Equity investors earn returns primarily through increase in share prices over time. There is no fixed return, but growth potential is higher than debt.
Dividends are profit distributions. They are not guaranteed and depend on the company’s performance and board decisions.
Equity holders get to vote on key company decisions including mergers, acquisitions, and board appointments.
Unlike lenders, equity investors are not entitled to fixed interest. Companies are not obligated to repay equity capital or dividends.
Equity offers potentially higher returns but involves higher volatility and no capital guarantee. Suitable for long-term, risk-tolerant investors.
Equity investments are ideal for wealth creation over long periods, while debt is preferred for income stability and capital protection.
Holding stocks from different sectors, industries, and geographies at a given time. Reduces sector-specific or idiosyncratic risks.
Example: Tech + Pharma + FMCG + Banking + Global ETFs
Investing across time periods helps smooth returns. Market cycles tend to cancel out short-term volatility over long-term holding.
Motto: “Time in the market beats timing the market.”
Different sectors perform differently during the business cycle:
This pattern enables rotation strategies and hedging risks across economic phases.
Systematic risk arising from macro factors like global cues, interest rates, policy changes, inflation. Affects all listed stocks. Measured by Beta. Cannot be diversified but can be hedged.
Risks unique to a business sector (e.g., travel bans affecting airlines). Also known as idiosyncratic risk. Can be managed through sectoral diversification.
Risk related to a specific company’s performance, management, or strategy. Can be reduced by holding a diversified portfolio across companies.
Arises when the counterparty fails to deliver shares or funds. Mitigated by trading through regulated stock exchanges with settlement guarantees.
Occurs when an investor cannot exit due to lack of buyers. Measured by impact cost. Higher in small-cap or thinly traded stocks.
Foreign investors face returns volatility due to exchange rate movements. FPIs react to currency swings, impacting markets significantly.
Systematic risk arising from macro factors like global cues, interest rates, policy changes, inflation. Affects all listed stocks. Measured by Beta. Cannot be diversified but can be hedged.
Risks unique to a business sector (e.g., travel bans affecting airlines). Also known as idiosyncratic risk. Can be managed through sectoral diversification.
Risk related to a specific company’s performance, management, or strategy. Can be reduced by holding a diversified portfolio across companies.
Arises when the counterparty fails to deliver shares or funds. Mitigated by trading through regulated stock exchanges with settlement guarantees.
Occurs when an investor cannot exit due to lack of buyers. Measured by impact cost. Higher in small-cap or thinly traded stocks.
Foreign investors face returns volatility due to exchange rate movements. FPIs react to currency swings, impacting markets significantly.
Traded on stock exchanges. Offers high liquidity, transparency, and regulatory protection. Companies must disclose financials regularly and meet listing obligations.
Shares of privately held companies. Less liquid and riskier due to limited disclosure. Valuation is complex and returns depend on long-term business growth or IPOs.
Equity market offers varied instruments and segments — small-cap to large-cap, growth to value stocks — aligning with different investor goals and risk profiles.
Investors must analyze fundamentals, sectors, valuation, and risk before making allocations. Equity investing requires patience, discipline, and time horizon alignment.
Sell-Side: Analysts working with brokerages or investment banks. They publish public research reports with recommendations (Buy, Hold, Sell) and price targets. Their focus is on wide coverage across sectors to support trading and advisory services.
Buy-Side: Analysts at mutual funds, pension funds, hedge funds, or PMS. Their research is private, supports internal investment decisions, and needs to be highly accurate to generate superior portfolio returns.
Evaluates a company’s intrinsic value based on financial and economic data. Uses the EIC Framework (Economy → Industry → Company). The analysis helps investors assess if a stock is underpriced or overpriced versus its true worth.
Steps include:
This builds the foundation for company selection before valuation.
Valuation is the process of calculating the true worth of a stock compared to its market price. Common methods include:
Different sectors prefer different metrics — P/E for consumer, P/B for banks, EV/EBITDA for capital intensive businesses.
Investors often combine Discounted Cash Flow (DCF) and Relative Valuation methods to get a more accurate estimate of a stock’s fair value. Each technique has strengths, and when used together, they provide cross-verification and confidence in investment decisions.
P/E
, P/B
, EV/EBITDA
, PEG
Multiples are simplified versions of the DCF model. For example, P/E = Price / Earnings
is linked to expected future profits and required return.
Fundamental Analysis: Focuses on intrinsic value using earnings, assets, and business performance. Used for long-term investing.
Technical Analysis: Focuses on short-term price action and trends. Used for entry/exit timing. Does not consider intrinsic value.
Tip: Many investors combine both — use fundamental analysis to select stocks and technical analysis to decide when to buy or sell.
Though more common in equities, technical tools can also be applied to bonds and fixed income instruments when price and volume data is available.
Trend analysis, moving averages, and oscillators can be used to track price momentum in bond markets, especially for active traders or institutional participants.