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The Indian Equity Market is also the other name for Indian share market or Indian stock market. The forces of the market depend on monsoons, global fundings flowing into equities in the market and the performance of various companies. The Indian market of equities is transacted on the basis of two major stock indices, National Stock Exchange of India Ltd. (NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in a dematerialized form. The physical stocks are in liquid form and cannot be sold by the investors in any market. Two types of funds are there in the Indian Equity Market, Venture Capital Funds and Private Equity Funds.
The equity indexes are correlated beyond the boundaries of different countries with their exposure to common calamities like monsoon which would affect both India and Bangladesh or trade integration policies and close connection with the foreign investors.1995 onwards, both in terms of trade integration and FIIs India has made an advance. All these have established a close relationship between the stock market indexes of India stock market and those of other countries. The Stock derivatives adds up all futures and options on all individual stocks. This stock index derivatives was found to have gone up from 12 % of NSE derivatives turnover in 2002 to 35 % in 2004. the Indian Equity Market also comprise of the Debt Market, dominated by primary dealers, banks and wholesale investors.
(i) Direct Route :One can open an account with any BSE or NSE Broker and buy and sell shares in BSE or NSE directly. Investing directly calls for a bit of knowledge about the company and its business. One can also depend on research-based advice given by his broker. Further, one should have enough time to track his investment regularly. If you do not have these essentials it is advisable to opt for a professional to manage your investments via Portfolio Management Services (PMS) offered by any Investment Advisory Companies.
(ii) Indirect Route :One can invest in Mutual Fund which in turn invests in the stock market. Mutual Fund collects the money from the large number of small to big investors and then invests that money in equity shares. They possess requisite skills and expertise to do this job for which nominal asset Management fees is charged by them on total corpus. Those who don’t possess requisite skills and time, Mutual Fund is ideally suited for them.
(i) Fundamental analysis and
(ii) Technical analysisGenerally, for taking an investment decision of medium to long-term horizon, Fundamental Analysis is widely followed, while for short-term trading decisions, Technical Analysis is widely followed. Fundamental Analysis involves evaluating a company’s value by evaluating its business model, demand and supply of its product, its relative strengths and weaknesses in the industry in which it operates, the position of the industry, the sales and profit growth, return on equity, growth in earnings per share etc., value so arrived at is then compared with the ongoing market prices. If it is found that the market price is significantly lower than that, then it is advisable to buy the shares of that Company expecting that market will revalue the shares in future thereby offering capital appreciation in the value of the shares. Technical Analysis on the other hand focuses on the market price movement of the share in the past mainly through graphs or price and traded volumes in order to judge further performance. Short-term traders generally looking for a trading opportunity try to capture the price trend for short-term money-making opportunities. Although these two are widely followed and more rational approach for buying and selling, they are not infallible and hence are not foolproof.
- Do not buy on rumours and/or debts. Remember, investing in equity is not like a gambling; it involves skill and knowledge
- Always buy shares of a company whose business you understand. Consider investing in those stocks/industry with whom you had an opportunity to work or maybe a company manufacturing a popular product which you yourself use
- Study the Company thoroughly with whatever available information. Talk to people to whom you can trust to give you unbiased information about the company; read newspapers/ magazines to find leaders in various businesses
- For relative safety and better chances of appreciation, buy shares for longer term; buy the shares as if you are buying business
- Never buy in haste. If you are buying a good business for a longer term, it is a good buy irrespective of time
- Always diversify in 8 to 12 stocks since these are the number of companies one can track regularly with proper focus. Too less a diversification makes a portfolio more risky at the same time too much of a diversification results in loss of focus
- Never be impatient and panic. Short-term ups and downs in the share prices resulting into profit or loss should not bother you much
- A good company with a good business and management will always remain good investment in long term
- Do not buy the shares from borrowed capital. Borrowed money involves paying regular interest and returning capital at a predefined time since investment in the shares involves risks and requires patience of a long term nature, the time horizon and cost involved of the borrowed money some time may not match with the investment period
Securities and Exchange Board of India
Mittal Court ‘B’ wing, First Floor,
224, Nariman Point,
Mumbai – 400 021
Phone: 0222850451-56, 0222880962-70