Zebu blog

Tag: Growth Potential

  • What Is A Multibagger And How Can You Identify Them?

    Multibaggers describe equity shares of a company that could give returns that were many times greater than the cost of buying them. The correct answer is that these stocks give investors a return of more than 100%. There are many multibagger stocks that are great investments from companies with high growth. Due to their strong fundamentals, multibagger shares usually trade at a discount, which makes them great investments. These businesses have great ways of making things and good ways of running them. Such shares might be in high demand on the market because they show that a company is good at research and development. Companies that own these kinds of shares can grow quickly.

    How can you find a multibagger?

    Before you invest in a company, think about the following to find shares that will make you money. The amount of debt that the company in question takes on must be reasonable. Different industries have different ideas of what is reasonable, but in general, debt shouldn’t be more than 30% of the value of equity. It’s important to look at how the company has done in the past because that can show if its revenue is likely to grow slowly or not. The operations of a company may be easy to scale up, which could make its shares go up in value by a lot. It can be helpful to know how much money the business makes and where that money comes from. A company’s operations may also be affected by whether or not its management, business model, or organisational structure has changed in a big way.

    How important multibaggers are

    The Best Multibagger Due to the huge returns they offer, stocks are known for helping people make a lot of money. But you have to buy a lot of these shares if you want to invest in them and make money. This means that if they lose money, it could have a very bad effect on the world. These stocks could also get caught in an economic bubble for a short time. But when the bubble pops, investors could lose a lot of money. Multibagger stocks may not be the best choice for people who are new to trading stocks and don’t have much extra money. They might be better off putting their money into mutual funds.

    Alternatives to multibaggers

    Mutual funds offer their clients a diverse portfolio of stocks, bonds, or other securities. These portfolios are managed by experts and don’t cost much for investors. There are different kinds of mutual funds that take into account different things, like the kinds of assets they invest in, their goals, and the returns they want. A big chunk of the money in employer-sponsored retirement plans comes from mutual funds. It’s important to remember that investors in mutual funds pay annual fees, which are sometimes called “expense ratios.” These things could change the total returns.

    In conclusion

    People find it easier to invest in the stock market now that they can buy and sell mutual funds online. Before making an online investment in a mutual fund, investors must do a lot of research. The Internet can be a good place to find information about mutual funds that you can invest in right away.

  • Everything You Need To Know About Thematic Mutual Funds – Part 2

    A thematic fund’s portfolio is made up of stocks from companies in different industries that have something to do with the theme of the fund. Some investors might not know how each of these industries is growing. You can decide if certain sectors can help you make a lot of money if you know enough about them and how they relate to the subject of the fund. So, thematic funds are a good choice for investors who like to keep up with the news and are good at researching a wide range of industries. Investors can decide if they want to put their money into a certain topic by keeping an eye on a lot of places and getting useful information.

    4. Things to think about before putting money into theme-based funds

    Investment Goals: Before buying these funds, you should be sure of what you want to do with them. If you want the best return on your theme fund investment, you should invest for more than five years. It’s not hard to see why. Any business needs enough time to reach its full potential. So, when you put money into these funds, you should have long-term goals in mind, like retiring early, paying for your child’s college, etc.

    Investment Risks: The benefits of investing in theme funds may seem appealing, but it’s important to know the risks that come with it. It is a very dangerous way to go. Because of this, people who have never invested before are told not to buy themed funds. Let’s look at the main risks that come with these funds:

    Semi-Diverse Portfolio: Compared to sectoral funds, which don’t offer any variety, a theme fund’s portfolio is a bit more diverse. It does, however, offer fewer ways to spread out your investments than other equity funds, like multi-cap funds, whose portfolios include securities from many different industries. Since these equity funds don’t have a theme, it’s less likely that all the stocks will fall at the same time than it is with thematic funds.

    Some themes could take longer to develop than expected. Even if some of us can see that a theme has a lot of potential in the near future, say in the next four or five years, our predictions are likely to be wrong. It might take longer than we thought. There were a lot of brand-new funds with themes, and many investors hoped to make money from them. Even though infrastructure has been a topic for more than ten years, there hasn’t been much progress. When investing in themed funds, an investor may have to wait up to 20 years to see a profit. There is a risk of time with theme funds.

    Expense Ratio:

    You need to be honest about the costs that cut into your profits. For managing the thematic funds you want to invest in, Asset Management Companies (AMC) will charge you a fee called an expense ratio. This fee is mostly used to pay for the fund’s overhead costs, such as the salary of the fund manager and marketing costs. The fee is charged once a year.

    5. Taxation of Thematic Funds

    What matters are the profits after taxes. You should know how taxes work with that kind of money. The capital gains you made when you sold your theme fund are taxed based on how long you held on to it.

    If you sell your investments within a year, the profits are considered short-term capital gains (STCG), and you have to pay 15% tax on them.

    Long-Term Capital Gain Tax (LTCG):

    Gains from any investment held for more than a year are considered Long-Term Capital Gains and are taxed (LTCG). Gains of up to Rs. 1 lakh are not taxed in a fiscal year. Gains of more than Rs. 1 lakh are taxed at 10%.

    These are the important things to know about Thematic mutual funds. To start investing in them, open your demat account with Zebu today.

  • Everything You Need To Know About Thematic Mutual Funds – Part 1

    Each mutual fund is based on an asset that brings in money. Large-cap funds’ underlying assets are the stocks of some of India’s biggest companies based on market capitalization. In a similar way, thematic funds are made up of stocks of companies that all have something in common with a certain theme.

    For example, a fund with an ESG theme will invest in companies from different industries that have done well in terms of the environment, society, and the way the company is run (from technology to financial services to FMCG to Consumer Durables).

    Because of this, thematic funds are different from traditional investment strategies like market capitalization (large-cap, mid-cap, small-cap), style (value & growth), and sectoral investing (pharma, technology, infrastructure). As long as it has something to do with the topic, it invests in many different industries and market values. SEBI also says that 80% of a company’s total assets must be invested in stocks and securities related to stocks of a certain theme.

    1. What are the pros of investing in thematic funds?
    More options for diversification than sectoral funds.
    When you invest in a sector fund, your portfolio is limited to that sector, so you don’t have any other options for diversification. Your portfolio will suffer if the sector is doing badly for any reason. Thematic funds, on the other hand, invest based on a theme and may include stocks from companies in different industries. This gives you a bit of diversity. For example, think about a fund whose main focus is on manufacturing. This fund puts its money into a wide range of engineering, chemical, and construction businesses. So, even if businesses in one area aren’t doing well at a certain time, businesses in other areas will keep your portfolio from falling apart in a big way.

    2.Returns that beat the market

    If the investor chooses the right theme to invest in, thematic funds may produce amazing returns. Still, we need to realise that getting the theme right is harder than it seems. It requires that you keep an eye on the things you’re interested in and pay attention to the news and headlines all the time. If, after all your hard work, you really nail the topic, thematic funds could pay off in a big way for you.

    3. Who is a good fit for thematic funds?

    Investors with a high risk tolerance:
    Thematic funds are one of the high-riskmutual funds. When a portfolio is put together with a theme in mind, it limits the kinds of investments that can be made. It would only be able to put money into companies with shares in that area. So your portfolio has a little bit of everything. If for some reason this theme doesn’t come true, there is a big chance of losses. So, these ETFs should only be bought by investors who can handle high risk.

    Investors Who Want Long-Term Returns: It might take a while for a subject to reach its full potential. For example, we’ve known since the early 1990s that software and internet technologies had a lot of potential. But now, 20 years later, we can really see how these ideas work in the real world. So, it takes time and hard work to turn these topics into profitable investments. If you’re an investor who wants to make money over the long term, thematic funds may be a good choice for you. People who are just starting out with investing are told not to put all of their money into themed funds right away.

  • 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.

  • 10 Things You Should Consider Before Investing In An IPO

    Investing in an IPO can be a great way to build wealth with promising companies. However, if last year is anything to go by, IPOs can be extremely tricky to invest in. If you are purely investing in an IPO to benefit from the listing gains, we suggest that you find promising companies, apply to the IPO and sell your shares on the day that it gets listed. However, if you are a long term investor, you can hold on to your gains.

    In this blog, we’ll talk about what an IPO is and the 10 Things to Check Before Investing in them.

    1. Read the Red Herring Prospectus. A company files the Draft Red Herring Prospectus with SEBI when it wants to sell its shares to the public to raise money. This document explains how the company plans to use the money it gets from the public and what risks investors might face. So, people who want to invest in an IPO must read this document first.

    2. Reasons for Raising Money: It’s important to know what the company plans to do with the money it gets from the Initial Public Offering. One should find out if the company wants to pay off its debts or if it wants to raise money to grow the business, or use the money for other business purposes. This shows that the money will be used well in the business, which is a good sign for an investor.

    3. Know the business model: Before investing in the Initial Public Offering, investors should know what kind of business model the company has. Once they know what kind of business the company is in, the next step is to find a new market opportunity. This is because the size of the opportunity and the company’s ability to get a share of the market can make a big difference in the company’s growth and shareholder returns. If investors don’t understand what the company does for business, they shouldn’t buy into its IPO.

    4. Analyzing the background of the company’s management and promoters: It’s important to find out who runs the business since they are the company’s backbone. Investors should look at both the people who started the company and the people who run it since both play important roles in how the company works. The company’s management is a big part of what moves the business forward. One should look at the qualifications and length of time that the company’s top management has been there. This gives an idea of how the company works.

    5. The company’s strengths and weaknesses: Before putting money into a company’s IPO, you should do a SWOT analysis of the company. The DRHP can be used to figure out what the company’s biggest strengths and weaknesses are. Investors should find out where the company stands in the industry it is in. People who want to invest in a business should try to learn as much as they can about the company and the strategies it uses.

    6. The company’s valuation: Investors should also check the company’s valuation, since the offer price could be too low or too high depending on the industries it works in and its financial ratios.

    7. The company’s health: It’s important to look at how well the company has done financially over the past few years to see if the company’s sales or profits have been growing steadily. If the company’s sales are going up, it might be a good idea to invest in its Initial Public Offering. Before putting money into an IPO, investors need to know how healthy the company’s finances are.

    8. Investment Horizon: An investor should know what their investment horizon is before putting money into an IPO. They should decide if they want to buy shares in the IPO just to trade them on the day it is listed or if they want to keep them for a longer time. The reason for this is that a trading strategy would depend on how the market is doing right now, while a long-term strategy would depend on how the company is doing in its core areas.

    9. Comparable Peers: Investors should also look at who the company’s competitors are. The DRHP compares the company to its peers in terms of both its finances and its value. Investors can look at how the company is valued compared to its peers to see if it is priced fairly.

    10. The company’s potential in the market: Investors should also look at the company’s opportunities and threats in the sectors where it operates. This is important for long-term investors to determine if the investment is worth it.

  • What Are Unlisted Stocks And Should You Invest In Them?

    We all know that investing in stocks can be good because, if done right, it can give you a huge return. We buy our stocks from the companies listed only on the stock market. However, there are companies that are not listed on the market whose shares you can buy. These are called unlisted stocks. Many of us don’t know that there are many benefits to investing in shares that aren’t on the stock market.

    1. Diversification of risk

    Unlisted shares have different risks than listed shares and can be a good addition to a portfolio of listed shares. They can be a good way to spread out your investments. Unlisted shares have the same or a better chance of making money than listed ones. There’s a chance that these stocks will go public at some point in the future. When they do, there’s a good chance that they’ll go up a lot. But whether you buy listed or unlisted shares, it’s important to look at the valuation metrics along with the price and buy stocks that are undervalued but have a good chance of growing earnings.

    2. Undervaluation:

    Since most unlisted shares can’t be sold quickly, they can only be bought by people who are willing to keep their money invested for a long time. Since there is less interest in these investments and fewer people want to join this community, the valuations are usually lower. There are many chances to invest in a stock that is undervalued. To find these opportunities, you need to be smart and know what to look for. For a beginner, it may be best to hire a professional who can give them the help they need.

    3. Lower volatility

    Because the shares aren’t easily sold, there are a lot fewer worries about their volatility. The standard deviation, which is a technical way of talking about how volatile something is, is much lower than listed shares. But if the wrong investment is made, the amount of money lost can be very high. Demand and supply for these stocks are not tracked every day, so the price would not change every day. When compared to listed shares, this investment will be less stressful in terms of money because the prices are fairly stable.

    How much should you spend on unlisted stocks?
    One should only buy unlisted shares if they are a good fit with the rest of their portfolio. Going overboard can make things a lot more dangerous. It is important to figure out your risk-appetite and how risky the investment is. Then, you can choose an investment that fits your risk profile. The risk of losing a lot of money in unlisted stocks is very high, so it’s important to only buy as much as fits your risk tolerance.

    We suggest that if you are a beginner investor you should keep away from unlisted stocks but if you are an experienced investor, that you still take the help of a financial advisor before investing in unlisted stocks.