Ever wondered how to start investing in the stock market?


Here is some motivation if you haven't already. Let's assume, 5 years back, you had invested Rs. 1 Lakh in a Fixed Deposit @ 8% and Rs. 1 Lakh each in stocks of Apollo Hospitals, Britannia Industries, Tvs Motor. Today the Fixed Deposit would be worth Rs. 1.5 Lakhs vs the stocks would be worth Rs. 2.1 Lakhs, Rs. 7.1 Lakhs, Rs. 16.6 Lakhs respectively.

Just curious, why does the price of a stock change?

When you buy stocks of a company, you get some share of the company. However small it may be. When this organization grows in terms of sales and profit, the price of a stock also grows in a proportional manner(though not always). We can consider the example of Apollo Hospitals, several years back, the company was making a sales of Rs. 660 Cr and the stocks were traded at Rs. 149, today it is making a sales of Rs. 6,000 Cr and stocks are traded at around Rs. 1300. That's roughly 9 times in both cases. See how closely the pink and blue lines are growing.

Should I just pick companies that are growing in sales?

Not all companies growing in sales give the same kind of return. What we saw previously is something that can be expected from most growing companies. Here's an exception, If we look at the growth of Jubilant Foodworks, its a different story. While the sales of the company has grown by 6 times from 2010, the stock price has grown only by around 3 times. This could be because of the declining Operating Margins of the business or low expected future growth. We often see that there is a mismatch in the actual valuation of the company and the perception of people (which controls the stock price).

How does perception of people affect a company's stock?

Unless you sell a stock, your profit is just on paper. Everyone invests in stock market so that they could find someone else who is willing to buy the stock at a higher price. Investors tend to pay a premium for high growth companies. That's when we can say that the stock is overpriced. After a while, if the growth expectations change, the stock price starts moving down. This can be treated as a correction. One such example is Lupin which was overpriced in 2015, but there was a correction soon after that. A smart investor buys a good company stock when the valuation is low and sells it when it is high.

In spite of knowing all this, I find it risky to invest in stock markets

Sure, that's why we have developed a simulation mode where you can try it out with virtual currency till you get a hang of it. Once you are confident, you can start investing.
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