Investing Basics - Feel free to ask the most basic questions

Promoter purchase you can see in bse website.

https://play.google.com/store/apps/details?id=in.stockedge.app&hl=en_IN
Found this app useful

Promoter purchases can be checked from the exchange website. It is updated daily. Also there are apps for the same which you can use.

  • Individual transactions are a little difficult but anything taking place over the exchange coming under the ambit of a bulk/block deal will be reported.

  • Fund purchases can be checked on Bajaar. Also there are apps for the same. You can check the same on mobile as well on Stockedge app.

Several websites are there. You can use https://www.viewstocks.in/ , https://bsenotifier.com/ http://marketatip.com/

Do Indian companies usually take debt on fixed or floating rates (both in their long & short term debts) & how can an investor identify the same from annual report or some other public document…

Hello all.how is dividend yield calculated and how is it related to bond yields?another point in 2012 chmanlal setia was trading at cmp of 5 and paying dividend of 1 per year that means in 5 years we returnback our stock price in dividends only.is this kind of pricing of stocks is due to severe bear market conditions or cyclical downtrend of basmati rice industries or this kind of mouth watering valuations are found once in 1 year or so?

Dividend yield is dividend divided by market price of the share. In your example, dividend yield comes to 20%. There is no direct relation between dividend yield and bond yield, though one can say that when bond yields are high, stock prices would be depressed and therefore, dividend yield would also be high.

A 20% dividend yield would be very rare and would mean that stock price is extraordinarily depressed due to some reason or that the last dividend paid was a “one off”. Note that dividend yield is not assured return, it is calculated on the last dividend but there is no guarantee that the same level of dividend would be maintained in the next year. Also, if the market price of the share dips further, what one gains through dividend would be lost through price depreciation.

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As I understood, Profit Growth should be backed by Revenue Growth.
For example - If Profit Growth is 10% then Revenue Growth should be around 8% to 15%.

Is this correct?

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Thank you very much wnat is the ideal dividend yield for sake of margin of safety 2 % 4 % 0r 8% etc

Dividend yields have generally tended to be around 2% in our markets, which is quite low compared to the opportunity cost of money. I wouldn’t link dividend yield to margin of safety while buying a share. Margin of safety comes from certainty of earnings and a reasonable valuation for the stock.

This however does not mean dividend is irrelevant. Dividend yield may become meaningful after a few years of holding the stock if dividend rises substantially from what it was when the share was purchased. Dividend Payout Ratio indicates how shareholder friendly the management is. Keeping aside what is needed for capital expenditure, management should return all the remaining cash back to the shareholders and not sit on it.

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No. Profit Growth comes from two things: Revenue Growth and Net Margin Growth. So, even if a company’s Sales Growth is only around 10%, its Profit Growth can be more than 15%-18%, thanks to increase in Net Margins. Of course, Net Margins can increase due to a variety of reasons ranging from drop in Raw Material prices to change in Product Mix to several other things. This means that the opposite is also true. A company can grow its Sales and still end up shrinking its Profits.

An example for the former case could be Goodyear India. In the last 5 years, its Sales has grown only by <3%, whereas its Profits have grown by >18% during the same time. An example for the latter case could be Lupin. Its Sales have grown by >10% in the last 5 years, whereas the Profits have de-grown by >26% or so.

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So Sales/revenue growth is important but not necessarily tied to Profit Growth and vice versa.

You could say that, yes.

  • Any insights of about how we can withstand this current fall ? does it mean that do we need to diversify across Large cap/Mid & Small cap ?

  • Some stocks that we choose margin’s are good but market centimate is bad and that’s causing the downfall , how can we protect by ourselves from this ?

Hi Dinesh ,

Do you consider PEG ratio while checking valuations. what do you consider as growth rate in PEG ratio, Revenue growth , PAT growth or EPS growth.

Also , if you can share your views on margin growth , as how highs margins can go before it stops/stablize , because there would be a limit up to which margins can grow. Suppose NP margins have increased from 5% to 20% in 5 years but it can not increase eternally. At some point it has to stabilize and for more growth than Revenue should increase. Hope my question is clear.

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Off late hearing a lot about investing in liquid/debt funds. Many advisers keep on advising to invest cash in liquid funds rather than keeping that in saving accounts. Wanted to know what are the basic advantages of investing in liquid funds Vs Bank FDs. Returns are more or less same as FD at current rates.

Since liquid fund investments are generally short team in nature what kind of tax is applicable for such transactions.

Regards,
Suhag

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Is having some portion of portfolio in gold a good option?

The general idea is that assets to up in value over the long term. The second idea is that different assets have different Risk-Reward profile, although it’s been proven that even decent stocks returns more than any other asset class over time (Doubtful… Real Estate could be a very close competitor).

In India, Gold has returned over 12% every year for the last 3 or so decades. Gold also has an emotional value in India. So I guess you’ve gotta ask yourself “Will gold remain an emotional asset in India for the long term?” and whether 12% is enough returns for that level of conviction.

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  1. I’ve noticed that the PEG Ratio is a good indicator of a possible undervaluation. It’s not always the case, but it’s right up there with EV/EBITDA as a decent indicator of undervaluation. I’ve never (Personally) found a company with a PEG greater than 1.5-1.75 to be undervalued.

But of course, one has to use the medium term Profit growth to determine a PEG. Some companies may have reported subdued profits due to some adverse condition, but may have had good growth otherwise in the past.

  1. Yes, that’s a valid question. I usually look at the most mature company in the industry and look at how its Margins are. That’s probably what the company you’re considering would also earn in the long run. However, nobody can guess the rate at which the convergence will happen. For companies with very good pricing power (Brands, Oligopolistic Industry, Niche business etc), the convergence will happen very, very slowly.
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Could somebody please explain or point to a source to help me understand what exactly happened to Equitas and Ujjivan today.

Thanks

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