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Equity Analysis and Valuation

Equity Analysis and Valuation

There are two parts to evaluating a stock for investment

1.      Fundamental analysis:It is a study of “Financial statements” and information of a company to estimate the future returns from it. Financial statements include evaluating the revenue, expenses, assets, liabilities and other financial aspects of the company.This is useful in estimating the earning potential and hence the intrinsic value of the shares.

2.      Technical analysis:It involves studying the prices of stocks rather than its intrinsic value. Technical analysis is a study of historical prices and market trends. Technical analysis is concerned with past trading data and what information the data might provide about future price movements.

Equity analysis thus requires both fundamental and technical analysis of stocks since one contributes to understanding the financial aspects and true valuation along with profits of the company whereas the other evaluates the price trends and forecasts future prices for making investment decisions.

Information for equity analysis is gathered from the following sources:

  • Audited financial statements
  • Analyst meetings, plant visits and interactions with the management
  • Industry reports, analytics and representations
  • Government and regulatory publications

Commonly used terms in Equity Investing

Price earning multiple: The price earning ratio or multiple basically calculates what the market is willing to pay for a share of a company based on its current earnings.It is computed as:

Market price per share / Earnings per share:  Earnings per share is the profit after taxes divided by the number of shares. It indicates the amount of profit that is available, for every share the company has issued. Eg. A stock is currently trading at 50Rs/- a share and its earnings per share for the year is 5Rs/-.

P/E ratio would be calculated like this: 50/5= 10, the price earning ratio of this stock is 10 times which means investors are willing to pay 10 rupees for every rupee of earning. A company with a high P/E ratio usually indicated positive future performance and investors are willing to pay more for this company’s shares.

Price to book value (PBV): The PBV ratio compares the market price of the stock with its book value. It is computed as market price per share divided by the book value per share. The book value is value of the share in the books of the company i.e value of a company’s assets expressed on the balance sheet. Since the assets in company books is shown at its cost minus the depreciation and are not inflation adjusted, true realizable value of assets cannot be determined from books. Eg. If market price of the stock were lower than the book value and the PBV is less than one, the stock may be undervalued and vice versa.

Dividend yield ratio: The dividend declared by a company is a percentage of the face value of its shares. Eg. When the dividend received by an investor is compared to the market price of the share, it is called the dividend yield of the share.A 40% dividend declared by a company with face value Rs 10 of each share, the dividend amount is Rs 4 (10* 40%) on each share.

A security’s dividend yield can also be a sign of the stability of a company and often supports a firm’s share price. Normally, only profitable companies pay out dividends. Therefore, investors often view companies that have paid out significant dividends for an extended period of time as “safer” investments.

Risk and Return from investing in equity

Return: As we know the returns on equity investment are fluctuating and are received in periodic dividends and Increase in value of investment through change in share prices in secondary market. The equity market is highly volatile because large number of investors keep evaluating stocks and realigning their current investment position leading to fluctuating share prices. Since performance of companies can be evaluated based on its share prices, the company with increasing rate in share prices indicates profitability and vice versa.

Risk: The risk to an equity investor is that the future benefits are not assured or guaranteed, but have to be estimated based on dynamic changes in the business environment and profitability of the business.

TRADERS AND TRADING

How to Trade in stock market

In the stock markets, SEBI has set up financial intermediaries which are known as Stock Brokers.

Stock Broker is a corporate entity registered as a member with the stock exchanges and holds a stock broking license.

For transacting in the stock market, Trading and Demat Account is required

A Stock Broker is a gateway to stock exchanges. It helps you to open up a Trading and Demat account in exchange for fees as commission on every transaction you carry out in the market. Famous stock brokers in india are Motilal oswal,5paisa,angelbroking etc.

Trading and Demat Accounts

Trading Account is an electronic platform which helps you to transact across multiple exchanges in India as well as across the world.

Demat Account stands for De-Materialisation form of account. Earlier, people used to have physical shares in the form of documents known as share certificates which have now been converted into an digital form of document known as Demat.

There are only 2 depositaries NSDL and CDSL which help us in opening and maintaining our Demat accounts.

 NSDL stands for National Securities Depository Ltd.

CDSL stands for Central Depository Services Ltd.

The entire stock market is made up of 2 types of Trader who are  classified into 3 section.

Roughly around 95% of the people in the stock market are

Retailers. Around 3-5% people are Professionals in the market.

Qualities or characteristics of Retailers and Professionals

Retailers:

People whose core business or jobs lie outside the stock markets like students, employees, businessmen, workers, etc.

  • They have no or less education about the stock markets.
  • They follow tips.
  • They watch tv and invest in the markets on news.
  • They Gamble the markets.
  • They try and predict the markets.

Professionals:

  • Highly educated about the stock markets.
  • They are in constant touch with what is happening in the markets.
  • They keep on upgrading themselves by reading books and articles about the stock market.
  • They plan the markets and trade the markets.
  • They don’t gamble the markets.
  • They don’t predict the markets (No1 in this world can ever predict the markets).
  • They have the skill of reading prices, i.e. emotions of people.

This process of shifting has to be a behavioral shift i.e. along with the knowledge imparted and gained, students will have to change your habits and attitude towards life.

CATEGORY OF TRADERS

Bulls are type of trader who think that the markets will go up and hence they buy aggressively in the market. When the stock prices and indices start going up, it is called as a Bullish Market.

Bears are type of trader who think that the markets will go down and hence they sell aggressively in the market. When the stock prices and indices start going down, it is called as a Bearish Market.

Pigs are traders who are retailers.

There is a saying in the markets: Bulls make money; Bears make money; Pigs get slaughtered.

In the stock markets you can either Go Long or Go Short.

Going Long means buying the stock first and selling later.

Going Short means selling the stock first and buying later.

Types of Trading

Intraday Trading means buying and selling the stock within one day.

Swing Trading means buying stocks today and selling them after a week or so.

Position Trading means buying stocks today and selling them after a month or so.

Long Term Investment means buying stocks and holding them for more than a year.

Basic Concept of Stock Markets

Background:

If someone wants to buy or sell securities, she/he would go to a place called as The Stock Market. The main purpose of The Stock Market is to help you facilitate your transactions i.e. buy or sell shares.

Unlike a mall or a shopping complex, The Stock Market does not exist in a physical form. It exists in an electronic form. This means that you can access the markets electronically from your computer and conduct your transactions.

For conducting these transactions, there are separate legal entities called as Exchanges.

Shares and IPO

In the Indian Stock Market, there are different segments for trading various types of securities.

Let’s try and understand this story with the help of a story of our beloved Raj and Simran.

Raj, an entrepreneur had a brilliant business idea to manufacture shirts. The designs he made were unique, had attractive price points and the best quality. He was confident that his business will be successful. He started working hard. His business started picking up and in that process he met Simran. Simran liked Raj’s business idea and hence wanted to invest in Raj’s company. So they decided to join hands and form a company.

If you want to open a restaurant, you need various license. Similarly, to start a company you have to follow a certain set of procedure.

So Raj and Simran had 2 options according to the Act.

  1. If they want to open a Pvt Ltd Co., they would be the whole and sole owners of the company.
  2. If Raj decides to expand his company and operate on a larger scale, he would require funds which he would raise by asking the public for money. In return of this money, Raj’s company would issue documents which would indicate that they were investors and part owners of his company.This document issued, is what we call a Share/Equity.

This process of raising funds in this manner for the very first time is called as an Initial Public Offering i.e. IPO.

Exchanges

A legal entity which helps in facilitating transactions of securities is called an Exchange.

There are 2 major exchanges in India – NSE and BSE.

NSE stands for National Stock Exchange and BSE stands for Bombay Stock Exchange.

BSE is the oldest stock exchange in Asia established in the year 1875. NSE is India’s youngest but largest stock exchange. It was established in the year 1992.

As mentioned, BSE was the first exchange in India. Gradually, different states of India started their own exchanges. For eg. Culcutta stock exchange, Madras had Madras stock exchange and so on. Seeing this, the Govt of India realised, that this process of trading should be centralised so that people of India have nationwide access to an automated electronic system where buying and selling of shares would become extremely easy. This is why and how NSE came into existence after over 100 years of BSE.

Index

Indices or Index, is a report card or a performance indicator of the economy of our country.

Since there are 2 major exchanges in India, we have 2 indices under these exchanges.

The index under NSE is called as Nifty or S&P CNX Nifty and the one under BSE is called as Sensex or S&P BSE Sensex.

S&P CNX Nifty stands for Standard & Poor’s Crisil NSE Index Nifty.

S&P BSE Sensex stands for Standard & poor’s Bombay Stock Exchange Sensex.

Nifty comprises of the Top 50 companies of India from different sectors whereas Sensex comprises of the Top 30 companies.

How are indices calculated

Nifty = (Sum of Free Floating Market Capitalisation of 50 Companies) X (Index Factor)

Market Capitalisation = (Number of Shares Issued) X (Current Market Price of each Share)

Free Floating shares are the shares available to general public for trading.

Free Floating Market Capitalisation = (Number of Free Floating Shares) X (Current Market Price of each Share)

Index Factor = (Base value of NIFTY in 1995)/(Market Capitalisation of 50 companies in 1995)

Index Factor = 1000/Rs. 2.5 Trillion

Nifty = (Sum of Free Floating Market Capitalisation of 50 Companies) X (Index Factor)

Sensex = (Sum of Free Floating Market Capitalisation of 30 Companies) X (Index Factor)

There are a lot of points that are taken into consideration while selecting which company’s stock will be included under an index. Some of these criteria are:

  1. Listing History
  2. Track Record
  3. Market Capitalization
  4. Trading Frequency
  5. Industrial Records •

The entire process of selecting stocks under Nifty and maintaining the index Nifty itself, is the sole responsibility of an organisation called IISL.

IISL stands for India Index Services and Products Ltd.

SEBI

There is a Regulator which regulates the activities of market participants and financial exchanges. It is called as SEBI.

SEBI stands for Securities and Exchange Board of India.

Role of SEBI

  • Exchanges conduct their business fairly.
  • Participants don’t get involved in unfair practices.
  • Investors interests are protected.
  • Manipulation of the markets is avoided
  • Overall development of the markets.

SEBI has prescribed a set of rules and regulations and every entity in India has to operate within the legal framework as prescribed by SEBI.

Timings of the Market

The Stock Market in India starts at 9 in the morning but people of India can start buying and selling shares from 9:15 am to 3:30 pm.

What happens between 9 and 9:15? This period is termed as Pre-Market.

9:00-9:07- Placing of orders.

9:07-9:15- Fusion i.e. matching or orders.

 

Decoding a Stock Market Psychologist……

In our past, most of us have across, a certain individual who has shown certain ‘Expertise’ in stock markets and knows a certain way that makes the market work, These people are the ones we-call Stock Market Psychologist, these guys have practically amassed years of experience in making their portfolio diverse and rich, proving their effectiveness and knowledge that one requires before making a big investment. 

This article today was created to realize the Potential of such Individual(s) and the profit it can do for your portfolio(by acquiring their services or learning the tricks of the trades from them)…….

Things We’re going to talk about: 

  • How these certain individuals can help us make more money?
  • Why learning the tricks from them is a better idea?
  • Where can you meet?
  1.  These individuals have been so well versed in knowing the mindset of a competitor and are capable enough of knowing what predictions might prove fruitful for their predictions of next day’s market have an accuracy rate >80%, making a list of best possible investment alternatives even in ‘arbitrage sectors’, or real estate or even gold. These guys practically carry an updated index of things worth investing on, having them guide you on where to place your money carefully can certainly prove to be an Asset in your favor,
  2.  These guys do provide their services to every single person who asks for their help, but this usually comes with a very hefty fee proving to be an investment that can end up costing you more than you can make on a deal you flip with their expertise, so the most advisable way would be to take their tutorial classes where they Teach you the ropes.
  3. You can Arrange a possible meetup or even schedule with a stock market psychologist here. He can provide you the best in class expertise and teaching experience you will ever require getting started in the market.

To read on why a Stock Market Psychologist is, someone you can use right now. Read here.

Well, that’s all for today folks……..

Best Stock Psychologist

Why the Stock Market is the way of the new?

Often at times, we have been left wondering about whether our wallets could have more weight in them, by the end of the month approaches, because surviving on your daily 9-5 is a challenge in itself.

So, the question that crosses most of our mind is,

” How do I create enough for me and my family? , I have people to take care of ! my savings are barely enough to feed myself, let alone my family!” 

Well according to our knowledge this thought crosses in almost 90% of the individual’s mind, leading us all to wonder about our ‘Knight in shining armor’,

Well you need not worry, here we’re going to talk about the best and the most trusted ways to create money for ourselves and/or our loved ones or our business: ( **inserts sound of Cherokee drum**)…..

The medium we’re talking about isInvesting” :

Now, ‘I know! , I know! Stock markets are tough, it’s the battle of the fittest out there’.

But, let me debunk the most commonly associated Myth about the stock market:

  1. It’s not for the Rich.
  2. It’s complicated ( without proper understanding even riding a bicycle is ).
  3. The entry amount is ‘High‘, (It’s as low as Rs.500 or $8).

What?  Is that it? Is this all in we need to get into this space? 

Well, Yes! and No! , to get started there are certain documentation you need to fill and certain criteria that need to be met (But even marriage has certain criteria and Requirements :P).

The most known facts about getting started are :

  1. You need knowledge of 5 Grade maths at minimum (Yeah! that’s easy).
  2. You need to be able to chart out a growth pattern.
  3. You need to be able to take losses like a champ.

Woah! You didn’t see that one coming did you?

Or, You can simply take the advice of the most known and revered ‘Stock Market Psychologist’ 

What’s this? / Who’s this? ,

Your, one-stop solution for all your queries, these guys Advise and Educate you about the stock market and its trends and its current scenarios. So, his basic job is to teach you to make your wallet go,

 

From thisBest Stock Market Psychologist

 

To this,       Best Stock Market Psychologist

More on it later…….

How do I get in touch with him?

www.kumarsiddharth.com

What about the Documentations?

He’s even got that covered for you   Just go to:

Well, that’s all for today folks! ……

Best stock market Psychologist

Hi, I Kumar Siddharth, I would like to know you, even more, my motive is to De-jargonize the entire field of the stock market for you, No worries! , head over to any of my Social Media, to gain the required knowledge, I promise you won't be disappointed ;). And we have created a special feedback panel for you. Any Doubts? Feel Free to let us know.

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