Things to consider before entering the stock market

Nowadays everyone wants to invest in the stock market which is a topic of discussion everywhere. Generally, a person who invests in any field is called an investor. But in Nepal, an investor means a person who invests only in the stock market. Rather than the secondary market, the primary market is also known as the IPO market. Where the number of investors is increasing day by day.

At present, the number of demat accounts in Nepal has exceeded 3.5 million, while more than 2.0 million are transacting through the secondary market. Now, due to the online facility, it has become easier to invest in Nepal’s stock market. Day by day, there is a significant increase in the number of people and investors investing in the stock market. Since the primary market is less risky than the secondary market and it is possible to enter this market with less capital, it is found that more people invest in the primary market than the secondary market.

Not only in the primary market, but also in the secondary market, the number of investors has also increased. The secondary market is certainly not the same as the primary market. Investors who invest in the primary market have received an average return of about two to ten times their investment in the secondary market. Due to this reason, the number of investors entering the secondary market from the primary market is increasing.

On November 26, 2020, NEPSE set an all-time high record and touched a new point. Earlier, NEPSE had set the record by touching the mark in 1881. Whenever there is a natural disaster in Nepal, then the stock market also touches a historical point. Recently, on the last day of 2077 i.e. Chaitra 31, NEPSE index reached 2714.79 points. Which is the high point in the history of Nepali capital market.

Corona virus i.e. Covid-19 which started in December 2019 from China was pushing not only Nepal but also the world towards economic crisis and disaster. People who invest in the stock market feel safer than in other sectors during a disaster.

Recently, since it has become easy to do business online and because you don’t have to focus on it for a long time, now everyone’s confidence and attachment in the market has increased. And, they are eager to attract investors in the secondary market.

What should investors pay attention to?
Investors need to learn a lot before investing in the secondary market. The first thing is that you need to understand what is the source of the investment in the secondary market or how the investment is raised here. And it is important to understand how long the investment is for.

If you are a new investor, i.e. just entering the secondary market, you should not enter the market with equity or debt as much as possible. There is always not only profit but also loss from the market. Therefore, investors should also consider how much risk they can bear while investing.

Likewise, you should understand how long you will use or can use the capital you have. You can invest your savings in the stock market. The amount thus saved can be channeled through the market in the long run.

If you are thinking of buying shares for the long term or long term, it is important to understand the company you are investing in. If they invest only by looking at the financial condition of the company, it will be fruitful. Investors who invest for the long term have never been disappointed by the stock market. You should have a proper identification of the investment you are going to make.

Which company to choose?

In the secondary market, investors should first choose a company with an average turnover of 120-180. If the company pays an annual dividend, regardless of the price of the shares you buy, the dividend helps keep your investment more secure. Also, from the minimum company price and maximum price, you can estimate the price at which you can trade. Similarly, it is important to understand how much the price of the company has changed.

When choosing a company for new investors, they should choose a company that has been consistently profitable for the past five years and has been giving attractive dividends to investors. The stock market is often referred to as the ‘bull market’.

There are some groups in the stock market, who play a key role in making the price of shares fall by making a noise, just like the saying, “The flour of those who speak is sold, but the rice of those who do not speak is not sold.” In such a situation, a new investor should be very careful.

Likewise, it is necessary to remove the veil of such issues from the relevant regulatory bodies of the stock market in order not to trap small investors in the market. The Securities Board and NEPSE must hold market awareness programs to make new investors aware.

It is found that the number of transactions in the market is mainly through fundamental and technical analysis. The basic analysis includes the company, company profile and management team, dividends distributed by the company in the past, published financial statements and so on. Similarly, in general, technical analysis can be used to decide how much a company’s share price has fallen or how much to buy or sell.

Apart from this, unpleasant events/natural disasters, politics, the atmosphere of the country also directly or indirectly affect the stock market. Apart from these, you can protect your investment by knowing about the financial condition of the company. Apart from that, you can get knowledge about shares through movies and books published about the stock market, and you can easily trade through the secondary market by taking basic and technical analysis training.

 – By Sankarana Chaudhary, President, Nepal Capital Markets Association