FIRST STEPS FOR INVESTING IN SHARE MARKET
Most of the Indians are fascinated by the Indian Stock Market. Everyone wants to trade or invest in the stock market. But, do they know how, where and when to invest or trade in the market? The answer is, most of them don’t! No doubt the stock market is a place to earn a huge amount of profit but earning in the stock market is no joke.
Here is a simple guide to The Indian Stock Market.
Indian Stock Market includes the Equity (share) market, Derivative (futures and options) market and Commodity market.
Let us focus on the Equity market.
(advice: if you are a fresher then you should start with equity market and not jump directly to derivative or commodity market)
There are two main exchanges in India – National Stock Exchange (NSE) and Bombay Stock exchange (BSE). The main index of NSE is Nifty50 (includes the top 50 companies) whereas that of BSE is Sensex (includes the top 30 companies). As a beginner with a limited amount of money in hand, it is always better to invest or trade in Nifty.
To make it easy for you, I have broadly classified the existing players of the share market:
- Traders – Traders are those who invest the money in shares for a very short period of time. (say: within a day, two-three days, a week or maximum a month)
- Investors – Investors invest the money in shares for a longer period of time. They keep a track of what is happening in the market and accordingly invest more or withdraw.
- Positional investors – These are the ones who invest in shares only once and then forget knowingly or unknowingly the amount of money invested. They do not keep a track of the market ups and downs.
Your way of investing in shares will depend on the type of player you want to be.
Here, we will be focusing on the way Investors invest in the share market.
Before investing in the share market, the following things must be observed and researched well by the investor:
- Identify the trend of the market – The very first thing to do even before selecting the share you want to buy, is to identify the trend of the market. For this, a line chart of the Nifty50 / Nifty MidCap / Nifty SmallCap index is to be referred. It may be up-trending, down-trending or sideways. Generally, an uptrend or a downtrend is identified by referring a 5 yearly (or more) line chart and a sideways trend is identified by referring to a 3-5 monthly line chart. Following is the price chart of Nifty50 from the time of its commencement.
- Identify the trend of the sectors – The second step is to identify the trend of the sectors. If you are sure of which share you want to buy, then you must see the trend of that particular sector. Otherwise, looking at the trend of all the potential sectors is recommended. Following is the chart of FMCG sector of Nifty.
- Identify the trend of the share – Once you are sure about which company’s share you want to buy, you should have a look at the trend of that particular share. Or you can select a sector and study the trends of the various shares in it. HDFC share:
The trends have a lot to say about the market. Without the knowledge of trends, nobody should invest in the share market as one wrong decision can lead to a huge loss.
Once the trends are studied thoroughly, you must start researching the sectors and the companies where you wish to invest. It includes going through the news related to the sectors and the companies and the fundamentals of the company.
Let us now understand what each trend signifies:
- Uptrend (↑) – It indicates that the market is bullish (i.e. the prices are rising). From this, we can anticipate that it is a good time to buy a share.
- Downtrend (↓) – It indicates that the market is bearish (i.e. the prices are falling). From this, we can anticipate that it is not a good time to buy a new share.
- Sideway trend (↔) – It indicates that the bulls and bears (or in simple terms, buyers and sellers) are fighting (or bargaining). It indicates confusion in the market. If you have a share and the market is sideways, it is always better to hold the share. It is neither recommended to buy nor sell. This is because, after a point of time, the market will either become up trending or down trending. As you can observe, in the 3 monthly chart of nifty50, the market is sideways.
The above research is a part of Technical Analysis. This is the basic research you do before buying any share (whether you are investing for the first time or the 100th time). Apart from trends, there are a few more concepts you need to know and you need to study before investing (for example demand and supply zones, Japanese candlestick charts, volumes, etc.).
The above-given points are just the first steps involved in the study of the stock market before investing. There are a few more points and concepts you need to study before investing. So, stay tuned for the upcoming blogs on share markets and its concepts and how you can be a safe investor in the share market and earn profits.
By Ria Vaghela (FYBMS student at Narsee Monjee College of Commerce and Economics)