7 Steps on How to Start Investing in Share Markets in India
We all know that it is very difficult to invest in share market because it is all about news, fluctuations and sudden shifts. Some people invest in mutual funds while other chooses stocks. It basically depends upon the overall understanding of the investors. Of course, both investing in mutual funds and stocks are beneficial and give better returns.
However, when it comes to investment in stock market, it is essential to understand the health of the economy, trading strategies and options, economic adjustments, chart analysis, market regulatory norms, different types of ratios, trading rules and market as well as economic indicators. Based on your learning and experience, you can develop your own strategy. Also if you want to meet your financial goals, it is important to follow these seven steps to start investing in share markets in India –
Indentifying, Screening and Filtering the right stocks – There is n doubt that there are thousands and thousands of stocks listed on stock exchanges and it is very difficult identify, screen, analyze each and every one of them and understand their financial information. Of course, there are many criteria such as Market Cap > Rs 500 cr, Debt to Equity Ratio <1, Current Ratio > 1, etc. Investors can choose them accordingly as per their knowledge and understanding.
Select the companies that you understand – It always makes sense to learn more about companies that you have selected. You can do this by visiting the site of the company, monitor updates on different platforms, products and services of the company, business outlook and getting feedback from the top investors. It is essential that you invest in companies that you truly understand. Also it is good to understand the business model.
Look for companies with sustainable competitive advantage – Make sure to choose the companies that have good business models. Indeed, it makes sense to know and understand qualitative and quantitative aspect of a company. As an investor, you should identify companies that have strong competitive advantage (factors that enable a company to produce goods or services better than its rivals).
Always find Low Debt Levels – We all know that large debt levels are not good for companies and may pose a serious threat. That is why it is important to focus on Debt to Equity Ratio and Current Ratio before choosing a company to invest. Besides this, almost make sure to check out how the company is handling its debt. It will improve your overall understanding about a particular company.
Never ignore financial ratios – Most people believe that financial ratios are of no use; however, in reality, they are very important. Some of the most essential financial ratios to look for are – RoE(Return on Equity) and RoCE(Return of Capital Employed). These two ratios look complicated but are highly valuable when it comes to analyzing a company.
Always look for the best management – Nobody wants to choose a company that has a shady management, involved in frauds and mislead shareholders. That is why it is vital to pick a company that has a transparent, competent and incredible management. All you can do is to ready and analyze news, read annual reports, comparative analysis, shareholding patterns, financial statements, and search for the track record of the company.
Wait for the right price – If you have finally evaluated the overall value of a company, then it is the time to identify the right price. According to an expert, purchasing a stock at the right price would give you the margin of safety. Hence, after understanding the intrinsic value of a company, you can buy the stock at the most suitable price.