Why should you be cautious in a bull market?

Dear Friends,

As you are aware that increasing Stock Market of a country is the indication of strong economic and industrial development for a country. The increasing Stock Indices shows the confidence of people in the economy and government of the company. Stock markets are vital components of a free-market economy because they enable democratized access to trading and exchange of capital for investors of all kinds. They perform several functions in markets, including efficient price discovery and efficient dealing. The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth-oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government and creditors.

LIST OF STOCK EXCHANGES IN INDIA

The following are the list of stock exchanges operating in India:

1. BOMBAY STOCK EXCHANGE (BSE) Bombay Stock Exchange or BSE, established in 1875, is not only India's oldest stock exchange but also Asia's. It is the largest stock exchange in India and is operating out of Mumbai, Maharashtra. As of May 2021, the market cap of BSE stood at $3.00 trillion.
2. NATIONAL STOCK EXCHANGE (NSE) National Stock Exchange or NSE was established in 1992. It is the first stock exchange in India to provide a decentralized electronic trading platform for investors. As per the latest records, the market cap of NSE was $2.55 trillion. Like BSE, even NSE is based out of Mumbai, Maharashtra.
3. CALCUTTA STOCK EXCHANGE (CSE) Calcutta Stock Exchange or CSE was established in 1908. It is operating out of Kolkata, West Bengal. The Securities and Exchange Board of India (SEBI) has asked the CSE to exit. However, the matter is currently being heard at the Calcutta High Court.
4. INDIA INTERNATIONAL EXCHANGE (INDIA INX) India International Exchange or India INX was founded in 2017. It is India's first international stock exchange. It operates out of Gujarat International Finance Tec-City and is a subsidiary of BSE.
5. METROPOLITAN STOCK EXCHANGE (MSE) Metropolitan Stock Exchange or MSE was founded in 2008. The MSE is a modern clearing house formed to perform the clearance and settlement of contracts involving multiple asset classes. It is operating out of Mumbai, Maharashtra.
6. NSE IFSC LTD (NSE INTERNATIONAL EXCHANGE) The NSE IFSC Limited (NSE International Exchange) came to the fore in 2016. It is a subsidiary of the NSE. It operates out of Gujarat International Finance Tec-City.

The main functions of these Stock Exchanges are

1. They help in determining the fair price of traded shares of a company;
2. The help in industrial development of country, by providing companies a stage for listing of their shares and raising Capital from the market;
3. They help in regulation and development of stock market in India. They protect investors through implementation of various types of rules and regulation for the companies want to raise money from market in which general public involved. Those companies, who wants to list their shares and raise money from market for their projects must have to follow these rules and regulations;
4. Stock Exchanges are acting as a facilitator as well as watchdog for investors;
5. The companies by listing their shares can reach public for their capital requirements and hence their dependency on the banks and financial institutions reduced.

LET'S COME BACK ON REAL SUBJECT

The promise of good returns draws people to invest in Stock Market and the Market has potential to bring handsome returns to the investors, especially over a long term. It is difficult and challenging for beginners, who has little or no knowledge and don't know how Stock Market works.

We are in the middle of a raising Bull Market. There is high tone in the market and retail investors are making money from stock trading. In a Bull Market, the investors purchase stocks by assuming that the price of purchased stocks will increase in future.

Today the Sensex (Stock Exchange Sensitive Index- for Bombay Stock Exchange) and Nifty (National Stock Exchange Fifty) are on high level in the Indian Stock Market History and still increasing day to day. The increase in Sensex and Nifty is due to increase in GDP of India, increase in Agricultural, Industrial productions, reduction in trade deficit, increase in Foreign Exchange Reserves and due to a stable and good government.

Please Note That The Term "Sensex" refers to the Benchmark index of BSE in India. The SENSEX comprised of 30 largest and most traded stocks on BSE and on the other hand NIFTY- comprised of 50 most traded and the largest stocks on National Stock Exchange. It means than the SENSEX and NIFTY are benchmarks based on only 30 and 50 largest and most traded stocks on BSE and NSE and there are thousands of stocks of various types of companies are traded daily on the BSE and NSE.

Our new and young friends, who have just started their carrier and journey are investing more and more in the stock market, they even borrow from banks for investing in this Bull Market. Because their risk-taking appetite is much more than a person in its 40s. The new bread is strong, educated. well employed and have risk taking attitude, so stock market is a good way to gain or multiply their money in short run. Even many youngsters have succeeded in making large chuck of money through trading in stocks in this Bull Market.

We have also seen same condition in the year 2004-2008, where Stock Indices had rocketed and in short span of time it had increased from 4000 to 21000 points. The cleaver people had made a lot of money during that period, but during the year 2008 onwards, the Bull Market disappears and investors had lost their hard-earned money in the stock market. The Stock Market bubble had burst and many people were taken drastic steps due to heavy financial loss.

In the Bull Market, people increase their risk and they diverted their safe investments into stock market. In this market due to sentiment, they are lured by market players and some experts, who are coming on various TV Channels and News Papers, predicting the market and stocks of companies. These experts should not be followed by the investors, because they are there to promote those stocks and they have got payment for that.

If you are not well versed in the Stock Market, then you have to study the history of Indian Stock Market and some tips of the trading before investing in various types of companies.

You know that success of a Stock Market will depend on response of the retail investors, companies and experts try to lure retail investors to invest their hard-earned money in penny stocks. If you are first time investors and not regular investors then it is better to invest in Mutual Funds and only a small portion of your saving will be invested in the Stock Market. Regular Investors, who are dealing in market and have experienced may do so on their risk.

It is better of invest in "INDEX FUND" than ordinary stocks of small and mid-cap companies. Suppose you have invested in stock of a company, which is not part of "INDEX FUND", then you cannot predict the price of your stocks in near future.

INDEX FUND

It is a portfolio of assets which generally includes shares of various companies, as well as binds and other assets.

An index fund is a portfolio of assets held and managed by an investment firm. it will be made mainly (or entirely) out of stocks and corporate bonds. Like stocks, you invest in an index fund by purchasing individual shares. You then own a percentage of the overall portfolio equivalent to how many shares you bought and are entitled to the fund's returns on that pro-rata basis.

For example, say that the ABC Fund releases 50% of its value in the form of 100 shares. This means that the firm which manages the fund has retained ownership of half of the portfolio.

The other half it has offered to investors. If you buy one share of this fund, you own 0.5% of the overall portfolio and are entitled to 0.5% of its returns.

This is the basic structure of what is called a fund-based asset, which firms typically sell as mutual funds and ETFs.

An index fund is a specialized form of fund-based asset. With an index fund, the managing firm selects the portfolio's assets to match the index that tracks a specific segment of the market. The idea is that firm will peg its fund's performance to a specific idea, industry, sector or other market metric.

The goal of the fund is to match the index's performance. This is as opposed to many fund-based assets, which are built to simply generate returns or mitigate risk regardless of the market as a whole. Indeed, unlike other types of assets, an index fund that loses value is often working exactly as designed. For example, a firm might build an index fund around the technology sector. This means that the fund tracks the performance of technology stocks as an industry.

Please Note That: if you have invested in Mutual Funds or Indexed Funds, then don't move your investment from these to the Stock Market. These Mutual and Index Funds are well diversified and handled by well educated and top most investors of the company. The Fund Managers are investing your money in various types of shares, bonds, debentures and other assets on your behalf and their decision on market conditions and shares are more correct than your individual decision. You can utilize at least 10% of your savings in the Stock Market, but keep 90% of your savings away from Stock Market. This is for your safety and financial security of your family. You cannot predict Stock Market and we have experienced the same earlier also.

If you have decided to invest in stock market then make a Portfolio of 30 to 40 shares and do not invest all your money on one or two stocks only. Investment through Large Portfolio will distribute loss of one or two stocks among others, it means that if one or more stocks are not making profit or making loss, then their loss will be set-off against profit makes by other stocks. The overall performance of your Portfolio in in your favor.

As the saying goes, 'Don't put all your eggs in one basket.' This is true with your investments too. You should avoid investing all your money in just one company or sector. Should the company or the sector perform poorly, your entire investment could be at risk. To avoid this situation, you should diversify your portfolio. Invest in stocks across different sectors. So, if one sector does not perform well, the sectors and companies that do well can counter the adverse impact. This helps spread your risk and reduce your losses.

Let's consider an example: Say, you own stocks in five companies belonging to different sectors. In this hypothetical case, each company stock gets 20% of your total investment and the shares are priced the same. After some time, you find that two companies (Company A and Company B) perform very well and their stock prices go up by 25%. Two other companies (Company C and Company D) perform decently and their prices appreciate by 10%. However, the fifth company (Company E) has a bad run and its price declines by 20%. Here, diversification helps you cover the 20% loss from Company E, as all your other investments have seen price appreciation. This leaves you in a better position than if you had invested solely in Company E.

There are some established process and procedures to judge the soundness and performance of stocks of various companies. You have to access the viability of companies and their performance in past by going through their Financial Statements, back ground of their promoters. In this case you have to some basic knowledge of reading Financial Statement and you don't have such knowledge then it is better to opt “MUTUAL or INDEXED FUNDs” for investment and less exposure towards stock trading.

What is the most important is to access your Risk tolerance ability to bear market fluctuations and their effects on the overall value of your investment. This is a subjective factor that varies from person to person. Whether a person has low or high-risk tolerance may depend on their income, financial situation, investment portfolio, and expenses, among other things. Since the stock market is volatile, knowing your capacity to bear risk will help you identify suitable stocks to invest in. For instance, a conservative investor with a low-risk appetite may be better served by investing in stable large-cap stocks. Meanwhile, someone with a high-risk appetite could look to mid-caps and small-caps which carry some risk but also have a greater potential for growth.

We are here to advice you for your better and not to prevent you to go in Stock Market. You have to be varied cautious, when first time investing in Stock Market and do not decide your investment decision on the basis of views of other people, such as your friends, relatives and even your family members. You have to check all pros and cons before taking step for investment in this BULL MARKET.

Follow these simple share market tips while investing

1. Set goals before investing;
2. Understand share market basics;
3. Research and conduct due diligence;
4. Select fundamentally strong companies;
5. Do not buy based on rumours;
6. Define profit targets;
7. Invest through reliable intermediaries;
8. Avoid risky low-priced stocks;
9. Understand your risk tolerance;
10. Diversify your investments;
11. Control your emotions;
12. Use stop loss;
13. Be careful about leverage.

CONCLUSION

You must enjoy the Bull Market and make money. You have to follow well established steps of investing in the market, keep watch on performance of your portfolio. It is better to go in Bull Market with small amount, do not borrow and do not put whole of your saving in the Stock Market. Keep exposure in control, do not lure with chip stocks, because chips stock may not be of quality stocks and will not perform in future. Please invest stock with quality of stocks and not quantity. Keep adjusting your assets allocation from time to time to beat market fluctuations. You have controlled your emotions, while investing in Stock Market, the experts say that “Emotions has no role in the Stock Market” and you know that Emotional Trading and Investing leads to bad and illogical decision -making. Keep in mind that stock market investment requires patience, discipline, and a systematic approach to investing. Also, take note of basic share market tips which, if followed prudently, may help you to generate good returns. They could help you to make good investment decisions and prevent losses as well.

DISCLAIMER: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, author assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws and take appropriate advice of consultants. The user of the information agrees that the information is not professional advice and is subject to change without notice. Author assume no responsibility for the consequences of the use of such information.