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Things to know about stock market risks 5

5 things to know about stock market risks

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Page 1: 5 things to know about stock market risks

Things to know about

stock market risks5

Page 2: 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.

Page 3: 5 things to know about stock market risks

Here are 5 things you need to know

Page 4: 5 things to know about stock market risks

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.

#1

Page 5: 5 things to know about stock market 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.

#2

Page 6: 5 things to know about stock market risks

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.

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Page 7: 5 things to know about stock market risks

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.

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Page 8: 5 things to know about stock market risks

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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Page 10: 5 things to know about stock market risks

• Disclaimer: • Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E),

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• This is an editorial content, our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile, and the like and take professional advice before investing.