“If you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry.” – Satoshi Nakamoto
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Cryptocurrency or Bitcoin may be a atypical phraseology for an ordinary Indian citizen but you will be surprised to know that all the authorized exchanges in INDIA have recorded an extraordinary growth in the Cryptocurrency business since March 2020. Any conjecture amongst the investors or the Bankers has been removed by the Supreme court order dated 4th, March 2020, setting aside the circular issued by RBI in April 2018. Though no formal regulatory has been issued by the RBI for explicating the matter, the Banks/Customers/Exchanges have already started conducting the business.
There are pros and cons attributed to this unregulated currency but statements coming from the sources like Bill Gates creates confidence:
“Bitcoin is a technological tour de force.”– Bill Gates.
There has been an unprecedented increase in business over the last few months in India. The previous eight months starting from March 2020 till date have witnessed the growth of cryptocurrency business in India by more than 600%. Reportedly, the Indian cryptocurrency business with a monthly turnover of more than 23 million dollars stands at number 2 in Asia and number 6 in the world. Mind-blowing?
Launched in 2009 by an unknown person using the alias Santoshi Nakamato, Bitcoin is the new paperless currency that doesn’t have control by the Govts or Banks. It is a digital currency and you can not touch it with your hand. You can buy anything from hotel booking to furniture through this currency.
ATM’s and other dispensing centers facilitate convenient use of cryptocurrency by the customers in many countries. You can use your smart phone or computer to send or receive money without involvement of any Bank. The technology has brought a revolution in the Financial markets with more and more institutions coming out to provide commercial services to their customers.
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With a limited possibility of mining maximum 21 million of Bitcoins, the persistent demand of Bitcoin results in high volatility in the market. The market data suggests 18.75 million Bitcoins are already in circulation as of today. Big institutional investors have been amassing this coin continuously as the price is gradually moving beyond the reach of retail investors. The price of one Bitcoin has scrambled up from 8000$ to 27000$ within 12 months. That makes one Bitcoin equal to 27000×78= Rs.2079000 (Twenty Lac and seventy-nine thousand). Isn’t it a huge amount for one unit of Bitcoin? However, you can buy a small fraction of Bitcoin also.
Unlike, the currency notes and coins minted and printed by the Governments in the closely guarded printed press, these cryptocurrency coins can be mined by the miners from the convenience of their bed rooms. Highly sophisticated computers are used by the experts through a complicated “Blockchain” process popularly known as Mining. This being a technical and labour intensive exercise requires immense concentration. Anybody sitting at home can mine this currency and earn a value of 6.25 BTC for creating one block. By any standards, Its a huge compensation!!
The cryptocurrency markets are in operation 24x7x365 as the blockchain technology has made this market very competitive now. There are more than 6000 coins trading in the markets through hundreds of authorized cryptocurrency exchanges. Every coin has its distinct value and utility. Some of the most popular and traded coins in the markets are indicated below:
Bitcoin: BTC:
Etherium: ETH
Bitcoin Cash: BCH
Ripple: XRP
Litecoin: LTC
Binance: BNB
Cardano: ADA
Polkadot: DOT
Bitcoin SV: BSV
Steller: XLM
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There are still many countries that have not regulated this currency for valid reasons and genuine apprehensions. Being a parallel economy without any control of the Central Bank or the Governments, this may land in the hands of terrorists or antinational activists. They have their own perceptions of losing the entire control over the currency and its regulatory authority. Most of the countries don’t want this to happen in their own interests.
From India’s perspective, strange statistics forewarn about the pattern of investors investing or trading in cryptocurrencies. More than 50% of investors in the crypto currency markets in India have an annual income of less than 10 lac.
This being a very risky volatile market with turbulences occurring at regular intervals, you must ensure to be circumspect and discreet in handling the transactions. Any impulsive act can make your money vanish in seconds. You can not approach your Bank or RBI for complaining about any pecuniary loss perpetrated by the swindlers through fishing and other fraudulant modus operandi.
Friends, Stay Safe Stay Connected but keep reading
Disclaimer: The material and information contained on this website/Blog is for general purposes only. You should not rely upon the material or information on the website as a basis for making any business, legal or any other decisions. Any reliance you place on such material is strictly at your own risk and responsibility
The same set of financial statements is perused by the lenders and investors for arriving at their informed decisions. However, modus operandi of subjecting this information for analysing various ratio analysis differs considerably. A Business model normally reminds us of a “Tripod” which has three legs to stay stable as the collapse is imminent if any of these legs is snapped or shattered for any reason whatsoever.
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The promoter, Investor, and Lender/Banker form the three legs of any business which compliment each other. They have their own roles and responsibilities to keep the company afloat during the turbulent times enkindled due to market conditions or internal risks like labor problems and worn out technology issues etc.
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Whereas, the promoters conceive business ideas and make them operational through their experience hiring a team of skilled workers/executives and garnering the required capital from their own resources, the investors join to supplement the company’s capital by subscribing to Shares/Debentures/Bonds/Commercial Papers. However, Lender/ Banker extends their support by financing day-t0-day working capital requirements. We will try to communicate by elaborating the significance of Financial Accounting from the investors and lenders perspectives
Financial Accounting or analysis is a connection between the company and professionals through Financial Statements like Balance Sheet, Income/Expenditure, and Cash Flow statements of a particular business. Analysis of these statements provides the health of the business as investors or lenders don’t have access to the day to day operations of the company. It’s like a mirror showing you the exact replica of your own self.
Whereas, an investor would like to see which company has performed consistently well, earned profits, paid dividends during the year before taking an informed decision by comparing with the industry data. The lender/Banker looks at these statements from a different perspective as they are more concerned with the cash flow, leverage, and overall solvency as calculated through various ratios. They delve into the data for a broader outlook as to whether the business is adequately prepared to meet its short-term and long-term commitments.
Stock holder’s equity is another very important and, relevant factor that helps both investors and lenders to peep through the health of the business. Normally (Total Assets=Total Liabilities=Capital/Equity) the difference between total assets and total liabilities provides an idea of stakeholder’s equity. If it works out to be positive, it’s good but sometimes this figure looks alarmingly negative indicating the imminent possibility of not meeting their long-term liabilities. A warning signal!!
The following ratios are taken into consideration by the lenders/Bankers before taking their call on approving the requested working capital requirements. Thankfully, all companies are required to submit their quarterly financial statements to the regulator regularly. The lender can keep a hawk’ eye on the various parameters and take corrective measures before it is too late
Current ratio: Total Current Assets/Total Current Liabilities. Theoretically, the 2:1 ratio is considered good but from Banker’s prudent perspective 1.33 ratio is acceptable being more efficient.
Quick Ratio: Cash or cash equivalents/Current liabilities, it should not be less than 1 as the figure suggests the availability of sufficient liquidity in hand to pay of current liabilities immediately.
(Debt Service Coverage Ratio)DSCR Ratio: Net operating income/Total debt servicing; More than 1 looks good, otherwise it will be difficult for the company to repay the future loan installments.
Assets Turnover Ratio: Net Sales/Average Assets; Higher the better as it shows more efficiency of the business
Inventory Turnover: Cost of Goods Sold/Average inventory; Shows how many times the inventory has been cycled in one year, the more the better. The number of more cycles means that the stock is being cycled more bringing more sales and revenue for the company
Interest Coverage ratio: (EBIT) Earning before interest and taxes/Interest expenses. Any figure more than 1 meets the qualifying standards.
Receivable(Debtors) turnover: Net credit sales/Average Receivables, higher the better showing more efficiency by the company. If we divide 365 by this ratio, you will get the average time for realizing any credit sales. The increasing figures vouch for efficient realization of debtors
Creditors/Account Payable(Creditors) ratio: Net credit purchases/Average Creditors; If we divide 365 by this figure we will come to know how many days do a company takes to pay its creditors
Debt Equity Ratio: Total Liabilities/Total Share Equity, though more than 1 is not considered good this should be compared in comparison with the type of business and industry. Some high infrastructure like companies engaged in road transport, Air and other capital intensive companies need huge borrowings for running their business
Debt Ratios: Total Liabilities/Total Assets, Lower is the better
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Now let’s have a close look at the ratios which help the investors to arrive at a calculated and informed decision for putting their money in the stock markets:
(Price to Earning)PE ratio: Share Pice/EPS; It’s a measure of the company’s share price in comparison to earning per share. Though no benchmark fixed PE ratio of 10 to 15 is considered a good valuation.
(Price Earning to growth)PEG Ratio: PE ratio/EPS Growth; it gives a more clear picture than the PE ratio as it is linked to performance of the company.
(Return on Equity)ROE: Net Income/Shareholder’s equity x 100 indicates how much the shareholders equity is earning and the increasing figure means better working of the company. ROE value of 10 and above is considered good by the investors.
Price to Sales: Share Price/sales per share, compared with industry to find out whether the share is undervalued or overvalued.
Price to Book Value: Share Price/Book value of the share; if it comes to less than 1 means the stock is undervalued otherwise it’s a overvalued stock.
Profit Margin: Net Profit/Total Revenue x 100
Dividend Yield: Dividend Per-share/Share Price x 100, higher the better
Dividend Payout Ratio: Total Dividend paid/Net Income, Normally 30 to 40 % is better
(Return on Capital Employed)ROCE: Net Profit/Total capital employed; It’s better to have this figure increasing every year
(Earning per Share)EPS: Net Income/Total number of ordinary shares
(Return on Assets)ROA: Net Income/Total Assets x 100 indicates for every Rupee invested, how much income is generated by the company. Higher is the better
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Conclusion: I have tried to interpret Financial Statements from an investor as well as a lender’s perspectives. These are just a few tips which may help in arriving at the right decision by the concerned parties. Every ratio and information needs to be co-related and read in conjunction with other industry-wise data and future potential for all practical purposes.
Let’s embark upon the journey of dreaming with Penny shares and find out how beneficial it is to invest or trade in Penny stocks. As per the definition” Penny stocks are those that trade at a meager price, have very low market capitalization, are mostly illiquid, and trade on stock exchanges with a small volumes. In the Indian stock market context, any share trading at a price around Rs.10 is termed as a Penny Stock”.
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In the USA any stock trading at less than $1 is termed as a penny stock and going by the international standards, I will take any stock trading less than Rs.50/-as a penny stock.
From the very definition, Penny Stocks are high risk most affordable entities available in the stock market alluring the retail or first time investors into buying these cheap shares without going into the merits or demerits of such investments. Come on friends! Have a look at your portfolio and see how many penny shares are still lying in your account.
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some of you must be feeling on nine clouds after accumulating thousands of penny shares in your trading account. Spending a few thousand for buying these cheap stocks didn’t fluster your budget too. In all probability, You have started watching movement of these stocks on a business news channel or the stock trading platform regularly. Right!!
Recalling the achievements of stock market wizards, Sir Warren Buffet, Jhunjunwala, or Damanis, you must have been dreaming of accruing millions in your account for astronomical rise in the prices of these cheap stocks known as Penny Shares. Isn’t it right? I know you are agreeing with me though reluctantly!!
Now coming back to the penny shares, You can’t pick up any stock just because some news channels or experts have recommended the share. You must learn techniques by using your normal prudence for earning money by investing in these speculative stocks
Management: First and a foremost parameter which should be taken into consideration before venturing into this high-risk speculative activity is the management i.e the people associated in running the business of this company. What is the outlook and moral strength of these individuals, their past experience, and how the Industry thinks about them as a leader: A visionary/strong-willed and a person of proven prudence is more likely to navigate the business out of woods. How many of you will go with the Anil Ambani group of companies which are trading as Penny stocks these days. Look at the management of Vodafone Idea, NHPC, Trident, and imagine the future prospects of these companies?
Business Model: Next on priority is the company’s plan for earning profits. their products, marketing, expenses, and targetted customers. Most of the units fail when they start a business without finding a relevant niche, targetted clients, and unexpected expenses. Have a look at the business model of NHPC, a Mini Ratna company and, Vodafone Idea; they have excellent business models and great potential for growth in the future. Look at the Kingfisher model and Bisleri pop model. Both of these companies failed miserably due to unviable businesses. Do you agree?
Fundamentals: See if there is a sales/profit growth during the last three years. What is the position of Cash Flow and Free Cash Flow? Any company generating free cash flow can be trusted for future growth.
Debts: Is there any unpaid debts. Find out Debt. Equity ratio for the three years. is it decreasing or not?
EPS: Please see if there is an increasing trend in EPS
ROE: Return on Equity. Normally the ratio stands at 15% or above for good companies but you must try to find out whether it’s increasing over the years?
Thankfully, this entire information is available on the internet and can be accessed in a few minutes. The said data which is not beyond the comprehension of an ordinary investor must be co-related before clicking the “BUY” button on your trading platform.
Now coming to the harsh reality of Indian market conditions, we must acknowledge that most of the customers can’t identify themselves whether they are traders or investors in the stock market. It may be irritating to a few but I will certainly provide some space for the benefit of my readers to let them know the difference between the two.
Trader: Any customer who puts his money in the market for earning profits by selling or buying shares in a few minutes/hours or days taking advantage of volatility in the market caused due to Market moods/International news/Govt Policies/War-like situations or some good or bad news about the company. These type of customers are known as Traders.
Investor: Any customer who buys shares of a company and remains invested for a couple of months/years/decades earning the fruits of growth of the company through dividends/stock splits/bonuses is certainly an investor. He tides over the upheavals/turbulences and other market uncertainties by concentrating on the business model of the company and its periodical results. The investors belong to a rare breed of customers who never regret dealing in stock markets as the end result is always encouraging in their favor. They create wealth for themselves.
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Check Points and future course of action for the customers who prefer trading in these stocks:
Please don’t get tempted to buy penny shares shares when there is a sudden movement in the penny stocks. This could be due to some speculative news in the media or some vested interested players are jacking up the prices for preying on innocent retail investors. Control your emotions and inner instinct to react to each and every news.
Please log in to your trading account and find out how many penny stocks are you carrying in your account
Have you seen any appreciation in their value since the date of buying
If there is a considerable upward movement in these shares then keep tracking the performance of the company and retain these shares as they may help in creating good wealth for you in the distant future.
If the shares are lying dormant with virtually no movement or the prices have gone down further, then don’t think twice. Get rid of these stocks immediately and invest in some good stocks as suggested in my earlier post”Be your own advisor”
Invest in Penny shares only if, You have high risk appetite, can handle losses and are a seasoned investor. Strict NO for new entrants or low net worth individuals.
Always start your stock investing journey by chosing the Blue chip stocks in your portfolio. That will provide you a much needed confidence for continuing investing in this high yield investment option.
Always believe in investing in penny shares for longer horizons as all the millionaires or billionaires have shown patience and resilience in selecting the stocks and then giving their investments time to grow. You must remember that Titan, Lupin, Sesa Goa(Vedanta), Crisil didn’t rise to the current levels within months. Jhunjhunwala had to wait for decades to see his fortunes turning to billionaires.
Hi Friends, hopefully you are more enlightened and clear about the relevace and growth potential of Penny shares in your portfolio. Stay alert and take well informed decision only. Believe in yourself and earn money by investing in penny shares by learning the art of chosing the right ones by following the aforementioned guiding tips.
Have a great day!!
Disclaimer: The material and information contained on this website/Blog is for general purposes only. You should not rely upon the material or information on the website as a basis for making any business, legal or any other decisions. Any reliance you place on such material is strictly at your own risk and responsibility
Hey!! Feeling young at 60? I know you are surprised at your retirement transpiring too early but in reality, it’s time for your exit paving the way for others to take charge now!! Just relax and feel the pulse of my heart reverberating wishes on your well-deserved retirement. Some of you must be feeling more relaxed and secured having accomplished all your life goals in a phased manner. Intrusive thoughts and nervousness must be creeping in the minds of a few others at the prospects of their retirement.
This post is dedicated to you guys who could not plan their retirement during the early part of life for reasons beyond comprehension. Hope the subject will be absorbing for you to comprehend and follow to spruce up your re-tyred life.
Globally, all Financial Consultants recommend starting the planning of personal finances at the age of 25 to 30 years. Ideally, this is the age group when you should have started saving and planning for all your financial goals. However, in our country where an average Indian starts planning for retirement only after crossing the age of 50, you might be late but the game is not over yet. Maybe the retirement planning escaped your attention due to other priorities, social obligations or, living with your current lifestyle? You can’t retrieve those lost moments but certainly, you can spruce up your future with some purpose even now.
Hopefully, your perquisites like, PF/Gratuity/Leave Encashment and some other entitlements have already been processed by your employer. Your savings and receivable funds put together may heap up into a healthy corpus. Please see that all your debts are cleared before starting planning further. Don’t carry forward any such liability with you to avoid any untoward situation.
Further, the value of your money subject to inflation is likely to depreciate every year. The average inflation rate in India hovers around 6.5%, you need to earn interest or generate income on your money at least a net of 7% to neutralise the effect of this invisible enemy. You must ensure that this money is allocated to diverse securities/investments so that they continue producing passive income for you. Restrain yourself from spending lavishly on avoidable expenses.
By natural instinct, you are going to feel financially insecure after retirement. You may be tempted to keep maximum balances in your bank savings account as an emergency fund. Interest earning on such deposits is being 3% only, you may not be able to grow your funds as per your needs. There is every possibility of any friends/relative suddenly seeking financial help which you may not resist. In both cases, your risk and potential loss of money can’t be ruled out.
I will discuss the allocation of the money in the latter part of this post. Let’s find out the opportunities available for you to keep busy and earning portfolio income to supplement the limited resources.
The possibility of getting hired after retirement has always been remote but the prevailing pandemic conditions have made the task more difficult. Social distancing norms as prescribed by the administration worldwide are more inconvenient and painful for the senior citizens. The virus is more threatening for elderly people aged 60 years and above due to their weakening immunity. The chances of getting a good break look bleak under the given circumstances.
Working from Home has come as a blessing in disguise for many companies and individuals. Wherever feasible, the companies have allowed their workforce to work from Home making it a win-win situation for all. Why don’t you try the undernoted resources for keeping yourself busy and earning a bit while sitting safely at home?
Freelancer Jobs: Friends, some of you must have acquired expertise in Financial Markets, IT and Software, Computing, Data entry, Tuition work, Legal, content writing skills, or any other specialization working for more than 30 years. You can explore opportunities for getting freelance jobs sitting at your home.
There are hundreds of websites offering you freelance jobs. Some of these are, Upwork, Freelancer, Fiverr, Toptal, and Guru. You can register with these companies and start earning right away. No formal education is required as the only pre-requisite qualification is your talent and expertise.
The payments are secured and guaranteed as these websites take a cut out of your income. Earning may range from 5$ to 100$ per hour depending upon your proficiency, efficiency, and competence.
Stock Market: If you have prior experience of conducting the business of share trading in the stock market or you have enough patience and perseverance, you can also look for trading in the stock markets. This will not only keep you busy for a few hours daily but also help in generating a passive income. Intraday trading is beyond your scope and should not be undertaken. This product has been devised for proficient investors with more risk appetite and possessing professional skills.
However, you can identify a few stocks by using due diligence/normal prudence and go for positional trading. Positional trading allows leverage of a few days and you can decide your trade accordingly. This is a high yield lucrative business space if you can invest wisely after thorough research. Stock markets are not open on Saturdays and Sundays that allows you to trade for 20 days in a month.
Coming back to the management of your funds and life after retirement, you need to sit down and jot down the income and expenditure details accruing every month. There is no need to create an emergency fund as most of the Bank FDR’s or other investments can be encashed prematurely these days. You need only two months of living expenses and Rs.100,000/- for any incidental expenditure required to be incurred during the odd hours.
Since life expectancy has increased by more than 20 years, you need to know that health care is going to be the biggest issue now. Most employers have a group insurance scheme in force for their employees. You need to confirm whether this will continue after retirement or not. Health insurance is not only costly after 60 years of age but comes with lots of strings attached to it.
In case the existing insurance cover provided by the employer can’t be taken forward, you must identify a good health policy for you under family floater. Go for the plan which has positive reviews from the customers about the hassle-free settlement of claim cases backed up with the best customer service. No frivolous condition laid down by the issuing company be accepted in the Policy lest a genuine claim is declined in future.
Let me list a road map for you to manage your money with an eye on preserving your capital by generating enough passive income for the living expenses regularly:
SCSS(Senior Citizens Saving Scheme): With a sovereign guarantee, this scheme looks attractive for those retiring from active service. The Senior citizen’s savings scheme is open only to senior citizens aged 60 years and above. You need to open this account within one month of your retirement. The upper limit of deposit in this scheme per account is 15 lac but you can open more than one account also. Initially, any deposit made under this scheme matures after five years However, it can be renewed further for three years. The interest rate is decided every quarter but once invested, you get a fixed return for five years. The present rate of interest is 8.6% per annum. The interest amount is taxable under the Income Tax Act. However, You can get premature payment also.
Mutual Funds: Ordinarily Mutual Funds in India provide 10 to 13% returns on various MF schemes. You can consider this option by investing a portion of your funds in Mutuals Fund schemes where fund allocation is 100% in equity. This is risky but the most rewarding portfolio for investments on longer horizons. There is no lock-in period and you can exit as and when you need the funds. Just a few clicks on your computer and the proceeds get credited to your Bank account within a week’s time. There is no capital gain tax on MF’s investing in equity only. However, the maximum permissible amount of capital gain is Rs.100,000 only
Bank FDR: Though interest rates have come down considerably, the Bank FD still remains a choice for many as you get a special interest for senior citizens also. These instruments can be encashed online at any time. Gone are the days when you had to visit the Bank branch for canceling and encashment of your FD prematurely. The payment gets credited to your Bank account immediately. Except for Tax saving FDR which has a lock-in period, all other FD’s are easily payable before maturity.
POMIS(Post Office Monthly Income Scheme): Maximum of three joint account holders with 4.5 lac each for individuals is permissible in this scheme. The maximum limit for minor accounts is Rs. 3 Lakh. The minimum amount which can be invested is Rs. 1,500 for any individual. Interest is revised regularly on a quarterly basis. However, presently the post office is paying an interest rate of 7.8% to their customers. Interest is fully taxable but no TDS is deducted at source. Interest is credited to your post office savings account every month.
Tax-Free Bonds: Another safe and better yielding option for retired people is an investment in Tax-Free Bonds issued by the Govt. of India. These are long term securities offering interest rates as high as 8% and no tax is deductible at source as interest earnings are completely tax-free. Maturity ranges from 10 to 20 years as such it is advisable for those investors who can spare money for longer periods. You can buy these bonds through your Demat account or in physical form as per your convenience. These are risk-free investments due to sovereign guarantee,
Besides, all retiring people will appreciate that Income Tax liabilities are going to remain the same except for a small exemption for senior citizens in the country. Each and every penny is going to be accounted for payment of income tax. Although, there is no penalty for late payment of income tax by senior citizens in India you must ensure paying advance income tax out of your pension or other resources. Filing of ITR is mandatory for all senior citizens and must be taken care of for timely submission every year.
Happy reading friends! Stay Safe Stay Connected
Disclaimer: The material and information contained on this website/Blog is for general purposes only. You should not rely upon the material or information on the website as a basis for making any business, legal or any other decisions. Any reliance you place on such material is strictly at your own risk and responsibility
Amidst the ongoing vaccination drive in the USA and the UK, there comes a bad news about a new corona variant from the UK. Many countries have announced halting air traffic originating from the UK in the wake of a sudden spurt in corona cases and its new variant recently. The news has jolted the entire world once again. The EU was looking all set for starting vaccination after clearance of Pfizer corona vaccine today but the new development has forced them to stop ferry and air service connecting the UK immediately.
Indian govt has also decided that all flights originating from the UK to India shall be temporarily suspended till 31st December 2020. A large number of the Indian Companies derive their maximum revenue share from the UK . These companies may feel the pinch due to the latest developments in the UK. The prevailing events will certainly result in under-par performance during the remaining period of the current financial year for a few companies like TATA steels,Tata Motors, Motherson Sumi and a few others.
The increasing number of corona cases in the USA, a new variant in the UK, and talks going around about overvaluation of some companies made the Indian markets crash today? However, Sensex losing more than 1400 points and Nifty closing 400 points lower on Monday didn’t cause any jitters for the ongoing IPO of Antony waste Handling cell Ltd that was oversubscribed within a few hours of its opening on Monday. This IPO was not successful in its first attempt in March 2020 as investors showed little interest in the IPO due to prevailing pandemic conditions worldwide.
It looks like this year 2020 has more worries for us at the fag end of December. X-mass celebrations may see dampened spirits by keeping the already financially strained and exhausted families indoors. This year has already tested the endurance level of everyone around the globe. Any further escalation in the crisis will subject the already suffering people to another level of ferocity in the coming year.
Thankfully, the DOW and other international markets have not shown any nervousness following the Indian debacle and we should hope that the moods of investors will be kept upbeat with the impending Financial Stimulus efforts going on in the USA.
** The House of Representatives, USA has passed the $900 billion corona virus bill that will bring some respite to those who were waiting for the financial stimulus eagerly. It will certainly improve liquidity position and consumer spending may increase before closing of the year. We may see improved foot fall of customers in the coming few days bringing scome cheers for the small businesses also.
Stock markets are a lucrative but riskier mode of investment option worldwide where average returns come to a cool 12 to 14% for long term investments. Investors look forward to accessing valuable data that may help them in taking an informed decision for investment in securities. Whether , it’s developing or the developed economies, the mindset of every investor remains more or less the same. There could be differences in the temperament or risk appetite between the investors coming from diverse backgrounds but they are all attuned to booking profits by curtailing their losses.
Despite turbulance and volatile nature of markets, the number of customers entering stock markets keeps surging every year. It will be premature to imagine that these customers enter this era after pursuing formal training or crash courses in stock trading or investments. My experience suggests that only a few customers come prepared with complete information on the salient features of stock markets. Ever-increasing number of customers need sophisticated tools as well as expert guidance to transact business for earning profits with an eye on protecting their capital.
We find hundreds of blogs and an equal number of Videos every day trying to impress upon the investors with their half-cooked stale stories. Business TV/ Youtube Channels have their own agendas to maximize profits by streaming programs that get maximum viewership. They end up serving the interests of the companies rather than the investors. However, there are still some superb websites and Channels which provide well-researched data for you to utilize analyzing important statistics. Morning star, Screener, investing.com, yahoo finance, Google finance etc. are some of the sites that provide authentic updated data for brainstorming by the investors.
Though it’s not an easy call to predict the movement of markets or offer foolproof advice on trading in the stock markets I will try to communicate in a simple and amenable language for you to comprehend and apply the knowledge while conducting business in the stock market. You are not going to become a complete professional with this brief piece of enlightenment but you will feel more comfortable and confident to conduct stock market business more prudenly in the future.
Let’s categorize the customers to understand the gamut of stock market business in a better way. There are generally two types of customers engaged in buying and selling shares/securities with the sole aim of earning profits:
Traders: Any customer who enters the market for buying and selling of shares for earning profits by putting his money for some minutes/hours/days is known as a TRADER. He has nothing to do with the fundamentals of the company and acts only on any hot news about the company/Latest Govt.Policy/Political disturbances or any information that impacts the market movement. This is the riskiest type of stock market business as you may earn huge money in a few trades but likely to incur losses on some other occasions. Income from this type of activity is taxable under short term capital gain tax as applicable in the respective countries.
Investors: A tribe of customers who try to understand the company by following its past performance, management and, future projections by committing his money for a longer period of time is called INVESTOR. These types of customers are likely to earn big profits by remaining invested for longer horizons. Historical data proves wealth creation for those investors who stay invested for a period of 10 years or more. A large number of millionaires or billionaires worldwide have found their way to stardom through this route only. Income generated by the investors is taxable under long term capital gain tax as applicable in the respective countries.
Remember!! Be patient!! Today is not the last day of the stock market. Take a well-researched decision before jumping into the market. Please don’t get tempted for buying or selling without reassuring yourself about the timing and value of a stock. Any hasty decision will land you in trouble and the hard- earned money may slip out of your hands. Trade in high volume scrips initially and lower priced stocks should be avoided.
In the following table, I have tried to incorporate a few ratios/terms along with their relevance for your reference and understanding in an easier way. You can save this table and utilize the data in case of need. Once you have shortlisted a few stocks for trading or investment, you need to collect and correlate data with the given table for taking a final call on buying the stock.
Terminology/ Ratio
Formula
Benchmark
Relevance
Earnings per Share(EPS)
Net Income/Ordinary shares value
+ve
It should increase every year and any reverse trend must be analyzed properly. More the EPS(Earnings per Share) good for investors. In new companies like After pay, this may be negative also but you can see how this figure has been improving over the years.
Price to EPS (PE ratio)
Share Price/EPS
<15
In simple words, PE ratio is the value by which multiple of EPS, the share price of any company is trading in the market. For example, if the share price of any company is 120$ and EPS is 8$, then the PE ratio will be 120/8=15. Normally value less than 15 is considered good for investment. However, some good companies have high valuations and it will be prudent to compare the PE ratio with other companies of the same industry.
(Return on Equity) ROE
Net Income/Equity
>15
Value more than 15 is good for investment. Must compare this ratio for the past three quarters to have a clear picture of the company. The Increasing trend indicates the good health of the company even if the value is less than 15
(Return on capital employed) ROCE
Net Income/Total capital employed
>15
Value more than 15 is good for investment. Must compare this ratio for the past three quarters to have a clear picture of the company. The Increasing trend indicates good health of the company even if the value is less than 15
D/E Ratio
Debt/Equity
<1
D/E ratio is a calculation used to assess how much debt is being used to run a business compared to the equity of the business. valuation ranging from 1 to 2.5 is acceptable. For infrastructure companies, it could go beyond these figures
(Price to Book Value) P/B Ratio
Price/Book value
=1
Any value around 3 looks satisfactory for good companies. However, this ratio is much higher in well established companies. More value of this ratio indicates lesser amount of money available in case the company goes into liquidation
Dividend
Surplus Profits or reserves/total shares
As per the profit
A sum of money paid regularly by a company to its shareholders out of its profits is known as a dividend. Though all companies don’t pay dividends this adds to the value of shares.
Promoter’s Capital
Preferably more than 50%
50% and above
Refer shareholding pattern to see the %age of promoters capital and whether there is any pledging of shares by the promoters. Pledging of shares is not desireable. Have a look at the contribution in the share capital made by Mutual Funds and FIIs. Any such contribution is good for the investors.
Revenues or Sales
Must increase
Must increase
This is the figure which must increase every year for a robust healthy working of the company. Any decrease means there is a problem with the company management and study thoroughly before investing.
To illustrate further, the relevance of these data and terminology used in the above table, a live example of Colgate India Ltd one of the top consumer goods companies in the world is being shown hereinbelow. You will see by yourself, how a good company demonstrates strength in all the parameters and ratios. Please go through the data as shown below and try to connect with the table shown above. This will help you in arriving at the correct decisons while investing in the stock market.
COLGATE PALMOLIVE(INDIA) LTD:
Market Cap₹ 43,523 Cr.
Current Price₹ 1,600
High / Low₹ 1,630 / 1,065
Stock P/E : 49.7
Book Value: ₹ 60.0
Dividend Yield: 1.75 %
ROCE:: 67.4 %
ROE: 53.7 %
ROE(Return on Equity)
Return on Equity
10 Years:
65%
5 Years:
53%
3 Years:
51%
Last Year:
54%
Data: Courtesy Screener.in
Disclaimer: The material and information contained on this website/Blog is for general purposes only. You should not rely upon the material or information on the website as a basis for making any business, legal or any other decisions. Any reliance you place on such material is strictly at your own risk and responsibility
Friends, It may sound strange but the developed economies look averse to the more friendly environment for retail investors prevalent in the developing economies. There could be various reasons attributing to such apparent contrasting conditions. Maybe, the retail investors in developed countries have other priorities in place. There could be a lack of enthusiasm by the small investors or you can say there are virtually no small investors in the developed countries.
Though there can’t be any comparison with the USA, the most robust economy in the world but my effort is to showcase the procedures as visible from the layman’s perspective. Let’s discuss the situation prevalent in the two top democracies i.e India and the USA along with another developed economy Australia. All the three countries have a very effective regulatory system in place which takes care of stock markets functioning in their respective countries. we have regulatory bodies who take care of stock exchanges for safeguarding the interest of the investors. Regulatory bodies protect the interests of investors and traders by providing a healthy environment in the equity market. These are::
SEBI ( Securities Exchange Board of India): India
ASIC ( Australian Security and Investment Commission): Australia
SEC ( Securities and Exchange Commission) : USA
IPO/Float. Primary Market
Australia: IPO also known as Float in Australia is opened by companies for subscription but investing in stocks through IPO by the Retail Investors is a challenging job. Companies planning to raise capital through IPO’s tend to sell their entire stock to Institutional Investors/Stock Brokers for ensuring successful launching of the IPO. Some brokerage houses get more share from the companies while others are not so lucky. That makes a tricky exercise for retail investors to access the IPO process.
The interested retail investors subscribe to the issue by opening a broking account with a broking house i.e stockbroker. It depends on the whims and fancies of the stockbroker as to which investor he wants to allot the IPO and how many shares will be allotted to the investors. You are fortunate enough if your broker considers you a potential applicant for the IPO.
Photo by Jose Francisco Fernandez Saura on Pexels.com
There is one more route for the allotment of IPO in Australia. If you are already a customer of the company, you are likely to get an invitation from the CEO to participate in the IPO.. Otherwise, most of the public is left out of the IPO process in Australia and whatever the retail investor gets is not more than 10% and that too on a selective basis only. The retail investor remains in dark throughout the process.
USA: Almost on the same lines, all companies hire the services of investment Banks/Brokers for selling their shares ignoring the Retail Investors. Generally, a retail investor has to open a broker account with the brokerage house, send money in his account and wait for the allotment. You are fortunate if the broker considers you as a potential applicant and processes your application for allotment of shares.
Historically, the ratio of Institutional Investors to Retail Investors for the issue of shares is 90 to 10. The Investment Bankers team up to form syndicates with each Bank getting a share of IPO. The Banks/brokers generally prefer big Institutional investors, Mutual Funds, Pension Funds, Hedge Funds through a process called Roadshow. A roadshow is a series of presentations made in various locations leading up to an initial public offering (IPO). Investment Bankers/Underwriters make a sales pitch to potential investors before going public. Suddenly one day the retail investors come to know about the listing of the IPO and is forced to buy from the secondary market price that is normally very high for the initial few days.
India: The most transparent system of IPO allotment appears to exist in India as there are predecided numbers of shares reserved for all categories including retail investors. Date of application/Date of allotment/Date of Listing/Face Value of the Share/Premium if any, all these factors are predecided and available on the application form.
A retail investor can apply for a multiple numbers of lots in one application up to Rs.2 lac only. Normally 35% of total shares are reserved for Retail Investors. One important feature of the Indian IPO system is the application through ASBA(Applications Supported by Blocked Account) meaning no amount of money will be taken out of your Bank account till allotment. Your money always remains in your Bank account till you get a firm allotment of the shares. The successful applicants are drawn through a computer random process at the pre-decided date and the lucky ones get the allotment of shares in their Demat account again on the fixed date.
The scheduled listing of shares takes place on the fixed date as mentioned in the application form. The investor is in a position to book profit by selling the allotted shares immediately in the stock market. Those who were not lucky in the computerized draw, they can buy from the open market at the prevailing prices. The whole process is transparent like a mirror and does not take more than 15 days.
Friends, I will be happy to find feedback about the procedures as explained by me. You can correct me if you feel like it.
Hi Friends, We all understand that a Retail INVESTOR can’t tabulate and analyze each and every relevant information about any company before opting to buy shares from the stock market. In fact, he is always prompted by his inner instinct to put his hard-earned money in the stock market after observing a few trading sessions or hearing some hot news about the company. Sometimes a tip from the so-called experts or friends may lure him to try his luck by investing in the recommended scrips. Statistics prove that such investors end up losing money which keeps them away from this most efficient high yielding investment avenue in the future.
The Truth:
(1)Less than 10% of investors earn money from the stock markets but those who do are long time investors earning big returns
(2) Most Demat accounts opened by customers turn inactive after carrying out a few transactions in India
(3) More than 75% of Demat accounts are inactive as per the SEBI guidelines in India. The only reason of these abnormal figures could be customers losing money during the early few trades forcing them to leave the market. Strange!!
THE FACT: Only those investors earn big who show resilience and continued confidence by remaining invested in the stock market for longer periods of time.
Extracting observations from the experiences of successful investors and utilising my personal sweet/sour/bitter encounters over the past few years, I have tried to come up with a visibly foolproof technique of venturing into the stock market by small-time investors. Hope this will not only mitigate the risk of losses but help in ensuring good returns by investing wisely. This is going to be a simple exercise that does not require any calculator or assistance from your financial advisor or experts. Great!!
Please grab a pen and a piece of paper to scribble down some personal information while sipping tea/coffee or a fresh lemon juice sitting in a cozy relaxed environment. Don’t worry!! It’s not that personal. Be comfortable!!
Can you take me through your day’s journey by writing down the products you have used today. I am sure the list of products will appear somewhat like below:
I have tried to reorganize the list of your daily use products from Breakfast to Dinner in four tables as exhibited above. Simple! There is nothing techincal about it. You will agree that these items are more or less the same which are used by everybody around you in your neighbourhood. Please have a close look at the names of companies manufacturing these products or providing services to their customers through a network of outlets spread across the country..
Now coming to the companies manufacturing these daily use products or providing services, you will appreciate that these are established brands and market leaders in their respective categories. They have established brand value, continued patronage from their customers, ever-increasing sales, persistent dividends, increase in value and, a great future. Don’t you feel safe and privileged to be associated with the names of these big market leaders?
I will prompt you to visit the screener.in website and see for yourself how encouraging the results must be about these companies over the past few years. Please click: https://www.screener.in/ to find out information about any listed company without spending even a penny.
Another look at the shareholding pattern will make you more enlightened with the following information: Yes! You can google this information easily:
Promoter’s Contribution
Contribution of MF/Financial Institutions
Pledge of Shares if any by the promoters
Promoter’s confidence in their own company can be gauged from the shareholding pattern. Companies with promoters contribution of 50% and above without any incident of pledging their shares are considered a good bet for investment.
Similarly, those companies where Mutual Funds/Financial Institutions have considerable stake stand to gain the confidence of retail investors. The Mutual Fund Companies and Financial Institutions consider buying shares of any company after thorough scrutiny and future potential by the highly paid and qualified analysts/fund managers. Your task is made easier by the professionals working with these Funds as they have the responsibilty for safety and regular growth of investments received from their investors.
Are you feeling confident now? Come on! have a deep breath and find out the crucial information about the companies as suggested in the foregoing para. Enlighten yourself by spending a few minutes on the data and come out with a glow on your face. I know you are feeling a lot more informed and convincing to take an informed decision.
I will not recommend for you to rush and grab these shares with whatever money you have in your Bank account. You need to plan your investments by identifying 5 companies initially. Start investing through SIP only. Set aside Rs10000/- every month and start investing through SIP at least for five years. However depending upon availability of funds, you can identify, a few more stocks for investment after a few months. The growth could be smaller as compared to the more risky portfolio of small and medium cap companies but the experience will make you richer and more assured to consider investing in these companies in the future also.
Friends! Please note that volatility is the inherent nature of stock markets all over the world. All securities being traded in the stock market tend to fluctuate many times during the day. In case you keep tracking the market movements every minute, there is every possibility of getting tempted to exit or enter the market at the wrong time. This habit can trap a retail investor in selling or buying shares accruing avoidable losses.
Proffer your investments a breathing space to grow!!!
Warning:: Don’t keep watching your portfolio every hour/every day
Friends, I have tried to be very honest and straight on the subject but there could be some information that you might have anticipated but left out inadvertently. Please let me know to cover it in my next effort.
Pandemic conditions not only brought scary moments worldwide but also happened to provide some thrilling vistas to the new generation in India. With a regular stream of income dropping in their Bank accounts and virtually no outlet to spend freely, these people found trading in stock markets a very exciting idea. First-quarter ended on 30/06/2020 saw more than 2.4 million Demat accounts opened in the various Banks/DP’s by these customers!!
As a matter of fact, the number of Demat accounts increased substantially during the current Financial Year in India. These figures have jumped from 35.9 million on 31/03/2019 to 40.8 million as of 30/11/20, an unprecedented increase of 4.9 millions accounts in 8 months. A great performance by any yardstick. This year has witnessed phenomenal growth in the stock market operations with participation from a new set of customers. Every millennial was confined to the four walls of his house due to lockdown conditions enforced by the authorities starting in the month of March 20 and these enterprising professionals found trading in stocks an engaging medium for a few hours during the day. I am sure some of them will turn out to be serious investors in stock markets.
Let’s try to comprehend the entire process of Demat account opening in India
Central Depository: In India, there are two depositories that hold your shares/NCD’s/other Financial securities safely in the electronic form for you. These are the CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited. Their nature of business is the same but due to ever-increasing number of Demat accounts, CDSL came into being to share the workload of NSDL in 1999.
Depository Participants/Brokers: All Financial securities viz Shares/NCD/ etc are held in demat accounts opened by the customers in DP’s. The DP’s(Depository Participants) are a link between the customer and Depositories. These DP’s could be Banks and Financial Institutions as well.
Demat Account: Like we need a Bank account to keep our money safe, we need a demat account to keep our dematerialised Financial securites like shares/NCD’s safe
So, if you wish to trade in the Indian stock market i.e. buy and sell securities, firstly you need to have a Demat account.This demat account needs to be attached with your savings account for carrying out buy/sell transactions in the stock market.
Where to Open Demat Account:There are a large number of DP’s who are providing the job of a broker/DP efficiently in India. To quote a few; Zerodha,Angel Broking,5paisa, Upstock,IIFL are the leading DP’s right now. Most of the Private and Public Sector Banks are also functioning as Depository Participants/Brokers nowadays. I will recommend opening Demat account with your existing Bank only as they can easily provide complete package of services on a single platform
Eligibility:
Any Indian resident major/minor can open demat account in India. Though documents are required to be executed by the natural guardian in case of minor
NRI can also open demat account in India by producing his POA/POI/Bank documents but the passport must contain his birth place in India.
List of Documents required for opening Demat Accounts:
Identity Proof: PAN card, voter id, Aadhar card, Passport etc.
Address Proof: Aadhar card, bank statement, driving license, utility bills etc.
Bank account details
Procedure::
Account Opening Form: You need to fill up and submit the Demat account opening form along with necessary details either in person or online.
KYC Compliance: Adhere to (KYC) norms and submit the copies of KYC documents to the Depository Participant.
Verification: A representative of DP shall conduct in-person or online verification to cross-check the information furnished by you in the Demat account opening form.
Account number/Unique ID: Once the verification is completed, the DP shall provide you a Unique Account number or ID and Password. It normally takes 5 to 7 working days to open a Demat account.
Access your Online Demat Account: Your unique ID is the key to access your online Demat account. You are good to go! You are prompted to change your password while loging into your Demat account for the first time.
Maintenance Charges(AMC): There are annual charges for maintenance of Demat accounts. It varies from Bank to Bank ranging from Rs.100 to 800 per year. However, some brokers waive off this cost subject to their own terms and conditions
Brokerage: For every transaction you are charged a certain percent as brokerage which can be negotiated and reduced depending upon the quantum of operations in your Demat account. Some Banks have recently started a fixed amount of Rs.20 per transaction for intraday trading to attract more customers.
As per the SEBI guidelines, any account which has not been operated for more than 1 year is treated as Inactive in India. Incidentally, the country has 75% of Demat accounts as INACTIVE as of date. Not an encouraging situation at all. We hope this generation of new customers would find interest in stock investments and continue maintaining their accounts in good health.
Hi Friends, Do you feel like venturing into the most volatile and high yield world of investments. You guessed it right; I am talking of The Stock Markets. We all understand that stock markets are the only investment avenues that offer returns of more than 14% with long-term perspectives. Despite turbulences and tremours caused in the global economy over the past fifty years, the long term returns have never been short of 14%. If you have risk appetite and temperament to remain invested for more than five years then this is the place you can put your money in. for unexpected returns.
What are you waiting for? Login to your Bank account and start filling up the prescribed form for opening your Demat account right now.
Stock investing is one of the major investment options for achievement of life goals. This option helps not only in beating inflation by quite a big margin but makes it the most preferred medium for the creation of wealth worldwide. However the risk appetite dictates the nature of the role, a player is likely to play while targetting his goals.
A trader will play for intraday or positioning trades for quick gains but the investor would enter or exit as per his pre-defined short term,medium-term or long term preferences. Whereas volatility brings cheers to the intraday traders, it sometimes spells doom for investors who want to see their portfolio growing gradually. Let’s analyze how different category of investors react differently when there are signs of nervousness in the market
Retail Investors vs Big Investors:
Retail/Small investors always suffer during the times when there is a sudden crash in the market caused due to global reaction, local news, political instability or impending war-like conditions. The first reaction from these investors is always to exit the stocks immediately, losing a considerable amount fearing for a complete wash-out due to the prevailing conditions
We have seen this happening in the 1973 Oil Crisis, 2000 Dot Com Bubble, 2007-08 Financial Crisis and 2020 Coronavirus crisis. A mad rush of dumping shares by Retail investors in March 2020 brought the global markets crashing down to unprecedented levels.
Similarly, the Retail investors tend to buy when the markets are in a boom and every stock is moving up without any justified reasons. These investors end up spending more than the real value of shares. Every crash is followed by a big boom as we are witnessing nowadays. The DOW Jones and other leading markets have surged on the reports of Corona Vaccine from Pfizer and Moderna.
This is just opposite to what the bigger players prescribe,”Be fearful when others are greedy. Be greedy when others are fearful.” implying Always buy when everybody isselling out and sell when others are buying”
In both the circumstances as explained above, prudent investors will jump in the market when the markets are crashing. They will pick quality stocks at cheaper valuations and book profits by selling when the small investors are looking for costly buys due to a sudden spurt in the markets.
With low-risk appetite, Small/Retail investors should never resort to such practices as ups and down are the two basic features of stock markets. Ever-increasing curve is not considered good for the health of markets.
Have you found anybody trekking high mountains without a halt in their journey? They take rest and sometimes go back to follow a more convenient path for reaching the destination!! Never get perturbed by the big swing movements of the stock markets. Every stock has its own ups and down depending upon fundamentals and future prospectus.
Besides, the investors must curb their urge to undertake frequent changes in their portfolio as under;
Don’t keep on Changing/Stopping SIP frequently as you will lose the benefit of averaging the price
Don’t buy a large number of stocks in one sector
Don’t show a tendency to buy cheap stocks.
It is valuation and not the price of share which matters
Don’t keep tracking your portfolio daily.
Stop your instinct to entering or exiting the markets frequently.
Long Term Investors should be prudently circumspect and vigilant so that they are not manipulated by market chaos or fluctuations.. Investors should at all times keep their emotions in check and stick to their own risk profile. Investors must make a point to understand that they have decided to build wealth through the stock market with a clear vision and time horizon in mind.
Though it is impossible to time or tame the stock markets patience is the sole key for Retail investors. It is prudent to look at the long term perspective by ignoring the current situation as stock markets have given dividends to those who remain invested for longer time periods only.
MoneyXTension: Financial Freedom 