Hello readers, we are happy to announce that our team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A for Stock Market Newbies”, to spread the basic stock market knowledge to the beginners.
This
is your go-to resource for demystifying the stock market from the scratch. Each
day, we will present 10 carefully curated questions with answers that will
cover essential concepts, strategies, and terminologies. Whether you have just
entered into the market, or trying to starting your stock market journey, or
looking to strengthen your foundation, our weekly post will guide you through
the basics and beyond, making investing accessible and understandable for
everyone. Happy reading.
How to Analyze a
Company’s Cash Flow Statement?
A cash flow statement shows how money moves in/out of a company. Focus
on three sections:
Operating
Activities:
Cash from core business (e.g., TCS earning ₹10,000 crore from IT
services). Healthy sign: Positive cash flow here.
Investing
Activities:
Cash spent on assets (e.g., Reliance buying machinery for ₹5,000 crore).
Warning: Consistent negative cash flow may mean
overspending.
Financing
Activities:
Cash from loans or dividends (e.g. Infosys raising ₹2,000 crore via
bonds).
Key Metric:
Free Cash Flow = Operating Cash Flow - Capital Expenditures. Companies
like Nestlé with consistent positive free cash flow can reinvest in growth or
pay dividends.
Beginner Tip:
Use tools like Screener.in to compare cash flow trends over 5 years.
Avoid companies burning cash (negative free cash flow) for more than 2
years.
How Should
Beginners Handle Stock Market Rumors?
Stock market rumors are unverified claims that can cause panic or hype.
For example, in 2021, false rumors about Tata Motors launching a new EV caused
a temporary stock surge. To handle rumors:
Verify Source:
Check official company announcements on BSE/NSE websites or reliable
platforms like Moneycontrol.
Analyze Impact:
Ask, “Does this rumor affect the company’s profits or operations?” A
merger rumor might boost stock prices, but only if the deal is profitable.
Wait 24 Hours:
Avoid impulsive decisions. Most rumors fade quickly.
Learn Patterns:
Scammers often spread fake news during earnings season to manipulate
prices.
Why it Matters:
Acting on rumors is like betting on gossip—you might win occasionally,
but long-term losses are likely. Stick to researched investments.
What is the Role of
a Brokerage Account, and how do I Chose one?
A brokerage account is your gateway to buying/selling stocks. Consider
these factors when choosing:
Fees:
Discount brokers like Zerodha charge ₹20 per trade, while full-service
brokers like ICICI Direct charge 0.5% per transaction. For ₹1 lakh investments,
this means ₹500 vs. ₹20 fees.
Tools:
Look for free research reports, screeners, and educational content
(e.g., Grow’s “Learn” section).
Safety:
Ensure the broker is SEBI-registered and uses two-factor
authentication.
Ease of Use:
Test the mobile app—can you place orders easily?
Example: A beginner
investing ₹5,000 monthly should pick a discount broker to save fees. Use their
free tools to learn before upgrading.
What do
“Large-Cap,” “Mid-Cap,” and “Small-Cap” Mean?
These terms classify companies by market value (share price × total
shares):
Large-Cap (Rs.20000
+ Crore):
Stable giants like HDFC Bank. Low risk, 8–12% annual
returns.
Mid-Cap (Rs.5000 –
20000 Crore):
Growing companies like Tata Chemicals. Moderate risk, 12–15%
returns.
Small-Cap (Under
Rs.5000 Crore):
Startups like Nazara Technologies. High risk, 15–20%
returns.
Beginner Strategy:
Allocate 60% to large-caps (safety), 30% to mid-caps (growth), and 10%
to small-caps (high reward).
Rebalance yearly. If small-caps surge to 20% of your portfolio, sell
some to maintain 10%.
How Do I Read a
Basic Stock Chart?
A stock chart shows price movements over time. Focus on three
elements:
Uptrend:
Higher highs (₹100 → ₹120 → ₹140) and higher lows (₹90 → ₹110 →
₹130).
Downtrend:
Lower highs (₹150 → ₹140 → ₹130) and lower lows (₹120 → ₹110 →
₹100).
Volume Bars (Bottom
of Chart):
High volume during price spikes confirms strong momentum.
Moving averages:
The 50-day (short-term) and 200-day (long-term) lines. If the 50-day
crosses above the 200-day, it signals a potential uptrend (“Golden
Cross”).
Practice:
Use Trading View’s free charts to track Reliance Industries. Notice how news (e.g. Jio announcements) affects price and volume.
How do Interest rate
Changes Affect Stocks?
When the RBI raises interest rates:
Bad For:
Banks (loan demand drops), real estate (home loans get costlier), and
debt-heavy companies.
Good For:
Exporters (rupee weakens, boosting foreign earnings).
𝗘𝘅𝗮𝗺𝗽𝗹𝗲: In 2022, RBI
hiked rates to 6.5%. IT stocks like TCS rose (export benefits), while housing
companies like DLF fell.
Beginner Tip:
During rate hikes, shift to sectors like FMCG (Hindustan Unilever) or pharma (Sun Pharma), which are less impacted.
How Do I Align
Investments With Financial Goals?
Define Goals:
𝗦𝗵𝗼𝗿𝘁-𝘁𝗲𝗿𝗺 (𝟭--𝟯 𝘆𝗲𝗮𝗿𝘀):
Vacation, emergency fund → Use FDs/debt funds.
𝗠𝗲𝗱𝗶𝘂𝗺-𝘁𝗲𝗿𝗺 ( 𝗲𝗮𝗿𝘀):
Down payment → Hybrid funds (40% stocks, 60% bonds).
𝗟𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 (𝟭𝟬+ 𝘆𝗲𝗮𝗿𝘀):
Retirement → Equity mutual funds.
𝗖𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗲 𝗮𝗺𝗼𝘂𝗻𝘁𝘀:
Need ₹50 lakh for a house in 5 years? Invest ₹65,000/month at 10%
returns.
𝗧𝗼𝗼𝗹𝘀:
Use the “goal planner” on platforms like ETMoney or Upstox.
What Should I Do in
a Bear Market?
A bear market is when prices drop 20%+ from recent highs.
Strategies:
Keep Investing:
SIPs buy more units at lower prices. ₹10,000/month buys 100 shares at
₹100 vs. 50 shares at ₹200.
Hold Quality
Stocks:
HDFC Bank fell 30% in 2020 but recovered fully by 2021.
Avoid Panic
Selling:
The 2008 crash lasted 18 months, but markets tripled in the next
decade.
Sectors to Target:
Consumer goods (Nestlé), utilities (NTPC), and healthcare (Apollo Hospitals).
Why is an Emergency
Fund Important before Investing?
An emergency fund prevents you from selling investments during crises.
How Much:
6 months of expenses (rent, bills, groceries). For ₹30,000/month
expenses, save ₹1.8 lakh.
Where to Keep:
Liquid funds (8–10% returns) or savings accounts.
𝗘𝘅𝗮𝗺𝗽𝗹𝗲: If you withdraw ₹1 lakh from stocks during a 30% market dip, you lose ₹30,000 permanently. With an emergency fund, your investments stay intact.
How do I Evaluate a
Company’s Management?
Look for these signs of good management:
Track Record:
Has the CEO led other companies to success?
Transparency:
Do annual reports admit mistakes and outline clear fixes?
Ethics:
Avoid companies fined by SEBI or with promoter pledge
issues.
Red Flags:
Frequent CFO changes. Overly optimistic projections without data.
𝗘𝘅𝗮𝗺𝗽𝗹𝗲: Infosys’ Narayana
Murthy built trust through transparent governance, while Satyam’s Ramalinga
Raju failed due to fraud.
If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
