November 29, 2017

How to start stocks investing, Should one wait for market correction, Equity vs debt, getting Credit rating reports, NSE vs BSE (Q&A)

www.drvijaymalik.com has a section dedicated to answering queries from readers: “Ask Your Queries”. Over time, many readers have asked their queries related to many aspects of stock analysis and sought clarifications about investing. I have responded to these queries as replies to their comments.

“Q&A” series is an attempt to share the queries & their responses, which have featured on “Ask Your Queries” section, with all the readers. The primary aim of this new feature is to share the knowledge with other readers of the website, who might have similar queries.

The current article in this series provides responses related to:
  • How to start the stocks investing journey?
  • Should one wait for markets to correct to invest?
  • How to make earnings projection and identify companies before others?
  • Equity or Debt: What is the right way to raise money for companies?
  • How to obtain Credit Rating Reports (latest and historical reports)?
  • When and from where to get the annual report of a company?
  • BSE or NSE, which exchange to prefer to buy shares?

How to become equity investor, Should one wait for market correction, Equity vs debt, How to get Credit rating reports, NSE vs BSE


How to start the stocks investing journey?


Dear Sir,

I am new in the field of share market Investment. I have gone through your blogs and found them very useful.

My background:

I am a working professional with little knowledge of finance. I have attended a workshop on technical analysis a few years back but was not able to follow it. My personal goal is to have an alternate source of income apart from the job and to achieve financial independence. Now I wish to know where to start, what are the prerequisites that are required to be followed to be a successful investor.

Please guide me?

Thank you in advance.

Author’s Response:

Hi,

Thanks for writing to us!

We believe that to succeed in equity investing an investor does not need a formal education in finance.

We believe that an investor should initially learn about equity investing from books like The Intelligent Investor by Benjamin Graham and One up on the Wall Street by Peter Lynch.

A few of the articles on our website like the one shared below would also help the investors in understanding stock analysis process:


Once an investor has read these resources, then we believe that she should start reading more and more annual reports. We believe that an investor would be much more confident about herself once she has read annual reports of 50 different companies.

All the best for your investing journey!

Regards

Dr. Vijay Malik

Should one wait for markets to correct to invest?


Is it a wise decision to wait for bear markets and until then park the money in liquid funds?

Author’s Response:

Hi,

Thanks for writing to us!

We do not give a lot of weight to the overall market levels while making investment decisions. If the stocks that we like are within our buying range, then we invest without looking at Nifty or Sensex levels.

Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

How to make earnings projection and identify companies before others?


Dear Sir,

Could you help us in the following situation?

Sometimes we find a good strong company with all strong and consistent ratios and available on good valuable buying. But how should we forecast the company earning?

The second question is related to star investors.

How do they find before the general public that this company is going to well (example Vijay Kedia sir recent bought in Vaibhav Global)? If we see the previous performance there is a no consistency. How can we develop this thought process?

Thank sir. This will help us if you could explain us.

Thank You

Author’s Response:

Hi,

Thanks for writing to us!

1) We do not project earnings of companies in future. We believe that the companies which have shown fundamentally sound growth in the past and are being run by competent and shareholder-friendly management, these companies have a higher probability of producing good earnings growth in future. Therefore, we analyse past performance of companies and take our investment decisions.


2) Each investor has her own stock selection style. However, if someone wants to find companies before the market gets to know about them, then she would have to look for the companies beyond newspaper headlines. The screener is a good source to find such companies.

Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

Equity or Debt: What is the right way to raise money for companies?


Hi Dr Vijay,

If any company needs fund for its expansion, then apart from internal accruals, if it goes for equity dilution then it will not need to make additional regular repayments like when it needs to do if it takes debt. However, it will cause equity dilution. If it creates additional debt instead of equity dilution, then it creates debt burden which will reduce its net profit margin (NPM).

So among these two ways: equity or debt which route is more detrimental to retail investors.

I was reading the project execution of Aksharchem (India) Limited (Read Research Report). They have announced the capital expenditure of approx. ₹175 cr 5 month back. On their balance sheet, they don't have much debt. And the internal accruals won't suffice the funds requirements. Hence, among the two sources of additional funds: equity and debt option, the board has approved raising equity via QIP at a price of ₹816 and 5% discount. This is approx. 8% lower than CMP ₹850.

As per my understanding, it makes equity dilution for retail investors while containing the debt repayment burden for business, which it needs to pay regularly. So in the long run, it may benefit business and in turn, also benefit the investors.

Companies may choose the other option of raising debt without diluting equity if they have confidence in the business and want to keep investors’ interest intact.

I think that in this case, if the management is investor friendly, then it will go for debt option because in any case, currently, they don't have much debt burden.

Please provide your inputs on my approach and whether I am missing anything.

Author’s Response:

Hi,

Thanks for writing to us and sharing your views.

Your reasoning is in the right direction.

Moreover, it might be one of the consideration by the management that the share price is at all-time high and they might want to take the advantage of the same by raising equity at current high prices.

Further advised reading: Why Management Assessment is the Most Critical Factor in Stock Investing?

All the best for your investing journey!

Regards

Dr. Vijay Malik

How to obtain Credit Rating Reports (latest and historical reports)?


Could you please tell us how to get credit rating reports as I have noted that credit rating reports are not freely available to retail investors?

Author’s Response:

Hi,

Thanks for writing to us!

The best way to get credit rating reports is to google "Company name Credit Rating". First few results will tell the investor whether the company is rated and if yes, then which credit rating agency has rated it. After that, the investor needs to go to the credit rating agency website, enter the company name in the search field and then download the summary reports available at the credit rating website.

Then, investors may get the credit rating reports from the websites of credit rating agency. The summary report is usually freely available to the public. Investors may need to purchase the detailed report if they wish to read the detailed report. However, we believe that investors should first read the summary report as it also contains a lot of valuable information and then decide whether they want to buy the detailed report.

We have found that for our analysis, the summary reports have sufficed our purpose.


Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

Related Query

Dear Vijay, Where can we find the credit rating of last 5 years?

I am only able to find credit rating of current year.

If I can get past credit rating records of a company then it would be very helpful for my analysis.

Thanks and regards,

Author’s Response:

Hi,

Thanks for writing to us.

You may get the past credit rating summary reports on the website of credit rating agencies. E.g. ICRA usually has all the past ratings available on its website. CARE usually has for 1-2 years.

In these cases searching online on Google to check whether older reports are uploaded on any other site like stock exchanges, money control etc. might help. Else, one might have to buy the reports from the agencies. Alternatively, investors may try contacting the company investor relations dept. to check if they can provide historical reports to the investor.

We do not think that there is any other way to get historical reports. We are not sure whether paid databases like Capitaline, CMIE etc. keep historical reports with them to make available to their subscribers.

Otherwise, you may need to contact the credit rating agencies to send it to you by email, which may entail charges.

Hope it answers your queries.

All the best for your investing journey!

Regards,

Dr Vijay Malik

When and from where to get the annual report of a company?


Hi,

I rely on company websites for annual reports. I want to know how long does it take normally for a company to update their website with its latest annual reports. For example, Amara Raja announced results on 24th May 2017 but still (19th June 2017) the annual report is not updated on their site. I was wondering whether this delay in publication of the annual report is normal or there is something unusual. The latest annual report is not available on MoneyControl or Screener yet as well.

What would be the best way to get hold of annual reports as soon as the annual results are announced?

Regards,

Author’s Response:

Hi,

Thanks for writing to us!

The annual reports are usually released by the companies about 5-15 days before their annual general meetings (AGM). We are not sure whether there is any timeline for them to be adhered to in terms of the number of days before the AGM that they need to publish the annual report.

Company and stock exchange websites are the key sources to get the annual reports once they are published.


Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

BSE or NSE, which exchange to prefer to buy shares?


Hi Vijay,

One query, that I would like your help with.

While buying shares, I see that more often than not, we have the option of buying at NSE as well as BSE. And there will be some price difference for the same stock between these two exchanges. Any recommendation or suggestion on which exchange one should prefer. Is it ok to go ahead with the exchange where it is cheaper at the time of purchase? Or are there any other considerations to keep in mind?

Regards,

Author’s Response:

Hi,

Thanks for writing to us!

We do not differentiate among the two exchanges and buy stocks from whichever exchange, it is available at a cheaper price.

Hope it answers your queries.

All the best for your investing journey!

Regards

Dr. Vijay Malik

P.S:
  • To know about the stocks in my portfolio, their relative composition, cost price, details of all our buy/sell transactions since August 1, 2017 as well as to get updates about any future buy/sell transaction in my portfolio, you may subscribe to the premium service: Follow My Portfolio with Latest Buy/Sell Transactions Updates (Premium Service)
  • The financial table in the above analysis has been prepared by using my customized stock analysis excel template which is now compatible with screener.in. This customized Excel template is now available for download as a premium feature. For further details and download: Click Here
  • You may learn more about our stock analysis approach in the e-book: “Peaceful Investing – A Simple Guide to Hassle-free Stock Investing”
  • You may read more company analyses based on our stock investing approach in the Company Analysis e-book series, which is spread across multiple volumes: Click Here
  • To register for our Hyderabad “Peaceful Investing” workshop on December 10, 2017: Click here


DISCLAIMER


Registration Status with SEBI:

I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013

Details of Financial Interest in the Subject Company:

Currently, I do not own stocks of any of the companies discussed above