How does a stock's price fall and rise?

The price is calculated by electronically matching bids and offers for a particular share recorded an electronic limit order book (ELOB). When you place an order to buy a share at a certain price that is called your “bid” and when you place an order to sell your..........blah blah blah blah........

 Getting bored? Going upon your head, huh?

Okay, let's make it easy.

Imagine you bought a pen for 10 bucks. Next day a friend of your offered you to sellit for 15 to him.

Now my question. What's the price of pen?

Absolutely 15. You can encash 15 bucks by selling it.

You rejected his offers hoping that may your other friends bid more than 15.

Next day in school, your friends got a sight of your pen. Again 5 of your friends offered you to sell it for 10, 15, 20, 25, 30 respectively.

Now what's the price?

Yeah, 30. The highest bidder urge to pay 30.

Now again you rejected the offer hoping that tomorrow its price may hike more.

Exactly what you thought happened. You and your pen become popular in school and the highest amount offered by people was 50.

Now your greed acted inside you, so you again rejected the offers hoping for some more appreciation in price.

This time the luck was not with you. A Companion bought more unique pen than your.

This affect the price of your pen a lot. Most of your customer attracted by your companion's pen. Your pen lost 90% of its value and only bunch of people were ready to pay you 5 bucks only.

This is how demand and supply affect the price of a product. And stocks are a product. When investors are optimist and ready to pay higher cash than its current price, price appreciated and in pessimist behaviour price drops.

There was a huge demand of your pen in market and supply was only one (assumed that only one pen of your brand was available in market).

But after your companion's entry, supply increased and demand remain the same, price dropped.

It may also possible that some are ready to pay 15 and some are ready to pay 5 bucks. Although in real world you'll sell your pen to the one who is offering 15 because you know there person but in the world of stock market, you don't know from whom you're are buying stocks or to whom you're selling your stocks. In this case average price is quoted like (in above case) 10 (5+15/2) provided weightage of buyer and seller are equal.

I can also make it complex by saying that only 2 persons are ready to buy your pen at 15 bucks and 13 students for only 5 bucks. In this case weighted average price will be calculated.

But there's no need to go much deeper just keep a small concept in your mind:

·         When demand > supply, price increases.

·         When demand < supply, price decreases.

BSE and NSE have huge algorithm machines which determine the price of stocks on the basis of volume traded. Lakhs of people and crores of shares are traded everyday.

You can get every information regarding volume traded, bidding, offering etc on web (a quick example is illustrated below)

There are also many other reasons for change in price like stock split, merging, demerging, dividend distribution etc.

What? Price changes due to dividend distribution, how is it possible?

Now let's tackle your sub questions in prime question detail.

Ques: If I buy 1 lac shares of the above stock at price 271.55 .Will the stock price rise ?

Yeah, the stock price will rise to 271.55 as you're are the highest bidder among all investors and your high bid will push the stock price up. (Subject to many other reasons, sometime people didn't disclose their bid/offer in public)

But as shown in the image above, offerers are very low so it'll be hard to execute your 1 lakh share bid.

Ques: If I sell 50,000 shares from my demat at price 270.70 ,will the stock price fall ?

Same reason as above, you're the lowest offerer among all others, so it'll turn the price down. (Subject to many other reason, it's just a basic reason)

Ques: What does "Best 5 Bids/Offers table" show?

I suppose this should be your first question.

·         Best 5 bids - next best nearest price at which people are ready to buy stock.

·         Best 5 offers - next best nearest price at which people are ready to sell stock.

Ques: If only 10 Qty. at price 271.55 if someone place buy for 20 quantity. what will happen ?

As per my knowledge only 10 stocks will be traded. I can't clearly say about it as it had never happened with me. If anybody know about it then notify in comments.

Some time it happens that you have put a buy or sell limit price to Rs 100 and then share go to 100 and come back again to lower value but your trade does not get executed.

So why this happens? Because of 2 reasons:

·         There was no one for selling at Rs 100 (very rare case)

·         Enough quantity was not available at Rs 100, for example 500 quantities are available at Rs 100 but before you, someone else order was pending so his order will get executed first than yours.

Some time it happens that you have put a buy or sell limit price to Rs 100 and then share go to 100 and come back again to lower value but your trade does not get executed.

So why this happens? Because of 2 reasons:

·         There was no one for selling at Rs 100 (very rare case)

·         Enough quantity was not available at Rs 100, for example 500 quantities are available at Rs 100 but before you, someone else order was pending so his order will get executed first than yours.

Best dividend paying stocks in India

Every successful investor wants stable returns from their portfolio.So we are here listing top dividend-paying stocks for your convenience.Though there are a lot of companies which pay a good amount of dividend, but consistency is very important.We will list the companies which had paid high dividends consistently for a long period of time and they are likely to continue paying dividends at the same rate.

Dividends provide passive income to investors.They can be more trusted during uncertain times such as market crashes because they are mostly held tight by investors.It is a very good idea to buy top dividend paying stocks during market crashes as they provide a good entry point.

Warren Buffet is known to invest in the best dividend paying companies.As we all know the saying ‘’slow and steady wins the race’’,this is the case with stocks also.Every successful investor builds their wealth over decades.Reinvesting the dividends again is very important.This keeps you ahead of inflation.

It also acts as a good vehicle for those who want regular income from their investments.Before choosing companies for a dividend ,it should be thoroughly researched.There are companies which pay high amounts of dividends inconsistently.The consistency of the company paying a dividend should be checked first.We should look for companies which are providing good dividend yield consistently.This dividend yield should be increasing slightly on a yearly basis.If there is an abrupt increase in dividend yield, it is a word of caution. Because such high dividend yield may not be sustainable for the company.

Another word of caution is that one should not invest just by seeing the dividend history.Fundamentals of the company should be checked beforehand.Always check for debt-to-equity ratio which should not be more than 2.Ideally the debt to equity ratio should be less than 1.

For y convenience we are listing here the top dividend paying stocks which have provided a consistent amount of dividend for over a decade and hopefully they will keep providing the same in the future.

 first choice among top dividend paying stocks is:

1.Page Industries-We all know the brand Jockey.They produce quality inner-wear and are unbeatable in quality.They also produce swimwear known by the brand name speedo. The company has provided not only consistent returns to it’s investors but also has provided good amounts of the dividend.The company has provided 48% of it’s net profit to it’s investors since 2007.It has also appreciated in price since 2007 giving an annual compound growth of 61%.

 second choice:

2.P&G Hygiene-They produces well-known house hold products such as Vicks, Ariel, Tide, Whisper, Olay, Gillette, Pampers, Pantene,Oral-B and Head and shoulders. In the past 10 years, this company has given 40% of it’s net income to it’s investors as dividends which is very lucrative.Though the growth of this company is not that fast but because of it’s strong dividend history, the price of the stock has appreciated at a rate of 30% annually.For a long term investor, it is a good bet.

 third choice:

3.Coal India Limited-Coal India has provided a consistent amount of dividend in last 5 years.The average dividend yield for last 5 years was 5.26%.This could be thought as a good investment.

 forth choice among top dividend paying stock is:

4.Asian Paints-Asian paints which are well-known brand.It is the industry leader in its sector.It has given 42% of its net income over a period of 10 years to its investors.The company is expected to pay the same amount of dividend in future.

 fifth choice:

5.NHPC-NHPC is Indian hydropower generation company.It has provided an average dividend yield of 7.89% in last 5 years.It is expected to deliver the same amount of dividend in future.

Guide To Finding Multibagger Stocks

Multibagger Stocks Meaning

Peter Lynch, the highly respected manager of Fidelity Investments Mutual Fund, coined the word “multibagger stock” in his books One Up on Wall Street and Beating the Street.

The term became very popular amongst investors because Peter Lynch gave practical examples of how companies that we use in the daily life like McDonalds, Dunkin Donut, Walt Disney, Ford Motor Co etc are great investment opportunities and give huge gains to shareholders.

The reference by Peter Lynch was to stocks which can give a return which is several times the investment made in them.

So, a stock which gives a gain of 200% and returns 300% of the investment becomes a 3-bagger. A stock which gives 10 times the investment is called a 10-bagger.

Meaning Of 100-Baggers

The concept of 100-baggers was made popular by Thomas Phelps in his book “100 to 1 In The Stock Market”.

Thomas Phelps referred to stocks which the potential to give 100x the investment made in them. Phelps gave several examples of such stocks and also gave a detailed explanation on the process that should be adopted by investors to find such stocks.

Penny Stocks, Micro-Cap & Small-Cap stocks

Generally, multibagger stocks are to be found in penny, micro and small-cap stocks. The reason for this is simple. These stocks have a smaller market capitalisation and find it easier to double and triple their net worth in a short while.

For, example a stock with a market capitalisation of only Rs. 100 crore can easily grow to a market capitalisation of Rs. 500 crore and give investors a 500% return.

In contrast, large-cap companies will find it very difficult, if not impossible to give multibagger returns to their shareholders.

Examples of multibagger stocks in India

There are several stocks in India which have given 10x and even 100x returns. Most of these stocks belong to the penny and small-cap space.

Caplin Point Laboratories is one example of a stock which has given a 10x return in a short period of time. Caplin Point manufactures pharmaceutical products and exports them to Venezuala and other Latin American countries.

Another example of a multibagger stock is Uniply Industries. The stock has attracted marquee investors like Radhakishan Damani, Ramesh Damani and Vallabh Bhanshali and has given a return of 1400%.

There are several other examples of stocks which have become multibagger and created huge wealth for investors. Stocks like Ajanta Pharma, Alembic Pharma, Mangalam Drugs, Intrasoft Technologies, Lanco Industries (Srikalahasthi Pipes), Shreyas Shipping, Page Industries, Hawkins Cooker, PI Industries etc are examples of such stocks.

How To Find Multibagger Stocks

Generally speaking, one has to hunt for such stocks in the penny, micro and small-cap space. Such stocks have a low market capitalisation which makes it easier for them to grow exponentially.

Moat

One has to find stocks that enjoy a moat from the competition. The moat can be in the form of a technological advantage or a marketing advantage. Basically, the company must be able to fend off competitors from laying stake to the market.

High RoE Companies

It is a common feature of penny and small-cap stocks which are growing fast that they will enjoy high rates of RoE. The RoE must be in excess of 20% to be attractive. The high RoE shows that the Company is growing in a profitable manner and that the growth is not coming at the cost of profits.

It is elementary that if a company does not make profit and instead suffers a loss, it will soon run out of capital and will have to go for liquidation and be wound up.

In fact, several companies in the e-commerce space have chased high growth at the cost of profits. Such a strategy is not sustainable in the long run and has resulted in the closure of these companies.

Examples of such companies are Local Banya, Tiny Owl, Grofers, Hola Chef etc.

Characteristics of multibagger stocks

The following are the salient features that all potential multibagger stocks display

(i) The Company offers a product or a service that is unique or innovative and for which there is a lot of demand and not much competition;

(ii) The size of the opportunity should be huge in relation to the size of the Company;

(iii) The Company should enjoy high profitability which will be reflected in the RoE levels;

(iv) The promoters should be highly committed and able to steer the Company to new heights through hard work and perseverance;

(v) The promoters must have the honesty and integrity to want to share the gains of the Company with the shareholders;

(vi) The Company should have low debt or be debt-free.