In this article, you will get a complete Stock Market Mastery.
You might have heard about the Systematic Investment Plan, and generally, we do this discussion more around mutual funds. But, if you directly invest in stocks, how can you make a SIP, which category of stocks you must do SIP, and the types of SIP. We will do all this discussion in this article.
Whenever we talk about direct stocks, we always think can we manage them?
Because direct investment can be risky too, primarily when I invest in mid-cap and small-cap, their prices can crash too, and you feel worried.
So, there are advantages as well as disadvantages of one-time investments.
If you invest one time in the market, you can make huge money. And that opportunities come when the market crashes.
And at that time, as you have the money, you go all-in the market and invest money. But friends, this is not practically possible, and this is impossible for everyone.
For those who have been in the market for a long time for them, it’s relatively more straightforward. But for an ordinary person to invest the real money once.
Whenever he invests, the ordinary person, if the price falls, then investment increases more, and if the price decreases again, it grows more. This means averaging in loss is expected.
Right or wrong? This discussion we will do later on. But today, I will tell you that if you have to do SIP in direct stocks, then there is a separate category of companies where SIP will be rewarding and peaceful.
Peaceful is necessary because we all are investing in the market for peace. We don’t want such an environment that we are worried about our invested money.
So, if you have to do peaceful investing using SIP, this discussion is necessary for you. There is a category of stocks in the market, which I call mother stocks.
Mother because those stocks have many kids, and I feel that if you make a proper SIP plan in these mother stocks, then in the long term, you will not face loss in the market.
Plus, you could generate a better return. It is quite a subjective word though I have used it. But for every person, some returns could be better, and for some other people, it could be poor.
So, in my opinion, better returns mean that if India is doing a GDP growth of 7% and inflation is approximately 6%, then we should expect a 13% minimum return.
And if we are investing in equity as well, we should get more than a 13% return. So approximately, equity risk is 2-3% which means you should expect a 15% minimum from the equity market.
And the more risk you take, the more your return expectations will increase. Risk means investing in those stocks which can give very much return; then it’s a risk.
So, when we have to make a model using a systematic investment, our risk-adjusted return should be moderate such that our money is not used, and we get a 15-16% return.
So, in this article, I will give you that formula, hack. So read it till the last, and this mother stocks, what is its concept I will explain to you that.
See, many companies in India have their own business, and apart from that, it has small companies whose business is there too and is doing well too.
Let me tell you the names of 10 stocks that can be very relevant for you whom I call mother companies, and probably you get more companies in this character which you can call mother companies.
So, the ten companies which I am discussing are HDFC, Naukri, ICICI Bank, Kotak Bank, State Bank, Reliance, Bajaj Finserv, Grasim, ITC & Larsen & Toubro.
You might have understood that these ten companies are big and small companies doing well. Now let us see what the children’s companies are? I have made a list here.
HDFC, a big name, is housing finance in which asset management’s a 52% stake, HDFC life’s a 50% stake, 19% stake in HDFC Bank.
HDB Financial Services is 100% subsidiary almost, and HDFC securities are nearly 100% subsidiary. When these small companies grow, their value will come in HDFC.
Remember one thing; there is a concept called holding company discounting which means that in these companies, the mother company doesn’t have a business on its own, but it holds stakes in the remaining companies.
So, that concept means that there is no business in the company, then why should I invest in that company? But all these companies have their own business which is growing and no harm in investing in them.
Second, InfoEdge is a unique company. Naukri is a website and a profitable cash-flow generating business. Apart from that, InfoEdge is a micro Venture capital that invests in multiple startups.
2-3 big startups listed, and InfoEdge got its value, Zomato, PolicyBazar, etc. And there are many startups where it is investing, and if you believe in startup funding and believe that in the coming ten years.
Startups will grow in India, which I believe strongly. So, InfoEdge is a system that gives you an excellent opportunity to invest in them.
Third, ICICI Bank. Why so?
Because it is an excellent bank, adapting technology has done very well. Apart from that, ICICI bank has a stake in ICICI Securities, ICICI Lombard, and ICICI Prudential Life.
As it will get value like ICICI securities or any company that will get listed in the future, the discount will unlock whose benefit will be reflected in this company.
After that, Kotak, Kotak Bank has many companies, including Kotak Mahindra Prime, Kotak Securities, Kotak Life Insurance, Kotak General Insurance, Kotak Mutual Fund, Kotak Mahindra Capital &Kotak Investment Advisors.
Now you imagine that as each company’s value will unlock, this company can be a powerful entity on its own. From a banking point of view, it is assumed that Kotak Bank viz-a-viz other banking service providers.
After that, there is the State Bank of India, and the more I say about it will be less. It has SBI Cards, SBI Life, Capital, General Insurance, and SBI Fund Management.
Many times, it is so that amongst these, many companies are on the verge of listing, and some have already been listed, like SBI Cards and SBI Fund Management.
So, as it will list, the value will be unlocked, and value will be seen in it. Reliance, we all know that it is no more an oil company, and it has become an ecosystem on its own.
There are so many entities whose value is reflected in Reliance, the big names like Reliance retail, in which 85% stake is with Reliance. Reliance Jio Infocom’s 67% stake.
Jio platform in which the remaining people were joined too, It has 66% of it. So you can imagine how big an ecosystem it is, and I know that the company that will be 1 trillion $ in this country will be Reliance.
So, if you regularly invest here, only you will be able to capitalize on this journey.
After that, Bajaj Finserv has stakes in Bajaj Finance, Bajaj General Insurance, and Bajaj Life Insurance & has its own business. Which operates 138 windmills to produce green energy in Maharashtra. So it is not, so it is doing an excellent job, but it has some business at the operational level, which is interesting too.
After that, Grasim- Textile, Chemical, Insulators, Fertilizers, Paints. Grasim is a big name. Where does it hold? Aditya Birla Fashion, Aditya Birla Capital, Vodafone, Hindalco, Ultra Tech Cement.
So ultimately, if the value will be built or will get unlocked, then Grasim will be valued too.
After that, L&T, L&T Finance, L&T Technology, MindTree & InfoTech. So many companies are a part of L&T.
And after that ITC which is renowned that people have bought it. ITC is a cigarette company, but it’s subsidiary ITC infotech’s value will get unlocked.
And each segment of ITC belongs to, and when the value vice segment is unlocked, its benefit will be given to the company.
How to do SIP in Stocks
So these were ten companies, and you might tell 2-5 companies with a similar mindset that companies have a business too and have kids too, which are doing well.
Now the question is how to do SIP in them? So, in my opinion, there are three ways. 1. Fixed Time-based SIP means investing a fixed amount on the closing price at the end of every month
If you see a graph of any stock, this is a monthly chart, so it has appreciated only if you are investing from starting to the end of every month. Possible that in some, there might be more.
And not much in some. But you have got an average return from your portfolio. What does this benefit? When the market falls, it becomes a forced investment for you then you make your investment at lower levels.
The second is when you do SIP based on the earnings of that stock. If that stock PE multiple, price/earnings if it, is at a high point, then reduce the quantity.
And if it is at a low point, then increase the quantity. So basically, do three layers of capital allocation in every stock. 1st is when you decide you will invest 100,000
The second is when you decide to invest 75,000, and the third is when you choose to invest 50,000, which you will invest when the PE is very high. And 100,00 when PE is very low.
So, where will you find PE? In StockEdge, when you go to any stock and when you go to ratios in fundamentals, then over there, there are valuation ratios that will help you find the PE ratio at the end of every year.
So, you see L&T, PE of 7.5 – 16:22 then 17:16 then 25:21 then 12:17, and in today’s date, its trailing PE is approximate 30. This means I will do SIP in L&T, but I will do 50,000 because it’s at the high end of PE.
When the market price falls, and the earnings remain the same, PE remains low. Then I will increase the quantity and make it 100,000, which is called PE-based SIP.
Before, this was fixed time-based SIP, and this is PE-based SIP for which you will have to track PE, and you should know what’s a long-term PE average ratio. You will get a hint in StockEdge about the PE of this stock.
The third way is when compared to NIFTY, what is the relative performance of this stock. Whenever any stock is performing well compared to NIFTY, we reduce the quantity and vice versa.
This is opposite to momentum trading, where we increase when it’s outperforming, and when it’s underperforming, we exit or reduce. In this case, it’s the opposite.
For example, if we talk about ITC, then it’s downwards. This is a Relative performance of ITC viz-a-viz NIFTY. How will you find out?
When you go to an indicator in trading view where there is an indicator which our friend AMIT has made it, whose name is Maverick Amit Relative Indicator, this is a free one. In this, we can see a graph of RS.
So, if the RS is very high, we will reduce the quantity, and when the RS is low, we will increase the amount, and when RS is on average, then we will do SIP on nominal quantity.
This means in ITC, as it’s gone through its LOW, I will invest 100,000; if it remains around average, I would have supported 75,000, and if on a high point, then 50,000. The logic behind this is that as stock is high, it will reduce the quantity,
And as the stock is running low, then I increase the quantity. So, this can be done by looking at price, too but somewhere or other; I feel that RS is a better indicator because it captures the NIFTY movement.
So, I feel that you can do SIP based on NIFTY. Let’s look at a similar stock in this name – Reliance. So looking at its graph, you will understand that the average is 0.1, and when it is above, we reduce the quantity.
Now it has returned to 0.1%. So, I will invest 75,000 in it. Let’s see other companies too, HDFC whose RS was upwards then I kept its quantity 50000
Saying in terms of value and as it’s going below average, I will keep increasing the quantity. So if you do SIP regularly in these mother stocks, you could beat mutual fund SIP.
Because in this case, you won’t have to give fees to any fund manager, and this is yours only. You have to keep disciplined. Do time-based SIP or value-based SI; this discipline will only provide a framework.
So, friends, I hope you liked it and if so, share it with your friends. Direct equity is excellent, and direct equity doesn’t mean investing in small or mid-cap stocks.
These big companies representing India will do good. They will generate a better return and give you vis-a-vis at least FD, other products generating lower yield for you.
This is safe, and I feel that you should start SIP in them now only such that in the coming 10-15years, as these mother companies will become more prominent and create more kids, you will benefit too.
Thank you, friends. Take care of yourself and keep on enjoying the journey of stock investing. Bye-bye.