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  • 5 things to know about stock market risks

    We all wish to get maximum return on our investment. However, there is nothing like a risk-free investment. There is always a fear of losing money when it comes to investing in the stock market. It is better you be well aware of risk factors.


    Here are 5 things you need to know:

  • Systematic and non-systematic risks:

    Stock market risks are of two type: Systematic (non-diversifiable) and non-systematic (diversifiable) risks. Individual companies do not have any control over systematic risks. Non-systematic risks basically fall in the company or industry-specific risk category. Non-systematic risks can be tackled by holding a portfolio that contains multiple stocks from different sectors. This is the reason why market experts include stock specific risks.

  • Higher debts:

    Companies often end up with high debts. This may hurt the company's ability to generate enough revenue. High interest rates, repayments eat up company's earnings. If profits get squeezed, as shareholders, you may see dividend cut or the company delay expansion plans. If overall demand for the company's goods or services is strong, then this can hurt even more.

  • Floating stock factor:

    Liquidity factor is basically the free availability of buyers and sellers of a stock in the market. Investors often prefer to responsibly invest in larger, better known companies. Liquidity basically plays an important role in picking small and mid caps stock investments. Due to poor free float, the company's share price may fluctuate more than other shares listed.

  • Business cycle variation:

    Goods and services firms, real estate developers, automobile companies and commodity producers are closely related to several stages of an economic cycle. Such stocks experience several variations that depend on the demand as per market conditions. When the demand is strong, share prices rally on hope of better revenue and profit visibility. The reverse is likely to happen in a poor demand scenario.

  • Poor corporate governance:

    There are many companies that attract institutional investor attention due to high corporate governance standards. This largely pertains to disclosures of good or bad events in the company that could affect future profits of the company. Large investors tend to shun businesses that do not make adequate disclosures about factors affecting the business. Poor corporate governance could hurt the company's profit performance.

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  • 446

    Our analysts expect NSE Nifty to register earnings per share of Rs 446 for the year ending March 2016. This is the aggregate of the net profit of all 50 companies divided by all shares outstanding of those companies. A year earlier, it was projected at Rs 523. This means, analysts see a risk to profits and have cut profit forecast for the NSE Nifty companies.