Know The Market (Session-5)

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Classifying Stocks

By Sector-

  • Financial services,real estate, consumer goods etc.
  • By earning growth-
  • Value stocks, growth stocks, income stocks.
By Size-
Large cap, Mid cap, Multi cap, Small cap.

Classifying by Sector-
  • Sector is a group of companies that loosely belongs to the same industry and provides similar products or services.
  • Eg -  Software, Airlines, Pharma etc.
  • Understanding sectors is important as there are always some sectors are doing well and some are struggling.
  • If you working for any sector in current time, then your know the current market situations of that particular sector. It is easy to you for investment.
Classifying by earning Growth-
Stocks can be classified by their earning growth in the past and expected growth in the future.
Main types are:
    1. Value Stocks
    2. Income stocks or dividend stocks
    3. Growth Stocks
Value Stocks-

  • Value stocks are shares of companies that are selling at a reasonable price compared with their true worth or value.
  • Value stocks tend to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales etc.) and thus considered undervalued by a value investor.
  • It takes a lot of research to find out a value pick.
Income Stocks-
  • These are the stocks of the companies who give away money back to shareholders in the form dividends.
  • They tend to be less volatile than others.
  • Investors who are near retiring can hold to these stocks to live off the income.
  • Dividend income in india is tax free in the hands of investors.
  • Companies may not pay same dividends year after year.
Growth Stocks-
  • Growth stocks are the stocks of the companies that consistently grow their earnings year after year.
  • They are generally found in growing industries or growing sectors.
  • They expected to grow faster than the competition.
  • They are generally volatile hence risky.
  • These are good for short term trades who want to make quick profit.
  • For long term investors who believe in company, it business model and management.
Classifying by Size-
By market capitalization : It refers to how large is the company.
  •     Value of the stock under current market conditions.
  •     Market capitalisation = Current Stock Price * Number of shares outstanding.
Ex- SpLearn has 10L shares outstanding and its current share price is Rs-8. Based on the above formula, we can calculate that company SpLearn market capitalisation is Rs-8 crores, or 10,000,000 shares x Rs-8 per share.

Large Cap Company-
  • Large and well-established companies with strong market presence.
  • Generally perceived as safe investments.
  • Information regarding these companies is readily available in newspapers and magazines.
  • Most of the large cap companies have good disclosures and therefore there is no dearth of information for an investor looking into them.
  • Examples of large companies such as TCS,Infosys and wipro etc.
Mid Cap Company-
  • Companies that lie in between large caps and small caps on parameters like size, revenues, employee and client base.
  • Market cap ranges between 500cr - 2000cr.
  • Risker investments when compared to large caps but safer when compare to small caps.
  • Better for long term investment as they have the potential to bring higher returns in 3 to 5 years.
  • Ex - NCC, Canara Bank, Central Bank.
Small Cap Company-
  • Companies with smaller revenue and client bases such as start ups or developing companies.
  • High growth potential as they are yet to be discovered within the sector.
  • A thorough research is required regarding the promoter's credentials, management strength and track record, and long and short term growth plans of the company before investing.
  • Ex -  Dhanalakshmi Bank, Shree Renka Sugar.
Outstanding Shares-
  • Outstanding shares are the total number of shares that a corporation has issued.
  • It indicates shares held by company insiders, officers, general public etc.
  • It is up to the board of directors of the company to decide how many shares are issued.
  • It is important to know number of outstanding shares because, companies earning, market capitalization etc. are calculated based on outstanding shares.
Q- How much do i need to get started?
Ans-
  • Invest only your surplus funds.
  • Invest the funds which you can afford to lose.
  • Stock markets should never become sole source of income for an individual.
  • You can start with as good as Rs-50000/-.
  • Stock market cannot be taken as an investment alternative to fulfill short term goals through the anticipation of short term gains.
Q- Can you lose money in the market?
Ans-
  • Yes, you may lose part or nearly all your money in a worst case of the market.
  • There is no guarantee that you will make money.
  • Although the stock is not perfect, it is still one of the best way to increase wealth over the long term.
  • To make money make a complete research & control your Greed and Fear to get success in the stock market.
Understanding stock prices-
  • A stock quote : It is the current price of a stock.
  • It gives basic information such as ticker symbol, bid and ask price, volume and the last trade.
  • It also includes details such as shares outstanding, market capitalization, 52 week high-low, ex-dividend date and dividend pay date, stock's one year performance etc.
Q- How to read stock quote?
Ans-
Stock market quotations in a financial news paper will typically give you the following information.
    1. Name of the company
    2. Separate set of quotations for BSE and NSE
    3. BSE code number assigned to the company

Q- Where to find a stock quote?
Ans-
  • Online at your brokerage firms website.
  • Daily Financial newspapers
  • Many financial sites or BSE/NSE websites
  • Mobile Apps.
Bid and Ask Price-
  • Very important.
  • Bid price is the price at which you can sell stock and ask price is the price which you can buy.
  • Usually you will buy or sell stocks at a price between bid and ask price.
  • You may enter an order at any price that suites you.
Spread-
  • The difference between the bid and ask price is called the spread.
  • With most stocks, the spread is only one or two paisa.
  • If stock is not traded frequently then spread will be more.
  • If spread is more it is difficult to sell at a later date.

---Thank You---

1. Know The Market- Session-1
2. Know The Market- Session-2
3. Know The Market- Session-3
4. Know The Market- Session-4
5. Know The Market- Session-5
6. Know The Market- Session-6
7. Know The Market- Session-7
8. Know The Market- Session-8

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