Considering the volatility, investing in the stock markets is both an art and science. If you’re an investor who wants to know everything about investing in equities, then look no further!
This story will guide you on:
- 4-step simple process to get the basics right before investing in the stock markets
- Dos and don’ts while investing in equities
- How to identify the best stocks to buy: the qualitative and quantitative parameters to look at
- How to find the best stock market advisory company in India?
- The benefits of joining ‘Research & Ranking Community Of Informed Investors’
Let’s get started!
If you look previously, gold and fixed deposits have been considered as safe-haven for many of the Indian investors. However, the real rate of returns (post inflation) delivered by these asset classes is minuscule. Hence, over the past few years, many investors have been investing in the share market in India to create wealth in the long run. In the last five years, i.e. from April 2014 to March 19, Nifty has delivered approx. 14.2% CAGR return, much above the returns delivered by other traditional asset classes such as Gold, PPF, Real Estate, NPS, and FDs. In India, gold, FDs, PPF and real estate during the same period.
So the question is - How can an Indian investor invest in the stock market in India and create wealth by investing in equities?
Before even getting into which businesses to buy, there are a few steps that you need to follow before you start investing in the Indian stock market.
How To Invest In The Stock Markets In India?
A simple step-by-step guide to help you get started
Here is a 4-step simple process to guide you with your stock market investments.
- Get a PAN card: It is mandatory to have a 10-digit alpha numeric number assigned to you by the Indian Tax Authorities. PAN number is required to open your bank account, demat account and trading account. If you already have your PAN card handy, move to the second step.
- Identify a broker for you: Brokers are authorized individuals or companies who help you to buy and sell your stock market investments. In India, Securities Board of India regulates and issue licenses to the brokers. Before you hire a broker, try to analyze their creditworthiness, fee structure, reliability, credibility, past record, experience, range of services, etc.
- Open demat and trading account: Before you invest in the share market in India, it is mandatory to open demat and trading account with your registered stock broker. Demat account will hold the securities/shares/stocks in your name, while trading account facilitates buying and selling of stock market investments. With this, you also need to know that there are two depositories in India: National Securities Depository Limited (NDSL) and Central Depository Services Limited (CDSL). NDSL and CDSL have their own depository participants, who act as an intermediary between the depository and the investors.
- Identify the stock market investments that suit your goals: Each investor is unique, and so is their risk appetite, financial goals and investment horizon. Hence, it is always recommended to hire a stock market advisor or wealth creation expert that considers your risk profile and financial goals before recommending you stock market investments.
Dos & Don’ts While Investing In Stocks In India
Take a look at the best and unhealthy investment practices before you get started with your stock market investments.
Now that you’re sorted with the basics of stock market investing in India, picking up the right multibagger stocks can be a tricky and cumbersome task. Remember, stock markets are moody and volatile, and if you don’t make decisions based on data and empirical evidence, there are high chances of losing money while investing in the share market in India. No, we do not mean to scare you, but even if you buy high-quality stocks, wrong investment decisions can prove dangerous for your portfolio.
Here is a short video on 5 mistakes to avoid while investing in stocks. Stay away from them if you don’t wish to lose your hard-earned money.
Remember: The world of stock market investing is like a jig-saw puzzle. The good news is that with the right guidance and data, it is easy to solve this puzzle and create humongous wealth for yourself and your family. However, many people fail in doing so because they treat stock market investing as gambling, speculation or buying a lottery ticket.
A true value investor takes calculated risks based on facts and empirical evidence. We all know that the levels of sea waters or a pool is risky. However, someone with the right swimming skills would know how to sail through it and even enjoy it. Similarly, equities are risky, but if you embrace the right investment methodology, you will not only navigate through the markets’ ups and downs but also achieve your goals by investing in equities.
Also, if an investor believes in 3 P’s of investing – Patience, Power of compounding and Perseverance, then the journey towards financial abundance becomes easier.
- Display patience when there is a turbulence in the Indian stock market
- Trust the magic of the power of compounding rather than timing the ups and downs in the stock market. The longer you stay invested, the lesser are the risks involved, and the higher are the chances of returns.
- Always keep in mind that stock markets fluctuate, but your goals shouldn’t. Stay disciplined to your goals and financial plan, and keep investing a fixed amount periodically to reach your financial destination.
Identifying The Best Stocks To Buy?
Here are a few financial parameters that you may look at while identifying multibagger stocks in India
Out of 5,500 stocks listed on the Indian stock exchange, how would you identify the best stocks to buy? Plus, with the continuous barrage of stock tips on WhatsApp, business channels and newspapers/magazines, how would you know if the stock recommendations are backed by rigorous research?
Research & Ranking helps its investors to invest in high-quality stocks that pass the stringent fundamental test. Fundamental analysis is a method to assess the intrinsic value of a stock. It is based on a host of qualitative and quantitative parameters.
Quantitative parameters to look at while investing in equities
- Screen financial parameters: Research & Ranking looks at various information such as market capitalization, earning per share, debt levels, shareholding pattern, consistency of cash flows, growth in topline and bottom-line number, etc.
- Check financial ratios: Once you are done with screening the basic financial parameters, deep dive into ratios such as debt to equity ratio, price to earnings ratio, price to sales ratio, return on capital employed, dividend yield, return on equity, return on assets, price to book value along with other ratios to gauge the financial health of the company. Remember, don’t look at these ratios in isolation. It is recommended to compare it with peers and industry average to make a sound financial decision.
Recommended reading: If you find the above terminologies overwhelming, do read this story on 8 Common Investment Jargons Simplified For You.
One is advised to look carefully at the various financial statements such as balance sheet, profit & loss statement or cash flows statement to understand if the company has the potential to deliver returns for you over the long term.
Few qualitative parameters to consider while investing in stocks
Many investors fail because they only look at the balance sheet, profit & loss statement or cash flows statement. However, one can get exhaustive information about the company’s business model, its growth plan and pedigree of the leadership team by going through the annual reports as well. Before you hit a buy button, ask yourself the following questions.
- Does the company have a robust corporate governance policy?
- Is the company well-managed and helmed by competent, credible and visionary leadership team?
- Is the company having any unique advantage (technology, process, product or pricing) when compared to its competitors?
- How well-placed is the company to adapt the technological disruption?
- What are the future prospects of the company?
- Is the company embracing risk management policies?
Read a detailed blog on How Fundamental Research Helps You Identify Multibagger Stocks.
Even though you’ve identified the best stocks to buy based on fundamental analysis, only invest in businesses/sectors that you understand. Also, since markets are unstable, only invest that amount that you’re willing to lose.
Research & Ranking provides a detailed rationale behind each investment opportunity, which helps investors make meaningful investment decisions as well as ensures you’re equipped with answers on the questions that most investors face:
- Where should I invest?
- Why should I invest?
- When should I invest?
- How should I invest?
Once you have identified the best stocks to buy, how you would know when is the right time to buy, sell or hold a particular stock. Refer to this blog on ‘How You Know it Is The Time To Buy, Sell Or Hold’ that shall guide you whenever you’re stuck in your wealth creation journey.
Finding The Best Stock Market Advisory Company In India?
Here are some questions which will help you to know whether you are signing up with the right wealth creation expert.
What kind of services do you provide?
This question will help you to cut through the marketing hype and give you a clear idea of the services provided by the wealth advisor. Many wealth advisors typically deal in multiple products which include direct equity investments, mutual funds, life insurance, fixed deposits etc.
This also means such wealth advisors who deal in all financial products under the sun are most likely to try and pitch those products which give them the highest commissions.
How long have you been in business?
Years of existence reveals the kind of experience a wealth/stock advisory company has. This will also give you the confidence that the wealth advisory is not a fly by night operator who will shut shop anytime.
How do you get paid for your services?
This is an essential question that can help you in avoiding payment of substantial hidden fees without realizing it. Remember, there is no such thing as a free lunch. Hence, you must understand all areas of your financial advisor’s compensation.
What's your investment philosophy?
A good wealth advisor will offer customized advice based on your financial goals, and not on their perspective of how to invest.
What investment benchmarks do you use?
A good wealth advisor will measure success based on how well your investment portfolio is progressing against the goals you laid out when you set it up. The advisor should also be willing to share how you’re performing against a relevant benchmark index.
How accessible are you?
Imagine you need some urgent help with your portfolio, say for rebalancing during a severe market correction, and nobody from wealth advisor’s side is answering your calls. How would you feel in this case?
What specific deliverables can I expect from your services?
The objective of investing one’s hard-earned money using a wealth advisor is to create wealth. So it is natural for an investor to define his financial goals clearly. Similarly, a stock advisory company should be able to explain concretely the kind of deliverables the investor can expect from the service.
Now the most critical question, how much should you pay to your financial advisor?
Before I answer that, let’s take you through the life cycle of an investor in the stock market.
You have Rs. 1 lac to invest.
The first step would be to identify the best businesses out of more than 5,500 listed stocks. Once you separate the wheat from the chaff, the next step is about zeroing down the best companies that help you achieve your goals. One needs to invest time not only in research but also on introspection, i.e. identifying your financial objectives, risk appetite, and how much you can invest periodically after considering income, expenses and emergencies.
After you finish the documentation and start investing, the job doesn’t end there. You have to dedicate time, efforts and energy to stay on top of market/stocks/economy updates. And then you also have to remain calm and make the right investment decisions when you encounter Mr. Volatility and Mr. Uncertainty in the Indian stock market.
Sounds like a stringent plan, right?
Yes, wealth creation is not a comfortable journey by any means. It is not only the journey to create wealth but also to achieve your life goals systematically.
With the dreams, aspirations and goals at stake, wouldn’t have it been great if this process was simple, effective and hassle-free from all the complexities, volatility and uncertainty.
So how you do it? Hire an expert!
If yes, how much should you pay him?
The answer is – based on the services or the handholding given, depth of the research, and how much they help you in designing a portfolio that meets your risk appetite and goals
The Benefits Of Joining Research & Ranking Community Of Informed Investors
Since inception, the singular focus has been ‘Wealth Creation’, by offering a personalized, balanced and well-diversified equity portfolio to the Indian investors.
- Achieve your financial goals by curating a portfolio that meets your financial profile, risk appetite, the longevity of how long you want to stay invested, the amount you want to invest, your age, etc.
- Get access to a personalized portfolio of 15-18 well researched and fundamentally strong businesses. Click here to unlock these 15-18 high-growth opportunities.
- Along with the stock recommendations, get access to proper allocation, buying range, research reports and upside potential for every recommended business.
- With the recommendations and periodic updates, Research & Ranking keeps a vigilant eye on your portfolio all the time, yes, even while you’re asleep. Even during the turbulence, they help you sail smoothly by providing complete handholding and guidance.
- It also conducts periodic conclave to help you stay abreast of the latest investing trends, markets and economic developments, healthy wealth creation practices and many more.
- Also, if at any stage you have any queries with regards to the recommended portfolio, you can get in touch with the customer service team who will answer your questions within 48 working hours.
By adopting the above disciplinary and holistic investment methodology, Research & Ranking model portfolio has delivered 400.53% returns, as compared to Nifty that has given 72.93% returns over the last five years (April 2014 – March 2019). Click here to see the detailed performance.
Till now, Research & Ranking has helped 10,000+ families take the first step towards financial independence. Out of 10,000+ customers, more than 900 customers have trusted Research & Ranking to create wealth for life.
Thanks for reading the story. Now you’re all set to invest in the Indian stock market.
Before we say you goodbye, let me share that there are 6 types of investors in the stock market, each having a unique investing style. Click here, if you wish to know which category of investor you belong to.
That’s all for now on steps to invest in the stock market in India.
Adios & Happy investing!