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Tuesday 14 August 2012
We are into the 8th month of the year already; perhaps it is time to review the financial decisions you had embarked on, in the beginning of the year. The newspapers fetching the daily updates of the stock markethave failed to delight the investors. However, there is another side to the picture if you view it with a long-term perspective, to all those who feel that their decision to invest was an erroneous one.
One thing that changed the face of the marketwas the global economic crisis. It had its effect felt across the world including both the developed and the developing countries. The economic crisis took toll on countries like USA and Europe with high debt levels, pushing them to the brink of collapse. It became severe during the month of September 2011 when the Eurozone crisis set in motion. Irrespective of varied initiatives and policies that were rolled out, nothing substantial and powerful, enough to resolve the problem comprehending its root cause was soaked in.
With respect to India, there were many internal factors like the declining value of rupee, stringent monetary policy, and sluggish industrial growth and FII investments, other than the global crisis, that threw us in troubled waters. Besides, inflation continued to remain high throughout. Analysts and economists are however of the opinion that India will continue to be one of the fastest growing economies of the world and is in a better state to grapple with the crisis than anyone else.The Economic Survey estimates the growth rate of GDP to touch 7.6% in 2012-2013 and can further accelerate after that. Irrespective of the monsoon failures and policy paralysis that we are prone to, the survey indicates that we can expect an upward swing in a short period.
Even though the stock market currently appears volatile, this seems one of the best times to invest in equity. One can feel certain about investing at present considering the fact that the stock prices have geared to bounce back after the ups and downs. Another most important reason is that Indian companies have displayed an indomitable spirit that will pave way for profits in the later quarter of the financial year.
The top international players are keen on investing in India, eyeing on the long-term profits that they can garner. In fact, India seems to be in a healthy position with its growth rate of 6.5% as compared to the USA, which on an average account for a growth of around 1.6% in the past 10 months. Besides, we can expect more FDI inflows in the coming months with the permit for single brand retailers to own 100% of their business in India.Further, investors could sense a sigh of relief with the announcement that the GAAR does not apply to the P- Note holders and its provisions not being summoned on non-resident investors of foreign institutional investors.
There are reports going round that stocks in India have been trading at 12 times their forward earning or slightly lesser than their 10-year average. This makes Indian bonds, deposits, and Indian equities highly viable for investors in a 12-24 month perspective. An investor can monetize well by picking up the right stocks that will yield them high returns in the long term. Since the beginning of 2012, The Bombay Stock Exchange's FMCG index is 21% i.e. 12 points higher than the Sensex.
With India still seeming to be a hot destination to invest, we can look forward to a buoyant future where investors can reap benefits with long term investing.
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Friday 10 August 2012
Introduction: There are many ways or methods of trading in stock markets- one of them is swing trading. Swing trading is a style of trading stocks that attempts to capture short term moves in the stock market. In its simplest form, swing trading is repeatedly buying and selling of stocks near the up or down price swings caused by price volatility. A swing trader typically holds a stock for 2 to 5 days. This time frame is also unique in which you can potentially capture explosive moves in a stock in a very short period of time.
How does swing trading work: Stock prices never move in a straight line and anyone who's been watching the stock market over the past few years knows that the market moves in trends. And swing trading allows you to take advantage of these trends. Swing trading lets you to trade stocks whether the market is moving up, moving down, or moving side to side. In a market that's moving up, swing trading will help you catch the big move when stocks that have pulled back rally into strength. In a market that's moving down, swing trading will help you catch the reversal when a stock has bounced too far too fast and is ripe for a retreat. And in sideways markets, swing trading will help you do both, catching both the big moves and the reversals as the market moves back and forth in its range.
Swing trading is suited to whom: Swing trading is ideal for independent traders because unlike day trading you don't have to be glued to your screen all day making hundreds of trades. With just a few trades a week, a few minutes a day, swing trading puts your money to work when there are real opportunities in the market.
How it is different from other trading styles: In reality, swing trading sits in the middle of the continuum between day trading to trend trading. A day trader will hold a stock anywhere from a few seconds to a few hours but never more than a day and a trend trader examines the long-term fundamental trends of a stock or index, and may hold the stock for a few weeks or months. Swing traders hold a particular stock for a period of time, generally a few days or two or three weeks, which is between those extremes, and they will trade the stock on the basis of its intra-week or intra-month oscillations between optimism and pessimism.
Swing trading VS Day Trading
Unlike day traders, swing traders hold positions over several days and sometimes for a few weeks. But similar to day traders, swing traders rely heavily on signals from chart patterns and technical indicators to time their entries and exits from securities. The goal of swing trading is to profit from short but powerful moves of the stock market
Swing trading VS Long term investments
Swing trading also differs from the buy-and-hold approach to investing. Long-term investors may hold a security through periods of weakness that may last several weeks or months, hoping that the tide will eventually turn and their investment decision will be proven correct. Swing traders don’t care for such poor performance in the near term. If a security’s price is performing poorly, swing traders exit first and ask questions later.
How to use swing trading: Strongly trending stocks often make a quick move after completing its correction, which is a good opportunity to makea profit. Hence, the basic strategy of Swing Trading is to jump into a strongly trending stock after its period of consolidation or correction is complete. You can then sell the stock after 2 to 15 days for a 5%-20% move. This process can be repeated over and over again. You can also play the short side by shorting stocks that fall through support levels.
Identifying the right Stock:
The first key to successful swing trading is picking the right stocks. The best candidates are large-cap stocks that are among the most actively traded stocks on the major exchanges. In an active market, these stocks will swing between broadly defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks only to switch to the opposite side of the trade when the stock reverses direction.
The right market:
It should be noted that in either of the two market extremes, the bear-market environment or raging bull market, swing trading proves to be a rather different challenge than in a market that is between these two extremes. In these extremes, even the most active stocks will not exhibit the same up-and-down oscillations that they would when indexes are relatively stable for a few weeks or months. In a bear market or a raging bull market, momentum will generally carry stocks for a long period of time in one direction only, thereby confirming that the best strategy is to trade on the basis of the longer-term directional trend.
The swing trader, therefore, is best positioned when markets are going nowhere - when indexes rise for a couple of days and then decline for the next few days only to repeat the same general pattern again and again. A couple of months might pass with major stocks and indexes roughly the same as their original levels, but the swing trader has had many opportunities to catch the short-term movements up and down (sometimes within a channel). Of course, the problem with both swing trading and long-term trend trading is that success is based on correctly identifying what type of market is currently being experienced.
Advantages of swing trading: Swing trading combines the best of two worlds — the slower pace of investing and the increased potential gains of day trading.Swing Trading works well for part-time traders — especially those doing it while at work. While day traders typically have to stay glued to their computers for hours at a time, feverishly watching minute-to-minute changes in quotes, swing trading doesn't require that type of focus and dedication.While Day Traders gamble on stocks popping or falling by fractions of points, Swing Traders try to ride "swings" in the market. Swing Traders buy fewer stocks and aim for bigger gains; they pay lower brokerage and, theoretically, have a better chance of earning larger gains.To swing trade, you don't need sophisticated computer hook-ups or lightning quick execution services and you don't have to play extremely volatile stocks
Dos and Don’ts of Swing trading:
- Admit to losses when they occur: Markets have a way of humbling even the most skilled traders if they let their egos get in the way of their trading. Some traders hold onto losing positions in the hopes that they can eventually break even — a policy that devastates an account in the long run.
- Try to insulate yourself as much as possible from others’ opinions, whether the person is your 'childhood friend' or a Dalal Street analyst. Remember, Dalal Street is a community, and analysts send out their opinion reports to hundreds, if not thousands, of traders and portfolio managers. Reading those reports can lead you to think like the analyst does - and like hundreds of others do. Good performance doesn’t come by copying what everyone else is doing.
- Don’t frequent message boards: Message boards often foster a group mentality that a position should behave a certain way. You don’t want to gather knowledge from just anyone on the Internet. Rather, stick to trusted sources and form your own opinion on matters
Risks involved: Risks in swing trading are commensurate with market speculation in general. Risk of loss in swing trading typically increases in a trading range, or sideways price movement, as compared to a bull market or bear market that is clearly moving in a specific direction.
Conclusion: Swing trading is actually one of the best trading styles for a new trader to get his or her feet wet, but it still offers significant profit potential for intermediate and advanced traders. Swing traders receive sufficient feedback on their trades after a couple of days to keep them motivated, but their long and short positions of several days are of the duration that does not lead to distraction. By contrast, trend trading offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position for that period of time without getting distracted. On the other hand, trading dozens of stocks per day (day trading) may just prove too great a white-knuckle ride for some, making swing trading the perfect medium between the extremes.
You can also view our presentation on Swing Trading on Our SlideShare Profile
You can also view our presentation on Swing Trading on Our SlideShare Profile
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Thursday 9 August 2012
While the markets may be chaotic, your approach doesn't have to be so as well. As a novice investor, there are many things to consider before you plunge into the volatile sea of equities. One may even feel that equity investment is daunting for the not-so-experienced, or that it is confusing given the multiple views and so called 'tips' doing the rounds. But that's where we, at Kotak Securities, feel the need to bust the myth. Simply put, investing in a stock or selected stocks is easy when you're equipped with the right facts coupled with focused analysis. This would not only save you a lot of time and unnecessary worry, but also turn you into a smart investor!
To begin with you need to understand yourself and your risk tolerance - how much risk are you willing to take and what level of risk can you handle. Also, instead of the common practice of chasing stocks based on trends, it is better to understand that you're actually investing in the company's net worth, and not just its stocks. Therefore, looking at a company's history and performance is key. Here are some insights that will help you evaluate a stock and make the right choice.
Company History: It's very important to understand the performance of the company over a length of time. You can look up the reports of the company and study the same to know whether it is in a healthy financial position. This will indicate whether the company will generate relatively good cash flows in the future and whether it has the muscle to tide over a crisis.
Market Cap: This is a simple calculation that refers to the total value of the tradable shares of a publicly traded company. It is found by multiplying the per-share price times the total number of outstanding shares. For instance, Stock price: $50
Outstanding shares: 50 million
Market cap: $50 x 50,000,000 = $2.5 billion
Outstanding shares: 50 million
Market cap: $50 x 50,000,000 = $2.5 billion
Cash Flow: Cash flow is one of the most important measurements in evaluating a stock. It refers to the amount of cash a company brings in and uses after the deductions and expenses.
EBITDA Margin: Simply put, this is how one can measure a company's operating profitability. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Since EBITDA excludes depreciation and amortization, EBITDA margin can provide investors with an insight into a company's core profitability
P/E Ratio: The Price-Earnings (PE) Ratio is a key indicator in valuing a stock. It looks at the relationship between the share price and the company's earnings.
It is calculated as:
Market Value per Share / Earnings Per Share (EPS)
It is calculated as:
Market Value per Share / Earnings Per Share (EPS)
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
EPS, is calculated as:
Net Income / Number of Outstanding Shares
EPS, is calculated as:
Net Income / Number of Outstanding Shares
While the P/E Ratio does not tell the whole story, and it's not advisable to base an investment decision solely on this number, it does help in comparing this with other stocks in the same sector. Typically, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.
Return on Equity: This refers to the amount of net income returned as a percentage of shareholders' equity.
It is calculated as:
Net Income / Shareholders' Equity
It is calculated as:
Net Income / Shareholders' Equity
For instance, if XYZ Bank generated $10,000,000 in net income last year, and it's shareholders' equity equaled $20,000,000 last year, then
ROE = $10,000,000/$20,000,000 = 50%
ROE = $10,000,000/$20,000,000 = 50%
This means that XYZ bank generated $0.50 of profit for every $1 of shareholders' equity last year, giving the stock an ROE of 50%.
ROE is a measure of efficiency; it indicates how the Management of the company is deploying its shareholders' capital. It is important to note, that comparisons of ROE should be made of companies within the same industry.
So, now, you've run the numbers and done a fair bit of analysis. Armed with this information and basic stock fundamentals, you can get objective about your investments. Keeping all these factors in mind is important vis-à-vis your portfolio. Next time around, don't get tempted by the rumours you hear around the water cooler, focus on the facts instead. The age old maxim may say "buy low, sell high", but you know, that it's only wishful thinking. Follow these steps, as this knowledge will help you become a more responsible self-directed investor.
Please write to us if you have any questions and we will be happy to answer them for you
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Tuesday 22 May 2012
The word ‘Stock Market’ appears to be a jargon for many people who are not aware of it. However, with the understanding of the basic terms and its fundamentals, one can learn the ropes right away. Knowing the sums and substance of the Stock market is essential before one considers investing.
Unfolding the terminologies, we give you a rundown on the same:
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