The stock market in India can be described as a place where two types of people meet up every day: those with experience and those with money. At the end of the day, they exchange their assets with each other and go back home.
The above sentence though a bit sarcastic describes the reality of the stock market in India, where majority of investors, which according to estimates is around 90%, lose money while only a miniscule 10% investors make profits. Even from this 10% only a tiny proportion of 2% investors are able to consistently create wealth from stock markets in India.
There are many reasons why majority of the investors end up losing their hard earned capital in stock markets. Let’s take a look at some major pointers which will help an investor in effectively managing his risks while investing in the stock market in India.
Best strategies to manage risk in stock market investing
Invest only for long term
In the short term periods, stock market in India is highly volatile. This is because of the fact that in the short term, stock prices are influenced by external factors such as fluctuation in oil prices, global conflicts, trade wars between countries, political instability, increase or decrease in interest rates etc. However in the long term it is the earnings and growth of the company which reflect in the share prices. Stock markets tend to stabilize over the long term and that’s why it is very important for an investor to think long term while investing in the stock market in India.
Invest only in fundamentally sound stocks to reduce risk in stock market investing
Stocks that have strong business fundamentals and are professionally well managed are known as fundamentally sound stocks. Strong business fundamentals include a sustainable and scalable business model, low or zero debt and consistent growth in earnings over a long period of time.
Fundamental analysis is one of the best ways to know about the stock, it helps the investor understand the stock better and make better investment decisions. If you have invested in fundamentally sound stocks then you don’t need to worry even during market corrections as they usually correct at a slower pace and are the first ones to recover when the market rebounds.
Don’t invest in penny stocks
There is a reason why penny stocks are called penny stocks. There is no real value attached to the stock as they lack the fundamentals. Penny stocks have low market capitalization and hence they are easily manipulated by fraudulent operators with an aim to trap unsuspecting investors and dump worthless shares on them. At times there are no buyers for such stocks and hence investors who have invested in them may find it impossible to sell the stock in the stock market in India.
Never invest on the basis of stock tips; It will multiply your risk in stock market
Never invest on the basis of stock tips received from others in the stock market in India. It is important to understand that people who offer stock tips themselves depend on others for it and these stock tips are rarely based on fundamental analysis.
Seek expert advice for investments
Stock market investments are complicated. If you do not have the time or the skills required to read balance sheets of companies it would be best to seek the help of an expert advisory. Using their research skills, an equity advisory firm would be able to assist you effectively in choosing the best
This article was last updated on 25/02/21
Read more: How Long-term investing helps create life-changing wealth – TOI.