small retail investorsâ interest is protected.
Stock Broker.
A stock broker also known as a dealer is a professional individual who buys/sells shares on behalf of its clients.
They operate under the guidelines prescribed by SEBI.
An individual needs to open trading/DEMAT account to transact in the financial market.
A stock broker also known as a dealer is a professional individual who buys/sells shares on behalf of its clients.
They operate under the guidelines prescribed by SEBI.
An individual needs to open trading/DEMAT account to transact in the financial market.
Depository and Depository Participants
A Depository is a financial intermediary that offers the service of DEMAT account.
A DEMAT account will have all the shares that an investor owns in electronic format.
A Depository is a financial intermediary that offers the service of DEMAT account.
A DEMAT account will have all the shares that an investor owns in electronic format.
In India, there are only two depositaries which offers DEMAT account services -
National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
An investor cannot directly go to the depositary to open the DEMAT account.
National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
An investor cannot directly go to the depositary to open the DEMAT account.
He needs to appoint a Depository Participant (DP).
According to SEBI guidelines, banks, financial institutions and members of stock exchanges registered with SEBI can become DPs.
According to SEBI guidelines, banks, financial institutions and members of stock exchanges registered with SEBI can become DPs.
DEMAT Account and Trading Account
In order to trade in equities, it is mandatory to have a DEMAT account as well as the Trading account.
In order to trade in equities, it is mandatory to have a DEMAT account as well as the Trading account.
DEMAT Account
DEMAT account or dematerialized account allows holding shares in electronic form instead of taking physical possession of certificates.
It is mandatory to have a DEMAT account to trade in shares.
DEMAT account or dematerialized account allows holding shares in electronic form instead of taking physical possession of certificates.
It is mandatory to have a DEMAT account to trade in shares.
Trading Account
A trading account is used to place buy/sell orders in the stock market.
One can open their trading account with a stock broker who is registered with SEBI.
An order can be placed either through an online or offline mode.
A trading account is used to place buy/sell orders in the stock market.
One can open their trading account with a stock broker who is registered with SEBI.
An order can be placed either through an online or offline mode.
We Just Covered All The Basics and What is Stock Market.
Now will Will Move to Fundamental Investing.
Let's First See Why Stock Market Fluctuates?
Now will Will Move to Fundamental Investing.
Let's First See Why Stock Market Fluctuates?
Factors Influencing the Stock Market
Economic Factors:
Higher economic growth or better prospects of growth will increase the consumption in the economy.
When people start to consume more, their spending will increase.
Money flow in the market increases.
Higher economic growth or better prospects of growth will increase the consumption in the economy.
When people start to consume more, their spending will increase.
Money flow in the market increases.
This will help boost the company's Earnings and therefore share prices or the stock Market in a broader sense.
Investors will be encouraged to invest more in the stock market.
Investors will be encouraged to invest more in the stock market.
Conversely, when the economy is falling, it has a reverse effect on the investors.
The investors tend to withhold their spending and spend only on essential items.
They also withdraw money from the stock market.
The investors tend to withhold their spending and spend only on essential items.
They also withdraw money from the stock market.
Geo-political factors:
Unfavorable circumstances like war, terrorism, and political unrest can negatively affect the entire business scenario.
Investors and traders refrain from investing in stocks in such unfavourable situations.
Unfavorable circumstances like war, terrorism, and political unrest can negatively affect the entire business scenario.
Investors and traders refrain from investing in stocks in such unfavourable situations.
FIIs:
The Foreign Institutional investors refers to the foreign companies which invest in Indian businesses.
The FIIs see a great investment opportunities in growing economies like China, India, and Brazil.
The Foreign Institutional investors refers to the foreign companies which invest in Indian businesses.
The FIIs see a great investment opportunities in growing economies like China, India, and Brazil.
They prefer to invest a great amount of wealth in the Indian stock market with the outstanding power of selling and buying anytime.
Whenever FIIs withdraw their investments from the indian market, the share market gets adversely affected.
Whenever FIIs withdraw their investments from the indian market, the share market gets adversely affected.
Inflation:
To hedge against rising inflation, people should invest more in the stock market because no other financial instrument will be able to give high returns as the stock market.
To hedge against rising inflation, people should invest more in the stock market because no other financial instrument will be able to give high returns as the stock market.
As the purchasing power decreases, every other commodity like buying a land, or investing in a house, becomes more expensive.
Foreign Exchanges Rates:
When the rates of foreign currencies fluctuate, it influences our domestic stock market.
It impacts the stock prices of Indian companies which have an oversees presence.
When the rates of foreign currencies fluctuate, it influences our domestic stock market.
It impacts the stock prices of Indian companies which have an oversees presence.
Companies that are involved in Import and Export will have a major impact on their operations and share prices.
For example, When rupee depreciates, companies (IT, Pharma) that have an overseas presence, will have a positive impact.
For example, When rupee depreciates, companies (IT, Pharma) that have an overseas presence, will have a positive impact.
Demand and Supply:
If an industry grows, the demand For the shares of promising companies in that industry increases.
When the demand goes up, the share pricing also goes up and vice versa.
If an industry grows, the demand For the shares of promising companies in that industry increases.
When the demand goes up, the share pricing also goes up and vice versa.
Investor sentiments:
The stock market is invariably governed by the feelings of the investor.
If the investors are willing to take the risk, they tend to invest more and vice versa.
The stock market is invariably governed by the feelings of the investor.
If the investors are willing to take the risk, they tend to invest more and vice versa.
Interest Rate Outlook:
When the RBI's interest rate rises, businesses cost of borrowing increases.
They are left with fewer profits, causing share prices to fall because now, capital allotment for further expansion and future prospects fullfillment will be less.
When the RBI's interest rate rises, businesses cost of borrowing increases.
They are left with fewer profits, causing share prices to fall because now, capital allotment for further expansion and future prospects fullfillment will be less.
The distribution of dividends will also be less.
When the interest rates are reduced, then the enterprises thrive, which may result in a higher share price.
When the interest rates are reduced, then the enterprises thrive, which may result in a higher share price.
Trade Balance:
Trade balance reflects the differences in imports and exports of the country.
if the imports are more than exports, then it is referred to as a trade deficit.
If the import remains more for a prolonged period, then it may push the economy in debt.
Trade balance reflects the differences in imports and exports of the country.
if the imports are more than exports, then it is referred to as a trade deficit.
If the import remains more for a prolonged period, then it may push the economy in debt.
Hence trade deficit negatively impacts the economy.
If the exports are more than imports then it is referred to as a trade surplus.
Trade surplus reflects a healthy state of the economy and impacts the stock market positively.
If the exports are more than imports then it is referred to as a trade surplus.
Trade surplus reflects a healthy state of the economy and impacts the stock market positively.
Here is How the Stock market impacts the economy of the Country?
The Effect on wealth:
If the prices of the stocks are depreciating, then, it will discourage the buyers from investing more money in buying shares.
The Effect on wealth:
If the prices of the stocks are depreciating, then, it will discourage the buyers from investing more money in buying shares.
The people also spend less on buying goods and products, which brings the GDP of the country down, as consumer spending is a major component of GDP.
consequently, the stock market will further go down impacting the economy of the country negatively, and vice-versa.
consequently, the stock market will further go down impacting the economy of the country negatively, and vice-versa.
Do the Currency Fluctuations Affect the Economy of a country?
One simple reason for the currencies to fluctuate is the variation in supply and demand of the money.
One simple reason for the currencies to fluctuate is the variation in supply and demand of the money.
The amount of domestic currency circulating in the eeconomy of the country is majorly governed by the country's import and export values.
when you are exporting or importing, the indian currency is either flowing in or out of the state.
when you are exporting or importing, the indian currency is either flowing in or out of the state.
if the exports go up at a higher rate than imports, then, it means there is more revenue earned in foreign currency.
It, in turn, indicates a reduced supply of Indian currency in the international market and conseqently we see an appreciation in the exchange rates of currency.
It, in turn, indicates a reduced supply of Indian currency in the international market and conseqently we see an appreciation in the exchange rates of currency.
Alternatively, if the import of the country goes up, it means the supply of our domestic currency increases in the exchange market, resulting in its depreciation.
These were Some of The Factors Affecting The Stock Market.
And How Stock Market Affects The Economy?
Let's Now discuss Value Investing and Growth Investing.
And How Stock Market Affects The Economy?
Let's Now discuss Value Investing and Growth Investing.
What is Value Investing?
It is an investment approach where investors seek out stocks of companies that are trading in the market at a price that does not agree with its intrinsic or inherent value.
This method of investment requires a thorough understanding of the stock market.
This method of investment requires a thorough understanding of the stock market.
Value investors carry the belief that share prices do not justify the long-term fundamentals of a company because such prices are considerably dependent on market behaviour.
What is growth investing?
Growth investors focus on companies that show signs of above-average growth rates.
growth-oriented investor will focus on investing in companies with signs of growth even if their share prices are High in comparison to their price-to-book ratios, and other such metrics.
growth-oriented investor will focus on investing in companies with signs of growth even if their share prices are High in comparison to their price-to-book ratios, and other such metrics.
Two Approaches To Investing --
Top down approach
Have you ever heard any investor/analyst saying something like-
âThe electric vehicle industry looks particularly promising now.
The industry is growing at a fast pace and I should invest in this industryâ.
Have you ever heard any investor/analyst saying something like-
âThe electric vehicle industry looks particularly promising now.
The industry is growing at a fast pace and I should invest in this industryâ.
Well, here the investor is following the top down approach to find stocks.
In the top down approach, the investors first look into the macro picture of the economy and later work down to research the individual stocks.
In the top down approach, the investors first look into the macro picture of the economy and later work down to research the individual stocks.
The overall steps involved in top down approach is to first look at the big picture of the world i.e. which economy is doing great,
then look at the general market in that economy,
next find the particular sector that may outperform
then look at the general market in that economy,
next find the particular sector that may outperform
and finally research the best stock opportunity to invest within that sector.
Bottom up approach
This approach is exact opposite of the top down approach.
Here, you first start with company research and later move up to find the other details.
This approach is exact opposite of the top down approach.
Here, you first start with company research and later move up to find the other details.
Bottom up approach tries to study the fundamental of the company regardless the market conditions, industry or the macroeconomic factors.
While performing the bottom up approach, the investors studies how fundamentally strong the company is by focusing on its revenues, earnings, financial ratios, products/services, sales growth, management etc.
The key here is to find the potentially strong company which may outperform the industry and market in future.
If the fundamental factors are good, then regardless of what the industry is doing, the bottom up investors will pick such companies to invest.
If the fundamental factors are good, then regardless of what the industry is doing, the bottom up investors will pick such companies to invest.
Anyways, both approaches have their own effectiveness and hence, difficult to say which one is better.
Moreover, it also depends on the knowledge and preference of the investor.
Moreover, it also depends on the knowledge and preference of the investor.
My final advice would be to better try out both the approaches and find out which one suits you the best for your investment strategy.
Sources --
1. http://www.fundamental-investor.com/p/articles.html?m=1
Highly recommend reading articles by @FI_InvestIndia
2. @RichifyMeClub
3. Investonomy: The Stock Market Guide That Makes You Rich
Book by Pranjal Kamra
4. Little Knowledge of Mine
1. http://www.fundamental-investor.com/p/articles.html?m=1
Highly recommend reading articles by @FI_InvestIndia
2. @RichifyMeClub
3. Investonomy: The Stock Market Guide That Makes You Rich
Book by Pranjal Kamra
4. Little Knowledge of Mine
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for Reading This thread.
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