May 14, 2020

Learn How To Stay Invested In Stock Markets To Reap The Direct Benefit Of Government Stimulus Package

General Money   || Personal Finance   || Stock Markets  ||  Real Estate ||

It’s not new that questions like these pop up every now & then – in the minds of salaried tax payers, while they hear about stimulus package from government or farm loan waivers being offered for different sections of the society.  As per the the income tax department only 1.46 crore people pay tax on their income of a total population of 130 crore people in the country. These numbers represent the direct tax payer base, while all of us also contribute towards indirect tax collections while we buy goods & services. Ok – let’s not get into elementaries of tax collection, instead lets look at how can one reap maximum benefit when government announce stimulus measures to re-build economic activities.

  • Growth of your savings is directly proportional to growth of economy / industrial sectors:

Not all of them may be fortunate to run successful businesses, but all of us can exercise a chance to invest in stocks of publicly listed business entities with a sense of discipline to understand & grow along with the businesses. Investing in stock markets is one of the ways by which you can choose to grow in tandem with the economy of the country. To do this – one must make all efforts to reasonably understand the economy & various businesses that drive the economy. For Ex: If you anticipate, revival of local manufacturing sector will drive the economy forward – start investing in stocks of manufacturing companies. Likewise if you anticipated government to give stimulus packages to FMCG sector by way of lowered GST rates – start investing in FMCG stocks. Please note, having a sense of direction is the key to get successful by way of investing in stock markets.

  • Every industry offers opportunities in staggered manner – each industry has cyclical good times & bad times during  the year:

Now that you have decided to invest, there are few basic things which you need to keep in mind. Remember not all industries will witness a secular uptrend across the economy. There are certain industries which may see a rise in the beginning & gradually the positive momentum will spill across to other industries in the economy. For Ex: If the AUTO industry gets to be first beneficiary of government stimulus package – stocks in this sector will be the first ones to notch up higher, gradually you will notice ancillary industries which compliment auto industries like – tyre companies, battery companies, automobile component companies, automobile insurance companies will also witness a steady growth. Likewise there are certain cyclicals like festivals which will trigger an uptrend in automobile sales, similarly an announcement from government like change in emission norms can trigger a downward move. So if you wish to connect the dots best way possible, you must make it a constant habit to understand the business you are investing into & understand the cyclical nature of every business.

  • Every industry has certain impacts of global markets, which would influence their market dynamics in India:

Having a considerable understanding of global markets & keeping track of industries you have invested in – is an extremely important step which determines success of your investing habits. Continuing the example of Auto Industry – keeping a track on global prices of steel is one of the key elements that determines profitability of automobile companies & by knowing this – you can asses the steel procurement policies of automobile manufacturer companies & who stands to benefit the most. Likewise you can slowly connect the dots as to – how prices of rubber may impact tyre industries, how increase/decrease in prices of copper may impact auto component industries which basically trades with wires & its contemporaries.

  • Every company in an industry is unique when compared to rest of the industry:

Every company in an industry is different & uniquely positioned based on variety of parameters. Starting from kind of customers it caters to, management philosophies of individual companies, sales & distribution networks, effective marketing philosophies, good credit scores, efficient cash flows, consistent operating margins – list can go on and on, as you can start counting more of these parameters only by understanding more about the industry you are investing in to.  Likewise you may also analyse equity market price moves to judge performance of individual stocks vs industry average and based on which you can categorise industries based on – outperform – Safe – under performance in the future.

This is just a broad outline of stock market investing principles, by introducing you into world of business. Remember there are no thumb rules to define successful investing habits but its extremely important to build your thinking on a stronger fundamental base rather than just looking at stock price of company to make your investment decisions.

Understanding of stock markets generally comes with experience. Every trade entered into stock market has a 50:50 probability of winning i.e. It can either go up or go down, so you can either win or loose depending on whether you are speculating bullish trend or a bearish trend. So it is this 50:50 probability is what lures most people to stock market, as in no other money yielding business your winning probability starts with 50%. For most people this is exactly what creates an illusion of knowledge. Now, if you’d say 50% probability is enough – on a lighter note – even if you were to ask a monkey to trade, it stands a 50:50 chance of getting the trade right.

So to stand real chance of hitting a winning trade, with consistent effort one must take winning probability to 60:40 (60% winning) & gradually aim towards making it  70:30 (70% winning). It is to get to this level of stock market wisdom, one needs support of fundamental analysis, technical analysis, information from books & other informative mediums. Reap the best growth in an economy, by learning about the economy & stay invested to grow along with the economy. Best Wishes!

 

–    Article by Suman Adithya Rao (SEBI Certified Research Analyst, Management Graduate in Entrepreneurship & Small Business Management)
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