Equity as an asset class is volatile in nature and yet unlike debt gives lumpy returns. As an investment for the long-term perspective, equity has always delivered higher returns than any other asset class and its outperformance is likely to continue in the future. Most of the renowned investors who built their wealth have made money in stocks on which they had a long-term value perspective and those paid-off very well. Here we answer some of the most common market-related queries you have and help you take a much more informed decision while trading.
1. What is off-market trade and how does it work?
Markets are volatile. Stock prices gyrate if general sentiment towards economy changes. Many a times, the government policy specific to a sector is altered and that affects all the stocks in that industry. As and when new information related to one specific corporate is announced, its stock prices react to it.
Many investors and traders are busy during market hours in their own profession and miss out from benefitting from such opportunities. If one wishes to buy or sell a stock at a particular price, off market order is a great boon. Even if one is busy during the market hours, she can place an order before or after market hours. These kind of orders are called off-market orders.
The off-market order option lets you place buy or sell orders in stock of your choice. Off-market orders are sent to the exchange as soon as the market opens, if they are placed before the markets are opened at 9:15 am. Orders entered after the market closing are sent to the exchange on the next trading day.
(Devarsh Vakil, Head - PCG(Advisory), HDFC securities)
2. What is the downside of trading versus Investing?
Trading is an acquired skill while investing is a science bordering on art. Both approaches seek to generate profit from the stock market’s perspective.
Profiting from stock markets requires ability to manage one’s emotions, to think quickly and independently and discipline to tenacity to stick to one’s approach for the long term. One should adopt approach based on one’s mind set and risk profile.
Investors study a company’s potential for the long-term growth, find its intrinsic value and invest if current market price is lower than value. Investors hold stocks till market price is substantially higher than what they think should be the current value of the stock. Traders take advantage of volatility arising in price on back of some event or news.
Trading with discipline has an advantage of avoiding permanent loss of capital in case the idea goes kaput, but on the flip-side traders miss out of the massive wealth generation opportunity some multibagger stocks offer. One successful investment idea can change investor’s finances.
3. What are global and domestic cues to watch out for in 2020?
On the global front, key factors to watch out for would be Trump’s impeachment, Brexit, US-Sino trade deal and OPEC’s cartelisation. Locally, the most awaited event for 2020 would be the Budget in February along with the pace of disinvestment, Electric Vehicles (EV) implementation, capex from corporates, government’s infrastructure spending and efforts to boost agricultural productivity. A concussion of all these factors together will influence the way forward for our markets in 2020. It would be interesting to watch how this pans out.
(Umesh Mehta, Head of Research, Samco Securities)
4. What are the sectors I should consider investing in 2020 and why?
There are primarily three sectors with higher chances of outperforming the indices in 2020. First being the auto sector. Autos have been at the centre of the consumption slowdown and faced a lot of slack which caused the stock prices of auto companies to tank. Due to the low base of the previous year, global recovery and auto cycle pick-up, autos are expected to perform better in 2020. Another sector to consider would be metals. Metals experienced consumption slowdown due to the US-China trade war which caused a deep correction in prices. However, with the global pick up in prices, these companies are expected to revive. Metal companies are high dividend paying and have higher margin of safety to grow from a valuation perspective.
Lastly, Indian pharmaceutical players are growing around 14 per cent, which is higher than expected given the Ayushman Bharat Yojana which led to the tremendous demand for pharma products. India focused pharma players will benefit and hence can be picked up at the current levels.
5. What are some basic parameters for buying a blue- chip stock?
The key parameters to stay invested or to take a fresh position in any blue-chip company is the sustainability of the very business on the basis of which it became a blue-chip company. For instance, large scale distribution network is the economic moat of Hindustan Unilever (HUL), which has been aiding it in faster brand visibility and distribution of new products. Once one is certain about sustenance of business moat, proper deployment of generating cash, whether this is Return on Equity (RoE)-accretive or not becomes an important factor to take investment decision assuming most blue-chip companies generate healthy cash flow. A sustainable return ratio offer comfort about sustainability of premium valuations of any blue-chip company.
(Rajeev Srivastava, Head Retail Broking, Reliance Securities)
6. How important is it to have a long-term perspective while building your wealth with equities?
It is always good for an investor to keep a long-term perspective. However, your long-term perspectives should be cohesive with two key aspects of investments - Discipline and informed investment decision. For instance, discipline means one should have SIPs especially dedicated to blue chip dedicated funds, which will certainly pay you off very well in the long-run. Informed investment entails looking for investment opportunities, where the margin of safety is higher in any quality company..
7. What should first-time investors keep in mind before investing in direct equity?
Check the Table: Checklist for investors before investing in direct equity
(Pankaj Bobade, Head of Fundamental Research at Axis Securities)
8. What are the stock market investing mistakes to avoid?
One of the biggest behavioural mistakes an investor makes is he tries to time the market. This is the reason why investment return on a stock/ portfolio is generally higher than the investment return made by an investor.
“Buy what goes up and sell what comes down”. This is another common trait in the market where investor is blindly trying to follow the momentum in the stock without understanding the fundamentals of the company. Getting anchored to a price: This is another behavioural trait where an investor gets anchored to the price of a stock she has bought. They tend to average out when the stock is going down.
(Santosh Kumar Singh, Head of Research, Motilal Oswal Asset Management Company)
9. How to be tax wise when investing in stocks to maximise gains?
Tax planning is an integral part of financial planning. Short-term capital gains are gains on equity/equity-linked mutual funds, which are held for less than one year and are charged at 15 per cent tax rates. In long-term capital gains one holds these equities linked securities for more than a year and is charged at 10 per cent. Income tax rules provide for a favourable tax rate on long term capital gains. Investors should take full advantage of tax saver Equity Linked Saving Scheme (ELSS) plans which provides opportunity to save tax at highest rate in income bracket.
(Santosh Kumar Singh)
10.How to get better risk-adjusted returns from equity investments?
One of the biggest mistakes an equity investor makes when he looks at absolute returns of the securities in the past and forgets about the risk associated with it.
Beta: This is a measure of volatility of a stock in relation to the market. A company, which swings on either side higher than the market have more than one beta.
Sharpe ratio: Sharpe ratio is a measure of additional amount of return for the risk. While comparing two assets, higher sharpe ratio portfolios are better as they provide better return for the same risk.
Alpha: This measures the performance of the portfolio against the benchmark, positive alpha means relative outperformance.
(Santosh Kumar Singh)