Willing to ur views on stock market.Better if you provide proven statistics.I guess now a days people are giving more importance to investments. Even tamil dailies are talking about it.The conventional views are changing.Still there are people who argue its just a gambling.We cannot ignore that view also.I am eager to know what do you think about the stock market.Do you have any interesting experiences??
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Stock market
- Thread starter fire
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H
hariharan1972
Guest
Broad Topic
Fire ji,
You have started the thread at a very broad level. You may want to consider starting discussions on certain specifics / fundamentals so that the participation can be much better.
As to views on Stock Market :
Stock Market is a necessary evil. Intention wise Stock market provides the "liquidity mechanism" & "exit option" for the shareholders in such a manner that company's operations are not affected. Imagine without a Stock market, the shareholders have to knock the doors of the company to get his investment back. This will upset the cashflows of the company & would affect the growth prospects.
Stock Market provides the meeting ground for current shareholders & shareholders-to-be to meet & agree on a price based on company fundamentals.
This is theory.
As to whether dabbling in stock market is all gambling, well, there is both an art side & science side to indulging in stock market.
At best i can call stock market as an "intellectual gamble".
Let me know how you want to take this discussion forward.
Afterthought : Without a buoyant stock market, India couldn't have hoped to rope in FII funds which have resulted in RBI sitting on a Dollar pile.
Fire ji,
You have started the thread at a very broad level. You may want to consider starting discussions on certain specifics / fundamentals so that the participation can be much better.
As to views on Stock Market :
Stock Market is a necessary evil. Intention wise Stock market provides the "liquidity mechanism" & "exit option" for the shareholders in such a manner that company's operations are not affected. Imagine without a Stock market, the shareholders have to knock the doors of the company to get his investment back. This will upset the cashflows of the company & would affect the growth prospects.
Stock Market provides the meeting ground for current shareholders & shareholders-to-be to meet & agree on a price based on company fundamentals.
This is theory.
As to whether dabbling in stock market is all gambling, well, there is both an art side & science side to indulging in stock market.
At best i can call stock market as an "intellectual gamble".
Let me know how you want to take this discussion forward.
Afterthought : Without a buoyant stock market, India couldn't have hoped to rope in FII funds which have resulted in RBI sitting on a Dollar pile.
Last edited by a moderator:
A few more questions
While asked about investing in stocks , one of my relatives answered.....'Its once loss,another's gain.So I'm not involved in'....How far is it true? How far is it worse than a normal business?
Is it the speculation rises the values of all the stocks,or major stocks?? Are our companies are capable of achieving that much value?If one looks back and reading stories about infosys' past 10 years growth or googles growth its amazing.But can they grow at this rate?
Even a company with revenue of a few hundred crores has the market cap of many thousand crores.....Do you think many of the companies will one day fall in value because they wont able keep the momentum (with respect to investors expectations)....Even some companies fall wont they affect major number of investors??
Shouldn't we restrict the number of transactions by increasing the tax for it?? The more transactions means the more the short sellings....Finally it encourages the trading rather than investing.....
How important the secondary market to India's Growth? I can understand FDI directly creates opportunities by creating jobs in India.But FII serves only for the investors and the Govt (tax).Is it a correct view?
Assume there is no takers for some particular stock.....and people are not willing to sell it should the company expected/forced by law to take its stock back atleast on its face value??
Are many people buying stocks for selling after its value appreciation rather than for dividend growth over years?
While asked about investing in stocks , one of my relatives answered.....'Its once loss,another's gain.So I'm not involved in'....How far is it true? How far is it worse than a normal business?
Is it the speculation rises the values of all the stocks,or major stocks?? Are our companies are capable of achieving that much value?If one looks back and reading stories about infosys' past 10 years growth or googles growth its amazing.But can they grow at this rate?
Even a company with revenue of a few hundred crores has the market cap of many thousand crores.....Do you think many of the companies will one day fall in value because they wont able keep the momentum (with respect to investors expectations)....Even some companies fall wont they affect major number of investors??
Shouldn't we restrict the number of transactions by increasing the tax for it?? The more transactions means the more the short sellings....Finally it encourages the trading rather than investing.....
How important the secondary market to India's Growth? I can understand FDI directly creates opportunities by creating jobs in India.But FII serves only for the investors and the Govt (tax).Is it a correct view?
Assume there is no takers for some particular stock.....and people are not willing to sell it should the company expected/forced by law to take its stock back atleast on its face value??
Are many people buying stocks for selling after its value appreciation rather than for dividend growth over years?
Dear Sri fire Ji,
In a Capitalistic climate the Stock Market offers an opportunity for one to own a piece of a company. It is an investment vehicle and there are various categories like common stocks, preferred stocks, different types of options and different types of Bonds.
Each of these vehicles present a bit more or a lot more risk to an investor as compared to parking the money in a Government insured Bank or in a 'guaranteed' Government instrument.
For these mechanisms to work properly, there should be transparent laws covering adequate company disclosures in any country. The stock markets in USA, for example are considered the safest anywhere in the world because of SEC laws, but even here fraud takes place (e.g., Enron) and stock manipulations do occur.
In India, from what I hear, the laws are not that stringent and therefore it is relatively easy to manipulate the market. With global monies invested in the Indian market nowadays, the risks are huge (but the immediate payoff will be huge too) for an individual investor.
I will advise anyone not to invest their 'must protect' capital in the stock market and only invest if one looks at it as speculation and can afford to lose the capital.
Pranams,
KRS
In a Capitalistic climate the Stock Market offers an opportunity for one to own a piece of a company. It is an investment vehicle and there are various categories like common stocks, preferred stocks, different types of options and different types of Bonds.
Each of these vehicles present a bit more or a lot more risk to an investor as compared to parking the money in a Government insured Bank or in a 'guaranteed' Government instrument.
For these mechanisms to work properly, there should be transparent laws covering adequate company disclosures in any country. The stock markets in USA, for example are considered the safest anywhere in the world because of SEC laws, but even here fraud takes place (e.g., Enron) and stock manipulations do occur.
In India, from what I hear, the laws are not that stringent and therefore it is relatively easy to manipulate the market. With global monies invested in the Indian market nowadays, the risks are huge (but the immediate payoff will be huge too) for an individual investor.
I will advise anyone not to invest their 'must protect' capital in the stock market and only invest if one looks at it as speculation and can afford to lose the capital.
Pranams,
KRS
H
hariharan1972
Guest
My take - Part I
While asked about investing in stocks , one of my relatives answered.....'Its once loss,another's gain.So I'm not involved in'....How far is it true? How far is it worse than a normal business?
It is not correct to say in a stock market one man's loss is another man's gain. The 'timing' of decision is very important, the investment objectives are important & the risk 'appetite' is of paramount importance. Why i say that it is not somebody's loss & somebody's gain is that the whole transaction is transparent. The seller doesn't personally 'influence' the buyer, the price is market driven & the key underlying decision variable is the fundamentals of the company.
Investing in stock market can be worse than a normal business since the investor could face a sudden slump in the market caused by "bear phase" or a major market correction could spell doom. It is panic & greed which more often than not causes the loss. There are 'best practices' one can adopt such as 'Stop Loss' to overcome such losses.
Most importantly the investor has to understand his own psyche, be clear about his investment priorities & objectives and should know his risk appetite.
Is it the speculation rises the values of all the stocks,or major stocks?? Are our companies are capable of achieving that much value?If one looks back and reading stories about infosys' past 10 years growth or googles growth its amazing.But can they grow at this rate?
Simply put the movement in stock price is no different from price of brinjals in the market - the underlying factors are demand & supply. Having said that, there are differences since you know what brinjals are, how they will taste, they don't have a past & a future.
Speculation plays an important role in stock prices but the real star is the 'mood' of the market. The 'mood' of the market with respect to a stock is determined by factors such as Earnings announcements, Favourable/Adverse Govt policies, bonus announcements, Order wins etc... Another key factor which sets the mood is the "guidance" from the company. It may look all speculation but it isn't. You can spot 'speculative stocks' by relating it's price to factors above. Sometimes stock prices increase if in the perception of the market the stock is undervalued.
Market cap is an indicative number. The valuation of a company cannot be strictly restricted to or done on the basis of market cap. It is a good number to look at by companies cannot afford to take it too seriously as they have their businesses to attend to.
For every successful Infosys or Google there are scores of unknown companies who have failed. Can we ever forget the dotcom crash ? We remember only winners. If the underlying business model of the company is not viable, nothing can save the company.
It is difficult to categorically give an yes or no to your question on sustainability of infosys or google's growth. I can only say that as mature organisations they will keep re-inventing themselves & find new niche areas when the going gets tough. The growth rate will taper off but in my mind, there shouldn't be any problem for organisationally strong companies to deliver a long term sustainable growth.
Even a company with revenue of a few hundred crores has the market cap of many thousand crores.....Do you think many of the companies will one day fall in value because they wont able keep the momentum (with respect to investors expectations)....Even some companies fall wont they affect major number of investors??
When you buy the share of a company, what you bet upon is the future cash flow of the company. Revenue is just one factor. How market values the stock is based on the 'future potential' of the company indicated thru the Price Earnings Multiple. In some cases, even without revenues, the company may be valued highly because of it's potential, management team etc.., such as companies engaged in Drug Discovery.
Why one day ? The value correction can happen any day...Infact companies now have a 'Quarter to Quarter' life. The barometer keeps moving up each quarter & in certain industries the sentiment is favourable or adverse based on 'sequential growth'. Historical growth in some cases is out of the window. Market takes cognisance of every event & automatically 'corrects' the price.
With respect to investor's expectations, it is very essential as an investor you analyse the timing of your decision. Contrary to popular belief, you make money not when you sell but when you "buy". If you enter at a stage where the stock is on a upward curve, have realistic growth expectations, follow a discipline of stop loss / exit price, follow the market carefully, normally, i repeat normally, no stock will fail you. (Force majeure excluded)
Company has no obligation to meet the expectation of every investor as far as stock appreciation goes. It is the individual investor's decision to invest and he is solely responsible for his action.
If the market price falls significantly, yes, all the investors will be affected. In the event of continous erosion of networth & certain other events, there are provisions in Companies Act to call for dissolution of the company. However remember that Equity shareholders come last in terms of sharing the spoils.
While asked about investing in stocks , one of my relatives answered.....'Its once loss,another's gain.So I'm not involved in'....How far is it true? How far is it worse than a normal business?
It is not correct to say in a stock market one man's loss is another man's gain. The 'timing' of decision is very important, the investment objectives are important & the risk 'appetite' is of paramount importance. Why i say that it is not somebody's loss & somebody's gain is that the whole transaction is transparent. The seller doesn't personally 'influence' the buyer, the price is market driven & the key underlying decision variable is the fundamentals of the company.
Investing in stock market can be worse than a normal business since the investor could face a sudden slump in the market caused by "bear phase" or a major market correction could spell doom. It is panic & greed which more often than not causes the loss. There are 'best practices' one can adopt such as 'Stop Loss' to overcome such losses.
Most importantly the investor has to understand his own psyche, be clear about his investment priorities & objectives and should know his risk appetite.
Is it the speculation rises the values of all the stocks,or major stocks?? Are our companies are capable of achieving that much value?If one looks back and reading stories about infosys' past 10 years growth or googles growth its amazing.But can they grow at this rate?
Simply put the movement in stock price is no different from price of brinjals in the market - the underlying factors are demand & supply. Having said that, there are differences since you know what brinjals are, how they will taste, they don't have a past & a future.
Speculation plays an important role in stock prices but the real star is the 'mood' of the market. The 'mood' of the market with respect to a stock is determined by factors such as Earnings announcements, Favourable/Adverse Govt policies, bonus announcements, Order wins etc... Another key factor which sets the mood is the "guidance" from the company. It may look all speculation but it isn't. You can spot 'speculative stocks' by relating it's price to factors above. Sometimes stock prices increase if in the perception of the market the stock is undervalued.
Market cap is an indicative number. The valuation of a company cannot be strictly restricted to or done on the basis of market cap. It is a good number to look at by companies cannot afford to take it too seriously as they have their businesses to attend to.
For every successful Infosys or Google there are scores of unknown companies who have failed. Can we ever forget the dotcom crash ? We remember only winners. If the underlying business model of the company is not viable, nothing can save the company.
It is difficult to categorically give an yes or no to your question on sustainability of infosys or google's growth. I can only say that as mature organisations they will keep re-inventing themselves & find new niche areas when the going gets tough. The growth rate will taper off but in my mind, there shouldn't be any problem for organisationally strong companies to deliver a long term sustainable growth.
Even a company with revenue of a few hundred crores has the market cap of many thousand crores.....Do you think many of the companies will one day fall in value because they wont able keep the momentum (with respect to investors expectations)....Even some companies fall wont they affect major number of investors??
When you buy the share of a company, what you bet upon is the future cash flow of the company. Revenue is just one factor. How market values the stock is based on the 'future potential' of the company indicated thru the Price Earnings Multiple. In some cases, even without revenues, the company may be valued highly because of it's potential, management team etc.., such as companies engaged in Drug Discovery.
Why one day ? The value correction can happen any day...Infact companies now have a 'Quarter to Quarter' life. The barometer keeps moving up each quarter & in certain industries the sentiment is favourable or adverse based on 'sequential growth'. Historical growth in some cases is out of the window. Market takes cognisance of every event & automatically 'corrects' the price.
With respect to investor's expectations, it is very essential as an investor you analyse the timing of your decision. Contrary to popular belief, you make money not when you sell but when you "buy". If you enter at a stage where the stock is on a upward curve, have realistic growth expectations, follow a discipline of stop loss / exit price, follow the market carefully, normally, i repeat normally, no stock will fail you. (Force majeure excluded)
Company has no obligation to meet the expectation of every investor as far as stock appreciation goes. It is the individual investor's decision to invest and he is solely responsible for his action.
If the market price falls significantly, yes, all the investors will be affected. In the event of continous erosion of networth & certain other events, there are provisions in Companies Act to call for dissolution of the company. However remember that Equity shareholders come last in terms of sharing the spoils.
H
hariharan1972
Guest
My take - Part II
Fire ji,
I didn't get any comments so i should have been either totally confusing or convincing.
Presuming the latter, i continue....
Shouldn't we restrict the number of transactions by increasing the tax for it??
Surely no. Pray why the number of transactions should be reduced when already we have a Securities Transaction Tax is in place. Limiting the number of transactions will place restrictions on liquidity. In my view increasing the STT will hurt the capital market as it is a high volume market.
The more transactions means the more the short sellings....Finally it encourages the trading rather than investing.....
Not necessarily. Let us understand why the transactions increase. The real big players in a stock market are the FIIs and Mutual fund houses. In order to maximise the returns to the Unit holders, the mututal funds have to constantly look at the Net Asset Values (NAVs) of the funds. Hence they indulge in purchasing / selling securities which increases the number of transactions. In my view the stock exchange should encourage both trading & investing. The reason being the investment horizons of individual investors are different. Some one will be there for the long haul & a few others for the short haul. The market should provide ample opportunities for both to take benefit of the system. Short selling isn't necessarily an evil, but what was "evil" if at all one may call was the "Badla - Carry forward" system. Now there are clear norms on carry forward trade. SEBI hasn't yet assumed the proportions of SEC but it is clearly on the way. By listing agreements, Clause 49 etc... SEBI is inculcating lot of discipline in the market and forcing corporates to share more information to the shareholders. An informed shareholder can monitor & take informed decisions about his exposure.
How important the secondary market to India's Growth?
I would like to believe that a strong secondary market has important ramifications for the Indian Growth. Firstly it brings the necessary foreign exchange into the country which helps in currency stabilisation. Though the IT companies are fuming at Rupee's continous strengthening, an overly weakened rupee will put enormous strain on the economy. A well established secondary market will spur investment as more & more people will look at starting new projects. Retail investment will also increase as there is well established system for liquidity. A strong secondary market can boost investor wealth & create wealth. Increased wealth means increased consumption which pushes supply which in turn drives GDP growth. Though i am making it appear too simplistic there exists a strong correlation between a strong secondary market & growth in any economy.
I can understand FDI directly creates opportunities by creating jobs in India.But FII serves only for the investors and the Govt (tax).Is it a correct view?
You are correct so far as stating that FDI creates jobs. FDI & FII are two different animals but i see them as two sides of the same coin. FDI comes to participate in the booming goods & services market itself while FII comes primarily with an objective of gaining exposure in companies which are gainfully engaged in exploring the goods & services market. Naturally FDI is in for a long haul while FII has a lower investment horizon. However attracting FDI isn't too easy given our Capital Account Convertibility restrictions and the Sector wise restrictions (thanks to our Left friends). Since the character of FDI & FII is different, we cannot expect from one what the other delivers. Hence you may be right in saying that FII serves the investors & provides tax to the Govt coffers but i would like to believe that we need both. FII is very nimble (both ways ofcourse) & plays a big role in currency stabilisation. FDI is slow to move in but once in it can really take the market by storm. It is a big game changer & has to be approached cautiously.
Assume there is no takers for some particular stock.....and people are not willing to sell it should the company expected/forced by law to take its stock back atleast on its face value??
No, there is no such legal provision. As i wrote in my previous post upon continous erosion of networth & certain other events, the shareholders or the lenders can press for 'winding up or dissolution of the company'. In the order of priority, the secured lenders come first, unsecured next, preference share holders third & equity shareholders last in sharing the liquidation proceeds. The basic underlying concept of a company is that it is a going concern. So all efforts have to be directed towards keeping the company alive.
Are many people buying stocks for selling after its value appreciation rather than for dividend growth over years?
In my view both. It is actually linked to again the investment horizon of each individual. There is no investor who will be interested only in dividend income since it is only linked to face value. A good return on investment will combine both dividend income & value appreciation.
If you find all of this very complex, there is even more like futures, options etc... However some general thumb rules i would like to state are : (I am no warren buffet)
-- Look for good stocks to buy thru IPO. (Bharti's book building issue was priced at Rs. 45 & today it is over Rs. 800)
-- Track industries & it's market leaders
-- "Practice" investing either by actually investing small sums or creating "shadow portfolios" which many websites offer
-- Understand your investment psyche. Have realistic targets. Follow a discipline of "stop loss" (the point at which you will sell should price drop after you buy) or "exit price" (the price at which you will sell irrespective of future price)
-- Don't put all eggs in the same basket (err..should i be saying brinjals, suresh sir ?) be it the company or the industry. Build a diversified portfolio
-- Start with small lots. Use "Cost averaging" to buy at various price points so that you have a balanced weighted avg cost
-- Look out for bonus / dividend announcements
-- Invest in Mutual funds. They are a great proxy to your actual presence in market.
-- Deploy "systematic investment plan" if risk appetite is lower.
Fire ji,
I didn't get any comments so i should have been either totally confusing or convincing.
Presuming the latter, i continue....
Shouldn't we restrict the number of transactions by increasing the tax for it??
Surely no. Pray why the number of transactions should be reduced when already we have a Securities Transaction Tax is in place. Limiting the number of transactions will place restrictions on liquidity. In my view increasing the STT will hurt the capital market as it is a high volume market.
The more transactions means the more the short sellings....Finally it encourages the trading rather than investing.....
Not necessarily. Let us understand why the transactions increase. The real big players in a stock market are the FIIs and Mutual fund houses. In order to maximise the returns to the Unit holders, the mututal funds have to constantly look at the Net Asset Values (NAVs) of the funds. Hence they indulge in purchasing / selling securities which increases the number of transactions. In my view the stock exchange should encourage both trading & investing. The reason being the investment horizons of individual investors are different. Some one will be there for the long haul & a few others for the short haul. The market should provide ample opportunities for both to take benefit of the system. Short selling isn't necessarily an evil, but what was "evil" if at all one may call was the "Badla - Carry forward" system. Now there are clear norms on carry forward trade. SEBI hasn't yet assumed the proportions of SEC but it is clearly on the way. By listing agreements, Clause 49 etc... SEBI is inculcating lot of discipline in the market and forcing corporates to share more information to the shareholders. An informed shareholder can monitor & take informed decisions about his exposure.
How important the secondary market to India's Growth?
I would like to believe that a strong secondary market has important ramifications for the Indian Growth. Firstly it brings the necessary foreign exchange into the country which helps in currency stabilisation. Though the IT companies are fuming at Rupee's continous strengthening, an overly weakened rupee will put enormous strain on the economy. A well established secondary market will spur investment as more & more people will look at starting new projects. Retail investment will also increase as there is well established system for liquidity. A strong secondary market can boost investor wealth & create wealth. Increased wealth means increased consumption which pushes supply which in turn drives GDP growth. Though i am making it appear too simplistic there exists a strong correlation between a strong secondary market & growth in any economy.
I can understand FDI directly creates opportunities by creating jobs in India.But FII serves only for the investors and the Govt (tax).Is it a correct view?
You are correct so far as stating that FDI creates jobs. FDI & FII are two different animals but i see them as two sides of the same coin. FDI comes to participate in the booming goods & services market itself while FII comes primarily with an objective of gaining exposure in companies which are gainfully engaged in exploring the goods & services market. Naturally FDI is in for a long haul while FII has a lower investment horizon. However attracting FDI isn't too easy given our Capital Account Convertibility restrictions and the Sector wise restrictions (thanks to our Left friends). Since the character of FDI & FII is different, we cannot expect from one what the other delivers. Hence you may be right in saying that FII serves the investors & provides tax to the Govt coffers but i would like to believe that we need both. FII is very nimble (both ways ofcourse) & plays a big role in currency stabilisation. FDI is slow to move in but once in it can really take the market by storm. It is a big game changer & has to be approached cautiously.
Assume there is no takers for some particular stock.....and people are not willing to sell it should the company expected/forced by law to take its stock back atleast on its face value??
No, there is no such legal provision. As i wrote in my previous post upon continous erosion of networth & certain other events, the shareholders or the lenders can press for 'winding up or dissolution of the company'. In the order of priority, the secured lenders come first, unsecured next, preference share holders third & equity shareholders last in sharing the liquidation proceeds. The basic underlying concept of a company is that it is a going concern. So all efforts have to be directed towards keeping the company alive.
Are many people buying stocks for selling after its value appreciation rather than for dividend growth over years?
In my view both. It is actually linked to again the investment horizon of each individual. There is no investor who will be interested only in dividend income since it is only linked to face value. A good return on investment will combine both dividend income & value appreciation.
If you find all of this very complex, there is even more like futures, options etc... However some general thumb rules i would like to state are : (I am no warren buffet)
-- Look for good stocks to buy thru IPO. (Bharti's book building issue was priced at Rs. 45 & today it is over Rs. 800)
-- Track industries & it's market leaders
-- "Practice" investing either by actually investing small sums or creating "shadow portfolios" which many websites offer
-- Understand your investment psyche. Have realistic targets. Follow a discipline of "stop loss" (the point at which you will sell should price drop after you buy) or "exit price" (the price at which you will sell irrespective of future price)
-- Don't put all eggs in the same basket (err..should i be saying brinjals, suresh sir ?) be it the company or the industry. Build a diversified portfolio
-- Start with small lots. Use "Cost averaging" to buy at various price points so that you have a balanced weighted avg cost
-- Look out for bonus / dividend announcements
-- Invest in Mutual funds. They are a great proxy to your actual presence in market.
-- Deploy "systematic investment plan" if risk appetite is lower.
Last edited by a moderator:
Ques contd...
Sri Hari Ji and others,
Thanks for your in depth explanation.What is liquidity? Can I take it as a value for the money? (may be one's potential to perform and deliver high returns). If PC says there is ample liquidity in the system does it mean in his perspective , investors can earn the value for their money?
How far the market is secure if we depend on FIIs for our 98 % of the investment?
Apart from EPS and P/E what are the significant parameters?
Normally I go through Hindu Business line investment world suggestions to get the ipo.....From Blue bird I found only for CNN-IBN they gave a wrong suggestion (going by the current trading value ).What else I can do to know about the company?
Please explain about forward trading policy...Is it buying stocks by giving a percentage of its value and selling it quickly. How its implemented in agri sector by UPA...Pros and cons.
Going forward I want to know about futures and options too. I really wonder why people invest in commodities (petrol,copper,gold etc?) while banks offer higher interests.
Some banks dividends are more / equivalent to interest rate i think. (E.g) Dena bank. Does it mean people are undervalue it or they expect their earnings to slow down??
Is stock option a major part in the package?? If there is no stock option could the CEOs of great companies have achieved the status they enjoy today?? One more doubt i have? Can they really utilize the money?? I ask this question because if they sell the major number of stocks at a single shot , it will increase the supply side and may create a panic among investors.....
Sri Hari Ji and others,
Thanks for your in depth explanation.What is liquidity? Can I take it as a value for the money? (may be one's potential to perform and deliver high returns). If PC says there is ample liquidity in the system does it mean in his perspective , investors can earn the value for their money?
How far the market is secure if we depend on FIIs for our 98 % of the investment?
Apart from EPS and P/E what are the significant parameters?
Normally I go through Hindu Business line investment world suggestions to get the ipo.....From Blue bird I found only for CNN-IBN they gave a wrong suggestion (going by the current trading value ).What else I can do to know about the company?
Please explain about forward trading policy...Is it buying stocks by giving a percentage of its value and selling it quickly. How its implemented in agri sector by UPA...Pros and cons.
Going forward I want to know about futures and options too. I really wonder why people invest in commodities (petrol,copper,gold etc?) while banks offer higher interests.
Some banks dividends are more / equivalent to interest rate i think. (E.g) Dena bank. Does it mean people are undervalue it or they expect their earnings to slow down??
Is stock option a major part in the package?? If there is no stock option could the CEOs of great companies have achieved the status they enjoy today?? One more doubt i have? Can they really utilize the money?? I ask this question because if they sell the major number of stocks at a single shot , it will increase the supply side and may create a panic among investors.....
H
hariharan1972
Guest
Answers Part I
Fire ji,
My attempt in responding to some of your latest questions
Thanks for your in depth explanation.What is liquidity? Can I take it as a value for the money? (may be one's potential to perform and deliver high returns). If PC says there is ample liquidity in the system does it mean in his perspective , investors can earn the value for their money?
Liquidity means that money is in ample supply & there is no shortage of money. Now doesn't money buy commodities then why money is spoken about as an commodity ? The reason is that money is also a commodity so far as "supply of capital" goes. RBI monitors what is known as "Money Supply" in the system. Simplisticly put, this includes the Bank deposits + deposits with RBI + currency with general public.
Now if there is high liquidity then it refers to the fact money supply is ample enough to provide credit to persons / institutions who need borrowed capital. Interest rate is a function of money supply & demand.
When PC says there is ample liquidity in the system, he means that there is no 'credit squeeze' and credit is available without too many restrictions.
From an asset connotation liquidity means the extent to which the asset can be quickly converted into cash. If an asset can be easily sold or bought in the market without impacting it's price then the asset is said to be highly liquid.
For example relatively you can easily convert your car into cash compared to your house. Hence car is a more liquid asset than a house.
If you have a college going son or daughter, every time they dip into your wallet & they find cash, you will be considered highly liquid by them.
How far the market is secure if we depend on FIIs for our 98 % of the investment?
Your point is valid. But the extent of dependency that you put i.e 98% isn't correct. First let me assure you on the currency front. While it is true that FIIs can enter & exit the market quickly, there are certain restrictions placed on them in terms of repartriation of their dollars. So on currency front, a large instability due to FII pullout cannot happen.
On the Stock exchange front, FIIs do play a critical role. They support a stock till they are 'gung-ho' about the company & drop them as hot potatoes when it falls. My impression is that FIIs "accelerate" both rise & falls in a stock as they have low investment horizons. Having said that we do have domestic institutional investors, domestic mutual funds & also domestic retail investors. Without FIIs we may not have tall peaks & deep troughs & the sensex will be more rationale & pegged at it's intrinsic value. Perhaps due to FIIs the market gets overheated.
But more than the FIIs don't underestimate the ability of our "Left" friends (when will they "leave" ?) to cause the turmoil the market. Sitaram Yechury can damage the stock market more than the FIIs.
Apart from EPS and P/E what are the significant parameters?
Theare are so many like YoY/Sequential Growth in Sales/Profits, Margin ratios, One timers, Capacity/headcount adds, cost structure changes etc... Return ratios like ROI, RONW, ROCE are also key. Balancesheet ratios like CA/CL, Liquidity ratios etc.. You should also turn attention to the MD&A (Management Discussion & Analysis) section of the Annual reports of the companies for their explanation of their numbers, perceived risks & mitigations etc.. Notes to Accounts will reveal significant changes in accounting policies, contingent liabilities etc... Before you compare 2 companies in the same industry you have take cognisance of their accounting policies. If they are unlike the margin comparisons between the 2 may be incorrect.
Is stock option a major part in the package?? If there is no stock option could the CEOs of great companies have achieved the status they enjoy today?? One more doubt i have? Can they really utilize the money?? I ask this question because if they sell the major number of stocks at a single shot , it will increase the supply side and may create a panic among investors.....
Stock option is formally not shown in the CTC. It is more of a retention tool than a reward tool as far as i have seen companies use them. Apart from this there is also the "Sweat Equity options" given to someone who contributes with his "intellect capital" than "financial capital"
Promoter CEOs could have still made it big since they have a sizeable holding. People who have grown to CEOs, you are right, Stock based compensations have played an important role in their personal wealth.
We have come a long way since Stock options were first introduced by Infosys (?). There are clear valuation norms today levied by SEBI on how the stock options should be "priced". Except for the intial 1 or 2 years where the pricing was "free", today no one can make money on market linked stock options. Ofcourse newer instruments like "Restricted Stock Units" have emerged which can enhance the employees' wealth significantly. However this is a very costly instrument since the company has to dock it's P&L with a differential charge. The earnings could suffer which will impact the market price.
If the employee is lucky enough, he can enjoy the money. That is to say if the market price stays above his "exercise price" he will make money. Stock option is merely a paper which proclaims your right to buy at a certain period at a certain price. They by themselves don't constitute any wealth. You have "vest" the options, buy them & sell them in the market to make money.
Whether it is out of stock options or otherwise, if large volumes are released into the market increasing the supply, the price will naturally drop.
Fire ji,
My attempt in responding to some of your latest questions
Thanks for your in depth explanation.What is liquidity? Can I take it as a value for the money? (may be one's potential to perform and deliver high returns). If PC says there is ample liquidity in the system does it mean in his perspective , investors can earn the value for their money?
Liquidity means that money is in ample supply & there is no shortage of money. Now doesn't money buy commodities then why money is spoken about as an commodity ? The reason is that money is also a commodity so far as "supply of capital" goes. RBI monitors what is known as "Money Supply" in the system. Simplisticly put, this includes the Bank deposits + deposits with RBI + currency with general public.
Now if there is high liquidity then it refers to the fact money supply is ample enough to provide credit to persons / institutions who need borrowed capital. Interest rate is a function of money supply & demand.
When PC says there is ample liquidity in the system, he means that there is no 'credit squeeze' and credit is available without too many restrictions.
From an asset connotation liquidity means the extent to which the asset can be quickly converted into cash. If an asset can be easily sold or bought in the market without impacting it's price then the asset is said to be highly liquid.
For example relatively you can easily convert your car into cash compared to your house. Hence car is a more liquid asset than a house.
If you have a college going son or daughter, every time they dip into your wallet & they find cash, you will be considered highly liquid by them.
How far the market is secure if we depend on FIIs for our 98 % of the investment?
Your point is valid. But the extent of dependency that you put i.e 98% isn't correct. First let me assure you on the currency front. While it is true that FIIs can enter & exit the market quickly, there are certain restrictions placed on them in terms of repartriation of their dollars. So on currency front, a large instability due to FII pullout cannot happen.
On the Stock exchange front, FIIs do play a critical role. They support a stock till they are 'gung-ho' about the company & drop them as hot potatoes when it falls. My impression is that FIIs "accelerate" both rise & falls in a stock as they have low investment horizons. Having said that we do have domestic institutional investors, domestic mutual funds & also domestic retail investors. Without FIIs we may not have tall peaks & deep troughs & the sensex will be more rationale & pegged at it's intrinsic value. Perhaps due to FIIs the market gets overheated.
But more than the FIIs don't underestimate the ability of our "Left" friends (when will they "leave" ?) to cause the turmoil the market. Sitaram Yechury can damage the stock market more than the FIIs.
Apart from EPS and P/E what are the significant parameters?
Theare are so many like YoY/Sequential Growth in Sales/Profits, Margin ratios, One timers, Capacity/headcount adds, cost structure changes etc... Return ratios like ROI, RONW, ROCE are also key. Balancesheet ratios like CA/CL, Liquidity ratios etc.. You should also turn attention to the MD&A (Management Discussion & Analysis) section of the Annual reports of the companies for their explanation of their numbers, perceived risks & mitigations etc.. Notes to Accounts will reveal significant changes in accounting policies, contingent liabilities etc... Before you compare 2 companies in the same industry you have take cognisance of their accounting policies. If they are unlike the margin comparisons between the 2 may be incorrect.
Is stock option a major part in the package?? If there is no stock option could the CEOs of great companies have achieved the status they enjoy today?? One more doubt i have? Can they really utilize the money?? I ask this question because if they sell the major number of stocks at a single shot , it will increase the supply side and may create a panic among investors.....
Stock option is formally not shown in the CTC. It is more of a retention tool than a reward tool as far as i have seen companies use them. Apart from this there is also the "Sweat Equity options" given to someone who contributes with his "intellect capital" than "financial capital"
Promoter CEOs could have still made it big since they have a sizeable holding. People who have grown to CEOs, you are right, Stock based compensations have played an important role in their personal wealth.
We have come a long way since Stock options were first introduced by Infosys (?). There are clear valuation norms today levied by SEBI on how the stock options should be "priced". Except for the intial 1 or 2 years where the pricing was "free", today no one can make money on market linked stock options. Ofcourse newer instruments like "Restricted Stock Units" have emerged which can enhance the employees' wealth significantly. However this is a very costly instrument since the company has to dock it's P&L with a differential charge. The earnings could suffer which will impact the market price.
If the employee is lucky enough, he can enjoy the money. That is to say if the market price stays above his "exercise price" he will make money. Stock option is merely a paper which proclaims your right to buy at a certain period at a certain price. They by themselves don't constitute any wealth. You have "vest" the options, buy them & sell them in the market to make money.
Whether it is out of stock options or otherwise, if large volumes are released into the market increasing the supply, the price will naturally drop.
Can the real estate boom be sustainable
In india the PE ratio is high for real estate sector.Some claim with minimal investment builders are making a huge profits.Is it sustainable?? Esp when the rent raises only 5% or 10% a year (if one stays continuously in a home) how can the home price soar 30% or 40% ??
In india the PE ratio is high for real estate sector.Some claim with minimal investment builders are making a huge profits.Is it sustainable?? Esp when the rent raises only 5% or 10% a year (if one stays continuously in a home) how can the home price soar 30% or 40% ??
H
hariharan1972
Guest
To add on
Fireji,
To add on to what Ms Kamakshi mentioned :
Yes, the availability of land is finite. So prices go up.
Now to answer your point on sustainability of the profits of the Real Estate companies & what explains their high PEs, a well informed friend tells me that in case of RE Cos, more than their earnings, what determines their valuation is their "Land Bank".
That is to say the Million Sq ft of land that they hold to commercially exploit. So it is the potential future earnings which drives the valuation.
You are right so far as "Very Long Term" sustainability is concerned, but a Short-Long Term horizon, the profits & high PEs can be sustained, provided, PROVIDED, the RE Company continues to keep it's inventory of land high.
As to the demand for land, well as of now it is not showing signs of abating. As long as "roof above the head" continues to be a basic human need, there would be demand. Also with a burgeoning population with increasing disposable incomes, commercial spaces (for malls etc..) will continue to be up for the grab.
RE Companies are reasonably safe bets.
Fireji,
To add on to what Ms Kamakshi mentioned :
Yes, the availability of land is finite. So prices go up.
Now to answer your point on sustainability of the profits of the Real Estate companies & what explains their high PEs, a well informed friend tells me that in case of RE Cos, more than their earnings, what determines their valuation is their "Land Bank".
That is to say the Million Sq ft of land that they hold to commercially exploit. So it is the potential future earnings which drives the valuation.
You are right so far as "Very Long Term" sustainability is concerned, but a Short-Long Term horizon, the profits & high PEs can be sustained, provided, PROVIDED, the RE Company continues to keep it's inventory of land high.
As to the demand for land, well as of now it is not showing signs of abating. As long as "roof above the head" continues to be a basic human need, there would be demand. Also with a burgeoning population with increasing disposable incomes, commercial spaces (for malls etc..) will continue to be up for the grab.
RE Companies are reasonably safe bets.
navy-eswaran
Active member
dear sirs,
some one said that stock market is the place where wealth is tranferred from many hands to a few hands on a daily basis. there is absolutely no generation of wealth as such by the markets.(this view appeared in a news column) i partially agree. what abt U?
i have been watching the markets(cash) for some time and found that irrespective of the market sentiments(?) certain scrips have a cyclic ups and downs over 10-15 days,. if only we can find the lows to buy and highs to off-load we can get rich!!. any pointers in that direction?
regards
eswaran
some one said that stock market is the place where wealth is tranferred from many hands to a few hands on a daily basis. there is absolutely no generation of wealth as such by the markets.(this view appeared in a news column) i partially agree. what abt U?
i have been watching the markets(cash) for some time and found that irrespective of the market sentiments(?) certain scrips have a cyclic ups and downs over 10-15 days,. if only we can find the lows to buy and highs to off-load we can get rich!!. any pointers in that direction?
regards
eswaran
Investment Vs speculation
May be the previous posts will throw some light on your questions. I guess its very hard to know the market (that includes company,competitors,growth prospects,Govt policies,Good and bad events etc etc) and predict it and thats why many people make mistakes. In 'Intelligent investor' book they are arguing that every stock buying is not an investment and we have to have good knowledge in the domain before buying it.
But in the bull market its quite easy to get some reasonable profits i guess if you invest in right stocks or in mutual funds and wait for a reasonable time.
I think stocks or mutual funds are no longer an unconventional investment strategy.I guess according to the individuals risk profile many are investing in mutual funds.
In probability,it is said that we cannot predict the outcome of an event (say a gambling game or tossing a coin). But for a number of large trials it is possible to compute the profit or loss a person wud make.
I guess stock is also one such thing.We cannot predict on day to day basis ( If we dont luk other indices). But it may be predictable for the experts people for a long period unless some bad thing happen on any part of the world.
I guess we have not witnessed a long bear phase so far.....It was a gud reading about the worst market crash on the net.In 2000 it seems Nokia stocks fell by 70%....
Similarly we have so many positive stories too. So knowing better about the industry may help us becoming a good investor.
May be the previous posts will throw some light on your questions. I guess its very hard to know the market (that includes company,competitors,growth prospects,Govt policies,Good and bad events etc etc) and predict it and thats why many people make mistakes. In 'Intelligent investor' book they are arguing that every stock buying is not an investment and we have to have good knowledge in the domain before buying it.
But in the bull market its quite easy to get some reasonable profits i guess if you invest in right stocks or in mutual funds and wait for a reasonable time.
I think stocks or mutual funds are no longer an unconventional investment strategy.I guess according to the individuals risk profile many are investing in mutual funds.
In probability,it is said that we cannot predict the outcome of an event (say a gambling game or tossing a coin). But for a number of large trials it is possible to compute the profit or loss a person wud make.
I guess stock is also one such thing.We cannot predict on day to day basis ( If we dont luk other indices). But it may be predictable for the experts people for a long period unless some bad thing happen on any part of the world.
I guess we have not witnessed a long bear phase so far.....It was a gud reading about the worst market crash on the net.In 2000 it seems Nokia stocks fell by 70%....
Similarly we have so many positive stories too. So knowing better about the industry may help us becoming a good investor.
dear sirs,
some one said that stock market is the place where wealth is tranferred from many hands to a few hands on a daily basis. there is absolutely no generation of wealth as such by the markets.(this view appeared in a news column) i partially agree. what abt U?
i have been watching the markets(cash) for some time and found that irrespective of the market sentiments(?) certain scrips have a cyclic ups and downs over 10-15 days,. if only we can find the lows to buy and highs to off-load we can get rich!!. any pointers in that direction?
regards
eswaran
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