Swastika Investmart Financial Highlights 2024–25

A margin call is a wake-up call from your broker. When an investor's equity in a margin account drops below the minimum amount required by the broker, a margin call happens. Securities purchased using a combination of the investor's own funds and funds borrowed from the investor's broker are kept in an investor's margin account.

When a broker requests that an investor add more funds or securities to the account, it is known as a "margin call." This occurs when the investor's equity and the account value reach the minimum amount specified by the maintenance requirement.

Example: The Margin Call in Action

Let's say you buy ₹10,000 worth of stock using margin, meaning you borrow ₹5,000 from your broker. The maintenance margin might be 30%, which means the total value of your account (including the borrowed money) needs to stay above ₹7,000 (₹10,000 x 30%).

If the stock price falls, and the value of your account drops below ₹7,000, you'll get a margin call. You'll then need to deposit more money (or sell some stock) to bring the account value back up to the maintenance margin level.

Types of Margin

Margin trading involves borrowing funds from a broker to purchase securities. Here are the three main types of margin used in trading:

1. Initial Margin:

The amount of margin required to open a new position.

Example: If you want to buy ₹50,000 worth of stock, and the initial margin requirement is 50%, you'll need to deposit ₹25,000 in your account.

2. Maintenance Margin:

The minimum amount of equity you must maintain in your account to keep positions open.

Example: If the maintenance margin requirement is 25% and your account equity drops below this level due to losses, you'll receive a margin call.

3. Margin Call:

A demand from the broker for additional funds or securities if your account falls below the maintenance margin.

Example: If your account equity drops below the maintenance margin requirement, your broker will issue a margin call asking you to deposit more funds or securities to meet the margin requirement.

When Does a Margin Call Happen?

A margin call occurs when the value of your securities falls below the maintenance margin set by your broker. This usually happens if the market value of your borrowed securities drops. If this occurs, your broker will ask for more funds or securities to bring the margin back up.

How to Avoid Margin Calls:

Here are some smart moves to avoid getting a margin call:

• Keep cash handy: Just like having some savings for your car, having extra cash in your brokerage account acts as a buffer.
• Watch Your Portfolio: Regularly monitor your account value and the maintenance margin requirement. This way, you can see if you're getting close to a margin call and take action.
• Diversify Your Investments: Don't put all your eggs in one basket! Invest in a variety of stocks, bonds, and other assets to spread out your risk.
• Set Stop-Loss Orders: A stop-loss order automatically sells a stock if the price falls below a certain level. This can help limit potential losses and reduce the chance of a margin call.

The Bottom Line

Margin calls can be stressful, but by understanding them and using good risk management practices, you can avoid them and trade more confidently.

Most investors saving for long-term goals, like retirement, should avoid buying stocks on margin due to the higher risk.

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Positional trading is a popular strategy in the stock market where investors hold their positions for an extended period, ranging from weeks to months or even years. This approach is ideal for those who prefer to take a longer-term view of the market and are less concerned with short-term price fluctuations. Let's dive into the details of positional trading and how it works.

What is Positional Trading?

Positional trading involves buying stocks with the expectation that their price will increase over time. Unlike day trading or swing trading, which focus on short-term movements, positional traders look at the bigger picture and hold their investments until their price targets are achieved or market conditions change.

Key Characteristics of Positional Trading

• Long-Term Perspective: Positional traders aim to benefit from long-term trends and fundamental changes in a company or the market.
• Lower Frequency of Trades: Because they hold positions for a longer duration, positional traders make fewer trades compared to day traders or swing traders.
• Fundamental and Technical Analysis: Positional traders use a combination of fundamental analysis (evaluating a company's financial health and growth potential) and technical analysis (studying price charts and indicators) to make decisions.
• Patience and Discipline: This strategy requires patience to wait for the right opportunities and discipline to stick to the plan without being swayed by short-term market movements.

Steps to Start Positional Trading

Research and Analysis:

• Fundamental Analysis: Evaluate a company's financial statements, earnings reports, management quality, industry position, and growth prospects. Look for companies with strong fundamentals that are likely to grow over time.
• Technical Analysis: Use charts and indicators to identify trends and potential entry and exit points. Common tools include moving averages, support and resistance levels, and trend lines.

Set Your Goals:

• Determine your investment goals and risk tolerance. Are you looking for steady growth, or are you willing to take on more risk for higher returns? Your goals will influence your stock selection and holding period.

Create a Trading Plan:

• Develop a clear plan outlining your entry and exit strategies, stop-loss levels, and position size. A well-defined plan helps you stay focused and avoid emotional decisions.

Choose the Right Stocks:

• Select stocks with strong growth potential and favourable market conditions. Look for companies in industries with positive long-term trends.

Monitor Your Positions:

• Regularly review your investments and market conditions. While positional trading requires less frequent monitoring than day trading, it's essential to stay informed about news and events that could impact your stocks.

Advantages of Positional Trading

• Potential for Higher Returns: By holding stocks for a longer period, positional traders can benefit from significant price movements and compound returns.
• Less Stressful: Unlike day trading, positional trading is less stressful as it doesn't require constant monitoring of the market.
• Lower Transaction Costs: Fewer trades mean lower transaction costs, which can add up over time.
• Tax Benefits: In many countries, long-term capital gains are taxed at a lower rate than short-term gains, which can enhance your overall returns.

Risks of Positional Trading

• Market Risk: Market conditions can change unexpectedly, impacting the value of your investments.
• Company-Specific Risk: Negative news or events related to a specific company can cause its stock price to drop significantly.
• Patience Required: Positional trading requires patience and the ability to withstand market volatility without making impulsive decisions.
• Capital Tied Up: Your capital is tied up for a longer period, which might limit your ability to take advantage of other investment opportunities.

Tips for Successful Positional Trading

• Diversify Your Portfolio: Spread your investments across different sectors and industries to reduce risk.
• Stay Informed: Keep up with market news, economic indicators, and company reports to make informed decisions.
• Avoid Emotional Trading: Stick to your trading plan and avoid making decisions based on emotions or short-term market noise.
• Review and Adjust: Periodically review your portfolio and adjust your positions based on changing market conditions and your investment goals.

Conclusion

Positional trading is a viable strategy for investors who prefer a long-term approach and are willing to invest time in research and analysis. By focusing on fundamental and technical factors, setting clear goals, and maintaining discipline, positional traders can potentially achieve substantial returns while managing risk. Whether you're a beginner or an experienced investor, positional trading can be an effective way to build wealth in the stock market.

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Equity trading, also known as stock trading, is the buying and selling of shares of companies in the stock market. It is a fundamental way for investors to grow their wealth and participate in the financial markets. Let's break down the basics of equity trading in simple language.

What Are Equities?

Equities, or stocks, represent ownership in a company. When you buy a share of a company, you own a small part of that company. This ownership entitles you to a portion of the company's profits, which can be paid out as dividends. Additionally, if the company grows and becomes more valuable, the value of your shares can increase, allowing you to sell them for a profit.

What Is Equity Trading?

Equity trading involves buying and selling these shares on the stock market. The stock market is a platform where investors can trade stocks with each other. The two main types of stock markets are:

• Primary Market: This is where companies sell their shares to the public for the first time through an Initial Public Offering (IPO).
• Secondary Market: This is where existing shares are traded among investors. Most of the trading happens in the secondary market.

How Does Equity Trading Work?

Equity trading typically follows these steps:

• Opening an Account: To start trading, you need to open a trading account with a stockbroker. This account allows you to buy and sell shares.
• Placing an Order: You place an order to buy or sell shares through your trading account. Orders can be placed online, through a mobile app, or by calling your broker.
• Order Execution: Once your order is placed, it is sent to the stock exchange where it gets matched with a corresponding buy or sell order. If there is a match, the trade is executed.
• Settlement: After the trade is executed, the shares are transferred to your account, and the money is deducted or credited accordingly. This process usually takes a couple of days.

Types of Equity Trading

There are different ways to trade equities, including:

• Day Trading: Buying and selling stocks within the same trading day. Day traders take advantage of small price movements and aim for quick profits.
• Swing Trading: Holding stocks for a few days to weeks to benefit from expected price swings. Swing traders use technical analysis to make decisions.
• Long-Term Investing: Buying and holding stocks for months or years. Long-term investors focus on the company's fundamentals and growth potential.
• Scalping: Making numerous small trades to earn small profits on each trade. Scalping requires quick decision-making and fast execution.

Key Concepts in Equity Trading

Market Orders and Limit Orders:

• Market Order: An order to buy or sell a stock immediately at the current market price.
• Limit Order: An order to buy or sell a stock at a specific price or better.

Bid and Ask Price:

• Bid Price: The highest price a buyer is willing to pay for a stock.
• Ask Price: The lowest price a seller is willing to accept for a stock.

The difference between the bid and ask price is called the spread.

Bull and Bear Markets:

• Bull Market: A period when stock prices are rising or expected to rise.
• Bear Market: A period when stock prices are falling or expected to fall.
• Diversification: Spreading investments across different stocks to reduce risk. Diversification helps protect your portfolio from the poor performance of a single stock.

Risks and Rewards of Equity Trading

Rewards:

• Potential for High Returns: Stocks have historically offered higher returns compared to other investments like bonds and savings accounts.
• Ownership: Owning stocks means you have a stake in the company's success and can benefit from its growth.
• Dividends: Some companies pay dividends, providing a regular income stream.

Risks:

• Market Risk: Stock prices can be volatile and unpredictable, leading to potential losses.
• Company-Specific Risk: A company's poor performance or adverse news can negatively impact its stock price.
• Economic Risk: Economic downturns can affect the entire stock market and your investments.

Conclusion

Equity trading is an essential part of the financial markets, offering opportunities for wealth creation and participation in a company's growth. By understanding the basics of how equity trading works, the types of trading, and the associated risks and rewards, you can make decisions and develop effective trading strategies. Whether you are a beginner or an experienced trader, staying informed and disciplined is key to success in the stock market.

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In a call option, you have the right, but not the obligation, to buy a stock for a set price (strike price) by a certain date (expiry date). There are different types of call options, and today we'll focus on In-the-Money (ITM) call options. Let's break it down:

• Call Option: You're basically hoping the stock price will go up so you can buy it cheap and then sell it for a profit.
• In-the-Money (ITM): This means the stock's current price is higher than the strike price of your call option.

Example:

Let's say the current price (spot price) of a stock is ₹8,300

• You buy a call option with a strike price of ₹8,200 (your agreed upon this purchase price)
• Since the stock price (₹8,300) is higher than your strike price (₹8,200), your call option is In-the-Money (ITM).

Options can be categorized as:

1. In-The-Money (ITM)
2. At-The-Money (ATM)
3. Out-Of-The-Money (OTM)

These terms help investors decide which options to buy or sell.

• Intrinsic Value: This is the actual value of an option if you used it today. It’s the difference between the current stock price and the strike price.

ITM Options

• Call Option: ITM if the strike price is lower than the current stock price.

Example: Current stock price is ₹1000, and the call option strike price is ₹900. This option is ITM because ₹1000 (current price) - ₹900 (strike price) = ₹100.

• Put Option: ITM if the strike price is higher than the current stock price.

Example: Current stock price is ₹1000, and the put option strike price is ₹1100. This option is ITM because ₹1100 (strike price) - ₹1000 (current price) = ₹100.

Option Premium Components

The price you pay for an option (option premium) has two parts:

1. Intrinsic Value
2. Time Value

Formula: Option Premium=Intrinsic Value+Time ValueOption Premium=Intrinsic Value+Time Value

Characteristics of ITM, ATM, and OTM Options

• Intrinsic Value: The real value of an ITM option. It’s the difference between the stock price and the strike price.
• Time Value: The extra amount you pay because the option might become more valuable before it expires. This value decreases as the expiration date gets closer.

Let’s take another example to understand an ITM Call Option:

An ITM call option has a strike price lower than the current stock price.

Example:

• Current Price: ₹8300
• ITM Call Option: Any strike price below ₹8300
• Example Option: NIFTY FEB 8200 CALL (Strike Price = ₹8200, Current Price = ₹8300)

Benefits of ITM Call Options

• Lower Risk: ITM options are less likely to expire worthless because the stock price is already in your favor.
• Good Balance of Leverage and Risk: You can get good returns with a smaller investment compared to buying the stock itself.
• Less Volatile: ITM options are less affected by sudden market changes compared to other options.

Things to Consider with ITM Call Options

• Higher Cost: ITM options cost more because they already have some built-in profit potential.
• Lower Leverage: Higher cost means you have less money left for other investments.
• Time Decay: As the option gets closer to its expiration date, its value decreases faster.
• Limited Profit: Your profit is capped at the strike price plus the premium you paid.

Who Should Use ITM Call Options?

• Investors who are bullish (optimistic) on a stock's price and want to profit from an increase.
• Investors seeking to hedge (protect) their existing stock holdings.
• Investors looking for a balanced approach with some level of built-in profit potential and lower risk.

Conclusion

ITM call options can be a powerful tool, but it's important to understand the costs, risks, and limitations before using them. Carefully consider your investment goals and risk tolerance before diving in.

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A circuit breaker in the stock market is a mechanism that sets a price band within which a stock can be traded on a given day. Circuit breakers operate automatically by halting trading when global exchange values reach predetermined levels. This band includes a lower limit (lower circuit) and an upper limit (upper circuit).

Why is a Circuit Breaker Needed?

Stock prices often fluctuate due to market sentiments, influenced by positive or negative news. Circuit breakers are set up to prevent extreme price movements, protecting investors from sudden, unexpected changes. They also help reduce price manipulation to some extent.

The Securities and Exchange Board of India (SEBI) has defined various circuit levels: 2%, 5%, 10%, and 20%. These levels are based on the stock's closing price from the previous day.

Example:

If XYZ stock closed at ₹100 yesterday and has a 10% circuit limit, today it can only be traded between ₹90 (lower limit) and ₹110 (upper limit). If the stock reaches either limit, trading is halted.

How Circuit Breakers Work

In the trade world, a circuit breaker serves the same purpose as it does in residential electrical circuits. It engages and cuts the circuit when it senses an overload. Circuit breakers are emergency safeguards in the trading industry put in place by stock markets to temporarily or permanently halt trading activity when market prices decline drastically.

Individual Stocks:

If the price hits the upper or lower limit, trading in that particular stock is halted.

Market Indices:

A 10%, 15%, or 20% change triggers a market-wide halt.

Upper and Lower Circuit Limits

The limits prevent excessive speculation and volatility. Depending on the stock category, a stock can shift by 5%, 10%, or a maximum of 20% during a trading day.

Example of Upper Circuit and Lower Circuit

Let's say XYZ stock closed at ₹100 yesterday. If it has a 10% circuit limit:

• Upper Circuit: The upper limit would be ₹110 (10% above ₹100). If the stock price reaches ₹110, trading is halted because it has hit the upper circuit. This indicates strong buying interest, and the price can't go higher for the rest of the day.
• Lower Circuit: The lower limit would be ₹90 (10% below ₹100). If the stock price drops to ₹90, trading is halted because it has hit the lower circuit. This indicates strong selling pressure, and the price can't go lower for the rest of the day.

Market-Wide Circuit Breakers

Time-Based Rules:

• Before 1 PM: A 15% movement halts the market for 1 hour and 45 minutes, followed by a 15-minute pre-opening session.
• Between 1 PM and 2 PM: A 15% movement halts the market for 45 minutes, followed by a 15-minute pre-opening session.
• After 2 PM: A 15% movement halts the market for the rest of the day.
• At Any Time: A 20% movement halts the market for the entire day.

Summary Table of Circuit Breaker Durations

Conclusion

Circuit breakers play a important role in stabilizing the stock market by preventing excessive volatility and protecting investors from sudden, significant price changes.

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Ever wondered how much a company is "worth"? The answer lies in a key metric: Market Capitalization. In the stock market, it shows a company's total value based on its current share price and the number of shares available for trading. Instead of looking at revenue or total asset worth, investors use this number to assess a company's size. The market capitalization of a takeover candidate aids in evaluating whether the acquirer will receive a decent deal from the deal.

Formula:

Market Cap = Current Share Price * Total Outstanding Shares

So, if Company W share price is Rs. 200 and there are 5 crore outstanding shares, its Market Cap would be Rs. 1,000 crore (200 * 5 crore).

Why does it matters?

It gives you a snapshot of where a company stands:

• Growth Potential: A smaller company might be newer and have more room to grow, making it an attractive option for growth investors.
• Stability: Larger companies are more stable and less affected by market fluctuations. They often have more financial reserves to cover losses and recover from downturns.
• Risk and Volatility: Small-cap companies can offer high growth potential but come with higher risk and volatility. Large-cap companies are generally more stable but may grow more slowly.

Using Market Capitalization to Diversify Your Portfolio

Diversification is about spreading your investments to manage risk:

• Across Asset Classes: For example, investing in both stocks and bonds.
• Within Asset Classes: Investing in a mix of small-cap, mid-cap, and large-cap stocks to balance potential risks and returns.

Types of Companies

Companies are categorized into different types based on their market capitalization. This helps investors balance their portfolios to minimize risk.

Categories

Small-Cap Stocks

• Market Cap: Up to ₹500 crore.
• Growth Potential: Small-cap companies are often in their early stages and have growth potential. However, they are also more risky.
• High Risk, High Reward: These companies can offer high returns during favorable economic conditions but are more affected by market fluctuations and economic downturns.
• Examples: Hathway Cable & Datacom Ltd.

Mid-Cap Stocks

• Market Cap: From ₹500 crore up to ₹7,000 crore.
• Balanced Growth: Mid-cap companies have a balance between growth potential and stability. They are more established than small-cap companies but still have space for growth.
• Moderate Risk: These companies are less risky than small-caps but more volatile than large-caps. They can provide returns with moderate risk.
• Examples: PVR Ltd.

Large-Cap Stocks

• Market Cap: From ₹7,000 crore up to ₹20,000 crore.
• Stability: Large-cap companies are well-established and financially sound. They are market leaders with a proven track record.
• Lower Risk, Steady Returns: These companies offer more stability and are less likely to experience volatility. They are suitable for conservative investors seeking steady returns.
• Examples: Bharat Electronics Ltd.

Mega-Cap Stocks

• Market Cap: Above ₹20,000 crore.
• Market Dominance: Mega-cap companies are the largest and dominant in their industries. They are often multinational corporations with influence on the market.
• Very Low Risk: These companies provide the highest level of stability and are considered safe investments. While the growth potential might be lower, they offer reliable returns and are ideal for risk-avoid investors.
• Examples: Reliance Industries Ltd.

Conclusion

Market capitalization is an important factor in evaluating stocks and mutual funds. It helps investors take decisions based on their risk tolerance and return expectations. However, while it is a valuable indicator of a company’s financial health, investors should not rely solely on it. A thorough analysis of the company’s overall performance and market conditions is essential before making investment decisions.

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