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August 18, 2021

Is buy and hold still a good strategy in India?

Stock market plays a huge role in Indian economy as it not only boosts the economy but also brings financial stability in the market. The stock market scenario of India both Primary and secondary stock markets exist, and it is essential for individuals to understand and be informed about both.

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are India’s two primary stock exchanges. Each of these exchanges is completely owned by the government. These stocks can be acquired through a financial institution or a financial adviser by creating a Demat or trading account. According to the Futures Industry Association (FIA), a derivative trading association, the NSE, which was created in 1992 in Mumbai, will be the world’s largest derivatives exchange by number of deals made in 2020, whereas the BSE, which was founded in 1875, is Asia’s oldest stock exchange. The NSE has 1952 firms listed as of March 28, 2021, while the BSE has 5439. 

The stock market, which functions similarly to an auction house, is where investors and corporations gather to negotiate and trade rates. New stocks are sold in the primary market and subsequently exchanged in the secondary market, when one vendor buys shares from another at any price agreed upon by the sellers and purchasers. A regulatory agency oversees the secondary market, often known as capital markets. The Security and Exchange Board of India (SEBI) regulates India’s secondary and primary markets. 

Is buy and hold a good strategy in India and why?

Buy and hold is a long-term strategy which is used by the Indian citizens which helps them to build a stable and a reliable portfolio with the passing time as If the investors plan on long term investments or stock trading then they do not really care about the short-term fluctuations in the stock market. 

It is also considered to be a good strategy as it is expected to provide exponential growth on the invested funds overtime and gives the investor a relaxed thought overtime as it is very convenient for the people who do not wish to spend a lot of time checking out the details or studying the market.  Almost any stock or mutual fund may be used in a buy-and-hold strategy. Acquire-and-hold investing is defined as a well-researched, balanced portfolio of equities that you intend to buy and keep for an extended length of time. 

It is believed to be a good strategy because the economy of India is growing exponentially since 1990s showing a good stock market standing which determines good stock trading enhancement by the people as per the understanding. Also, India has experienced extensive growth in various sectors such as technology, automobiles, FMCG, etc. Presently, India is getting the recognition and the sense of understand by the government and the people which was needed.

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India is also paving way into various industries and sectors getting listed in the stock market which is giving better opportunities for the people for stock trading and also to apply strategies such as ‘buy and hold’. 

How to select stocks for buy and hold?

Long-term investment is defined as a strategy that allows individuals or investors to generate money while avoiding excessive risks. This is something that will demand patience and discipline from them in order for them to reap the benefits of greater revenues.

It is not necessary for the money invested to grow every day, but it might turn out to be one of the greatest long-term investments. When selecting a suitable stock for long-term investment, a number of factors are taken into account. Some of them being:

  • Grasping the economic situation:

Understanding the country’s economic situation is critical since it has a direct impact on the stock market. The stock market does not fluctuate fast based on the financial situation, but it does fluctuate in response to the nation’s progress or recession.

  • P/E ratio analysis: 

The price/earnings ratio is used to determine whether a stock is undervalued or overpriced. A higher P/E ratio is regarded better, and it also aids investors in deciding whether or not to invest in a given business, whilst a low P/E number accomplishes the reverse. The P/E of the firm is compared to the P/E of the sector to see if the stock is truly valued at a fair price or not.

  • Dividend consistency:

The constancy of the payment from the firm where the individual invested in stocks assures him or her of the company’s stability. This will be important in a variety of timelines since frequent dividends will aid in comprehending the constant.

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