Types Of Stocks In The Indian Share Market - Part 2
In the previous blog, we discussed a few important types of stocks. Now, let’s look at the other major categories. 5. Value Stocks These are stocks that are trading below their worth or intrinsic value. What exactly is intrinsic value? It is the true worth of the company based on estimates rather than the market price of the company's stocks. Consider the following example: Assume you come across a firm called Sheetal Communications, which has a current share price of Rs. 500. However, based on your calculations, the company's intrinsic value is Rs. 600 per share. The stock market will eventually recognise the company's true worth, and the stock will grow correspondingly. Value stocks are inexpensive and have the potential to generate high returns over time. However, both value companies and terrible stocks are available at a low valuation. So how do you tell the difference between the two? Remember that value stocks are quality businesses that have been momentarily trading at lower prices and have the ability to resurge and prosper in the future. Some possible reasons for a temporary decline include results falling short of expectations for a quarter, a brief piece of bad news riding strong sentiment but with a smaller financial impact, or simply poor market mood. Weak stocks, on the other hand, have limited liquidity, inconsistent earnings history, or poor metrics on conventional financial parameters. 6. Growth Stocks You might have guessed how stocks in this category work. These are companies whose earnings are expanding faster than those of their peer group. However, because of their stronger growth rate, these stocks require a higher investment than their rivals. They require additional capital to expand due to their rapid growth. As a result, these stocks will pay no or very little dividends and will reinvest earnings largely in the firm. However, the difficulty with these stocks is that a company's rapid growth rate does not usually last long. This means that when the company's growth rate returns to normal, the stock price may decline with it. 7. GARP Stocks GARP, or Growth at Reasonable Price, is a hybrid of growth and value investment. GARP investing identifies growth stocks that are accessible at a reasonable valuation. The goal is to find growth firms that consistently exhibit above-average earnings growth while trading at a low value. These equities have an average P/E ratio and a greater rate of earnings growth, resulting in a PEG ratio of one or less than one. However, there is a distinction between GARP and value investing. Value investors seek out stocks that are inexpensive, but the chance of losing money with GARP is negligible. 8. Momentum Stocks Momentum stocks are based on the idea that if a stock is rising, it will continue to rise for some time. This means that investors would buy rising stocks and sell them when they appear to have peaked. It is usual for investors to buy up-trend momentum equities at greater prices with the hope of selling at even higher prices. Early riders on the momentum rally benefit the most. However, momentum can be a trap for new investors if they enter the stock too late, especially if the up-move is about to end. When a stock begins to rise in price, investors become concerned that they will miss the next major move and begin to buy. This causes the stock to rise even higher, and so on. Momentum investing is based on technical information rather than fundamentals. And, while momentum investing may not be a good option for inexperienced investors, when done correctly, it can result in remarkable profits. 9. Income stocks These investors want a steady income with the possibility of capital appreciation. Income stocks are less risky than other equities in the market. Companies in the income stock category receive extra income in the form of dividends that the company pays per share.