Posted By : Team SMI
TAKING STOCK OF THE STOCK MARKET HEALTH
It is a simple decision to buy a mobile. The mere thought of it makes us sit up and think seriously about the different options. There is frenzy, confusion, excitement and then our brain reasons…”I need to research”.
Then we begin with the next step…step into the world of researching. This new world is exciting and scary…the twists and turns that mark this world. Curiosity, which is a crucial aspect of human mind gets us moving. We begin researching various brands and prices and decide on the best mobile meeting our expectation and affordability. This is beauty and significance of research!
Stock Market: A confusing maze
Think about Indian stock market and the first point that comes to our mind is about its dynamic nature and confusing facets. It is tough to understand the Indian stock market. It is notorious for high volatility and influenced by many national and global factors. The world of stock market is like an inscrutable cave shrouded in mystery for many of us. But that cave holds the path to immense profits. How are we going to find our path to profits? It is not that simple, but not impossible either.
Research is the powerful and effective path to finding the stock market riches. The beauty of research is that it leads to new ideas. It is a wonderful endeavour to learn something new, and hone our problem solving and decision making skills.
The dynamic Indian stock market is ruled by 2 factors:
- Earning/Price ratio:
This is a crucial metric valuing a company’s prevailing share price relative to its current earning per share. The stock becomes undervalued if the price multiple of the share is much lower in comparison to the earnings of the company.
Emotions too play a pivotal role in the world of stock market. When investors enter the market, they feel optimistic about investing and confident that their risk will pay off in the long run. As the market goes up, emotions become increasingly positive until they peak with a feeling of euphoria when returns are highest.
Few crucial questions about the stock market which research answers:
- Before investing in a company’s stocks, how well do we understand the portfolio of the company?
- How do we arrive at the prospects of a company, and its growth trajectory?
- How do we get accurate information on the financial stability of the company?
- Where do we get the information about the history of the company?
- How does the Corporate Governance affect stock markets valuation?
- How do asset prices affect the financial sector?
- What is the impact of Corporate restructuring on stock market investments?
And many such questions arise in our mind. Now what is our next move?
REASEARCHING MAKES THE ROUGH RIDE EASIER
A well balanced research is pivotal to making gains in the stock market. There is no single method for investing success. Successful investors often adopt different investing strategies to create a portfolio based on the time horizon, risk tolerance and goals.
Delving into the world of Fundamental and technical analyses.
1. Fundamental Analysis:
This is the backbone of stock market research. Its goal is to determine whether a company’s future value is accurately reflected in its current stock price.
Fundamental analysis attempts to estimate the value of a particular stock based on a variety of factors, such as the current finances of the company and the prevailing economic environment. On the strength of Fundamental analysis, the investors can take the decision if the stock is to be a ‘hold’ or ‘sell’.
While understanding fundamentals, we realise that it spans a coverage of revenues profits, market share, management quality, relationship with the broader industry and economy
Fundamentals are categorised into two aspects
- Quantitative: These factors are measurable in numerical terms like industry growth, customers acquired, and financial statements.
- Qualitative: These factors include business model, corporate governance and competitive advantage of a company.
- Technical Analysis
Technical analysis encompasses the study of chart patterns and statistical figures to understand market trends and invest in the stocks accordingly. Through Technical analysis, the investors rely on stock charts to make their assessment of a company’s stock price movements, and its direction.
This also helps them to effectively determine the best time to enter into a new investment and/or to exit an existing position by identifying price trends and price targets, based on historical price movements
There is another interesting analysis called Sentiment Analysis which endeavours to analyse the markets from the perspective of attitudes and sentiments of investors. We are aware that the sentiments are one of the major drivers of stock prices. So this analysis is quite helpful in making good investment decisions.
Depending on our objective behind the investment, we may choose from a variety of stocks like equity stocks, value stocks and income stocks amongst many others
Research in the equity Mutual funds domain:
As we are aware, Equity fund is the mutual fund that invests mainly in stocks. A better insight into equity research will allow us to have better grasp over the fluctuations of the equity market and enable us to achieve our financial objectives.
Equity research is all about carrying out critical analysis to evaluate the fair value of stocks of any company. The crucial objective of the analysis here is to find out trends based on which decisions can be made to maximize returns from proposed investments.
The rich road of research is immensely promising, and transform us into bright, prudent, and informed investors in the stock markets.
Stock Market Institute in Bangalore endeavours to make Stock market education simple, and help students and professionals in gaining better insight into the stock market research strategies.