guide to investing in indian stock mrkets · 2018-05-24 · guide to investing in indian stock...

GUIDE TO INVESTING IN INDIAN STOCK MARKETS v2018r0

0 | P a g e


1 | P a g e

“Give. The world will give you back a Thousand

times over.”


2 | P a g e

TABLE OF CONTENTS

Why do we need to invest? 5

Investment scenario in India 7

Investing in financial assets over physical

assets – a ground reality 9

Why should you have an investment

advisor? 11

Why do young Indians love to invest in stock

market? Relevance and importance 13

How can one start investing in stock

markets? 14

How to choose a stockbroker 14

Documents required for opening a trading and Demat

account 18

Step by Step practical process to buy shares in primary

and secondary market 21


3 | P a g e

Step By Step Practical Process to Buy or Sell Shares and

Derivatives in Secondary Market 24

Types of securities available for investment

in India 27

Invest directly in the stock markets is better

compared to the mutual fund route 31

Difference between a full-service broker and

a discounted service broker and which type

of broking service suits you better 33

Basics of Fundamental analysis 35

Basics of Technical analysis 38

Conclusion 41

Top Articles from Gale.in 42

How not to use intuition in stock market

decisions? 43

SCAMS THAT RATTLE THE INDIAN

STOCK MARKET 46

How can I master the skill to predict the

behavior of Indian stock market? 49

Do you regret selling any stock? 51

Stock market basic tip. All stocks that goes

down will not be coming back and vise

versa. 52


4 | P a g e

What’s this Ichimoku technique people are

talking about nowadays? 55

Priority Exclusive Content 59

[Priority Exclusive] Understanding Sector

leaders and Building a portfolio. 60

How to pick Stocks for maximum returns in

Indian Stock market? 64

Services and offers from Gale.in 67

Offers on Demat & Trading account: 68


5 | P a g e

Why do we need to invest?

As humans, we want financial security, financial

independence and increase our wealth. Even if you

have enough wealth to last you a lifetime and attain

all your goals, you must take this one factor into

account and that is INFLATION.

Inflation means an increase in the price of products or

services or alternatively said, it reduces your buying

power. Historically

speaking, it is

observed that

inflation levels were

very high in 2014 and

have touched 12%.

However, these days

inflation has

drastically fallen to 2% to 3% overall and appx 5% in

some sectors. So, if we want to stay in the same house

and drive the same vehicle and maintain the same

standard of living, we cannot afford just to save

money and not invest in financial assets. Now, not all

of us are born with a silver spoon and have enough

money, we do have dreams, ambitions and want a

decent sum of money for it and savings alone cannot

build your wealth.


6 | P a g e

Just try to synthesize this situation where you have

invested your money in a savings account earning a

return of 3.5% and the inflation in the housing sector

is 5% (assuming you want to make a down payment

for your house you wish to buy). Do we realise that

the real return on this is actually -1.5% (negative). So

essentially even by investing in a savings account, you

are still losing money (1.5%) and not earning 3.5%

interest.

Real Return = annual return % - inflation

It is a proven fact that higher the return you are

seeking for, higher the risk you will need to take. So,

essentially, even if you are risk averse person or have

a lot of wealth, you are forced to invest your money so

that your money earns more money


7 | P a g e

Investment scenario in India As Indians, we were always taught how to save

money and we were never taught how to invest

money. Whatever little investment we did, we

invested only in physical assets like gold and real

estate and a very little portion of it went into

insurance and bank deposits as well. This created a

portfolio for us that was heavily tilted on physical

assets and very safe financial products. Investment in

physical assets accounted for more 66% of the total

household savings in 2012-13.

Indian households in contrast to the rest of the world

are putting a huge portion of their investments in

non-financial assets like stocks, bonds, debentures,

mutual funds etc. It was considered that high inflation


8 | P a g e

rates were the prime reason for households ignoring

investments in financial assets. Recent trends have

seen fall in interest rates, stagnant or falling land

prices, legal issues with buying houses, gold not being

a safe haven anymore, black money issues

surrounding gold and land. All this has made the

Indian households think different and look for other

lucrative places of investment especially in financial

assets.


9 | P a g e

Investing in financial assets over physical

assets – a ground reality

The long-awaited shift in

the household savings

from physical assets to

financial assets started a

couple of years ago.

According to RBI, the

share of financial

instruments such as

equity, mutual funds, bonds and bank deposits in the

household sector’s rose to 34.4% of gross savings in

2015-2016. This is up from 31.3 % a year ago.

Furthermore, investment in household as a

percentage of total physical assets has dropped to

56.8%. A recent clean money drive and


10 | P a g e

demonetisation have actually helped and kicked more

household savings into financial assets.

We can see that returns on investment in financial

assets over a longer period of time will always be

superior to returns on physical assets. The above chart

was prepared as per July 2017 post which the Sensex

has reached record levels and has given returns in

excess of 20% this year. All this just points us to the

fact that we cannot ignore the financial markets and

have to invest in them to maintain a decent standard

of living.


11 | P a g e

Why should you have an investment advisor?

There are many events in

life that make us nervous

or make us doubt

ourselves if we have the

funds to cope with the

event. Events like getting

married, having a baby,

buying a house or quitting

a job, are life-changing

decisions and in this

situation, if we get our

finances wrong it can lead to

disastrous consequences. Another reason you may

need an investment advisor is when you are juggling

multiple financial and dynamic goals. If you are

overwhelmed with finances or just want to cross

verify your understanding or are unsure of things,

you may want to take help of an investment advisor.

“People who are confident and think they may not

need an investment advisor are intelligent enough to

use one”

The investment advisor is actually your planning

partner. It is always advisable to have an investment


12 | P a g e

advisor who advises you at the holistic level and not

just at the financial level. There are a lot of personal

details you will need to share with the investment

advisor like how much you earn, what are your

expenses, assets, liabilities, future expenses, family

planning etc, so choose someone carefully,

trustworthy with a good reputation. Try to avoid

investment advisors that have conflicts interests as

well. The investment advisor is someone who will

discuss and inform you how he plans to achieve your

goals.


13 | P a g e

Why do young Indians love to invest in stock

market? Relevance and importance

The mind-set of young Indians has changed and they

have adopted more of the western culture. The young

Indian today strives to enjoy his life more and prefers

to spend money on a vacation or expensive hobbies

rather than build a house like the Indian middleclass

people generally did. One thing that has dramatically

changed is their

willingness to take risks.

The young Indian today is

brave and not afraid to

take risks and in return

works harder to enjoy the

returns.

Young Indians have realised that investments in

traditional products like bank deposits and gold is not

the right way forward. The reason being that interest

rates have been falling consistently, gold is not a safe

haven like before due to the returns and land prices

are stagnant with long gestation period. Investing in

the stock markets have provided handsome return

like in the graph we saw earlier. This shift in

mentality combined with the ability to take risks has


14 | P a g e

made young Indians invest heavily in the stock

markets.

How can one start investing in stock markets?

First, you need to choose a stockbroker and then

submit documents for opening a trading and Demat

account and then you can buy or sells shares in the

primary or secondary market.

How to choose a stockbroker

The regulator has made it mandatory that buying and

selling of stocks must be conducted by a licensed

Trading Member or a stockbroker. But finding a good

stockbroker takes some evaluation, the correct choice

while choosing a correct stockbroker is absolutely

necessary. Few steps that one needs to consider while

making the choice would be –

A thorough background check – this would include

the requirement of the broker to be licensed and

authorized as per the law and regulations

prescribed by the regulatory authorities. In our

case, the stockbroker has to be registered with SEBI.

The registration number of a Stockbroker begins


15 | P a g e

with IN, the third symbol is the segment in which

the stockbroker is registered, B – Cash market, F –

Futures and Options, E- currency, S – sub broker.

The fourth and fifth will be a numeric number, Like

23 – NSE, 01 – BSE, 26- MSEI etc. Next five digits is

the Stockbroker code and last 2 digits are check

digits.

Then a proper evaluation of the credentials,

relevant experience needs to be carried out. One

needs to get the past records checked, if possible,

have a word with the existing clients.

With proper due diligence, you must try to talk

with a few stockbrokers, this is important as you

need to be sure about entrusting somebody with

your money, which needs to be judiciously

invested. So the level of comfort and transparency

needs to be established. This can be achieved

through a proper communication with the

stockbrokers. During the communication, few

things need to be clarified like

a. Speed of order execution

b. Additional services like research, IPO,

mutual fund, advisory etc

c. Brokerage and other charges


16 | P a g e

d. Depository services

e. Margin trading facility

f. Online and mobile trading options

g. Number of branches

h. Call and trade facility

In today’s fast world brokers’ should give online

access to their clients to check their accounts and

analyse their portfolio through the online tools.

One can also rely on word of mouth, get referrals

from people who are into investments through

brokers, try to understand their views and

preferences and on the basis of that shortlisted

brokers can be interviewed

These points can ensure that you can achieve

immense money growth but a wrong choice of broker

can make you lose your money too. So you need to

follow the steps carefully mentioned above so that

there is no financial loss while investing.

In case you have issues or doubts in your mind, SEBI

has a toll free number 1800 22 7575 and 1800 266 7575.

You may call this number and clarify doubts. Also, if

you have a complaint against Stockbrokers, first


17 | P a g e

intimate their compliance officer in writing giving 7

days’ time. If the complaint is unresolved then

escalate it to SEBI on their dedicated portal for

complaint called SCORES (SEBI’s complaints

redressal System)


18 | P a g e

Documents required for opening a trading

and Demat account

For any person to trade on securities market

especially, in the equities market, they need to open

two accounts in order to start trading. One is the

trading account through which a person can execute

trades in his account. Another account is the Demat

account. A Demat account is just like a bank account

but this is to keep your securities. You can keep your

shares, bonds, mutual funds, ETF etc. in your Demat

account.


19 | P a g e

Basic requirements required to open any account is a

Proof of identity

Proof of address

Bank account and a PAN (Permanent account

number). You will also need passport size

photo as well.

When you approach a Broker with these documents,

you will be given a booklet to sign. Yes, you read it

right, it’s not just a form, and it’s a booklet. The

technical name of the booklet is the CLIENT

REGISTRATION FORM. Thanks to the ever

vigorously working regulator that it has narrowed to

a booklet, else in the earlier 2000’s it used to be a book

and not a booklet. This is the first step for you to foray

into the securities market. The biggest and the most

common mistake that even the most experienced

investor do is to sign the form without reading and

still worse is signing the blank form.

We get to hear a lot of complaints that it’s a booklet

and who has the tie to read the entire booklet before

signing. My advice to you is to take the form home,

read it, understand it, asks doubts if any and then sign

the documents. After you sign the documents, you are

entitled to get a free copy of the form within 7 days of

opening the account. If the broker prohibits you to

take the blank form or is in a rush (like always) then


20 | P a g e

take a picture with your mobile phone but please do

not sign without reading.

To let you in on a little secret, the entire booklet need

not be signed to open the account. If you just pay a

little attention you will realise that many pages of the

booklet have the clause voluntary written very boldly.

But only if you give time, will you be able to

comprehend that those documents are inserted for

your convenience and are not mandatory.

We will explain an important concept that you need to

be aware of. The Power of Attorney (POA), this is a

very important document. Every time you sell a

script, you have to sign and provide the broker a DIS

(Delivery Instruction slip) that is like a cheque book

for shares and submit to the broker. The broker will

then get the authority to take those shares from your

demat account and submit it to the exchange you sold

it on i.e NSE or BSE. Now for the sake of convenience,

you can provide a power of attorney where the broker

can access only those securities that you have sold on

NSE or BSE and then submit it to the exchange. For

those who don’t trade frequently, do not sign the

POA. This is to prevent any unauthorised trade on the

exchange and a subsequent transfer of shares to the

exchange without your knowledge.


21 | P a g e

Step by Step practical process to buy shares in

primary and secondary market

A primary market is a market that deals with

issuance of new

securities. It is a

place where

corporate

entities can

raise long-term

funds from the

public. In a primary market, institutions can raise

funds through bond issues and corporations can raise

capital through the sale of new stock through an

initial public offering. In the primary market, funds

can be raised through various issues such as

Public issue

Right issue

Preferential issue

Bonus issue

An issue that is made to the public and either be

Initial Public offering (IPO) or further public

offering (FPO). Both IPO and FPO can either be a

fresh issue of shares or offer for sale shares. Step –

1 – Open a Demat account


22 | P a g e

Gone are the days where one used to get share

certificates and buying and selling physical shares

were allowed. These days, shares can be bought or

sold only in dematerialized form.

Dematerialization means converting your physical

shares to electronic form. We need to understand

some basics here. There are two depositories in

India namely – Central Depository Services Ltd

(CDSL) and National Securities Depository Ltd

(NSDL). Each depository has many participants

registered with them and they are called the

Depository participants (DP). For ease and

convenience, you may consider them as banks.

Just like you have a bank account to keep your

money, you have a Demat account to keep your

shares. Most of the stockbrokers are also

Depository participants as well. So you need to

open a Demat account with the DP.

STEP – 2 – Application form and ASBA

You can generally find the application form of the

company with any broking house or even at the

street corner of a financial market hub. Those who

have trading account with the brokers and trade

online will have an online access to place these


23 | P a g e

orders. SEBI has introduced ASBA – Application

supported by blocked amount. This means that the

application money to buy the shares does not get

debited from your account until the shares are

issued. One you apply for the shares, a block is put

on the funds which you cannot withdraw. Once the

shares are issued, the amount is debited and if the

shares are not issued for any reason the block is

removed. So you do not have to run-around for any

refunds.

Step -3 – Allotment of shares, listing, and trading • Allotment of made by the company on the basis of

certain rules formed by SEBI

• SEBI ensures every retail applicant gets allotted a

minimum bid lot, subject to availability of shares

in aggregate

• The rest is based on the proportion of the number

of shares applied

• If there is oversubscription, based on the number

of shares in the retail category, the bidders shall

be selected on basis of draw of lots


24 | P a g e

• Shares are then listed on the stock exchange by the

12th day of close of the issue and then trading

starts. You may hold the shares or sell it as per

your convenience.

Step By Step Practical Process to Buy or Sell

Shares and Derivatives in Secondary Market

A secondary market is a place where investors can

buy or sell shares, bonds and derivative instruments

that have already been issued by the company or

public institutions or the government. The secondary

market is also called the aftermarket.

Step – 1 – Open a Demat account


25 | P a g e

Step – 2 – Open a trading account

To invest or trade in the secondary market, one

has to open a trading account with a

stockbroker. You cannot buy or sell directly in

the market it has to be through the stockbroker,

also called as the trading member. The

Stockbroker obtains registration from SEBI

(Securities and exchange board of India) so

ensure that they have a valid SEBI registration

number. There are largely two exchanges on

which you can buy or sell the shares and

bonds. They are National Stock Exchange

(NSE) and Bombay Stock exchange (BSE). All

the stockbrokers get their SEBI registration

through the stock exchanges. Once you open a

trading account with the stockbroker, you can

start placing orders either through telephone,

by email, by visiting their branch. But these

days’ people are internet savvy and for their

ease and convenience they can opt for online

trading through computer or mobile as well.

Caution

Unlike bank account opening forms that has 2 pages,

the account opening form of the trading and demat

account is a booklet which requires many signatures.


26 | P a g e

Do not sign blank on these forms. Read the terms and

conditions, understand them; ask for doubts and only

the sign the forms. Also, in case you choose not to opt

for some services or do not know how to use the

internet, do not leave blank spaces; do strike off those

particular details in the account opening form. You

are entitled to get a free copy of the account opening

form. Take your time to understand fees/ charges etc.

Incase you wish to execute the power of attorney,

please understand it properly. Please do not opt for

electronic contract note if you are not familiar with

computers. Ensure that you sign after reading the

voluntary clauses. Finally, ensure that you fill

application form completely.


27 | P a g e

Types of securities available for investment in

India

The securities market is a small part of the entire

financial market. Securities markets would include

but not restricted to equity markets, derivatives

markets, currency markets, bond markets etc.

Securities market is a place where securities are

bought and sold at prices can be determined by

market forces.

Generally, we have heard people saying that if you

want handsome returns you must invest in the

securities market. Another spectrum of investors will

say that securities market is a gamble and it is risky.

Let me tell you that both of these facts are not true.

Securities market have a wide variety of investable

products with varying degree of risks and returns.

Securities market have products that are as safe as

your savings account / fixed deposits. On the other

hand, you have very high-risk products such as the

derivative market.

One thing is for sure that securities market is not a

gamble at all. Equity markets are the only place where

all the participants can be winners and earn wealth. It

is not a zero-sum game at all. If you have a view on

anything i.e the economy, the listed company, the


28 | P a g e

currency, etc; derivatives markets is a place that

provides you an opportunity to earn if you have a

view.

There are 2 main types of securities – Equity and debt.

Remember that the risk and returns for each type of

security vary. Both categories have high to low-risk

products and high to low historical returns.

Under Equity, we have

Equity shares - An equity share means ownership

of the shareholder to the extent of money paid.

The shareholder is entitled to get any increase in

share value, bonus, dividends, and voting rights

but has to suffer losses if the company does not do

well.

Equity Debt


29 | P a g e

Warrants - A warrant gives a person a right, but

not the obligation, to buy or sell a security at a

predetermined price

Mutual funds – A mutual funds collects money on

behalf of investors and invests in securities.

Investment can be done in any of the securities or

a combination of securities for any tenure.

Exchange traded funds – An ETF is basically a

mutual fund that trades like a share. Mutual

funds can be bought and sold at any time of the

day but the value you will get will be the day end

price. They do not fluctuate during the day like a

share. Shares on the other hand do not provide

the diversification and cost benefits. ETF gives

you both

Derivatives – It derives its price from another

underlying asset. It is a contract between two

parties to buy or sell securities at pre-determined

prices. Here the variety of products is endless.

Under Debt, we have

Government securities – It is a bond given by the

government with a promise to repay you at

maturity

Bonds – A bond is a debt instrument wherein you

loan money to a corporate or government


30 | P a g e

Debentures - A debenture is also a debt

instrument wherein you loan money to a

corporate but it is not backed by any asset

whereas a bond is backed by a physical asset.

Mutual fund - A mutual funds collects money on

behalf of investors and invests in securities.

Investment can be done in any of the securities or

a combination of securities for any tenure

Security receipts - a receipt or security, issued by a

securitisation company to a qualified institutional

buyer pursuant to a scheme, evidencing the

purchase and giving undivided right, title or

interest in the financial asset involved in the

securitisation.


31 | P a g e

Invest directly in the stock markets is better

compared to the mutual fund route

Since you have professionals handling Mutual funds,

it is widely believed that it is a safer option. However,

a recent report in the Economic times revealed that

direct holding in stocks by individuals is 22% of the

total market capitalisation while direct holding in

stocks by mutual funds is only 5% of the total market

capitalisation. It was also observed that the direct

holding in stocks was primarily practiced by rich

people and the middle class people chose mutual

fund route. This means we have lost out on great

opportunities by choosing the mutual fund route. If

we dwell deep you will see that there are a lot of

common factors in direct investing and mutual fund

route. But what you will notice is what more

advantages you can get by direct investing that you

will not get when you choose the mutual fund route.

First we will see the common factors. In both the type

of investing (direct investing and Mutual fund route)

you can concentrate and invest in sectors, SIP options

are available, returns are tax free after a year, tax

benefits are available, there is high liquidity, and

investment options in international markets are

available.


32 | P a g e

Further, these are the benefits that you can get by

choosing the direct investment route over mutual

fund route.

Complete control over stock selection

Buying and selling is possible at any time of the

day unlike mutual funds (only day end NAV)

Entry or exit from 1 or 2 stocks

Speculative trading is possible

Short selling is possible. This is where the

maximum opportunities are missed by mutual

funds.


33 | P a g e

Difference between a full-service broker and a

discounted service broker and which type of

broking service suits you better

In today’s world there

are two kinds of brokers

in the stock markets and

they are full-service

brokers and discounted

brokers. The name full-

service broker gives you

a clue that they provide a

suite of all services you may require and discounted

brokers provide some important services but charge

less. So here is a full list of details you need to know

about them and choose the one that fits your need

better.

Full-service Brokers Discount Brokers

Brokerage Brokerage is charged as a % of turnover. Generally 0.1% to 0.5% of the turnover.

Flat fee of Rs 10 to Rs 20 per trade


34 | P a g e

Order execution

Orders can be placed by offline (telephone) and online (mobile, app, trading software)

Orders can be placed only online (mobile, app, trading software)

Service Provides advisory services and research reports, research calls, recommendations, funding, etc

Focuses mainly on trading

Branches Large number of branches in different cities.

They do not have much branches.

Customer service

Physical presence of customer service

Online presence of customer serive

Products to trade

shares, Futures, Options, Commodities, currencies, mutual funds, IPOs, FDs, bonds, insurance, etc

shares, Futures, Options, Commodities, currencies, mutual funds, IPOs, bonds

Account type

3-in-1 Account (Saving+demat+trading)

Not available

Suitability Suitable for people who want advisory services, research calls, personal touch, physical presence of customer service, are not comfortable with online trading and do not have financial advisor

Suitable for people who want to pay less brokerage, are comfortable with online trading, have a financial advisor and do not worry about physical presence of the broker


35 | P a g e

Basics of Fundamental analysis Now, with most things set in place, the final step you need to do start trading is to analyse your stocks through fundamental or technical analysis. Beginning with fundamental analysis, the main aim of this analysis is to find out the intrinsic value of the share or the bond which means to see if the price of the stock or the bond in the market is overpriced or under-priced. If the stock is overpriced in the market then you will sell the share or its future or the stock option available in the market with the hope that the share price will correct in the near term and trade at lower price levels. If the stock is under-priced in the market then you will buy the share or its future or the stock option available in the market with the hope that the share price it will increase in the near term and trade at higher price levels. There is no hard and fast rule to do Fundamental analysis but everyone agrees that there are some key components to doing a good fundamental analysis that involves many qualitative factors and quantitative factors. From a top down approach, following are the components


36 | P a g e

Economic forecast – Now, we all know that if the economy of the country does well then most of the sectors within the economy and most of the companies within the sectors will do well (barring exceptions). So we must have a good idea about the economy.

Interest Rates – Although there is no direct co-relation between the stock markets and the interest rates, there is definitely change in the prices of the stocks due to change in interest rates.

Group selection – In ever economy we know that some sectors will do better than other due to the


37 | P a g e

economic and political factors influencing the sector.

Company selection – Some companies have the great vision and better leaders who foresee changing trends and revolutionise the way the industry works. We need to choose those type of companies.

Business Plan - The business plan, model or concept of the company you wish to invest in must be sustainable for a long period of time. We need to ask that if the business make sense? Is it feasible? Is there a market? Can a profit be made?

Management - To lead the business the company must have top-quality management who have a great track record and are honest people. You must judge their capabilities, strengths, and weaknesses to see if they are the right people with the right mind-set and leadership capacities that can run the company.

Financial Analysis – The step will provide you the means to calculate the intrinsic value of the security. Ratios like Earnings per Share, Price to Earnings Ratio, Projected Earnings Growth, Price to Sales ratio, Price to Book ratio, Dividend

https://www.thebalance.com/understanding-earnings-per-share-3140784

https://www.thebalance.com/understanding-earnings-per-share-3140784

https://www.thebalance.com/understanding-price-to-earnings-ratio-3140787

https://www.thebalance.com/understanding-price-to-earnings-ratio-3140787

https://www.thebalance.com/understanding-price-to-sales-ratio-3140789

https://www.thebalance.com/understanding-price-to-sales-ratio-3140789

https://www.thebalance.com/understanding-price-to-book-ratio-3140786

https://www.thebalance.com/understanding-dividend-payout-ratio-3140781


38 | P a g e

Payout Ratio, Dividend Yield, Book Value, Return on Equity, etc.

Do remember that this list is only inclusive and not an exclusive list but this will lay a great foundation for your foray into the stocks markets.

Basics of Technical analysis

Another method of investing is the technical analysis. Technical Analysis is forecasting the price of a share based on the examination of previous price movements. Technical analysis does not provide you with the exact future price of the stock but it provides you the likely price of the future price of the stock. Technical analysis uses a wide variety of charts that show price over time. Technical analysis can be done for shares, indices, commodities, futures, etc where price is subjected to the forces of supply and demand. The Dow Theory laid down the foundations of the modern technical analysis. Three theorems of Dow stood out which are Price Discounts Everything, Price Movements are not totally random, “What” Is more important than “Why”.

https://www.thebalance.com/understanding-dividend-payout-ratio-3140781

https://www.thebalance.com/understanding-dividend-yield-3140782

https://www.thebalance.com/understanding-book-value-3140780

https://www.thebalance.com/understanding-return-on-equity-3140790

https://www.thebalance.com/understanding-return-on-equity-3140790


39 | P a g e

Technical Analysis

MOMENTUM INDICATORS

MOVING AVERAGES

CHARTS

A large part of the macroeconomic analysis that we discussed during the fundamental remain constant for technical analysis as well. Once the analysis gets down to the micro level of the determining the future price movement, that is when we do the technical analysis.

The three important technical indicators to identify market trends and predict future stock prices are charts, moving averages and momentum indicators.

Charts - Price and volume charts are the most used tools for technical analysis. A volume chart shows the number of shares of a company that were traded during the day. For the purpose of technical analysis, you can select a traditional line graph or a bar charts or a candlestick chart. Charts are used together with trend lines. Trend lines gives you a likely movement of a stock price.


40 | P a g e

Moving averages - They are calculated to remove any sharp fluctuations in the price of the stock chart and eliminate outliers, if any. To make a smooth trend line an average of a few days price is calculated like five day moving average pattern etc. This kind of moving average is called simple moving average (SMA). We can also use exponential moving average (EMA) or linear weighted average (LWA).

Momentum indicators - These are statistical figures that are calculated based on price and volume data of stocks. They act as supporting tools to charts and moving averages. After you have formed an opinion about a stock price, you can use further use the momentum indicator to re-check your analysis. Some momentum indicators are leading indicators and others are lagging indicators.

With this we have covered the very basics of technical analysis. So, now you may take a gauge of which type of analysis suits you better, then study about them in depth and then venture into the world of investing.


41 | P a g e

Conclusion Inflation and our mind-set to live a better standard of living are the main triggers that push us to invest. With physical assets providing negative or low returns, investing in financial assets has become imperative. With the help of an investment advisor, our willingness to take risks and get better returns make investing in stock markets becomes a natural choice. Wisely select a stockbroker, open trading and demat accounts and be careful of the traps that you may fall in. Armed with the knowledge of fundamental and technical analysis you are ready to embark on the journey of making your financial dreams come true. !!! HAPPY INVESTING!!!


42 | P a g e

Top Articles from Gale.in


43 | P a g e

How not to use intuition in stock market

decisions?

Simple algorithms are invariably better at predictions than

humans, whether it is health diagnosis, the weather or

workplace performance. Would it be any different for stock

investment analysis?

A percentage of professional investors find it hard to

believe that an algorithmic system can be a better predictor

than years of investing experience. Sometimes this may

seem true, but in the long run, the intuition system will have

more fails than the algorithm system.

Of course, investors will have to make decisions along the

way, as algorithms cannot predict the changes in

circumstances or events outside the stock market that may

influence investor or even company decisions.

The biggest plus for not using intuition in stock market

decisions is that using an algorithm-based approach takes

all the emotion out of the equation. Emotions play a part in

every aspect of our lives, so why should investing be any

different? It is no different when it comes to investing in the

stock market, but if you take a rule-based approach using

computer models and algorithms then you relieve yourself

from the making decisions under stressful situations.

Taking emotions or intuition out of the process of stock

market investing will always be the correct approach

because most of the time it is hard to see past our inbuilt


44 | P a g e

biases. This would be idealistic but unfortunately, as

humans, we bring emotion into everything we do. The best

advice that can be offered in this argument would be to look

at the model predictions and then look at the information

that your intuition is telling you and try to decide

somewhere logically in the middle.

Misplaced priorities can be the biggest downside of using

intuition in stock market decisions. Humans invariably put

more time and effort into making small decisions and less

time and effort in the big decisions. Don’t buy shares just

because a friend or relative has made a lot of money on

those shares in the past. Humans are overconfident and tend

to place too much bearing on the value of our opinions

compared to friends and acquaintances. This is a form of

intuition which at best is misguided. You may be lucky and

have a win on the stock market this way but in the long

term, it will be a costly exercise. You should have simple

rules that you use for investing, for example, buy when the

stock price is low, not because I like the company or sell

the stock when it exceeds a price that I think is above its

value.

Quite a lot has been written about the intuitive powers of

investment experts. The intuition of experts is useless. Most

of the time the expert’s intuition is just plain expensive

guesswork, but backed by years of experience can be

successful, but not as often as a computer model. If you

want to invest in the stock market, you should simply invest

in index fund stocks rather than follow the intuition of an

expert.


45 | P a g e

The stock market just by its very nature is unpredictable.

Algorithmic models can usually be correct, but even a

computer model will get things wrong occasionally.

Intuition can be just as fickle because as humans we can

only look to the past for guidance and then guess what may

happen given a certain set of circumstances. It is the same

for an algorithm, if this happens, then do that is the simplest

form of this. The difference is that algorithms perform these

tasks without the emotion. In the long term, this will save

you money and hopefully make you money as well, but

who knows, it is all guesswork.


46 | P a g e

SCAMS THAT RATTLE THE INDIAN

STOCK MARKET

SCAMS THAT RATTLE THE INDIAN STOCK

MARKET Photo by Got Credit

Many Indians have begun to invest in securities of business

enterprises and companies, with the aim of making profit.

Investing in securities such as stocks, bonds, future etc is

good as one can get to make a living from it. However,

there are times when investing in such securities can go all

wrong. An example is the case stock exchange scam. There

are various scams in the Indian stock market that has led

various investors to lose their money. Most of these scams

are common, yet people still fall prey to them. Some of

these scams that rattle the Indian stock market include:

http://www.flickr.com/photos/144008357@N08/32913810274

http://creativecommons.org/licenses/by/2.0/

http://creativecommons.org/licenses/by/2.0/


47 | P a g e

1. Tips and recommendation fraud: This is a very

common scam that rattles the Indian stock market.

Fraudsters try to attract investors and traders by

convincing them that they are able to provide profit of up

to 10% per day and 40% per month. Furthermore, they

assure investors that they would provide more than 90%

accuracy on tips and recommendation. One should take

note that is it quite infeasible for profit of 40% to be

made in a month constantly. Even Warren Buffet that

was a legendary investor only had 22% profit in a year

and was still among the richest persons in the world.

The fraudsters also claim that they have provided at least

40% return to their previous clients. When investors

demand for trial tips before they subscribe to the tips and

recommendation program, they agree to it easily. Most

people that try out the trials usually fall victims of the

fraudsters. It should be noted that the trial tips provided the

fraudsters are usually accurate. This is to win the assurance

of the victims, hence making them susceptible to their ploy.

Victims would later pay high amount of money for the tips

and recommendation and later receive tips that work

nothing.

2. Pump and dump: This is a kind of fraud whereby

fraudsters try to increase the price of micro cap stocks by

feeding investors and traders with wrong information.

By feeding investors with fake news, they try to inflate

the price of the stocks. The fraudsters would purchase

cheap penny stock in large volumes. Afterwards, they

would send misleading messages to various investors

recommending them to purchase the stocks. People


48 | P a g e

begin to buy the stocks and because of the high demand

of the stocks, the price of the stocks would increase.

When the price of the shares has gotten to a good price,

the fraudsters would sell their stocks and make good

money.

The fraudsters would stop sending misleading messages

after they have sold their stocks at high prices.

3. Fake message in the name of brokers: Many investors

in India invest on stocks upon the advice and

recommendations of brokers. Most investors do not

make research on the stocks as they blindly believe

every recommendation given to them. Fraudsters realize

this and send recommendations as brokers to people,

telling them to purchase a particular stock. Due to the

fact that the recommendation is false, stock prices would

begin to fall and investors would lose money.

Why do fraudsters send the fake messages?

Before hand, the fraudsters would send recommendations to

their paid subscribers purchase the same stock. Then they

would try to increase the prices of stocks by sending

misleading messages as brokers. When the price of stock

begins to increase, they would suggest to their paid

subscribers to sell their stocks and receive good returns.

The paid subscribers would be satisfied with the

recommendation and continue with the subscription. In the

end, retail investors would lose their money for following

the fake recommendations.


49 | P a g e

How can I master the skill to predict the

behavior of Indian stock market?

Short Answer: Technical Analysis.

Technical Analysis is the study of Market Psychology.

Market Prices are governed by Greed and Fear. Most of the

retain investor are eaten up in the market due to greed and

fear.

You get a buy call on Breakout, but you will not know to

exit the stock on reversal before the target is met.

Sometimes you tend to sell the stock very early on fear.


50 | P a g e

When the market falls for 2 days or 3 days, retain investors

sell off in panic just to watch the market recover on the next

day.

Learn Technical analysis and understand candlesticks and

indicators. Learn about support and resistance, Learn about

reversals on support and resistance. Learn about breakouts

and Breakdowns. Learn to buy on dips, learn to book profits

on rallies. learn to place the right stop-loss. Learn to

manage risk.

There is no need to master a special skill to predict the

market movement. Just learn to understand the Technical

charts and put proper risk management in place.

“History will always repeat itself.”


51 | P a g e

Do you regret selling any stock?

Back in 2013, i was a half knowledge investor.

I had purchased TVS Motors at 32 and sold some at 50,

some at 70, some at 90. It’s near 600 now. (2000%)

I had purchased Ashok Leyland at 13 and Sold at 19. It’s

above 100 now.

I had purchased Aurobindo Pharma at 190 (95 post bonus

1:1), Sold at 30% profits. It peaked near 900.

Gabriel was near 17 Rs. Sold at 50% profits. It is now near

166.

In stocks, experience gained is more valuable than profits.

Moral: Just don’t sell quality stocks until its fundamental

really changes. There is no peak or bottom for a stock.

Each stock has a value based on its fundamentals.


52 | P a g e

Basic tips on Stock market for retain investors.

All stocks that goes down will not be coming

back and vise-versa.

A member had asked a question,

How do people lose money in the stock market? If i buy

stocks today, and after some days the value of stocks go

low, then I can wait for some more time me until stocks go

up. What is the thing that make people lose money ?

Stock market is not a water tank, where level of water goes

up and down when the pump is on and while the water is

used respectively.

It is a demand for a portion of the business a company does.

The value of the stock (PE, price to earnings per share) is

fixed based on numbers like BV (Book Value), Profitability

Ratio (like Margins, Return on Capital Employed), Debt to

Equity ratio, etc and also has factors like the industrial

outlook in the future, the pricing power, etc

The above arbitrary PE multiplied by the EPS is the value

of the stock. EPS is derived from the quarterly results

(profits/equity capital).

Let’s give an example:

Bhansali Engg:


53 | P a g e

Industrial P/E = 25.

EPS in the year 2014: 0.09

Fair value in 2014= 25×0.09 = 2.25


Fair Value in 2015= 25×0.33= 8.25


Fair Value in 2016= 25×1.01= 25

EPS in the year: 2017: 2.1

Fair Value in 2017= 25×2.1= 50

Do you think when you buy the stock in 2014 at 2.25, you

can sell it now at 50 and buy back when it goes to 2.25? No,

the stock will never go back to even 25.

Going through quarterly results,

EPS for Q4= 0.91

Suppose the company can post an EPS of 0.91 in all four of

its upcoming quarters. The EPS becomes 3.6.

Then the fair value of the stock in one year is 3.6 x 25 = 90.

I had recommended buying Bhansali Engg on June 5th.


54 | P a g e

Strong set of numbers from Bhansali Engg. Buy at 40 &

dips. Tgt 50. SL 35.

Target was hit in 4 days.

The stock is trading above 200 as on 10th

January 2018.

Sometime such good companies create a demand in the

stock. The fair value in the future can be attained in short

term. If the stock reaches the value of 90 in 3 months, the

PE Ratio spikes to 45 from 25, then profits can be booked

and bought once PE Ratio corrects to 30 and 25. We know

the PE Ratio will drop due to good results, still it is the

gamble that people take in the large capital stocks.

If the earnings are not as per expected the stock will dip. If

the stock is not performing for life or if it is performing for

life we ‘re never going to see the stock prices again.

Penny stocks are not going back to 100s, Penny stocks that

have gone to 100s are not going to come back.

Every quarterly result is important. Most of the stocks will

never see a new 52 week low and some will never see a

new 52 week high again in life.

However, Performance matters.

http://gale.in/strong-set-of-numbers-from-bansali-engg-buy-at-40-dips-tgt-50-sl-35/

http://gale.in/strong-set-of-numbers-from-bansali-engg-buy-at-40-dips-tgt-50-sl-35/


55 | P a g e

What’s this Ichimoku technique people are

talking about nowadays?

Ichimoku Technique is a kind of candle stick indicator that helps

in finding future support, trend change, short term support,

medium term support, pullback and breakout.

There are few indicators in the charts whose names are

confusing and the way they are formed are not much important

if you have the indicator and understand what they signify. You

will break your head understanding it for long hours and even

days.

I will try to explain Ichimoku technique in less than 15 mins with

example.


56 | P a g e

The below chart is Latest NIFTY 15 mins chart (15 mins chart

for Short term traders) It has Ichimoku Indicator overlayed on

it.

There are 3 lines and a cloud in Ichimoku system:

1. Blueline (Short term support indicator): You can find that

the NIFTY is finding short term support on this line.

2. Redline (Medium Term Support Indicator): Redline is

medium term support indicator and has lots of significance. If

Redline is trending up then the stock is bullish. If the Redline

is facing down, the stock is bearish. If the Redline is straight

for a while, It acts as a magnet to the stock. Stock will be

pulled to the Redline.

3. Greenline (Breakout Indicator): Greenline is Breakout

Indicator and it lags 14–21 sessions on charts. You can see

the greenline is running one day delay. If the Greenline is

moving away from the candle sticks into a fresh blank zone, it


57 | P a g e

indicates breakout. If it moves down, its a breakdown

indication. If it moves up, its a upside breakout Indicator. An

upside Breakout is shown the image above with a light green

arrow, Breakout is seen in 3 different places on the chart but

at the same price and time.

4. Cloud (Future support and resistance cloud): We have seen

that the Greenline lags in the charts, Here The cloud leads in

the chart by 14–21 sessions. If the cloud is green, the Stock is

bullish and If the cloud is red, the stock is Bearish. Cloud twist

or the colour change indicate change in trend. Cloud provides

strong support to the stock. If the stock breaks past the

cloud, it indicates Stoploss has been hit and fresh trend

reversal is happening.

You can see in the above charts, a Cloud twist, Greenline

breakout and Candle stick breakout from the cloud aroud

10110. NIFTY has rallied 150 points from then. (Breakouts are

indicated in Light Green color.)


58 | P a g e

Example 2:

Another example to show Breakdown that was happening in

NIFTY at 10350 on 29th November 2017. NIFTY has corrected

300 points after the breakdown.

Note: All the lines and clouds are formed based on some

formula of averages of highs and lows of last few candles.

I personally use Tradingview for technical charts. (It’s free for

End of Day analysis.)

Above charts are from Live stock, index, futures, Forex and

Bitcoin charts on TradingView with Ichimoku indicator layed on

15 mins charts of NIFTY.

To learn the depth of Ichimoku lines and cloud, you can always

buy this book from Amazon.How to Make Money Trading the

Ichimoku System.

http://www.chart.gale.in/

http://www.chart.gale.in/

http://gale.in/recommends/how-to-make-money-trading-the-ichimoku-system/

http://gale.in/recommends/how-to-make-money-trading-the-ichimoku-system/


59 | P a g e

Priority Exclusive Content

http://gale.in/priority-service-from-gale-india-at-rs-5000-a-year/


60 | P a g e

[Priority Exclusive] Understanding Sector

leaders and Building a portfolio.

There is a common Myth in the stock market that the bigger

known brands with larger Market Capital are the sector leaders

and most of the retail investors build a portfolio with such

stocks such as MRF, TCS, Infosys, Bata, HUL, SBI, ICICI Bank, etc. I

am not here to say it’s wrong. I am here to say it can be done

better. There are lots of smaller stocks in the sector with better

fundamentals and better future outlook; there are stocks in

which the management is so good that they care about

investors.

Stocks with Better Margins and Growth in the sector are the

best bets.

I will try to explain it today with an example from Tyre Space.

If you are to invest in the leader of Tyre space, which stock will

you choose?

Most of them will name MRF. Stock has given approx. 800% in

last 7-8 years.

If I say there is a stock in Tyre space that has given approx.

1300% in last 7-8 years!

Yes its Balakrishna Industries.


61 | P a g e

Comparing Returns from Balakrishna Ind and MRF over a Period

of 7-8 years.

Basic fundamentals of Balkrishna Ind. You can see its PE is

trading with a Premium to its Industrial Average.


62 | P a g e

Profitability Ratio of Balakrishna Ind. Stunning Margins in FY17.

The company is gradually reducing Debt to Equity ratio.

Valuation ratio is currently okay, little on the higher side. You

can see EV/EBITDA, Earning Yield and Price to book at its best

until FY17.

Find the best stocks within a sector by sorting it out with Higher

Margin%.

Then Check for

PE closer to Industrial Average PE,

Book value below 4 or lesser than its peers,

any dividend% other than zero,


63 | P a g e

Return on Networth/Equity and Return on Capital

Employed more than 15% or better than its peers,

Debt to Equity lesser than 2.

EV/EBITDA Less than 8 or better than its peers.

Earnings Yield above 0.07.

Market cap above 200 Crores.

This article is not to recommend a buy in Balkrishna Ind, it is to

educate you find the best stock in a sector by finding stocks with

better margins% and good volume growth.

However, the stock had return close to 50% since this article

was published (as on First week of January 2018)


64 | P a g e

How to pick Stocks for maximum returns in

Indian Stock market?

Make a portfolio of certain stocks with the following

criteria:

Stock must be in top 3 Margin% in its industry. (Stock

having strong margins are the industrial leaders with

demand for investment.)

Stock must be in top 3 ROCE/ROE in its industry. (Stocks

with better ROCE/ROE are the stocks with best

management and can help investors with Good returns.)

Stock must be having low PE ratio in its industry. (Stock

with low PE ratio has not priced-in the future returns of the

company, more chances to find quality investors and have

more changes to post multibagger returns on quality

results.)

Stock must have low Price to Book in its industry. (P/B is

one of the evaluation factors to identify if the stock has run

up too much in recent times. Avoid P/B above 10–12)

Stock must have low EV/EBITA (Stock given multibagger

returns in short span will have this value higher. Less the

value, more space the stock has to rally in the near future.

Avoid EV/EBITA above 20.)

The above Portfolio will give you maximum returns.


65 | P a g e

There are 3 phases in a stock’s multibagger rally.

Rally to cover basic EPS of the share.

Rally to cover the Next one year EPS of the share.

Rally to cover the next 3 years EPS of the share.

Let me explain in Brief,

Let us assume a stock is trading at 120, Industrial PE: 12

and EPS over last 4 quarters as Rs. 3 each quarter. Annual

EPS is 12.

Current Trailing PE is 120/12= 10 which is cheaper

compared to Industry. Stock can rally 20%.

Once a quarterly results come with an EPS of 4. Then

Trailing EPS becomes 13.

Current Trailing PE becomes 120/13= 9.23. Which is

cheaper compared to other Stocks in the industry with

upside of 30%.

Some investors think what if the stock can post same results

for next 3 quarters with EPS of 4 per quarter. Then Annual

EPS becomes 16.

PE after 9 months becomes= 120/16 = 7.5. Which is

cheaper compared to the industrial PE of 12 and has upside

of 60%.

After 3 months:


66 | P a g e

If the results show growth in sales, profits and EPS for the

quarter is posted at 5.

PE for the annualized EPS of 5 become= 120/20=6. Which

is cheaper to its industry and has 100% upside.

Just in 4th month, the stock has 100% upside.

This is how our stock picks like Bhansali Engg, Sanwaria

Agro, etc rallied more than 300%.

So, where you should invest? You should invest in a

fundamentally good stock where it already has a 20%

upside compared the industry.

We have done such research and have made a list of stocks

in our Priority list and making efforts to add at-least 2-3

such stocks every month to our Priority list.

Our Priority Stocks are up at an average of 30% while the

NIFTY is up just 7% and the Small cap is up only 15%.


67 | P a g e

Services and offers from Gale.in

http://gale.in/account-management-service-by-gale-india-charged-on-performance-only/

http://gale.in/priority-service-from-gale-india-at-rs-5000-a-year/


68 | P a g e

Offers on Demat & Trading account:

1. Free Zerodha account (Cashback 100% account opening fee

from Gale.in, Cashback after account opening.)

Beginners with investment less than Rs. 2,00,000 can start with

Zerodha. Zerodha offers free equity Delivery and Flat Rs. 20 on

trades.

2. Free Angel Broking account with 50% off on Brokerage. (waive-

off first year Account Maintenance charges with investment of

Rs. 50,000 within first 15 days of account opening and free

lifetime Account Maintenance charges with Investment of Rs.

3,00,000 within First 15 days of account opening.)

Investors with investment more than Rs. 2-3 lacs can opt for

Angel Broking account. It offers quality platform at a reasonable

price.

You can enrol here below:

http://gale.in/free-trading-and-demat-account-opening-100-

cashback-from-gale-in/

This book is Version 2018 Revision 0 (v2018r0).

You can kindly email your inputs to improve the

book to [email protected].

http://gale.in/free-trading-and-demat-account-opening-100-cashback-from-gale-in/

http://gale.in/free-trading-and-demat-account-opening-100-cashback-from-gale-in/

mailto:[email protected]