Parameters To Compare Stocks On The Indian Share Markets

By Author: Vamsi Krishna
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Anyone who wants to make money on the share market has to know how to pick the right stocks, at the right time. It’s not a casino where you just see the share market live on TV and pick up whatever stock that is the fashion of the day. The Indian share market can be a treacherous place and you need to get your basics right before you invest.

Here are some of the parameters you need to keep in mind while investing in the share market in India:

• Price earning ratio (PE): The PE ratio is important while making purchase decisions on the share market. The PE ratio is calculated as share price divided by earning per share (EPS). It is basically a multiple of earnings. If investors expect a company to have high earnings growth in the future, this is factored into the price. So a high PE ratio shows that the stock is expected to do well in the future. But one thing you should remember while investing in the Indian share market is that you should use the PE ratio only to compare stocks in the same industry.

• Earning per share (EPS): EPS is another good parameter to compare stocks while ...
... investing in the share market in India. EPS is calculated by dividing the company’s profit by the number of shares. A high EPS is a good indicator of a company’s profitability and may be a good buy. But you must watch out for accounting fiddles; a fraudulent company (or even a rather over-smart one) can doll up its accounts to show a high EPS. One measure you can rely on is operating cash flow per share. This is operating cash flow divided by the number of shares. If the operating cash flow is higher than EPS, the earnings of a high quality.

• Market capitalization: This is another way of evaluating a stock. Market capitalisation is share price of the stocks multiplied into the number of shares outstanding. If you’ve observed the proceedings on the share market live on TV, you might have observed people talking about large-cap, mid-cap and small-cap stocks. Large-cap stocks are the big players on the stock markets, and the most actively traded; the Sensex is made up of stocks like these. These companies are a good bet if you want safety, since they’ve been around a while and making good profits. But generally the growth prospects of mid-cap stocks are better because they are still growing and can generate huge returns. The downside of mid-cap stocks is that they are volatile and can fall faster than the Sensex during a downturn.

The share market can be extremely rewarding if you are looking to maximize returns. All it needs is a little bit of effort and research so that you can avoid the pitfalls.

Author Bio :

Ritish Kumar is a finance enthusiast and a keen observer of the Indian share market. In this series of articles, he talks about investing in stock market and staying profitable. share market in India, share market live