Zebu blog

Category: Stocks

  • What Are GARP Stocks?

    No single investment strategy is perfect. No single investment strategy is the “end-all, be-all” answer to all of your needs. Because of this, investors often mix and match two or more investment strategies to find a combination that works for them.

    This mix gives the investor a benefit in one of two ways. First, it can be done by combining the good things about the different strategies so that the good things outweigh the bad things. In a second way, one or both of the strategies that make up the combination cancel out the problems of the other strategy.

    One way to invest in more than one type of stock is called GARP. Growth at a fair price is what GARP stands for. GARP is an investment strategy that combines Value Investing and Growth Investing to give an investor “the best of both worlds”.

    So, to understand the GARP strategy better, we must first learn about Value Investing and Growth Investing. So let’s get down to business.

    Value Investing

    Value investing is like getting a good deal when you shop.

    Let’s say you go out to buy something, anything. You can buy a low-quality product for a low price, or you can buy a well-made product that is more expensive than the low-quality product but less expensive than the regular market price of the good. Which one do you want?

    Clearly, the second one is the winner. Yes, it would cost more than the low-quality product, but the fact that it would be better and cost less than usual makes up for the price difference.

    Well, value investing is when you buy shares in companies that are strong at their core, which means they run their business well. Share prices that are higher than, say, penny stocks are a natural result of this performance. Because of this, you buy these shares when their prices are lower than what they should be. As the market straightens out, the share price will rise to what it should be, and the investor will enjoy capital appreciation.

    Value investing usually involves buying shares of companies that have been around for a long time and have a strong position in the market because of how they do business.

    The idea behind value investing is also that the efficient market hypothesis is not true. This means that shares can be overvalued or undervalued because their prices don’t reflect all the market conditions and facts that affect their prices.

    Value investors try to figure out what a share’s fair value or “intrinsic value” is. An investor can use a number of different fundamental analytics, but Price to Book (P/B) Ratio, Price to Earnings (P/E) Ratio, and Free Cash Flow are some of the most common ones.

    Growth Investing

    Growth investing is a way to make money by letting the value of your investments go up. This capital growth happens because the company, whose shares are called “growth stocks,” has new technology and services that help the business run.

    Access to newer technology and services gives the business an edge, which means it can make more money than its competitors in the industry or even in the market as a whole. Most of the time, the extra money doesn’t go to the shareholders. Instead, it goes back into the company’s capital to give it more resources to use the better technology and services.

    There are two main ways in which growth investing is different from value investing. First, growth stocks usually belong to new companies that have a lot of room to grow because they are in markets that haven’t been fully explored yet. Because of this, these stocks are a riskier bet than those that are based on value.

    Another difference is that growth stocks are often overvalued because of their high demand, which comes from the fact that they have a higher chance of making money. When it comes to investing in stocks for growth, investors pay attention to five key things about the stock in question. These are the company’s past and future earnings growth, its profit margins, its return on equity, and the performance of its stock price.

    Investing in GARP

    GARP stocks are mostly growth stocks that have been put through some value investment stock filters.

    This means that investors are looking for stocks with high growth rates to add to their portfolios. The price of the share affects how value investing affects how stocks are chosen. This means that a GARP stock is a growth stock that is undervalued.

    GARP investing doesn’t have any rules about what metrics investors should look for when buying shares of a company. The Price/Earnings to Growth (PEG) ratio is an important metric for this strategy. If the ratio is less than 1, the price is in line with the growth of the business and not too high, like with growth stocks.

    Filtered Goodness

    As was already said, no investment plan is perfect. So investors shouldn’t put any of the above strategies on a pedestal that is too high. The GARP investing strategy is a mix of ideas that has become popular because it works better than other mixes. This doesn’t mean that any of the less popular strategies are less useful or that GARP isn’t a good filter.

    So, investors should always do their homework and use or ignore pre-made strategies based on their goals, risk tolerance, time horizons, and many other factors. Do you use any combinations of investing styles or strategies that have worked well for you?

  • What Are Cyclical Stocks?

    It can be hard to make money on the stock market. Some stocks are very sensitive to economic slowdowns and downturns, while others may be profitable no matter what, making them fairly recession-proof. The idea that economic activities change all the time through times of boom and bust is called “cyclicality.”

    Everyone knows that the Covid-19 pandemic has a cyclical effect on the stock market. During the first economic downturn, stocks that were sensitive to the economy went down. As the economy began to get better, most companies’ stock prices went back up. This upturn was also helped by government programmes and interest rates. This article explains what cyclical stocks are and how they work.

    A cyclical stock is one whose price is affected by big changes in the economy or by changes that happen over time. Cyclical stocks tend to move with the expansion, rebound, recession, and recovery of an economy. Most cyclical stocks are shares of companies that sell things that people need every day. These are things that people buy more of when the economy is doing well and less of when it is not.

    Companies that make or sell durable goods make or sell physical items that are expected to last at least three years. Non-durable cyclical stocks, like clothes and ready-to-eat foods, have shorter useful lives, go bad quickly, or are used up quickly.

    Nike, which makes sportswear, is an example of a company that works in this segment. Companies offer cyclical services that make it easier for their customers to travel, have fun, and do other fun things. Netflix is one of the most well-known businesses in this field.

    Some of the most popular cyclical stocks in India are automakers like Maruti Suzuki India and Tata Motors, as well as banks like HDFC Ltd. To give you a quick idea of some industries that tend to go through cycles, here are a few well-known and easy-to-understand examples:

    Airlines and Hotels:

    When the economy is doing well, both people and businesses are more willing and able to spend money on airline tickets and hotels than when times are tight.

    Retail:

    When the economy is weak, people tend to spend less on goods they don’t have to buy. But businesses that sell mostly necessities are not as cyclical.

    Restaurants: When the economy is bad, people tend to eat at home more, which hurts F&B stocks.

    Automakers:

    When the economy is bad, people tend to keep their cars longer and buy new cars more often when the economy is good.

    Most tech stocks go up and down in cycles.

    Banks:

    During a recession, there is less demand for mortgages, auto loans, and credit cards, and more people who already have loans have trouble paying them back. Also, interest rates tend to go down before and during recessions, which makes it harder for banks to make money.

    Manufacturing:

    When the economy is bad, demand for physical goods tends to drop, which hurts the companies that make them.

    Many of the above-mentioned industries, like retail and the auto industry, deal directly with customers and are therefore part of the consumer cyclical stock India sector.

    Different stocks and cycles

    Most of the things in this category are useful, like TVs, refrigerators, air conditioners, cars, etc. When the economy is growing, companies that make the above items have the highest growth rates in terms of profits because the market needs them more. Because these companies are making more money and more people want to buy their shares, the average price of their shares goes up on the market. This increases their cash flow, which makes them even more profitable.

    But when the economy is in a recession, cyclical public companies are the ones that suffer the most. The economy slows down during a recession, which has an effect on the level of production and employment. When unemployment goes up, people buy fewer consumer goods at first. This causes a big drop in total income and profit levels. Most cyclical stocks’ share prices go down when the economy is bad. This is because these companies make less money and fewer people want to buy their shares.

    So, there is a direct link between changes in the business cycle and cyclical stock performance. Since a rise in economic output raises the profits of the companies issuing the bonds, and a fall in the economy leads to a sharp drop in the profits these companies make,

    The difference between stocks that go up and down and stocks that don’t
    Stocks that do well when the economy does well tend to do well when the economy does well. But that doesn’t work for stocks that don’t follow a cycle. Even when the economy slows down, these stocks tend to do better than the market as a whole.

    Defensive stocks are another name for non-cyclical stocks. They include all the goods and services that people keep buying through all types of business cycles, even when the economy is bad.

    Companies that sell food, energy, and water are examples of non-cyclical businesses. Adding non-cyclical stocks to your portfolio can be a great way for investors to protect themselves from losses caused by cyclical companies during a recession.

  • What Are Growth Stocks?

    Stocks that are thought to be undervalued on the stock market are called “value stocks.” Many investors think that the market overreacts to any news, which causes stock prices to change in ways that don’t show how strong the company’s fundamentals really are. So, stocks that are currently trading for less than what the company is really worth are called “value stocks.” Investing in value stocks, also called “value investing,” is a strategy based on the idea that the market will eventually figure out what these stocks are really worth, which will cause the price to go back up and bring in good profits.

    What do value stocks do?

    The idea of buying low and selling high is at the heart of value investing. If you know how much something is really worth, you can buy it for less and sell it for more. This is how it works to buy stocks based on their value. The investor finds the value stock, buys it at a discount and holds on to it until it reaches its real value, at which point he or she makes a lot of money.

    Stock sales and discounts won’t be advertised and shown to the public. You, as a smart and realistic investor, will need to find stocks that are trading cheaply so you can buy them now and make money from them later.

    Features

    Value stocks are cheaper than other stocks like growth stocks because they are undervalued. One thing that value investing stocks have in common is a low price-to-earnings ratio and a high dividend yield from stocks that aren’t doing as well. Another important thing about value stocks is that their prices don’t change as much when the market is high or low.

    How To Find A Value Stock

    Intrinsic value is a combination of studying the financial structure, cash flows, revenues, and profits, as well as fundamental factors like the brand, business model, market structure, etc. This is an important thing to think about when looking for the best stocks to buy. Investors use the following ways to figure out how much a company’s stock is worth:

    Price-to-book (P/B) ratio:
    Divide the price of a company’s stock by its book value per share to get the price-to-book ratio. Book value is the value of a company’s assets minus its debts. Low P/B ratios can be a sign that a stock is undervalued and can help you find a good value stock.

    P/E ratio (price to earnings ratio):
    The price-to-earnings ratio is found by dividing the stock price by the company’s earnings per share. The price-to-earnings ratio (P/E ratio) shows how the price of a stock on the market compares to its actual earnings as shown in its books. Low P/E ratios mean that the stocks are undervalued, which means that the share price could go up in the future.

    Price-to-sales ratio (P/S ratio)

    Divide the market capitalization by the company’s total sales or revenue to get the price-to-sales ratio. Market capitalization is the number of shares that are out there multiplied by how much each share sells for on the market. If the P/S ratio is low, it means that the stock is undervalued and a good buy.

    Cash flows freely

    Free cash flow is the amount of cash a company has left over after all of its operating and capital costs have been paid. If the company has free cash flows, it will have money to invest in the future, pay off debts, pay dividends, and do other things.

    There are other ways to figure out how much the company and its shares are really worth. When making a list of the best value stocks to buy, investors need to know about the company’s finances, its competitors, the products it sells, and its track record with corporate governance. These will be the most important parts of the business. When investors look at all of these things, they can decide if a stock is a value stock and can give them good returns in the future.

    In a perfect world, the price of a share of stock would be the same as its true value. In the long run, the price of a stock will be about the same as its value. In the short run, however, this isn’t true for a number of reasons. The reasons could be problems with the economy as a whole or the fact that the business sector is cyclical. The value investors think that the market will eventually figure out that the prices are wrong and fix them. This is why value investing is done by experienced investors who look for stocks that are strong on the inside but are trading at a low price. So, figuring out the stock’s intrinsic value is the best way to tell if it’s a good deal to buy or if the price is too high to sell.

    When looking for the best value stocks to buy, investors should do their own research, think about their financial goals, and decide how much risk they are willing to take.

  • What Are Value Stocks?

    Growth stocks are companies that have a lot of room to grow. By buying shares in these kinds of companies, investors can make a lot of money through capital appreciation. However, investing in growth stocks requires the right research before you can buy them.

    Features

    People who like to take risks and want to make a lot of money on their investments should buy growth stocks. By looking at the following things, investors can easily find the best growth stocks and the companies that make them:

    Price to earnings ratio

    On the market, companies with a lot of growth potential are found, and shares of those companies have a high bid value. These companies’ growth stocks have a high price-to-earnings (P/E) ratio, which means they give a high return on total investment.

    People see a company’s full potential and think it will grow at a fast rate in the future if it has a high price-to-earnings ratio. But in some situations, a high P/E ratio can be misleading because it could mean that a business is overvalued. The performance of these kinds of businesses is caused by a boom, persistent inflation, or the growth of a financial bubble.

    One of the first things that the best growth stocks in India tend to have is a ratio of 1 or more.

    Price earnings to growth ratio
    Because the P/E ratio has some limitations, investors in India also look at the price-earnings to growth ratio to tell growth shares from standard equity shares. The main benefit of the PEG ratio over the P/E ratio is that it takes into account how much a company’s total earnings per share are growing each year.
    PEG Ratio = Market value of unit shares divided by the growth rate of earnings per share

    When a business has a high PEG ratio, it means that it has done very well. It is a better way to analyse a stock than the price-to-earnings ratio because it doesn’t give you false information.

    Strength of the company

    Companies can only give out growth stocks if they have a lot of room to grow and expand in the future. This can only be done if the company has a strong base, a good plan for business growth, and good management to reach the goals that have been set.

    It can be seen in the return on equity (RoE) value that is published every year. In India, companies that raise money through growth stocks usually have a record return on total equity of 15% or more per year.

    Why should you buy stocks that can grow?

    Capital appreciation
    Investing in the best growth stocks is done to make sure that a lot of money is made through large capital gains. These companies grow faster than the industry they are in, which means they make more money.

    Investing in growth stocks is only a way to make money in the long run. The long-term capital gains tax (LTCG), which is lower than the short-term taxation policy, applies to any capital gains made during this time. There is also a provision for indexation, which lowers people’s tax burdens even more.

    Prepare for rising prices
    The best growth stocks have returns that are much higher than the rate of inflation in an economy. In the long run, people’s purchasing power goes up, which means that their standard of living goes up because they have more money.

    Risks of growth stocks

    Growth companies look to make money by using aggressive business strategies to get a big share of the market. Investors lose a lot when these kinds of companies don’t pay dividends because they want to use the money instead to grow.

    During the lock-in period, investors don’t get any dividends, so if a business keeps losing money, in the long run, investors will lose all the money they put into it.

    Growth stocks are usually issued by companies that are still growing and changing, so they are very risky. They are very sensitive to changes in the market because they are volatile. Even though this feature lets businesses make huge profits when the market goes up, even a small change in price can cause losses. Investing in the best growth stocks should depend on how the market is doing. The underlying performance of growth stocks can also be caused by a country’s stable economy. If there is a financial bubble, companies that work in that sector tend to do better than they should. This kind of growth can be deceiving because it is caused by a strange thing in the economy.

    In order to make enough money, investing in growth shares in India requires a thorough analysis of both the companies chosen and the social and economic conditions at the time.

  • How To Choose Between Value and Growth Stocks?How To Choose Between Value and Growth Stocks?

    When it comes to making investments, investors have a lot of choices, such as debt vs. equity, active vs. passive funds, mutual funds vs. stocks, value vs. growth investing, and so on. Investors can choose between growth investing and value investing when they put money into the stock market.


    Both strategies help investors make more money on the stock market, but they do so in different ways and are widely used.

    Fundamental research is a good way to tell the difference between value stocks and growth stocks. Let’s look closely at each type before we say what makes them different.

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    Investment in growth stocks
    The Growth Investing strategy looks for companies that have a higher chance of outperforming their earnings and are expected to keep giving high returns on profit growth. Small-cap, mid-cap, and large-cap funds all have growth stocks. Investors are willing to put money into something and pay a higher price if they think it will grow or give them a higher return soon.

    Investors are optimistic about the company’s business plan and its chances of growth in the near future. Several things, like the company’s position in the market or the belief that its next line of products will be well received, can give investors confidence.

    Also, these stocks are more “expensive” than those of their competitors because their price-to-earnings ratio is higher. This is why investors are willing to pay more for these stocks than they are currently making because they think the price will be worth it in the long run.

    Investment in value stocks

    The value investing method usually looks for stocks that are undervalued, or whose current market price is lower than what they are really worth. So, they move along slowly, but they are worth more in the long run. The idea is that the market will quickly see how valuable it is, and the share price will then “catch up,” leading to big profits. So, if the actual value of a share of stock is Rs. 100, but it is currently trading at Rs. 75, an analyst will think this is a good value pay.

    There are many things that can cause value stocks to be undervalued, such as the economy, legal problems, bad press, disappointing earnings, etc. All of these things make us question how well the company will do in the long run. But they come back slowly. Value stocks are best for investors who want to hold them for a long time, and their prices may be more likely to change than those of growth stocks.

    DIFFERENCE BETWEEN VALUE V/S GROWTH INVESTING

    An important difference between value stocks and growth stocks is that value stocks have a better chance of beating their peers when interest rates go down and corporate earnings go up. But when the economy slows down, it will be the first to pay the price. Value stocks, on the other hand, may do well in the early stages of an economic recovery, but they are more likely to do poorly in a long-term bull market, when constant media coverage, a rumor, or a news story about the company’s management could cause a panic sell-off.

    VALUE V/S GROWTH INVESTING: WHICH IS BETTER?

    There is no right or wrong way to choose between growth investing and value investing when investing in the stock market. Instead, each method has its own set of goals, benefits, and risks. Because of this, it is best to use a combination of investment styles instead of just one, since both have their pros and cons.

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  • Understanding Block Deals And Bulk Deals

    Today, a lot of different people trade and invest in the stock market. There are also a number of strategies used when trading shares and orders are constantly being placed. Aside from the very common retail investor, large corporations and institutions like hedge funds, mutual funds, investment banks, pension funds, HNIs (high net-worth individuals), FIIs (foreign institutional investors), and company promoters also buy and sell shares on a large scale

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    Stock Market Biggies

    These big players come to the stock market with a lot of money and a good understanding of the companies they want to put their money in. The average investor is small compared to these big players in the market, so they don’t have access to this special information that big investors do. Because of this, the ways that big investors trade and invest in the stock market today are different from those of small investors. These big investors do large deals, which are called bulk deals and block deals. Even though they sound the same, you need to know that they are not the same.

    Block Deals

    To know how block deals and bulk deals are different, you need to know what each means. First, you need to understand what a block deal is. A block deal is a single trade in which more than 500,000 shares are traded or a trade in which the value of the shares traded is more than Rs. 10 crores. In 2017, SEBI, which stands for the Securities and Exchange Board of India, changed the value of a block deal to Rs. 10 crores. Block deals happen on the stock market during a certain time called the “block deal window.” Block deals happen in a special trading window that retail investors can’t see. There are no value charts for these deals on any trading platform either.

    In a special “trading window,” block deals are made in two 15-minute shifts. A Block Reference Price is used to figure out how block deals are made. In block deals, orders that aren’t filled are cancelled and don’t move on to the next trading window.

    Bulk Deal

    When at least 0.5% of a company’s listed shares are traded, the deal is considered a bulk deal. In contrast to block deals, bulk deals take place during normal trading hours on the stock market. Again, unlike block deals, details of bulk deals are not kept secret from other market participants like small investors. On different trading platforms, they can be seen on the volume charts. Because bulk deals are visible to other market participants, they can affect stock prices in real-time and in a dynamic way. When a broker does a bulk deal on behalf of investors, he or she must share the details of the deal, such as who is involved, how much is being traded, etc.

    Other differences between block and bulk deals include the fact that bulk deals can be done during the trading window for block deals if they meet the conditions for block trading. For example, if the value of the transaction is more than 0.5% of all the listed shares of the company and more than Rs. 10 crores, participants can choose to trade during the block window or on a normal trading day. If the people involved want the details of the deal to stay secret until they are shared with the exchanges, they can choose to do the deal in the trading window.

    How Prices Change for Bulk and Block Deals
    Any big deals on the stock market today have to affect smaller investors (and some large ones). They get people’s attention because of how big and important they are. Investors think that the stocks involved in such deals must be real. Bulk deals and block deals may show that more people are interested in a stock or that fewer people are interested in it. These signals must be taken seriously. Also, before you decide to trade, you should look at other indicators and trends. Even if a bulk order is filled, it doesn’t mean that a certain stock is likely to move in the same direction as the bulk trade. Still, repeated bulk trades in the same direction (either buy or sell) may show interest in the stock in that direction.

    As an individual investor, you may need to buy or sell stocks in smaller amounts with the help of a trading account that is linked to a Demat account. When you open a Demat account, you probably don’t think that block deals and bulk deals can be as big as they often are in the markets. But these deals, which are used by large funds, high-net-worth individuals, and institutional investors, move a lot of money on the stock market today. During normal market hours, big deals happen that everyone can see. When block deals are done in certain trading windows, the parties involved have a little more privacy. Still, bulk deals must be reported to the relevant exchanges at the end of the trading day (on the same day as the deal) and the information must be made public.

    As an online brokerage firm, we understand the nuances of trading, hence offer our best services to our customers, including providing our users with the best trading accounts and lowest brokerage options.

  • What You Should Know About Loans Against Securities

    There are many benefits to investing in the stock market in India. You can get a loan against the securities in your Demat account, which is one of the many benefits. You can basically use the stocks you own as collateral with your stock broker or a financial institution to get a loan to pay for unexpected expenses.

    Before we get into understanding loans against securities, it is important to understand that trading requires a powerful online trading platform and at Zebu, as share market brokers we understand that. Along with the tool we also offer the lowest brokerage for intraday trading.

    Still, there are a few things you should know before you go ahead with this. Here’s a quick look at the top 5 things you’d have to think about if you used this service.

    Financial Institution

    The first thing you should know about getting a loan against the stock is that not all banks or stock brokers offer this service. So, it is very important to find and pick the right institution. When looking for loans, you should try to get them from places that have low-interest rates. This will help you pay the least amount of money you have to.

    2. Check if you’re eligible

    Before deciding on a financial institution where you want to use this service, it is a good idea to look at their requirements to see if you meet them. Different institutions have different requirements, so it’s important to know if you meet them before you apply. This will help make sure that everything goes smoothly and without any problems.

    Loan Amount

    The next thing you should know about a loan against security is how much you can borrow. Since the value of securities like stocks and bonds tends to change every day, most lenders will only loan a portion of the securities that have been pledged. Most of the time, the amount of a loan from a financial institution is between 60% and 80% of the value of the securities pledged.

    A list of stocks

    Not every place that lends money will take every kind of security as collateral. For example, some lenders may be willing to take mutual fund units as collateral while others may not. So, the list of accepted securities may be different based on where you apply. So, if you want to get a loan against stocks, you should first check with your preferred financial institution to see if the stocks you own can be used as collateral.

    Fees and charges that must be paid

    Lastly, most lending institutions charge fees and interest rates for loans against securities. Fees can be for anything, from processing to making a pledge. Some financial institutions even charge fees if the loan is paid off early. So, before you move forward with the process, you should be aware of the different fees and charges that come with such a service. So, you can make a good choice.

    Conclusion

    With this information, we hope you now know what you should think about when using this service. On the other hand, if you want to invest in the stock market today, you must have a Demat account in your name. Contact Zebu right away to set up a free Demat account in just a few minutes.

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  • What Is Bottom Fishing?

    Bottom fishing is the practice of investing in assets that have gone down in value, either because of internal or external factors and are thought to be undervalued.

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    How to Figure Out Bottom Fishing

    Investors who use the bottom-fishing strategy are called “bottom fishers.” They bet, using either technical or fundamental analysis, that an asset’s low price is only temporary and that it will rise again over time to become a profitable investment. Bottom fishing can be a risky strategy when asset prices are down for a good reason or a smart strategy when asset prices are trading at irrationally low prices.

    Bottom fishing is based on the tried-and-true method for making money in the stock market, which is to buy low and sell high. In short, look for value and invest in it. Value investors like Warren Buffett and Benjamin Graham have made a lot of money by buying assets that are selling for less than they are really worth and waiting for prices to go back to normal.

    Bottom fishing as a way to make money has often been thought of as more of an art than a business strategy because it is so abstract. The most important thing to know about this art is that a successful bottom fisher doesn’t try to buy a stock at its absolute lowest price, but rather at a point where it has the best chance of going up.

    The best way to describe the risk of bottom fishing is with the market saying, “There’s a reason why the price is where it is.” Simply put, the market is always deciding how much a security is worth. If the value of a security has dropped sharply, there may be a good reason or reasons for the drop. It is very hard, if not impossible, to tell if this drop is due to something temporary, like panic selling, or if it is a sign of deeper problems that are not obvious.

    Here are some examples of bottom fishing:


    Putting money into the stock of an aluminium company when the price of aluminium is low.
    Buying shares of a company that ships containers during a recession.
    Putting money into a print media company when the internet is driving them out of business.
    Buying shares of a bank when the economy is in trouble.
    In each of these situations, it’s not clear when or if the stock price will go back up, but you could make a case either way. During the 2008 financial crisis, investors who bought bank stocks made a lot of money, but investors in print media companies may have lost money because the industry has never been able to fully recover from the increasing competitive pressures.

    Strategies for bottom fishing
    Bottom fishing is appealing because it has a higher chance of making money than assets that are fairly valued or overvalued. Bottom fishing is most popular in bear markets, which makes sense.

    Value investing is the most common way to fish at the bottom. Value investors look for opportunities where the market may be pricing assets too low. They do this by looking at valuation ratios and predicting future cash flows. A company that had a bad quarter because of a problem with its supply chain and saw a big drop in sales would be a great example. Value investors might decide that this is an isolated incident and buy the stock in the hopes that it will recover and trade at a price that is more in line with its peers.

    Many traders also use technical analysis to find stocks that have been oversold and could be good opportunities for bottom fishing. For example, a company may report quarterly financial results that are worse than expected and see a big drop in price. Traders may see that the pressure to sell is starting to ease and decide to go long to take advantage of the short-term recovery. Often, these traders will use technical indicators that help them figure out if a security has been oversold or look at patterns in candlestick charts to do the same thing.

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  • 5 Reasons Why Investing In Penny Stocks Is Risky

    Even if you don’t invest in the stock market often, you are likely to get calls and texts from unknown brokers trying to sell you penny stocks. What are penny stocks, anyway? On the US stock market, stocks that are trading for less than $1 are called “penny stocks.” Penny stocks are usually stocks that are trading for less than Rs.20 in the Indian market. Another definition is stocks that are trading for less than their par value or face value. The main point of the story is that these penny stocks are shares of companies that most people have never heard of and whose business models aren’t very good. Here’s why you shouldn’t fall for the allure of penny stocks, even if they look very appealing.

    As experienced share brokers we want to offers the best online trading platforms, and the best trading accounts for our users.

    1. Penny stocks are cheap because they might not be worth much.

    Penny stocks are usually quoted at very low prices because that is what they are worth. Some penny stocks are sold as good investments because their P/E ratio is low. That can be hard to understand. The P/E ratio shows how much people trust and care about a stock, and a low P/E usually means that people don’t trust the stock. Most of the time, these companies also use creative accounting to make their profits look bigger than they really are. Don’t get tricked by a low P/E.

    2. It’s easy to trade in circles with them, and you could get caught.

    What does it mean to trade in a circle? Here, a group of brokers make a deal with the promoters to drive up the price of the stock by making fake demand for it. Most of the time, if A, B, and C are all trading in the stock, one of them will be either the buyer or the seller. But when the markets see that the stock is consistently being bought and its price is going up, a lot of small investors tend to become interested. As soon as there is enough interest from retail investors, these “circle traders” get out of the stock, leaving retail investors with worthless paper.

    3. Penny stocks tend to move in areas that are doing well.

    This is where the game of penny stocks gets pretty easy. During the height of the technology boom, a lot of “fly-by-night” companies changed their names to sound like IT companies. Not only did these companies manage to get people interested in the market, but they also sold shares in their IPOs and private placements at prices that were too high. You don’t realise you’ve been taken for a ride until the dust settles.

    4. Volumes can be created and taken away quickly.

    This is something that happens a lot with these cheap stocks. You may buy a stock because it has a lot of trades, but as soon as you do, buy orders are pulled. What is going on? Let’s get back to our question about penny stocks and how they are traded. Most of the people who buy and sell at the counter are the same people who do business in circles. When they see that retail buyers are pushing prices up, they will just cancel their buy orders at lower prices. This makes the selling/buying order book look off, which makes people want to sell more. This is bound to happen when only a few traders control most of the volume.

    5. Illiquidity is a major risk

    This again has to do with the last point. What does the term “basis risk” mean? It is the difference between the buy price and the sell price, also called the spread. This is important because it makes your costs go up when you buy and makes your advantage go down when you sell. You’ll also notice that these stocks are always in the lower circuit or in the upper circuit. Since the volume and float are completely controlled by the circular traders, it may become very hard to buy and sell the stock. Most of the time, they will continue to be interested in these stocks only after they have sold all of their stock to other investors.

    6. A lot of them could be “shell” companies

    Most of the time, these companies whose stocks are worth only a penny are just “shell” companies. That means that the company is no longer doing business or that all of its assets have been taken away. At the end of the 1990s, there were a lot of software companies that were really just fronts for laundering money through exports. Such businesses have a negative enterprise value, so it doesn’t make sense to buy them at any price. Worse, if SEBI starts an investigation into one of these companies, you may have to answer embarrassing questions as well.

    Last but not least, you don’t have to do that with your hard-earned money.
    Lastly, buying penny stocks is probably not the best use of your hard-earned money. These stocks are high risk and have a low chance of making money. Most of the time, they are just tricks to get people to buy. Instead of buying these penny stocks, you would be better off buying shares in good companies that have been well researched.

    Remember that the market is full of stories about how your neighbour became a millionaire by investing in penny stocks. But there are also stories of people who put everything they had on penny stocks and lost everything. Penny stocks are not worth taking a chance on. You can do a lot more with your money. Better to be safe than sorry!

    As experienced share brokers we want to offers the best online trading platforms, and the best trading accounts for our users at all times.

  • Types Of Fear In The Stock Market – Part 2

    Here are two more phenomenons traders and investors fear about the stock market and a few tips to avoid them.


    If you are a regular investor or a trader, you know how important the tools are. And as a share trading company, we understand that you need the best share trading platform so we are here to give you just that along with the lowest brokerageoptions.

    3. Don’t listen to the crowd

    What is the government like and how is it like the stock market? Everyone has an opinion on them, no matter how much they know or how high up they are.

    People talk about the stock market as if they know everything about it, even though they don’t. In a corporate office, people talk about all kinds of things, and one person’s opinion might have been the start of a rumour. Don’t blindly agree with these points of view. It is very important that you do market research for your portfolio.

    “Be fearful when others are greedy and greedy when others are fearful,” says a famous quote from an investing genius.

    4. Diversify into multiple asset classes

    We just can’t say this enough. This is the most important thing you can do to lessen the risks of the stock market. To diversify means to put your money in different things so that if one doesn’t work out, the whole portfolio doesn’t lose money. The first rule of investing is to do this.

    Investing in different things comes with different kinds of risks. Having both high-risk and low-risk products in your portfolio gives it a sense of balance. Because of this, the best portfolios are made up of a mix of equity, debt, and cash. It could even have land or gold in it. But having one thing out of all of them is a big problem.

    5. Figure out the risk

    Risk appetite is how willing you are to take risks. It depends on the person and what stage of life they are in. If you’re a student or young person, you don’t have to worry about feeding anyone or taking care of a home, so you can take risks. But as people age, their responsibilities grow. One needs to plan for getting married, sending their kids to school, and finally, retiring. Over time, people become less willing to take risks, which makes them afraid of the stock market.

    So, before you invest your money, you should carefully look at the product you want to buy, its risk model, and whether or not it fits your risk tolerance. The stock market has its own risks, but if you are careful, you can make good money from it.

    Conclusion

    Investing in the stock market is definitely scary and full of big risks.

    But if you stay calm, learn to make decisions that make sense, and use these strategies, you can have a smooth sail.

    Successful investors have made a lot of money by making the right choices at the right times. How would you know you’re not one of them if you’re always afraid of the stock market? So, don’t wait until tomorrow; start now and see what happens.

    As a share trading company, we understand that you need the best share trading platform so we are here to give you just that along with the lowest brokerage options.