Tips to Choose an IPO for Investing: Do you really want to take part in an IPO but do not know what to look for before investing? Don’t worry we’ve got you covered. In this article, we discuss the important aspects to watch out for before investing in a company. Here, we’ll discuss the key things to look to choose an IPO for investing. Let’s get started.
What is an IPO?
An IPO is a process through which a private company can raise funds through the stock market, transforming itself into a public company whose shares are traded in a stock exchange.
This is a preferred means of raising funds as the company is not obligated to pay interest as in the case of loans, The company however is owned by the shareholders post the IPO. There can be a number of reasons why any company offer an IPO. Here are a few of the top ones:
To raise capital (financial benefit)
For funding a new project or expansion plan of the company
For carrying out new research and development works
To fund capital expenditures
To pay off the existing debts or reduce the debt burden
For a new acquisition
To create public awareness of the company
For the group of initial investors desiring to exit the company by selling their stakes to the public.
In addition, IPOs generate lots of publicity for the company and hence helps in creating market exposure, indirect exposure, and brand equity.
Tips to Choose an IPO for Investing – Things to look
At the end of the day taking part in an IPO is just another form of investment. The problem however arises as companies that go for IPO’s are relatively new and there is not a lot of information available about them. In comparison companies that are public have reports, company news, and expert analysis readily available on the internet.
In order to avoid investors falling prey to companies with weak financials, the regulatory authorities have made it compulsory for companies to issue a Red Herring Prospectus (RHP). This prospectus is a summary of the company and provides important details like financial statements, revenue, earnings, risks, etc of the company. It is very important that the prospectus is read carefully before investing
Following are some important factors to look at before investing in an IPO:
— Growth Prospects and financial strength
The value of the company depends heavily on its growth rate so far and the prospective growth rate it can generate in the future. The prospectus gives a track record of its growth in various aspects and annual reports throughout the years. This will help in predicting what the company may achieve in the coming years and if it is worth investing in.
— Promoter holdings
The prospectus also includes information on whether the company is freshly issuing shares or are they an offer for sale which are shares of existing promoters. According to the law, promoters are required to maintain a minimum holding of 20% post issue. But if the promoters are selling a major portion of their business this could be a red flag. Instead, if the promoters decide to hold a significant portion of shares post the issue then it is a sign that they believe in the future of the company and want to be a part of it. Instead of using the IPO as an escape.
— Allocation of funds raised through IPO
The prospectus also gives us information on what purpose the money raised through an IPO will be used for. A good sign would be the company allocating the funds for future growth. On the other hand, if the main purpose of the IPO is to pay off existing debt or buy out promoters then these should be considered as red flags.
— Comparison with competitors
In order to assess the company’s performance, one should also compare the performance of the company with that of its peers in the same industry. The IPO price also may be compared to other companies in the same industry. Based on its performance and price with its competitors, one can assess it is a company is overvalued or worth investing in.
— Beware of the oversubscription trap
It is also very important for investors to rely on their research and not on market hype. Often IPO’s are oversubscribed. An investor must not get swayed by this information as subscriptions often replicate market trends. This means that there are greater chances of IPO’s being oversubscribed in bullish markets than in bearish. Companies being aware of this are looking for the highest valuations to make use of this.
IPO Terms to Know Before Investing in an IPO
Following are some important terms that provide vital information for investing in the stock market. Understanding these terms are crucial to choose an IPO and make a sound IPO investment decision:
1. Size: The size generally refers to the offering size. This is the number of shares offered in the IPO multiplied by the price per share. This shows the amount the company is attempting to raise from the IPO.
2. Fresh Issue: This refers to the new equity shares issued to the public.
3. OFS: Offer for Sale refers to the dilution of existing promoters’ stake which is given to the shareholders. Here no new shares are issued.
4. Opening/Closing Date: It is between these dates that investors are allowed to apply for the IPO.
5. Price Band: This refers to the lower and upper limit of the share price within which the company will offer its shares to the public.
6 Lot Size: In an IPO the total shares offered to the public is divided into lots. In an IPO the investors are not allowed to purchase shares of any quantity. They have to do it in lots. In addition, a minimum and maximum lot size is set beforehand.
For eg. say Company A going public sets a lot size of 10 shares for each lot with a minimum and maximum lot purchase set at 1 and 10 respectively. This basically means that the minimum number of shares an investor can purchase is 10 and the maximum a 100. If an investor wants 65 shares he will not be able to do so. But he can purchase 6 lots which is the closest denomination.
7. Face Value: The face value refers to the original cost of the shares.
In this article, we discussed a few of the key aspects to look to choose an IPO for investing. IPO’s are considered to be riskier than other forms of investment as the information available is limited. But the risk can be limited to a great extent if one makes a thorough study of its prospectus. At the same time watching out for the red flags mentioned above. Happy Investing!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
Tips for Beginners to Learn How to Invest in Share Market in India: Hello Investors. Today we are going to discuss one of the most elementary topics for a newbie- How to invest in share market? I have been planning to write this post for a number of days as there are many people who are willing to invest, however, do not know how to invest in share market. Through this article, they will get the answers to their question and learn the step-by-step process of how a beginner can start investing in indian share market.
Please note that this post might be a little longer as I am trying to cover all the basics that a beginner should know before entering the stock investment world. Make sure that you read the article till the end, cause it will be definitely worthwhile reading it. Let’s get started.
Pre-requisites before you start investing
For investing in the Indian stock market, there are a few pre-requisites that I would like to mention first. Here are the few things that you will need to invest in share market:
Bank Savings account
Trading and Demat account
Computer/laptop/mobile
Internet connection
(Thanks to Reliance Jio, everyone has 4G internet connection now.. 😀 )
For opening a demat and trading account (usually opened altogether and called 2-in-1 account), the following documents are required:
PAN Card
Aadhar card (for address proof)
Canceled cheque/Bank Statement/Passbook
Passport size photos
You can have your savings account in any private/public Indian bank.
Where to open your trading and demat account?– This will be discussed later in this post on the section ‘choose your stock broker’ (STEP 4).
Get your documents ready. If you do not have a PAN card, then apply as soon as possible (if you are 18 years old or above).
3 Basic Advice before you start investing
When you are new to the stock market, you enter with lots of dreams and expectations. You might be planning to invest your savings and make lakhs in return.
Although there are hundreds of examples of people who had created huge wealth from the stock market, however, there are also thousands who didn’t.
Here are a few cautionary points for people who are just entering the world of investing.
— Pay down your ‘High-Interest’ debts first
If you have any kind of high-interest paying debts like personal loans, credit card dues debts, etc, then pay them first. The interests of these loans can be even as high as your returns from the market. There is no point in wasting your energy to give all the returns you made from the market as interests of your debts. Pay down these debts before entering the market.
— Invest only your additional/ surplus fund
Stop right there if you are planning to invest your next semester tuition fee, next month flat rent, savings for your daughter’s marriage which is going to happen next year or any similar reasons.
Only invest the amount that won’t affect your daily life. In addition, investing in debts/loans is really a bad idea, especially when you are new and learning how to invest in the share market.
— Keep some cash in hand
The cash in hand doesn’t just serve as your emergency fund. It also serves as your key to freedom. You can take big steps like changing your little flat, or quit your annoying job or simply shifting to a new city, only when you have cash in hand.
Do not get trapped by investing all your money and later losing your freedom. Do not sacrifice your personal freedom in the name of financial freedom.
Now that you have understood the pre-requisites and the basics, here are the seven steps to learn how to invest in share market on your own. Do follow the step sequences for an easy approach to enter the stock market world.
How to Invest in Share Market?
Step 1: Define your investment goals
It’s important to start with defining your investment goals. Start with end goals in mind. Know what you want.
Do you want to grow your saved money (capital appreciation) to beat inflation and get higher returns? Do you want to build a passive income from your investments through dividends? Are you investing for a specific goal? Or do you just want to have fun in the market along with creating wealth?
If you want to just have fun and want to learn, that’s okay. But make sure that you do not over-invest or get too much attracted to the market? Moreover, most people start the same way and define their goals later.
Anyways, if you are starting for Goal-Based Investing, do remember that the time frame for different investment goals will be different. Your goal can be anything like buying a new house, new car, funding your higher education, children’s marriage, retirement, etc. However, if you are investing in your retirement, then you have a bigger time frame compared to if you are investing in buying your first house.
When you know your goals, you can decide how much you want and for how long you have to remain invested.
Step 2: Create a plan/strategy
Now that you know your goals, you need to define your strategies. You might need to figure out whether you want to invest in the lump sum (a large amount at a time) or by SIP (systematic investment plan) approach. If you are planning small periodic investments, analyze how much you want to invest monthly.
There’s a common misconception among our society that you need large savings to get started. Say, one lakh or above. But that’s not true. As a thumb rule, first, build an emergency fund, and next start allocating a fixed amount let’s say 10-20% of your monthly income to save and invest. You can use the remaining portion of your earnings for paying your bills, mortgages, etc. Nevertheless, even if your allocated amount turns out to be Rs 3-5k or more, it’s good enough to build an investing habit.
There are a number of decent books on stock market investing that you can read to brush up on the basics. Few good books that I will suggest the beginners should read are:
Besides, there are a couple of more books that you can read to build good basics of the stock market. You can find the list of ten must-read books for Indian stock investors here.
Step 4: Choose your stock broker
Deciding on an online broker is one of the biggest steps that you need to take. There are two types of stockbrokers in India:
Full-service brokers
Discount brokers
— Full-Service Brokers (Traditional Brokers)
They are traditional brokers who provide trading, research, and advisory facility for stocks, commodities, and currency. These brokers charge commissions on every trade their clients execute. They also facilitate investing in Forex, Mutual Funds, IPOs, FDs, Bonds, and Insurance.
Few examples of full-time brokers are ICICIDirect, Kotak Security, HDFC Sec, Sharekhan, Motilal Oswal, etc
— Discount Brokers (Budget Brokers)
Discount brokers just provide the trading facility for their clients. They do not offer advisory and hence suitable for a ‘do-it-yourself’ type of clients. They offer low brokerage, high speed and a decent platform for trading in stocks, commodities, and currency derivatives.
A few examples of discount brokers are Zerodha, Upstocs, 5 Paisa, Trade Smart Online, Paytm Money, Groww, etc.
I will highly recommend you to choose discount brokers (like Zerodha) as it will save you a lot of brokerage charges.
Initially, I started trading with ICICI direct (which is a full-service broker), but soon realized that it was too expensive when compared to discount brokers. It doesn’t make sense to pay extra brokerage charges even if you get similar benefits. And that’s why I shifted to Zerodha as my broker. (Related Post: Different Charges on Share Trading Explained- Brokerage, STT & More)
Zerodha (a discount broker) charges a brokerage of 0.01% or Rs 20 (whichever is lower) per executed order on Intraday, irrespective of the number of shares or their prices. For delivery, there is a zero brokerage charge in Zerodha. Therefore, the maximum brokerage that you’ve to pay per trade while using the Zerodha platform is Rs 20 and it doesn’t depend on the volume of trading.
This is way cheaper compared to ICICI direct (full-service broker) which asks a brokerage of 0.55% on each transaction. If you buy stocks for Rs 50,000 in ICICI direct, then you have to pay a brokerage of Rs 275 for delivery trading i.e. when you hold the stock for more than one day in your demat account.
Further, as this amount is charged on both sides of the delivery transaction (buying & selling), hence you have to pay a total of Rs 550 for the complete transactions in ICICI direct (way too expensive than Zerodha).
Step 5: Start researching common stocks and invest.
Start noticing the companies around you. If you like the product or services of any company, dig deeper to find out more about its parent company, like whether it is listed on the stock exchange or not, what is its current share price, etc.
Most of the products or services that you use in day to day life — From soap, shampoo, cigarettes, bank, petrol pump, SIM card or even your inner wears, there is a company behind everyone. Start researching about them.
For example- if you’ve been using HDFC debit/credit card for a long time and satisfied with the experience, then investigate further about HDFC Bank. The information of all the listed companies in India is publicly available. Just a simple ‘Google search’ of ‘HDFC share price’ will give you a lot of important pieces of information. (Try it now!)
Similarly, if your neighbor bought a new Baleno car lately, they try to find out more about the parent company, i.e. Maruti Suzuki. What other products it offers and how is the company performing recently- like how are its sales, profits, etc.
You do not need to start investing in stocks with hidden gems. Start with the popular large-cap companies. And once you are comfortable in the market, invest in mid and small caps.
Step 6: Select a platform to track your performance
You can simply use an excel or google spreadsheet to track your stocks. Make a spreadsheet with three tables containing:
The stocks that you are interested in and need to study/investigate,
Those stocks that you have already studied and found decent,
Miscellaneous stock- for the other stocks that you want to track.
Else, you can do this by creating multiple watchlists on our Trade Brains Portal. Our Research and Analysis Portal offers users to make up to 5 watchlists and create portfolios. You can sign up on Trade Brains Portal for free to track your stock performance.
This way, you can easily follow the stocks. In addition, there are also a number of financial websites and mobile apps that you can use to keep track of the stocks. However, I would suggest you track your stocks on Trade Brains Portal.
Step 7: Have an exit plan
It’s always good to have an exit plan. There are two ways to exit a stock. Either by booking profit or by cutting a loss. Let’s discuss both these scenarios. Basically, there are only four scenarios when you should sell a good stock in your portfolio:
When you badly need money
When the stock fundamentals have changed
When you find a better investment opportunity and
When you have reached your investment goals.
If your investment goals are met, then you can exit the stocks happily. Or at least, book a portion of the profit from your stock portfolio and shift it to other more safer investment options. On the other hand, if the stock has fallen under your risk appetite level, then again exit the stock. In short, always know your exit options before entering.
That’s all. There were seven steps that will help you learn how to invest in the share market. Now, here are a few other important points that every stock market beginner should know:
10 Additional points to take care
1. Start small
Do not put all your money on the market in the beginning. Start small and test what you have learned. You can start even with an amount of Rs 500 or 1000. For beginners, it’s more important to learn than to earn. You can invest in a large amount once you have more confidence and experience.
2. Diversify your portfolio
It’s really important that you diversify your portfolio. Do not invest all in just one stock. Buy stocks from companies in different industries.
For example, two stocks of Apollo Tyres and JK Tyres in your portfolio won’t be called a diversified portfolio. Although the companies are different, however, both companies belong to the same industry. If there is a recession/crisis in tyre sector, then your entire portfolio might be in RED.
A diversified portfolio can be something like Apollo tyres and Hindustan Unilever stocks in your portfolio. Here, Apollo Tyres is from Tyre industry and Hindustan Unilever is from FMCG industry. Both the stocks are from different industry in this portfolio and hence is diversified.
Blue chips are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.
For example- HDFC banks (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company), etc. A few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India, etc.
These companies have stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest in compared to other companies. It’s recommendable for beginners to start investing in blue chips stocks. As you gain knowledge and experience, you can start investing in mid-cap and small-cap companies.
This is the biggest reason why people lose money in the stock market. They do not carry enough research on the stocks and blindly follow their friends/colleague’s tips and advice.
The stock market is very dynamic and it’s stock price and circumstances change every second. Maybe your friend has bought that stock when it was underpriced, however now it’s trading at a higher price range. Maybe, your friend has a different exit strategy than yours. There are a number of factors involved here, which may end up with you losing the money.
Avoid investing in tips/advice and do your own study.
5. Avoid blindly following the crowd
I know a number of people who have lost money by blindly following the crowd. One of my colleagues invested in a stock just because the stock has given a double return to another of my college in 3 months. He ended up losing Rs 20,000 in the market just because of his blind investing.
Will you buy ABC company which produces Vinyl sulphone easter and dye intermediates even though you have zero knowledge of the chemical industry?
If you will, then it’s like giving some stranger a one lakh rupee and expecting him to return the money with interests. If you are lending money to someone, you ask a number of questions like what he does, what is his salary, what is his background, etc. However, while investing Rs one lakh in a company that people do not understand, they forget this common logic.
7. Know what to expect from the market
Do not set unrealistic expectations for the stock market. If you want to make your money double in one month, from the stock market, then you have set your expectations wrong. Have a logical expectation from the market.
People are happy with 4% simple interest from the savings account, but a return of 20% in a year sounds underperformance for them.
Do not get distracted if your portfolio starts performing too well or too bad in the first few months of investing. Many people increase their investment amount just in few weeks if they see their stock doing too well, and end up losing in the long run.
Similarly, many people exit the market soon and are not able to get profits when their stocks start performing. Have discipline and follow your strategy.
9. Invest regularly and continuously increase your investment amount
The stock investment gives the best returns when you invest for the long term. Do not invest in lump sump at just one time and wait for the next 10 years to see how much returns you got. Invest regularly whenever you get a good opportunity. Further, increase the investment amount as your savings increase.
10. Continue your education
Keep learning and keep growing. The stock market is a dynamic place and changes continuously. You can only keep up with the stock market if you also continue your education.
Besides, there are a number of more lessons which you will learn with time and experience.
Ready to start your journey to become a succesful stock market investor? If yes, then here’s an amazing course for newbie investors: HOW TO PICK WINNING STOCKS?
That’s all for this post on how to invest in the share market. I hope this is helpful to the readers. If you still have any doubt on this topic of how to invest in share market, feel free to comment below. I’ll be glad to help. Take care and happy investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Understanding the process of IPO share allotment to retail investors: The year 2020 was a mixed year for the Indian IPO’s. As many as 14 popular IPOs hit the market last year. A few of the big names that offered their initial public offering last year were Burger King, Happiest Minds, CAMS, Angel Broking, SBI cards, and more. (You can read the Indian IPOs performance for 2020 here).
Now, the seasoned investors may already know what is an IPO and how its allotment process works. However, for the newbie investors, many a time allotment process may look like a mystery, especially when they are not allotted any shares even if applying for multiple IPOs.
In this post, we are going to discuss the process of IPO share allotment to retail investors i.e. the common investors. Let’s get started.
Introduction to IPO Details
Let us first understand the IPO details with the help of an example. Here are the issue details of the Burger King IPO that closed last year.
IPO Dates: Dec 2 – Dec 4, 2020
Type of Issue: Book Built Issue IPO
Issue Size: 135,000,000 Eq Shares of ₹10 (aggregating up to ₹810.00 Cr)
Face Value: Rs 10 Per Equity Share
IPO Price Band: ₹59 to ₹60 per equity share
Market Lot: 250 Shares
Minimum Order Quantity: 250 Shares
Listing At: BSE, NSE
Although most of the points mentioned above can be understood logically, let me explain a few of the important ones in the IPO issue in detail.
From the term IPO date (or Issue date), you can understand that you have to apply for that IPO between those time periods to be eligible for getting the shares.
Next, the minimum order quantity is 250 shares, which is the same as the market lot. This means that you cannot apply for less than 250 shares for this IPO. If you apply for 30 shares, then your application will be rejected. Further, you can buy the shares only in a lot of 250. This means that you can buy the shares in the numbers of 250, 500, 750, 1,000… which is basically 1 lot, 2 lot, 3 lot, 4 lot… etc.
Further, from the IPO price band, you can understand that you have to place the bid between Rs 59 to 60, for each share. The upper level of the issue price is called the cut-off price (here Rs 60). To increase the chances of getting allotted to the shares, it is recommended to bid at the cut-off price of the IPO.
All these points you can easily understand just by reading the IPO details. But what about the allotment? What is the process of IPO share allotment to retail investors? Why some people receive allotment and others don’t? How exactly are the stocks allotted to the retail investors? This is what we are going to next in this article.
Nevertheless, before we learn the process of IPO share allotment to retail investors, there are a few more things that you need to understand first.
What does the Over-Subscription of an IPO mean?
The over-subscription of an IPO means that the demand for the IPO exceeds the total number of shares offered by the company.
For example, Burger King IPO (which is discussed above), evoked a huge oversubscription of 157 times. Burger King IPO received over 1,100 crore bids for its shares compared with 7.45 crore shares on the offer, data compiled by the National Stock Exchange showed.
As the Subscribers for Burger King IPO consisted of Retail investors, qualified institutional buyers, and non-institutional investors, the subscription differed for each segment. The retail individual investor’s segment of the IPO was subscribed over 68 times while the portion meant for qualified institutional buyers (QIBs) was subscribed close to 87 times and non-institutional investors 354 times.
If you’re a common investor, you’ve to look into the retail segment over-subscription, which in the case of Burger King’s IPO was 68 times. The higher the over-subscription, the lower are the chances for getting allotted to the shares of that IPO.
Who can apply for the IPOs?
The IPO applications are divided into three categories:
Institutional or qualified institutional buyers (QIB)
Non- Institutional Investors (NII) or High net worth investors (HNI)
Retail institutional investors (RII)
Each category has a fixed division of share allocation. For example, Burger King IPO is a public issue of 7,44,91,524 equity shares. The issue offers 1,36,27,118 (18.29%) shares to retail individual investors, 4,04,23,729 (54.26%) shares to qualified institutional buyers, 2,04,40,677 (27.45%) shares to non-institutional investors.
This means that 54.26% of the total share was reserved for the QIB, 27.45% of the total share was reserved for NII, and 18.29% of the total share was reserved for the RII. This ISSUE STRUCTURE can change for different IPOs. However, the company has to specify the issue allocation in the IPO details.
IPO Share Allotment Process
1. The Process of IPO Share Allotment to QIB
For QIBs, the discretion of IPO shares allotment is done by merchant bankers. Further, in the case of over-subscription, the shares are allotted proportionately to the QIBs. For example, if a QIB applied for 10 lakh shares and the IPO got 5 times over-subscribed, then it will get only 2 lakh shares.
2. The process of IPO Share Allotment to Retail Investors
For the IPO application, retail investors are allowed to apply with a smaller worth between Rs 12-18k to Rs 2 lakhs. For example, in the case of Burge King IPO
Issue Price: Rs 59-60
Minimum order quantity: 250.
Therefore, if a retail investor wanted to apply for the Burger King shares at a bid of Rs 60 (Cut-off price), then the total application amount will be= Rs 60 * 250 = Rs 15,000. Further, he/she can apply for a maximum of Rs 2 lakhs. This means that for Burger King IPO, the RII can get a maximum of 13 lots (Each lot of 250 shares).
Now, let us understand how the process of IPO share allotment to retails investors actually happens. First of all, the host calculates the total number of demands. After calculating the demands, here are the two possible scenarios:
1. Demand is less than or equal to the shares offered
If demand is less than or equal to the offered retail proportion of the IPO shares, then full allotment will be made to the RII’s for all the valid bids.
2. Demand is more than the shares offered
If demand is greater than the allocation to the retail proportion of shares offered, then the maximum number of RII’s will be allotted a minimum bid lot. These are called maximum RII allottees and is calculated by dividing the total number of equity share available for the allotment to RII by the minimum bid lot.
Let us understand this with the help of a simple example:
Suppose there are 10 lakh shares offered to the retail investors and the minimum lot size is 50. Then, the maximum retail investors will receive the minimum bid lot = 10 lakhs/50 = 20,000. This means that 20,000 participants will receive at least 1 lot.
Quick Note: In the case of over-subscription, allocation lower than a minimum lot is not possible. If the minimum lot size is 50, you will not be allotted 30 shares. Anyone who is allotted the share will receive at least 50 shares.
In the case of over-subscription, again there are two possibilities:
A) In the case of a small over-subscription, the minimum lot is distributed among all participants. Then, the rest available shares in the retail portion will be distributed proportionately to the RIIs, who have bid for more than 1 lot.
Let’s say for the above example, 18,000 people applied for the allotment. However, among all the applicants, 5000 people applied for 2 lots (1 lot consists of 50 shares).
Hence, total no of shares applied = (13,000* 1lot) + (5,000* 2lot) = (13,000* 50) + (5,000* 100) = 11.5 lakhs
Here, we have oversubscription as the total shares offered to the retail investors is 10 lakhs. In such scenarios, the first 1 lot of 50 shares will be allotted to all 18,000 applicants. Then the remaining 1 lakh shares are allotted proportionately to all those who have applied for more than 1 lot.
B) In case the RII applications are greater than the maximum RII allottees (big over-subscription), then the allotted bid lot shall be determined on the basis of the draw of the lot i.e lottery.
Let’s say for the same example discussed above, 1 lakh people applied for the allotment. In such a scenario, who will get the allotment will be decided by the lottery. Nevertheless, the draw of lots is computerized and hence, there is no provision for cheating or partiality. Everyone has an equal chance to get the allotment.
Overall, in the case of oversubscription, the allotment totally depends on your luck.
3. Process of IPO Share Allotment to HNI
High net worth investors are those people who invest a large amount of money (greater than 2 lakhs) in an IPO. In case of oversubscription, HNIs are also allotted the shares proportionately. Further, many a time, the financial institutions provide funding to HNIs in order to invest it in IPOs.
That’s all. This is the process of IPO share allotment to retail investors, QIBs, and HNIs.
BONUS: How to maximize the chances of getting an IPO?
Many a time, the IPO you’ll be applying for will be over-subscribed. In such cases, even if you applied for a full quota of Rs 2 lakhs, still, there’s no guarantee that you’ll get even a single lot. Even in the same example of Burger King discussed above, it got over-subscribed 157 times.
Then what to do in such cases? Here are two basic pieces of advice to maximize the chance of IPO share allotment to retail investors. First, fill the application correctly, and second, apply at the cutoff price.
That’s all. I hope this post about the process of IPO share allotment to retail investors, QIBs, and HNIs is useful to you. If you have any questions regarding the allotment process, please comment below. I’ll be happy to help you out. Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
A complete overview of Penny stocks in India: Hello Investors! Penny stocks are the darlings of new investors. The low market price of these stocks makes them quite attractive to beginners. However, there are a number of things that an investor should know before investing in penny stocks. In this post, we are going to discuss penny stocks, their pros and cons, and whether an investor should buy it or not. Let’s get started.
What are Penny stocks in India?
Penny stocks are those stocks that trade at a very low market price, generally with a share price less than Rs 10. These stocks have a very low market capitalization and typically under Rs 500 crores. Further, penny stocks in the Indian stock market have low liquidity and are speculative in nature.
Being smaller than Small-cap companies, these stocks belong to the microcap category. However, you can find a number of penny stocks in India listed on both the Bombay stock exchange (BSE) and the National stock exchange (NSE).
Note: If we look into history, the term Penny Stocks came from US markets. In the United States, penny stocks used to be those stocks who trade below one dollar ($1) i.e. the stock worth pennies. However, nowadays, even the stocks trading below two to five dollar are even considered penny stocks there.
Penny stocks have a high potential of rewarding its shareholder. The returns are quite high if you are able to get a good penny stock. Many penny stocks have turned out to be multi-baggers for their investors.
These stocks are able to make explosive moves. There are a number of penny stocks that have given multiple times returns in just a few months. Moreover, due to the low market price of these stocks, investors are able to buy large quantities of penny stocks.
Generally, penny stocks are not known to many as retail investors do not have information about these stocks, and institutional investors do not invest in these companies because of their low market capitalization. Therefore, if you are able to find one such stock before the market does, then it can turn out to be a great wealth creator for you.
The cons list of penny stocks is too large compared to its pros. Here are a few of the common disadvantages of buying penny stocks:
High Risk: These stocks are quite risky as the percentage of a number of penny stocks outperforming the market is quite less. Many of the penny stocks become bankrupt and go out of business.
These stocks have very low liquidity. Therefore there will be troubles on both ends of transactions i.e. buying and selling. While buying these stocks, you might not be able to find a seller. In case you bought the stock, and the stock price starts falling, then you won’t be able to find a buyer to sell the stock.
There is a large bid-ask spread in these stocks.
Limited information is available to the public about the company.
Price manipulations: There have been a number of cases of price manipulations in penny stocks where the insiders try to inflate the share price. Further, one can easily manipulate the penny stocks by buying large quantities of these stocks.
Sudden delisting and regulatory scrutiny: There are multiple cases where penny stocks have been delisted from the stock exchanges. Further, these stocks are regularly under scrutiny by SEBI.
Prone to scams: There are a number of past scams in penny stocks (Ex- pump and dump).
Penny stocks are suitable for those investors who are ready to take high risks in expectations to get high returns. If you have a low-risk appetite, do not invest in these stocks.
Rules for investing in Penny stocks in India
Here are a few guidelines that can help you to invest in penny stocks.
Look for value, not just the price: Even for penny stocks, you need to look at the value the company is giving. Understand the company’s business, product, services, etc. Investing in penny stock is not buying a lottery ticket.
Study the company’s fundamentals: Look at the company’s financials, management, debt, growth rate, etc
Check the liquidity: Buy stocks that have reasonably high trading volumes so that there is ample liquidity.
Promoter’s share and pledge: Check the promoter’s shareholding patterns and stock pledge if any.
Technical factors: If you know technical analysis, then also check the penny stock’s technicals. Moreover, if you’re purchasing penny stocks just for quick returns, do not ignore looking into factors like momentum, technical indicators like moving averages, RSI, etc.
Invest only a small portion of your investment in penny stocks: As these stocks have a high risk, you should only invest a small amount, less than 10% of your total investment amount in penny stocks.
Monitor continuously: Penny stocks are very volatile.As these stocks are known to make explosive moves, therefore monitor these stocks continuously. If the stocks are performing well, buy more. If they are continuously performing poorly, get rid of it.
Do not diversify: As you are only investing a small proportion of the amount in these stocks, diversifying will make the net investment even smaller. Select only 2 or 3 penny stocks and invest in them.
Be disciplined: Do not invest all in if your penny stocks start performing tremendously good. Similarly, do not quit if one or two of your penny stocks failed to give satisfactory returns.
Do not believe the ‘It cannot go down any further’ myth. If the prices of the stock are falling, try to find the reason behind it.
Conclusion
While there are a number of peoples who have created huge wealth by investing in penny stocks, however for many penny stocks are wealth destroyers. If you are going to invest in penny stocks, do your research carefully and do not speculate about the stock. Moreover, there are high risks involved in these stocks. So, be ready for it.
Finally, here’s a short video to summarize what are penny stocks in India and how to research and analyze them.
That’s all for today on penny stocks. I hope this post was useful to you. If you have any doubts/queries, feel free to comment below. I’ll be glad to help. Happy Investing and Trading. Take care!
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Understanding Regulations to Invest in US/Foreign stocks for Indians: Owning foreign shares like Tesla, Apple, Amazon, etc has been made so simple that Indian investors can now do it with the click of a mouse. All one has to do now is find a good international broker to create an account by providing details such as name, email, and mobile number to start.
This is followed by providing documentation like PAN card and address proof. The brokers take care of paper-work, authorizations from banks, getting the RBI clearances being, and opening an account. Almost seems like investing in Indian markets!
With the process now being seamless, it is easy for investors to get carried away. At times lose track of the guidelines set for investing abroad. So let us find out and understand better the guidelines that govern investing abroad. Here, we’ll look into the Regulations to Invest in the US or foreign stocks for Indians. Let’s get started.
Regulations to Invest in US or Foreign stocks
Transferring money abroad used to be complex with a lot of approvals required. The advent of globalization simplified the process with the introduction of the Liberalised Remittance Scheme (“LRS”) in 2004.
RBI’s Liberalised Remittance Scheme (LRS) allows Resident Individuals in India to acquire foreign securities without prior approval. They canfreely remit money out of India, up to the given threshold, with the help of authorized dealers and Indian banks. The threshold is currently set at $250,000 for one financial year (April to March). At the current rate (73.59) this amounts to Rs. 1.83 crore. Individuals here have to watch out for forex changes.
Current and Capital Account Transaction
It is important to understand all transactions involved in LRS other than stock market investments. This is because they too affect the remittance ability of an individual. This $250,000 is permissible for current or capital account transaction or a combination of both. The current account transaction can include gifts, donations, emigration, medical treatment, business travel, private visits to any country (except Bhutan and Nepal). The Capital account transaction include the following:-
Making investments abroad ( Debt instruments, shares, etc.)
Purchasing property abroad.
Buying objects of art.
Extending loans including loans in INR to NRI/PIO close relatives.
Setting up of wholly-owned subsidiaries and joint ventures outside India for bonafide business.
Repayment of loan acquired when you were a non-resident etc.
The LRS restricts buying and selling of foreign exchange abroad, or purchase of lottery tickets or sweepstakes, proscribed magazines, etc. An individual is also restricted from investing in a country that has been identified by the Financial Action Task Force as “non-co-operative countries and territories”.
Once a remittance is made for an amount up to USD 2,50,000 during the financial year, a resident individual would not be eligible to make any further remittances under this scheme. This is even if the proceeds have been brought back into the country. The individual however can send money as many occasions as he wants. This is as long as the $250,000 cap is maintained. It is not necessary that the remittances have to be made only in US dollars, they can be made in any freely convertible currency.
In the case of investment in shares, debt instruments, and mutual funds it is not necessary that the interest or dividend earned have to be remitted back. They can be reinvested or retained or used to meet any expenses abroad. The investment and their profits too can be reinvested without being brought back to India.
Which individuals are considered as resident individuals?
Any individual that satisfies one of the following 2 conditions would qualify as a resident of India:
Stayed in India 182 days or more in a year or
Stayed in India for 365 days or more for the immediate 4 preceding years and 60 days or more in the relevant financial year.
How are taxes affected in India for income earned abroad?
According to income tax rules, the income earned anywhere in the world is taxable in India for you. However, if taxes have already been deducted at source abroad. Then the individual can make use of the Double Taxation Avoidance Agreement (DTAA) where the income was earned. According to this if the taxes have already paid in the country abroad, as long as that country has a DTAA with India the individual will not be required to pay tax on the income once again.
What are the exceptions to the LRS cap?
If the $250,000 cap is reached one may still remit more funds if it takes prior approval from the Reserve Bank. The exception also includes medical treatment where one can still remit more than USD 250,000 without approval from RBI.
This is if one can produce certain documents. In the case of education undertaken abroad too may be allowed without prior approval from the Reserve Bank. This is because students are considered NRIs from day one (of moving abroad for studies).
Closing Thoughts
Date
Feb 4, 2004
Dec 20, 2006
May 8, 2007
Sep 26, 2007
Aug 14, 2013
Jun 3, 2014
May 26, 2015
LRS limit (USD)
25,000
50,000
1,00,000
2,00,000
75,000
1,25,000
2,50,000
Despite liberalizing the economy it is important for a country like India to practice control on foreign exchange movements in and out of the country. India already spends much more on foreign exchange than we earn. The RBI keeps an eye and adjusts the cap accordingly.
The table above shows the limits adjusted by the RBI throughout the years, A situation where unlimited remittances are allowed would ruin the exchange rates of the country. This makes LRS all the more important to be implemented.
That’s all for today’s article on regulations to Invest in US or abroad. Hope it was useful to you. Please comment below what you think of these regulations to Invest in US and other foreign stocks. Happy Investing!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
List of Most Frequently Used Trading Animals in the Share Market (Bull, Bear, Stags, Wolves & More): Have you watched the movie ‘The Wolf of Wall Street” starring Leonardo DiCaprio as Jordan Belfort? If yes, then have you wondered why he has been referred to as a wolf in the movie? What’s an animal doing in the stock market-based movie?
Well, Animals in the Stock Market are commonly used terminology to define specific characteristics of the type of traders or investors or market scenario. In this article, we are going to discuss 11 of such most commonly used animals in the stock market. Please read the article till the end as there are some bonuses in the last section of this post.
11 Most Frequently Used Trading Animals in the Share market:
Here are the eleven most frequently used animals in the share market by stock analysts or the authors of investing books.
1. Bulls – The Optimistic
The bulls represent the investors or traders who are optimistic about the future prospects of the share market. They believe that the market will continue its upward trend. Bulls are the ones who drive the share price of companies higher.
2. Bears – The Pessimistic
Bears are the investors or traders who are totally opposite of the bulls. They are convinced that the market is headed for a fall. Bears are pessimistic about the future aspects of the share market and believe that the market is going to be in RED. Mostly, bears are the reasons for getting the share prices lower.
Quick note: The bulls and bears are often used to describe the market condition. A bull market is a scenario when the market appears to be optimistic and climbing new highs. On the other hand, a bear market describes a market where things are not good and appears to be a long-term decline.
3. Rabbits
The term rabbits are used to describe those traders or investors who take a position for a very short period of time. The trading time of these traders is typically in minutes.
These types of traders are scalpers and trying to scalp profits during the day. They do not want overnight (or long-term) risk and just looking for an opportunity to make some quick bucks for the market during the day.
4. Turtles
The turtles are typically those investors who are slow to buy, slow to sell, and trades for the long-term time frame. They look at the long-term frame and try to make the least possible number of traders. This kind of investor does not care about the short-term fluctuations and most concerned with long-term returns.
5. Pigs
“Bulls make money, bears make money, pigs get slaughtered”
These investors or traders are impatient, willing to take high risk, greedy, and emotional. The Pigs don’t do any kind of analysis and always look out for hot tips and want to make some quick bucks from the share market. Pigs are the biggest losers in the stock market.
6. Ostrich
Ostriches are those kinds of investors who bury their heads in the sand during bad markets hoping that their portfolio won’t get severely affected.
These kinds of investors ignore negative news with an expectation that it will eventually go away and will not impact their investments. Ostrich investors believe that if they do not know how their portfolio is doing, it might somehow survive and come out alright.
7. Chickens
Chicken refers to those investors who are fearful of the stock market and hence do not take risks. They stay away from the market risks by sticking to conservative instruments such as bonds, bank deposits, or government securities.
8. Sheeps
Sheep are those kinds of investors who stick to one investing style and do not change according to the market conditions.
They are usually the last ones to enter an uptrend and the last one to get out of a downtrend. The sheep like to be on the side of the majority (herd) and follow a guru. They are not interested to develop their own investing/trading method.
Dogs are those stocks that have been beaten down by the market due to their poor performance. Many financial analysts look into the dog stocks closely as they expect these stocks to recover in the upcoming days.
10. Stags – The Opportunistic
This kind of investors or traders are not really interested in a bull or bear market. They just lookout for opportunities. They are neither bullish nor bearish.
For example, Stags can be the traders who buy the share of a company during its initial public offering (IPO) and sell them when the stock is listed and trading commences. They do stagging with the hope to get listing gains and hence these individuals are called stags.
11. Wolves
Wolves are powerful investors/traders who use unethical means to make money from the share market. Mostly, these wolves are involved behind the scams that move the share market when it comes to light.
For example- Harshad Mehta can be considered as the wolf of Dalal Street. He was charged with numerous financial crimes that took place in the Securities Scam of 1992. Similarly, the famous Hollywood movie ‘The Wolf of Wall Street’ depicted Jordan Belfort, who was convicted on charges of stock fraud in his penny stock operation and stock market manipulation.
A lame-duck is a type of trade or investor who trades and ends up with a huge loss. Lame ducks have either defaulted on their debts or gone bankrupt due to the inability to cover trading losses. The phrase can be traced to the early years of commodity trading and the development of the London Stock Exchange during the mid-1700s.
13. Hawk & Dove
Hawks and doves are terms used to describe the types of policymakers who take critical stances on different economic situations. It basically suggests the sensitivity of a policymaker is towards an economic situation. A ‘hawk’ wants a tough stance in an economic situation, whereas a ‘dove’ wants to be easy with it.
14. Whales
These are the big investors who can move the stock price when they buy or sell in the market. You can make a lot of money if you trade alongside the right whale.
15. Sharks
Shares are those traders who are just concerned about making money. They get into the trades, make money, and exits the share market. The sharks have very little interest in big complicated methods of making money from the market.
16. Dead Cat Bounce
The dead cat bounce slang is used to refer to a temporary recovery during the bear run. Either it could mean a temporary upswing of the market in the midst of a bear run or it could refer to the particular stock behavior.
Interestingly, this phrase has been employed from the explanation that if you throw a dead cat against a wall at a high rate of speed, it will bounce – but it is still dead.
17. Dogs of the Dow
This is a popular investing strategy where the investors select the 10 highest dividend-yielding blue-chip stocks from the Dow Jones Industrial Average (DJIA) every year. The main reason to follow the Dogs is that it presents a straightforward formula designed to perform roughly in line with the Dow. This concept was originally published by Michael O’Higgins’ in his book, “Beating the Dow,” in which he also coined the name “Dogs of the Dow.” Similar to this concept, Dogs of the Sensex is used in India.
That’s all. I hope this post on trading animals in the share market is helpful to you. Let me know what kind of trading animal you are- in the comment box. #HappyInvesting.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Introduction to Nifty Financial Services Index: Good News, Good news!! A new and very exciting product has been added to the kitty of the market participants trading in the Indian trading ecosystem. We are talking about the Index “Nifty Financial Services Index”.
In today’s article of Market Forensics by Trade Brains, we’ll be discussing all about the Nifty Financial Services Index i.e what is Nifty Financial Services Index, its constituents, F&O Contract Specifications, and more. Let’s get started.
What is Nifty Financial Services Index?
NSE in its circular published on 10th Dec 2020 made the announcement that they have got permission to allow Nifty Financial services to be traded as a derivative product. From January 11, 2021, Nifty Financial Services will be allowed to trade in Futures and Options contract.
Till now the major indices that are being allowed to trade in the Indian equity market are Nifty and Bank Nifty. However, with the addition of Nifty Financial Services, there will be a total of three indexes allowed to have Futures and Options (F&O) contracts.
Therefore, adding the ‘financial services’ as a tradeable index to the trading ecosystem provides a huge boost and impetus for traders looking for more avenues to trade. And rather than having to trade all the constituents, one can express his/her view on the same by trading Nifty Financial Services.
Constituents of Nifty Financial Services Index
The Nifty Financial Services mainly comprises 20 stocks from various sectors like Banks, Non-Banking Financial Services, Insurance, etc. The following is the comprehensive list of all the constituents along with their weightage as on November 27, 2020. (Source: nseindia.com)
S. No
Stock Name & Weightage (%)
1
HDFC Bank Ltd. (27.13%)
2
Housing Development Finance Corporation (17.51%)
3
ICICI Bank Ltd. (14.14%)
4
Kotak Mahindra Bank. (12.10%)
5
Axis Bank Ltd. (6.46%)
6
Bajaj Finance (5.64%)
7
State Bank of India (4.06%)
8
Bajaj Finserv Ltd. (2.29%)
9
HDFC Life Insurance (2.21%)
10
SBI Life Insurance (1.43%)
11
Power Finance Corporation
12
Shriram Transport Finance Company Ltd.
13
REC Ltd.
14
ICICI General Insurance Co. Ltd
15
Cholamandalam Investment and Finance Company Limited
Criteria to be a part of Nifty Financial Services Index
Here are some of the criteria for companies to be a part of this Index:
NIFTY Financial Services Index is computed using the free-float market capitalization method, wherein the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value.
The company has to be a part of Nifty 500 to be able to qualify to be a part of this Index. But in case the number of eligible players falls below 10, then the companies will be selected from the Nifty top 800.
The company’s trading frequency should be at least 90% in the last six months.
The company should have a listing history of 6 months. A company, which comes out with an IPO will be eligible for inclusion in the index if it fulfills the normal eligibility criteria for the index for a 3 month period instead of a 6 month period.
The weightage of each stock in the index is calculated based on its free-float market capitalization such that no single stock shall be more than 33% and the weightage of the top 3 stocks cumulatively shall not be more than 62% at the time of rebalancing.
Finally, the rebalancing of the companies included in this index happens semi-annually.
Here are some of the key Nifty Financial Services Futures and Options Contract Specifications:
The contract size for Nifty Financial services will be 40 units.
There will be a total of 7 weekly expiring contracts and 3 monthly expiring contracts
For Option trading, there will be a total of 30 In the Money contracts,1 At the Money contract, and 30 Out of Money contracts.
The strike interval will be 100 for options trading i.e., the gap between two consecutive strike prices will be 100. Say, for example, if the current At the Money Strike Price is 14300, then the immediate Out of Money strike will be 14400, and the immediate In the Money strike will be 14200.
Both Futures and Options contracts will be Cash Settled.
The daily circuit limit for a futures contract is 10%.
Closing Thoughts
The addition of an extra index for trading Futures and Options contracts provides an extra impetus for investors and traders willing to trade in the Indian Financial spectrum. It remains to be seen whether the contract garners sufficient interest from investors. But looking at the popularity of Bank Nifty as a derivative instrument, it is expected that the Financial services contract also attracts similar interest from investors and traders.
That’s all for today’s Market Forensics article on long-short funds in India. We hope it was useful for you. We’ll be back tomorrow with another interesting market news and analysis. Till then, Take care and Happy investing!
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!
A Guide on what to do when the market goes up or makes new highs: Yesterday, Sensex closed at a record all-time high. It went up 446 points higher to its record closing high of 44,523 while the Nifty rose 129 points to its record close at 13,055. Most of the sectoral indices also ended the day in the green. Although the market was all-time high yesterday, however, as a matter of fact, it was considered to be in a bull phase when the market declined over 37% in March 2020 after the arrival of COVID19.
A lot of first-time investors are wondering what to do next? What to do when the market goes up? Should we enjoy or should we become conscious that the market may fall in the upcoming days? In this post, We are going to answer the same question. What should an average investor actually do when the stock market goes up or makes a new high? Let’s get started.
First of all, CELEBRATE – Market is HIGH!
Isn’t this something which everyone wishes for when the invest- Market going higher and higher?
If you have invested intelligently, then your portfolio would also have gone up along with the rise in the market. And hence it a reason to celebrate. All the hard work that you did in researching, picking stocks, and investing is finally giving sugary fruits. In short, this moment something that you might be waiting for a long time to occur and it finally happened. Therefore, ENJOY.
Nevertheless, when the market goes up, there may be few behavioral issues associated with it that you can notice in your day-to-day lifestyle. It’s important to understand them as these behavior changes might hurt your investment strategy. Here are a few of the observable behavioral issues when the market goes up.
Behavioral Issues when the market goes up
1. You’ll feel richer which may lead to increased personal expenses.
I remember the days when I used to order food and enjoy with friends whenever my portfolio rises over Rs 1,000 in a single day. I know it was stupid. Nevertheless, I and my friends were insanely involved in market movements. The whole discussion during the dinner was regarding the same topic- which stocks went up and why I bought that stock. At that time, I was a recent college graduate who was making money from stocks alongside his regular job. Moreover, I enjoyed the fact that I’m making a passive income.
Now when I look back, I understand why this strategy was really stupid? The rise in my portfolio doesn’t mean an extra profit until and unless I sold those stocks. That was just the unrealized gains (I didn’t sell any stock). And in most cases, the profits kept fluctuating from the next day.
Overall, whenever the market goes up- you might notice increased personal expenses in your day-to-day activity. However, you should remember that this profit is a non-realized gain and hence, you must re-think before increasing your personal expenses.
2. You might become over-confident
When your portfolio is high and everything is working great, over-confidence is an obvious behavioral issue. During such times, you will get the feeling that you’re awesome. Your strategies are working and hence you have mastered the art of investing. However, this might not always be true. Sometimes, your stock might go high along with the market and not because of its fundamentals. An important lesson to learn here is that don’t become overconfident when your stock goes up in the bull phase.
3. Your risk-taking ability might increase
Increased risk-taking ability is the byproduct of over-confidence. People generally research a lot before investing in any stock when the market is not doing well. Although the stocks might be trading at a discount during that time, they are afraid that the market might go even lower.
However, when the market goes up and everyone you know is making money- you might be inclined to take more risks. During the bullish phase, people tend to invest more as they do not want to miss the opportunity.
4. You might lose focus on your investment discipline
It’s really common for investors to lose sight of the investment decisions when the market is high. Maybe you started investing with a strategy to build a diversified portfolio with an equal investment in different sectors. However, as one of your stocks is doing exceptionally well, you might be willing to sell all the other stocks and invest in your winning stock.
Or maybe, you might be planning to change your strategy from a diversified portfolio to investing intensely in the mid-caps as they are performing the best during that market. Overall, it’s difficult to follow a disciplined investing strategy market is high. Most people easily lose focus on their investment discipline when the market goes up.
The Golden Rule to Follow When the Market Goes Up
— Get Rid of Your Fundamentally Weak Stocks
When the market is at its all-time high, it’s the best time to get rid of your fundamentally weak yet good performing stocks and book the profits. There may be some stocks in your portfolio that might be performing very well in terms of returns, however, it’s not fundamentally very strong and hence might not deserve to remain in your long-term (5-10 Yrs or more) portfolio.
These companies might not have any competitive advantage or any edge to keep them performing even after the bull run. Better to book profits in these cases. After all, these stocks have completed their purpose and make profits for you.
— Ignore Market Emotions & Stick to your Strategy
This is the golden rule to follow when the stock market goes up. As discussed above, when the market is high, you will notice many behavioral issues in your daily lifestyle. You will start feeling richer and might plan to buy your favorite automobile. Or, you might plan to invest more and more in the market to ripe extra profits.
But sticking to your original plan with which you started investing in the best approach here. If you are investing for your retirement fund, then let your investment continue to run. Moreover, invest regularly in the market with the amount that you initially planned. Don’t sell off your stocks just to keep that money in your bank account – if your targets has not been achieved. You might have made some good profits when the market goes up. But it has the potential to give even better returns. Overall, Ignore the short term market profits and focus on your long-term goal.
— Rebalance your portfolio
Rebalancing your portfolio is also a good strategy to follow when the market goes up. For example- let’s assume that you initially planned to invest 70% in equity and 30% in debt funds. However, when the market is high (and your stock portfolio is in profit), this allocation might change to 85% in equity and 15% in debt funds. Here, you should rebalance your portfolio to the original ratio of 70:30.
Quick Note: Rebalancing works similar to averaging your portfolio. For example, here when the market is high and you purchase debt funds to rebalance your portfolio- you might also be averaging your debt funds. You are purchasing debt funds when they might be down (contrary to the market which is high).
When the market goes up, it’s a definite reason to celebrate. However, during these times, you can also expect some general behavioral changes. You might feel a little richer when your portfolio is high.
However, remember that these are non-realized profits and hence, you might not be as rich as you think. You only have the money on paper and not credited to your account. Lastly, ignore the highs and stick to your investment strategy & your long-term goals.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
A Guide on what is a Profit & Loss Statement and how to read it: One of the most important aspects an investor looks into before investing in a business is whether the business is profitable. That is how much earnings the company is making every quarter and year, along with how much is growing in the earnings compared to the last year or so. And this can be found by reading the Profit & Loss Statement of a company.
Today, we have a look at the financial statement that provides us with this earnings info i.e. the Profit & Loss Statement in order to better understand it. Let’s get started.
What is a P&L Statement?
A profit and loss statement (P&L) or income statement is a financial report that summarizes the revenues, costs, and expenses incurred over a given period of time. The P&L statement shows a company’s ability to generate sales, manage expenses, and create profits. It is also known as the statement of operations.
Why do we need a P&L Statement?
For the sake of understanding the concept better take the example of a household that earns Rs.30,000 p.m. with the assumption that due to a tight budget it does not spend on assets. If a member of the family were to compute how he arrived at the savings for a month, how would he do so?
He would simply jot down all the incomes he receives from various sources and subtract that with the expenses say Rs 25,000 in order to arrive at the amount he has saved. Although in the case of a company we do not have savings, instead we try to find out the profit or loss from a similar but tabular method. We jot down the total revenue earned by the firm from all sources and subtract it with expenses in order to arrive at the respective profit or loss and that is exactly what the P&L statement does.
In the simplest words, the goal of a P&L statement is to measure the profits by excluding the expenses from the income and provide an overview of the financial health of the business. The profit and Loss statement shows exactly where the revenues come from to the business, and what are the costs and expenses that are paid for. It shows us the ability that a business has to manage its profits by either cutting costs or driving revenue.
The P&L Statement is very important to various stakeholders.
Within the company, the statement shows where the company could be possibly lagging behind in generating revenue or on what costs and expenses the company is overspending and should reduce. Such information also helps then plan and budget for the coming years. The statement also provides insights into whether the profit margins they have allocated on the products are sufficient.
For investors, the P&L statement answers the primary questions they have, which is whether the company is profitable or if it is making a loss? And even if it is doing so what are its prospects to breakeven or increase profits.
The P&L statements also help other government entities and the tax departments to assess the tax position of the company.
Before going through the tabular format let us have a look at the basic formula the P&L report is based on:
Revenue – Expenses = Profits
But arriving at Profits is not as simple as the formula depicts. There are various incomes and expenses that simply cannot be grouped together and they must be shown separately in order to aid future decision making. These include revenue, Income from other sources, operating expenses, other expenses, taxes, etc.
Profit before Taxes = Net Operating Profit + Other Income − Other Expense
Net Profit (or Loss) = Net Profit before Taxes − Income Taxes
Looks confusing right. In addition simply following the above would make a comparison to previous years’ data or comparison with other companies difficult. Hence the P&L statement comes in a simple tabular format that makes understanding and comparison easier.
Format of the P&L statement
STATEMENT OF PROFIT & LOSS
Name of the Company…………………….
Statement of Profit and Loss for the period ended…………….
Particulars
Note
No.
Figures
as at end
of
current
reporting
period
Figures
as at end
of
previous
reporting
period
Analysis
1
2
3
4
I. Revenue from
operations
xxxx
xxxx
Here revenue on
account of company’s
main operating
activity is shown.
II. Other income
xxxx
xxxx
Here, other revenue
not arising out of
company’s main
operating activity is
shown.
III. Total Revenue (I
+ II)
xxxx
xxxx
IV. Expenses:
Cost of materials
consumed
xxxx
xxxx
This section is applicable for companies that manufacture their own products. This section will include the cost pertained to manufacture those products in the form of Raw Materials, Packing Material and other material such as purchased as intermediates and components which are consumed in the manufacturing activities of the company. This section also includes Semi-Finished Goods purchased for
processing and
subsequent sale.
Purchases of
Stock-in-Trade
xxxx
xxxx
This is applicable to
trading companies
and would comprise
of goods purchased
normally with the
intention to resell or
trade in, without any
processing /
manufacture at their
end.
Changes in
inventories of
finished goods
work-in progress
and Stock-in-Trade
xxxx
xxxx
This represents the
difference between
opening and closing
inventories of finished
goods, work-inprogress and stockin-trade. Such
differences would be
shown separately for
finished goods, workin-progress and
stock-in-trade.
Employee benefits
expense
xxxx
xxxx
Finance costs
xxxx
xxxx
Depreciation and
amortization
expense
xxxx
xxxx
Other expenses
xxxx
xxxx
Expenses not
covered above are
required to be
aggregated here. Examples of other
expenses are
consumption of stores and spare parts,
power and fuel rent,
repairs, insurance
etc.
Total expenses
xxxx
xxxx
V. Profit before
exceptional and
extraordinary items
and tax
(III-IV)
xxxx
xxxx
VI. Exceptional
items
xxxx
xxxx
Here total impact of
the exceptional items
like gain / loss on
disposals of long-term
investments,
legislative changes
having retrospective
application, litigation
settlements disposals
of items of fixed
assets and other
reversals of provisions etc are to
be shown.
VII. Profit before
extraordinary
items and tax (V -
VI)
xxxx
xxxx
VIII. Extraordinary
Items
xxxx
xxxx
Here total impact of
the extraordinary
items like expense
related to previous
periods, arising out of
long term settlement
with the employees,
loss due to fire etc
are to be shown.
IX. Profit before tax
(VII- VIII)
xxxx
xxxx
X Tax expense:
(1) Current tax
(2) Deferred tax
xxxx
xxxx
XI. Profit (Loss) for
the period
from continuing
operations
(VII-VIII)
xxxx
xxxx
XII Profit/(loss)
from
discontinuing
operations
xxxx
xxxx
XIII. Tax expense of discontinuing
operations
xxxx
xxxx
XIV. Profit/(loss)
from
Discontinuing
operations
(after tax) (XII-XIII)
xxxx
xxxx
XV. Profit (Loss) for
the period
(XI + XIV)
xxxx
xxxx
This represents the
profit after tax
XVI. Earnings per
equity share:
xxxx
xxxx
Where to find the Profit & Loss Statement of a company?
If you want to find the last five years’ profit &loss statement of any publically listed company in India, you can use Trade Brains free stock research portal here.
Here, you can read the simplified profit and loss statement of any company that you’re researching from the list of over 5,000 publically listed companies in India. For this, simply go to https://portal.tradebrains.in/ and search the name/symbol of the company in the search bar. Then, you can go to the stock details page of that company to read its profit & loss statement.
The profit and Loss statement has a very important role to play when it comes to guiding investment decisions. The Profit and Loss statement should however not be considered as the only basis for making decisions. The Profit and Loss statement includes expenses while computing Net Profit but leaves out any changes made to the assets and liabilities during the year.
Also, a high Net Profit will not necessarily mean that the company has adequate cash to spend. There is still a possibility that the company may have made a profit but still has a negative cash flow. The reasons for this can only be understood after viewing the Cash Flow Statement. A complete analysis using financial statements requires a combination of P&L Statement, Balance Sheet, and Cash Flow Statement.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
Understanding the Roles of Depositors – CDSL and NSDL in the equity market: As investors and traders, we are well versed with the term Demat (Dematerialization) account. This is because a Demat account is one of the most basic requirements in order to trade or invest in the stock market. Today, we take a look at the organization behind these accounts in the Indian markets i.e. Indian depositories, the NSDL, and the CDSL.
Through this article, we’ll discuss the various roles of depositors in the equity market and the services provided by CDSL and NSDL to Indian investors. Let’s get started.
What are CDSL and the NSDL? And why are they Important?
The Central Depositories Services India Ltd. (CDSL) and National Securities Depository Ltd.(NSDL) are depositories for the Indian markets.
In order to understand what a depository does let us compare securities to cash. The depositories are to securities what banks are to cash. Just like a bank holds your cash and allows you to access it through an electronic form, the depository holds our shares, bonds, mutual funds, etc. for all shareholders in electronic form. These entities have played a pivotal role in the digitalization of the Indian Stock Markets.
Let us go back in time to the early ’90s a period when the stock markets still were heavily dependant on the physical transfer of shares. This was done through share certificates. Thanks to the move initiated by Stock Holding Corporation of India Limited(SHCIL) in 1992 when it paid the groundwork for the NSDL through a concept paper “National clearance and Depository System”. The Government of India promulgated the Depositories Ordinance in September 1995, followed by the passing of The Depositories Act by the Parliament in August 1996.
The NSDL was soon established in 1996 followed by the CDSL in 1999. These two act as depositories to the two exchanges in the country; the NSDL to the NSE and the CDSL to the BSE. The Demat accounts mentioned earlier are actually just a front for the CDSL and NSDL holding your shares.
The transfer from a physical to digital format saw numerous benefits like:
Faster settlement cycles
Elimination of all risks associated with physical certificates
Elimination of bad deliveries
No more stamp duty
Immediate transfer and registration of securities
Faster distribution of non-cash corporate benefits like rights and bonus
Elimination of problems related to the transmission of Demat shares
Reduction in the handling of huge volumes of paper
Periodic status reports
Reduction in brokerage for trading in dematerialized securities.
Elimination of problems related to change of address of the investor
Elimination of problems related to selling securities on behalf of a minor
Ease in portfolio monitoring
The depository system effectively ensured a smooth transition to an electronic one.
Can you Choose your Depository?
An investor does not have the option to select a depository. The depository is selected by the depository participant. A Depository Participant is a financial institution, broker, bank, etc that the shareholder may be in touch with, and respectively can create a Demat account through them. The CDSL has 599 depository participants registered with itself whereas the NSDL has 278 depository participants registered with it.
For an investor or trader to choose a depository of his liking there has to be some difference between the two depositories. Apart from the exchanges, the number of depository participants and years formed there are no striking differences between the two. The services provided, their functioning, and strategy remain the same.
We, however, can find outwith which depositories we have our Demat account with using the account number. A Demat account with NSDL will begin with ‘IN’ followed by 14 numerals. A Demat account with CDSL will have 16 numerals.
What are the Roles of Depositors? Services by CDSL and NSDL!
Here are a few of the top roles and the services provided by NSDL and CDSL for Indian equity investors:
Maintenance of Demat accounts
Rematerialisation and dematerialization
Trade settlement
Share transfers
Market and off-market transfers
Distribution of non-cash corporate actions
Nomination/transmission
Account opening
Account statement
Changing account details
The Depositories also provide shareholder details to companies at the time of dividend payouts. The companies use this information to pay dividends to shareholder accounts.
The efficient functioning of an economy is highly dependant on its financial system. In this article, we discussed the key roles of depositors i.e. CDSL and NSDL in the equity market.
The CDSL and NSDL have been pivotal in not only ensuring facilitating the system but also enhancing its productivity post digitalization. It is also important to note that ever since their existence there have never been any major glitches, a testament to the efficient transformation from physical to electronic format.
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
A Guide to Most Common Technical Indicators for Beginners: The most common problem for anyone willing to use the technical indicators, is to select the indicator which is the easiest and commonly used. This problem also arises because of the availability of hundreds of indicators.
Through this article, we aim to solve this problem. Here, we try and understand the two most common technical indicators that are comprehensive yet easy to use. We will be understanding the concept of moving averages and Bollinger bands. By the end of this article, we are sure that you would have a clear understanding of these indicators. Let’s get started.
Most Common Technical Indicators for Beginner
1) Moving Averages
Moving average is the most simple and commonly used technical indicators. If we read any research report or any article on technical analysis, the most commonly used technical indicators is the Moving average. There are generally two types of Moving averages – Simple Moving average and Exponential Moving average, which we’ll discuss later in this article.
In simple terms, a moving average creates a series of averages of different subsets of the full data set in order to analyze data points. To illustrate it with the help of an example:
In a game of cricket, if we were to analyze the performance of a batsman, consistency is the most common parameter. And the best way to analyze the consistency is the average number of runs scored by the batsman in each innings. For example, if the batsman scores 1,000 runs in the 20 innings, then the average number of runs scored by him in each innings is 50. This simple method of calculating the average is also known as the Simple Moving Average.
Moving Average is said to be a lagging indicator as is it is constructed with the help of the data, which is the End of day prices. Let us understand the concept with the help of a simple example:
Consider the following closing prices of shared of ITC limited:
Date
Closing Prices
14/09/2020
192
15/09/2020
188
16/09/2020
180
17/09/2020
182
18/09/2020
178
Total
920
Therefore, the average price of shares of ITC limited over 5 days will be = 920/5 = Rs. 184.
The average price changes as the closing price the next day changes. Imagine if the closing price of ITC on the next day changes to 185, then the 5 days simple moving average of ITC limited will also change.
The moving averages can be calculated for any timeframe. It could be 5 minutes, 15 minutes, hours, days, weeks, and so on. Depending on one’s trading style and trading objective, one can choose the charting pattern. If we are using 13 observations within the selected time frame, it is called 13 SMA, and if we are using 34 observations within the selected time frame, it is called 34 SMA and so on.
The daily chart shown below is that of Infosys limited and the red line plotted is 50 SMA.
If we carefully look at the chart above, 50 SMA clearly divides the chart into two halves. Till the end of April, the bears were having a higher say and 50 SMA was acting a resistance of the market. Any move till the red line was seen as an opportunity to short.
However, once the market closed above 50 SMA on daily basis, it started acting as a support to the market. Any move towards 50 SMA was seen as an opportunity to buy in the market. So, it can be summarized that if the market is trading below SMA, it is taken as an opportunity to sell or short in the market and if the market is trading above it, can be seen as an opportunity to go long.
— Exponential Moving Average
This is the more advanced and more trusted form of moving average. The main difference between EMA and SMA is the weightage given to values. In a simple moving average, all the values are given equal weightage. But in the case of Exponential Moving Average, the more recent values are given more weightage.
The chart below is the daily chart of Kotak Bank and the red line plotted is the 50 EMA.
If we carefully analyze the chart above, 50 EMA gives a better signal of buying and selling. If the market is trading above the EMA, it can be taken as an opportunity to buy and the level below this line can be kept as a point of stop loss for this trade.
Similarly, if the market is trading below EMA, it can be used as an opportunity to short in the market and the level above it can be kept as a point of stop loss.
Why EMA is more preferred?
The simple answer to this question is that EMA gives comparatively less false signals (than SMA), as the more recent values are given higher weightage.
2) Bollinger bands
The concept of Bollinger bands was introduced by John Bollinger in 80’s. This is the most common technical indicator and widely used by traders while making day to day trading decisions. With the help of Bollinger bands, we can understand if the price of an asset is trading at overbought or oversold levels.
When the price is overbought, it is generally an indication to sell and when the price is oversold it is generally an indication to buy.
Components of Bollinger bands:
The Middle line, which is a 20 day Simple Moving Average
The Upper Band which is a 2 Sigma (i.e. 2 Standard Deviation of the middle line)
The Lower Band which is a 2 Sigma (i.e. 2 Standard Deviation of the middle line)
Note: The upper and the lower band can also be 3 Sigma i.e. 3 standard deviation of the middle line.
But before understanding the Bollinger bands, it is important to have a brief understanding of the concept of Standard deviation.
What is Standard Deviation?
The Standard Deviation is a statistical pillar, which measures the Variance from the mean/average price. The standard deviation in the equity/stock market represents volatility. A 10% standard deviation would mean a 10% volatility in the stock. In Bollinger Bands, the standard deviation is applied on the middle line i.e., the 20 SMA
Let us understand:
The 2 Sigma upper and lower band means 2 SD
Say, if the 20 SMA of nifty is 9500
And say the Standard Deviation is 1%
Then the Upper band SD = 2*95 = 190
The Lower SD = -2*95 = -190
So, the three components of BB will be
SMA = 9500
Upper Band= 9500+190 = 9690
Lower Band = 9500 – 190 = 9310
In the Last Example-
If the Market it trading near 9700, then a short/sell position can be initiated, by keeping a target of 9500
If the Market it trading near 9300, then a long/buy position can be initiated, by keeping a target of 9500
Let us understand it with the help of an example. The image below is the daily chart of Axis bank.
If we carefully analyze the image above, all the trade opportunities have been circled. The circles near the upper band give us an opportunity to sell in the market and the circles near the lower band give us an opportunity to buy in the market.
If we were to take the example of the circle near the lower band, it gave an opportunity to buy near the lower band, and trade gave a return of nearly 20% (i.e., Rs. 50). And similar returns were achieved while shorting near the upper band circles.
In this article, we covered two of the most common technical indicators for beginners. Here are the key takeaways from this post:
Moving Average gives us a lot of buying and selling signals
When the price is trading above a certain MA, it usually signals strength in the market and buyers are having more say. On the other hand, When the price is trading below a certain MA, it usually signals weakness in the market and sellers are dictating in the Market
The Bollinger bands capture the volatility. The Upper bands and lower bands help us to understand the overbought or oversold levels
Bollinger bands work in all types of markets but they are better suited for Rangy markets
The most important thing is to have a predefined loss for every trade entered in the market.
That’s all for this post on common technical indicators for beginners. Happy Trading and making money!
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!
Hi Investors & Traders. Hope you are well and safe. It’s been a journey of over three years since we started our journey to simplify stock market investing. And as a new milestone, we recently launched a few exciting features on our stock research website “Trade Brains Portal“. Through this article, we are happy to share the same with you.
What is Trade Brains?
Our bootstrapped fintech startup, Trade Brains, is simply focused to simplify Stock Market Research to help people invest better by providing all essential knowledge and tools! The basic idea behind Trade brains is to give new and existing investors a platform through which they can enhance and update their knowledge in the world of Investment on a continuous basis.
We recently launched a financial Portal to make Stock Market Research, even more, simpler for new Investors. Through this new platform, we are trying to challenge the rigidity of Bloomberg and other traditional financial terminals to make stock analysis easy and affordable for all.
Our portal has financial data and stock quotes of over 4,000 Public companies listed on Indian Stock Exchanges. In addition, we offer many key features like complete fundamental analysis with simple visualizations, creating multiple watchlists and stock comparison, super investor tracking, etc. We are building this product to make the stock market journey of new investors easier while analyzing companies.
The real motivation behind creating this portal was to solve the ever persisting problem of having a dedicated place where the stock research and analysis can be done. Therefore, through this portal, we have created an environment whereby which, the investors can come and complete their stock research and analysis on one single platform.
All the facts and information about more than 4,000 companies listed in the stock exchange (NSE and BSE) are available at the click of a single button. There are other dedicated features like stock Screeners, Compare multiple stocks at one screen, Multiple watch lists, various Stock Baskets, and Bundles, Superstar traders portfolio, Financial Blogs, etc.
How Trade Brains Portal can help You?
Here are a few key features that we have focussed on that can help new and existing stock market participants to make better investment decisions.
Through this portal, we have a unique feature whereby which we can do a complete stock analysis with a single click. We just need to plug in the name of stock for which we want to do investment analysis. And all the information which are of help for making investment decision are flashed on the screen.
For example, if you are looking to perform investment research of say, Reliance industries, you just need to put in the keyword and all the information is available there.
And, on the next page, we get all the information we seek for making the investment decision like key metrics, price charts, financial ratios, etc.
In addition, you can also find the last five years of financial data for Profit and loss Statement, Balance Sheet, Cashflow Statement, Shareholding pattern, and more on the same page.
Now, if you look at all the images above, we get information about the current price of the share, market capitalization, various valuation parameters, growth parameters, profitability parameters, leverage and liquidity parameters, all the financial statements (cash flow statement, income statement, quarterly statements, balance sheet, annual reports, etc.). In short, Trade Brains Portal becomes a one-point solution for all the investment research.
As the name suggests, through this feature, we can scan and shortlist the stocks which fit our investment style and the various parameters we choose while making an investment decision. The main advantage of this feature is that, rather than going through each and every share and testing the set parameters, we can just set in the parameters, and the rest of the work is done with the help of algorithm designed filters.
Currently, we have launched a simple stock screener. However, we are working on an advanced stock screener on Trade Brains Portal which will be launched soon.
This feature is very crucial for the investors who are willing to invest and also have a watch list of the stocks which they want to keep an eye on. Therefore, as and when the share prices reach the desired levels, alerts are received and one can initiate trades. This portal allows you the option of having multiple watch-list, so one can have different sets of watch-lists with different objectives.
This feature is very exclusive and one of its kind in the stock research eco-system. Through this feature, we can compare stocks within the same industry or within stocks from different industries. This feature allows us to compare up to 5 stocks at one time.
The main benefit of this feature is that it saves a lot of time for the investors. Rather than researching individual stocks, we can research multiple stocks at the same time. And it makes investment decisions easier because of the presence of the factor of comparative study.
With a collection of over 50 buckets, it is safe to say that the investors are spoilt for choice. These buckets are designed with various themes, sectors, investors, etc. in mind.
1) To cater to theme-based profiling we have various bundles like Infrastructure, Rural, Housing, Transportation, Healthcare, Chemicals, etc. These buckets will help you find the hidden gems in the fast-growing themes in India.
2) To cater to Sector-based profiling, we have various bundles like the Banking sector, IT sector, Metals, Auto, Consumer packaged sector, etc.
3) Next, we have a separate section for showing the various businesses of big business names (Ambanis, TATA’s, Wadia’s, RPG group, Hinduja Group, Vedanta group, etc.) which are listed on the stock exchange.
4) Finally, the fourth list includes all the investors who are a part of the big boys club. These are ace investors (Rakesh Jhunjhuwala, Radhakrishna Damani, Dolly Khanna, Ashish Kacholia, etc) in the market. Complete details about their portfolios are available on our website.
Through this wing, we aim to provide basic investor education by publishing articles on regular basis. We have over 500 articles published on Trade Brains. The articles cater to both Financial and Non-Financial sectors. We also have a series of infographics giving information about the various companies and brands and what businesses do they foray in.
Also on this website, we have different financial calculators like the SIP calculators, Intrinsic value calculators. And, also on this website, we have our discussion forum, via which we have regular discussions with our regular subscribers on various stock market-related topics.
This website is best suited for investors or traders who are willing to learn the mechanics of investing and trading. We have dedicated courses on value investing, how to pick the winning stocks, mutual fund investments, Understanding financial statements, Options trains, technical analysis for beginners, etc. Therefore, for a new/experienced investor/trader, this website understands and solves the various investment-related issues.
Closing Thoughts
If you are someone who is on the lookout for a portal that solves all the problems of stock research and analysis then this portal will go a long way in answering your investment queries. Stock screeners, watchlist, stock comparison, superstar portfolios, etc are some of the new and exclusive features of our portal.
Anyways, Blogs and Academy are some of the important wings of Trade brains. we aim to provide continuous education and update our viewer with the regular and latest information. Have a great day ahead. Happy Investing & Money Making !!
Hitesh Singhi is an active derivative trader with over +10 years of experience of trading in Futures and Options in Indian Equity market and International energy products like Brent Crude, WTI Crude, RBOB, Gasoline etc. He has traded on BSE, NSE, ICE Exchange & NYMEX Exchange. By qualification, Hitesh has a graduate degree in Business Management and an MBA in Finance. Connect with Hitesh over Twitter here!
List of Must Know Financial Ratio Analysis for Stock Market Investors: Evaluating a company is a very tedious job. Judging the efficiency and true value of a company is not an easy task it demands rigorously reading the company financial statements like balance sheet, profit and loss statements, cash-flow statement, etc.
Since it is tough to go through all the information available on a company’s financial statements, the investors have found some shortcuts in the form of financial ratios. These financial ratios are available to make the life of a stock investor comparatively simple. Using these ratios, the stock market investors can choose the right companies to invest in or can compare the financials of two companies to find out which one is a better investment opportunity.
In this post, we are going to discuss eight of such Financial Ratio Analysis that Every Stock Investor Should Know.
This article is divided into two parts. In the first part, we’ll cover the definitions and examples of these eight must know financial ratios. In the second part, after the financial ratio analysis, we’ll discuss how and where to find these ratios. Therefore, be with us for the next 8-10 minutes to enhance your stock market analysis knowledge. Let’s get started.
Quick note: Do not worry much about calculations of these ratios or try to mug up the formulas by-heart. All these financial ratios are easily available on various financial websites. Nonetheless, we will recommend you to understand the basics of the financial ratio analysis as it will be helpful in building a good foundation for your stock research in future.
PART A: 8 Financial Ratio Analysis For Stock Investor
1. Earnings Per Share (EPS)
EPS is the first most important ratio in our list. It is very important to understand Earnings per share (EPS) before we study any other ratios, as the value of EPS is also used in various other financial ratios for their calculation.
EPS is basically the net profit that a company has made in a given time period divided by the total outstanding shares of the company. Generally, EPS can be calculated on an Annual basis or Quarterly basis. Preferred shares are not included while calculating EPS.
Earnings Per Share (EPS) = (Net income – Dividends from preferred stock)/(Average outstanding shares)
From the perspective of an investor, it’s always better to invest in a company with higher and growing EPS as it means that the company is generating greater profits. Before investing in any company, you should always check past EPS for the last five years. If the EPS is growing for these years, it’s a good sign and if the EPS is regularly falling, stagnant or erratic, then you should start searching for another company.
2. Price to Earnings (PE) Ratio
The Price to Earnings ratio is one of the most widely used financial ratio analysis among investors for a very long time. A high PE ratio generally shows that the investor is paying more for the share. The PE ratio is calculated using this formula:
Price to Earnings Ratio= (Price Per Share)/( Earnings Per Share)
Now let us look at the components of the PE ratio. It’s easier to find the price of the share which is the current closing stock price. For the earnings per share, we can have either trailing EPS (earnings per share based on the past 12 months) or Forward EPS i.e. Estimated basic earnings per share based on a forward 12-month projection. It’s easier to find the trailing EPS as we already have the result of the past twelve month’s performance of the company.
For example, a company with the current share price of Rs 100 and EPS of Rs 20, will have a PE ratio of 5. As a thumb rule, a low PE ratio is preferred while buying a stock. However, the definition of ‘low’ varies from industries to industries.
Different industries (Ex Automobile, Banks, IT, Pharma, etc) have different PE ratios for the companies in their industry (Also known as Industry PE). Comparing the PE ratio of the company of one sector with the PE ratio of the company of another sector will be insignificant. For example, it’s not much use to compare the PE of an automobile company with the PE of an IT company. However, you can use the PE ratio to compare the companies in the same industry, preferring one with low PE.
3. Price to Book (PBV) Ratio
Price to Book Ratio (PBV) is calculated by dividing the current price of the stock by the book value per share. Here, Book value can be considered as the net asset value of a company and is calculated as total assets minus intangible assets (patents, goodwill) and liabilities. Here’s the formula for PBV ratio:
Price to Book Ratio = (Price per Share)/( Book Value per Share)
PBV ratio is an indication of how much shareholders are paying for the net assets of a company. Generally, a lower PBV ratio could mean that the stock is undervalued.
However, again the definition of lower varies from industry to industry. There should be an apple to apple comparison while looking into PBV ratio. The price to book value ratio of an IT company should only be compared with PBV of another IT company, not any other industry.
4. Debt to Equity (DE) Ratio
The debt-to-equity ratio measures the relationship between the amount of capital that has been borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity).
Debt to Equity Ratio =(Total Liabilities)/(Total Shareholder Equity)
Generally, as a firm’s debt-to-equity ratio increases, it becomes riskier as it means that a company is using more leverage and has a weaker equity position. As a thumb of rule, companies with a debt-to-equity ratio of more than one are risky and should be considered carefully before investing.
5. Return on Equity (ROE)
Return on equity (ROE) is the amount of net income returned as a percentage of shareholders’ equity. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. In other words, ROE tells you how good a company is at rewarding its shareholders for their investment.
Return on Equity = (Net Income)/(Average Stockholder Equity)
As a thumb rule, always invest in a company with ROE greater than 20% for at least the last 3 years. Year-on-year growth in ROE is also a good sign.
6. Price to Sales Ratio (P/S)
The stock’s price/sales ratio (P/S) ratio measures the price of a company’s stock against its annual sales. P/S ratio is another stock valuation indicator similar to the P/E ratio.
Price to Sales Ratio = (Price per Share)/(Annual Sales Per Share)
The P/S ratio is a great tool because sales figures are considered to be relatively reliable while other income statement items, like earnings, can be easily manipulated by using different accounting rules.
7. Current Ratio
The current ratio is a key financial ratio for evaluating a company’s liquidity. It measures the proportion of current assets available to cover current liabilities. The current ratio can be calculated as:
Current Ratio = (Current Assets)/(Current Liabilities)
This ratio tells the company’s ability to pay its short-term liabilities with its short-term assets. If the ratio is over 1.0, the firm has more short-term assets than short-term debts. But if the current ratio is less than 1.0, the opposite is true and the company could be vulnerable. As a thumb rule, always invest in a company with a current ratio greater than 1.
8. Dividend Yield
A stock’s dividend yield is calculated as the company’s annual cash dividend per share divided by the current price of the stock and is expressed in annual percentage. Mathematically, it can be calculated as:
Dividend Yield = (Dividend per Share)/(Price per Share)*100
For Example, If the share price of a company is Rs 100 and it is giving a dividend of Rs 10, then the dividend yield will be 10%.
A lot of growing companies do not give dividends, rather reinvest their income in their growth. Therefore, it totally depends on the investor whether he wants to invest in a high or low dividend yielding company. Anyways, as a thumb rule, consistent or growing dividend yield is a good sign for dividend investors.
Further, you can also use our stock market analysis website “Trade Brains Portal“, to find these ratios. Let me show you how to find these key financial ratios on Trade Brains Portal. Let’s say, you want to look into all the above-mentioned financial ratios for “Reliance Industries”. Here’s what you need to do next.
2) Select the company. This will take you to the “Reliance Industries” stock detail Page.
3) Scroll down to ‘5 Year Analysis & Factsheet’ and here you can find all the financial ratios for the last five years.
You can find all the key financial ratio analysis discussed in this article on this section of stock details. In addition, you can also look into other popular financial ratios like Profitability ratio, Efficiency ratio, Valuation ratio, Liquidity ratio, and more.
Conclusion
In this article, we discussed the list of Must Know Financial Ratio Analysis for stock market investors. Now, let us give you a quick summary of all the key financial ratios mentioned in the post.
8 Financial Ratio Analysis that Every Stock Investor Should Know:
Earnings Per Share (EPS) – Increasing for last 5 years
Price to Earnings Ratio (P/E) – Low compared to companies in the same sector
Price to Book Ratio (P/B) – Low compared to companies in the same sector
Debt to Equity Ratio – Should be less than 1
Return on Equity (ROE) – Should be greater than 20%
Price to Sales Ratio (P/S) – Smaller ratio (less than 1) is preferred
In addition, here is a checklist (that you should download), which can help you to select a fundamentally strong company based on the financial ratios. Also, feel free to share this image with those whom you think can get benefit from the checklist.
That’s all for this post. Hope this article on ‘8 Financial Ratio Analysis that Every Stock Investor Should Know’ was useful for you. If you have any doubt or need any further clarification, feel free to comment below. We will be happy to help you. Take care and happy investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
List of Best Stock Screeners For Indian Stocks: There are over 5,500 companies listed on Indian stock market. While investigating for good companies to invest, if you start reading the financials of each and every single stock, then it might take years.
Moreover, it doesn’t make sense to read the balance sheet, profit & loss statements or cash-flow statements of all the listed companies, if you can filter them out based on just a few preliminary filters like debt or growth rate. And that why stock screeners can be a very useful tool for the investors (and traders) to reduce lots of hassle.
In this post, we are going to discuss 3 best stock screeners that every Indian stock investors should know.
What is a Stock Screener?
A stock screener is a tool to shortlist few companies from a pool of all the listed companies on a stock exchange using filters. The investors specify the filters and the stock screener gives the results accordingly.
For example, if you want to find a list of companies whose
Market capitalization is greater than 10,000 Cr
The price to earnings is between 10 to 25.
Last 3 years average return on equity is 20%
And the debt to equity ratio is less than 1
Then, you can apply all these filters in a stock screener to get the list of the companies which fulfill the above criteria.
Stock screeners are very useful as it can save you a lot of time. You do not need to go through all the listed companies to shortlist a few good ones. You can just apply the basic filter to get the list of a few good ones that you want to investigate further.
Overall, the stock screener will help you to find good performing stocks according to your specifications with a single click.
Here is the list of the 3 best stock screeners for Indian stocks that every Indian investor should know. Further, please read this post until the end, as there is a bonus in the last section.
3 Best Stock Screener That You Should Know
Here is the list of the 3 best stock screeners for Indian stocks that you should know and bookmark on your browser. All these best stock screeners are powerful are simple to use:
Through Trade Brains “Stock Screener”, you can scan and shortlist the stocks that fit your investment style by applying various parameters you choose while making an investment decision. Trade Brains Portal offers over sixty frequently used parameters to screen stocks. Using this portal, you can screen winning stocks based on different filters. Apply different parameters to shortlist the best ones among over 5,000 publically listed companies in India.
The biggest advantage of this feature is that rather than going through each and every share and testing the set of parameters, you can simply adjust it one time and the rest of the work will be done by our screener with the help of designed filters.
Here’s a quick demo on how you can screen stocks using the Stock screener feature offered by Trade Brains Portal:
The screener is a very simple yet powerful website for stock screening. The query builder of Screener allows the user to apply a number of filters to shortlist stocks based on PE ratio, market capitalization, book value, ROE, profit, sales etc.
The results of the stock screener can be powerfully customized and moreover, the screen can be saved for future use.
Also read: If you want to learn how to use the screener website efficiently for stock screening, you can find this post useful: How to use SCREENER.IN like an Expert
Tickertape Screener is yet another simple stock screener that has a lot more criteria to filter companies based on market cap, sector, close price, PE ratio, and other financial ratios. What makes this website stand out from the rest is it’s easy to use interface and feature to apply all these filters on the same tab to find specific stocks.
The filters are fast to use and the results are easily customizable.
Investing is also a very powerful website for stock screening. You can find the list of all the companies trading on NSE and BSE here.
There are a number of filters available on INVESTING for screening the stocks like ratios, price, volume & volatility, fundamentals, dividends, and technical indicators. Moreover, it’s a very useful site if you follow the top-down approach. You can select the industry which you want to research and then apply a number of filters like PE, P/Book value, ROCE, etc for shortlisting the best stock in that industry.
For example, if you are studying the chemical industry, then simply select this industry option. You will get the list of the companies in this industry. Next, you can apply different filters for screening the best one, according to your preference.
Other Useful Indian Stock Screeners
As always, I never end a post without some bonuses. Here is the list of few other useful stock screeners that you should also know.
That’s all. I hope that this list of the best stock screeners for Indian stocks is useful to you. If I missed the name of any other useful stock screener that deserves to be on this list, feel free to comment below. I’ll add them to the bonus section above so that the readers can get more benefits. #Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
A Quick Guide on how to invest in Foreign Stocks from India: Apple, Google, Facebook, Amazon, Microsoft, Samsung, Tesla, Twitter… These are some well-known companies in the world. We all have grown up using the products/services offered by these companies. Moreover, these companies are global leaders in their respective businesses, as well as innovators, who are likely to benefit in the future. But along with using their products, can we also own some shares of these companies?
Wait, these are not Indian companies, right? Therefore, they won’t be listed on the Indian stock exchanges. Even if you’ve a demat and trading account in India, you can trade/invest only in companies listed on Indian stock exchanges (BSE/NSE). But these companies will be listed in their respective country’s stock exchanges like US stock exchanges. Then, how to buy shares of a company that are not registered in India, but trades in the foreign stock exchanges?
Don’t worry, if you really want to buy these stocks- you’ll get it. In this post, we are going to discuss three simple ways through which you can invest in foreign stocks. Let’s get started.
Why should you invest in foreign stocks?
Before we start this post, let us first discuss why should you invest in foreign stocks? Are they better than Indian companies? Here, you need to make up your mind why you want to invest in foreign companies. There are over 5,500 listed companies in the Indian stock market. Aren’t they enough? Why do you need to invest alternative stocks?
Further, which one is better to invest in- Indian companies or foreign companies?
Well, I’m really not in a position to answer the second question. It won’t do justice if a guy in his 20s sitting on the comfort of his couch judges these companies. These are giant multi-billionaire companies that we are talking about here. Google, Apple, Facebook, Amazon, Samsung, Cisco, Tesla, etc are too big companies to comment upon. These companies have lots of cash, highly qualified professionals, employees in their management team and they are big innovators in their industry. Anyways, there are even many big Indian companies that can give competitions to many foreign companies.
Now, let me answer the first question i.e. why to invest in foreign stocks. Here are my personal learnings on this question.
Top reasons why many Indian invests in the US
Here are my top reasons why many Indian invests in the US or other foreign stock exchanges:
1. People want to invest in their favorite companies
Apple, Google, Twitter, Facebook, Amazon, Tesla etc. are the darlings of this generation. And of course, many people want to invest in these companies.
2. Diversification with Global Investments
Investing in foreign stocks helps in diversification. Let’s assume that the Indian equity market starts falling due to some local region. However, investing in foreign stocks can mitigate the risk in your portfolio as the local reason may not have a significant effect on the international markets.
3. To seize bigger opportunities
Once you start to invest in foreign stocks, there are no boundaries anymore. You can hunt for better (profitable) opportunities in the international markets.
Besides the above-mentioned points, few investors believe that foreign companies have better resources, facilities, government cooperation, and standards. That’s why they invest in these foreign companies, compared to Indian companies. Nevertheless, while deciding to invest in foreign stocks, you should also remember that India is one of the fastest-growing economies in the world. On the other hand, most of the international markets are a little saturated. Therefore, growth-wise, India has better potential.
Overall, it totally depends on your preference regarding where and how much to invest. As already discussed, there are both pros and cons to trade in international stocks.
Cons of Investing in Foreign Stocks
There are two sides to every coin. Here are a few critical points to know before you invest in foreign stocks:
1. Be ready for the high charges
While investing in international stocks, you’ll be transacting in foreign currencies. For example, if you are trading in the US stock market, you have to pay the brokerages in the US dollar. And hence, the stock brokerages may be a little higher compared to the charges in the Indian stock market. Similarly, the annual/monthly maintenance charges may also be higher compared to domestic accounts.
2. Profits are subjected to the currency exchange rate
Let’s assume that you are investing in the US stock market. When you bought the US stock, the currency exchange rate was $1= Rs 68. However, next year- when you sold the US stock, let say the Indian currency got stronger, and the currency exchange rate becomes $1 = Rs 62. In such a case, you have already lost 8.8% due to the change in the exchange rate. That’s why when you invest in foreign stocks, profits are always subjected to the currency exchange rate.
3. Up to $250,000 can be invested overseas by the Indian residents
As per the RBI notification in the Liberalised Remittance Scheme (LRS), an Indian resident individual can only invest up to $250,000 overseas per year. With the current exchange rate of ($1= Rs 68), this amount turns out to be over 1.7 Crores. Anyways, if you have a family of four, you can invest 4 x $250,000 = $ 1 Million. That’s enough money to invest, right?
Quick Note: Besides the above factors, you also need to keep in mind the foreign stock risks. As these stocks will be listed on foreign stock exchanges – the environment and the factors (like local government policies, local trends, etc) will affect the share price of those companies.
How to invest in foreign stocks?
Now that you have learned the basic concept of investing in the international stock exchanges, here are three simple ways to invest in foreign stocks—
1. An account with Indian Brokers having a tie-up with a foreign broker
Many full-service Indian brokers like ICICI Direct, HDFC Securities, Kotak Sec, Axis Securities, Reliance money, etc has a tie-up with the foreign brokers. They have made it very simple to open your overseas trading account with their partner (foreign) brokers. You can invest in foreign stocks using these full-service brokers.
For example, if you’ve an account with ICICI direct, you can invest in global markets using their broker partner Interactive Brokers LLC.
A few international brokerage firms like Interactive Brokers, TD Ameritrade, Charles Schwab International Account, etc permits Indian citizens to set up an account and trade in US stocks, mutual funds, etc. In fact, US-based brokerage like ‘Interactive brokers’ also has an office in India where you can visit, get your queries answered, and open your overseas trading account.
3. Investing in Foreign stocks through new startups Apps
In the past few years, many new starts have been launched in India and abroad than helps Indians to invest in foreign stocks. For example, recently launched startup Vested Finance, helps Indians to invest in US stocks. They are a US Securities and Exchange Commission (SEC) registered investment advisor. Similarly, you can also invest in foreign stocks using the Webull app, another popular startup company that is also committed to building the best investing and trading experience for India and Global stock markets.
Extra: Buying Indian MF/ETFs with global equities
There are a number of mutual funds/ETFs who invest in international markets (global market, emerging market, etc). You can invest in those mutual funds/ETFs to indirectly invest in foreign equities.
This is the easiest approach to invest in foreign stocks. An advantage of investing through mutual funds is that you won’t need to open any overseas trading account. Further, you won’t also require to invest a hefty amount. Compared to direct investing in foreign stocks (where you might be asked to maintain a minimum of $10,000 deposit), investing in mutual funds/ETFs are cheap.
For example, Motilal Oswal recently started their subscription for its Motilal Oswal S&P 500 Index Fund. It is an open-ended scheme replicating the S&P 500 Index, which consists of leading 500 companies listed in the US. A few of the popular of popular mutual funds who trade in global equities are—
Quick Note: Many other Indian stockbrokers are also planning to offer their clients a facility to invest in the US and foreign stocks. For example, Zerodha is planning to offer option to invest in US stocks with no minimum investment. However, these features are yet to be launched. Nevertheless, these stockbrokers internally working on these features is a good sign for the Indian retail investors who are enthusiastic about investing in foreign companies.
Closing Thoughts
In this article, we discussed three easy ways to invest in foreign stocks from India, along with the forth way of mutual funds route. We also covered the advantages and disadvantages of investing in foreign stocks.
Investing in the foreign market will help you widen your investment horizon. Here, you can invest without boundaries in your favorite companies. Moreover, in the era of the internet- it’s not much difficult to invest in the international market. The most significant advantage is that it helps in diversifying your portfolio. However, the obstacles are higher expense charges and currency exchange rates.
That’s all for this article on different ways to invest in foreign stocks. Let me know what you think about investing in international stocks in the comment section below. Further, if you’ve got any questions on this topic, feel free to mention below. Have a great day and Happy investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
List of Best Stock Market Apps in India 2020: Now a day, if you are a stock market trader, then it’s essential for you to stay updated with every minute market movements. The modern stock market traders keep tabs on the rising and fall of the stocks on daily basis and sometimes that too hourly. The high-speed internet and handy mobile apps have made the life of traders simple, faster, and efficient. These financial apps help the traders to stay informed and ready all the time.
From checking the real-time streaming market price of the stock, making a virtual portfolio, drawing stocks charts, following market trends to tracking your portfolio; everything is now accessible from your smartphone or tablet.
Therefore, today I am going to present to you the 7 Best Stock Market Apps that will make your stock research easier in India. Moreover, all the apps listed here are free. In short, be with me for the next 5-8 minutes to learn the best stock market apps for Indian stock research.
7 Best Stock Market Apps in India 2020
1. MoneyControl
Play store rating: 4.0/5 Stars (335k Reviews)
Downloads: +10 Million
Available on: Android, IoS, Windows
This is my personal favorite mobile app for stock market news and updates. If you are planning to keep only one stock market app on your smartphone, then I will highly recommend you to have this one. The money control app is simple, yet have tons of information and news.
You can track the latest updates on Indian and Global financial markets on your smartphone with the Moneycontrol App. It covers multiple assets from BSE, NSE, MCX and NCDEX exchanges, so you can track Indices (Sensex & Nifty), Stocks, Futures, Options, Mutual Funds, Commodities and Currencies with ease.
Key Features:
Ease of Use: Easy navigation to all financial data, portfolio, watchlist and message board. Single search bar with voice search for stocks, indices, mutual funds, commodities, news, etc
Latest Market Data: Latest quotes of stocks, F&O, mutual funds, commodities and currencies from BSE, NSE, MCX, and NCDEX
News: All-day coverage of news related to markets, business and economy; plus interviews of senior management
Portfolio: Easy monitoring your portfolio across Stocks, Mutual Funds, ULIPs, and Bullion. Timely updates on the performance of your portfolio, and news & alerts relating to stocks you hold
Personalized Watchlist: Adding your favorite stocks, mutual funds, commodities, futures, and currencies to monitor. Get timely alerts in form of news and corporate action
Message Board: Follow your favorite topics and the top borders to get recommendations. Engage and participate in conversations relating to your portfolio or interest
Play store rating: 4.3/5 Stars (28k Reviews)
Downloads: +1 Million
Available on: Android, iOS
Stock Edge helps Indian Stock market traders and investors do their own research and make better decisions by providing them with end-of-day analytics and visualizations and alerts.
Key Features
Daily Updates Section for filtered major market tracking with News, NSE & BSE Corporate Announcements, Forthcoming events, & Corporate Actions and more.
FII/ FPI & DII Cash and Derivatives with strong historical data visualization Daily, Monthly & Yearly.
Opportunity Scans: Price Scans, Last week high/ low, Last Month high/ low, 52 weeks high/low, 3 days price behavior, etc
Track what Big Indian Investors are doing. Use MyInvestorGroup section to create your own group of Investors with their multiple names/entities etc
Sector Research: Sector List, Industries in a sector, Companies in a sector/Industry, Price Movement of last 30 days presented in a simple graph, Gainers, Losers etc.
Play store rating: 4.7/5 Stars (37k Stars)
Downloads: +1 Million
Available on: Android, IoS, Windows
This is another of the best stock market apps. I regularly use ET Markets app for reading market news and updates as they provide the best latest news. Moreover, the stock details feature on this app is always very well organized.
Key Features:
To track BSE Sensex, NSE Nifty charts live and get share prices with advanced technical charting.
Follow stock quotes real time, get tips on intraday trading, stock futures, commodities, forex market, ETFs on the go.
One-stop destination for mutual fund news, NAVs, portfolio updates, fund analysis, SIP calculator
Simple swipe to build, manage and access your portfolio; get customized news, analysis and data of the Indian stock market
To create your watchlist and track them regularly
Get analyses/expert views delivered to you, participate in discussions/conversations through comments
Play store rating: 4.2/5 Stars (2.8k reviews)
Downloads: +500k
Available on: Android, IoS,
This app has become quite popular in the best stock market apps in India in recent months and relatively newer when compared to other apps in this list. Tickertape is a modern stock analysis platform that is designed for keeping you at the center of the process. It focuses on salient metric analysis with powerful tools and robust ecosystem support that can be a catalyst to improve your knowledge about the market and their participation in the same.
Key Features:
Detailed stock analysis for all the publically listed companies in India.
Advanced Screener with 130 filters for you to analyze any Indian stocks.
Market mood Index (MMI) which is the market sentiment indicator trusted to correctly time their trades.
Peer comparisons, news, and events are presented in such a way that will help in your investment decisions.
Finally, Broker Connect to help you log in and connect your broker account to the Tickertape account.
Play store rating: 4.2/5 Stars (168k reviews)
Downloads: +5 Million
Available on: Android, IoS, Windows
First of all, after downloading this app, you need to change the settings. In the region settings, select ‘India (English)’ for getting the updates about the Indian stock market. The simple yet dynamic user interface makes it one of the best stock market apps for stock research.
Key Features:
Follow the stocks you care about most and get personalized news and alerts.
Access real-time stock information and investment updates to stay on top of the market.
Add stocks to watchlists to get real-time stock quotes and personalized news
Track the performance of your personal portfolio.
Find all the financial information you need with sleek, intuitive navigation
Go beyond stocks and track currencies, bonds, commodities, equities, world indices, futures, and more
Compare stocks with interactive full-screen charts
Play store rating: 4.4/5 Stars (1.9k Reviews)
Downloads: +100,000
Available on: Android
This is a new yet powerful app for stock market research. Market Mojo is great for the fundamental analysis of stocks. It offers pre-analyzed information on all stocks, all financials, all news, all price movement, all broker recommendations, all technicals and everything that matters in the Indian stock markets.
Key Features:
The Mojo Quality rank reflects the company’s long-term performance vs its peers.
Its Valuation determines how the stock is valued at its current price
The current financial trend indicates if the company is currently on a growth path and its ability to generate profits.
The Portfolio Analyser evaluates every hidden opportunity and risk in the portfolio and tells the investor what he should be doing rather than what he should be just tracking. Every portfolio goes through our test of seven parameters-Returns, Risk, Diversification, Liquidity, Quality, Valuation & Financial Trend
Play store rating: 4.6/5 Stars (355k Reviews)
Downloads: +10 Million Downloads
Available on: Android, iOS
Investing.com is a popular stock market app uses worldwide. Along with Indian stock details, you can also find the details about the world indexes and foreign stock exchanges. It offers a set of financial informational tools covering a wide variety of global and local financial instruments.
Key Features:
Live quotes and charts for over 100,000 financial instruments, traded on over 70 global exchanges.
Live updates on global economic events customized to your personal interests.
Build your own customized watchlist and keep track of stock quotes, commodities, indices, ETFs and bonds – all synced with your Investing.com account.
Breaking news, videos, updates and analysis on global financial markets, as well as technology, politics and business.
Quick access to all of our world-class tools, including: Economic Calendar, Earnings Calendar, Technical Summary, Currency Converter, Market Quotes, advanced charts and more.
Play store rating: 4.4/5 Stars (344 Reviews)
Available on: Android
Trade brains is a FREE financial education app focused on teaching stock market investing and personal finance to the DIY (do-it-yourself) Investors. Trade Brains app will guide you on how to invest in the Indian stock market with simple, easy-to-understand, and original content.
Key Features:
Pocket guide for stock market Investment.
LEARN- Step-by-step stock investing lessons.
Easy to understand contents on various investment concepts and strategies.
Financial Calculators to Simplify your investment planning
Stockbrokers section to compare the best Online Stockbrokers in India.
Play store rating: 4.0/5 Stars
Available on: Android
Want to find the undervalue valued stocks? Then, download this app!! The intrinsic value calculator App helps the users to calculate the true value of stocks by offering different IV calculators like a Discounted cashflow calculator or DCF Calculator, Return on Equity Valuation or ROE Valuation calculator, Graham number valuation or Graham Calculator, Price to Earnings valuation, PE Valuation calculator and more.
Key Calculators and Features:
Discounted Cashflow (DCF) Calculator: DCF analysis is a method of valuing a company using the concepts of the time value of money.
Fair Value Calculator: This is a simple discounted model calculator to help you find the fair value of a company using Earnings per share (EPS) forecast. With a few simple values, you can estimate the intrinsic value of a company.
Graham Calculator: This calculator is a good tool to find a rough estimate of the intrinsic value. It is simple and very easy to use.
Future Value Calculator: This is a basic compound interest calculator. It will give the future value of one time lump-sum investment.
That’s all. I hope this blog post ‘7 Best Stock Market Apps that makes Stock Research 10x Easier’ is useful to the readers. If I missed any amazing app that you believe should be mentioned here, feel free to comment below.
Further, please comment below which Stock market app is your favorite? Happy Investing!
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
List of most important Financial ratios for investors: Reading the financial reports of a company can be a very tedious job. The annual reports of many of the companies are over hundreds of pages which consist of a number of financial jargon. Moreover, if you do not understand what these terms mean, you won’t be able to read the reports efficiently. Nevertheless, there are a number of financial ratios that have made the life of investors very simple. Now, you do not need to make a number of calculations and you can just use these financial ratios to understand the gist.
In this post, I’m going to explain the 19 most important financial ratios for investors. We will cover different types of ratios like valuation ratios, profitability ratios, liquidity ratios, efficiency ratios, and debt ratios.
Please note that you do not need to mug up all these ratios or formulas. You can easily find all these ratios of any public company in India on our stock research portal here. Just understand them and learn how & where they are used. These financial ratios are created to make your life easier, not tough. Let’s get started.
19 Most Important Financial ratios for Investors
A) Valuation Ratios
These ratios are also called Price ratios and are used to find whether the share price is over-valued, under-valued, or reasonably valued. Valuation ratios are relative and are generally more helpful in comparing the companies in the same sector (apple to apple comparison). For example, these ratios won’t be of that much use if you compare the valuation ratio of a company in the automobile industry with another company in the banking sector.
Here are a few of the most important Financial ratios for investors to validate a company’s valuation.
1. Price to Earnings (PE) ratio
The price to earnings ratio is one of the most widely used ratios by investors throughout the world. PE ratio is calculated by:
P/E ratio = (Market Price per share/ Earnings per share)
A company with a lower PE ratio is considered under-valued compared to another company in the same sector with a higher PE ratio. The average PE ratio value varies from industry to industry.
For example, the industry PE of Oil and refineries is around 10-12. On the other hand, the PE ratio of FMCG & personal cared is around 55-50. Therefore, you cannot compare the PE of a company from the Oil sector with another company from the FMCG sector. In such a scenario, you will always find oil companies undervalued compared to FMCG companies. However, you can compare the PE of one FMCG company with another company in the same industry, to find out which one is cheaper.
2. Price to Book Value (P/BV) ratio
The book value is referred to as the net asset value of a company. It is calculated as total assets minus intangible assets (patents, goodwill) and liabilities. The Price to book value (P/B) ratio can be calculated using this formula:
P/B ratio = (Market price per share/ book value per share)
Here, you can find book value per share by dividing the book value by the number of outstanding shares. As a thumb rule, a company with a lower P/B ratio is undervalued compared to the companies with a higher P/B ratio. However, this ratio also varies from industry to industry.
3. PEG ratio
PEG ratio or Price/Earnings to growth ratio is used to find the value of a stock by taking into consideration the company’s earnings growth. This ratio is considered to be more useful than the PE ratio as the PE ratio completely ignores the company’s growth rate. PEG ratio can be calculated using this formula:
PEG ratio = (PE ratio/ Projected annual growth in earnings)
A company with PEG < 1 is good for investment.
Stocks with a PEG ratio of less than 1 are considered undervalued relative to their EPS growth rates, whereas those with ratios of more than 1 are considered overvalued.
4. EV/EBITDA
This is a turnover valuation ratio. EV/EBITDA is a good valuation tool for companies with lots of debts. This ratio can be calculated by dividing enterprise value (EV) of a company by its EBITDA. Here,
EV = (Market capitalization + debt – Cash)
EBITDA = Earnings before interest tax depreciation amortization
A company with a lower EV/EBITDA value ratio means that the price is reasonable.
5. Price to Sales (P/S) ratio
The stock’s Price to sales ratio (P/S) ratio measures the price of a company’s stock against its annual sales. It can be calculated using the formula:
P/S ratio = (Price per share/ Annual sales per share)
Price to sales ratio can be used to compare companies in the same industry. Lower P/S ratio means that the company is undervalued.
6. Dividend yield
Dividends are the profits that the company shares with its shareholders as decided by the board of directors. Dividend yield can be calculated as:
Dividend yield = (Dividend per share/ price per share)
Now, how much dividend yield is good? It depends on the investor’s preference. A growing company may not give a good dividend as it uses that profit for its expansion. However, capital appreciation in a growing company can be large. On the other hand, well established large companies give a good dividend. But their growth rate is saturated. Therefore, it depends totally on investors whether they want a high yield stock or growing stock.
As a rule of thumb, a consistent and increasing dividend yield over the past few years should be preferred.
7. Dividend Payout
Companies do not distribute its entire profit to its shareholders. It may keep a few portions of the profit for its expansion or to carry out new plans and share the rest with its stockholders. Dividend payout tells you the percentage of the profit distributed as dividends. It can be calculated as:
Dividend payout = (Dividend/ net income)
For an investor, a steady dividend payout is favorable. However, a very high dividend payout like 80-90% maybe a little dangerous. Dividend/Income investors should be more careful to look into the dividend payout ratio before investing in dividend stocks.
B) Profitability ratio
Profitability ratios are used to measure the effectiveness of a company to generate profits from its business. A few of the most important financial ratios for investors to validate the company’s profitability ratios are ROA, ROE, EPS, Profit margin & ROCE as discussed below.
8. Return on assets (ROA)
Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. It can be calculated as:
ROA = (Net income/ Average total assets)
A company with a higher ROA is better for investment as it means that the company’s management is efficient in using its assets to generate earnings. Always select companies with high ROA to invest in.
9. Earnings per share (EPS)
EPS is the annual earnings of a company expressed per common share value. It is calculated using the formula
EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Shares
As a rule of thumb, companies with increasing earnings per share for the last couple of years can be considered as a healthy sign.
10. Return on equity (ROE)
ROE is the amount of net income returned as a percentage of shareholders’ equity. It can be calculated as:
ROE= (Net income/ average stockholder equity)
It shows how good is the company in rewarding its shareholders. A higher ROE means that the company generates a higher profit from the money that the shareholders have invested. Always invest in companies with an average ROE for last three years greater than 15%.
11. Net Profit Margin (NPM)
Increased revenue doesn’t always mean increased profits. The profit margin reveals how good a company is at converting revenue into profits available for shareholders. It can be calculated as:
Profit margin = (Net income/sales)
A company with a steady and increasing profit margin is suitable for investment.
12. Return on capital employed (ROCE)
ROCE measures the company’s profit and efficiency in terms of the capital it employs. It can be calculated as
ROCE= (EBIT/Capital Employed)
Where EBIT = Earnings before interest and tax. And further, Capital employed is the total number of capital that a company utilizes in order to generate profit. It can be calculated as the sum of the shareholder’s equity and debt liabilities. As a rule of thumb, invest in companies with higher ROCE compared to their competitors.
Liquidity ratios are used to check the company’s capability to meet its short-term obligations (like debts, borrowings, etc). A company with low liquidity cannot meet its short-term debts and may face difficulties to run it’s business efficiently. Here are a few of the most important financial ratios for investors to check the company’s liquidity:
13. Current Ratio
It tells you the ability of a company to pay its short-term liabilities with short-term assets. The current ratio can be calculated as:
Current ratio = (Current assets / current liabilities)
While investing, companies with a current ratio greater than 1 should be preferred. This means that the current assets should be greater than the current liabilities of a company.
14. Quick ratio
It is also called an acid test ratio. The quick ratio takes accounts of the assets that can pay the debt for the short term.
Quick ratio = (Current assets – Inventory) / Current liabilities
The quick ratio doesn’t consider inventory as current assets as it assumes that selling inventory will take some time and hence cannot meet the current liabilities. A company with a quick ratio greater than one means that it can meet its short-term debts and hence quick ratio greater than 1 should be preferred.
D) Efficiency ratio
Efficiency ratios are used to study a company’s efficiency to employ resources invested in its fixed and capital assets. Here are three of the most important financial ratios for investors to check the company’s efficiency:
15. Asset Turnover Ratio
It tells how good a company is at using its assets to generate revenue. Asset turnover ratio can be calculated as:
Asset turnover ratio = (Sales/ Average total assets)
The higher the asset turnover ratio, the better it’s for the company as it means that the company is generating more revenue per rupee spent.
16. Inventory Turnover Ratio
This ratio is used for those industries which use inventories like the automobile, FMCG, etc. A company should not collect piles of shares and should sell its inventories as early as possible. The inventory turnover ratio helps to check the efficiency of cycling inventory. It can be calculated as:
Inventory turnover ratio = (Costs of goods sold/ Average inventory)
The inventory turnover ratio tells how good a company is at replenishing its inventories.
17. Average collection period:
The average collection period is used to check how long the company takes to collect the payment owed by its receivables. It is calculated by dividing the average balance of account receivable by total net credit sales and multiplying the quotient by the total number of days in the period.
Average collection period = (AR * Days)/ Credit sales
Here, AR = Average amount of accounts receivable
Credit sales= Total amount of net credit sales in the period
The average collection period should be lower as a higher ratio means that the company is taking too long to collect the receivables and hence is unfavorable for the operations of the company.
Debt or solvency or leverage ratios are used to determine a company’s ability to meet its long-term liabilities. They are used to calculate how much debt a company has in its current financial situation. Here are the two most important Financial ratios for investors to check debt:
18. Debt/equity ratio
It is used to check how much capital amount is borrowed (debt) vs that of contributed by the shareholders (equity) in a company.
As a thumb rule, invest in companies with debt to equity ratio less than 1 as it means that the debts are less than the equity.
19. Interest coverage ratio
It is used to check how well the company can meet its interest payment obligation. Interest coverage ratio can be calculated by:
Interest coverage ratio = (EBIT/ Interest expense)
Where EBIT = Earnings before interest and taxes
The interest coverage ratio is a measure of the number of times a company could make the interest payments on its debt with its EBIT. A higher interest coverage ratio is preferable for a company as it reflects- debt serving ability of the company, on-time repayment capability, and credit rating for new borrowings
Always invest in a company with a high and stable Interest coverage ratio. As a thumb rule, avoid investing in companies with an interest coverage ratio less than 1, as it may be a sign of trouble and might mean that the company has not enough funds to pay its interests.
Closing Things
In this article, we discussed the list of most important Financial ratios for investors. If you want to look into these financial ratios for any publically listed company on Indian stock exchanges, you can go to our stock research portal. Here, you can find the five year analysis and factsheet of all these ratios.
That’s all for this post. I hope this article on the most important Financial ratios for investors is useful to the readers. In case I missed any important financial ratio, feel free to comment below. Happy Investing.
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Stock Market Timings in India: There are two major stock exchanges in India- the Bombay stock exchange (BSE) and the National stock exchange (NSE). However, the timing of both BSE & NSE is the same.
For a quick answer, the stock market timings in India for normal trading in the equity market is between 9:15 am to 03:30 pm, Monday to Friday, without any lunch or tea break. This means that you can buy or sell your stocks on BSE or NSE at any time between this time period.
Anyways, the trading timing for the commodity market is different and longer. Moreover, this stock market timings in India is also divided into different segments that we’ll discuss in detail in this post. Let’s get started
Stock Market Timings in India
First of all, you need to know that the stock market in India works only five days and is closed on weekends i.e. Saturday and Sunday.
Further, the markets are also closed on national holidays like Republic Day, Independence Day, Gandhi Jayanti, etc. You can find the list of the holidays of the stock exchange here: NSE India
The normal trading time for equity market is between 9:15 am to 03:30 pm, Monday to Friday.
The trading time for commodity (MCX) market is between 10:00 AM to 11:30 PM, Monday to Friday.
The normal trading time for Agri-community (NCDEX) market is between 10:00 AM to 05:00 PM, Monday to Friday. (Source: McxIndia)
Now, there is continuous trading by the traders/investors in this time period. This means that there is no lunch break or tea break in the Indian stock market timings, unlike banks or other government/private offices.
Different Segments of Stock Market Timings in India
The timings of the Indian stock market are divided into three sessions:
Normal session (also called a continuous session)
Pre-opening session
Post-closing session
Now, let us discuss all these sessions to further understand their importance in the stock market timings in India.
— Normal Trading Session
Basically, this is the trading session or stock market timings that everyone should know.
The normal trading session is the actual time where most of the trading takes place.
Its duration is between 9:15 AM to 3:30 PM.
You can buy and sell stocks in this session.
The normal trading session follows a bilateral matching session i.e. whenever the buying price is equal to the selling price, the transaction is complete. Here transactions are as per price and time priority.
— Pre-Opening Session
The duration of the Pre-opening session is between 9:00 AM to 9:15 AM i.e. before the Normal trading session. This is further divided into three sub-sessions.
9:00 AM to 9:08 AM:
This is the order entry session.
You can place an order to buy and sell stocks in this duration.
One can also modify or cancel his orders during this period.
9:08 AM to 9:12 AM:
This session is used for order matching and for calculating the opening price of the normal session.
You cannot modify or cancel the buy/sell order during this time.
9:12 AM to 9:15 AM:
This session is used as a buffer period.
It is used for the smooth translation of the pre-opening session to the normal session.
The opening price of the normal session is calculated using a multilateral order matching system.
Earlier, a bilateral matching system was used which caused a lot of volatility when the market opened. Later, this was changed to a multilateral order matching system to reduce the volatility in the market. You can read more on how Pre-Opening prices of stocks are calculated here.
Anyways, most traders do not use the pre-opening session and only use the normal session for trading. That’s why there is still huge volatility even in the normal session after the pre-opening session.
The time between 3:30 PM to 3:40 PM is used for closing price calculation.
The closing price of a stock is the weighted average of the prices between 3:00 PM to 3:30 PM.
For the indexes like Sensex & nifty, its closing price is the weighted average of the constituent stocks for the last 30 minutes i.e. Between 3:00 PM to 3:30 PM.
— Post-Closing Session
Finally comes the 20 minutes session of the post-closing session.
The duration of the Post-closing session is between 3:40 PM to 4:00 PM.
You can place orders to buy or sell stocks in the post-closing session at the closing price. If buyers/sellers are available then your trade will be confirmed at the closing price.
NOTE: Pre-opening session and the Post-closing session is only for the cash market. There are no such sessions for future & options.
Summary of Different Session of Stock Market Timings in India
Overall, the stock market timings in India and its different sessions can be briefed as:
In addition, if you are unable to trade between these time periods, you can place an AMO (Aftermarket order). There is no actual trading here but you can place your buy or sell order.
Special Trading Session – Muhurat Trading
Further, the Indian stock market also opens a special trading session during Diwali, the festival of light. This is known as ‘Mahurat Trading’. Its trading time is declared a few days before Diwali.
However, generally, Mahurat Trading timings is not similar to normal trading and is traded in the evening. You can find more details about mahurat trading here: 60-minute ‘Muhurat Trading’ on BSE, NSE this Diwali
Bonus Section for Stock Market Beginners
By the way, if you are new to investing and want to learn how to start investing in the Indian stock market, check out this video for beginners. Here I have explained the step-by-step process for beginners to start investing in stocks. And I’m sure it will be helpful to you!
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Different Charges on Share Trading Explained. Brokerage, STT, DP & More (Updated): There are a number of charges and taxes involved while trading in India i.e. buying or selling of shares. Some of them are quite popular like Brokerage Charge & GST, while there are many others that the traders and investors are not aware of. In this post, I am going to explain all types of different charges on share trading. Some common ones are brokerage charges, Security transaction charges (STT), stamp duty, etc.
Anyways, before we start discussing them, let us spend a few minutes to learn a few basics things that you need to know first. So, be with me for the next 10-12 minutes to understand the explanation of all the different charges on share trading. Let’s get started.
1. Intraday Trading and Delivery
A lot many beginners trades in stocks and confuse it by investing or delivery. However, both of them are really different:
Intraday Trading: When you buy & sell a share on the same day, then it’s called Intraday trading. For example, you bought a share in the morning and sold it before the market closes on the same day, then it will be considered as an intraday
Delivery Trading: On contrary to Intraday, when you buy a share and hold it for at least one day, then it’s called a delivery. For example, you bought a share today and sold it after three days (or any day but today) then it will be considered as a delivery. Here you can sell the stock tomorrow, or the day after that, or a week later, a year later or 20 years later.
2. Full-Service Brokers and Discount Brokers:
Full-Service brokers: These are the traditional brokers who offer full-service trading services in stocks, commodities, currencies, mutual funds, etc along with research and advisory, portfolio and asset management, banking all in one account. For example, ICICI Direct, Kotak Securities. HDFC securities, etc.
Discount brokers: These are those budget brokers who offer high speed and the state-of-the-art execution platform for trading in stocks, commodities and currency derivatives. They charge a reduced commission (flat price) and do not provide trading advice. For example, Zerodha, 5Paisa, Angel Broking, Trade Smart Online, etc.
In general, a full-service broker charges a brokerage between 0.03% – 0.60% of the transaction volume while trading in stocks. On the other hand, the discount brokers charge a flat fee (fixed rate of Rs 10 or Rs 20 per trade) on intraday. The majority of discount brokers also do not charge any fee on delivery trading.
It is important to note that you have to pay a brokerage charge on both sides of trading i.e. while buying a share and selling a share. Let’s take an example to understand the brokerage charge better.
Suppose there is a brokerage firm called – ABC. Now, this broker charges a brokerage fee of 0.275% on intraday trading and 0.55% on delivery trading. The total charges on both tradings can be given as-
Intraday Trading
Delivery Trading
Brokerage
0.275% of total turnover
0.55% of total turnover
Turnover
If you buy 100 stocks at Rs 120 and sell at Rs 125, total turnover is (120*100+ 125*100=) Rs 24,500
If you buy 100 stocks at Rs 120 and sell at Rs 125, total turnover is (120*100+ 125*100=) Rs 24,500
Total Brokerage Cost
Total brokerage charge on Intraday trading (for both buying and selling) = 24,500 * 0.00275 = Rs 67.38
Total brokerage charge on Delivery (for both buying and selling) = 24,500 * 0.0055 = Rs 134.75
As the competition among the brokers is continuously increasing, these brokerage charges offered by the different brokers are also decreasing. For example, the discount brokers like Zerodha offers a flat fee of Rs 20 or 0.03% on Intraday trading (whichever is lower) and Delivery investments are FREE. Here are the Brokerage charges for different segments offered by Zerodha.
— Delivery Trading: FREE (Rs 0) — Intraday Trading: Rs 20 per trade or 0.03% (whichever is minimum)
— Equity Futures: Rs 20 per trade
— Equity Options: Rs 20 per trade
Therefore, for the above table, assuming the same scenario, the person would be paying only Rs 7.35 in Intraday Trading and Zero Brokerage on Delivery, if he prefers Zerodha as its broker. Other discount brokers like 5Paisa, Upstox, Angel Broking, etc, also offer similar lower brokerage charges.
Now, apart from brokerage charges, there are also an additional couple of charges and taxes to be paid while share trading. As already mentioned earlier, some of them are Security transaction tax, service tax, stamps duty, transaction charges, SEBI turnover charges, depository participant (DP) charges, and also capital gain tax (which you’ve to pay at the end of the financial year but not while transacting).
Let’s understand these other different charges on share trading and taxes involved first. Further, we will also discuss an example at the end of this post to understand the charges and taxes involved better.
Different Charges on Share Trading
– Security Transaction Tax (STT)
Apart from brokerage, this is the second biggest charge involved while trading in stocks.
For delivery trading, STT is charged on both sides (buy & sell) of transactions and is equal to 0.1% of the total transaction price (on each side of trading).
For intraday and derivate trading (futures and options), STT is charged only when you sell the stock. For intraday, the STT charge is 0.025% of the total transaction price while selling.
For equity Futures, the STT is equal to 0.01% on the sell-side. On the other hand, for equity options trading, STT is equal to 0.05% on sell-side (on premium).
– Stamp Duty
Stamp duty is charged uniformly irrespective of the state of residence effective from July 1st, 2020. These new rates are only on the buy-side (and not on both buy and sell-side). Here are the new rates on stamp duty on different types of trades:
Type of trade
New stamp duty rate
Delivery equity trades
0.015% or Rs 1500 per crore on buy-side
Intraday equity trades
0.003% or Rs 300 per crore on buy-side
Futures (equity and commodity)
0.002% or Rs 200 per crore on buy-side
Options (equity and commodity)
0.003% or Rs 300 per crore on buy-side
Currency
0.0001% or Rs 10 per crore on buy-side
Mutual funds
0.005% or Rs 500 per crore on buy-side
Bonds
0.0001% or Rs 10 per crore on buy-side
Quick Note: Previously, the stamp duty was charged by the state government and hence not similar across all the states in India. A few states charged higher stamp duty, whereas a few of them charges lower duty taxes. Different states charge different stamp duty. Moreover, Stamp duty used to be charged on both sides of transactions while trading ( i.e. buying & selling) and hence are charged on the total turnover. **This rule changed after 1st July, 2020.
– Transaction Charges
The transaction charges is charged by the stock exchanges and that too on both sides of the trading. This charge is the same for intraday & delivery trading.
National stock exchange (NSE) charges a fee of 0.00325% of the total turnover as Transaction charges on Equity and Delivery Trading. On the other hand, Bombay stock exchange (BSE) charges a fee of 0.003% of total turnover as Transaction charges on Equity and Delivery Trading.
For Derivatives trading, BSE doesn’t cost any transaction charges. However, on NSE, the Exchange transaction charge is 0.0019% for futures trading and 0.05% of total turnover for Options Trading.
– SEBI Turnover Charges
SEBI stands for the Securities exchange board of India and it is the security market regulator. SEBI makes the rules and regulations on the exchanges for its proper functioning.
SEBI Turnover fee is charged on both sides of the transaction i.e. while buying and selling and is the same for all equity intraday, delivery, futures, and options trading.
The SEBI turnover charge is equal to Rs 10 per crore of the total turnover.
– Depository Participant (DP) Charges
There are two stock depositories in India- NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). Whenever you buy a share, it is kept in an electronic form in a depository. For this service, the depositories charge some fixed amount.
The depositories don’t charge the traders or investors directory but charge the depository participant. Here, the brokerage firm or your demat account company is the depository participant (DP).
DP acts as a linkage between the depository and the investor as the investors cannot directly approach the depository. In short, the depository charges the DP and then the depository participant (DP) charges the investors.
For example, while trading with Zerodha, DP charge is equal to ₹13.5 + GST per scrip (irrespective of quantity), on the day, is debited from the trading account, i.e. when stocks are sold. This is charged by the depository and depository participant.
– Goods & Service Taxes (GST)
GST is the mandatory tax levied by the government on the services rendered and is equal to 18% of total brokerage and transaction charges.
– Capital Gain Taxes
Lastly, Capital gain taxes is the most important tax to understand in this article for the traders and investors. We are not going to cover all the details regarding capital gain taxes in this article, but just a short over. If you want to read the complete details, you can refer to this article.
There are two types of Capital gain taxes in India – Short-term capital gain tax and Long-term capital gain tax.
When you sell a stock before one year of buying, then it is considered as a Short-term. Here a flat 15% of the profit is charged as short-term capital gain tax.
When you sell a stock after one year of holding, then it is called the long-term. For the long term capital gain, you have to pay a tax equal to 10% of the gains, if it exceeds Rs 1 lakh.
For Intraday Traders, they need to pay taxes on their capital gains which depends on their tax slab. For example, if you’re in the highest tax slab and made some profits while intraday trading, you’ve to pay taxes of 30% on those gains.
Quick Note: You can also download our FREE android app of ‘Brokerage Calculator’ to find the total brokerage and actual profits/loss while trading in stocks ‘on your phone’. Here is the quick link!
Example of Different Charges on Share Trading
Now, let us see an example to understand these different charges on share trading and taxes involved better. Suppose there are two traders- Rajat and Prasad. Here, Rajat is a delivery trader who invests in the long-term i.e. for 2-3 years. On the other hand, Prasad is an intraday trader.
They both have their accounts in the same discount brokerage company named ABC. The brokerage charge for ABC is Rs 20 Per trade on intraday trading and FREE for delivery trading.
Also, let us suppose that both Rajat and Prasad have traded a total turnover of Rs 98,000 in a share (i.e. total cost involved while buying and selling). In addition, they both live in Maharastra.
Now the different charges and taxes paid by them for complete trading i.e. from buying to selling the shares can be given as-
Prasad (Intraday Trader)
Rajat (Delivery Trader)
Buy Price
120
120
Sell Price
125
125
Quantity
400
400
Total Turnover
Rs 98000
Rs 98000
Exchange
NSE
NSE
State
Maharashtra
Maharashtra
Brokerage Charge
Rs 40 (Flat Rs 20 Per trade i.e. Buying & Sellling)
Rs 0 (FREE Delivery Trades)
STT
0.025% of sell side = 0.025 % of Rs 50,000 = Rs 12.5
0.1% on buy & sell = 0.1% of 98000 = Rs 98
Stamp Duty
0.003% of buy-side = 0.003% of 48,000 = Rs 1.44
0.015% of buy-side= 0.015% of 48,000 = Rs 7.2
Transaction Charges
0.00325% of total turnover = 0.00325% of Rs 10,000= Rs 3.18
0.00325% of total turnover = 0.00325% of Rs 10,000= Rs 3.18
At first glance, it looks cheap to invest in intraday as the total charges are comparatively less here. But you should note that the frequency of trading for intraday traders is quite high. Many intraday traders easily make 2-3 high volume trades every day. So, they have to pay these brokerage charges and taxes again and again. On the other hand, delivery traders or long-term investors do not make such frequent trades.
Overall, charges and taxes are a very important part of trading and should not be ignored. You might think that you are in profit, but the real profit is the one which is left after deducting the charges and profit. I hope the traders will keep this in mind before trading the next time.
Zerodha Brokerage Calculator
Before ending this article, here’s the brokerage calculator for equity trades using Zerodha, the discount broker.
That’s all for this post. If you’ve any doubts related to the different charges on share trading in India, feel free to comment below. I’ll be happy to help you out. Cheers & Happy Trading!
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Understanding what are Preferred Stocks and why are they beneficial: The dream security for many would be one that provides you both the inherent security found in bonds and returns of an equity stock at the same time. Luckily enough for us, such financial instruments exist and not only provide security but also steady returns in the form of dividends. This flexible security is known as a Preferred Stock or a Preference Share.
Today, we are going to discuss what are preferred bonds. Here, we’ll cover their meaning and also clear out what these bond and equity hybrids are in order to better understand and decide if they can actually be preferred over their parents
What are Preferred Stock/Preference Shares?
Many of us do not know that there are two types of stocks. The first being the common stock which we are accustomed to. The second being preference shares.
Preference Shares or Preferred Stocks offer investors preferential right over common stock when it comes to earnings and asset distribution. However, in exchange for these preferential rights, preference shares do not possess the voting rights in a company that the common stock holds.
What are the benefits of Preferred Stocks?
The investors benefit in the following ways when it comes to preference shares
1. Fixed Income
This means when dividends are announced, the payments will first have to be made to preference shareholders and only then to common shareholders. The dividend rates of preference shares are fixed at a predetermined rate or some other floating factor depending on the terms of the issue.
The decision on when dividends have to be paid is at the discretion of the board. This is because the Preference shareholders do not possess and voting rights in order to influence the board members or decisions.
2. Security in the case of winding up
Also in the case of winding up of a company, it is the preference shareholders who have priority in claiming the company assets. Only after the obligations to Preference shareholders are fulfilled will the obligations to common stock begin.
It is because of the above reasons that the Preference shares are known to be a hybrid. Just like bonds they offer regular returns with no voting rights. But like equity, the shares are allowed the trade and have the potential to appreciate in price.
Hierarchy of Bonds, Preference shares, and Equity shareholders
— In terms of Returns
It is the interest on bonds that are first serviced from the profits made by the company. Only then will the preference shareholders be paid the dividends due to them. In a case where the profits made are not sufficient then the preference shareholders and common shareholders can be left out. This is because unlike for bonds if the company does not pay preference shareholders it does not mean that the company is in default.
The bonds here are treated as debt whereas preference shares are not. In a scenario where there are sufficient returns first the interest on bonds is paid. Next, the preference shareholders are paid based on the rates set. Lastly, the remaining amount is paid to the equity shareholders. Only then is the remainder paid to the common shareholders. The dividends to preferential shareholders are preferred but not guaranteed.
Unlike bonds and preference share, there is no rate set to equity. This means that there is no upper limit nor lower limit to the dividends they receive. In exchange for preferential treatment, the preference shareholders will never receive dividends in excess of the rates prescribed to them.
Despite this common stock are greater wealth creators in comparison to preferred stock and bonds. This is because there is no limit on the increase in the stock price. When it comes to Preference shares the price generally looms around the face value.
— In terms of Claim over Assets
In the case of winding up, it is the bondholders who are first paid off followed by the preference shareholders and then the common stockholders.
— In terms of Risk
Preferred stocks are less riskier in comparison to equity. But when compared to bonds preference shareholders are considered to be riskier. This is because they fall back when it comes to being compared over the claim of assets and fixed interest rates that bonds have.
Equity shareholders are the riskiest here as they get leftovers of the bondholders and preference shareholders in the case of winding up. In a case, where the company is performing poorly, the share prices of common stock are also adversely affected.
Types of Preferred stock
There are various types of preferred stock. The following are the most commonly used
1. Cumulative Preference Shares
Say a company is in a bad shape and is forced to suspend dividends for the year. Here if the shares are Cumulative Preference shares, they are still entitled to receive the dividend for the year. Such a missed dividend payment will be added to the dividend payments of the following years and paid to the cumulative preference shareholders.
Eg. Company ABC has issued Cumulative Preference shares. ABC has issued 3000 10% cumulative preference shares at Rs.100 face value. Here the dividends payments ABC is obliged to make is Rs 30,000. But due to COVID-19, the ABC can only pay Rs. 10,000 of the dividend in 2020. Here the Rs. 20,000 is carried forward as arrears and paid the next year. Hence ABC will have to make a total dividend payment of Rs. 50,000 in 2021. Amount arising from Rs. 20,000 carried forward and Rs. 30,000 accruing in 2021.
2. Convertible Preference Shares
These preference shares can be exchanged for a predetermined number of common shares. Convertible Preference Shares can be converted only when the Board of Directors decides to convert them.
3. Callable preference Shares
Callable preference shares can be called back similar to bonds. In a call, the shares issued are bought back by the company by paying its holders the par value and at times a premium. This is done by the company in situations when the interest rates in the market fall. In such a situation the company realizes that it does not have to keep servicing the preference shares at the high rates it was issued a few years ago. The company simply calls back the shares and then reissues it at lower rates.
4. Perpetual Preferred Stock
Here there is no fixed date on which the investors will receive back the capital. Here shares are issued in perpetuity.
The types of preference shares mentioned above are common examples. The company, however, may combine one variant with the other and issue a preference share eg. Convertible Cumulative Preference Shares. If there are multiple issues of preference shares the shares may be ranked by priority.
In preference shares, the highest-ranking is called prior, followed by preference, 2nd preference, etc. The dividends and final settlements will be made in the order of this ranking.
Where are these Preference Shares available?
Preference shares are traded on the same exchanges like that of common stock. However, their issues are rare as companies do not generally go for preferred stock making their market small and their liquidity limited. The price of preference shares on these exchanges are determined by a variety of factors like dividend rate, the creditworthiness of a company, type of preference share eg, cumulative, convertible, etc.
The share prices of Preference shares like bonds have an inverse relationship with interest rates.
Apart from looking at the type of preference share and the interest offered, it is also important necessary to figure out why the company issuing Preference Shares?
It is a known fact that companies issue preference shares in order to avoid dilution of capital. But it is also noticed that companies issue preference shares when they have trouble accessing other means of capital. This may be because banks are refusing loans due to their low creditworthiness. Raising money through Preference Shares is cheaper as it gives the option to the company to only serve them when they are able to, unlike other debt instruments.
Another reason may also be that preference shares do not reduce the creditworthiness of a company, unlike debt that is added to the balance sheet. The company can issue preference shares that act like debt but are shown as equities in the balance sheet. Happy Investing!
Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.
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