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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.
Day 53: Basic Stock Market Concept
𝗛𝗼𝘄 𝗱𝗼𝗲𝘀 "𝗦𝗜𝗣 𝗖𝗼𝗺𝗽𝗼𝘂𝗻𝗱𝗶𝗻𝗴" B𝘂𝗶𝗹𝗱 W𝗲𝗮𝗹𝘁𝗵?
Systematic Investing + Reinvested Returns = Exponential
Growth:
Example: ₹10,000/month SIP
@ 12% for 25 years = ₹2.0 Cr (₹30L capital invested).
Secret: Early years of
investment, returns come from contributions.
Late years of investment, returns come from past returns (compounding
magic!).
Rule: Start early → Let
time multiply money.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝗙𝗿𝗲𝗲 𝗙𝗹𝗼𝗮𝘁 𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗮𝗽?
Market cap calculated only on publicly traded shares (excludes
promoter-held/locked-in shares).
Why it Matters:
Used for index weighting (Nifty/Sensex).
Reflects true tradable liquidity.
Example: Infosys promoter
holding = 13% means 87% free float.
Low free float indicates High volatility (e.g., Adani
stocks).
𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝗧𝗿𝗮𝗶𝗹𝗶𝗻𝗴 𝗥𝗲𝘁𝘂𝗿𝗻𝘀 𝗶𝗻 M𝘂𝘁𝘂𝗮𝗹 F𝘂𝗻𝗱𝘀?
Trailing returns show a fund’s performance over a specific past period
(e.g., 1/3/5 years), updated daily.
Why it Matters: Helps compare
funds over identical timeframes (e.g., Fund A gave 15% trailing 3-year returns
vs. Fund B’s 12%).
Limitation: Past performance
doesn't guarantee future results. A 5-year high return might include one
exceptional year.
Tip: Combine with
rolling returns (averages across all periods) for a clearer
picture.
𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝗟𝗶𝘀𝘁𝗶𝗻𝗴 𝗣𝗿𝗲𝗺𝗶𝘂𝗺𝘀 𝗶𝗻 𝗜𝗣𝗢𝘀?
The gap between an IPO’s issue price (price offered to investors) and
its listing price (first-day market price).
Listing Gain
(Premium): Listing price > Issue price (e.g., issue price ₹100, lists at ₹120 =
20% premium).
Listing Loss
(Discount): Lists below issue price.
Note: Premiums depend on
demand, market mood, and IPO pricing. High premiums attract investors but
increase short-term volatility.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝗖𝗥𝗥 (𝗖𝗮𝘀𝗵 𝗥𝗲𝘀𝗲𝗿𝘃𝗲 𝗥𝗮𝘁𝗶𝗼)?
The percentage of deposits banks must keep as cash with the
RBI.
The purpose of this is to control inflation & ensure banks not to
run out of cash.
Impact: If CRR increase,
Banks lend less means loans become costlier signals slower activities in
economy.
If CRR decreased, more money in the hands of banks, as a result, loans
become cheaper credit grows signalling boosts for more spending.
Current CRR (India): 4.5% (as of
2024).
𝗪𝗵𝗮𝘁 𝗶𝘀 𝗦𝗟𝗥 (𝗦𝘁𝗮𝘁𝘂𝘁𝗼𝗿𝘆 𝗟𝗶𝗾𝘂𝗶𝗱𝗶𝘁𝘆 𝗥𝗮𝘁𝗶𝗼)?
The percentage of deposits banks must invest in safe, liquid assets
(govt. bonds, gold) before lending.
Goal: Ensure banks can
handle sudden withdrawals.
Impacts: High SLR means
banks buy more govt. bonds that can support govt. borrowing.
Low SLR means banks lend more which stimulates growth.
SLR vs. CRR: CRR is cash with
RBI; SLR is assets with banks themselves.
Current SLR (India):
18.00%.
𝗪𝗵𝗮𝘁 𝗱𝗼 𝗔𝘁𝘁𝗿𝗶𝘁𝗶𝗼𝗻 𝗥𝗮𝘁𝗲𝘀 𝗺𝗲𝗮𝗻 𝗳𝗼𝗿 I𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀?
Attrition rates signify the percentage of employees leaving a
company per year. High attrition signals:
Poor culture / management which can hurt productivity & innovation.
Rising costs (training replacements).
Risk for IT/start-ups: Losing skilled
staff impacts contracts.
Example: A 25% attrition
rate = 1 in 4 employees left that year.
It is generally visible in IT companies.
Investor tip: Compare attrition
with industry averages (e.g., IT: 12-18%).
𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝗗𝗲𝗳𝗲𝗻𝘀𝗶𝘃𝗲 𝗦𝘁𝗼𝗰𝗸𝘀?
Shares of companies manufacturing and selling essential
goods/services which people buy regardless of the economic conditions.
Examples: FMCG (HUL, Nestlé), pharma (Cipla, Sun pharma etc) Utilities
(power companies).
Why they’re
defensive: Because, the companies have stable and consistent demand means stable profits for the companies can be less volatile in recessions.
Trade-off: Lower growth potential than "cyclical" stocks
(e.g., autos, travel).
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗦𝗵𝗮𝗿𝗽𝗲 𝗥𝗮𝘁𝗶𝗼?
Measures risk-adjusted returns of how much excess return you get per
unit of risk.
Formula: (Fund Return – Risk-Free Return) / Standard
Deviation.
Risk-Free Return: Usually FD/govt. bond yield (e.g., 7%).
Interpretation:
>1.0: Good (more return per risk unit).
<1.0: Poor (high risk, low reward).
Example: A fund with 15%
returns, 10% standard deviation, and 7% risk-free rate:
(15–7)/10 = 0.8 that is mediocre risk-adjusted returns.
𝗪𝗵𝗮𝘁 𝗶𝘀 𝘁𝗵𝗲 𝗚𝗲𝗮𝗿𝗶𝗻𝗴 𝗥𝗮𝘁𝗶𝗼?
Measures a company’s debt relative to equity.
Formula: Total Debt /
Shareholders’ Equity.
Interpretation
< 0.5: Low debt (safe).
> 0.8: High debt (risky during rate hikes/recessions).
Example: A gearing ratio of
1.0 means debt = equity → Proceed with caution!
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.
𝐈𝐧𝐯𝐞𝐬𝐭𝐢𝐧𝐠 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬: Last Week's Topic
Weekly
Q&A for Stock Market Newbies Part - 52
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