EQUITY INVESTING - POINTS TO REMEMBER

The key objective of any kind of investment is optimizing wealth creation. This essentially means the rate of return should surpass the rate of inflation. Else, the actual value of investment made diminishes in net worth.

There are essentially two types of instruments for investment - equity and debt. Though debt instruments or other fixed income instruments like income funds, bonds etc offer consistent returns they may be outdone by inflation in the long run

. The known remedy to make capital surpass inflation is to invest in equity instruments. This helps investor grow their capital much faster and will help beat inflation inspite of sharp periods of decline. Equity investment refers to the buying and holding of shares of stock on a stock market by individuals and funds in anticipation of income from dividends and capital gain as the value of the stock rises.

Here are the top four factors in your 'points to remember' list.

1. Choose stocks based on the performance of the company

Collate historical data of the company in which you are planning to invest in and check their profit graph. They should be a minimum cap of around at least 20-25% on the returns from the capital invested by its shareholders.

Checking long term helps you assess the true value of the company while a shorter term of 6 months could just be a reflection of market mood rather than the solid foundation the company is based upon.

2. Strike the right balance and stick to it
a) It is essential to take a very disciplined approach towards your stock planning.

b) Be prepared to stumble over unexpected bumps when you start out or for that matter be prepared to be surprised from time to time as the volatility of the market is such.

c) The best results await those who participate in the long drawn out game that last well over a number of years to the tune of 10-12 years to be precise.

d) Strike a balance with your stocks, don't accumulate too many and then again don't invest in too little. A moderate diversification should be the key factor in striking this balance, i.e. perhaps say about 15 should be a good way to diversify for someone who wishes to stay invested in the long term.
e) Understand the companies you are invested in and also keep a tab of the trading volumes of a particular stock purchased. This will help you estimate the percentage of active participation in that stock and is also a test of its liquidity quotient.

f) Have a secure allocation plan in place, consult the experts and avoid temptation to buy too much into one single company.

3. Keep a tab and consistently evaluate the investments

Be in touch with every change that happens with regards to your stocks. During the lean times there might be good opportunities thrown up for the grabbing. Don't lose sight of those if it makes investment sense for you. Figure out how you buy low at such points in time.
Keep track of the stock worth in order to determine if key elements that prompted you to buy the stocks in the first place are still secure in place or if your earlier expectations have been undermined.

Keep track of the prices on your finance worksheet and subject them to a quarterly and yearly review. This will help you reassess and reallocate according your current risk capacity.

4. Errors are an individual's portals of discovery
Your experience with stocks may be a mixed bag of both good and bad. Store away good pointers from the things that worked for you and learn from the bad experiences in perfecting your investment skills. Begin the exciting journey of making your every penny count!

Right time to invest in stocks

The recent carnage in the stock market has seen major indices losing more than half their peak values. By the first week of November ’08, the Sensex had fallen by 52.3% from its peak of 21,206.8 in early January ’08. The Nifty lost nearly 53% during the same period. While investors are concerned about the future performance of the stock market, they appear to be less familiar about an interesting fact. The market crash has resulted in stock prices falling below the book value of companies in most cases.

Book value represents the value of a company’s assets net of its liabilities. In other words, it tells what you will be left with, if the company were to shut down, its assets sold and liabilities paid off.

So, logically, a company that is a viable profit-making business will always be worth more than its book value due to its ability to generate earnings and growth. Hence, shares trading below their book value are a sure sign of gross under-valuation and indicate low risk for investors.

An analysis of BSE 500 stocks reveals that one out of every three stocks is currently trading below its book value. A sample of 479 companies with latest book value information was selected for the study from the 500 companies that comprise the BSE 500 index. The stock prices of these companies were then divided by their respective book values to arrive at the price-book value ratio (P/BV).

According to the study, as many as 170 companies reported stock prices lower than their book values. Interestingly, on January 21, ’08, the day when the market temporarily halted trading due to massive losses, only 26 companies out of the sample set were trading below their book values.

The study also revealed that as on November 3, ’08, nine out of 10 companies were trading at P/BV multiples which were lower than their value on January 21, ’08. Real estate companies dominated the list of companies that saw erosion in their book values during the said period. Among the top 10 such companies, five were from the realty sector.

There are two reasons for this erosion in P/BV. Not only have stock prices of companies fallen sharply, but in many cases, the book value has also increased. Every four out of five companies reported a jump in book value between January ’08 (BV in FY07) and November ’08 (BV in FY08). Investors can use the information on P/BV multiple as one of the decisive indicators while taking investment decisions in a falling market.

A P/BV multiple of less than one reflects lower risk for investors in case the company faces bankruptcy. Further, talking about stock recommendations by ETIG, some stocks have seen a considerable decline in their current P/BV compared to that on January 21, ’08.

Aban Offshore, Allied Digital Services, Bank of India, Adhunik Metaliks and Jain Irrigation are some of our recommendations that have seen a drop in their P/BV multiples, which are now between one and three. Moreover, India Glycols and Ratnamani Metals & Tubes are currently trading at P/BV of less than one.

EXPERT OPINION ABOUT CURRENT STOCK MARKET SCENARIO

During this time of turbulence in the markets, I must congratulate you for taking the wise decision to remain patient. At this time I also wanted to share with you some facts from the history of the markets in India.

It is important for all investors who invest or tend to invest in equities to take a trip down memory lane, particulary during times when the investor feels tired and let down by the market. We need to be aware that this kind of despair is not new in the market but public memory being short, one tends to forget the days of despair.

Let me take some of your precious time to draw your attention to the table below depicting the peaks and bottoms of the Sensex in the recent past. Only the recent past is given here because it is relatively easier to connect to it.

SENSEX HIGH DATE SENSEX LOW DATE

4546 02.04.1992 1980 27.04.1993

4643 12.09.1994 2713 04.12.1996

6150 14.02.2000 2156 03.10.2001

6249 09.01.2004 4227 17.05.2004

12671 11.05.2006 8799 14.06.2006

14723 09.02.2007 12316 16.03.2007

21206 10.01.2008 8701 24.10.2008


I hope that you remember the historic bull phase of early 1990s charging to 4546 points from below 1000 points during the Iraqi invasion of Kuwait, in April 1992. The most interesting development of this period was the amazing growth of investor population in the country and stock investing becoming fashionable for the first time, with new Stock Exchanges mushrooming in every nook and corner of the country. When the hero (or villain?) of the great bull market, Harshad Mehta was caught by the law enforcing agencies, the market collapsed like a pack of cards crushing millions of new investors who had entered the market during the peak time, leaving them in utter agony. The pain was much more than what we are seeing these days. The market mood was incredibly low and many investors along with doomsayers predicted the end of the market and the end of an asset class called equities. As the table shows, in a short span of one year from April 1992 to April 1993, investors found their wealth coming down by more than 55%. Many fortune seekers who borrowed and invested and many others who had invested their life time savings for the marriage of children to retirement life, saw their wealth disappearing in one year’s time. The painful part was that though the index came down by only 55%, many of the shares manipulated by operators came down to zero value. This tragedy occurred at a time when market regulations were weak and SEBI had no effective punitive power.

At some point of time you must have felt disappointed and angry at the way the market has been moving. Now look at the table again. In a matter of seventeen months the very same market bounced back to touch 4643 points. Think of all those who sold in disappointment during April 1993 when the index was at 1980 points! The market went up by more than 100 percent in 17 months! Just have a look at the market peaks alone. The next peak was at 6150 (in 3 years 2 months), the next at 6249 (in 2 years 3 months), then at 12671 (in 2 years), then at 14723 (in 8 months) and then at 21206 points (in 10 months). My intention is not to predict when and to where the Sensex will bounce back in the days to come, but to point out that all those who courageously got into the market in each of the troughs and waited patiently made incredible wealth as the market always peaked above the previous peak.

Now what happened to those who invested during the peak time in each of the market peaks – you know many new investors tend to start investing at the peak – they saw their wealth going down by 40 to 60 percent! Compare this to the wealth of all those who got into the market when the market touched bottom every time! Indeed, it requires courage to invest when every other investor leaves the market.

In this backdrop we must also analyse what is happening in the market that is pulling the Sensex down to 8700 points. Many foreign institutions and hedge funds have become bankrupt in their home countries forcing them to sell Indian assets at throwaway prices pulling our market down. One serious difference is that this time we have a global magnitude to this crash in relation to liquidity.

The one who can invest now, particularly in companies which are sitting with lots of cash in their balance sheet will make extraordinary returns when the dust settles down.

I felt that it is my duty to share with you some facts to enable you to look from a better perspective at the current events. Of course it is difficult to predict market tops and bottoms, but I wish to assure you that this is not the end of equity markets, and it will never be.

An article by Mr.George Geojit Securities

ICICI Bank: Fear psychosis comes to rest

After a series of damage control measures, the ICICI Bank authorities seem to have dispelled all the negative impact of the malicious rumours
against it.

The stock which was down 20 per cent last week, is now up by 20.91 per cent on the NSE. Around 1pm, the volume of trading for ICICI in the F&O market is 1 crore 46 lakh while it is 2 crore 5 lakh in cash market.

If volumes are any indication (on Monday), investors are reposing faith on the bank once again. In the derivative market, the stock is being traded at a premium to the spot.

“Both volumes are good. In view of research reports by global agencies, the fear psychosis is over. It is worth investing in the stock. Buy at every decline,” said Alex Mathew, head – research, Geojit Financials.

In a press note, Standard & Poor's Ratings Services said today that credit fundamentals of ICICI Bank continue to be sound, backed by strong market position in the domestic banking industry, adequate financial profile, which is supported by its healthy capitalization, satisfactory loan quality, and diversification.

The overseas loan and credit derivative portfolio of the bank, including its overseas subsidiaries, is predominantly to Indian companies for their Indian and overseas operations and hence its quality is largely dependent on corporate credit quality and economic conditions in India, S&P Ratings Services adds.

The bank through its UK-based subsidiary also has a sizeable US$3.5 billion investment portfolio. This includes about $80 million exposure to Lehman Brothers.

According to S&P, likely credit or marked-to-market losses on its overseas exposure can be easily absorbed within its financial profile, considering the size of its balance sheet of about $100 billion and capital base of about $10 billion.

Currently, the bank has a capital adequacy ratio of 13.9 per cent as against SBI’s 12.6 per cent and HDFC’s 13.6 per cent. As per RBI norms, it is 9 per cent only.

In a press statement the CEO and MD of ICICI Bank said, "We (ICICI Bank) have evidence of organised attempts to destabilise the bank. But our bank, India's largest in the private space, is over-capitalised and is one of the strongest financial institutions in the world. We have not seen any drastic decline in deposits in the past few weeks

Adopt a long-term investment approach

The Sensex ended in August 2008 at 14565 gaining just 209 points (1.5 per cent) over the July close of 14356. The initial rally to cross the 15000 mark faltered on the subsequent weaker GDP growth forecast and inflation hovering close to 13 per cent. The market almost consistently fell except on the last day when it gained 516 points. FIIs and Mutual Funds again turned net sellers of equities while favouring investment in debt instruments. Prevailing higher interest rates are taking these institutional investors away from equities because the macro environment is too hazy to support upward bias in equities.

In addition to the subdued economic scenario, the political situation and the nuclear deal are on shaky ground. Further, floods are wreaking havoc causing agricultural output to suffer. The positive sentiment required for investment is thus lacking.

The cumulative seasonal rainfall for the country in August is below the Long Period Average value by only 2 %. The June-September monsoon, which accounts for four-fifth of the nation’s annual rainfall should help the country’s 234 million farmers harvest a bigger crop and boost rural incomes. Going forward, agriculture will hold the key for both industry and overall growth, and also for taming inflation levels.

On the positive side, crude oil prices cooled off from US$150 to around US$110 mainly due to dwindling demand. However, there are contrary views about the trend that might prevail for prices of commodities including crude oil over the short to medium term.

The RBI is hiking interest rates to reign in inflation. Both higher interest rates and inflation bother the industry as they impact consumer demand and hurt corporate profitability. Until we see inflation easing, it would be unrealistic to expect easing of the monetary policy. Higher interest rates and inflation levels might to some extent delay expansion projects of corporates. With general elections scheduled for early 2009, more populist measures are expected to keep economic considerations at bay. Further, the US$17billion (Rs.68,000 crore) farm loan waiver and 21 percent increase in salaries paid to about 5 million government employees should certainly spur consumer demand in the ensuing festive season.

Consequently, in a not very congenial macro environment, it is suggested that emphasis be put on getting into stocks of well-run companies having reputed promoters and proven management. invest in the underlying businesses of the companies since the stock market will eventually appropriately value the business. If the business does well, the stock eventually follows. So, by adopting a long-term approach to investment, you emerge a winner regardless of short-term blips.

Volatile market may benefit NRI investors

NRI investors are watching the current bearish days on the Indian stock market with trepidation. From the peak of the bull run at over 20,000 on June 8, the Sensex has plummeted to less than 13,000 now. The rise in crude prices has fuelled inflation at over 11 per cent and the recent monetary policies to curb demand have accelerated the decline of the Sensex.

Considering the current volatility in the equity market, what does an NRI investor do? For some, the knee jerk reaction would be to panic and start selling in anticipation of the market weakening further due to rocketing oil prices and spiralling inflation.

For others, it could be 'Hold on!' The market can go lower and better bargains can be picked up for stocks, including blue chips. It all depends on how much lower will be the market decline and for how long.

And as Indian stocks may get sucked in the global spiral of depression, the third option for some NRIs would be to buy right now, as the market seems to be heading to its bottom.

This opposite view is for the adventurous. Those who look to the silver lining and have an appetite for risk taking think that the market will go up again because of India's overall economic strength.

Inflation in India is expected to come down after six months, according to the finance minister. So these investors are bullish on the long-term prospects of the Indian economy where the Risk-Reward Ratio is in their favour. Thus they can invest now to add low priced stocks to their portfolios for possible high gains later on.

Finally, there are the extra-cautious NRI investors. They do not want to speculate in the market but want to safeguard their hard earned investment funds 100 percent and so go for fixed returns. With real returns from fixed income options turning negative due to spiralling inflation and uncertain equity markets in the medium term, they do not know what to do.

Now with all these conditions, how can you have your cake and also eat it? Since stocks are not the answer for these trepid investors, mutual funds have recently launched innovative structured products for them. Known as Equity-Linked Fixed Maturity Plans, these schemes provide a 100 percent capital safety with returns linked to the equity market albeit with some conditions.

Investment advisor Sanjay Durgan of AbunDanze explains how it works: "There is an Initial Value, Observation Value and the Closing Value of the Reference Index that is NIFTY. The Observation Date for NIFTY is fixed as the last Thursday of every month during the tenure of the plan. Returns are determined based on the difference between the Closing and Initial Value of NIFTY. Depending on the structure of the scheme, the Closing Value could be the average of the last three months NIFTY Observations of the period of the scheme."

Adds Durgan: "Depending on the structure of the scheme, the Initial Value of NIFTY could be the closing date of investment in the plan or some average of the initial few months. Observation dates for NIFTY are fixed as the last Thursday of every month. The catch lies in the Observation Values that are pre-conditions known as 'triggers' that could apply if any Observation Value were to breach them."

For example, if at Closing Level, NIFTY rises by 50 per cent from the initial level, the investor gets 150 per cent participation (i.e. 50 multiplied by 1.5 ensure 75 per cent absolute return on investment).

However, a trigger condition could be if NIFTY were to rise by more than 100 percent or any Observation Date, then the investor gets a flat 65 percent absolute return after 36 months.

If NIFTY falls, the investor still gets the principal amount in full. The minimum amount for investment is Rs.5,000 and the period is fixed for such investments. It can be 21, 36 months or as structured by the fund house.

In this 'heads you win and tails you win' situation, a risk averse investor is protected for the face value of the capital with a potential to generate returns linked to the equity market.

Since these are close-ended schemes, they are ideally suited for those who have the relevant time horizon for investment and are looking for a little more excitement than the plain old vanilla fixed-income options.

"Though the capital is safe, the returns are maximized only if the market moves within a certain range. This is more like the casino that works on probabilities but your money is safe," said Durgan. If you are a conservative investor, this is a 'win-win' situation.

Source: Economic Times

RELIANCE MONEY TIES UP WITH DUBAI INTERNATIONAL SECURITIES (DIS)

Reliance Money, the financial service and product distribution arm of the Reliance Anil Dhirubhai Ambani Group, yesterday announced its tie-up with Dubai International Securities (DIS), a part of the Al Rostamani Group, to distribute Indian financial products and services in the UAE.

"This is our first initiative to offer financial services outside India and we plan to tap non-resident Indians in the Middle East with this initiative. Our business model is to offer cost-effective, secure products and services to a larger section of the population and we will replicate that model in the UAE as well," said Sudip Bandyopadhyay, director and chief operating officer of Reliance Money.

Through this tie-up, Reliance Money will offer its range of services, including trading accounts, mutual funds, Indian initial public offerings (IPOs), and portfolio management services (PMS), to NRI investors in the UAE and will eventually expand into other Gulf markets such as Bahrain, Oman and Qatar.

DIS, which has a strong presence in the UAE, will use its existing distribution channels to reach NRI customers.

"DIS has a large Indian clientele across its network. With this tie-up we will be able to provide our customers with a cost-effective and secure platform to deal in Indian financial instruments with the expertise of Reliance Money," said Ernest J. Ratnayake, CEO of the Al Rostamani Group.

Initially, Reliance Money will launch its brokerage and mutual fund services in the UAE. The company currently offers mutual funds from 17 asset management companies.

As part of the product offering in the UAE, Reliance Money plans to offer portfolio management schemes (PMS) for a minimum investment of $50,000. Overall the company is targeting 100,000 customers for brokerage and mutual fund business and 25,000 customers for PMS in the first year of operation.

"Usually, PMS services are offered to high net worth investors. We would like to break the entry barrier to this service and reach out to a large number of middle class investors who have been totally ignored so far," Bandyopadhyay said.

Dubai International Securities, ranked among the top 10 brokerages in the UAE, will assist NRIs in participating in the Indian market through their strong local distribution channels.

Reliance Money said yesterday that it would offer competitive brokerage rates to its UAE customers.

INVESTING IN INDIAN CAPITAL MARKET - HOW TO GO ABOUT IT?

An NRI can invest in the Indian capital market by buying in the secondary market or by subscribing to public offers by corporates.

Secondary market operations:

NRIs can invest in the secondary market only under the Portfolio Investment Scheme (PIS) as formulated by the Reserve Bank of India. The salient features of the scheme are:
•A permit is required to be obtained from the RBI before trading under PIS can commence. The permit can easily be obtained through a designated branch of a bank where the NRI investor should have an account.
•Investments can be done either on repatriable basis or on non-repatriable basis or both. In either case RBI permit is mandatory and separate permits are required for repatriable and non-repatriable investments.
•Shares can be bought and sold only on delivery basis. Intra-day squaring off is not permitted.
•Applicable tax on profits made will be deducted at source. For details please refer to the section on Taxation.

If you are a first time investor, you need to open 3 different kinds of accounts to be able to buy and sell in the secondary market
1. An NRE/NRO bank account with a designated bank branch.
2. A Depository account
3. A Trading account.

NRE/NRO Bank account

You need to open an NRE account if you wish your investments to be repatriable; if not an NRO account is sufficient. These accounts can be in single or joint names. A separate RBI permit is required for each account. Documents to be submitted are

•Application in the prescribed form
•Photograph of each holder. If RBI permit is sought, 2 additional photos are required.
•Copy of passport towards proof of identity
•Copies of visa pages as proof of NRI status
•2 bank drafts payable to yourself for a minimum of INR 5000/- for SB A/c and INR 7000/- for PIS A/c.
•If you already hold shares, you are required to make a declaration to this effect in the prescribed format indicating date of acquisition and price of acquisition.

Depository account

Most shares being available only in the electronic (dematerialized) form, a Depository account is a precondition for trading in the secondary market. Depository accounts can be opened either in single name or jointly up to a maximum of 3 holders. Documents to be submitted are:
•Application in the prescribed form
•A photograph of each holder
•Copy of the passport
•Copy of RBI permit if purchase of shares from the secondary market is intended.
•Digital communication agreement authorizing DP to send you digital statement/reports.
•PAN Card

Trading Account

A trading account will enable you to buy and sell shares in the secondary market. One may open an NRE or an NRO account depending on whether or not the investment is to be repatriated. As mentioned earlier, an RBI permit is required in both cases. The trading account is always in the name of an individual but the account can be tied to a jointly held depository account provided the trading account holder is any one of the holders of the joint depository account. The following documents are required for opening a trading account:
•Application in the prescribed form
•One photograph
•Copy of passport with Visa pages
•Copy of RBI permit
•PAN Card

Trading and settlement

Buying: Before you can place a buy order it is necessary to ensure that your PIS account is 100% pre-funded.

Selling: An order may be placed to sell any of the shares held in your depository account. As mandated by you, your depository account will be debited to the extent of your sales obligation. The net sales value will be credited into your PIS account along with a copy of the contract note.

Note: All buy and sell transactions in a PIS account are required to be reported to the Bank on the same day as the transaction.

Taxation

All profits made from secondary market trades come under the purview of the prevailing tax laws. Profits realized within a period of less than one year will attract short term capital gains tax @ 10% which will be deducted at source by your bank. Tax is calculated and deducted for each transaction. In other words, the profits made in one transaction cannot be set off against the loss made in another. You can, however, file your tax returns at the end of the year and claim refunds if any. Profits realized from shares that were held for more than one year are long term capital gains. From the financial year 2003-04 onwards, tax on long term capital gains from capital markets has been abolished. There is, however, a transaction tax of 0.15% on all trades. Currently, all dividends are also tax-free in the hands of the investors.

Primary market

Public offers of shares are made by Indian corporates from time to time. Many such issues represent opportunities for good long term investments. Investors should, however, be selective and invest only in companies that have good credentials. Most public issues come with a portion reserved for NRIs on repatriation basis. As the issuing company would have obtained a general RBI permission for the issue, NRIs need not have individual RBI permission for subscribing to public offers. In most cases, a depository account is necessary for being able to apply to public offers.

Building a Good Equity Portfolio

In today's booming stock markets a well-constructed equity portfolio is vital to wealth creation. The equity markets in India are generating double-digit returns. Equity returns seem to dwarf the returns generated by all other asset classes. In this scenario the big question that arises is how to capitalize on this fact to get better returns for your portfolio while keeping in mind that you have to:nSecure the higher return with the least amount of risknProtect both profits and principalnMake sure that investment portfolio will be worth more in the future.

Asset allocation
Successful investing begins by conceding that - to a degree - uncertainty will always be your companion. Hence the first step in building a portfolio will be to determine your risk bearing capacity. On the basis of your risk taking ability you determine the extent of your portfolio you can allocate to equity, a process also called asset allocation. Asset allocation refers to spreading investments among different asset classes, not just different securities or market sectors. As different asset classes are imperfectly correlated it allows you to boost returns while reducing your portfolio's volatility. Determining the quantum of assets to be invested in each asset class based on risk profile will help in protecting the portfolio in volatile times. Asset allocation has in the past allowed people to survive, prosper and build wealth during bear markets.

Focus on equity

But investing is not all about portfolio protection; it's about building wealth. It's about creating a retirement corpus or a substantial amount to bank upon. The idea is to leverage Indian macro economic situation to assist in wealth creation. This is possible by giving higher focus to equity portion of the portfolio. Equity investments do carry higher risk, but it's possible to minimize this risk with a judicious approach. Equity investment can be done in different approaches or styles. Investment style or an approach refers to a broad category that displays similar fundamental characteristics. Some of the well-known approaches to equity investing are income investing, growth investing and value investing.

Income investing

This style of investing is best suited for investors with very low risk appetite and retirees who want regular income from their portfolio. The idea here is to invest in good quality dividend paying stocks. The price of these stocks generally does not fluctuate much. Most of the earnings of these companies are distributed as dividends. Companies generally pay dividends on a half yearly basis. If you purchase several different stocks whose dividend payments are staggered you can structure a regular stream of income from your equity portfolio and additionally give you adequate protection to your portfolio on the downside. A dividend yield higher than the post-tax yields of fixed income securities is definitely a good option for investors who look for income investing. In general, companies with low growth prospects offer a high dividend yield, against those with high growth prospects.

Growth investing

This style of investing is more suitable for investors who can wait for a longer time for their returns and have a higher ability to bear risk. Growth investing is selecting and buying stock in companies that tend to grow substantially faster than others. The idea behind it is that a growth in earnings and/or revenues would directly correlate into an increase in the stock price. The other characteristics of growth stocks include higher than average P/E ratio and poor dividend payout because, fast-growing companies need their capital to finance their expansion. Most companies reinvest a high portion or all of their earnings in their own businesses.

Value investing

Value like growth investing is for a patient investor as it will be a long time before the value of the company is recognized by the stock markets. This term describes the purchase of cheap, unpopular shares that is currently ignored by the markets. Suitable shares for value investing are those with high cash flow, dividends and earnings yields, and high ratios of sales and book value to share price. Over the very long run, value shares appear to outperform growth shares, possibly because of the greater volatility in these companies. Whether you are income investor or value investor you need a good strategy to pick-up the stocks. You can judge a company by its numbers, management, brand value, competition in the industry and the growth of the future earnings. It's imperative that your equity portfolio should consist of 10-15 stocks spread across 2-5 sectors to diversify risk. There is no single approach to make you successful in equity investing but the combination of all the approaches in a balanced manner can give you the best returns at the current juncture.


Courtesy to Economic Times