Chart updates are now exclusively available on our social media platforms. Find the link in the footer section at the bottom for easy access.

Equity Valuation Part 1

In today’s world everyone wants to learn “how to invest in stock market?” and “what is the right time to invest in the stock market?” as this is the hottest topic in today’s time and everyone wants to learn that.

So in today’s article we will learn “What is the right time to invest in the stock market”.

We will begin this with answering the myth “that the best time to enter to the market is when the market is down and the best time to exit the market is when the market is at its peak.”

There is no perfect time to enter or exit the market as the value of the stock depends on its Intrinsic Value.

When we use the term intrinsic value (IV), we are referring to the valuation of an asset or security by someone who has complete understanding of the characteristics of the asset or issuing firm.

We can calculate the intrinsic value of the stock using different methods which we will discuss below and that helps us analyse whether the stock is undervalued or overvalued when we compare that with the price which is prevailing in the market also known as share price or market price (MP).

There are many method using which we can calculate the intrinsic value of the stock but today we will discuss most important three methods which are used :-

1)    Dividend Discount Model :- This is the first method used to calculate the intrinsic value of the stock. Dividend discount models (DDMs) define cash flow as the dividends to be received by the shareholders. The investment today is the cashflows of the present value of the future benefits which we expect to receive and that can be in the form of dividends.

The process to calculate the intrinsic value of the stock using Dividend Discount model is by discounting the future dividends which we expect to receive using the current dividend and expected dividend growth rate in future. This is the most commonly used method to calculate the intrinsic value of the stock and if,

The intrinsic value > market price, then the stock is considered undervalued and if, intrinsic value < market price then the stock is considered overvalued…

Quick bite #3  Investment medium and returns

1. Fixed Income Instruments :  Like Bank fd's and bonds | Return : 5-7%

2. Equity markets : Stocks | Forex | Commodities | Return : 16% average historical returns

3. Real Estate :Need large chunk of investment and liquidity issues

4. Bullion : Gold | Silver  | Return : 8% average returns

Think twice before you make an investment choice