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Tag: types of stocks

  • Types Of Stocks In The Indian Share Market – Part 2

    In the previous blog, we discussed a few important types of stocks. Now, let’s look at the other major categories.

    5. Value Stocks

    These are stocks that are trading below their worth or intrinsic value. What exactly is intrinsic value?

    It is the true worth of the company based on estimates rather than the market price of the company’s stocks.

    Consider the following example:

    Assume you come across a firm called Sheetal Communications, which has a current share price of Rs. 500. However, based on your calculations, the company’s intrinsic value is Rs. 600 per share. The stock market will eventually recognise the company’s true worth, and the stock will grow correspondingly.

    Value stocks are inexpensive and have the potential to generate high returns over time.

    However, both value companies and terrible stocks are available at a low valuation.

    So how do you tell the difference between the two?

    Remember that value stocks are quality businesses that have been momentarily trading at lower prices and have the ability to resurge and prosper in the future. Some possible reasons for a temporary decline include results falling short of expectations for a quarter, a brief piece of bad news riding strong sentiment but with a smaller financial impact, or simply poor market mood. Weak stocks, on the other hand, have limited liquidity, inconsistent earnings history, or poor metrics on conventional financial parameters.

    6. Growth Stocks

    You might have guessed how stocks in this category work. These are companies whose earnings are expanding faster than those of their peer group.

    However, because of their stronger growth rate, these stocks require a higher investment than their rivals. They require additional capital to expand due to their rapid growth. As a result, these stocks will pay no or very little dividends and will reinvest earnings largely in the firm.

    However, the difficulty with these stocks is that a company’s rapid growth rate does not usually last long. This means that when the company’s growth rate returns to normal, the stock price may decline with it.

    7. GARP Stocks

    GARP, or Growth at Reasonable Price, is a hybrid of growth and value investment. GARP investing identifies growth stocks that are accessible at a reasonable valuation.

    The goal is to find growth firms that consistently exhibit above-average earnings growth while trading at a low value. These equities have an average P/E ratio and a greater rate of earnings growth, resulting in a PEG ratio of one or less than one.

    However, there is a distinction between GARP and value investing.

    Value investors seek out stocks that are inexpensive, but the chance of losing money with GARP is negligible.

    8. Momentum Stocks

    Momentum stocks are based on the idea that if a stock is rising, it will continue to rise for some time. This means that investors would buy rising stocks and sell them when they appear to have peaked.

    It is usual for investors to buy up-trend momentum equities at greater prices with the hope of selling at even higher prices. Early riders on the momentum rally benefit the most.

    However, momentum can be a trap for new investors if they enter the stock too late, especially if the up-move is about to end.

    When a stock begins to rise in price, investors become concerned that they will miss the next major move and begin to buy. This causes the stock to rise even higher, and so on.

    Momentum investing is based on technical information rather than fundamentals. And, while momentum investing may not be a good option for inexperienced investors, when done correctly, it can result in remarkable profits.

    9. Income stocks

    These investors want a steady income with the possibility of capital appreciation. Income stocks are less risky than other equities in the market. Companies in the income stock category receive extra income in the form of dividends that the company pays per share.

  • Types Of Stocks In The Indian Share Market – Part 1

    When it comes to investing in the stock market, you have so many options to choose from! You can choose from over 5000 companies based on your risk-taking abilities and market conditions. However, these stocks can be classified broadly into a few types that will make investing easy for you.

    Let’s look at the many types of stocks and how to choose them.

    1. Blue-chip stocks

    Blue-chip stocks are top-rated stocks that you might be very familiar with. For example, Reliance, TCS, Nestle, and Asian Paints are a few blue-chip companies.

    But do you know what these businesses all have in common?
    They’ve been in business for a long time.
    They are well-known with a long track record of performance.
    Show consistency in performance
    Are pioneers in their respective sectors
    Have strong financials
    These companies’ stocks are good buys.

    Since these companies are the best in their respective industries, they can provide consistent returns. More importantly, because they are at the top of their game, you may not notice a significant decline.
    Are very liquid since there are always investors wanting to acquire these equities.

    Before we proceed, let’s discuss an important market term – beta.
    Who doesn’t like the attractive combination of predictable returns and low volatility? But how does one evaluate both of these combinations in a single stock? There are numerous methods for evaluating a firm, but one efficient method is to examine its Beta.

    What exactly is a Beta?
    Beta is a measure of stock volatility in relation to stock indices such as the Nifty, which has a beta of one.

    A stock is regarded as more volatile than the index if its beta is greater than one. It is typically favoured by aggressive investors with a high-risk tolerance. A stock with a beta of less than one, on the other hand, is considered low volatile and is chosen by conservative investors with a low-risk appetite. Beta can also be referred to as market risk or systematic risk.

    2. High-beta stocks

    Stocks with a beta greater than one are considered high beta. Because of their high beta, these companies are volatile and are preferred by aggressive investors. They also have the potential to outperform the benchmark index in terms of returns. Stocks in financial services, infrastructure, metals, and other industries are considered high beta.

    So, what are stocks with a low beta value called?

    That brings us to our next stock kind.

    3. Defensive stocks

    In layman’s terms, defensive stocks are equities issued by corporations that are not affected by economic cycles. Companies in this area include healthcare, utilities, and food & drinks, among others.

    Regardless of the state of the economy, you will require food, healthcare, and electricity. So, these are not affected by economic events.

    These stocks often have a beta of less than one and are considered low volatile. Despite a market slump, these equities are unlikely to decline significantly in comparison to other stocks. As a result, they are often favoured by investors who do not wish to take on a significant level of risk with their equity portfolios.

    But what kind of equities are genuinely affected by the economic cycle?

    4. Cyclical securities


    Cyclical equities, on the other hand, are corporations whose performance is affected by economic cycles.

    When the economy is in a boom, there is a strong demand for these companies’ products, which leads to better profitability and rising stock values. When the economy is in a slump, however, demand for these industries’ products falls, resulting in fewer earnings and a drop in stock price. Steel, cement, infrastructure, vehicle manufacturers, and real estate firms are examples of companies that belong within this category.

    You may have guessed why by now.

    Because budget cuts make it less probable to buy a new automobile or a new house while the economy is struggling.

    In the next blog post, let’s discuss more types of stocks.