25 Jun 2018

Market Outlook- short term

        Market index NIFTY failed to touch the all time high even after the recovery from March 2018 bottom.We have seen a consolidation phase between 10500 and 10800 in last two months and volume spurt  was not happened.Means,buyers are not active above 10800 level.Instead,profit booking is still going on.Foreign institutions are continuing net selling this year,though domestic institutions accumulate at discount situations.

       Like any previous election year,2018 is also uncertain for general index, although IT secor made a strong recovery recently.A High PE of 26.5 is a big concern for foreign institutional investors,as they search undervalued opportunities across the globe.US Market also trades at an over bought phase;but their dividend yield looks better than India.Rising non performing assets in banking sector affected the market sentiment badly.Major Public sector companies corrected more than 30% and still the bottom fishing not started.
     We have seen a trend channel break down in February.but,failed to reach the same in last four months.So,current consolidation level will be crucial in determining medium term trend for one or two quarters.A breakout above 10800 with volume spurt is required to maintain the revival towards all time high.Otherwise,market may remain weak and any adverse global or domestic news may lead the index towards 10450 level.If next Earnings season fails to improve substantially from current level,NIFTY may retest the next consolidation area of 10200-10000 again in upcoming quarters.

 Disclaimer:Above observation is based on Techno fundamental parameters of general market and not a recommendation.Consult your financial advisor before any investment decision.

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11 Jun 2018

Why we should examine Values of a corporate ?

Image coutesy: successstory.com
       Now a days, values are not prominent in life and business- people have forgotten it and same is the case of companies too. but, the real value creators will leave a legacy in the world. Great business men lead companies with ethical values and standards. Such businesses become steadily growing and financially strong in the long term.

     Few historical examples are: Infosys, the Tata group, Maruti.In 1990, N.R.Narayanamurthy came up with the IPO of his company Infosys and many people were reluctant to invest due to  the nascent stage IT sector in India. Infosys became one of the giants in IT industry, employing more than two lakh people, raising the promoters to billionaires.An investment worth INR 10,000 in the 1990s would have become INR 4 crores by now.Tata have faced many difficulties like huge debt accumulation in Tata Steel and Tata Motors, but managed to rise over all of them. Tata Motors acquired top automobile brands such as Jaguar Land Rover. Visionaries never aim to be the Number one provider of products or services. Their objective is to survive in the environment for the long term like many decades. 

    Two and half years back, stock price of Maruti had fallen from Rs.4700 levels to  Rs.3409. Now, the stock trades at 9000 levels. Pick ten cars on the road in random and you find that 6 are of the Maruti brand. The Maruti Swift Dzire is currently the highest sold passenger car in India, taking place the record of  Maruti Alto.The Key Reason behind their market leadership is created by ‘value-for-money’ proposition. The company embraced new technology and design in due time and surpassed previous leader Ambassador. Their satisfied customer base has referred more new customers too. If a company focuses on creating the best products and services,success will follow.

    In value based investing, we need to look deeply into the benefits of the products and services of companies. If the product/service looks exceptionally good than expected, it will massively attract consistent rise in aggregate demand.This will move forward the business to the next level of success and expansion. The Royal Enfield story is another perfect example. At a time when people flocked to Hero Honda and Bajaj showrooms to buy 100 cc bikes, Royal Enfield saw disappointingly lowest sales figures only. The company then innovated  their models to suit the youth and even made major tweaks. Sales then soared and reflected in the stock prices as well- a rise from about Rs.1500 in 2012 to 32000 levels in last 6 years.

Major thing to know the values of a company is to know the promoters and the top management.Their ethics and values- along with their experience in the industry will play a crucial role in creating the future. When a company has strong morale and ethics, it ensure value for money and satisfies customers, and grows in time without doubts.

(This Article is an illustration about the relationship between values and business success in few case studies,which is not an investment advice .You should understand the risks well before any investment decision.)

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13 Dec 2017

Market Pulse -December 2017

        The year 2017 was bullish for the Indian stock markets, though economy was in a bumpy road.Market has survived hard times of  impetuous demonetization and initial errors of goods and services tax.Continuous economic reforms have taken its toll on the economy all throughout the year. Nonetheless, experts have the strong conviction that in the long term, this hard ride will pay off. These reforms, aimed at curbing the menace of black money and better taxation, are expected to meet those goals by FY19.
         The GDP growth rate in Q1FY18 and Q2FY18 are 5.7% and 6.3% respectively. Clearly we see recovery from the temporary uncertainties throughout the year, although this has also been attributed to unclear tax regulations and other GST glitches. The companies increased production and replenished stocks after the GST rollout, starting July 1st. Most of them also felt the need to empty out their inventories before the bill came to force, resulting in lot of discounted sales in June. This stock clearance is what brought about a pull-back in the economy in Q1FY18 and a subsequent GDP growth rate of 5.7%.
       Our government had focused on the infrastructure throughout, meaning a growing market is underway. Both urban and rural consumption has risen over the year. The manufacturing that grew by 12% in Q1FY18, only grew by 7% in FY12. The mining sector grew by 5.5% in Q2. The real estate is still hung over due to effects of demonetization new GST regulations. The farming sector grew by 1.7% in Q2 and by 2.3% in Q1.
          PSU bank stocks revived fast after the announcement of bank recapitalisation plan. The banking sector is expected to find growth in the near future owing to the reforms in National Bankruptcy Code, which will enable them to acquire their debt back faster.The stock market expects higher inflow from domestic investors, owing to lesser investment opportunities elsewhere due to demonetization and GST rollout. The mutual fund industry have seen better fund flow than previous years  by educating the retail investors and that inflow helped to surpass the sell-off from foreign institutional investors.
    Foreign Direct Investment regulations have been reformed by Consolidated FDI Policy 2017.Now, companies can attain FDI easier than before with faster processing owing to lesser levels of bureaucracy. Liberalisation by permitting 100% FDI in key sectors such as Pharma, Defence  and Broadcasting created confidence in business environment.New policy revised the threshold for FDI in single brand retailing,civil aviation, manufacturing and non-banking financial services. Startups have also been made eligible for FDI through convertible instruments.
        On November 17th, the acclaimed Moody’s Investors Service upgraded India’s credit rating from Baa3 to Baa2. This event restored faith in the market for participants who had a hard time throughout the year. The upgraded rating is an indicator of the ease of starting a business and succeeding in the country. This has given hope to investors, both foreign and at home, along with aspiring entrepreneurs. Earlier in May, Moody’s predicts a growth of 7.5 % for FY18 and 7.7% for FY19, with 7.1% being the growth rate in FY17. Despite the confusion caused in the country due to demonetization, the organization said that that the negative effects were limited.
         GST rates have been cut in the past months and The GST Council Meeting on 10th November moved more than 170 items from the 28% tax bracket to the 18% bracket. Other tax bracket shifts form 18% to 12% were also decided upon.After all these, the Nifty is at 10,100 levels and sensex is  at 33,000 levels on December 13th, showing a consolidation in the market.Market participants are still worried about the commotion due on the day of Gujarat election results. Investors in the long term need not worry as the economy as a whole is recovering and election results, or any other such events for that matter, may not affect the market for long.


9 Dec 2017

A simple technique of Intraday trading

Photo: Tyler Easton(Unsplash)

          Do you know what a coin, our lives and the stock market has in common?  They all have two sides. Like life with all the ups and downs, there are rallies and pitfalls in the market. How we face both is what makes all the difference.Long term investors use fall in stock prices as an opportunity to buy more. On the other hand, these are the days when traders hit the jackpot. Prices rise slowly and fall fast. During such commotion, things are comparatively easy for the traders.Although there are many techniques used in such situations, I would like to share this one method with you.
          How the indices begin when the market opens on that particular day, is very important. Traders should compare the open price of index like NIfty to previous day close price.Higher the open price,there will be a positive outlook for intraday.Lower the open price means negative market sentiment.Next step is to look at the movement of various sector indices. If Nifty is down, select one or two sectors whose indices are down by the most points. If a sectoral index is facing bigger selling pressure than the general index,it's outlook will be negative for that day. In such scenario,active traders select a stock whose price has decreased the most with an expectation of further downfall. They short sell that stock to gain from the expected gap of price fall.
       When the market is falling, selling a stock first and then buying it back at a lower price is called short selling. The price difference in the transactions becomes trader's profit. And that’s how a day trader can exploit falling stock prices. Buying Put options are also similar to this method.Often,bearish market may move faster than bull market due to the pressure of panic selling.An active trader try to utilise such kind of fast movements by understanding the prevailing trend.When there is a continuous market rally for a period, general index and heavyweight stocks will show strong movement.Picking up the most active and positive stock from a bullish sectoral index can give us an opportunity. Traders buy top gainers with huge volume in a bullish day or they look for buying call options. Here,the expectation is further rise.
         Gain comes from estimating future move,eventhough it is riskier than swing trading or positional trading.An active trader should have a market view  about the day,considering above factors.     This is a pretty simple and popular technique among professional traders. Along with this, looking at the stock’s chart for the particular day’s trend also helps to identify the movement of price and volume. Higher volume than average traded volume of the past  denotes momentum and chance of gain.
          It is observed that the stocks that rise when their sector index falls, may subsequently fall in the afternoon. It follow the common market sentiment in most of the cases.Means,movement of a stock is closely related to outlook of it's sector and general index.If both indices are negative,trend of the stock may be bearish by following common outlook.Accuracy of a trade increase only when the general index, sectoral index and the stock price move in the same direction.

Disclaimer: Trading is a high risky activity and which may result capital loss in adverse market scenario.


Open Mind and Success in market.

          It was about nine years back that I met Manmohan Desai. Bald headed with a white beard, the man had a smile that I will never forget. Starting at nine in the morning, Desai is at the trading terminal until half past three in the evening. I saw him all amped up during rising stock prices and all tensed and gloomy amidst falling prices. He never took a trading day off and each day, just about five minutes was what he spent to have his lunch. He never took advice from anyone, neither did I see him making preparations for trades. Desai lost money almost every single day.
“Why don’t you stop trading?” Everybody including his wife and son would ask him.
“Nothing’s right about this. I mean it’s a force of tamas. I would say, nobody should get into this. I am just one of those who got trapped in this mess. Looking at the terminal terrifies me now!” He repeatedly told;but never stopped trading. 
In real life, I would call Desai a good businessman. But he did not look at the stock market as an investment vehicle. For him it was just another way to pass his time.
“In the stock market, sometimes you make it and sometimes you don’t. Apparently, I can’t make a dime any time! Haha.” He would laugh.
Why was Manmohan desai always losing money?
The first reason was that he looked at it with a gambling mindset. He never researched stocks. Apart from the name, he knew nothing about the stocks he bought. Annual and quarterly reports almost did not exist to him. Once when I asked him about looking at the balance sheet, profit and loss statement, etc., this is what he told me, “Oh that’s all a waste of time!”

Another reason was that he never cared to look at the market shares of companies or even their products for that matter. Desai didn’t use any kind of charts, neither candlestick nor line. In the end, as he said, the sight of a trading terminal terrified him.
 An open and positive attitude is what’s common about everybody who tasted success in the stock market. Invest in companies making consistent profits. If a company accumulating losses, it is going to be reflected in its stock price. The company we choose to invest in should have grown continuously in the past five years. Look for figures like the total revenues, net profit and liabilities and compare them over the years. This is how even mutual funds and foreign investors invest in the market.
Over the last two decades, most of the diversified equity funds have grown at a rate higher than that of the Sensex. Remember that it’s in the same market that many individual investors try to make profit with minimum preparation.
The stock market is not for people like Manmohan desai. It’s for the intelligent investors who take the time to research and execute trades based on strong conviction.


8 Dec 2017

Which approach is ideal for stock picking?

           How to study stocks is an age old question in the market. Some people advocate in favor of fundamental analysis, while others support the use of technical analysis. It’s more like how guys always think their car is better than their friends’- it’s just that you have driven your car for a long time now and you have learned more about it. People who have used any of the above methods long enough, know how to reap maximum benefits from it.
           Studying annual and quarterly reports of companies, is considered the best way to analyze a stock by many people. Well, my experience has shown that being aware of the stock’s price range, is also key.Companies with strong financials have found to be stagnant in the market time and again. At the same time, we see them falling in price, whenever the market goes down. Knowing the direction of prices for potentially good or even great companies seems to help. This is in relation to the perceptions of market participants. Highly enthusiastic investors in rising markets, lose their enthusiasm to fear during falling markets. Even those who call themselves long term investors, act like amateur traders when the indices fall by 20%. The average investor is not Warren Buffett, so noticing trends in prices can facilitate better decisions.
         Many investors have been found to buy up shares of companies that are traded at their lowest in a year. The Gujarati investors follow a totally opposite dynamic- they buy stocks that have crossed their highest price in a year. The latter believe that a consistently falling stock price implies that the investors have lost their faith in the company. Buying such stocks will only let your money stagnate, with no significant rise in prices.
         Although the discussion and taking sides continue, I have always found that adopting a Techno-Fundamental approach, where we take parts of both fundamental and technical analyses, to be convenient. Companies that consistently grow in net worth and assets with limited liabilities and a growing market share, are the ones that can be called good companies. We can notice quality companies from their track record for the last 5 to 10 years. At the same time, also look at the direction of the stock price. This is the easiest method for stock picking. You can see the opening price, highest price, lowest price and the closing price of stocks- the most important one being the closing price.
       The closing price shows us the current direction of the stock price. Only stocks that have the investors’ faith will close at a higher price. Compare closing price with that of the previous day. Closing prices at the end of weeks and months can be compared thus. And this is how we know whether the market sentiments are in favour or not.
      As you might have noticed, all the methods discussed above are very simple. Now, if we look at these techno fundamental parameters before investing, it can guide you towards wealth creation.

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Common Sense in Stock Market

            When Arun felt stressed out and overwhelmed about all the stocks he had bought, he decided to take a break. He expressed his concerns to his father, who advised him to go meet his friend Mr. Murali.
By afternoon, Arun had reached and saw Murali in front of the online terminal.
“Are you busy trading Mr. Murali?” I asked.
“Hey, you are here. Take a seat Arun. Did you have your meals?”
“Yeah, I did.” Arun sat on a nearby chair.
“What is it? Your dad called me. Said you were worried. What’s wrong?” Murali was still attending to the terminal.
“The market is down and I am not making any money. The losses I am accumulating are over the roof. Nothing is getting better.” Arun shrugged.
“OK, tell me which all do you own?”
“Suzlon Energy, Unitech Ltd., JP Associates, Gujarat NRE Coke, Visagar Polytex, and so on.There are a few more. I don’t remember the rest of the names as such.” Arun stared down.
Murali shifted his gaze from the screen to Arun. “No wonder you are tensed. I mean, I would be, if I owned these losers. How did you even handpick this lot?” Back to the screen, Murali sighed. “Done for today. Sensex is up by 134 points.” Murali shut down the computer and rose from his seat. He patted on Arun’s shoulder, “Come I’ll tell you a few things.”
Both of them walked out of the house and into the lawn.
“There is this one thing that everybody must use before deciding to buy a stock. You know what it is? It’s common sense.” Murali looked into the distance.
Arun raised his head and looked at Murali. “What do you mean?”, he asked and continued staring at the grass.
“I am telling it seriously, man. And by common sense, I mean taking a common sense approach. Peter Lynch, manager of the Fidelity Magellan Fund in the US, follows this method. The fund brought in returns at an average rate of 29% annually. The man retired in 1990, with his record returns still standing.” Murali smiled.
“What is that approach about?” Arun was eager to turn his situation around.
“Simply put, it means that you should invest only in stocks that you know. The best companies have strong business roots in every corner is what Peter Lynch used to say. For instance, you are about to buy shares of a tyre company. You first walk into a tyre store and ask which brand has longer life, better quality and good sales. Study that particular company. Also avoid companies that people in general have bad opinions about. While at a medical store, do a market survey. Enquire for the medicines with the highest sales and ask for the companies manufacturing them. Companies with a  larger market price will have a higher stock price.” Murali explained.
“I can find such information on Google, right?”
“Haha...No, not really.” Murali laughed. “Don’t be that guy, Arun. There are things that you need to go beyond secondary data. Companies that find a place in the ordinary markets will definitely shine in the stock market. Take the Eicher Motors stock for instance. The company started marketing Royal Enfield as more of a lifestyle brand and sales skyrocketed. The result- the stock prices shot up too! You just have to look around you to find opportunities. And always remember- finding opportunities isn’t effortless.” Murali smiled at the young man.
“All this time I based my buying decision on the prices. I don’t know a single one the stocks I own.” Arun sighed.
“It’s OK. You just have to be more careful from now on. Focus on studying the market and its ways. At some point, you’ll develop the intuition muscle. This would also mean being in constant touch with the society and businesses around you. Before jumping into annual and quarterly reports, filter companies by the method I just told you about. Test the soil, before you sow. Understand?”
“I like the way you put that.” Arun smiled.
“Haha.. Come let’s have some tea. It’s about 4:30 now.” Murali put his hand over Arun’s shoulder and walked back into the house.


How can you make profits consistently?

       Ranveer reached his brother Rishi’s flat at four o'clock in the evening. There, along with his brother and wife Meera, was a third person waiting for him. It was Madhuri,Meera’s sister.
“She’s here with a ton of questions to ask you”, Rishi smiled.
“Are your studies over?” Ranveer asked Madhuri.
“I had first class in B.Com. I also passed the stock exchange’s exam and am now working at a brokerage firm here in Fort,Mumbai.” She beamed.
“That’s nice. How long have you been working now?” Ranveer leaned to get his cup of coffee.
“I joined about 3 months ago. I am currently in charge of a trading terminal.” Madhuri,who was standing across the room, took a seat.
“And how’s your job now?” Ranveer asked.
“She says it’s very stressful” Meera walked in from the kitchen with some snacks for them. She sat beside Rishi.
“Stress? Stress at an age of day dreaming?” Ranveer laughed.
“There are high targets we have to meet. Daily we have to make sure that the business volume does not go down. But most of our clients have not seen profits in ages.” Madhuri was concerned.
“What’s the purpose of business if no profitability to clients? With good enough profits, your present client base will be out vouching for your firm and bringing in more clients.” Ranveer always liked discussions over coffee.
“How can anyone consistently make profits?” Madhuri leaned forward in her chair.
“Nobody makes profits 100% of the time. But anyone can strive for profit in most of the transactions. It requires really deep study about business and market sentiment, I must say. For me, there are four things I focus on when looking into a company- the company’s ratios, momentum, business model and efficiency of the management.”
“I have learned about the ratios in my B.Com classes.” Madhuri said.
“That’s all good but knowing the theory and practicing it are two different things. What matters is that you practice. Many websites nowadays give us an idea about ratios of companies.It will help you to know the valuation of a stock.Avoid over valued shares and look for the shres trading at fair price.You should assess the networth,profit and liquidity factors of a business.Annual report and quarterly statement will give clarity about these things.
 Next imortant factor is momentum.It is determined from the price range in the past along with the trend. Know the present and historical trend from charts.Now,it is available in many websites.
Usually we use candlestick charts due to the clarity about price movement in it. You should practice determining whether a stock is a good or bad one, by checking all these. Spend the time until it’s becomes more of an intuition or insight.” Ranveer was completely engaged in conversation at the moment.

“What’s a business model?”  Madhuri enquired.
“That’s an easy one. You can understand that by looking for the company’s sources of income. When a company has only one source of income, the risk is high. On the other hand, there are companies that have multiple streams of income- and these have higher chances of consistent growth. For instance, the Wonderla business makes money from 3 sources- entry fees, food and beverage sales and from their resort business. Carefully running all these modes in harmony, the company will grow in the future. Competence is also an important factor.”
“You had mentioned efficiency of the management. What’s that?” Madhuri was absorbing every word.
“You’re smart!” Ranveer smiled, shifting his gaze from Madhuri to Rishi and Meera. 
“Invest only in companies with credible promoters. Also make sure that the current management has proved itself over the years. Recently many companies failed pretty badly due to the same. Read, study and practice- focused and frequently enough- success is a given!” Ranveer hoped he had made his point.
“Thank you very much! I almost had no idea about all you just said. I will learn more about these by myself. But hey! I will call you if I need to know something.”
“Sure. I have been investing for almost a decade now and I am ready to help anyone who is ready to learn.” Ranveer finished his cup of coffee.

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Market Sentiment : A Life Lesson from 2008 crisis

        I still remember the day Tech Mahindra was listed in the Indian stock market. It was back in 2006, and I was with my colleague in front of the terminal. Offered to the public at INR 365, the stock price rose to INR 560 the same day.Value appreciation of 53% by the way, in the day of listing!
Image Courtesy:Business Today
We left the stock broking office that day in utter disbelief. My God, how  it is happened ? Amazingly, what followed was a three-fold increase in stock price in the next six months. I remember my manager saying, “The fundamentals are fantastic! This stock is gonna to become a multibagger, buddy!”
“Wow! Seems like this fundamental thing is the real deal! I have to wrap my head around this thing !” I thought.
 Those were the days when I spend a bigger chunk of my salary for buying financial magazines and books. I attended all kinds of financial market trainings that I could afford.
“Why isn’t this lad going abroad to search for a job?”, somebody asked.
“Well, I am happy with my current job ...” I smiled.

    All of a sudden, the protagonist started going through bad times- Not me, the Tech Mahindra stock. The price was falling and saying that the situation was bad would be an understatement. During the global recession of 2008, the stock, my dear multibagger, fell lower than the initial offer price.
Many of my friends in the market those days, went abroad- which wasn’t looking like a bad idea to me after all. Old traders and dealers were nowhere to be seen. The market was calm after the storm that occured.

     The price fall of that stock made a disappointment in that year. But you know what a greater tragedy is? The story of the Sensex! It fell from 20,000 levels to 7,697 levels. Oh, yes you read that right! That’s a drop by a full 12,303 points by the way.

     “It’s gonna get down to the 2000s…..”, the better trader among us prophesied.
“There’s got to be a support right?” I asked eagerly.
“All of it is over man. The guys at Morgan Stanley say that it’s not going to get better anytime soon. I stopped trading only because I don’t want to die of a heart attack!”
This is the man who day traded and made nearly INR 50,000 in single day and treated us biriyani.

    Impatiently, I turned to my bookshelf for answers. Seems like Benjamin graham and Peter lynch had no answers for huge market failures,as many days passed

   Thank God, the trader’s prophecy didn’t become true ! The bulls came back and the index started reversal from bottom.
 It wasn’t late before they started to run, pulling the economy from the mess. From a point of total despair, the market rose alive and in six months, the BSE index crossed 15,000 points again. That was uncalled for. I never thought, it would all be back to normal in that short time frame.
    Those days of despair taught me one big lesson- there may be fundamental concepts such as Earnings Per Share or Price to Earnings ratio, there may be book balue or Price to book ratio. But above all this, there is always a market sentiment. I entered the world of charts, because that’s where market sentiments can be captured.

   The recession of 2008 showed me that profits from stocks are not just a bunch of numbers and efficient companies, but also the  perception of the public - the mass psychology of the market participants. A person booking partial or full profit during the good times, can avoid many such pitfalls.
   Also remember to use pitfalls to buy stocks in a bottom fishing strategy. You should be able to look at a company’s financials and at the same time be aware of the market sentiments. And that is when you get a broad picture to play well in market.  

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7 Dec 2017

The Nature of Stocks

          Some times I feel,Stocks act like human beings. Few are restless with huge volatility and others are lazy to move. An intelligent investor should understand the nature of the stock before his investment.This is not something that can be picked  from the news or the trading terminal.The nature of a stock can be understood by looking it’s historical price movement.

         The stock that rapidly rise during a rally, sometimes even faster,is like an angry young man. Technically, this type of stocks have a high beta value. Beta gives us an idea as to how much the stock price would fluctuate with the indices. A beta more than 1 implies higher volatility for the stock. For instance, a stock with beta 1.2, means that it moves 20% more than the index in the same direction. When the market falls, we can expect bigger crash in this type of stocks. Most of the real estate stocks are having high beta value and ,at the same time,many public sector stocks are having low beta value.
       When the beta value is less than 1, the stock price does not move enthusiastically with the indices. Even when the market is falling and the indices are dipping, such stocks show little to no movement in prices. These cool headed ones are not appropriate for short term trading or immediate profit making. At the same time, in the long term, such stocks are seen rising above the valuation.You can see so many low beta stocks in sectors such as IT ,Power, Pharma and consumer goods.
      Then there are what I call the Go-Givers,the stocks that consistently yield dividend,bonus or capital appreciation for the investors. Such stocks are sometimes observed to rise, even when the market indices dip, although only strong positive market sentiment can bring about consistent value appreciation.Studying price range of different stocks help us to identify the nature of stocks. But merely looking at daily or weekly fluctuation is not enough- to do this, you should at least look at the annual trend or market sentiment. By Comparing the stock chart with the index chart of Sensex,Nifty or sector indices, you can understand the nature of a stock.

      As per my experience,When looking at a stock whose price has been falling for a long time, you should look at charts for the last three or more years.Weekly and Monthly time frames can contribute more for long term analysis of market sentiment.For instance, 3I Infotech was traded at INR 160 in 2007 and it is traded at INR 3.90 as of today. People who tried to average this stock again and again,was unaware of this stock’s nature, which resulted in huge capital erosion. When the market sentiments are positive, we see stocks making huge growth over time. Indus Ind bak , traded at INR 50 in 2006 and currently trades at INR 1650, is a good example opf long term positive sentiment over a decade.

     When trying to understand the behaviour of a stock, market participants should note it’s medium term and long term trend. Means, the nature of the stocks we own, act as a major factor of success or failure in the market. In Life,Insights comes from knowing the reality of human nature or behaviour. Same thing is applicable in stocks too.Having a broad and clear picture about nature of stocks,can help a lot to be an informed investor.

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6 Dec 2017

Dalal street Techniques of Day Trading

Image Courtesy: TV18
       People looking for quick bucks often turn to day trading in stocks or derivatives. With a lesser amount of margin money, you can do big trades worth ten to fifteen times of capital. Brokerage firms give you the edge of leveraging if you are in day trading. The chance for failure is high as the chance for success.So,day trading is like a double edged sword.However, there are a lot of players who trade tactically, with clearly defined trading plan and strategies. Among these, most successful traders are from the Gujarat and Maharashtra.Market participants of Dalal Street have formulated many methods, two of which is given below.

    The 15 Minute Rule

    This technique involves observing price fluctuations in the first fifteen minutes after the market opens, ie., 9:15 to 9:30 am. Active traders search for a trading range develops at this point of time, which is the difference between the highest and lowest price levels. 
If a stock opens with a price higher than the previous day’s closing price, the first step is to notice the highest price in the first 15 minutes. Next 15 minutes is most important.If the price breakout supported by higher volume happens after 9.30 from initial trading range,it is treated as an opportunity. In the next one hour, make sure to check what is going on.
     If you get profit,do not forget to book it as soon as possible. An adverse intraday fluctuation may affect your profits and even capital.So,Punters act suddenly when the stock price crossing a minor resistance level, or when it appear as a breakout from the trading range.Their aim is not large spread, but minimum percentage of gain out of large quantity acccumulated.

     If the  open price of stock is lower than the previous day’s closing price, the lowest price of the first 15 minutes,will be noted. Price break down from initial trading range, is an indicator of short selling.
The method come in handy when looking at most active stocks, top gainers or top losers.It is used in bullish and bearish market,not in sideways market.However,this kind of trades require lot of practice and fast execution skills .Strict stop loss orders can reduce the capital risk if the trade decision fails. 

    The Last Hour Trading Technique

        This is a trading technique used to buy or sell in the last hour of the market, ie, 2:30 to 3:30pm. Punters feel that direction of the next day’s market will be reflected in this closing hour. The direction of the Nifty index should be checked along with the sector indices. If both indices, Nifty and sector indices, are moving up, professional traders examine the most active sector index.They pick stocks that went up during the day,with a current market price above open price of the day, and higher volume than average traded volume.High beta stocks can be called ideal for this method.because,Low beta stocks are not suitable for intraday due to slower movement than high beta stocks.

       For an example, a stock usually has a volume of around 2 lakh and today it rose to 4 lakh, means 100% increase in volume. Then the punter buys that particular rising stock with an expectation of further bullish move. The more the volume rises, higher are the chances of success. On the following day, the stock is sold out in the first one hour, ie., 9:15 to 10:15am. Only brokers that facilitate BTST (Buy today, Sell tomorrow), allow such kind of trades.

       If the indices are moving in the negative direction, a stock with a falling price and higher volume than average traded volume will be selected.More than double of average traded volume is most important factor in such type of trades.High beta stocks and top losers are used for short selling in the last trading hour. The stocks in this case are chosen from those that performed badly during the day. The stocks are then bought back in the first hour of the next day.This is known as Sell today,Buy tomorrow(STBT).This strategy works with probability and not an assured one.However,winning is decided by the skills of a trader to pick right stocks at right time.

      The key secret is to understand the importance of these short time periods. The market is most active in the first and last trading hours than noon time which is used by most of the people for having lunch. First and Last hours are often utilized by active traders and financial institutionst.Many Traders believe that the market is mostly inactive  in Noon time due to various reasons. And therefore,that is the logic behind these techniques.

Disclaimer: Trading is a high risky activity and chances of capital loss is also part of it. The purpose of the article is purely sharing the traders' methods; and not a trading advice. We recommend that you understand the risks before trading.

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28 Nov 2017

Why we need a Portfolio?

  “Why I need a portfolio while I make enough money from trading?”
Shahul asked me. 
A regular day trader with consistent results, he knew what he was doing. So making profits or doubling investments wasn’t a concern. Scalping, the method in which traders make small profits using slight but sudden move in stock prices, was Shahul’s main technique. He focuses mainly on stocks that have reached their highest price in a year.
“What do you do with your profits”, I asked, knowing that his question came from a place of ignorance and that I cannot send my answer to same place.
“I spend! Shopping, vacations, you name it!” He was having fun, I could say. But being a Financial coach, I have to set him for goal based investing.
“Have you planned out anything for your retirement and children’s college education?” I asked with concern.
“I have Rs. 10 Lakhs in Fixed Deposits. I guess that’s enough.” Now, I can say that he was expressing more of a genuine doubt, as he looked at me for reassurance.
“You are joking, right?” I asked with a smile.
“No, that’s…. That’s my actual plan right there.”
I leaned forward. “Shahul, consider an average inflation of 6% affecting your plan. An MBA programme costing Rs. 10 Lakhs today is going to cost about Rs. 24 Lakhs in 15 years’ time. And only God knows what a Medical College tuition fee would be in that time frame. The same is true for retirement. You are forty now. Retire at sixty and you would need almost thrice as much for monthly spending.”
“Good lord, my monthly expenditure is somewhere near Rs. 25,000 now? Are you saying it could go over to Rs. 75,000 then?”
“Even if you consider average inflation, you will need near Rs. 80,000 a month.” I answered.
“Rs. 80,000 a month means anywhere north of Rs 1 Crore in fixed deposits or bonds! Oh…… So I get it! It’s to make this amount that we create a portfolio, yes?” Realization is always a pleasurable experience.
“Yes. You should set aside an amount to create a portfolio where you limit the risk. And this is very important. Let me say it again. You limit the risk, here! Now this is what we call you core portfolio. You make such a portfolio including top stocks, equity funds, balance schemes, etc.”
“Go on. I have heard about more kinds of portfolios.” Clearly, Shahul seems to have opened up his mind now.
“ Well, the core portfolio is designed to take care of long term goals. So, money left can be exposed to some level of risk, meaning a satellite portfolio of mid-level stocks and sector funds. Only after setting up two such funds should you expose remaining funds to higher levels of risk, that is, penny stocks, swing trades and day trading. This now, would be our aspirational portfolio. See how both of these came in our priorities? This, Shahul, is exactly my point. Stick into asset allocation Principles for goal planning and at the same time, avoid losses by segregating portfolio.” I wondered whether I had made my point clear.
“So, I only have an aspirational portfolio right now. Hmm…. I could have messed up, but hey, thanks to you. Got to change a few things, I guess.” Shahul smiled at me. After all, I had made my point, I thought.
“Hey, let’s get something to drink.” I tried to lighten the mood.
“Oh yeah sure! The best decisions have always been decisions over a cup of coffee!” He laughed, holding my hand firmly. Then I knew, the man had decided to make the change- a change that would make him an investor!

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