Common myths that surround Trading

Common myths that surround Trading
23/03/2018

While we all wish to earn more to fulfill our dreams and aspirations, we are afraid of relying on certain investments to make this happen. A majority of the Indian population perceives the stock market as a complicated web of transactions which shall remain inaccessible to the common man. However, the trading process today is simple and hassle-free. There are many more assumptions that we make about the stock market. Let’s break a few of them, one by one.

Trading is gambling

This is the first myth that haunts newbie traders. On the contrary, trading in the stock markets is furthest from a zero-sum gamble. It is more like a mathematically calculated, technically analyzed business of shares. Unlike gambling, which is strictly a win-or-lose affair, trading in shares is buying an ownership into a company. You should not bet in the stock markets as you do while gambling. This is, because in the stock market, unlike gambling, the cards are open for you to see and analyze. It only requires you to gain knowledge and do your homework before investing.

There’s a chance to tame the market

For all those who are trading or are planning to trade, there is no secret code to constantly win in the stock market. You might argue that people make huge profits from the share market. However, you also need to know that it is not by sheer luck or with a secret combination. The only key to success in the market is excellent analysis: sound, calculated predictions, and knowledge of the surrounding events. You could follow some trading platforms and websites to remain updated about the market and use the data you find there to do your own analyses.

Higher leverage means higher profits

This correlation is a flawed misconception. Leverage, in any trade, is a two-edged sword: you might earn high profits, or you might lose equally. Hence, emptying your accounts and then borrowing money for high expected returns in derivatives is a risky step. Read your trades, learn their trends, and invest only after you’re satisfied with your analysis. You might not earn the highest returns, but that is better than a huge downfall.

What goes down will eventually rise

Assume a stock rose to Rs50 per share last year, but has, since then, fallen to Rs10. Another stock, in the same time, went from Rs5 to only Rs10. Which is a better trade? You might say that the stakes are equal, but according to experts, “Those who catch a falling knife only get hurt.” There are no guarantees that a stock that has fallen will rise again. This stands true for stocks that have been rising continuously as well. Thinking in this manner without conducting due analysis can turn out to be destructive for amateur traders.

More the indicators, the better

One should always consult more than one stock market indicator before buying/selling a stock. However, a newbie trader can end up confused if he/she looks at multiple indicators and might end up caught in an overly complicated trading strategy. Hence, choose your indicators carefully and learn everything about how they operate. You can then make a simple trading plan to begin investing in the markets.

In conclusion, trading only gets simpler as you analyze the market and acquire knowledge and experience. It is like any business, where you need to look out for trends and trust your calculations. Moreover, it will also require you to prepare an exit strategy because having one is just as important as the caution displayed before entering the markets.

To all those new traders, always have a disciplined trading plan and stick to it. Granted, that the stock market is volatile and unpredictable. Yet, with patience and decent homework, you can get your ball rolling and claim that extra income in the form of profits.

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IPO Note: Lemon Tree Hotels Ltd-Not Rated

IPO Note: Lemon Tree Hotels Ltd-Not Rated
IPO
by Nikita Bhoota 23/03/2018

Issue Opens: March 26, 2018
Issue Closes: March28, 2018
Face Value: Rs10
Price Band: Rs54-56
Issue Size: ~Rs1,039cr
Public Issue: 18.55 lakh shares
Bid Lot: 265 Equity shares     
Issue Type: 100% Book Building

% shareholding

Pre IPO

Post IPO

Promoter

31.1

31.1

Public

68.9

68.9

Source: RHP

Company Background

Lemon Tree Hotels Limited (LTHL) is India’s largest hotel chain in the mid-priced hotel sector, as per the Horwath report. It is also the third largest hotel on the basis of controlling interest in owned and leased rooms, as of June 30, 2017. LTHL operates 4,697 rooms in 45 hotels (including 18 managed hotels with 1,504 rooms) across 28 cities, as on January 31, 2018. LTHL has three brands under following segments: Lemon Tree Premier – Upper mid-scale hotel segment (10 hotels having 1,301 rooms, as on January 31, 2018), Lemon Tree Hotels – Mid-scale hotel segment (27 hotels having 2,325 rooms) and Red Fox – Economy hotel segment (eight hotels having 1,071 rooms). Its owned and leased hotels had an average occupancy rate of 75.3% for 9MFY18.

Objective of the Offer

The offer consists of an offer for sale (OFS) of ~18.55 lakh shares by nine public shareholders, aggregating up to ~ Rs1,039cr at the upper end of the price band. LTHL will not receive any proceeds from the offer.

Financials

Consolidated Rs cr.

FY15

FY16

FY17

^9MFY18

Revenue

290

368

412

352

EBITDA Margin (%)

17.5

27.5

28.2

27.8

Adj. PAT

-63

-30

-7

3

EPS (`)*

-0.69

-0.4

-0.11

0.04

P/BV*

3.57

3.56

3.56

-

EV/EBITDA*

96.32

49.1

44.1

-

ROCE (%)*

0.65

4.87

9.81

-

RoNW (%)*

-4.33

-2.52

-0.66

-

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band and on post issue shares. ^9 month numbers are not annualized.

Key Points

LTHL has presence in major metro, tier I and II cities in India, including NCR, Bengaluru, Hyderabad, Chennai, Pune, Ahmedabad, Chandigarh, Jaipur, Indore and Aurangabad. It has strategically developed hotels at locations with high barriers-to-entry within or close to major business centers, airports and other convenient locations. Company has a development pipeline of 3,038 rooms across new regions, as of January 31, 2018. This majorly comprises of two upper mid-scale hotels in Mumbai and one each in Pune, Udaipur and Kolkata to be developed over FY18-21E.

The sluggish demand over the past several years owing to the global financial crisis had materially caused slowdown in the Indian economy, resulting in a moderate performance in hospitality industry. Demand and supply across all segments witnessed a 12.5% and 13.7% CAGR respectively over FY07-16. However, occupancy has improved over FY16-17. Further, higher occupancy is expected as demand is witnessing as surge, while supply scenario remains limited.

Key Risk

LTHL has strategically positioned its hotels in key geographical markets in India. However, hotels in few geographic locations like NCR, Bangalore and Hyderabad form concentrated sources of revenue for the company. It derived 71.17%, 67.17% and 67.61% of its total revenue from the above locations for 9MFY18, FY17 and FY16 respectively.

LTHL’s brand and reputation are among the most important assets of the company for attracting and retaining guests. Continuous efforts to develop awareness of LTHL’s brands through focused and consistent branding is an important tool to increase the company’s existing market share and expand into new markets. Any decrease in the quality of services including reasons beyond the company’s control, or allegations of defects at any of the hotel properties could tarnish the image of LTHL’s brands.

Research Disclaimer

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8 big mistakes to avoid in a falling stock market

8 big mistakes to avoid in a falling stock market
01/04/2018

Everyone prefers to invest in a bullish stock market. However, investing in a bearish market is seen as a challenge for investors.

Stock markets have been facing a lot of volatility these days, hence, investors should keep a check of what they do and don’t. Panic leads to hasty moves, as a result paying a hefty price. However, if one is cautious of the commonly made mistakes (listed below), it may help in reducing losses to a great extent.

1). Don’t fixate on a price: Investors tend to anchor on a price, at which they bought the stock. They should carefully analyze the reasons for the falling stock and plan their next move accordingly. They must realize that the price at which the stock is bought is not necessarily perceived as its fair value by the market.

2). Say ‘No’ to buying more to average: Even though this concept has its own benefits, keep reminding yourself that this works only if the fundamentals of the stock are strong. The method of averaging is one of the trusted techniques in stock trading.

3). Be well researched regarding the market updates: Do not ignore any significant development happening in the market based on over confidence. Be well informed and take decisions according to the market trends. Your judgement without information may not always be correct.

4). Don’t be a value picker: Buying stocks at their 52-week low may seem a good bargain, but it might turn out to be a value trap. Markets can be unreasonable for longer periods of time than one can think of.

5). Do not make leveraged bets:  Leverage requires that the investment should earn a return, which is at least equivalent to the interest paid on the borrowed capital (if you have borrowed). However, in case of market dips, it can accrue huge losses too.
There’s a high degree of uncertainty involved in the stock market, which can drive the trends either ways – it can bring panic if one is risking the money that they cannot afford to lose. Alternatively, it can force one to close their positions by limiting their options, if they are buying on margin.

6). Don’t alter your financial plans: It is a human tendency to panic and react frantically in the state of stress. Don’t change your investment decisions and existing portfolios based on the current market trends. Keep a clear sight of your asset allocation.

7). Do not stop your Systematic Investment Plans: One should not stop their SIPs during a bear market. The primary purpose of SIP is to encourage buying more units at lower prices and reaping benefits when the market rebounds. Stopping SIPs at that point interrupts the compounding benefit of equities and affect the long term goals.

8). Do not over diversify your portfolio – One should not over diversify his portfolio that too in multiple companies of the same sector. Though this might help one to limit their downside to an extent, but won’t be of much help in the long run. Diversification beyond a point leads to greater risks, and it becomes difficult to monitor the stocks.

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The ‘right’ way to exit a losing trade

Exit a losing trade

Every trader has his share of bad trades in his portfolio and you do not need all your stocks to be multi-baggers to be successful in the share market. While gains from a stock have no upper limit, the loss from a stock is limited to the value invested in it. Exiting a losing stock is not only a financial loss for a trader, but also an emotional or psychological loss. It is human tendency not to accept losses readily. We have a few recommendations that will help you exit a declining trade.

Let’s take a look

Use stops to restrict your financial losses

Stops are calculated, pre-determined price levels at which the investor chooses to go short or sell his stocks to limit losses. When the stock price hits the stop loss price, a sell order is executed and the stock is automatically sold at that price. Stop loss orders work well as they define the losses beforehand and the loss amount is in the control of the investor. Have a personalized stop loss strategy and use it effectively to limit your losses while investing in stocks.

Keep a check on the stock even after exiting to find a re-entry point

Once you exit a position, keep an eye on it to identify any bullish indication of reversal, which can be a potential re-entry point. Using stops, you might sometimes exit your position because of price volatility. In no time, you may find the prices rising again. However, using proper stops is proven to be effective as it limits your losses in most cases. Analyze the charts, study the candlestick patterns, and re-enter, only, if it coincides with your research and not in hope or revenge. If there is no valid reason to re-enter the trade after the initial exit, walk away and search for new opportunities.

Do not emotionally connect with your stock picks

You should accept your wrong picks and move on rather than lingering onto the stock in the hope of a rebound. You need to monitor and notice the developments around your shares continuously, and if stocks are taking the wrong direction, you will sometimes need to book losses and accept your wrong stock picks. Don’t fall in love with your shares, sell them if the fundamentals do not appear correct and restrict your losses. Booking losses or hedging them at an early stage can help minimize losses.

Accept responsibility and analyze your mistakes and find out where your investment plan can be improved

This will help reduce the chances of the same happening again. Handling trading losses well is a leading characteristic of successful investors. Treat a failure as an opportunity to learn and improve it in your next move. Many opportunities are waiting out there in the market for you to find and grab hold of.

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Top 5 ELSS for 2018

Top 5 ELSS for 2018
by Jitender Singh 01/05/2018

Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund in which investments up to Rs1.5 lakh per financial year are tax deductible under section 80C. In other words, investors don’t have to pay tax on investment up to Rs.1.5 lakh in ELSS. By investing in ELSS, an investor in the 30% tax bracket can save Rs.46,350 as tax.

Below table exhibits the amount of tax one can save by investing Rs.1.5 lakh in ELSS for different tax slabs.

Tax Bracket 5% 20% 30%
Tax Saving Rs.7,725 Rs.30,900 Rs.46,350

*Includes 3% cess also

Besides tax benefits, ELSS investments also offer other benefits discussed below.

  1. Wealth creation with tax-saving – Historically, it has been seen that ELSS schemes have given significantly higher returns than other tax saving schemes like PPF, 5-year FD, EPF, etc.
  2. Shortest lock-in period – ELSS has a lock-in period of 3 years, which is the shortest among all tax-saving instruments.
  3. Tax free capital gains: The long-term capital gains from investment are tax-free.
  4. Dividends are tax-free: Dividends received are tax-free in the hands of the investor right from the year of investment.
  5. Low investment amount: Investors can start investing with Rs500 in lump sum or via SIP in ELSS. Since it is difficult to invest a lump sum amount in one go, SIP helps a person to invest small amounts at regular intervals. SIP payment is auto-debited from your bank account every month.

ELSS is the best way to save tax and create wealth in the long term. Below are the top 5 recommended ELSS funds.

Scheme Name Fund Manager Corpus (cr) 1 Y (%) 3 Y (%) 5 Y (%)
Aditya Birla SL Tax Relief '96(G) Ajay Garg Rs.4,349 41.6 16.3 21.6
Axis LT Equity Fund(G) Jinesh Gopani Rs.15,408 35.7 12.2 22.4
DSPBR Tax Saver Fund-Reg(G) Rohit Singhania Rs.3,571 34.4 15.6 20.1
IDFC Tax Advt(ELSS) Fund-Reg(G) Daylynn Pinto Rs.798 52.2 17.4 21.6
Reliance Tax Saver (ELSS) Fund(G) Ashwani Kumar Rs.10,157 44.2 13.3 22.4

1 year returns are absolute; 3 year and 5 year returns are CAGR.
AUM as of November 2017, Returns are as on January 02, 2018

Aditya Birla SL Tax Relief ‘96 Fund

  • Aditya Birla SL Tax Relief ‘96 Fund does tactical allocation between large cap and mid-= cap stocks to ensure optimal risk reward.
  • As of November 2017, the fund has invested ~37% of its AUM in large cap stocks, ~55% in mid cap stocks and ~7% in small cap stocks to generate higher returns.

Axis Long Term Equity Fund

  • Axis Long Term Equity mutual fund  invests in companies with sustainable profit growth to generate wealth over 3-4 years.
  • Besides, the fund manager follows bottom-up approach to select the companies.
  • As of November 2017, the fund has invested ~66% of its AUM in large cap stocks while ~30% in mid cap stocks to generate alpha.

DSPBR Tax Saver Fund

  • DSPBR Tax Saver Fund primarily invests in large cap stocks with some tactical allocation to midcap and small cap stocks to generate higher returns.
  • The fund manager follows buy-and-hold strategy for majority of the portfolio. He also takes active and tactical calls to exploit the market opportunities.
  • As of November 2017, the fund has invested ~71% of its AUM in large cap stocks and ~22% in mid cap stocks to generate higher returns.

IDFC Tax Advantage (ELSS) Fund

  • IDFC Tax Advantage (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate higher returns.
  • As of November 2017, the fund has invested ~46% of its AUM in large cap stocks, 29% in mid cap stocks and 20% in small cap stocks in order to generate higher returns.

Reliance Tax Saver (ELSS) Fund

  • Reliance Tax Saver (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate high returns.
  • The fund invests in potential leaders with high growth prospects.
  • Generally, the fund takes 2-3 sector call at a time and invests in high conviction mid cap stocks.
  • As of November 2017, the fund has invested ~60% of its AUM in large cap stocks, 25% in mid cap stocks and 15% in small cap stocks in order to generate higher returns.

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5 Stocks for next week 8th Jan-12th Jan 2018

5 Stocks for next week 8th Jan-12th Jan 2018
by Gautam Upadhyaya 01/05/2018

AJANTA PHARMA - BUY

Stock AJANTA PHARMA
Recommendation The stock has managed to give a breakout from its sideways consolidation on the daily chart. The stock has also shown good strength on the daily and weekly MACD Histogram.
Buy/Sell Range Target Stop Loss
Buy(cash) 1518-1525 1590 1474
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 Day M.A
AJANTPHARM 13385 1870/1106 1418

JUST DIAL - BUY

Stock JUST DIAL
Recommendation The stock has given a flag pattern breakout and has also breached the declining trend line backed by a surge in volumes on the daily chart. The stock has taken support along the 10-day EMA on the weekly chart. 
Buy/Sell Range Target Stop Loss
Buy(cash 548-552 584 527
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 Day M.A
JUSTDIAL 3697 619/326 459

NIIT TECH - Buy

Stock NIIT TECH
Recommendation The stock has given a breakout from its sideways consolidation on the daily chart backed by a surge in volumes; the stock has also taken support along the rising trend line on the daily chart.
Buy/Sell Range Target Stop Loss
Buy(cash) 666-671 698 648
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
NIITTECH 4085 696/401 558

INDUSIND BANK - BUY

Stock INDUSIND BANK
Recommendation The stock has managed to give a breakout above the declining trend line on the daily chart and has managed to give a breakout from its sideways consolidation on the weekly chart. The stock has also witnessed bullish crossover on the daily MACD indicator which affirms our positive view on the stock.
Buy/Sell Range Target Stop Loss
Buy (cash) 1690-1700 1758 1657
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
INDUSINDBK 101955 1818/1137 1562

INDIAN OIL CORPORATION - SELL

Stock INDAIN OIL CORPORATION
Recommendation The stock is in a lower top lower bottom chart structure on the daily chart and has given a close below its support levels. The weakness shown on the MACD histogram accentuates our negative view on the stock.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 385-387 374 393.2
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
IOC 186369 462/341 393

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