A Complete Guide For A New Investor On D-Street

Even as the equity markets are hovering around their all-time highs, the big question which has been making rounds around the investing community in India is: whether this is the right time to enter the markets or time to book profit and exit for now, only to reenter at a later stage. And then there is this big question in the mind of the aspiring investors: should we or should not? Subhajit Bhattacharya and Nikita Singh team up with Karan Bhojwani to work on this dilemma and here is what they have got for you.

In her late-thirties, Deepanwita Mukherjee of posh Tollygunge area in Kolkata has managed to built a good amount of corpus saving from her income working in a British firm. She always wished to get into the stock markets as a retail investor but had to avoid it since some of her close friends advised her to stay away from what they termed as speculative income. As markets are hovering around their all-time highs these days, Mukherjee could figure out her friends were not really well informed and she paid the price missing the bus. How to go about it now, she wonders. As a potential new investor in the equities, she has several questions making rounds in her mind--how to open a DEMAT account, how to link it with her bank account, what will be taxes on her income from stock investments, how safe is it, is there a watchdog and grievances redressal forum and many such. Mukherjee is now all set to enter the markets as a retail investor but she has decided not to take so-called advises from friends but from some reliable sources.

A resident of suburban Mumbai, Ashish Arora also wants to take the equity route to build a sound savings basket for his future as he inching towards 40. Like Mukherjee, Arora too is confused about getting into the markets though he had opened a DEMAT account two years back but had never operated it. Arora has started believing markets are at this time at a steep high level but entering markets at this juncture may boomerang his intentions. He has been waiting for taking the equity bus only after markets shred significant points from here. Is it too late or is it the right time--he ponders everyday.

And there are thousands of aspiring retail investors like Mukherjee from Kolkata or Arora from Ghatkopar. Biting their nails, they have been waiting to enter the markets, and their waiting is just evolved around the phrase, 'right time.' Some of them are even too confused about going with the basics, like, opening a DEMAT account, knowing how things move in the markets, the do's and don'ts, how does market regulator SEBI acts when it comes to issues related to handling investors' grievances, the good, bad and uglies of the Dalal Street and so on and so forth.

For the aspiring ones and also for the semi-seasoned ones, this report brings in exhaustive information helping the ones awaiting on the reserve-bench.

Unfortunately due to lack of wide-scale of investors' awareness and education, the stock markets are still not the 'favourite' investment spots for several investors. Countrymen have a love, hate relationship with the stock markets and worse is, some even term it as instruments for legitimate speculations. A minimum percentage of investors operate their DEMAT accounts even if the country's population has been inching towards clocking 150 crore. As per a recent research tabled by a leading market research organisation only 2 per cent of the Indian investors invest their money on the equities. In fact, investing in equities is as simple as opening a fixed deposit in a bank and watch it grow. Once the initial stigma is addressed, one can easily create wealth over a period of time taking the Dalal Street route.

So how do you really start it:

Build the basics - Primary Account Number (PAN) is the access card that opens the door of the markets to a beginner. The 10-digit alphanumeric number empower investors with multiple financial abilities and helps them to become an integral part of the country's tax regime. PAN is the foremost instrument which is needed to invest in the shares in India. And following the recent stringent policies formulated by government of India, a large chunk of the population is now armed with a PAN and majority of our fellow countrymen also having AADHAR cards. So if you are armed with both PAN and AADHAR, things become easier--just opt for e-KYC and it would not take you over five minutes to open a DEMAT account, having both trading and DP facilities. While opening the account, just be sure you are doing it with a broking firm, bank having such facilities of repute. After all, it is all about your hard-earned money.

Borrow Wisdom- Once you have your DEMAT account opened and the password too has been sent across to you, just log in, connect your savings account with it, transfer the money you wish to invest in the equities, even in Mutual Funds. Now get set go. Read, watch the experts talking, track the companies, keep a tab on the commercials shared by the listed companies with public, know more about the companies where you are planning to invest your hard-earned money, once you buy the shares, do not just forget about them--see them growing also.

But as a new investor one must consult authorised agents or institutions those are listed with SEBI or Securities and Exchange Board of India. With the rise of the digitisation, several newcomers in the market also trade through various online platforms that are available in the market. And then you always have trusted, most-believed Dalal Street Investment Journal by your side. We work just for you.

Trade Like A Pro- The DEMAT will hold the stocks or shares in the name of the new investor. It will reflect the stock portfolio of the budding investor and will help to analyse investment patterns and the profits that the investor has fetched from the market. Shares cannot be held in physical form they need to be in dematerialised state or DEMAT state. The DEMAT account will keep the tracks of the shares that an investor bought from the market through an authorised agent. Apart from buying shares, one can also sell shares from the DEMAT account. As an investor one can never expect to get a physical share certificate but all the transaction details will be reflected on the DEMAT account statement.

Trading account is like an intermediary that aids the buying and selling of shares. Normally professional hands take care of all this. DEMAT account and trading account are opened simultaneously for a new trader as these two tools provide a professional platform to an investor.

Understand The Importance Of Depository Participants- The role of depository participants is equally important for the newcomers in the trade. As demat account tracks the health of the shares bought by a new investor and trading account helps to sell or buy shares, the depository account helps the market neophyt by holding the shares one purchased and by releasing the shares that a shareholder sold. There are two depositories in India NSDL and CDSL. NSDL stands for National Security Depository Limited and CDSL stands for Central Depository Services Limited.

Dream Big- Unique Identification Number is another weapon which will help an investor to soar. This number is required by the investors to trade for Rs.1,00,000 or more at a single time. If a newcomer aspires to become the wolf of the market then he or she needs to have an UIN.

Communication Holds The Key- As a new trader, it is always important to communicate and consult with the agent. One must stay in regular touch with the broker and must understand the condition of the market before shelling out the hard earned money. Taking confident decisions is only possible if a new investor can get a proper guidance from the agent.Understanding the process of operating of the markets and operations taking the right call at the right moment can change the destiny a building investor. The buying of selling of the shares must be done through an authorised agent and buying and selling order remain active till a certain period of time. If during that stipulated time the buy or sell price does not reach the expected price then the order stands invalid. The buying and selling of the stocks happen in the bourses that are NSE and BSE that is Bombay Stock Exchange and National Stock Exchange. The buying and selling of the shares and commodities happen in these two exchanges of India.One must be specific about the exchange in which he or she wants to trade. However, brokers or the consultants are the best people to understand the psyche of the market.

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Stay Alert, Stay Calm- Holding emotions is the key to success. Be a positive thinker but never get driven by emotions. Experts believe that a newcomer must not get carried away by the sporadic movements of the shares. It might lead them to a financial disaster. The skyline of the stock market changes and evolves every day every second, so it's better to hold the horses to stay afloat on the bourses.

Talk to SEBI:

If you have issues related to your broking firms where you have your accounts, companies in which you have invested your money and in spite of reaching out to them in case of a crisis, if they don't respond to you and sort out the issues, you can also reach market regulator SEBI. A proactive watchdog like SEBI has earmarked cells to investors' issues and most of the times if the complaints, grievances are found to have substantial reasons, SEBI acts in favour of the investors. So you are not alone in your journey on the Dalal Street.

Part II

Now, lets discuss whether this is the right time to enter the markets, invest your money in the equities and where the markets may go from here.

TIME TO REPAIR THE ROOF WHEN THE SUN IS SHINING

The BSE's bellwether index Sensex scaled a record high, crossing its important psychological mark of 30,000. The Sensex has crossed the level of 30,000 twice in intra-day trades previously. It crossed the 30K landmark for the first time in March 2015, but it took almost a span of two years to cross the level for the second time in the first week of April 2017. However, this has been the first time it has closed above the 30,000 level. The National Stock Exchange's Nifty50, too, posted a record high. The BSE's Sensex has rallied about 12 per cent in 2017 so far. The National Stock Exchange's Nifty50 has rallied over 13 per cent in 2017. The equity assets under management of mutual fund houses are soaring in valuations. Systematic Investment Plans (SIPs) in mutual funds are registering new records. IPOs are being oversubscribed multiple times.

Now, let's go into a flashback. In the month of September 2016, after registering a swing high of 8968.70, Nifty corrected almost 1000 points and registered a low of near about 7900 in a span of just 3-4 months. Looking at this steep fall in a short span of time and analysing the global environment and domestic events, a large section of the investing public stayed away from the market. This was because investors were worried about the possibility that this may not be a normal correction, but the market may be heading for a big crash, similar to the crash witnessed in 2008. Panic gripped Dalal Street and most of the small investors remained on the sidelines, either afraid to venture into the stock market due to their previous bad experience, or unconvinced about the revival story, or maybe both. A confident few likely even shorted the market. However, history shows this is the most classic mistake investors make, when they try to time the market, rather than putting ‘time in' market. But there are few who follow the principles of investing earnestly and viewing this correction as a right opportunity, they parked their money systematically in the market as they are aware corrections are part and parcel of the investment process–they come and go. It is imperative to take a deep breath and realise that what is most important for building wealth is not ‘timing' the market but rather ‘time in' the market. "You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets," says Peter Lynch.

If you are among such investors who have missed this rally, you are likely to be in a tight spot. You can see the perks that patient investors are obtaining and you want to get a slice of the pie. However, if you are trying to catch the wave, be mindful of what you are getting into. In the past we have seen instance where people ended up taking hasty decisions in order to make up for the lost opportunities. In this report that follow, we lay out a path for all those who have been left behind by the charging bulls. Before starting, let us look at how the equity markets have performed in comparison to other asset classes in the past 5 years.

Equities are the place to be for long term: A comparison of 5 years data of different asset classes!

In India people have various asset classes to park their surplus fund. Following is the list of the asset classes available for investments:

1. Fixed Deposits(FDs)
2. Equities / Mutual Funds 
3. Gold 
4. Silver 
5. Real Estate 
In the abovementioned options available for investment, fixed deposits (FDs) are categorised as fixed income securities as FD carries a fixed rate of interest, others such as equities, real estate, gold and silver are known as variable income assets.

In the above table, we have calculated 5-year CAGR returns of equity, gold, silver and FDs from May 2013 to May 2017, whereas, the real estate CAGR return is from the year 2012-2015.The above table provides us with enough evidence that equities have outperformed all other popular assets in the past 5 years or so. However, in the above calculation we have considered the BSE's benchmark index Sensex returns, but the index returns do not take into consideration dividend received, variation in performance of individual stocks within the indices and divergence in performance of sectoral indices from the benchmark and of small and mid cap stocks that do not qualify for inclusion in the indices. Robert G. Allen has said "How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case."

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At this moment, most investors who have missed the rally would have numerous questions running through their minds. We have penned down some of the important questions along with detailed answers to help them get started.

Is this the right time to start investing in the stock markets? 

Warren Buffett, one of the greatest investors, says "I have no idea what the stock market is going to do tomorrow or next week or next year, I know how to pick out reasonable business to own over a long period of time". Frequently we have seen people attempt to time the market. Getting the tops and bottoms is a myth. Truth be told, in doing so, a large number of individuals have lost far more money than people who have profited. If you are looking at the stock market during a steep falls, you may think the market may fall further and I should wait for some more time before I start investing. If you are looking at it when stocks are scaling higher, you may think it is too expensive at the moment and I should wait for prices to come to my comfort zone. Actually, neither time is necessarily good or bad if you are investing in a good quality stock with a long term horizon. Long term may be ranging from period anywhere between say 2-5 years. No one can predict with any degree of certainty in which direction the stock prices will move at any given time, but over the long term, the stock market has delivered healthy returns and historically we have seen every bear market is followed by a strong bull market.

How much should I invest?

Another important question which many new investors find challenging is how much should invest in the market? We have seen in the past that due to the lure of making big money in a short span of time people end up taking hasty decisions in the stock market. We have heard stories of people taking loans and margin funding to invest in the stock market in order to turn rich overnight. Investors should know one of the most important rules of investing is the close relationship between risk and returns. Without risk, there can be no returns. Hence, one should invest up to an extent which he is ready to risk. Because if you invest more than what you can afford to risk, you may end up in a panic situation, and if you panic, you'll never able to get good returns in the market.

What is an ideal investment strategy? 

"The individual investor should act consistently as an investor and not as a speculator," says Ben Graham. We are all aware that market does not move in a straight line or in one way. Markets are always prone to volatility and recently, we had seen that before the start of this scintillating rally, there was high volatility in the market. Hence, if you are an investor starting your journey in the stock market and you don't know which investment strategy you should adopt, here are some suggestions. You can start investing a fixed amount of money on a monthly basis, where you buy some shares every month for a fixed amount. This means irrespective of market movement, you need to invest a fixed amount each month, whether the market is rising or falling, you need to invest fixed amount. Now, how does it help you? Let us assume you are allocating Rs.10,000 per month and the market is moving higher and you buy some shares at higher prices. Now, after a couple of months, the market turns volatile and prices drift lower. This will help you to buy shares at lower prices and, additionally, you can buy a number of units in the same fixed monthly amount because the prices have drifted lower. This helps to mitigate the risk and you'll have an opportunity to average the cost of your investment. Another investment strategy which a new investor can adopt is through SIPs (Systematic Investment Plans). With SIPs you can invest money at regular intervals and this money will finally grow into a large sum over a period of time. The most likeable quality about SIP is that you can start investing with a small amount. However, people who are looking to deploy a lump sum amount could buy in a segregated manner, that is, he/she can deploy in three-four tranches, or else they can diversify their portfolios.

Why should one have diversified investment portfolio?

We have heard about this famous age-old proverb "Don't put all your eggs in one basket". This holds true for investments as well. Hence, a portfolio should be well-diversified. What is diversification? Diversification is the practice of spreading your investments around so that your exposure to any one stock is limited. This practice is designed to help reduce the volatility of your portfolio over time. Why should one diversify? Let's say, you have a portfolio of only pharmaceuticals stocks. In the last one year or so, stocks of Indian pharmaceuticals companies have taken a beating and have underperformed the benchmark indices as pharmaceutical companies have faced regulatory issues. So a portfolio which is highly concentrated with pharmaceuticals stocks would have experienced a noticeable drop in value, despite the benchmark indices moving higher. However, if you had counterbalanced the pharmaceuticals stocks with a banking and FMCG stocks, only a small portion of your portfolio would have been affected. Hence, diversification of investment portfolio helps to mitigate risk, while potentially improving investment returns. But remember diversification is good, but wide diversification is injurious to portfolio health. As the legendary investor Warren Buffett has said "Wide diversification is only required when investors do not understand what they are doing."

How to deal with extreme volatility?

"The most important quality for an investor is temperament, not intellect," says Buffett. It is human nature to focus on the negative. It has been scientifically shown that losing Rs.10,000 hurts more than winning Rs.10,000. As an investor, it is important to understand that stock markets go through various cycles and correction is part and parcel of the process of investment journey. Corrections happen all the time and even the legendary investors go through the period of pain. So, before you get scared thinking that the sky is falling, just remember these corrections are a routine thing that happens all the time in the market. "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market," advises Buffett.

We'll share two charts for you to look at, which one looks scarier to you?

Above is the weekly chart of Nifty. In the above chart, we could easily see that after a strong bull run, there is a major correction and there are periods of pain and volatility. This picture depicts that if we look at the short-term picture, we see a lot of volatility.

Now, look at the yearly chart of Nifty. If you observe both the charts, the first one would look scarier than the second. Both the charts are of Nifty. The only difference is that one is a weekly chart and the second one is yearly. So it is pretty much clear from the two charts that when you look at the short term, you see volatility, but when you look at the charts from long-term investing perspective, it is steady with a minor hiccup. That is the goal: to look at investing through a long-term perspective.

Which stocks should I pick up for the portfolio?

"Know what you own, and know why you own it," observes Peter Lynch. There are large numbers of stocks listed on the stock exchanges. It is important to choose a few that could deliver healthy returns over a period of time. But remember, in such bull markets ‘everyone' becomes an ‘Investment Expert'! It's a common scene during the bull run even your neighbour, ‘Hareshbhai' says invest in the stock of ABC company, it will be a multi bagger! Everyone wants to get into the action and excitement and appear to be ‘knowledgeable' on the market. Even your neighbourhood ‘paanwala' will have an opinion about markets and would advise you to buy some stocks. But in the market, it is important to learn from experience. In 2008, there was similar kind of environment, but remember what happened with many investors. In a rush to ride the wave, they lost their hard earned savings. Hence, here comes the sensible advice for you: If you don't have much time to devote on analysing stocks and you want to invest in the stock, always refer to a SEBI registered advisory, PMS or a stock advisory.

As a new entrant in the market, one needs support or guidance for investment, hence go for trusted and reliable names. The SEBI registered analyst or advisors will help you to select a stock which has the potential to deliver decent returns in the market.

After I bought the stock when should I sell them? 

Once you own the stock, the next difficult question would be when should I get out of the stock? The concept of knowing when to sell is just as important as buying the right stock but frequently under-appreciated. Knowing when to sell is a critical investing skill. If you remember Abhimanyu from Mahabharat, he entered the powerful Chakravyuha, Abhimanyu learnt the art of breaking into the Chakravyuha, but he did not know how to destroy the formation once he was inside. Hence, failing to have a proper exit plan, the investor may sell out of fear or anxiety when a stock price drops. A geopolitical event or a wild market swing might prompt an investor to ‘follow the crowd' and unload stock in panic. There are a couple of key warning signs which may suggest that it's a good time to sell:

a. The business fundamentals fail to live up to expectations: Investing in stocks is based on the rationale that the business will deliver better growth. If the business fails to deliver the growth prospect which you've have predicted or expected, it is time to exit out of the stock.

b. Valuations are overstretched: One should book profit once the stock has reached a point where the valuations look overstretched. Numerous valuation metrics can be used as the basis, but some common ones that are used are the price-to-earnings (P/E) ratio, price-to-book (P/B), and price-to-sales (P/S). This approach is popular among value investors who buy stocks that are undervalued.

c. Corporate governance issue: Whenever you sight some suspicious activity or any corporate governance issue with a company, it is time to take an exit from the stock. For example, we have seen how Satyam, once a darling of the stock market investors, turned out to be a junk stock due to corporate governance issue.

d. A better opportunity for investment: In this technique, the investor possesses a portfolio of stocks and would offer a stock when a superior opportunity presents itself. This requires a consistent observing, research and analysis of both your own portfolio and potential new stock additions. Once a superior potential investment has been recognised, the investor would reduce or eliminate a position in a current holding that is not expected to do as well as the new stock.

Is this time different for investors? 

This time it is different. These words are often uttered when markets are scaling higher levels to justify that there is more steam left in the market and market will continue to scale higher. Well, if we analyse the present situation, there are some tracers observed that indicate that really this time it is different. Following are the reasons which justify that really this time it's different:

a. A stable government at the Centre: 

The stable government at the Centre is of significance for the stock market. As is evident, during the period of a stable government, more decisions seem to have taken as far as economic policies are concerned. The direction of the government policies has been clear when there is stability: be it simplifying tax structure, foreign direct investment policies, strengthening the financial system and reforms in public infrastructure and utilities. Since Narendra Modi-led BJP's win in the year 2014, the party has managed to only strengthen its hold in Indian politics. With the recent wins in the some of the state elections with heavy margins, it is highly likely that BJP could continue through the next General Election in 2019.

b. The rise in savings:

Personal savings in India increased to Rs.26,099.21 billion in 2016 from Rs.25429.60 billion in 2015. Personal savings in India averaged Rs.3822.35 billion from 1951 until 2016, reaching an all-time high of Rs.26099.21 billion in 2016 and a record low of Rs.6.34 billion in 1952. With the awareness of the financial markets increasing, most of these saving are likely to flow into equities either directly or through mutual funds, etc. As per Association of Mutual Funds in India, the AUM of the Indian MF Industry has grown from Rs.3.26 trillion as on March 31, 2007, to Rs.17.55 trillion as on March 31, 2017, more than five-fold increase in a span of 10 years. The MF industry's AUM has tripled in the last five years from Rs.5.87 trillion as on March 31, 2012, to Rs.17.55 trillion as on March 31, 2017. The industry's AUM had crossed the milestone of Rs.10 trillion (⠂¹10 lakh crore) for the first time in May 2014 and in a short span of less than three years, the AUM size has crossed Rs.17.55 lakh crore last month. So the flow of money is likely to continue in the Indian stock market.

c. India is in a bright spot for growth:

IMF believes that India will continue to grow at a fast pace, with a projection of 7.2 per cent growth in 2017.

d. Alternate investment losing its gloss: 
Most of the Indian household savings are parked in fixed deposits, but with fixed deposits offering not so attractive yields, people are now sidestepping investing in fixed deposits.

On the other hand, the yellow metal, i.e. gold, has witnessed twist and turns in the last couple of years and does note assure that value will grow consistently. Real estate, which one used to be fancied as an investment option, is going through a purple patch in the last 3-4 years and investors are getting increasing cautious of the real estate market. Considering the above factors, equity and equity-linked products remain favourite investment options to create wealth.

What all should you avoid? 

For a long time now, stock markets have been most-talked about and desirable investment avenue for Indians. However, it is a known fact that majority of the people fizzle out with market investments. Hence, a new investor who is taking baby steps in the market must take a note of common pitfalls of equity investing and avoid it if he does not want his first incursion into equity markets to end as a horrendous one.

1. Buying a stock because it's trading low:

Many investors make a big mistake when they buy the stock just because the stock price is quoting at the lowest level. They have seen that the same stock was once quoting at a higher price and it has witnessed a drop of 30-50 per cent and it has become cheap as the stock has fallen considerably. Hence, they believe this is a good time to hop into the stock as they believe the stock cannot fall further.

2. Making a quick fortune by short term trading: 

Often we have seen in the lure of making quick money in a short span of time, people start trading with very short-term perspective and without proper knowledge. Short-term trading is not bad, but it requires skills which a novice usually lacks and, therefore, should not venture into trading. Equity is one of the best asset classes to invest to beat inflation and get superior returns. However, one should have a long term perspective.

3. Future and Options trading: 

A novice should understand that trading in futures and options, that is derivative instruments, is meant for professional traders and as a novice, you should avoid trading in derivatives.

4. Herd mentality:

Herd mentality, or mob mentality, describes how people are influenced by their peers to adopt certain behaviours. Often we have seen novices being influenced by their colleagues, neighbours or friends on which stock should they should invest. However, it important to do proper homework before investing in the stock. Just don't follow the herd mentality.

The first part of this story talks about the people who have missed this carnival, i.e. rally of the stock market. On the other hand, there are investors who were invested in the market for a long time but still, they have not made a fortune that they desire. However, we should name these investors as the forced long-term investors.

Who are forced, long-term investors? These investors come in the stock market to make fortune in a quick span of time and they buy stocks based on rumours, chasing high volatile stocks or buy a penny stock based on the recommendation of a colleague.

However, from the day they entered the stock, the stock prices moved in the opposite direction, so they had no choice but to hold on to the stock in anticipation that the stock will recover some day.

Rupesh Mehta, a businessman, started investing in equities in the year 2006. The initial years of investments were a merry ride as he had bought some blue chips stocks.

One of his friends Chirag Desai started his investment journey along with Mehta, but his returns were quite impressive.

Hence, one day Rupesh asked Chirag secret of his success story, to which Chirag replied, "I invest in stocks based on some news which my colleagues provide". So the lure of aggressive returns turned Rupesh from an investor to speculator who invests on news or rumour-based stock. Initially, it was a joyful ride for Rupesh as some of the stocks delivered a good fortune within a short period. So this enhanced his confidence and he started following the footsteps blindly. And then came the year 2008. In the month of January 2008, the markets came crashing down. During the same month, the market witnessed one of its biggest single-day loss.

Everything collapsed like a pack of cards. It was such a free fall that every other day, the stock which was recommended by Chirag went for a toss as it continued to hit lower circuits and Rupesh could witness his portfolio getting eroded in a scary manner. However, Rupesh had no other option but to hope that prices would recover and he could get out of the stocks.

But in the next 3-4 months, this did not happen and Rupesh becomes a forceful long term investor in hope that he would be able to recover the cost of his stocks.

This is the story of one investor. However, there are many out there who have gone through this phase and keep on holding to dud stocks.

Now, what should these kinds of investors do? Despite market scaling to lifetime high, they have failed to recover their cost as their stocks haven't moved.

1. Review, Review and Review: 

Once you have invested in a stock, that's not the end of it. At every stage, you need to review it. The worst thing one can do is to buy and forget. Hence, if you are a forced long term investor and your stocks have not moved for a long time, the first thing you need to do it to get your portfolio review done, either you can do it yourself with all the financial data and other important information available on the internet or other sources.

If you don't have the expertise, you can take help of a SEBI registered investment advisor for your portfolio. This will help you to know which stock you should get rid of immediately as it just a piece of junk and which one can be kept as the sector or stock may witness a good prospect ahead. This is basically a clean-up activity where you get rid of your duds.

2. Risk profiling: 

Once you have done the review of your portfolio, the next step would be risk profiling. Risk profiling is a process of finding the optimal level of investment risk for an individual considering the risk required, risk capacity and risk tolerance.

3. Do fresh investments in the stocks according to your risk profile:

Once risk profiling is one, the next step would be to invest in stock based on risk profiling. A conservative investor should invest in conservative stocks of blue chip companies, whereas aggressive investors should choose growth stocks which have some level of risk but have potential to deliver aggressive returns.

4. If you don't want to invest in stocks then go for SIPs:

Many of us have a fear set up in our mind once we don't get the desired result or we have a bitter experience. If you are one of those that fear the word ‘stock market', for people who don't want to invest in stocks directly, but want to take advantage of the equity market, then they can go for SIP Investing.

What is SIP? This term is common these days. You often hear it on television or see it in a newspaper. SIP (Systematic Investment Plan) is a method of investment where a fixed amount is invested into mutual funds at regular intervals. Historically, we have seen SIPs deliver good returns if the investment is done for a longer duration. And it is also very simple to opt for a SIP or even if it is a lumpsum investment in various Mutual Fund schemes.

Just use your e-KYC and start investing. Decide the amount of money you wish to invest on a monthly, quarterly or even halfyearly basis and in regular duration as decided by you, the sum will be deducted from your bank account and deposited in the specified Mutual Fund scheme.

This will also cover you enough from the ups and downs of the markets and ensuring your money remains safe and also you continue to gain returns on your invested amount in spite of ups and downs in the stock markets. SIP also helps one to earn healthy financial habits, especially in terms of regular savings.

A.K.Prabhakar, Head –Research, IDBI Capital Markets & Securities 

A New Investor Should Avoid Turnaround Stocks 

What, in your opinion, has attributed to such an extraordinary growth in the Indian stock markets? 

Liquidity, and no major avenues to invest. Is one of the main reason for the market to trade at such a high valuation, as Gold and Real estate giving negative returns with interest rate lowest in many years, there is a huge flow of domestic liquidity. In the last 4years earning has been flat as no major Capex has happened, But going forward the earning can see 15% CAGR growth in next three year. With demonetisation and GST would help, conversion from unorganised to organised sector. 

How do you think the markets are likely to go forward from here? What are some of the geopolitical factors that will influence the markets the most, in the recent times? 

The market should head higher from current levels 37000 by FY end and 55000 by 2020-2021 looks more likely. Geopolitical tension is always headwinds for markets with the more protectionist attitude displayed by world leaders is also slowing global growth. India is benefitting from low energy prices and reforms process. 

There has been sector rotation in the market in the past, going forward which sectors according to you are likely to trend in the coming years? 

Power, IT sector, dairy, plastics are the few sectors which can do very good. 

What is the foremost fact that a new investor must consider before investing in the stock market right now? What is the strategy that you suggest? 

New investor focuses on quality with growth, avoid penny stock as in bull market many investors like to buy the stock below `50 hoping that it would double faster. A new investor should avoid turn around stocks as it needs lots of research and follow up. Attend AGM of companies which you have invested and reading balance sheet on regular basis will help in understanding the company better.

Alok Agarwala, Sr VP & Head – Investment Analytics at Bajaj Capital Limited

Market Has Still Space For The New-Comers

What should a new investor keep in mind while entering equity markets, especially when it comes to stock investments? 

First and foremost, a new investor must be mindful of the valuations. His entire experience from stock markets depends on this. Two investors, the first one entering in Jan 2008 and the other in Sep 2013 will have drastically varying experiences, purely because of the valuations. I know it looks easy with the benefit of hindsight, but the fact remains. Secondly, it is important to do a proper analysis of the stock one is investing in. One must do the research before investing and not after. Most new investors first buy a stock on tips & rumours from a “friend” and then do the research in trying to justify why they should hold the stock even when it is falling. Thirdly, patience pays. Spend a lot of time in researching a stock. As much time as you would spend before starting a new business. Once bought, one must have the patience to hold the stock till the reasons for buying the stock cease to exist. The market provides temptations to buy or sell every day. It is important to resist these temptations. Fourth, as Warren Buffett would say, “You pay a very price in the stock market for a cheery consensus”. Avoid the hottest theme or stock in the market, the one that everyone is talking about as the next best thing. Chances are that the stock has already run its course and one may end up buying at the peak. 

Do you think the markets still have space to accommodate more new investors, first-time investors? 

As a country, we are underpenetrated in terms of reach of equities. Total number of demat accounts in India were at 2.71 crore as at end Dec 2016, forming a meagre 2% of the population. The exposure to shares by Indian households as a percentage of Gross Financial Savings, was miniscule at 6% in 2015 (source: www.eelweiss.in). FPIs hold almost 50% of the free float in the markets. Our market cap to GDP ratio is quite low as compared to the world. This leaves a huge space for new investors in the equity markets. 

What, in your opinion, has attributed to such an extraordinary growth in the Indian stock market? 

The current upside has been led by multiple factors but mainly by liquidity – global as well as domestic. Improving global growth and trade and receding fear over inflation and rate hikes in USA led to a RISK-ON rally across the globe with investor capital flowing in risky assets like Commodities & Emerging market Equities & Bonds. On the domestic front, demonetization policy led to a liquidity glut in the banking system driving yields on fixed income instruments lower. The poor performance of physical assets like Real estate and Gold in the last few years has also led to a shift in investor preferences towards financial assets through vehicles such as Mutual Funds. In fact, Equity Mutual fund schemes have seen record inflows in the last few months. The SIP book alone contributes close to `4500-4600 crores of inflows every month. As rates on bank deposits, the traditional household savings instrument, fell, investors shifted towards Equities in search for better returns. Domestic Political stability, a reform oriented government, recent election wins and upcoming game changer reforms such as GST only provided the necessary fillip to the case for equities.

What is the ideal investment strategy a new investor should adopt while investing in the stock market? What are the top instruments that are relatively safer to invest in for a new investor?

The ideal investment strategy changes as per the prevailing conditions in the market. Lot of people say that every time is a good time to invest in Equities, but ask that to people who invested in January 2008. Their returns (CAGR) would be in single digit, even after 9 years. Not that I am comparing today’s situation with that in January 2008. No way. But one must never ignore the valuations, while investing. Valuations today are in the stretched zone, by most standards. In this situation, it is better invest in a staggered manner. Mutual Funds remain by far the best way to invest in Equity markets for the new investor. A 6-12 month Systematic Transfer Plan (STP) in

in a Multi cap Diversified Equity Fund is an ideal way to start investing at this point in time, provided one has a long enough investment horizon (min. 7-10 years). Systematic Investment Plan (SIP) remains the best way to invest for an investor who doesn’t have lumpsum amount at his disposal but wants to build a decent corpus over the long term by investing his monthly savings. For a person wanting to invest lumpsum in equities, he/she should be ready to bear sharp downsides in the short term and must have a very long term horizon, upwards of 10 years. 

When it comes to relative safety, MIPs, Equity Savings funds and Balanced funds compare favorably to pure equity funds. MIPs generally invest 15-25% of their portfolios in Equity and rest in Fixed Income products. The have generally provided returns about 2% higher than inflation over periods of 3-5 years or more. The problem with MIPs is that they are taxed as Fixed Income instruments. This is where Equity Savings funds come into the picture. Though they have more than 65% of portfolio in stocks (thereby allowing them to be treated as Equity investments for Income tax purposes), the net equity exposure in these funds is managed between 30-65% (depending on the fund manager’s outlook for equities) by way of hedging done through Equity Derivative instruments. This ability to reduce net equity exposure without changing the tax treatment / status is what makes Equity Savings Funds a very popular category in mutual funds. Due to the higher equity allocation, the post-tax Returns from Equity Savings funds are likely to be higher than MIPs. Even risk is slightly higher but the risk reward is much better due to the tax arbitrage.

Balanced funds are the most aggressive (in terms of potential returns and risk) among the three categories discussed. With a net portfolio exposure of 65-75% to equity (even these funds get taxed as Equity instruments only), the potential returns as well as risk is also higher. Balanced funds have been known to deliver returns that the just marginally lower than diversified equity funds but at a much lower risk than pure equity funds. As compared to pure Equity funds, Balanced funds carry a superior risk reward over the medium term (5-7 years) but the risk is generally higher than that in MIPs and Equity Savings Funds.

Historically, we have seen there has been sector rotation in the market, going forward which sectors according to you are likely to trend in the coming years?

The few themes that are likely to drive markets going forward are – Banking & Financials, Domestic Consumption (mainly Consumer Discretionary), Transportation & Logistics and Manufacturing. Traditionally defensive sectors such as FMCG, Pharma and IT are unlikely to do well amid volatile global growth scenario, geo-political risks and rising protectionism. Highly leveraged sectors such as Construction, Real Estate Developers and Capital Goods are also unlikely to do well. In Banking & Financials, the ongoing digitization and formalization of the economy (post demonetization) provides a huge scope for both Private banks and retail lending NBFCs including those lending to home buyers. PSU banks are more of a play on recovery from a low base in the wake of poor credit demand and over-leveraged corporate balance sheets. Consumer Discretionary is a theme that will continue as an aspirational India keeps rising up the per-capita income ladder. Huge government spending on roads and transportation sector, improvement in power infrastructure and availability and the upcoming GST regime shall be a game changer for the Transportation, Logistics and Manufacturing sectors. 

How do you think the recent reforms of the government will affect the stock market? 

The reforms have affected the stock markets positively so far and that is one reason why markets have given good returns in the recent past despite tepid earnings growth. GST, Demonetization (yes, I would call it a BIG reform), RERA Act, Bankruptcy Code, changes in the FDI policy, the recent NPA Resolution policy (cabinet approved it as an ordinance – awaiting President’s approval), all have been taken very positively by the markets. Some people fear that GST implementation may lead to temporary disruption in trade, but beyond it, it is going to be a landmark reform for the Indian economy. My biggest hopes though are from the NPA Resolution Policy or whatever else the Government or RBI may bring in future, to resolve the NPA issue. The one thing that is keeping growth from accelerating, despite an extremely favorable macro environment, is over leveraged corporate balance sheets, poor asset quality of banks and consequent poor credit growth.