This book will un-cover the basic fundamentals of Indian Stock Markets & generally any stock market really. I intend to make this book as short as possible. Art of Stock Investing (Indian Stock Market) Leverage on great companies, churning more and more profits every year By Manikandan Ramalingam All rights. Do you want learn how to invest like Warren Buffett? This book offers an introduction to Buffett, his business success and the lessons that we can learn from. INVESTING GUIDE 101
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This is so wrong. Go to moneycontrol. Below is the snapshot of the page you will get. The first circle over You can see various tabs on the left. Financials is more important than the rest. Courtesy: moneycontrol. You can fill-out the form in the below URL if you are interested to join us. It is not applicable to clients who open it directly with Zerodha. Watch our videos www. Watch the video linked on the Dashboard URL to understand the logic of how this filter works. Feel free to drop me an e-mail at rmani84 gmail.
Debt or loans or liabilities is a killer. Just like us, companies also take loans, in earlier stages to expand and run their company. Very few companies execute their expansion plans and go on to pay off their debts. Such companies will start accumulating cash from profits they make every year, just like savings we build in our bank accounts.
On the contrary, debt will also pull profits downwards, as the company will need to pay interest on the loans or debt every quarter. If you think of a company as a ship, debt is like holes in a ship. The more the debt exposure, larger is the size of the hole in the ship. A company loaded with debt or loans is a sinking ship.
When you invest in a sinking ship, you will sink with it. While profits made by a company every year, tries to push the ship forward, debt tries to sink the ship. So, what is the right balance of debt and profits? Any company with debt lesser than 2 years of profits, is Yellow signal for me. They have a few holes in it.
But, they can always pay it back in 2 years, if they choose to use their profits, to pay off the loan rather than use it to expand their business. Their business expansion will have to wait for 2 years. Any company with debt more than 2 years of profits, is Red signal for me. The more the debt to profit ratio is, the larger is the size of the hole in the ship.
If you drive with red signal on, you are going to be dead soon. Let me give you some facts between and on 2 stocks One loaded with debt and the other with zero debt. Colgate Palmolive India is a zero debt company and made profits of Rupees Crores, in Share price of Colgate, has risen from Rupees a share in , to over Rupees a share in And, it will more likely grow as their profits grow every year.
Companies with debt would choose to use their profits, to either expand business or pay off debt. They cannot afford to accumulate cash balance. Companies with debt can't afford to acquire. When you want to compare two Zero debt companies, with cash equivalents, use the cash to market cap ratio. Infosys market cap is around Rupees 1,50, Crores now and has cash of Rupees 15, Crores. In a Zero debt company, being cash rich will more likely, tend to prevent the share price from falling down.
Infosys is more cash rich than Colgate. But, Infosys profit growth was slower than Colgate, between and As a result of that, Colgate share prices have risen more than Infosys, between and Brand value of a company is the next big factor. You will need to build some knowledge of companies and its brand products, to master the art of investing.
It gives you the vision of whether the company will do well or not in future, which ensures share price rise. And, good products with good brand value, will always churn more profits. You may not have heard about the company "Godrej Consumer Products", but you would have heard about their popular products like, "Good Knight", "Hit" to kill cockroaches, "Cinthol" soaps, "Godrej Hair dye" and many more.
You may not recognize the company by name Pidilite, but you would recognize Fevicol, Fevistick and so on. When you buy shares of such brand valued companies, you gain as their profits grow every year. And, such few brand valued, Zero Debt companies, consistently rise in profits every year. And their share price, will always rise back from lows and keep going up in the long term.
Now, there are companies with Zero debt and good consistent profit growth, with lesser or NO brand value or recognition. A lot of people, jump into buying stocks, without understanding the brand value in it. You all will agree that, India is not a country short of rumors. Strong brand value will always kick away fear. As an investor, you yourself will feel much better about investing in shares, of strong brand valued companies.
Let me give you some factual examples: "Glodyne Technoserve" is an IT company and had Debt to Profits ratio of 1 Which is pretty decent for a small company, although I always prefer a zero debt. The company's revenues and profits have risen consistently, in the last 5 years. Glodyne's share price was trading above Rupees levels, till late The share price has not risen back since then and has stayed down below Rupees , on bad economy.
Investor confidence took a beating. Stock price fell from Rupees to Rupees in few days and to lows of within a month. Due to strong brand value, investor confidence came back soon and stock price recovered back to Rupees levels, within a couple of months. Filter out and avoid companies without brand value. Scope for Growth in Future, is dependent largely not entirely on the competition a company faces.
Lesser the competition, easier is the growth. You can even drill down to individual products, within the company and the competition for each of its products. Let me share few interesting facts. They all make Cement. This growth in demand for cement gets split among the 22 companies There would be other unlisted smaller players too. Of course, a company with Zero debt and better management, would grab the opportunity, more than anyone else.
TCS and Infosys are strong competitors to each other. All others, are either loaded with debt or too small to pose a thread. All others are too small or loaded with debt to pose a threat. You may not have heard of Jubilant Foodworks, but might have tasted Domino's Pizza. With least competition and good future scope, I would definitely prefer to invest in Jubilant Foodworks.
Future Growth Prospects While competition is a major factor, scope for future growth comes in as a secondary factor. Bharti Aitel has Debt to Profits ratio of less than 2 and is a strong brand valued company. Bharti Airtel dominates the telecom industry. But their profit growth has saturated in India. By now, every Indian above the age of 20 from Kashmir to Kanyakumari has a cell phone. This is the reason why, Bharti Airtel is increasing its presence outside India.
Airtel is still a better stock, than many debt loaded ones. But it is not the next big thing. Their presence is currently seen in a few places, only in major cities of India today. There's a lot more scope for growth, left in Cities, smaller cities and villages. It may take 10 more years for it to thrive in smaller cities, but when it does: investors of today will have gained big, over the next 10 years.
And i have a strong belief that, smaller cities are the next big thing in India. Revenue or Profit growth of the past will not push share prices higher. But, consistency of past profit growth, reflects how good a company performed in the past. They should continue the good work in the future too, which an investor will benefit from. If a company has been erratic in the past, its likely to be erratic in the future too. Revenues must have dipped a little in during recession, when people must have painted less.
More the companies you avoid, better the investor you become. I now avoid There are over 6, companies listed on the Indian Stock Exchanges. If you filter the right 60 Stocks, you are well on your way to become a great investor. Pick the top 10 stocks according to your view and diversify your investments equally on 5 to 10 stocks. Less than 5 would mean more risk and more than 10 will not be manageable, in terms of tracking them.
These days, people who do management studies come up with too many terms and jargons just to confuse and convince people. Stick to the basic rules. Same place, moneycontrol. Below is the snapshot for TCS. You can see the debt that TCS had in the last 5 years. Note that all these values are in Crores. You can see net increase and decrease in cash balance of TCS in the last 5 years. When a company acquires another company, their cash balance normally decreases Unless they choose to take debt to pay for the acquisition.
Before you proceed to invest, just make sure that the promoter stake in the company is clean. When I say clean, I mean that the promoter stake must not be pledged. If the promoter stake is pledged, it means that the promoter has pledged his stake in the company to a Bank as security and taken loans.
It is a major negative for the company and its investors. In most fraudulent promoter cases, the promoter stake will be pledged. Satyam, KFA, Suzlon, Unitech are popular examples of promoter pledged, where retail investors wealth and hope has been demolished. Stay Away from such companies. Below is a snapshot of the page in moneycontrol for Unitech. Power of compounded returns, will be more and more as you give more time to it. Watch our videos at www. I am sure all of them would rise in valuations Stock price.
Check them 20 years later and you will know the power of compounding. They have cash in hand of Rupees Crores. They probably took debt to do favor to bankers or to leverage on tax exemptions. More cash in hand is always better. More so for investors.
Titan has been building customer base, for over two decades now. All of them were Titan Fastrack watches. He's the only branded watch available all over India, in the budget range of Rupees to There is no other competitor. Not to mention that they have outlets all over the world. India is becoming fashionable at a fast pace. Everyone at-least in cities wants to buy Titan glasses, for eye sight problems. There's no watchmaker or jewelry maker with outlets setup all over India.
Titan is setting up outlets all over the world. They recently acquired a watch maker brand in Europe. They may go on to acquire more, expanding their outlet chain. With other parts of the world facing crisis, Titan will thrive. Titan currently sells hot in major cities of India. They still have lots of space to grow in smaller cities of India, in the next 10 years. I am sure they will continue to grow. They have consistently made more profits than previous years. Good cash in hand for a smaller company like TTK Prestige.
Then you know its brand. They too are nearly zero debt, but their growth in the past has not been as great as TTK. Coming to future growth prospects, India's consumption growth is going up and up. Specifically, Gas Cooker usage is on the rise. A lot of people still cook with firewood. The growth has been consistent and high. The share price has risen a lot as the brand value is on the rise. There's a lot more steam left in the next 10 years.
It listed in secondary markets in Their first priority will be to expand with more outlets. So, they will have minimal cash in hand as a result of that. But, you definitely would have heard about Dominos Pizza. They also operate in Nepal, Sri Lanka and Bangladesh. But Domino's and Pizza operate in two different price ranges, with Domino's being the cheaper one.
That will definitely suit well for expansion and growth in India. Pizza Hut is not a listed competitor and as far as i see, there are more Domino's outlets than Pizza hut. Coming to future growth prospects, Dominos are mainly found only in Cities as of now. That leaves tons of space to expand within India and other countries. All this could happen in the next 10 years.
From the limited data we have, they have grown at awesome pace so far. You can consider net debt as Rupees Crores - Debt to Profit ratio is less than 0. They can pay off their debt with just profits made in 6 months. Debt is at very safe levels.
They have many more products which you may not recognize. The word "Godrej" itself has a great brand value. I am sure you will agree with that. Coming to future growth prospects, am sure India will be more haunted by mosquitos and cockroaches as time goes on. People get white hairs at a younger age now and there will be more need for dyes. Personal care and things like beauty parlor products are on the rise and there's more room for growth.
Growth Consistency of "Godrej Consumer Products" Growth consistency has been very good and is picking up more and more in recent years. Its rich in cash with Rupees Crores. As the company has accumulated cash, it has pushed share prices more than the profit growth in the last 5 years. But they have minimal product line with all of them being popular, which epitomizes their quality.
Crocin, Eno and Iodex are their products under healthcare category. If they erode, then they are not quality products anymore. Future growth prospects: Well, their product line is little with each one outperforming. Even if they introduce one more new quality product, am sure that will also do great and push their profit line higher. They have accumulated cash which adds more value to investors. Their track record is immaculate in the last 5 years. And all corporate buildings will prefer their buildings painted with the best paint.
If you notice closely, most hardware shops are solely Asian Paints outlets. Their distribution channel is amazing. So are the varieties of colors they offer in their product line. They mainly cater to those who can't afford Asian Paints. Future growth prospects: I worked in HP till mid But they still painted their buildings so that it looks clean for business reasons.
Corporate buildings re-paint every 2 years if not more frequently. And with infrastructure growing, there will be more demand for paints. Growth Consistency of "Asian Paints" It slowed in , but the growth trend continued after that. Brand Value of "Nestle India" Nestle's brand products are very popular and impressive.
I need not say more here. They churn profits like clockwork. The net debt would be Crores. This actually breaks the very first of our 4 thumb rule. But, Apollo is my only exception to the 4 thumb rule due to strong brand value and near Zero competition. You definitely must have heard about "Apollo Hospitals". Years back, local hospitals always give reference to Apollo for complex health issues. The first big competitor is Fortis Healthcare. Fortis Healthcare also has Debt to Profit ratio of over 3.
It made losses in FY, some part of and FY has however turned around with profits of Crores. My Mom is a strong believer that, investing in land or house is the safest thing to do. But it becomes a locked asset, which you would never plan or be able to sell or liquidate or leverage on.
It also has problems like maintenance, litigation issues, encroachment and so on. The true value of a land is never transparent and brokers make sure you buy higher and sell lesser when you have to. Since the true value is not transparent, no selling price is satisfying enough.
The main problem for me is, i cannot buy a piece of land for Rupees , Can I now? Which would be a common man's monthly savings, which he would prefer to invest. And i cannot sell a piece of land on the day i want to.
My dad took 2 years to sell a piece of land in Chennai City and the buyer took a year to pay back in installments. And the whole process is so damn frustrating to say the least. You can buy a house to live in it. Buying a house or land purely as investment is a pain, though it gains in value over 20 years Half your life is over by then. And you are left to contemplate if you bought and sold at the right going price.
You can invest in any corner of Indian Soil and expect it to grow in value over 20 years. The same is not true about investing in stocks listed in Indian Stock Exchange. The critical aspect of this art is to cherry pick the worthy stocks, which would fall the least during bad times and appreciate well in value over a period of time.
There are other add-on aspects of course, like better times to buy and best times to sell. An investor needs to be empowered with the basic fundamental knowledge of Financial Markets. I intend to make this book as short as possible and to the point with no intention to confuse you. To understand the very basics of stock markets, you should know why they came into existence.
Why did anyone need a Stock Market? The answer is simple: Stock Markets came into existence because Companies or Businesses needed them. Infosys was founded on 2nd July, by N. Narayana Murthy and 6 others with an initial investment of Rupees 10, officially becoming the first employees of the company.
The 10, Rupees would have been sufficient only to start Infosys, but they cannot run and expand their business with that forever. As you can obviously figure out now, they would need more funds to run and expand their business. Where will the fund they need come from? But, it sadly needs to be paid back with interest.
And if the company runs into losses while they expand, it will be even more painful for the company to pay back the debt. So, a company cannot take too much debt. The funds raised in an IPO goes to the company, which will be used for daily operations and for their expansions. This is where the existence of Stock Markets has evolved over time.
The shares exchange hands from one person to the other, virtually every second nowadays, when the Indian Stock Exchange is open. It is very similar to holding an online bank account. Back to Infosys:Infosys made an initial public offer on February, and was listed on stock exchanges in India on June, The offer was priced at Rupees 95 per share.
Trading opened at Rupees per share, in secondary market, compared to the IPO price of Rupees 95 per share. Does it? Normally the minimum amount to apply in an IPO is Rupees Assuming, one invested Rupees , in Infosys IPO and has been holding till date, it would be worth over 2 Crores today Including dividends around 25 lakhs. Sounds exciting? Infosys share price rose so much, as its profits rose so much, in the last 2 decades.
The art of investing is to identify evergreen companies, with profits growing consistently. Basically, the rise and fall of share price, is due to the tug of war between buyers and sellers. Last Traded Price LTP , is technically defined as the price at which, someone owning a share Seller , decides to sell his shares, at an agreed price to a buyer. The Last Traded Price, fluctuates every second, when Markets are open, as millions of users across the world sit in front of their computers, placing buy or sell orders online.
If on a particular day, there are more bids to buy shares, than shares that are in offer to be sold, then the share price rises. The share price falls, when there are more sellers than buyers in a day.
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