Blog meant for 28 June 2017 Wednesday
Dear friends,
As mentioned in the blog on Sunday, Nifty had already entered Sell zone. Today, markets fell further by 64 points to close just above the 9500 mark at 9511. In fact it had fallen much below the 9500 mark but recovered towards the end of day.
The weak global cues are not helping the situation. Apart from profit booking in our markets, weak cues from Asia, Europe and the US are pushing our markets lower. Of course, this consolidation/ correction was somewhat expected since markets had been going higher and higher everyday for too many days and it had to consolidation a little before it can resume its rise.
As per 30 days moving average, Nifty is in Don’t buy zone. The indications for short term for individual stocks are as follows:
THE HOLDS ARE – HDFC BANK, HDFC, DIVISLAB, ITC, Reliance, Titan
Wait to Sell – MARUTI
Sell – Asian Paint
Don’t Buy – Axis Bank, LUPIN, BHEL, ONGC, Infosys, TCS, L&T, YES Bank, ACC, M&M, SBI
Only a few stocks remain in Hold zone. Rest of them have fallen below the red line.
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Question of the Day
Question –
If I purchase 100 shares of a company at Rs.500 each. Suppose, after 10 years, the shares of the company trade at Rs.1350 per share. What is the meaning of the compounding in shares?
Answer –
Compounding is the growth of an amount (or anything else) in an exponential form. For example, all of us are familiar with the concept of Simple Interest where Interest is always calculated on a Simple basis and it will be on the Principal or Initial Investment.
In Compounding or Compounding Interest, the Interest is calculated on not only the Principal but also on the Interest.
For example, if a simple growth of 10% p.a. is taken on Rs.100/- for 10 years and the Interest is computed as Simple Interest, then after 10 years, the Interest we will receive is Rs.100 X 10 years X 10 % = Rs.100
100
Hence, the Amount = Principal + Simple Interest = 100 + 100 = Rs.200/-
For example, if Compounded growth of 10% p.a. is taken on Rs.100/- for 10 years, the Interest for 10 years will be –
Final Amount = Principal (1 + R)^T
Rs.100 (1+ 10)^ 10 = Rs.259.37
100
Compound Interest = Amount – Principal = 259.37 – 100 = Rs.159.37
If you notice, Interest is as per Simple Interest is Rs.100 and Compound Interest is Rs.159.37.
Total amount as per Simple Interest = Rs.200 & as per Compound Interest is Rs.259.37
When we invest in Shares for long term, we invest the amount and let the amount grow for many years, in which case, the shares earn returns on returns and thereby the compounding effect happens.
This is why we say that share investment or real estate investment get massive benefits of compounding when invested for long term.
Many of you have invested a small amount one time in Real Estate to purchase a residential plot and after 10 or 20 years, the value of the plot has grown to a big amount since the initial investment has compounded over a long period of 10 years at a very good rate of return.
That is why Albert Einstein had said long back that “Compounding is the Eighth Wonder of the World.”
All the best!
Dr.Bharath Chandra
About the author
Dr. Bharath Chandra
Hi there! This is Dr. Bharath Chandra & Rohan, International Trainers & Success Coaches. We have addressed more than a crore people on Stock Market, Personality Development, Wealth Management and Financial Planning over the past 35 years.
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