After getting some very basic ideas of the stock market and mutual
fund terms we would directly move into stocks. First thing in earning
money from equity is selection of some good stocks or funds. Normally
people would say that selection of your stocks would determine how
much money you make but actually this is not true. My Definition is “The
risk factor you can incorporate into your selection of stock/funds
determines how much money you can make out of them”.
From Chapter 1 we can surely tell that there are 30 companies listed
under Sensex and 50 Under Nifty and we can select the list of companies
under Sensex and Nifty as one of investment list. This is normally done
by many Indices funds to invest in only listed companies but then there
are other parameters as well which can help us.
So to understand the market let is first understand the diagram
below. It represents how and when a stock can move.
From the diagram it’s clear that if your stock is to move up or down
the sector in which the stock lies has to move up or down respectively
Again for the sector to move up or down the market has to move up or
down in the same manner. It’s very difficult for a sector to be performing
quite well consistently while rest of the market does not. On some days
this happens but the chances of that are very rare.
The first and the most important thing when it comes to investing in
India are determining the sectors and areas where there could be good
Future Plans and Growth Potential
The second touchstone I prefer to use is how good the company
plans when it comes to future expansion and how aggressive they are in
taking the growth path.
Try to get the past performance about the company and try to get the
idea about the earnings per share (EPS), Book Value etc about the
company. If we have some knowledge of the past performance of the
management then that should also be taken into account when judging the
execution of the future plans.