These days a lot of people are taking the plunge into the Stock Markets, especially equities, by investing large sums of money hoping to double their investments amid all the hype about the markets returning to their former glory. The International stock markets & the Sensex had earlier taken a hard beating in the starting of 2009 due to the recession that made millions of people worldwide lose their money and lose their faith in the equity markets as well. The demons seem to have passed away, and after some initial jitters, the markets have shown slow & steady improvements since the recession ended in early 2010.
It was only in the last two months that all time highs have been created, with foreign investors (FII’s) investing billions in the Sensex which has led to thousands of Indians again embarking on their journey to get a handsome return on their money by buying stocks of blue-chip companies. But at such a time when all the previous highs have been broken and new records are being set up every alternate day, it is important to realize that the markets worldwide, especially the Sensex remains volatile and hence it is important to realize the risk associated with investing your hard earned money in the Indian stock market. One should choose a wise investment strategy which allows you to gain decent returns and at the same time ensures that you are playing the game safe & sound, without taking too much risk.
As the Sensex has outperformed the International markets, there is a chance of correction in the Indian markets once the FII’s stop pumping money in huge quantities. Amid so much hype about the Sensex creating 33 months high and crossing the landmark 20,000 mark, it is important not to go with the flow and invest carelessly, without any investment strategy to give direction to your investments. To avoid losing any of your capital in case of a correction, only choose stocks of reputable or blue-chip companies as those are the ones that will continue to remain the backbone of India and will keep growing despite any minor corrections.
Also, do not invest large sums of money directly into a particular stock before any details about the company or its past history. Analyse the risk, do some genuine research about the company, find out its intrinsic value, see its growth pattern over the last few years and make sure that it is fundamentally strong, and that the demand for the products it creates will still be strong in the future. Invest your money in small parts, and wait for any buying opportunity when the market is down on any particular day.
For intraday investors, do not pump in cash just at the start of the trading session. Wait to see which way the momentum of the stock is going (upwards or downwards). Do not look to invest large sums of money, hoping to earn a few thousand rupees from every trade. The markets are quite volatile so try to earn a few hundred rupees in 3-4 trades which automatically ends up being close to a thousand rupees at the day’s end. Buy any share you like in intraday and sell it just when it goes up by a few paise (20-30 paise). You can do this many times in a trading day and easily earn some money without any risk. Do not wait for a return of more than 1 rupee on one share. It is realistically more easy to earn a few hundred rupees in every trade rather than earn a few thousand rupees in a particular trade.