One of the most promising places to set up shop and build a successful trading model is India. This is why a lot of big multinational businesses are pouring money into the country in anticipation of their future growth. Wright, a market research company, has reported that the Indian financial markets are quite active and optimistic. This expansion is changing the face of the Indian market and fueling the dreams of millions of people, not merely numbers on a graph. Significant governmental reforms, rising local demand, and large foreign investments are key factors shaping this dynamic economic landscape. A lot will change for India’s economy in the 2024 elections. Preliminary surveys and market reactions point to a stable government, which could have far-reaching consequences for both the near-term stability of the market and the direction of economic policy in the long run. These elections are a barometer for investor confidence and economic policies for the future, in addition to testing the waters of political strength.
India is all set to witness some of the interesting trends lately and these developments are all poised to take the market to a new level.
Elaborating further on that note, Ivy Chin, Partner, Inflection Point Ventures stated, “In 2024, I anticipate a rise in the number of agreements of a higher magnitude. With all the preparation that has gone into the past few years, this would be growth capital for start-ups that are entering their later stages of development, as well as investments in some of the most intriguing new areas, such as space and artificial intelligence. Not only have these two areas been changing, but investors’ knowledge of them has also grown. With the proliferation of both startups and the ecosystem supporting them, angel investing is only going to increase. In my opinion, more interest and money will be directed towards improving our knowledge of sustainability and clean tech health and our capacity to drive their monetization. Finally, as the world becomes more interconnected, investors will seek businesses both domestically and abroad.”
Echoing similar sentiments, Deep Bajaj, Co-Founder, of Sirona Hygiene and an Angel Investor stated, “Particularly in sectors experiencing disruptive innovations and fast technical advancements, we anticipate that investment levels will continue to rise. There will likely be a rise in interest in later-stage investment rounds as companies expand and seek new opportunities. Renewable energy, health tech, and artificial intelligence are three sectors that are anticipated to attract a lot of investment due to their enormous return and impact potential.”
Following the 2024 elections, investors anticipate further policy improvements and the possibility of economic stability. Shareholders should have more faith in the market and better stock performance in such a reformative and stable environment. Market downturns should be seen as chances for investors to strengthen and diversify their holdings, especially in industries expected to experience growth as a result of policy initiatives or international economic trends. The hope for a stable administration is boosting spirits since, in theory, it should make economic and corporate decisions and policy execution easier by creating a more predictable environment.
Many investors are being enticed by the ideas of digitization, renewable energy, sustainability, etc., and have already begun investing in this domain because the current administration is actively encouraging it. Considering that the majority of surveys predict that the present alliance will serve a third term, it appears that this investment trend will continue.
“Investing in rapidly growing digital companies is a smart move since technology is always changing, which encourages innovation and undermines existing industries. In addition, there are attractive investment opportunities in solar, wind, and other clean energy companies due to the worldwide emphasis on sustainability, which is driving the renewable energy sector ahead,” stated Chin.
“Innovations in biotechnology and healthcare startups that improve both accessibility and the quality of healthcare delivery are attracting more and more investors. In 2024, I intend to stay away from eCommerce companies that fail to differentiate themselves in terms of technology or marketing strategies, as well as SaaS companies whose capacity to scale and generate revenue is not clearly defined,” he added further.
Bajaj seconded the views of Chin and said that when it comes to waste management, renewable energy, and eco-friendly alternatives, they think modern innovation holds a lot of potential for tackling sustainability concerns. Traditional manufacturing and other legacy sectors may not be suitable for their investment strategy in 2024 due to their inflexible regulatory environments or low levels of scalability.
Preferred Sector for Investment in India as of February 2023
Elections and Stock
The 2024 elections are going to be a watershed moment, and early predictions are pointing to a win for the current administration, which is seen as reform-minded and sympathetic to the market. Markets are influenced by expectations, which can cause them to invest more in sectors that government policies are projected to help. For example, following the re-election of a reform-minded administration, which had significant market gains in the months that followed, the market reacted positively to the election of governments seen as being open to reform. The markets might keep going higher in 2024 if the results hold true and a government focused on reform is created or re-elected. This would be because investors are hoping for stable and supportive economic policies.
Stretching further on the current election fever, Chin opined, “Global conflicts have the potential to negatively affect the supply chain and the price of resources because the globe is always changing. In light of the foregoing, the Indian startup system would benefit from the outcomes of elections that indicate stability, emphasize a longer-term plan, and invest in and drive clear policies. Greater government support and investor confidence might increase funding opportunities and access to capital for entrepreneurs if election optimism holds. This, in turn, might stimulate innovation and economic growth.”
Differing from the above views, Bajaj said, “While fundamental market dynamics and long-term strategic factors often inform our funding decisions, political events like elections can introduce short-term volatility and changes to the investing environment. We remain vigilant in our risk management efforts by closely monitoring geopolitical events and adjusting our investment approach as needed. Our end goal is to identify innovative and robust companies that can thrive in the face of challenges and create lasting, valuable products and services.”
Traders are bracing for a dramatic increase in the Indian market when the current government gets re-elected, according to recent market trends. Investors are betting big on this development because they think the present administration will keep supporting them the way it has in the past. The areas of digital innovation, sustainable practices, and renewable energy are expected to attract substantial investment due to the high expectations of investors in these areas. There has been a marked improvement in the investment climate in India.
FAQs
What are the anticipated trends in investment for India in 2024?
Investors expect increased investment in sectors such as space, artificial intelligence, renewable energy, health tech, and digitization.
How are investors perceiving the impact of the 2024 elections on the Indian market?
Investors anticipate policy improvements and economic stability post-election, leading to better stock performance and increased investment opportunities.
What are some key factors fueling the optimism in the Indian financial markets?
Significant governmental reforms, rising local demand, and large foreign investments are fueling the optimism in the Indian financial market.
The Indian stock market is going through a major transformation, all thanks to the rise of discount brokerage firms! As more and more people are entering into the stock market, the term “Discount Broker” has become increasingly prevalent.
Surprisingly, over 70% of the new Demat (dematerialized) accounts initiated in both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are facilitated by these ‘discount brokerage firms’. When individuals opt to open new demat accounts, they prefer selecting the best discount brokers in India.
Discount brokerage firms help investors save big on brokerage fees, take control of their investments, and provide access to the latest information and technology to trade anywhere, anytime, and with minimal funds.
Trading with the help of the best discount brokers can lead to substantial savings, with potential reductions of up to 90% on brokerage fees. Additionally, individuals can access a user-friendly interface, real-time market data, analysis, news, charts, and key takeaways without paying much as brokerage fees.
A few years ago, trading stocks at any time or place, making payments, big trades, and figuring out brokerage and tax components before trading was tough. However, discount brokers have significantly streamlined this process, and made trading a ‘routine’ for any common man.
“Each and every Indian is enjoying the fruit of development. So, to that extent, when we see the last few years, it is the small investors from tier 2, and tier 3 cities are joining the capital market and enjoying the growth that we are seeing in the capital market. That is something very, very important for the development of India and for the capital market,” – Securities & Exchange Board of India SEBI Whole Time Member Kamlesh Chandra Varshney said in a capital markets summit in Mumbai on February 19.
Even small investors or the common man can now maintain an account, trade, invest, buy, or sell stocks daily, monthly, and annually with minimum brokerage fees.
Discount brokerage firms are like your auction assistants but with a twist – they guide you through buying or selling stocks. These firms give access to the stock exchange, just like traditional brokers, but at a fraction of the cost.
With their user-friendly platforms and affordable services, discount brokerage firms make stock trading easy and capital markets have become accessible for everyone. Discount brokers use technology to keep costs low and put the power of trading in your hands.
“The capital market too comes with inherent risks and individuals must exercise due diligence before making investments. Phones have become a convenient tool in the investment process and individual investors rely heavily on it. There is a need to enhance investor’s awareness of the risk posed by technology. Today cybersecurity and threats to tech resilience have emerged as the biggest threat in the capital markets and are giving sleepless nights to the stakeholders,” – Securities & Exchange Board of India (SEBI) Whole Time Member Ananth Narayan Gopalakrishnan said at a summit.
Unlike traditional brokers, these low-cost brokers skip the extras like investment advice and research reports. But, they’re experts in technology and market trends, always staying ahead of the game. Discount brokers charge over 60% less than full-service brokers. And they give free trading software to all their customers.
Top Stockbrokers Based on Active Clients
Impact of Discount Brokerages
Discount brokerage platforms have significantly reformed the landscape of stock market participation in India. With their competitive pricing models and high technology, they have opened up new opportunities for retail investors like never before.
As of December 2023, Zerodha has the largest client base with over 64 lakh clients, which is about 20% of the total Demat account holders in India. Second, comes Groww with a 53 lakh client base which is 16% of the total numbers. These figures underscore the growing popularity of discount brokerage platforms among retail investors.
These discount brokerages have empowered a new generation of investors, including millennials and first-time traders, to engage actively in the stock market. As a result, the stock market has seen a surge in retail participation, with a significant portion of trading volumes attributed to individual investors using discount brokerage platforms.
Overall, discount brokerage firm’s innovative approach to pricing and technology has made stock trading more accessible and affordable, paving the way for a more inclusive and dynamic market ecosystem.
How Did It Begin?
The discount brokerage industry in India started to gain momentum in the early 2010s with the emergence of online discount trading platforms, led by Zerodha, which was the first to offer flat-fee trading services.
Since then, several other players have joined the market. Here are some of the prominent players, who have helped the common man dive into the stock market:
Zerodha
Established in 2010, Zerodha is one of the largest discount brokerage firms in India. It pioneered the concept of discount brokerage in the country and has since grown exponentially, capturing a significant market share with its low-cost trading platform and innovative offerings.
“We just introduced two new cool features on @zerodhaonline Console: Timeline and Stock Insights, both powered by @Tijori1,” Zerodha online CEO and Founder Nithin Kamath said in a tweet on February 13.
We just introduced two new cool features on @zerodhaonline Console: Timeline and Stock Insights, both powered by @Tijori1.
Timeline
If you invest in stocks, tracking all the events that can affect your investments and developments in one place is hard. You’ll have to switch… pic.twitter.com/THAPk7e4y2
Post of Nithin Kamath (Founder & CEO of Zerodha) on X
Upstox
Upstox (formerly RKSV Securities) is another leading discount brokerage firm known for its low brokerage fees, advanced trading platforms, and robust technology infrastructure. It has gained popularity among retail investors for its user-friendly interface and competitive pricing.
5paisa
Launched in 2016, 5paisa is a disruptive player in the discount brokerage space, offering a wide range of financial products and services at competitive rates. With its emphasis on digital innovation and customer-centric approach, 5paisa has emerged as a formidable competitor in the market.
Angel Broking
While traditionally a full-service brokerage, Angel Broking has adapted to the changing market dynamics by introducing discount brokerage services under its Angel Broking Prime brand. It offers discounted brokerage plans and advanced trading platforms to cater to the evolving needs of investors.
Groww
Groww is a fintech platform that started as a mutual fund investment platform but has since expanded its offerings to include discount brokerage services. With its user-friendly interface and zero-commission trading model, Groww has attracted a growing base of retail investors.
These discount brokerage firms, along with others in the market, have disrupted the traditional brokerage model by offering low-cost trading solutions, innovative technology platforms, and a customer-centric approach. Their emergence has widened stock market participation, empowering retail investors and challenging established players in the industry.
Here are the key differences between traditional brokers and discount brokers:
Feature
Full-Service Broker
Discount Broker
Services Provided
Offer a wide range of services including research, advisory, and portfolio management
Typically provides basic trading services with limited research and advisory support
Brokerage Fees
Charge higher brokerage fees and commissions
Charge lower brokerage fees, often flat-rate or based on transaction volume
Investment Minimums
Often require higher minimum investment amounts
Have lower or no minimum investment requirements
Trading Platforms
Provide advanced trading platforms with additional features
Offer simple, user-friendly trading platforms
Customer Support
Offer personalized customer support and dedicated relationship managers
Provide basic customer support with limited personalization
Investment Advice
Offer investment advice and recommendations
Provide minimal investment advice and recommendations
Additional Services
Offer add-ons such as wealth management and financial planning
Typically do not offer additional services beyond trading
Why Are Discount Brokerage Firms Becoming the Preferred Choice for Retail Investors?
Low-Cost Advantage: Discount brokers offer the lowest brokerage charges compared to full-service brokers. This cost-efficient model allows traders to convert trades into profits with a lower Break-even Point (BEP), making investing more accessible to a wider audience.
Online Trading Terminal: One of the hallmarks of discount brokerage firms is their centralized online trading terminals. These platforms provide investors with user-friendly interfaces and real-time market data and analysis, empowering them to manage their investments wisely and efficiently. Moreover, these services are often provided free of cost, enhancing the overall trading experience.
Unbiased Offerings: Regardless of the investor’s size or investment portfolio, discount brokers provide equal access to securities. This unbiased approach ensures that all clients have access to the same investment opportunities, leveling the playing field for both individual and institutional investors.
Low Transactional Costs: Discount brokers leverage their high trading volumes to offer lower transaction costs to clients. This cost-saving benefit enables investors to execute trades more frequently without incurring substantial fees, thereby maximizing their long-term potential returns.
Transparency: Transparency is paramount in the discount brokerage model. These firms offer clients 100% transparency in their costs, providing access to brokerage calculators, margin calculators, charges sheets, and trade confirmations. This transparency fosters trust and confidence among investors, more retail participation, and enables them to make informed and unbiased decisions.
Client Education: Education is key to success in the stock market, and discount brokerage firms recognize this. They offer a wealth of online educational resources, including video tutorials and market insights, to empower clients with the knowledge needed to navigate the financial markets effectively. For Example: Zerodha Varsity stands out as a market leader in investor education, offering a comprehensive collection of financial resources. Similar to Zerodha Varsity, Upstox Learning Centre is dedicated to providing fundamental lessons to investors. Groww’s Blog is another platform that pursues a similar strategy of educating investors by offering insightful articles and market analysis.
Financial Education: In India, financial literacy is very low. People are hesitant to invest in the stock markets, they usually prefer investing in traditional investment tools like the fixed deposit and provident funds. But brokerage firms have broken this norm and addressed the status quo, by providing comprehensive educational resources and empowering users with valuable knowledge. These platforms are transforming the way investors approach the markets. With access to these educational platforms, investors can equip themselves with the skills and insights needed to navigate the complexities of the financial world confidently.
No Misleading Practices: Unlike some full-service brokers, discount brokerage firms refrain from setting brokerage or third-party product sales targets for their employees. This commitment to integrity ensures that clients receive unbiased advice and recommendations tailored to their individual investment goals.
Paperless Account Opening: With the convenience of Aadhar Number verification, discount brokers offer seamless and paperless account opening processes. Investors can open online trading accounts in a matter of minutes, eliminating the need for cumbersome paperwork and expediting the onboarding process.
No Minimum Brokerage: Unlike full-service brokers, discount brokerage firms do not impose minimum brokerage charges. This means that even investors trading in penny stocks or smaller volumes can benefit from the low-cost advantages offered by discount brokers.
Flat Brokerage Charges: Discount brokers charge flat brokerage fees, such as Rs 20 per trade (Zerodha’s leading discount brokerage charges for Futures & Options), irrespective of the trade volume. In contrast, full-service brokers typically charge based on a percentage of the trading volume, resulting in higher costs for investors.
The drive for financial inclusion in India, the digitalization of the economy and the emergence of discount brokers have led many people to opt for fishing in the stock market. The surge in Demat account registrations has been propelled by the competitive brokerage rates and streamlined onboarding procedures facilitated by digital brokerage platforms.
The digital economy’s share of India’s GDP has grown significantly, rising from around 4-4.5% in 2014 to a projected over 20% by 2026.
Currently, only about 7-8% of Indians have Demat accounts. The number of Demat accounts has increased to 14 crore accounts as of January 2023. Finance experts are of the view that the number of Demat accounts in India will cross the 25 crores milestone by the year 2030.
In December 2023, there was a surge in new investor accounts, with nearly 4 million opened with the Central Depository Services (CDSL) and an additional half a million with the National Securities Depository (NSDL), it reflects a notable increase in interest and participation in the stock market.
“India is the fastest growing economy in the world. Our capital markets are also performing well. We exceeded the $4 trillion market cap for NSE. And the number of Demat accounts has grown up to more than 14 crores. It is important to become prosperous, not only in our immediate future but in the long-term we invest in the market infrastructure, and provide opportunities for all citizens in our region to reach their potential. The retail participation from urban and rural India in capital markets has been growing strongly with more and more SIP (systematic investment plan) accounts as well as direct investments clearly indicating the growth of the economy,” said Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey said in an Assocham event on February 19.
Overall, discount brokerage firms have emerged as a game-changer in the world of investing, offering cost-effective solutions and empowering investors to take control of their financial future.
Leading Equity Brokerage Firms in India in Financial Year 2022, by Number of Active Clients
Impact on Market Dynamics
The influx of retail investors facilitated by discount brokerages has significantly altered market dynamics. Increased retail participation has led to heightened trading volumes and market volatility, influencing stock prices and the overall market sentiment.
With the help of low-cost brokerage firms, more people are starting to invest in the stock market. This is happening for a few reasons. First, there aren’t as many good places to save money anymore, and interest rates are meager.
Furthermore, the democratization of investing has empowered individuals from diverse backgrounds and mindsets to engage with financial markets, fostering a more inclusive and dynamic trading environment.
Challenges and Opportunities
While discount brokerage brings undeniable benefits, it also presents challenges and opportunities for market stakeholders. Traditional brokerage firms are forced to adapt or risk becoming obsolete in the face of intensified competition. Regulatory bodies must navigate the evolving landscape to ensure investor protection and market integrity. Meanwhile, innovative fintech startups are seizing the opportunity to disrupt the market further, introducing novel technologies and services to cater to evolving investor needs.
Conclusion
The impact of discount brokerage on India’s stock market is undeniable, with far-reaching implications for investors, market participants, and regulatory bodies alike. As the industry continues to evolve, stakeholders must embrace change and seize the opportunities presented by this transformative shift. With innovation and adaptability, India’s stock market is primed to thrive in the era of discount brokerage.
Key Takeaways
A discount broker is a stockbroker who carries out stock transactions (buy and sell orders) with less or no commissions.
Discount brokers do not provide the personalized investment advice or guidance provided by a full-service broker.
Discount brokers offer low-cost trades, online account management, research tools, and educational resources.
Discount brokers comprise a large section of the fintech industry.
Don’t think too much…join the revolution and start trading smarter with discount brokerage firms today!
The term stock market refers to numerous exchanges where publicly traded company shares can be purchased and sold. It is part of a free-market economy. These financial transactions occur on official exchanges and OTC marketplaces governed by specific regulations. The stock exchange ensures that all interested market players have access to data for all buy and sell orders, ensuring that securities are priced reasonably and honestly.
Traders on the stock market comprise market makers, investors, traders, speculators, and hedgers. Trading carries risk, so it’s important to understand how to handle it. Before investors decide, they must carefully weigh the rewards against the risks.
Reading books on these areas can be highly beneficial to people. It helps in understanding the complicated dynamics of the market and different trading strategies. To navigate the stock market successfully, you must first understand its fundamental concepts. The books on this list have been specifically chosen to assist you in this endeavor.
The Art and Science of Technical Analysis – Top Books to Understand Trading and Stock Market
This comprehensive guide takes readers on an expedition into the intricate realm of technical analysis, providing a fair blend of theory and practical insights. It focuses on the intersection of quantitative analysis and discretionary trading.
The book explores the history of various indicators, such as stochastic, RSI, and MACD, in the creation of modern technical analysis. It emphasizes what these indicators are capable and not capable of. Grimes even addresses the emotional side of trading and offers helpful coping mechanisms for individuals’ psychological challenges.
Value investing, identifying undervalued stocks, contrarian approach
One Up On Wall Street – Top Books to Understand Trading and Stock Market
Peter Lynch’s classic provides a refreshing and approachable strategy for investing. Lynch’s investment concept is based on common sense. He believes individual investors can use their everyday experiences and insights to find potential investment opportunities. According to the book, investors should be unconventional and seek opportunities where others seem pessimistic. He divides stocks into four groups: cyclicals, rapid growers, stalwarts, and slow growers. Each category requires a different approach to investing. Once you’ve identified them, you can modify your approach suitably.
How to Make Money in Stocks
Book
How To Make Money In Stocks
Author
William J. O’Neil
Goodreads Rating
4.04 out of 5
Target Audience
Beginner to Intermediate Investors
Focus
Can slim investing strategy, fundamental and technical analysis
How to Make Money in Stocks – Top Books to Understand Trading and Stock Market
William J. O’Neil is an acclaimed entrepreneur, stockbroker, and writer. His book has been written for individual investors. O’Neil offers the CAN SLIM strategy, a systematic approach to stock selection based on seven key traits. It is a tried-and-true method for reducing risk while increasing profits. The book further covers technical analysis, including chart reading and the use of technical indicators to detect trends and prospective purchasing opportunities.
The Art of Currency Trading – Top Books to Understand Trading and Stock Market
The Art of Currency Trading is an in-depth manual on foreign exchange trading. The book is authored by a professional interbank FX trader with over 20 years of experience. It covers the fundamentals of the forex market, currency pairs, and trading strategies. The book also studies economic data and news events that can affect currency rates. It discusses the significance of trading psychology and advises investors to refrain from making rash decisions and remain patient.
Coffee Can Investing – Top Books to Understand Trading and Stock Market
Author Saurabh Mukherjea introduces the coffee can investing approach in this book. It is a long-term investment strategy focusing on purchasing and holding high-quality mid-cap equities. The objective is to let the investments compound over time, usually over five years or longer. This low-risk strategy concentrates on quality stocks with solid fundamentals and a track record of performance. Mukherjea also uses case studies and examples to assist readers in comprehending the concept of Coffee Can Investing.
Trading For A Living – Top Books to Understand Trading and Stock Market
Alexander Elder’s Trading for a Living delves into the psychology, strategies, and money management aspects of trading. The book highlights the significance of mastering the three M’s of trading: Mind, Method, and Money. A major focus of the book is the significance of risk management.
Dr. Elder highlights the importance of using stop-loss orders and risk management to protect capital. He treats trading as a serious business and encourages readers to take a professional approach. This includes keeping accurate records and approaching trading as a talent that can be refined over time.
How to Make Money With Breakout Trading
Book
How to Make Money With Breakout Trading
Author
Indrazith Shantharaj
Goodreads Rating
4.25 out of 5
Target Audience
Intermediate Traders
Focus
Breakout trading strategy, entry and exit points
How To Make Money with Breakout Trading – Top Books to Understand Trading and Stock Market
How to Make Money With Breakout Trading focuses primarily on breakout trading, a strategy in which an investor enters the stock market when the price breaks over a level of support or resistance, hoping the momentum will carry over. Breakout trades must have a clear entry trigger. This guarantees that you enter the deal with reasonable expectations and at the right time. The book also discusses defining exit circumstances for profitable and failed bets.
The Little Book of Common Sense Investing
Book
The Little Book of Common Sense Investing
Author
John C. Bogle
Goodreads Rating
4.16 out of 5
Target Audience
All Investors
Focus
Passive investing, index funds, minimizing investment costs
The Little Book of Common Sense Investing- Top Books to Understand Trading and Stock Market
John Clifton is the founder and former CEO of The Vanguard Group. This widely regarded book offers major insights into the basics of passive investing and index funds. The book’s key point is to keep investment expenses as low as possible. According to Bogle, excessive fees associated with actively managed funds can considerably erode returns over time, and investors are better off focusing on low-cost solutions. The book warns readers to be aware of new investing trends and to keep investment techniques simple.
Conclusion
In the constantly changing world of finance, it’s critical to keep informed and never stop learning. Each recommended book offers a unique perspective, allowing readers to traverse the complexities of trading and the stock market confidently.
Which are the best books to understand trading and the stock market?
Some of the best books to understand trading and stock market are:
The Art and Science of Technical Analysis
One Up on Wall Street
How to Make Money in Stocks
The Art of Currency Trading
Coffee Can Investing
Trading for a Living
How to Make Money With Breakout Trading
The Little Book of Common Sense Investing
Can I learn trading on my own?
Yes, you can learn trading on your own through self-study and practice. However, learning trading doesn’t happen overnight. If you don’t have the time or motivation to train yourself well in trading, then it’s better not to trade. Achieving a winning trading system in the long term would require a lot of hard work and effort.
What is a good P/E ratio?
Typically, the average P/E ratio is around 20 to 25. Anything below that would be considered a good price-to-earnings ratio, whereas anything above that would be a worse P/E ratio. But it doesn’t stop there, as different industries can have different average P/E ratios.
A stock market, share market, or equity market – whatever moniker one uses – is an aggregation of buyers and sellers of shares (also called stocks) which represent ownership claims on various businesses. These can include securities listed on a public stock exchange and stock that is only traded privately. Private stocks are shares of private companies which are sold to investors through equity crowdfunding platforms. Investment strategies drive investment in stocks.
Stock market trading is one of the most important ways for companies to raise additional financial capital for various business activities including expansion. While the price of the stock is associated with the company’s business investments and other economic activities. However, changes in stock prices are caused by external factors such as socioeconomic conditions, inflation, exchange rates, fiscal policy, and the political situation of a country.
A sudden dramatic decline of stock prices across a major cross-section of a stock market resulting in a significant loss of paper wealth is defined as a stock market crash. While there is no numerical specification, the term is applied to a decline of 10% or more in a stock market index. It is a social phenomenon of external economic events combined with crowd psychology that drives participants to panic selling. Stock market crashes often follow speculation and economic bubbles. Some reasons that can drive stock market crashes are –
Niall Ferguson aptly stated – “Before the crash, our world seems almost stationary, deceptively so, balanced, at a set point. So that when the crash finally hits — as inevitably it will — everyone seems surprised. And our brains keep telling us it’s not time for a crash.”
The Biggest Stock Market Crashes
As quickly and unexpectedly as a stock market crash can occur, its effects can be deep and long-lasting. And history has noted some biggest crashes over the years.
2020 – The Covid-19 Crash
2020 – The Covid-19 Crash
As the pandemic hit globally, governments across the world shut down entire economies to restrain the spread of the deadly virus. It caused an economic shock rattling investors. The financial markets recorded a loss of 34% between February and March 2020. The largest one-day drop since Black Monday of 1987 was on March 16, 2020, with a loss of 12.9%.
However, unlike other crashes in history, this one recovered quickly and the market regained its peak within 33 days – a historically fast turnaround. The quick recovery is also, partially, a result of the Federal treasury injecting USD 1.5 trillion into the financial markets and Congress passing a USD 2.2 trillion aid package. Despite the human cost due to the pandemic and the financial suffering of millions of people, the stock markets took an upward run. Valuations soared and companies recorded profits.
The foundation of this financial crisis was laid in 1999 by the Federal National Mortgage Association (FNMA). In a bid to make home loans more accessible, banks relaxed regulations and due diligence parameters and began lending money to people with low credit ratings and less money to spend on down payments. Their elevated risk profiles were evident in the mortgage repayment terms – such as high-interest rates and variable payment schedules. It fuelled an explosive growth in mortgage debt and home sales as previously ineligible borrowers and investors could now avail of loans. New homeowners were taking on additional debts to purchase other goods. Adding to this chaos were Financial Institutions using cheap debt to boost ROI and companies indebting themselves to capitalize on the opportunity of a surging economy.
This debt-fuelled market began showing signs of an impending collapse in 2007. The foreclosure rate on residential homes was high as was the unemployment rate, which was increasing. It was a very specific trigger that caused the index to fall by 57% and took the global markets with it in September 2008.
Recovery came in the form of government bailouts, fresh cash injections into the economy, and a historical lowering of interest rates. The global markets took close to 2 years to recover from this disaster.
2000 – The Dot Com Bubble
A bubble is caused by valuations that don’t match the company’s financial stability. It is spurred by eager investors trying to chase the next big thing. During the late 1990s, the valuation of internet-based companies rose sharply. Many investors speculated on the dot-com companies, even the ones without revenue or scalable business plans. Huge money was invested driving up the value of any internet-based company. Inevitably, the Federal Reserve tightened its monetary policy restricting capital flow and causing this dot-com bubble to burst. Nasdaq lost 77% of its market value after rising to 500% within a space of 5 years. By the turn of the century, the stock market was reeling from this crash which would take 15 years to recover.
This crash was a result of a series of events and, the worst, since the Great Depression of that time. There were financial reforms that included the unlinking of the dollar to gold. This caused instability of the dollar causing a runaway inflation. Parallelly, the economic recession was adding stress, and then, in 1973, the price of oil quadrupled due to the oil crisis. This sped up inflation. All these events, combined, created a market crash of 48%. It took 21 months for the markets to recover from this crash.
1929 – The Great Depression
Clocking a market crash of 89% which took 25 years to recover is, possibly, the worst stock market crash in history. It caused the Great Depression which would only recover in 1954. This crash ended the Roaring Twenties during which the economy expanded significantly. The Dow Jones market saw a sixfold increase between 1921 and 1929 up from 63 points to 381 points. Beginning a descent in early September of 1929 it accelerated during a two-day crash on October 28, 1929, and October 29, 1929, by 13% and 12% respectively. Within a month the Dow had lost half its value. It continued its loss for the next 3 years and bottomed out after losing 89% by the summer of 1932. This great loss is attributable to excessive leverage as investors began buying stock under margin loans. Consumers were adding to this by purchasing items on credit. When this debt bubble burst it caused the greatest economic crash in modern history.
The Great Depression – 5 Minute History Lesson
How to prepare for a Downturn
Market downturns and unexpected crashes are a part of investing. Panic selling only adds to the loss, however, with a little patience, investments make up their losses with time. There are a few things that can be done to shore up finances during a period of volatility and uncertainty.
Paying off high-interest debt
Having a fully funded exclusive emergency fund to support for at least 6 months
Curbing unnecessary and excessive spending habits
Create a diversified investment portfolio
Conclusion
A market study of the biggest crashes in history provides valuable insights into how the financial markets behave to various catalysts and how perception can drive consumer mood. It is essential to, first, study the market, understand the risks, and then invest.
FAQs
What is a stock market crash?
A stock market crash is a sudden dramatic decline of stock prices across a major cross-section of a stock market resulting in a significant loss of paper wealth.
What are the biggest stock market crashes in history?
The biggest stock market crashes in history are:
2020 – The Covid-19 Crash
2008 – The Mortgage Crisis
2000 – The Dot Com Bubble
1973 – The Oil Crisis and Economic Recession
1929 – The Great Depression
How can one be prepared for the downturns occurring in the stock market?
There are a few things that can be done to shore up finances while downturns occur in the stock market:
Paying off high-interest debt
Having a fully funded exclusive emergency fund to support for at least 6 months
What happens when a public company goes private? Why would a publicly-traded company make that decision? What are its options once it does? It’s difficult to know how to answer these questions if you have no background information on the subject. To help you get some insight into what happens due to these transactions, we’ve collected seven pointers about going private and provide some insight into what happens due to these transactions. Hopefully, this guide answers your questions and helps you understand what happens if a publicly-traded company decides to pursue another route.
No. of Companies listed on Stock Exchange in India
Once a company goes private, it’s removed from the stock exchange. Investors will no longer be able to purchase or sell shares in the company through a major stock exchange.
The company’s management team may still hold on to some of their shares, which they may sell in the future for a profit. But for most investors, this is the end of their involvement with the company.
The company’s shares are withdrawn from the stock market
When a publicly-traded company goes private, its shares are withdrawn from the stock market. This is a major shift for investors, who are used to seeing their investments on display on the stock exchange.
Management often decides to go private, but investors can also initiate it. In some cases, an investor may buy out other shareholders and control the company. In other cases, multiple investors pool their resources and buy out existing shareholders.
Existing Shareholders get paid
When companies go private, their shareholders can receive various payout options. These include:
Cash payments to each shareholder are based on the number of shares they own. The payout can either be in one lump sum or spread over time.
Stock in a new company is formed when the parent company goes private. This stock could pay dividends or be sold for cash later.
New shares in the parent company that’s going private. Once those shares become publicly traded again, it’s possible for investors who hold them to make money off their original purchase price or by selling them at some point down the line.
The company no longer releases financial statements to the public
Once a company goes private, it no longer releases financial information to the public. This means that investors who had previously owned shares of the company in question will no longer have access to any information about its finances or performance. However, this does not mean that the company goes completely dark: companies can still be purchased and sold by other companies using private transactions, which means that their financials are still available to their owners.
The only major difference is that these transactions are not recorded on any stock exchange. Instead, they must be reported to regulatory bodies such as the Securities and Exchange Board (SEBI), allowing them to track how many outstanding shares exist within the private sector.
Fewer regulatory requirements and obligations
By going private, a publicly-traded company no longer has to deal with the many regulatory requirements of being a publicly-traded company. These include:
Annual reports: are required for publicly-traded companies and must be submitted to the SEBI.
Audited financial statements: audited financial statements must be submitted to the SEBI for publicly-traded companies. This requirement helps ensure that investors access accurate information about their investments.
Required disclosures: publicly-traded companies must disclose information about their operations and management team to the public via annual reports and other filings with the SEBI.
Corporate governance: corporate governance refers to how businesses are run internally—for example, whether shareholders have voting rights over key decisions made by management, or who sits on boards of directors at large companies.
Less capital available
The reason for this is simple: a public company must disclose its financial statements, which means anyone can access them. This is great for investors who want to get in on the action and make money from their investments. Still, it’s not so great for companies that want to be able to keep their financials secret to protect proprietary information or avoid scrutiny from government regulators.
By going private, companies can keep their financials under wraps and more of their profits for themselves!
A public company that goes private no longer has to contend with quarterly pressures.
Public companies are accountable to their shareholders, who demand that the company generate quarterly revenue and profit. These demands make it difficult for companies to focus on long-term goals, often leading to short-term planning and poor decision-making.
Private companies have more freedom: they can focus on their long-term goals without worrying about those pesky quarterly reports!
More flexibility
When a public company goes private, it gains more flexibility in its operations. This means that the company can make decisions that may be unpopular with investors but which are better for the business’s long-term health.
For example, a public company might cut costs to boost profits and increase shareholder value. This could involve layoffs or outsourcing certain aspects of operations. However, when a public company goes private, they no longer have to worry about shareholder concerns and can focus on what is best for the business as a whole.
There is a lot at stake when a public company goes private.
So there you have it, folks. That’s what happens to a company when it goes private. Of course, this article is only meant to be a general overview of the process. It may be worth learning more about private equity firms and the going-private phenomenon in general; then, you should do further research on those topics.
This post’s subject can be applied to almost any situation involving a significant change in company ownership and structure. While there are many options that can be pursued when taking your company public or private, keep in mind the information above: timing and valuation matter. If you’re ready to make the leap, talk to an investment banker or investment broker/advisor, they can help!
FAQs
What is privatization in public sector?
Privatisation of public sector means the transfer of ownership, management, and control of the public sector enterprises to the private sector.
Which sectors are privatised in India?
The sectors privatised in India are:
Atomic Energy
Space and Defence
Transport
Telecommunications
Power
Petroleum
Coal and other minerals
Banking, insurance, and financial services
What happens if public company goes private?
When a Public Company Goes Private:
The company is removed from the stock exchange
The company’s shares are withdrawn from the stock market
Existing Shareholders get paid
The company no longer releases financial statements to the public
Which are the public companies that went private?
Some of the popular public companies that went private are:
Everything is business. Well, it is true, just look around you and you will see multiple examples of a corporation selling something. We are all covered with businesses and it is efficient.
Having businesses is efficient because it provides us with things that we want. In other words, they provide us with something of value. Otherwise, we would have to make everything on our own which would be inefficient and time-consuming and practically impossible. So businesses make markets efficient and society a better-managed entity.
When a business turns big, I mean really big, then it needs to scale accordingly. Scaling in India is a very hard process because of different types of people everywhere. Most companies are primarily limited in nature and at their inception. This means that they operate mostly on private capital but at some point in time they need more funds than their private capacity. Thus, when a company successfully pulls off the magic of scaling then happens the true magic. It goes on and lists itself as a public limited company that now can make money from people to scale and fuel other activities.
Not to mention, the listing process may seem easy and simple, the fact is that it isn’t. This is an article about how a company lists itself in India. There are majorly two important exchanges in India, namely NSE and BSE. Read on to find out how a company is listed on NSE and BSE.
Every company which operates in a market of high demand has a good scope of growing and scaling. From the inception of a company, most companies are privately limited. Private limited means that these companies are funded privately, or the source of the capital is just normal private people or organisations behind the promoting chair. Hence, they operate on a limited capital that they can privately afford to fuel the operations at that company.
Some companies, however, go ahead and become big national companies that need huge cash flows to fund their activities. At the point when companies become big and quite popular in a nation, the promoters or the chair people will be needing more capital.
There can be many sources of funds to be considered, as a loan, or issuing debentures or selling stakes etcetera. One of the most famous ways to raise capital is to list the company on a stock exchange.
In corporate finance, a listing refers to the company’s shares being on the list of stocks that are officially traded on a stock exchange. Thus, listing means that anyone from the public or a retail investor can now take part in a company by buying its shares. The general public will be buying a company’s shares to earn capital appreciation or dividends.
Why do Companies Go Public?
A very valid question that may arise in your head is, why do companies go public? There can be many reasons why a company chooses to go public. It depends on the entrepreneur running it on how he/she is willing to go about raising funds. The most common and eligible reasons for a company to go public and the list itself is given here –
Fund Capex from internal accruals
Raise a Series of funding from another PE (Private Equity) fund
Raise debt from bankers
Float a bond (this is another form of raising debt)
File for an Initial Public Offer (IPO) by allotting shares from authorised capital
A combination of all the above
Let us go into some detail about how these reasons arose in the first place.
Capex requirements
Let us first understand the term Capex first. Capex is made up of two individual words, that are capital (Cap) and expenditure (ex). Capital expenditure is that form of expenditure that is required to fund the management and acquiring of fixed assets. Fixed assets are those assets that are fixed in nature that will pay benefits after a year or so. Thus, capital expenditure is spending money on fixed assets that are not to be converted into cash quickly.
They include land, building and machinery. So we can conclude, Capex expenditure is the expenditure that a company incurs for growth in business. This long term growth expenditure has to be fuelled from somewhere, that is why companies go public.
Provide an exit for the company’s early investors
After the process of listing is done, the shares of the listed company go around in the market and are traded freely. When this situation arises, any existing shareholder can exit the company by selling his/her shares. That existing shareholder could be one of the promoter, anger investor Private equity funds or venture capitalists.
They can use this opportunity to sell their shares in the stock market. Thus, by selling the shares or stake that they own, they can exit the venture and thus exit the initial investment they made in the company. However, they can also choose to sell shares in multiple parts and slots. There have been many successful and famous exits in India like that of Kunal Shah from Freecharge.
Just ~4 years ago $~450M of @FreeCharge was largest internet exit.
When a company chooses to go public, it avoids taking any sort of loan. The reason is that taking loans is hefty work, it also comes with much financial burden and high-interest rates.
So many entrepreneurs refer to selling stakes or ownerships in the form of shares. The best way to do that is to be listed. The listing makes a company’s shares trade freely in the market and makes space for funds that the company needs to grow. That too happens without paying any form of interest and any other sort of financial charges.
Reward employees
There is a thing called “Employee stock option plan” or ESOPs. They are awarded to employees who are early in the venture and/or are outstanding with their work. They work as an incentive for employees who work really hard to make a successful venture.
Once the company is listed and shares start trading freely, it makes space for more ESOPs. They are awarded to employees to keep the work motivation high and construct a better work environment. A few examples where the employee benefited from ESOP would be Google, Infosys, Twitter, Facebook etc.
Improves clarity
As a company goes public and gets out of its private cocoon, it raises its status. Being a listed entity in a stock exchange is definitely not a small thing, it makes the company stand in the limelight of investors. Which interests people more in getting to know about that company. This will eventually create a positive impact on the company in its future prospects.
What is a Stock Exchange?
When we discuss ‘listing’ and all the technicalities of listing, it is extremely crucial to talk about stock exchanges. Whether you are a person trying to list your company or a person willing to invest his/her money with the company, one entity that you both have to work together with is the stock exchange. So, what is a stock exchange?
Let us take one example to know clearly what a stock exchange is. Imagine the Kirana store near your house, or a supermarket or a shop of essentials that has a lot of items in its store. Just like a Kirana store is a store for items, a stock exchange is a marketplace for equities. It is a place where buyers and sellers come together to complete trade and settle transactions.
The stock market is where everyone who wants to transact in shares goes. Transact in simple terms means buying and selling. It is impossible for a stock to be traded without being listed on the stock exchange. Thus, the main purpose of a stock market is to facilitate equities trading.
Trading is buying and selling of securities. In India, there are two main stock exchanges. The names of these stock exchanges are National stock exchanges and Bombay stock exchange. Let us read a little about them.
National Stock exchange
NSE was incorporated in 1992. It was recognised as a stock exchange by SEBI in April 1993 and commenced operations in 1994 with the launch of the wholesale debt market, followed shortly after by the launch of the cash market segment. IT is the leading stock exchange in India. Located in Mumbai, Maharashtra and is owned by some leading financial institutions, banks, and insurance companies
Bombay stock exchange
BSE was established in 1875. It was Asia’s first and the fastest stock exchange in the world. It is called the fastest stock exchange as it operates at a speed of 6 microseconds. It was established over 143 years ago, and BSE has helped the country to grow its capital market by ensuring a smooth flow of equities. Though it is now known as the Bombay stock exchange, it was established as “The Native Share and stockbrokers association” in the inception year of 1875. In 2017 BSE became the first listed stock exchange of India.
The Process of Listing (Initial Public Offering)
Now we will discuss the cherry of the cake, the process of listing. It is also known by the name of initial public offering because it is the first time (Initial) when the shares will be offered to the public. This is a very strict process and both the National and the Bombay stock exchange take it very heartedly. It goes without saying at this point that the company which is trying to list itself has to follow dedicated guidelines of the desired exchange. However, the most common checkpoints to be ticked are listed here –
Appointing a merchant banker
Merchant bankers are also called Book Running Lead Managers (BRLM)/Lead Managers (LM). The work of a merchant banker has diverse actions. It includes conducting some efforts to check all the legal compliances at the company filing for the IPO and issuing a due diligence certificate.
The Lead Manager has to work closely with the company to prepare the DRHP. DRHP stands for draft red herring prospectus. He also has to underwrite shares, which is agreeing to buy all the unsold shares. He then has to help the company to reach a decision on a reasonable price band of the offering. Thus, these are all the major functions that a merchant banker does.
For example, The merchant banks (book running lead managers) for the issue are Morgan Stanley India, Goldman Sachs (India), ICICI Securities, Axis Capital, JP Morgan, Citigroup Global Markets India and HDFC Bank.
Applying to SEBI with a registration document
Not to mention that everything at a listing is done through the rules of the securities exchange board of India. After getting the work done by a merchant banker, you have to pitch a registration document to SEBI. That document should contain what the company does and what is the motive of the listing along with all other mandated information. After all the process, the company should look for an affirmative response from the regulating body to go ahead and issue a DRHP.
DRHP
DRHP of Zomato
DRHP stands for Draft red herring prospectus. It is a disclosure document that describes information about the IPO to the general public. It contains a lot of information about the company and the issue price and that is often too deep in finance terminologies. The most important and imperative information that is present in a DRHP is as follows –
Estimated IPO size
Everything about the shares that are to be issued
The risk involved in the business
Why the company wants to go public and how does it plan to utilise the funds
Revenue model and all sorts of expenditure
Complete financial statements
Management relevant information
Marketing the IPO
After DRHP is issued and is made public, it is important to float some marketing about the IPO. The company would want to reach the maximum audience of investors for the purpose of its public offering. So they take support of print media and other sorts of media to market the IPO more.
Fixing the price band
Fixing the price band is super imperative when preparing for an IPO. The price is the only number which the people would see first. So, it is important to set the number not too high and not too low to attract the right amount of people on the board of directors. This is helmed by the existing shareholders and is helped by experts like merchant bankers. Once the price band is fixed, that becomes the base on which the company is listed on the stock exchange.
Book building
Book building is the process of capturing and recording investor demand for shares. For example, if the price band is between Rs.100 and Rs.150 then the public can choose. They can choose what is the right amount per share that the company deserves. The process of book building is to collect these price points along with respective qualities of shares and demand. Book building is perceived as an effective price discovery method.
Closing date
After the book building process is done and completed, it is said as the closing date. Generally, it is open for two to three days and maybe more in some exceptions. Thus, then the price point is selected which has the most bids from investors. That price becomes the listing share price of the company.
Listing day
Paytm Listing Day
Then comes the day when the company actually gets listed on the stock exchange. That becomes the day when the shares start to be traded freely in the market.
When the shares are being bid, they lay a foundation for future selling values. This happens when investors choose the desired price from the given price band. This whole arrangement around the date of issue is known as the “Primary Markets”. After the initial bidding has stopped and the stock gets listed on the stock exchange, the share starts to trade normally like any other listed company. This situation in this share is known as the “Secondary Markets”.
Once the stock transitions from primary markets to secondary markets, it gets traded daily on the stock exchange. People start buying and selling the stocks regularly and normally like any other company.
Prerequisites for Listing on National Stock Exchange
There are many checkpoints that one has to fulfil before getting listed. Some of the most needed and crucial prerequisites are –
The paid-up equity capital of the applicant shall not be less than 10 crores and the capitalization of the applicant’s equity shall not be less than 25 crores.
The Issuer shall have adhered to conditions precedent to listing as emerging from inter-alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956/2013, Securities and Exchange Board of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes.
Prerequisites for Listing on Bombay Stock Exchange
There are many checkpoints that one has to fulfil before getting listed. Some of the most needed and crucial prerequisites at the Bombay stock exchange are –
The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as “the Company”) shall be Rs. 10 crores for IPOs & Rs.3 crore for FPOs.
The minimum issue size shall be Rs. 10 crores.
The minimum market capitalisation of the Company shall be Rs. 25 crore (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price).
Conclusion
In this article, we got to know why a company goes public, the needs that make a company think about listing itself. We read about the stock exchanges in India. The two most important exchanges are the NSE and BSE, the national stock exchange and the Bombay stock exchange. They lay the foundation of stock markets in India. Then we read about the process of how a company is listed in a stock exchange.
After all these discussions, we can say that companies get listed, mainly to fund their Capex (Capital expenditure) requirements. This helps a company grow and get out in the market of more people. If you want to invest in a fresh new IPO then you must read the DRHP that is the draft red herring prospectus. It is super important for an investor to know where he is investing. In this modern world, one thing to make sure of is that your money should grow faster than inflation.
FAQ
What happens when a company gets listed?
When a company gets listed it can raise additional funds by issuing its shares on the stock market.
Can a private company be listed?
No, a private company cannot go public. It will first have to convert itself to a Public Limited company, then only it can be listed on the stock exchange for trading its share.
How long does it take to IPO?
The IPO process depends on many factors but it typically takes six to nine months for the company to complete its public debut.
With the growing and evolving economy, stock picking becomes an essential step to achieve a positive return. In stock picking, certain criteria are fixed and determined to select the capitals for an affirmative response. It’s very important to gather the knowledge that is required in order to make the right investment decisions. That’s why analysing a huge fraction of information is absolutely necessary.
However, it often confuses us that how should we choose the right stock among the bundle of thousands of stocks? Going through every balance sheet and further details could be hectic and time taking.
Therefore, before you move further with your investment, you need to make sure of a checklist for the stock-picking that would make your choice precise. In this article, we present you with the points on the checklist for stock-picking. Stay tuned!
Make Your Choice Clear On Which Company’s Product You Want
Your investment needs precise information and proficiency. You need to make your choice clear on which company’s products you like the most and would prefer. As a consumer for this section, you will know which company’s products you prefer before any other. For better understanding, you can talk to a professional or your friends. List out the advantages that come with the company’s products.
Keep Up Your Strengths
In the market, it’s very essential to keep up your strength and build a strong leader. Marketers often prefer and support people with strong upholding and leadership. This is important because when you choose a corporation for investing, it needs to have a strong upholding in the market otherwise, it becomes very difficult to sustain it over time.
Gather Your Knowledge On How Does The Company Make Money
Many companies (mostly on the Internet) make their shares accessible for consumers by a wide public investment methodology. And when you move forward with it, they make their money in hand.
When a company has a broad range of visitors, it becomes convenient for them to monetize their business strategies and make money through those visitors. But, you need to gather accurate knowledge before going public, this could be a big win for you or a major loss. That’s why it’s very essential to know how the company you choose makes the money and how it monetizes its strategy together with time.
Focus On The Increase In Sales And Revenues
For the investors, profit comes from the increased stock price and high sales and interest. Therefore, the key to increasing the profits is increasing the sales. This makes sure that the consumers are preferring this company’s products and like them as well.
Also, the company needs to have the proper track record for increasing sales and profits. It becomes convenient to go through the sales and profits by hitting the Financial tab on an improved investment webpage.
Avoid Companies With Heavy Indebt
Sometimes when a company is defining its way to success, they often search for the best equipment and assets for the growth of their company. But, instead of purchasing them with the money that came from the stock-picking by the investors, they borrow money for this purpose as in debt.
And later when they get to pay back, a huge interest is added to the debt. Then the amount of profit that comes each year goes for the payment of interest. This led to the company at its initial position and no development occurred.
Therefore, it’s better to choose a company that does not have any in debt interests pending.
Many corporations with time develop the strategic advantage for sustaining by proceeding to operate. This happens when a company has established its name and trust in the market and among the consumers; then even with a slight shortcoming in the product does not take away the trust of people. And they continue with the company’s product lines.
Sustainable advantage can also be obtained within a form of a patent on its various new products that carry the concept of previous products, like complex software. This often happens when a company offers good consumer benefits.
Prefer Companies With An Elevated Barrier To Entry
Certain industries in the market require a huge amount of resources and establishment to make their place in the market. These companies are like those who do not have any such competition among the industries and have a smooth run. There is very little competition for these industries.
This is because the product and services such companies provide needs a long time of dedication and billions of research and resources. Therefore, this becomes a barrier of entry for others. And it is always good to invest in such companies to gain profitable revenue and accomplishment.
Before you get into stock picking, you need to make sure certain criteria that the company passes through to have a great revenue return. You need to determine what achievements and goals you’d want and stick to them. Make sure you choose an industry that carries your interest and brings out great news and trends to let you explore regularly.
Observe and identify the company that holds a strong position in the market and has a great range of consumers.
Talk to the experts and professionals in the investing field and get the knowledge and information to choose the right company for stock-picking. This would help you in better understanding and analysis for the company.
FAQ
What is a stock pick?
A stock pick is when an analyst or investor uses a systematic form of analysis to conclude whether a particular stock will make a good investment or not.
What is the best stock alert app?
Yahoo Finance, StockTwits, and Bloomberg are top apps for stock alerts.
How do I begin investing in stocks?
Decide how you want to invest in the stock market, Learn the difference between investing in stocks and funds, Set a budget for your stock investment, Focus on the long-term, and Manage your stock portfolio.
ETrade has established itself as one of the finest online brokers for trading options as a pioneer in the online brokerage sector. It was one of the first online brokers in the United States and it became the first online broker to provide commission-free trading on ETFs, stocks, and options trades in October 2019. This makes you wonder, how does ETrade make its money? And what is its business model?
A business model is a crucial component of every startup’s long-term success since it is what unlocks value. In some ways, creating a business model is more than just figuring out how to make money. With that in mind, let’s look at the ETrade e-trading platform’s business model.
ETrade, a financial services business located in New York, was formed in 1982 by William A. Porter and Bernard A. Newcomb. Over the years, the firm has grown to over 30 outlets across the United States, making it one of the industry’s pioneers.
ETrade/E*Trade is an electronic trading platform that allows novice and experienced traders to purchase and sell financial assets such as common stock, preferred stock, futures contracts, mutual funds, options, fixed-income investments, and exchange-traded funds.
Products and services offered by ETrade
Etrade earns money through various products and services, including a day trading platform for retail customers. Let’s take a brief look at the services that the firm provides.
Brokerage: E-zero-commission Trade’s US stock trading platform for ordinary clients is known as a brokerage account. They enable you to buy and sell equities, ETFs, mutual funds, potion, and bonds, among other things. At a low fee, you may also trade futures and options contracts, as well as bonds. Until their kid reaches the age of majority, a parent or guardian can handle a minor brokerage account.
Services for Portfolio Management: The portfolio management service is given to both individual and institutional clients. Portfolios can be handled both automatically and manually. Depending on your circumstances, you may also obtain a personally customised portfolio from a financial counsellor.
Bank account: Individuals, families, and companies may open a bank account with ETrade, which provides higher-interest savings and checking accounts. Free initial checks, online bill pay, and an ATM/debit card are all available. You may also use the free Transfer Money service, pay with your credit card online, and borrow against your investments.
Retirement services: ETrade offers retirement (IRA) accounts for tax savings, minor’s savings that an adult may handle for the benefit of a child until they reach the age of majority, and persons commencing their savings at the age of 59.5 years old.
ETrade has a long history as an online broker, and its platforms are well-known for being straightforward to use. And even though it offers many services, including news, research, and screeners, ETrade is still simple to use.
ETrend features a user-friendly interface that allows you to personalise the platforms according to how you want to connect with them.
ETrade offers three web-based/downloadable platforms and two mobile apps, making it an excellent alternative for passive investors and casual traders. To help optimise the value of deposits earned in its brokerage operation, it also offers banking products through the ETrade Bank, an FDIC-registered federal savings bank.
It joins a growing number of online brokers that have switched to commission-free stock, ETF, and options trading in October 2019.
ETrade Business Model
ETrade employs a strategy that generates revenue from payment for order flow as well as interest income earned on the free float. To generate income on customer funds, ETrade invests them in money market accounts. Margin rates levied on purchasing or shorting stocks on the business’s platform also generate revenue for the company.
ETrade charges no commissions, which begs the question: how does ETrade make money?
Margin
Clients at ETrade pay interest on money borrowed to buy stocks and on money borrowed to short stocks. For many broker-dealers, margin interest is a crucial source of revenue, and ETrade is no different. It has rates that are higher than the national average. Depending on the total amount borrowed overnight, they start at 8.95 per cent and go down.
Flow of Orders
ETrade makes the majority of its money through monetising its order flow. Customers’ buy and sell orders are sent to market makers for execution by ETrade. The company is compensated for the order flow in exchange.
When E-margin Trade’s customers borrow money to short or purchase stocks, ETrade receives interest. A transaction-fee mutual fund costs $19.99 to buy or sell at the business.
This is a standard business procedure; therefore, ETrade isn’t doing anything out of the ordinary here. ETrade sends orders to the groups to adjust for the order flow. This is also a frequent industry practice.
ETrade receives less than a cent per share on average for routing orders. That may not seem like a lot, but when you consider that there are about 300,000 trades each day, with several shares per order, it adds up.
Earnings from interest
ETrade advertises heavily on the need of filling your brokerage, bank, retirement, or PMS accounts with them since the more money you invest with them, the more interest you get. The business of ETrade is based on the interest produced by the float, which is invested by millions of customers. Offering free trading to retail investors is a fantastic way to improve their float because they are the least likely to trade actively.
Service charges
Portfolio management, retirement accounts, and other essential portfolio services are also profitable for ETrade. Fees and service charges are how they make money from these services.
The fees for portfolio management vary from $500 to $250,000, with a 0.30 per cent to 0.75 per cent cost.
ETrade charges $25 for premature withdrawals, excess contribution withdrawals, and re-characterisations in retirement accounts (changing from Roth IRA to Traditional IRA).
And, depending on the debit balance available at the time of the trade, margin trading costs range from 5.45 per cent to 8.95 per cent.
In the year 2019, ETrade generated $588 million in fees and service charges.
Commissions on mutual funds
ETrade charges $19.99 to buy or sell a transaction-fee mutual fund. It costs $49.99 to sell a no-load, no-transaction-fee fund fewer than 90 days after acquisition.
ETrade also profits from mutual fund trades through 12b-1 fees, sub-accounting fees, shareholder service costs, and marketing support payments.
Trading Commissions
Only ten to twenty per cent of the millions of traders are active. Active traders, on the other hand, trade often and in large amounts. And many of them trade futures and options, the most lucrative part of the stock market.
This 20% of active traders generate twenty times the money that they lose by providing free trading.
Fees for Futures, Options, and Bonds on ETrade
The larger the number of active traders operating in any of these categories, the higher the commissions because ETrade works with huge volumes rather than premium pricing.
This information makes you wonder if ETrade is losing money on these products. ETrade loses money on its free service. However, because over 80% of traders aren’t active in the markets, they don’t lose much money. ETrade lost $23 million in securities trading fees in 2019. The $23 million loss is well worth it for their business model, given the $421 million in trading commissions they receive from active traders.
FAQs
When was ETrade Financial Corporation founded?
ETrade Financial Corporation was founded in 1982.
Does ETrade charge commission?
ETrade does not charges commission for online US-listed stock, ETF, and options trades.
At one point while growing a startup, every startup founder must have dreamed of is applying for an IPO. Who doesn’t wants some extra funding to grow their startup?. The Indian startup industry is growing at a fast pace. And Many startups are buckling up to apply for the IPO. But why now? Why are so many startups going public in 2021?. Let’s find out
If you are just as curious to know, follow the article
So, you hear this word floating in and out of conversations, much to an extent these days.
Startups are usually founded by one or more entrepreneurs and their company is in its initial stages of business.
These entrepreneurs involved in building startups believe that there is a demand for a certain product or a service and want to make it better by developing it.
The funding for these usually involves getting money from family or friends.
Startups need capital, so they are also on a lookout for backers to invest in them.
What is an IPO?
IPO stands for Initial Public Offering
Companies need capital, so they raise it in the forms of IPO and shares from public investors.
People have a point of view that stock prices increase after an IPO.
Following factors you can consider before going Public
The company has been financially strong for the last three years and is making good profits.
You hear about your company quite often.
The company holds a strong vision.
We are observing a trend here. Not only Indian tech startups are going public, but almost every startup is getting in the waiting list to go public in 2021.
The way for this money is paved to the path of the financial markets, mainly stocks. Now that means many of the giant institutions have plenty of money floating in so that they can invest in. Which leads us to another question: Where? These institutions now have the power to invest in IPOs.
Startups like Zomato, Nykaa, PayTM, Delhivery, some of which have already been made public and some that are gearing to go public, have the intuition that they can catch the interest of these investors.
It is becoming, a regular thing now for public valuations to overtake the private ones. Many people chip in, thinking that what they invest in will see growth in the future. The shares are rapidly growing, so if your startup is waiting to go public. There is no better chance and time than now to grab the opportunity.
Possibilities of recovery
The other part of the story is that many say that with stocks going up to the skies. With the investors and the Indian public pooling in money for the vision, your startup holds even if you have landed into the mess of running into loss. There is a chance of new money coming in. And the value of your startup will be much more than you expected.
Registrations are easier than before thanks to SEBI (Securities and Exchange Board of India)
One of the other reasons is none other than the pandemic itself. It really shook up the world, bringing everything to a halt and slowing down many aspects of our lives. Seeing the stability and growth, the other startups are sure in a hurry to get themselves listed as soon as the pandemic did put a stop to the process. And it would not hurt to take advantage of the situation and accelerate it.
There’s a well-said quote that “When money speaks, no one in the entire universe checks the grammar”. That’s true, no doubt, and the whole world acknowledges this truth right now.
If in the foreign stock market, the value of the share a person has bought increases, the financial profit out of it gets unimaginable hype. Just as an example, Warren Buffet, at the age of 11, had made a profit of 40* times than his investment. His twenty-dollar investment turned into 800 dollars at the end when he withdrew his earnings. One needs to put money into the perfect hole if they want to surpass other competitors in the league. For that, the best place is no doubt ‘The Stock Market’.
Have a look at your daily life. You will notice, being in any corner of the country, you have been using so many international brands. Some brands are so integrated into our lives that it becomes difficult to imagine a day without them.
Products of Apple, Google, Amazon, Netflix are flourishing every second. These international brands have competitive skills and can never let their brand down. By imagining the growth and market value of these brands, you can imagine how gigantic these foreign stocks can skyrocket your investment.
As these brands have significant uses in our daily life, and if these uses gain a massive profit for you, then it will be a wiser choice to invest in these foreign stocks.
How To Invest In Foreign Stocks?
How to invest in Foreign Stocks
Stock investment is now becoming easier. Many agencies and brokerage houses are flourishing all over the world. The international stock investment is now connecting its network everywhere.
One crucial thing everybody should understand before going with any brokerage house. Many scams and fraud brokerage houses are also settled in the market. The bunch of crooks can engulf your entire investment and leave you with a considerable loss.
If you are new in stock investment or have little knowledge, then you might have heard about Karvy Stock Broking. This particular brokerage house did a massive scam of 2800 crores. It reduces the trust of many future investors. The Karvy investors bear a massive loss due to this scam. The vital lesson we have learned here is “to follow the big names”. It would help if you stuck with a big brokerage house providing these services with years of experience. They must have delivered a decent amount of profit to its wide users.
You may belong from any country, some big brokerage houses must be there. Do healthy research, talk to different experiences in esters, and then decide on a good brokerage house. In India, some big names include ICICI Direct, HDFC Securities, Axis securities. They have tied up with foreign brokerage houses. You can prefer any one of these. Some of the most famous apps are Groww, Upstox, and Angel Broking.
This is one of the most asked questions. The direct answer of this amount varies with the brokerage house. Along with that, your investment amount also decides your transaction rate. You could see the compulsory transaction charges in almost every brokerage house. The transaction charges, at a minimum, can be from 5 US dollars to $15. At maximum, it can go up to $50 in the same cases. It depends upon the stock you choose from which country. You can invest in more than 18,000 stocks as per their presentation and explanation webinar and seminars. Better it would help if you compared all the charges and commissions of all the brokerage houses.
Another necessary charge that can be applied to cases of investment is the currency conversion rate. Depending on the company’s stocks based on which country, the invested money needs to be converted according to the currency of the respective country. A small charge may be there by the respective banks for the currency conversion. Some mobile apps also provide investment services with similar, maybe lesser charges, and some have zero transaction charges. The services which provide zero transaction charges will ultimately cut some commissions from the investment returns.
If you’re gaining some capital gain, then taxation is no doubt terminology. You must be paying taxes to the respective country’s government, according to Indian taxation rules. Whatever investment you are going to do that will be according to the debt fund taxation. The fund withdrawal is divided into 2 set periods.
Short-term capital gain
Long-term capital gain
The taxes will vary with your withdrawal period.
One is the short-term capital gain which is a period of fewer than 3 years. If within your investment period you withdraw your amount before 3 years, then taxation will be according to your tax slab. According to the 2nd withdrawal rate, if you withdraw your amount after 3 years, the taxation will be 20 percent with indexation benefits. This will be your long-term capital gain. One important thing you should consider is that if you’re gaining some dividends in such cases, it will be added to your normal income. You have to pay tax for it; it will be more complex in such cases. You need the required documents to show the government for significant clarifications.
These were the most prominent ways to invest in the foreign stock market and extract your money from it. But with the international market, the probability of risk rises too and that, in turn, raises the chance of heavy loss if the Sensex crashes. Keeping the risks aside, the above three ways are the easiest ways to access the International market from India without mobilizing. The ways are all legit and can serve the right person with the tastiest profits.
To make more significant profits from foreign stocks, one must, in the first place, do a complete analysis of how the market there is and what can be the possible pros and cons of investing in their market. The amount of profit from the share market always lies on how good a person can foresight the market value keeping in mind all the current affairs. That’s the best way to make profits from the equity market.
FAQs
Can we invest in foreign stock markets from India?
Yes, we can invest in foreign stock markets from India.
How much can we invest in foreign stocks from India?
As per the RBI notification in the Liberalised Remittance Scheme (LRS), an Indian resident individual can only invest up to $250,000 in foreign stocks per year.
Is stock trading legal in India?
Yes, Stock trading is legal in India. Securities and Exchange Board of India (SEBI) manages the rules, regulation and supervision of the stock markets in India.
