STOCK MARKET BASICS FOR COMPLETE BEGINNERS

WHY INVESTING IS IMPORTANT ?

 What is your goal in life ? To lead a happy and well settled life , right ? To
make that possible , you must attain Financial freedom. In the present scenario,
just earning money is not enough. Investing is important in order to achieve
financial independence.

Financial freedom

It is the state of having enough savings , investments and cash to lead a

trouble free life. It can be achieved by three ways :

● Earn - Increase your income through high paid jobs

● Save - Decrease your expenses and save money
● Invest - Make high return investments E.g. Stocks

So, it's never too late to save your money to attain financial
independence. Keep enough money in hand (roughly 3 to 12 months of salary )
as savings before you start investing .

Saving vs Savings

Saving refers to the act of spending less than the income i.e. reducing
expenses to meet future financial needs. Savings refer to the total amount of
funds that is reserved (saved). There is no scope for investment without
savings.Instead of spending your hard earned money , save it and then invest it
in a bank or buy stocks or any appreciable assets.

WHAT IS STOCK INVESTING?

The old ways of putting your savings in FD and watching it grow is not
going to take you near the pinnacle of wealth. With the growing rate of inflation
, if you don’t invest your savings smartly , you are going to be pushed far behind
the crowd . Over the long term, no other type of investment performs better. It
gives the highest returns.
 Stock Investing is the process of making your money work for you . It
helps to partner with the business of your interest by means of investment .
Once you buy shares of a company , you are actually buying partial ownership of
that company and you will be rewarded if they gain profits.
There are two ways you can make money through stocks :

1. Dividends ( It is the payment made by the companies out of their

profit on a regular basis to shareholders.)
2. Capital Gains or Capital Appreciation (It is the increase in the stock
price more than it’s purchase price )

The key to make money in the stock market is to stay long enough.One should
not be surprised with a losing trade. It is just a part of trading . It is the
cumulative profits that make a difference.

HOW TO START INVESTING IN STOCKS?

To invest in stocks , you need

1. A laptop with internet

2. Savings account ,Demat account and trading account . (To know more
details , click here )
3. Initial investment
4. Education ( just like any other profession , stock market requires deep
knowledge on the subject )
Some insights before you start investing :

● Stay invested for a long time and let the time and compounding work
magic .
● Do your research and Invest only in the companies you understand .
When you buy shares , you are actually buying partial ownership of the
company.
● Only use money you can afford to lose.
● Practice with small investments and then invest big.
● Invest your money across companies in multiple sectors and diversify
your risk.
● Invest consistently at regular intervals even if it’s a small amount.
● Learn to control your emotions like fear and greed.
● Learn to limit your losses.

WHY INVESTING EARLY IS IMPORTANT?

You must invest early in order to reap greater benefits. It allows you to
develop disciplined spending habits by cutting unnecessary expenses (like
impulse buying) . One must be financially disciplined enough to spend money
only after allocating money for saving . By this way , money will be spent less .

Investing early is important because it increases the return over time

through the principle of compounding . Compounding means the interest
earned over interest . An investment made in 20s would give higher returns
when compared to those in 50s.
 It's possible to get higher returns through the dollar-cost averaging
method . It means you can get higher returns on the overall portfolio than
individual investments . By this method , investors buy a fixed amount of shares
on a regular basis irrespective of the share price. So, when the share price is low
, more shares can be bought and vice versa.

The Three Golden Rules For All Investors Are

Invest early
Invest regularly
Invest for long term and not short term

HOW TO START INVESTING WITH LITTLE MONEY ?

You can start to invest by saving a small amount of money every month .
Start to invest early even with little money because it will multiply into many
folds with the compounding effect.

Cookie jar approach

Try to develop the habit of saving money by using cookie jar approach.
This is simple one : when you go to a cafe and order a coffee for 10.50$ , you
could even save the spare change in a cookie jar . It's an old fashioned way , but
nowadays apps for saving spare change have been developed .The money that is
saved little by little will become a huge sum and can be invested in some
investment options. The key to this approach is developing good habits and
discipline to save money every month consistently.
Using Savings account

Instead of using cookie jar , you can save money in a savings account
,which is a safe mode of investment . It is similar to the cookie jar approach , but
it's electronic equivalent and it provides interest .When you put money in a
savings account , it will be segregated from the checking account. If you have
saved enough money , you can even shift to high return investment vehicles.

Try Discount brokers

If you have little money to invest and you can't afford to pay much for
brokerage and minimum deposits , you can choose online brokerage firms like
zerodha. These online brokerage firms don't charge any monthly maintenance
fees (or other fees) . So , you can easily invest in the stock market with little
money through discount brokers or online brokerage firms .

THE 5 PERCENT RULE OF INVESTING

"Don't put all your eggs in one basket" is a popular phrase which implies that we
should not put all our money in a single investment avenue

Any investor should not allocate more than 5 percent of their investment to one
particular stock or securities. E.g. : An investor building his portfolio with 20
stocks with each contributing 5% .

E.g. Health care , gold , utilities etc . Each contributing to 55 or less

This rule helps to diversify the portfolio in a perfect manner and gives high
returns with reduced risk.
VARIOUS CATEGORIES OF STOCKS

Stocks can be grouped into multiple categories based on various parameters

like ownership rules,market capitalisation,dividend payments,risk and price
trends.

1. On the basis of ownership rules

When a company issues shares to the public it is either of the following

types

● Common stocks
● Preferred stocks
● Hybrid stocks

Common stocks

When you own a common stock , you own a share in the profit of the
company as well as the right to vote.Dividends are also paid to investors but are
not guaranteed and they are variable and lower when compared to preferred
stocks.It is the best for investors looking for long-term growth.

Preferred stocks

These are compared to bonds. The investors owning preferred stocks get
a fixed dividend and they are paid before the common shareholders in case of
bankruptcy.
It is best for investors looking for income.In most cases, there are no voting
rights.
Hybrid stocks

These are called convertible preferred shares that allow investors to

convert them to a fixed number of common stocks at a specified time.They may
not have voting rights.

2. On the basis of Market Capitalisation

Small cap stocks

These stocks have the smallest values in the market. These are stocks of
small companies that have a market capitalisation upto Rs.250cr. An investor
can gain profit by buying stocks in the initial period when it is at cheap value.

Mid cap stocks

These are the stocks of medium sized companies that have the market
capitalisation 250cr to 4,000cr . They include baby blue chip stocks that have
steady growth and good track record.They perform like Blue chip companies
but are smaller in size.

Large cap stocks

These are Blue chip stocks , that is ., stocks of the largest companies in
the market. They have the highest reserve of cash. The investors can get higher
dividends compared to others.

3. On the basis of dividend payments

Income stocks

These are also called Dividend yield or Dog stocks . These stocks
distribute higher dividends to their investors (higher income). These are mostly
the stocks of stable companies that distribute consistent dividends.Preferred
stocks are also called Income stocks.These are preferred by those in need of a
secondary source of income.
Growth stocks

These are the stocks of the companies that reinvest their earnings
instead of paying their dividends. This inturn will help the company to grow ,
ensuring long term growth potential. Hence, they are called Growth stocks.

4.On the basis of risk

Blue chip stocks

These are stocks of big companies that have well established business ,
and good track records. They are safe when compared to others since they have
lesser liabilities and they pay regular dividends.

Beta stocks

Beta is the term used to measure risk , by calculating volatility in share

price. Beta is either positive or negative. Positive means the stock is likely to
move in sync with the market.Negative means the stock is likely to move against
the market.Absolute value of besta matters the most.Higher the beta , higher
the volatility , higher the risk.

5. On the basis of price trends

Cyclical stocks

These stocks are moved by economic conditions. Their growth slows

down in a slow economy and booms in a booming economy. E.g. Automobile
companies. These are preferred in a Booming company.

Defensive stocks

These are stocks of the companies unmoved by economic conditions.E.g.

Food and Beverages , Drugs. These are preferred when the economy slows
down.
BASIC TERMINOLOGIES USED IN A STOCK QUOTE

In order to become a successful investor/trader , one must know 'how to

read a stock quote?' . In this article , we are going to learn about some of the
basic terminologies used in a stock quote.

What are stock quotes ?

A stock quote gives the details about stock price and other essential
information as quoted on an exchange. A stock quote gives adequate
information required to make a buy/sell decision. To gain profit in the stock
market , one must buy at low and sell at high. Stock market is all about timing .
Inorder to find the best opportunity to buy/sell , one must track stocks on a
regular basis and understand the historic trends.

Basic terminologies used

The stock table available in financial websites/newspapers has the

following elements :

Company name/symbol

At the top of the stock table , company name is mentioned along with a
ticker symbol. A ticker symbol ( stock symbol ) is an abbreviation used to
identify a publicly traded company on the stock market . It can be letters or
numbers or a combination of both.

52 week high and low ( or Range )

It’s the highest and lowest price of stock traded during the last 52 week
period but does not include previous trading day.

LTP (Last Traded Price ) or Last

 LTP is the price at which the last trade has been done for the day (9:00AM
to 3:30AM) . During market hours , LTP keeps fluctuating. LTP differs from
closing price. Because closing price is the volume weighted average of all the
trades that were done during the last 30min of the trading session and in some
cases at 3.30 to 3.45PM ( due to aftermarket corrections ) . Because of that the
closing price is not the same as LTP . Overall Percentage movement is
calculated on the basis of previous day closing.

Change (CHG)

For a stock quote , change is the difference between the current price and the
last trade of the previous day.

Market cap (Rs. Cr)

It is a measure of the total value of the company (market value) .

Market cap = Total shares outstanding * current price

It calculates the market capitalisation of the company after taking into account
the shares that are actively traded in the open market and are not held by
promoters or locked in for future use.

Free float market cap = total shares outstanding - Restricted shares * current
price

Book value (Rs.)

It represents the total worth of a company in terms of its financial statements.

It is the amount a company is worth after selling all its assets and paying off its
liabilities.

Book value = total Assets - total liabilities

Dividend

It is the amount of profit distributed by companies to its shareholders . The

dividend is also known as the dividend rate.

Dividend Yield (%)

It is represented in % and is calculated by dividing annual dividend by share

price.

Dividend yield % = Annual dividend / share price

Higher dividend yield does not imply attractive investment opportunities . It

may be due to decreased stock price.

Important Dividend dates

● Declaration / Announcement date : It is the date on which the company

announces the record date and payment date, in order to distribute
dividend to its investors.
● Ex-dividend date : It is set by the stock exchange as two days prior to
record date . As the settlement takes t+2 days , any stock purchase on or
after ex-div idend date would not be entitled to receive dividend. A stock
purchase made on or before the ex-dividend date is eligible to receive
dividend.
● Payment date : It is the date at which the dividend is paid to investors.
E.g. : suppose if the company announces the record date as 31 January ,
then the ex-dividend date will be 29 January . Any stock purchases on
29th January onwards will not be entitled to receive dividends.

Market lot

In terms of stocks , the market lot is the number of shares purchased in a

transaction. For stocks, the typical lot size is 100 shares . It is called a round lot
because it can be evenly divided by 100. Other examples of round lots are
300,1200 shares etc.

Face value or par value (Rs)

It is an arbitrary value assigned by the company and is used to calculate

the accounting value of a company's stock so that it can be used in the balance
sheet . In India , the majority of Indian companies have a face value of Rs.10 . It
is a fixed value and it is split sometimes to Rs.5 or Rs.2 to increase volatility by
the company.

Market Price

It is the price at which the stock sells at a given time. It usually fluctuates
throughout the day. It will rise if people want to buy more and it will fall if
people want to sell more.

Bid price, Ask price & quantity

Bid price is the price at which the buyer is ready to buy a stock or
commodity. Ask price is the price at which the seller is ready to sell a stock or
commodity. Quantity is the total number of shares that are bought or sold in
the stock market.

COMPARISON BETWEEN BSE AND NSE

Stock exchange is the place where securities are bought and sold , with
the help of brokers. It is an important indicator of the country’s financial
strength i.e. economy .

In India, there are two major stock exchanges , Bombay Stock

Exchange(BSE) and National stock exchange (NSE)

BSE (BOMBAY STOCK EXCHANGE )

 It is the oldest stock exchange in Asia , which was established in 1875.

The index of BSE is called Sensex and it was introduced in 1986 . Sensex is
calculated based on top 30 trading companies in more than 10 sectors.

In 1995 , BOLT ( BSE online trading system ) was started. It provides

various services like depository services ( through CDSL) ,risk management etc.

NSE (NATIONAL STOCK EXCHANGE)

It was established in the year 1992 and it is younger when compared to

BSE . It introduced an advanced electronic trading system which overcomes the
difficulties of paper-based settlement systems.

The index of NSE is called Nifty and it was introduced by the National
Stock Exchange in 1995. Nifty is the abbreviation of National Stock Exchange 50
and it is calculated based on top 50 trading companies in various sectors.

In 1995, National Securities Depository Limited (NSDL) was formed to

provide depository services to the investors.

Other stock exchanges in India

● Calcutta Stock Exchange Ltd.

● India International Exchange
● Metropolitan Stock Exchange of India Ltd.

ROLE OF SEBI IN STOCK MARKET

The Securities and Exchange Board of India (SEBI) is the regulator for the
securities market in India . It was established in 1988 to prevent fraudulent
activities in the stock market and to protect the interest of investors.
 Let’s have a look at the role of SEBI in stock market in detail :

Purpose of SEBI

SEBI was established to prevent malpractices in the stock market and it

protects three groups :

1. Issuers: SEBI enables issuers to raise funds efficiently for their needs
through the stock market.
2. Intermediaries: SEBI regulates the working of intermediaries by providing
guidelines and strict regulations, thus providing them a competitive
market.
3. Investors: SEBI protects the investors by enabling transparency in
information.

Power of SEBI

SEBI has 3 main powers

● Quasi-Judicial
To deliver judgements related to fraudulent practices in the securities
market
● Quasi-Executive
To implement judgements and regulations and to take legal action against
the violators.
● Quasi-Legislative
To frame rules and regulations to protect the interests of the investors.

Functions of SEBI

● SEBI makes sure that issues of IPO (Initial Public Offerings) and FPO
(Follow Public Offerings ) take place in a transparent way .
● SEBI protects the interests of investors and ensures that they don’t
become victims of fraudulent activities.
 ● SEBI monitors every activity of financial intermediaries(Brokers,
Sub-brokers etc) to ensure that all the market transactions are secure.
● It prohibits inner trade in securities.
● It monitors substantial acquisition of shares and take-over of companies.

MAJOR INDICES IN THE INDIAN STOCK MARKET

A stock market index is a statistical measure that shows changes

happening in the stock market.Let’s have a look at the major indices in the
Indian stock market .

In order to buy/sell securities in the stock market , they must first get
enlisted in a stock exchange.

Major stock exchanges in India are :

1. Bombay Stock Exchange (BSE)

2. National Stock Exchange (NSE)

Hundreds of companies are listed on the exchanges and their indices are
calculated based on their top performing companies .

Stock market indices like NIFTY 50 and SENSEX belong to NSE and BSE
respectively. They are calculated based on the prices of the top companies
listed on their exchanges. They are the indicators of the performance of
companies listed on their respective stock exchanges.As the stocks with an
index change value , the index value changes.

MAJOR STOCK MARKET INDICES IN INDIA

● Benchmark Indices : NSE Nifty ,BSE Sensex

 ● Broad-based Indices : Nifty 50, BSE 100
● Indices based on Market capitalisation : BSE small-cap , BSE mid-cap
● Sectoral Indices : Nifty FMCG , CNX IT

Sensex Calculation

Sensex comprises 30 large companies from various sectors.Sensex is calculated

using the free float market capitalisation method. Free float refers to the
number of shares available (free) for trading.

Nifty Calculation

Nifty is also calculated in a similar way.However , Nifty is more broad based as it

comprises 50 stocks , whereas sensex comprises 30 stocks .

Importance Of Indices

Stock market indices are an essential component for making trading easy for
the general public.

1.To Group companies

Stock market indices help in grouping the companies and hence investors will
be able to identify stocks that are top performing .

● Nifty 50 S&P is a collection of top performing 50 stocks

● BSE Sensex is a collection of top performing 30 stocks
● S&P BSE 100 is a collection of top performing100 stocks
● S&P BSE 500 is a collection of top performing 500 stocks.

2.To analyse market performance

Stock market indices help to access the performance of the stocks. If a
collection of top companies is showing an uptrend or downtrend, it simply
implies how the stock market is performing.

We can find answers for many questions like , “Is the stock performing better
than other companies in the same sector?’ , ‘Is the stock performing better than
the benchmark index?’ etc.

3.Reflects Investor Mindset

If there is a recession or a pandemic situation prevailing in the country , it will

be reflected in the stock market indices. Due to job loss and reduced production
in the companies ,investors will no longer invest in the stock market and it will
affect the indices value.

PRIMARY MARKET

• The primary market provides the channel for sale of new securities.
Primary market provides opportunity to issuers of securities; Government as
well as corporate to raise resources to meet their requirements of investment
and/or discharge some obligation.
• They may issue the securities at face value, or at a discount/premium
and these securities may take a variety of forms such as equity, debt etc. They
may issue the securities in domestic market and/or international market

SECONDARY MARKET

• Secondary market refers to a market where securities are traded after being
initially offered to the public in the primary market and/or listed on the Stock
Exchange. Majority of the trading is done in the secondary market. Secondary
market comprises of equity markets and the debt markets
• Difference between Primary and Secondary Market is 􏰀In Primary Market
securities are offered to public for
subscription for the purpose of raising capital or fund
􏰀Secondary Market is an equity trading venue in which already
existing/pre-issued securities are traded among investors.

IPO

● A private company turns into a public company by issuing shares to the

public . This public share issuance helps in raising funds for the company.

● The company which offers its share is known as an ‘issuer’ .

● The companies must meet certain requirements by exchanges and SEC to

issue shares to the public through IPO.

● Underwriters will choose the exchange in which the shares will be issued
and traded.

● IPO price is based on the stock valuation using fundamental techniques.

The most common technique is DCF ( Discounted Cash Flow ).

● As a private company , they will have only few investors like founders ,
family and friends etc.

● Once it turns into a public company , the private share ownership turns
into public share ownership.
 ● The transition from private to public company is the right time to make
money for private investors.

● They can either hold on to the shares or sell a portion or all of them.

● A public company can raise money in future through secondary offerings.

● Secondary offering is the sale of new or closely held shares by a public

company after it’s IPO.

● There are two types of secondary offerings

1. Non-Dilutive Secondary Offering
In this share held by private shareholders ( Directors , other
insiders ) are offered . Already existing shares are not diluted
because no new shares are created.
2. Dilutive Secondary Offering
In this , new shares are created and offered onto the market
, thus diluting existing shares. It is also known as
follow-on-offering . It increases the share float ( Number of
shares available for trading ) for increasing share sales.

It usually results in drop in stock price due to the dilution of per-share

earnings . But markets may have a positive effect on secondary offerings.

INVESTING IN IPO

While investing in an IPO, it is difficult to analyse the fundamentals and

technicals of a company . The main source of information will be company
prospectus which is available as soon as the company files it’s S-1 Registration.
 Successful IPOs are supported by big Investment banks that have the
ability to promote a new issue well.

Factors to consider :
● Company insiders may rush to sell their shares after the expiration of the
lock up period .(During this period, the insiders are prohibited from
selling their shares),which results in excess supply leading to reduced
stock price.
● The IPO stock may be resold in the first few days to earn a quick profit.
● Suppose if a parent company wants to know about the performance of a
particular division of the company.It enlist it as a stand alone company
and issue shares to the public.
● All the revenues and expenses of the applicable division are separated
from the parent company’s financial statements.
● Investors might receive dividends based on the performance of the
division regardless of the overall performance of the company.
● One main risk associated with this is an investor may not be able to make
money if the division is performing poorly though the parent company is
doing well.
● Even struggling companies will issue tracking stocks. So one must be
very careful while investing in tracking stocks.

BENEFITS OF BUYING STOCKS :

Dividends:
Similarly to a stock split, dividends are voted on by the company’s Board of
Directors. A dividend is a distribution of earnings made by public-listed
companies to their share holder. It is most often in the form of cash, but can
also be made in additional shares of stock.
Do all stocks issue dividends?
No – Dividends are mostly issued by established companies, with a long
track record of success and profitability. Companies that are growing are more
likely to invest their extra cash back into the company for further development
rather than issuing that cash to shareholders.

What does Yield mean for a stock?

A stock’s yield is the percentage of dividend as a portion of the total price
of the stock. If a stock trading at $100 per share issues a $1 dividend quarterly,
then it will have a 4% yield.

Where do my dividends go after I receive them?

Dividends are most often paid to cash in your account or reinvested
directly into the stock or fund.

Stock Splits:
A stock split is voted on by a company’s Board of Directors to change the
number of shares of a stock that are outstanding. There are two types of splits –
a traditional stock split, where the number of shares goes up and the per share
price goes down, and a reverse stock split, where the number of shares goes
down and the per share price goes up.

How do stock splits work?

Let’s say you and your three friends are sharing a pizza with eight total
slices. Each of you will get two large slices of pizza. If you cut each of the slices
in half, the pizza will still be the same total size and each of you will have the
same amount of pizza, but you will now have four smaller slices instead of two
large slices.
 If you own ten shares in a company with a share price of $1,000 per
share, and they announce a 5:1 split, the per share price will decrease to $200
per share, but you will now have fifty shares instead of ten.

Does a stock split affect the value of my investment?

The short answer is no. However, some analysts believe that investors
(especially smaller or “retail” investors) are more likely to purchase a stock with
a share price of $20 than $200. As a result, it is possible that a 10:1 split from
$200 could cause increased buying demand. However, as some investment
companies are now allowing for the purchase of fractional shares, this is less
applicable today. Many retail investors can now purchase half a share if they
cannot afford a full share.

Stock Buybacks:
A buyback is exactly as it sounds – it is when a company purchases back
its own shares from the market. Similarly to dividends, buybacks are funded by
extra cash on hand from company earnings. It reduces the total number of
shares outstanding, which will increase the ownership percentage of each
investor. They most often occur when companies believe that their share price
is too cheap on the open market.

How do buybacks work?

If an investor has 100 shares of a company with 10,000 total shares
outstanding, they will own 1% of the company. If that company buys back 1,000
shares with extra cash on hand, suddenly there will only be 9,000 shares
outstanding. However, the investor will still own 100 shares in the company,
meaning that their stake has increased to 1.11% (100 out of 9,000).

What is a bonus share issue ? why do companies offer bonus shares?

 Bonus shares are free shares given to shareholders of the company.
Bonus shares do not involve cash outflow from the company and are issued out
of the company’s reserves. The net worth of the company does not change
post-issue of bonus shares as the amount that leaves the reserves ends up
under equity capital.

Some investors hold on to these bonus shares in order to take advantage

of compounding, while others consider bonus shares as dividend and encash it
immediately on receipt.

Bonus can be allotted in any ratio of the existing shareholding as decided

by the board. Post the record date, the share price of the company is adjusted
for the increased capital.

Thus, if a company is trading at Rs 200 just before the record date for a 1:1
bonus, the share price post the record date will be Rs 100. That is because the
equity capital of the company may have doubled but as the value (read market
capitalisation) of the company will not change, the price gets adjusted to reflect
the same
HOW TO SELECT STOCKS FOR LONG-TERM INVESTMENT USING
SCREENER.IN?

For Stock market beginners, screener.in is a gold mine . It will help you to
screen stocks based on your needs.It helps to analyse fundamentals of stocks
before making any investment decision.

BASIC DETAILS ABOUT THE COMPANY

Before you invest in a company , you must know a few basic details about the
company . These includes

Chief Executive Officer (CEO)

Business Model ( Strategy used by the company to increase
profits)
SWOT Analysis (Strength,Weakness,Opportunities and Threats)
Competitive Advantage over its competitors (or Economic MOAT)
Future prospects (future plans that will make the company sustain
in the market)

BASIC FINANCIAL DATA OF THE COMPANY

● Revenue :Total amount of money earned by the company by selling its

products.

● Net Income :Total amount of earnings left after deducting taxes and some
other expenses.

Net income = Total revenue or sales – Expenses and taxes

● Profit Margin (Net profit margin) : It is the percentage of profits obtained

from total sales.

Net profit margin = Net income / Total sales

 ● Debt-to-Equity Ratio : It compares the debt of the company with its
shareholders holdings (i.e. equity) . The lower the debt-equity ratio, the
better.
● Earnings Per share (EPS) : It is used to measure the profitability of a
company . EPS= Net income/Total number of outstanding shares
● Price-to-Earnings Ratio (P/E)

It is used to find out whether the stock is overvalued or

undervalued. It compares the price of the stock with the earnings
per share.If the PE ratio is less , then the stock is available at a low
price .If PE ratio is high , it means that the stock is overpriced.

P/E ratio = Stock price / EPS

● ROE ( RETURN ON EQUITY)

○ It measures how much profit the company is making out of the
shareholders holdings (i.e. equity).

While we are selecting stocks for investment , what kind of criteria we will
have in our mind ?

-> It should be safe ( well established companies - blue chip companies - large
cap companies

->Debt must be very low or zero debt

-> Undervalued stocks ( bargain price)

-> Want to get some benefit (high dividend paying stocks )

->Affordable (within the budget )

How to find small-cap, mid-cap, and large-cap companies?

Now we are going to use market capitalization to find small-cap, mid-cap and
large-cap companies here.

Market capitalization: It refers the total market value of a company’s

outstanding shares. It is calculated by multiplying a company’s outstanding
shares with the current market price of one share

Small cap companies: Market capitalization < 8,500 Cr

Mid cap companies: Market cap- between 8,500 Cr and 28,000 Cr
Large cap companies: Market cap > 28,000 Cr

Can you guess the query to find the list of companies greater than a specific
market cap, say Rs 10,000 Cr?
Yes, here’s the answer:
Market capitalization > 10000

How to find penny stocks ?

Penny stocks are the companies with a very small market share price. Typically,
the share price of these companies is less than Rs 10. Further, they also have a
small market capitalization (below 100 crores).

Can you guess the query to find the list of penny stocks ?
Current price < 10 AND
Market capitalization < 100
How to find debt-free companies?

If you are investing in a company for the long-term, make sure that it’s
debt-free. Or at least that it doesn’t have more debts than its asset. The
profitability and growth of a company are highly affected if it has a huge debt.
To find the debt-free companies you can use the ‘debt to equity’ ratio.

If the debt to equity ratio is equal to zero, it means that the companies are
basically debt-free. If the debt to equity is equal to 1, it means that the debt is
equal to equity.

We are going to use debt to equity = 0 to find the debt-free companies.

(However, feel free to use debt to equity < 0.5 to find the list of companies with
low debts.)

How to find debt-free large-cap companies?

To find large-cap debt-free companies (blue chips), you just have to write a
simple 2-line query given below:
Market capitalization > 50000 AND
Debt to equity ratio = 0

How to find low PE stocks?

Price-to-Earnings Ratio (P/E)

P/E ratio = Stock price / EPS

It is used to find out whether the stock is overvalued or undervalued. It
compares the price of the stock with the earnings per share.If the PE ratio is
less , then the stock is available at a low price .If PE ratio is high , it means that
the stock is overpriced.

PEs below 20 may provide good investment opportunities; lower the PE below
20, more attractive the investment potential

But it is sector specific , if some sector is going rapidly like IT sector , then the
top companies would be having PE > 20

So ideally , the EPS of a company must be lower than the other companies in
the same industry.

How to find high dividend stocks?

To find the list of high dividend stocks, you can use dividend yield in the query.
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.

if you want to find the list of all the companies whose dividend yield is greater
than 4%, you can write the following query:
Dividend yield > 4

How to find companies between a specific price range?

You can also use the Screener’s query builder to find the list of all the stocks
within a specific price range. For example, if you want to find the list of all the
companies between Rs 80 to 100, you can write the following query:
Current price > 80 AND
Current price < 100
Important ratios :

Current ratio ( >2 is good ) : useful in helping you measure liquidity.

Quick ratio( >1 is good ) ; It represents a company's ability to pay current

liabilities with assets that can be converted to cash quickly.

Return on equity > 18% :It measures profitability and how effectively a company
uses shareholder money to make a profit.The higher the ROE, the better the
company is at generating profits using shareholder equity.

Sample Query

You can create your own screen based on your needs.

Now let’s assume you are looking for long-term investment and you want stocks
which are less risky and give stable returns.
(Let’s assume you are looking for stocks with Rs.300 price range)

You can try out this sample query :

Market capitalisation >30000 AND
Debt equity ratio <1 AND
EPS>20 AND
Price to earning ratio <20 AND
Dividend yield >4 AND
Return on Equity >25 AND
Current price <300
Some Tips To Use Screener.In

1. When you are building a query for the first time , try to run each and
every line of query before running it as a whole. It is just to avoid errors.
2. Add AND in between each query.
3. Suppose if there is no result for a particular query , try to reduce the
range . Example : For Dividend yield >4 , if there is no result ,then try to
reduce it to 3 and run the query.

LEARN ESSENTIALS ON HOW TO BUY STOCKS

To start investing in stocks , you must know some essentials on how to

get started with buying stocks . you must know about the brokers or
intermediaries,types of accounts like demat and trading accounts , types of
orders etc.
You must know orders are placed,how transactions are carried
out,taxation in the stock market,share market timings,and also about rules and
regulations etc.

STOCK BROKER

Investors can buy or sell shares through brokers . One needs to have a
brokerage account with any of the broking firms like ICICI Direct , Zerodha,
HDFC Securities etc. these can be a discount broker or a service broker.

A stock broker is a registered member of the stock exchange and are

given permission to directly buy/sell shares on behalf of its clients. They charge
a commission for their service.
DISCOUNT BROKER

A discount broker carries out trading instructions of the investor at a

reduced commission rate. It is suitable for self-directed traders and investors. It
does not provide Investment advice or analysis.
Most discount brokers operate through online platform.They are also
called as flat free brokers / Budget brokers.
E.g. Zerodha is the largest discount in India.
5Paisa,Upstox,Prostocks,RKSV,TradeSmartOnline etc.are the other discount
brokers in India .They offer flat fee on each trade executed.It is usually 0.01% to
Rs.20/trade .

FULL SERVICE BROKER

A Full service broker offers various investing options for investors like
IPO’s , Mutual Funds,Insurance etc. They offer analysis and advice on
investment. These are the traditional brokers.Most of the stock brokers are full
service brokers.They charge commission in percentage terms of each trade
executed. It ranges between 0.3 to 0.7%.

E.g. If you want to buy stocks worth Rs.1,00,000 , then you have to pay a
brokerage of Rs.500 for a full service broker (0.5% commission) whereas a
discount broker will charge a flat fee of Rs.20.

If you buy and sell, then the complete transaction will take Rs.1000 . For a
discount broker , it’s only Rs.40.

OPENING OF ACCOUNTS

For stock investing , you need a Bank account , a Trading account and Demat
account.
DEMAT ACCOUNT ( Dematerialised Account )

It is used to hold shares and securities in electronic format. A depository

is where the securities are stored in electronic format. There are 2 depositories
in India.

1. NSDL ( National Securities Depository Limited)

2. CDSL ( Central Depository Services Limited)

In India, free demat account service is offered by depositories ( NSDL /

CDSL ) through Depository participant (DP) or intermediaries . Anybody who
wants to trade should open a demat account with a depository participant.

During trading, shares are held in demat accounts . Along with shares,
other securities (IPO’s,bonds etc) can also be held in digital form.

Dematerialisation
It is the process of conversion of physical share certificates into
electronic form so that it is easy to maintain.
Rematerialisation
It is the process of conversion of electronic securities into physical
securities.

TRADING ACCOUNT

It is where buy or sell orders are placed by the investor. It is held by a

financial institution and managed by an Investment dealer . It runs a trading
strategy for the investor.

Types of Trading accounts

● Cash Accounts
 ● Margin Accounts

MARGIN TRADING ACCOUNT

Brokerage firms offer a line of credit ( or margin ) to purchase additional
stock . It’s like borrowing money for interest. It allows you to get more profit
but also it’s risky.

CASH TRADING ACCOUNT

There is no line of credit for trading. You can only trade / invest with the
money / cash in your account.

SETTLEMENT PERIOD
Depending on the brokerage firms , the settlement period varies from
Transaction plus one or T-1 , Transaction plus Two or T-2 , Transaction plus
Three or T-3.
If you buy a stock on Tuesday , T-3 means the whole thing is settled on
Friday.

ORDERS

In order to buy or sell shares , specific information or order type has to

be mentioned to the broker. For that purpose , every investor must have
knowledge about orders and its types.
Buy orders :
The order placed when you expect a rise in share price.

Sell orders :
The order placed when you expect a decline in share price or other reasons.
 Apart from Buy orders and sell orders ,One must be aware of other order
types as well .

TYPES OF ORDERS

Market orders

It is the most basic order type , It is the order to buy or sell at the current
market price. It is executed ASAP ( i.e. immediately ) . One should understand
that the last traded price is not necessarily the price at which the market order
will be executed.

Limit orders

It is the order to buy or sell at a specific price or better. It is valid only for
a particular time and gets cancelled if the order is not executed.
It does not guarantee an execution. It is just like automating our trading .
We need not keep a tab on the stock trends every minute. When the pre-set
price is met , order is executed or else it gets cancelled .

AMO ( AFTER MARKET ORDER)

3:30PM to 4:00PM is for brokers and 4:00PM to 9:00AM is AMO (After

Market Order).Orders that are placed after AMO will be executed after
9:15AM.It’s possible to place trade orders for the next day even after market
hours , through AMO .

On weekends and trading holidays , AMO’s can be placed at any time.

During working days , AMO’s for the equity market can be placed from 3:45PM
to 8:57AM ( NSE) and 3:45 PM to 8:59AM (BSE ).If a company has lots of AMO,
Demand increases and share price also increases.

1. If the previous day close of a share is Rs.1245 and today’s opening

price is Rs.1250 . And the gap is called the Gap up opening .
 2. If the previous day close of a share is Rs.1250 and today’s opening
price is Rs.1245 . And the gap is called the Gap down opening .
3. If the previous day close of a share is Rs.1250 and today’s opening
price is Rs.1250 ,then there is no gap and it is mentioned as unchanged
in the stock quote. E.g. 1250(unch)

SHARE MARKET TIMINGS IN INDIA

Investing in stocks is all about time and hence it’s essential to know about
the share market timings. Share market timings are different for each country.
In India , share market timing is from 9.15am to 3.30pm (Monday to Friday).

One must be aware of stock market holidays to make money at the right
time. On Diwali , there is a special session called Muhurat session for trading
every year.

Pre-Open Session

Pre market trading occurs before the regular trading hours begin
.Pre-open market sessions are from 9.00AM for both NSE and BSE. Pre market
trading is used to try to be ahead of market reactions to breaking news and
earnings announcements of companies etc.

Pre-opening sessions are used to absorb volatility in the market and to stabilise
fluctuations. There will be lots of buy and sell orders and they will be matched
and the market will be stabilised.

Share Market Opening/Closing Time :

1. Normal / Limited Physical Market : Open : 09:15 hrs

2. Normal /Limited Physical Market : Close : 15 :30 hrs
The 15-min Pre open session consists of 3 slots

● 9:00 AM – 9:08 AM – Order collection Period

Orders can be modified or cancelled during this period.

● 9:08 AM – 9:12 AM – Order Matching Period and Order confirmation

period

Modification / cancellation of orders cannot be done.

● 9:12 AM – 9:15AM – Buffer Period

It facilitates the transition from pre-open market to normal market session.

BASIC RULES OF STOCK INVESTING

1. Diversify risk

Even great companies with excellent fundamentals and valuation will

have a bad year . So don't invest all your money in one stock. You may not be
lucky all the time , so generate a less risky portfolio and be happy with
consistent returns over long returns .

Diversify your risk by investing not more than 5% or 1/20thof the value of
your portfolio in any one stock. E.g. If you have Rs. 1,00,000 , invest no more
than Rs. 5000 in any one stock. Invest in stocks from different sectors. E.g.
Don't invest in 20 banks.

Any company may perform slower in the short run. So invest money you
don't need for the next five years.

2. Analyse Investor profile

Know the investor profile before making investment. Analyse Risk

capacity , Risk tolerance , Portfolio amount , Time of withdrawal of money . By
analysing all that , you can decide whether to choose high dividend stocks or
growth stocks and large cap or mid cap or small cap stocks .

3. Analyse Fundamentals

The share price of a company can be derived by using fundamentals .By

doing some research , it's possible to find the expected future growth rate of
sales and profit of a company.

4. Target ' Buy' and Target 'Sell'

Have a target ' Buy' and a target 'Sell' and keep the record of all the
Investment details. One can find the potential value of a stock and decide
whether it's worth buying at that price.

One can find the target price of stock by analysing the future growth
potential. You always need an exit strategy . If the stocks are priced high ,
remove them from your portfolio.
5. Analyse Company's Earnings Report

Every company releases their earnings reports every quarter . In that ,

they publish their sales and profit in that Quarter and also the expected growth
in the next Quarter and in some cases next year.

With that ,we can reassess our purchase decisions and target selling price
. Reassessment can be done even on a monthly basis. E.g. Apple ( May 2016 )
announced 2 earnings reports which have good sales reports . So their target
selling price increased.

“THE WARREN BUFFETT WAY” OF STOCK INVESTING

Warren Buffett is one of the greatest investors and he is known for his
stock picking strategy. Many fundamental analysts are trying to follow Warren
Buffett's way of stock investment.

Warren Buffett never buys stocks . Do you know why ?

It’s because he analyses in terms of buying companies , not just stocks.

Have you ever wondered why everyone is trying to follow his investing style?
It’s because he is a self-made billionaire and his earnings came just from
stock investment .His current worth is more than $90 billion and he is the third
richest person in the world. So we can say he and we can learn to financially
fish in the stock market by following his investment style.
Warren Buffett followed the investing style of his professor ,Benjamin
Graham (The father of value investing ) and Philip Fisher .
Investment tips by warren Buffett

● Invest only in the businesses which you can understand. When you read
the annual report of a company , if you don't understand about that company
in 15 minutes, it’s not good to invest.
● Invest in companies that have good management. Instead of investing in
emerging companies , it’s safe to invest in companies that have already
proved their worth.
● Investing in stocks is not a way to get rich quickly . It’s a long term
process and a conservative strategy.Warren Buffett believes that time is the
best friend of a business.
● Learn to identify the intrinsic value of stocks.
● Wait for the right moment and invest in the mid-cap or high-cap stocks
available at higher bargains. High bargains can be obtained during a financial
crisis because most of the investors fail to understand the earnings potential
and business quality.
● When you buy a stock , you are buying ownership of that business.
● Have some cash on hand always so that you don’t miss any opportunity.
● Avoid investing based on tips and headlines. Stocks which are on
headlines are called hot stocks. These stocks are just to trigger our emotions
to do something . Don’t fall into this trap. Best time to buy stocks is when
nobody else is interested.
● Before making investment , calculate the final returns that can be
obtained by making some assumptions. Unless you get 10% returns prior to
tax payment , don’t invest.
● Many investors believe that diversification is a good idea. But Warren
Buffett believes that diversification reduces the focus on individual
investments.
● Buffett says that diversification is for people who don’t know much about
investing.
 ● Top stocks of Warren Buffett are big companies like Apple , Bank of
America , Wells Fargo, Coca-Cola , American Express . By investing in small or
mid companies it’s hard to get richer like Warren Buffett. Out of the top
companies chosen by Buffett most of them are banks or financials.He invests
mostly in stocks that pays dividends.

HOW TO GET RICH ? “THE BUFFETT WAY”

1. Practice good financial habits like following a budget , avoiding high risky
debts and making investment regularly.
2. The best investment is the one made on yourself. You can invest in
yourself by reading books , taking up courses etc. Warren Bufftt spends
most of his time reading and he says that knowledge builds up like
compound interest. Investing in yourself is the cornerstone of success.
3. Stay calm . You can’t get rich overnight . Stock investment is for those
who stay patient. Warren Buffett earned 99% of his net worth after 50.
4. Before making an investment, Look for it’s value.
5. Always have some emergency fund that can cover up six months'
expenses.