Invest in the stock market must remember these 8 parameters :
As ordinary people, we do not have much knowledge and experience in finance. We never study the stock market, nor do we have the time for it.
I am going to propose Eight brief parameters that are bound to help you make sense of stocks and the stock market.
At the beginning of the pandemic, I made some investments without knowing anything about the Stock market. I didn’t understand what Company ROE and ROCE were, but I read books and practised stock trading on virtual platforms, thereby making a healthy return on my investment during the pandemic.
If you do not know anything about a company, Google is the best source to know about them.
The first step is to chart pattern to invest in any XYZ company stocks, google it, and see the Company chart pattern.
1. Chart pattern: The trend of the graphs must be in an upward direction like the below image:
2. Promotors Holding: Not less than 50%
It would be better if the promoter holding is more than 50%. According to SEBI (capital market regulator) rules, promoter holding does not exceed 75%. I prefer between 55% to 75%. If a promoter holding is less than 50% or more than 75%, you may fall prey to the promoter’s moves.
In the case of more than 75%, the company at any time can bring in a Fellow on Public Offer (FPO). An FPO will certainly decrease your stocks’ value as the FPO is usually below the current prices. This is what happened in the case of Yes Bank and GMM PFAUDLER LTD.
Promoters with holdings less than 50% may sell their shares impetuously at any time, causing the share prices to fall.
It’s a good practice to analyse the Y-O-Y increase in the promoters’ holdings. (preferably of the last five years)
The promoters are indirect owners of the company. Suppose the company’s vision is big, and they are planning to increase their market size y-o-y.
Their sales growth is also impressive. In this case, the maximum profit goes to the promoter since he has the maximum percentage of company shareholding.
So, in the future, the company will grow, and your investment will be safe. See the chart below.
3. ROE and ROCE: In Between 20-30% Y-O-Y
Measure the Return on Equity (ROE). How efficiently management can use to generate income provides for every Rs 1. The return on Capital Employed (ROCE) ratio shows how efficiently a company can use its total capital employed in the company.
ROE= Net income divided by shareholder’s equity
ROCE= earning before interest and tax divided by capital employed
It is generally considered good in between 20 to 30%. I prefer more than 25% in both cases.
4. Promoter Share Not Pledge: More than 10%
If the promoter’s shares are pledged at more than 10%, do not invest in such a company. I usually prefer zero to 5%. If the company’s business model is sound and their product and services are in demand, one can consider a promoter’s pledge of over 5% but not exceeding 10%
For checking the pledge shares, go to www1.nseindia.com.
5. Loan (Debt): Less than 1% of the total market cap.
According to the company market cap, some debt percentage is okay. If the company belongs to NIFTY 50, less than 1% of the debt is considerable. And also decreasing their debt Y-O-Y. Go to the money control website: www.moneycontrol.com, check all the company’s financial parameters. In the beginning, money control will look complicated, but things would become more apparent as you devote more time to the website.
6. MFI/FII/DII/ Insurance: Increasing their holding Y-O-Y
Two brains are more powerful than one; similarly, 12 minds are more powerful than two. If MF, FII, and DII holdings are high and they are increasing their holding y-o-y, the company will be growing in the near future, whereas decreasing their holdings does not invest. But see in the below image:
FII slightly decreasing while DII and Promoters are increasing. You will go with DII and Promotors. Or it’s up to you whom you will give more importance.
Or you can find another company where all three FII, DII, and Promoters are increasing their holding. These institutions have dozens of top experts in the financial domain.
7. About the Company: Founder, CEO Management, Products & Services.
Most people do not like to study a company. Researching a company is the first step before proceeding to buy its shares.
If you do not know anything about the company, google it.
Visit the company website to keep in mind their products, services, and management;
Founder
Chairman
Company Management
Leadership and CEO
Company management and leadership play a vital role in company success. Founder and CEO also play a significant role in company growth.
Assuming the company Management and CEO are involved in some litigation, it would be best to avoid purchasing such a company.
Vivid Examples are Yes Bank, Jet Airways, and Kingfisher. You can compare the stock prices of these companies from Ten years back to the present.
8. Belief:
If you deeply study above all the Seven parameters, your belief becomes more invigorated. Without faith, you cannot achieve a single milestone in your life.
If you believe and recite positive affirmations like “I’ll make a million dollars in the stock market,” results in line with your affirmations will show up in no time.
Lastly, remember to be positive and invest in yourself before investing in a company.
Conclusion:
It takes twenty years of rigorous education to become eligible for gainful employment. To attain a workable knowledge of stocks, you only need to invest a week or a month; you will become a pro in investing.
I have written my own experience; it does not take the grantee of your profit and loss. Before investing in any company, you have to do your own extensive research. Website links and tools are given in the context of the Indian Market. The article is originally published on Author’s Medium Profile,
Thank You for reading!
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View Comments (2)
How to check ROE & ROCE
Yes please visit: https://www.screener.in/company/WIPRO/consolidated/, Thank You Ram