How much returns I can expect through long term investment in Nifty stocks?

• To invest on any stock in Nifty an investor must conduct a rigorous analysis in a methodical manner. Besides that, one must also tick the basic parameters that govern the fundamentals and consistency of a company’s stock. In the article, one can find the essential analysis needed in picking a stock for the long term.
• An investor can obtain a good return over the long term investment and the only reason is simple arithmetic. An interest earned on the principle gets accumulated and the amount gets compounded many times. In equity markets, due to volatility, short term risks reduce the principle and the return becomes lesser and lesser. Hence, long term is the best chosen option.
• An investor must ponder on the business fundamentals in different spheres such as ethics, corporate social responsibility, and assess the business credentials for at least 3 years passed out.
• The individual who desires for long term investment must select a company based on large capital, mid capital, and small capital. Then, the individual must analyze long term sustainable performances. In addition, an individual must work upon the business risk factors involved in the companies. In a way, one must be able to perform the risk analysis with a high precision. Only after attaining a thorough understanding of the company, one is advised to invest in any chosen company.

Check these Elements Before Picking the Stocks:

• The market capitalization explains the financial capability and its withholding capacity when stocks fluctuate. Companies when attain higher capitalization they will be able to overcome volatility in lower risk levels. Hence an investor must select stocks of high market capital companies that exhibit lower risk levels.
• Companies are built on portfolios, and if a company runs additional subsidiaries deviant from core business then its profitability should not be endorsed. While checking for investments in a company, the core businesses should generate an operating profit margin more than 15 percent. Therefore a thumb rule is, the operating profit margin is equivalent to the ratio of operating profit to sales revenue. That means, OPM = operating profit / sales revenue. Analysts say that the profit growth for three years must be more than 10 percent. One perfect example for the above statement is the Asian Paints.

In order to support the above statements, the story of Asian Paints and its raise in the Nifty is the best suited example.

Asian Paints:

• Asian Paints concentrates on the core business It attracts consumers from various categories of businesses.
• They are into domestic paints, decorative paints, and industrial paints. Asian Paints mints its revenue from paint manufacturing and it is 70 -80 percent.

Asian Paints Product Profile:

• The company channels into chemicals, wall covering, waterproofing, adhesives, sanitizers, and kitchen and bath fittings.

Product Share:

• If one observes it, Asian Paints have 50 percent market share in the domestic paint market and 60 percent market share isn decorative paint market.

Asian Stock Holding:

• Asian promoters hold 53 percent of the stake as per December 21 records, and individual shareholding up to 2 lakh retail investors up to 12 percent and institutions hold 28 percent of the company stake and others hold about 7 percent.

Strategic Advantage:

• In the financial year 2020, the dealer network of Asian Paints is 70,000 while the nearest peer, Berger Paints is at 30,000. The company has a distribution network and pricing advantage that establishes a monopoly in the Indian markets when compared to its peers.

Financial performances:

• The financials of Asian Paints speak about annual average revenue growth of 8 percent ( CAGR) between FY 21 and FY 17. The profit growth was about 13 percent.
• More importantly the debt to equity ratio of the company is less than 1. That means, it is a clear indicator that it maintains a good balance sheet.
• In December, FY ( 2021-22) the year on year revenue of Asian Paints rose to 25 percent and the profit fell 18 percent.

Thoughtful Ways to Make Money on Stocks

Making Money: A relative term

Making money is a relative term and it entirely depends on the kind of return an investor aspires on an investment.

Stock markets are said to provide rich dividends in extremely volatile and fluctuating markets.

An investor must make investments and thread a tightrope. While conducting market analytics an investor may forecast the weather in buying/selling stocks yet in such situations one must bear in mind certain facts that lead to making good money on stocks.

Fundamental Investors/ Speculators: Differ in Functional Approach

Traders in stock markets are classified into two kinds, fundamental investors, and speculators. These investors differ in their functional approach, some view the price format while others check the fundamentals of the stock.

Speculators take no concern about the fundamentals of the stock but concentrate on the fluctuating price index.

However, to make safe and easy money with fewer hassles, the experts advise analyzing the company’s fundamentals before proceeding to buy/sell a stock.

Never Be One Among Herd:

Traders quite often fall into a trap by investing in a specific stock just because a majority of the potential investors tend to go for those stocks.

In the long run, a trader is advised never to concentrate on such activities, and a planned study on stock fundamentals is essential.

Time the Market: A Risky Proposition

Stock markets do keep fluctuating and there is no concept that talks about timing, ‘ time the stock market’.

That means, it is not possible to predict precisely the top and bottom of the stock prices. Moreover, such a timing concept should never be implemented in delivery.

Disciplined Approach: Long term Gains

Check for the historic perspective of the stocks, stocks if one notices undergo radical changes in the bullish and bearish markets, and many a time, a trader enters into a panic moment.

Hence, it is advised to invest in a stock market carving ways in accordance with a disciplined approach so as to generate high returns. However long-term gains the ideal way is to make a systematic approach in the equities markets.

On Pace with Emotions: Over Enthusiasm Ruins

Emotions play a vital part in investments, and while hovering along with every rise and fall of stock in the bullish or the bearish markets, over-enthusiasm, can lead to making wrongful decisions. It may not be greed but a deep-rooted confusion in deciding as the stocks fluctuate like an earthquake tremor.

Make a Conscious Attempt in Investments

A trader must set goals that are achievable and never make dreams illusionary. One must understand the trending of the stocks and approach the markets with the right analytics.

If it is sensed that the market would be highly volatile and can take a severe dip in stock prices, better wait for the rise. Also, check the investment funds and look for the optimal returns on the investments. Reality matters, therefore, live real and act consciously.

Invest Surplus Funds only: New to Equity Markets

Making money is easier said than done, hence in a volatile share market, one must invest only surplus funds that are set aside.

For a beginner, it should be the last priority. In case, a trader makes profits it is better to utilize new shares rather than seeking loans, or debts as a source of investment in the future.

STCG & LTCG

Every year, an investor needs to file income tax returns at the IT department. In this process, the IT department classifies the nature of earnings through asset classes.

In the equity markets, mutual funds, or share markets, in India, or across the global stock exchanges governments do not treat capital gains on long-term/short-term holding alike.

What is LTCG & STCG?

In money markets, investments vested for the long-term stocks are said to be a sign of good relief on selling out.

A long-term investment maintains stocks in stock markets for a longer duration thus forming a greater financial stocks balance.

In order to retain such conditions, the CBDT discounts taxation on capital gains on long-term fundings.

While the opposite happens if an investor plans to back out by selling shares within a year of its investments.

The IT department doesn’t bother about the losses incurred by an investor through selling though. It is made mandatory to tax the stock funds whether an investor incurs gain or loss.

Now, in gist, to say, the long term Capital Gain (LTCG) produces a fair amount of profitability than Short Term Capital Gain (STCG).

Hence, the government of India encourages long-term investments in all asset classes.

LTCG (3 years)/STCG ( 1 year) in Equity Markets

Equity markets are highly volatile and stock fluctuations are intangible. Equity term doesn’t limit to regular buying and selling of stock in both the leading Indian stock exchanges Bombay Stock Exchange, or National Stock Exchange.

Other equities that include are the companies that launch an Initial Public Offering, and the mutual funds. The Central Board of Direct Taxes (CBDT) favors long-term capital gain on asset classes such as property ( land, apartments), gold, debt, mutual fund investments, bonds, and so on.

The direct taxes department specifies the minimum holding period must be for a period of 36 months ( 3 years).

Other areas of equity funds like hybrid funds such as ( balanced funds, (Arbitrage funds)) also gain preferential LTCG advantage provided at least 65 percent of the holdings are in equity.

In case, equity is sold in less than 12 months ( 1 year) of its purchase then it is classified as STCG.

LTCG/STCG Equities Get Preferences Among Asset Classes:

LTCG/STCG Equity Gains:

Except for equities, all other asset classes will be subjected to taxation on LTCG @ 20 % after indexation. Whereas in the equity market, the LTCG is completely tax-free.

For instance, an investor purchases stock and sells out the shelved stocks after 1 year, CBDT exempts tax on the capital gains. It doesn’t matter how much one gains on capital.

Two instances arise if an investor plans for STCG and they are taxed on nonequity assets and equity assets.

STCG is included under the head of ‘Other Income.’ For non-equity assets, the CBDT taxes on a 30 percent tax bracket, and on equity assets, the taxation shall be @ 15 %.

Thus it is a clear indication that the CBDT levies taxable percentage on the LTCG and STCG at a preferential level.

 CBDT Treatment on Long term/Short term Equity Losses

In times of loss on equity investments, the CBDT looks at the matter with a different view @ both profiles.

In case of long-term loss, say, after completion of 1 year, the losses incurred on the capital must be met by investors only.

The CBDT shall not write off losses against any form in the years ahead. For instance, an investor buys a stock for INR 1,000,00.00 and sells it for INR 80,000.00 then the loss incurred is INR 20,000.00. In no manner, CBDT shall shield the investor’s loss.

Short Term Losses:

Another instance is wherein an investor who does investment may want to back out from the equity.

More importantly, when an investor is making a loss in the short run, the CBDT cushions the investor in the following manner.

Irrespective of the value of investment made, the CBDT can write off losses against the short-term gains.

In the second method, the investor can carry forward the incurred loss for a period of 8 financial years.