Top 10 Stock Market Questions
19 April, 2024
How to identify stocks for investment?
This is one of the most significant questions in the stock market. Unfortunately, it lacks a definite answer. Any investment is subject to market risk, yet all stocks perform differently over time. Identifying good stocks from the vast range of stocks available can be tricky.
However, looking at the fundamentals of the company in question serves as a valuable approach to potentially judge the viability of an investment decision. You can always look at how the company has been performing recently across multiple key performance indicators and see how these numbers compare with its peers.
Where to access corporate information and earning releases?
Any public company’s financial information can be accessed via the following -
Stock exchanges
The company website
Websites dedicated to financial information and earning releases
Should you trade / invest in derivatives, equities, or any other asset class?
It is always good to balance multiple asset classes in your portfolio, like equities / bonds / real estate, etc., based on your risk appetite and profile. Derivatives are usually a more volatile financial security class and should be dealt with only if you have experience and knowledge. Bond investments are typically considered safer, albeit with a lower return on investment when compared to equities.
Do you need to diversify your portfolio across sectors?
You might have heard the famous saying, “Don’t put all your eggs in one basket.” This quote stands true in the markets as well. Investing in only one or two sectors can be a risky bet. Economic / business cycles and multiple events can cause a sector to underperform in the broader markets. Hence, it is always advisable to invest in a mix of sectors. Even when you diversify investments across sectors, it is recommended to hold multiple stocks from each sector. You can thus minimise the risk associated with any company-specific event.
Is options trading profitable?
Options are a powerful financial instrument that can multiply your money in a day or even make it zero. Hence, options trading might be profitable if you understand its nuances and pricing.
Prices of an option contract are influenced by various factors -
The underlying asset's price
Time until expiration
Volatility
Interest rate
You should have a lot of knowledge, experience and risk appetite to make money through options trading.
What are IPOs, and should you invest in them?
An IPO (Initial Public Offering) of any stock is the first time a company offers its shares to the public. IPOs serve the purpose of raising capital and transitioning a company into being publicly traded. Similar to stock investments, you should conduct adequate research before investing funds in an IPO.
At the time of such an offering, companies come up with multiple details in their prospectus. These include recent financials, plans, use of proceeds, major shareholders, etc. Upon thoroughly reviewing the information, you can make an informed investment decision.
IPOs frequently present promising opportunities, as numerous companies put out their IPOs at a lower valuation. This allows retail investors to invest at a reasonable price and make decent returns.
What kind of returns should you expect from the stock markets?
It is crucial to hold a sense of realism when considering potential returns in the market. In general, the historical performance of any share or market can only serve as an indicator of how the markets have been behaving in the past. This does not guarantee anything about the future price trajectory.
During a sound economic phase, stock markets have consistently demonstrated themselves as one of the most favourable asset classes for investment.
Should you invest in penny stocks for higher returns?
Many retail investors make the mistake of investing in penny stocks because they are cheap.
You should always examine the quality of your investment.
Review its past financial performance.
Assess its future ambitions.
Consider its leadership.
Evaluate whether it aligns with your risk appetite.
Investing merely by looking at the price of a share may not be a prudent decision and can lead to losses.
What are the factors that influence the prices of any stock?
The price of a stock can be influenced by both market-level factors and company-specific factors. Macro factors exert influence on a corporation's operations, consequently affecting stock prices. These include -
A country's economic growth trajectory
Inflation levels
Consumption patterns.
However, the company-specific factors play a large role when it comes to valuation. These include -
Frequent changes in leadership
Volatile financial performance
Increase / decrease in market share
Business cycle for the overall industry
How should you track the performance of your portfolio?
You can track the performance of your portfolio by checking the holdings in your Demat Account. Key aspects to consider include identifying the stocks contributing to your returns and pinpointing areas of concern.
On a broader scale, you should see if the average return generated by your portfolio is above / below the performance of the major indices like Nifty 50. It is crucial to keep track, since by actively tracking your portfolio, you can reposition your investments based on market fluctuations.
Investing in the stock market requires knowledge and experience. You should research the company you are investing in thoroughly before making an investment decision.
It is crucial to keep track of your portfolio. By actively tracking your portfolio, you can rearrange your investments based on market fluctuations. To effectively track your portfolio, you can use HDFC Bank's Demat Account, which allows you to track your portfolio at any time, any place!
* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Investments are subject to changes in tax laws. Please contact a professional consultant for an exact calculation of your liabilities.
