Hyderabad: Many retail investors burnt their fingers as the stock markets are in a free fall. BSE, one of the two popular stock exchanges in the country, fell 1,158 points on Thursday. Between May 1 and 12, the BSE lost more than 4,000 points.
The market capitalisation on the BSE on May 12 touched Rs 266.4 lakh crore. On May 2, it was Rs 291.4 lakh crore. Just between May 2 and May 12, the market lost Rs 25.06 lakh crore.
With wealth eroding in these proportions, many investments by retail investors have turned red. For instance, a city-based youngster waded into investing recently and saw some profits initially. In the current situation, his Rs 1.56 lakh is down to Rs 1.34 lakh, a fall of 14 per cent.
This can go down further unless he chooses to exit from the market. If he exits, he will have to gulp the Rs 22,000 loss. The other best option he has is to ignore the market condition and stay invested for a long time to even out the losses and then make some profit (hopefully).
In another case, another person chose to invest Rs 22,500 in mutual funds. This decision was taken to tally the tax exemption limits before the end of the financial year. The value is already down 5 per cent. “It is always like this. Stock markets have been on the downhill ever since I invested,” the investor said, blaming himself. There are many cases of retail investors who lost hefty sums.
What should retail investors do? “When in the stock market, play long innings. When you have a ten year view, fortnightly and monthly monitoring will only create stress and you end up acting out of turn,” said Mrunmay Das, Founder Director, Das Capital.
One user tweeted, “Stock market hai ki press freedom ranking. Girta hi jaa raha hai…”
“At some point of time, even the stock market will come to terms with the economic reality of India. It can’t be driven by sentiments alone. Now time has come” said another.
“Don’t catch the falling knife. Don’t think like masses, itna 1000 points gir gaya hai, ab nahi girega. Wait and hold nerves. Let it consolidate after it falls. See the companies with good earnings. Go with the leader of the sector. And then start SIP (systematic investment plan). No lumpsum,” said a twitter user, who is fascinated by finance and markets.
‘Buy the dip’ is undoubtedly the most popular advice to market newbies. This is beaten to pulp in memes. One meme shows the stock value down 25 per cent after buying the dip. It dives further 90 per cent when buying the dip for the fifth time! “Saala ye DIP kahe khatam nahi hota hai be?”
Points to keep in mind
A variety of techniques and strategies are used to evaluate stocks. Some use a mix of both technical and fundamental analysis. One such method is the CANSLIM, a stock-screening technique introduced in the 1950s, CANSLIM is an acronym for a seven-step process that investors are required to look at when picking stocks.
‘C’ stands for ‘current quarterly earnings per share’ of a company. Investors should ideally compare the current quarterly earnings per share of a company with that of the same quarter in the previous financial year. The higher the percentage of growth, the better the company is fundamental. Most investors tend to look for companies with a growth rate of 20 per cent or more.
‘A’ is ‘annual earnings growth’. Most investors lookout for companies with an annual earnings growth rate of 20 to 25 per cent or more over the last 3 to 5 years.
‘N’ stands for ‘new product, service, management, or events’. Without the release of any new product, services, or events, a company’s stock price is likely to languish and not appreciate in price.
‘S’ is ‘supply’. A company’s stock should ideally be scarce in supply, backed by strong demand. Companies that buy back a portion of their own shares from the market shorten the supply of its own stock. This creates additional demand and subsequently a rise in the price.
‘L’ is for ‘leading.’ Investor look towards investing in a leading company in a leading industry.
‘I’ stands for ‘institutional sponsorship’. A company that is favourable for investing should have a higher level of institutional ownership. Recent increases in institutional share-holding are seen as a positive factor.
‘M’ stands for ‘market direction’. Investors should analyse the market movements using broad market indices.
This strategy is tuned towards bull markets and trending markets only. It is not advisable to implement it in a bearish or a falling market scenario.