Stock Market Classes with Pranjal Kamra - Lesson 1 | Stock Market Basics for Beginners in Hindi

Summary

In this video, Pranjal introduces fundamental analysis using a practical approach for stock market beginners. He demonstrates how to analyze stocks using the online tool, ticker.finology.in. The lesson focuses on Hindustan Unilever Limited (HUL), explaining concepts like Market Capitalization and Price-to-Earnings (PE) Ratio. Pranjal also discusses how to compare a company’s historical PE with its profit growth to determine if it’s a good investment. The video encourages viewers to follow along with future lessons and offers additional resources for those interested in deepening their investing knowledge.

Takeaways

• 📊 The video introduces a practical approach to fundamental analysis using Finology's stock analysis tool, ticker.finology.in.
• 💡 Market capitalization is the total cost required to fully buy a company, calculated by multiplying share price by the number of shares.
• 🧼 Hindustan Unilever Limited (HUL) is India's largest FMCG company, producing everyday items like soap and shampoo.
• 📉 The Price to Earnings (PE) ratio compares the price of a share to the company's earnings per share, showing how much investors are paying for each unit of profit.
• 💼 Earnings Per Share (EPS) is calculated by dividing the company’s net profit by the number of shares, helping investors understand per-share earnings.
• 🔢 The PE ratio can be used to determine if a stock is expensive or cheap based on historical PE data and current company growth rates.
• 📈 HUL’s PE ratio is currently 70, which is considered expensive compared to its historical PE ratio of 40-50, despite its recent profit growth.
• 📉 Colgate is another example given, with a PE ratio of 39, which is lower than its historical PE, indicating a potentially undervalued stock.
• 💰 Investors should compare market cap and PE ratios across different industries to make more informed decisions on where to allocate their money.
• 🧠 The video's lesson emphasizes careful research and understanding of company fundamentals before investing, encouraging viewers to continue learning through a 20-day course.

Q & A

What is the main purpose of the video?

The video aims to teach viewers how to perform fundamental stock analysis practically using a tool called ticker.finology.in, focusing on explaining key financial terms and metrics through examples.

What is market capitalization, and how is it calculated?

Market capitalization represents the total value of a company if someone were to buy 100% of it. It is calculated by multiplying the current share price by the total number of shares outstanding. For example, Hindustan Unilever's market cap is Rs-4.5 lakh crore.

What is the significance of the PE (Price to Earnings) ratio?

The PE ratio tells you how many times you are paying for a company's one-year earnings. It's calculated by dividing the share price by the earnings per share (EPS). For Hindustan Unilever, the PE ratio is 70, meaning you're paying 70 times the company's annual earnings to buy a share.

How is Earnings Per Share (EPS) determined?

EPS is calculated by dividing a company's total profit by its total number of shares. For instance, Hindustan Unilever's EPS is Rs-28, meaning each share earns Rs-28 per year.

Why is it important to compare the historical PE ratio of a company?

Comparing the historical PE ratio helps investors assess whether a company's stock is expensive or cheap compared to its past performance. For example, Hindustan Unilever’s current PE of 70 is high compared to its historical average of 40-50.

How does profit growth influence a company's PE ratio?

If a company shows consistent profit growth, the market may assign a higher PE ratio to it. Hindustan Unilever’s profit has grown by 15% in the past year, which could justify its higher PE of 70.

What is a practical use of the market cap for investors?

Market cap helps investors compare companies across industries. For example, you could choose to invest in Hindustan Unilever (Rs-4.5 lakh crore) or Infosys (Rs-2.5 lakh crore) based on your available capital.

Why does the speaker emphasize watching the entire 20-day course?

The course is designed like a math class, where each concept builds on the previous lessons. Missing videos may lead to gaps in understanding, especially since investing concepts are interconnected.

What are some other tools or services mentioned in the video for learning investing?

The speaker mentions the Academy of Value Investing, where detailed lessons on value investing are offered, and Idea Back, a model portfolio service that recommends stocks during market falls.

What should investors avoid when using the PE ratio to make decisions?

Investors should not rely solely on the PE ratio to make investment decisions. It is important to conduct further research, considering historical PE and profit growth trends before investing.

Outlines

00:00

👋 Introduction to Practical Fundamental Analysis

In this section, Pranjal introduces the series 'Curfew Classes' where he will teach fundamental analysis practically using screen recordings. He mentions the use of the stock analysis tool, ticker.finology.in, and plans to release a video every 20 days, starting simple and becoming more complex. The first lesson focuses on analyzing Hindustan Unilever Limited (HUL), a leading FMCG company in India. He explains what FMCG means and introduces the concept of market capitalization (market cap) using HUL as an example.

05:01

📊 Understanding Market Cap and PE Ratio

This paragraph explains how market capitalization is calculated by multiplying the company's share price by the number of shares. Using HUL as an example, Pranjal explains that it has a market cap of around Rs-4.5 lakh crore. He then moves on to discuss the Price to Earnings (PE) ratio, explaining how to calculate it and introducing the concept of Earning Per Share (EPS). He illustrates EPS using a shop example and shows how HUL's EPS is Rs-28.

10:04

💸 Exploring PE Ratio Further with HUL

Pranjal continues the discussion on PE ratio, explaining that HUL's PE is 70, meaning it costs 70 times its one-year earnings to buy one share. He compares this to buying a shop for 70 times its annual profit. He goes on to show how HUL's profits have grown in the past 1, 3, and 5 years. Pranjal explains that while HUL seems expensive based on its current PE ratio, its past performance and future growth potential justify the high valuation.

15:04

🔍 Historical PE and Profit Growth Analysis

Pranjal encourages viewers to compare a company's historical PE ratio to its profit growth history when analyzing stocks. He shows how HUL’s PE has risen from 27 in 2013 to 70 today, correlating this with its profit growth over the same period. He stresses that a company’s future profit potential can influence its current PE. He highlights the importance of thorough research before investing and uses Colgate as another example, comparing its current PE with its historical PE and profit performance.

💼 Market Cap Comparison Across Companies

Pranjal explains how comparing market caps across different companies and industries helps investors decide where to allocate their money. He uses the example of having Rs-5 lakh crore and deciding whether to buy all of HUL, Infosys, or HDFC Bank. He draws an analogy to choosing what to buy at a school snack stall and encourages viewers to use market cap comparisons to guide investment decisions. He concludes with a call to action, inviting viewers to comment on the video if they found it difficult and to join his Academy of Value Investing for further learning.

Keywords

💡Fundamental Analysis

Fundamental analysis refers to the process of evaluating a company’s financial health and performance by analyzing its financial statements and metrics. In the video, the instructor uses a practical approach to demonstrate how fundamental analysis can be used to assess stocks, particularly through tools like ticker.finology.in.

💡Market Cap

Market capitalization (or 'market cap') represents the total value of a company’s shares of stock. It is calculated by multiplying the company's stock price by its total number of shares. The video explains how to calculate the market cap of Hindustan Unilever Limited (HUL) and uses it as an indicator of company size and investment potential.

💡FMCG

Fast-Moving Consumer Goods (FMCG) are products that are sold quickly at relatively low cost, such as soap, shampoo, and detergent. Hindustan Unilever Limited (HUL) is highlighted in the video as India’s biggest FMCG company, and its stock is analyzed in terms of market cap and profitability.

💡PE Ratio

The Price to Earnings (PE) ratio measures a company's current share price relative to its per-share earnings. It’s a key indicator in evaluating whether a stock is over- or under-valued. The instructor uses HUL’s PE ratio (70) to discuss whether the stock is priced too high and how investors can compare it to historical PE data.

💡Earnings Per Share (EPS)

Earnings Per Share (EPS) represents the portion of a company's profit allocated to each outstanding share of common stock. In the video, EPS is explained using a shop example, showing how Hindustan Unilever's EPS of Rs-28 can be calculated by dividing its net profit by the total number of shares.

💡Profit Growth

Profit growth refers to the increase in a company’s net income over time. The video examines Hindustan Unilever’s profit growth over the past 1, 3, and 5 years, emphasizing how this trend impacts the stock’s valuation and whether a high PE ratio is justified by the company’s performance improvements.

💡Ticker

Ticker is a stock analysis tool mentioned in the video (ticker.finology.in), designed to help users perform fundamental analysis of stocks. It allows users to analyze stocks like Hindustan Unilever and view metrics such as market cap, PE ratio, and profit growth.

💡Historical PE

Historical PE refers to the average PE ratio of a stock over a set period, used to compare its current valuation. In the video, HUL’s historical PE is examined, showing how it ranged from 27 to 50 in previous years, and the current PE of 70 is questioned as potentially overvalued.

💡Stock Valuation

Stock valuation is the process of determining the value of a company’s stock. In the video, stock valuation is discussed in terms of PE ratios and market caps, using Hindustan Unilever as an example to explore whether its stock is fairly priced based on its growth and historical performance.

💡Academy of Value Investing

The Academy of Value Investing is an educational platform mentioned in the video that offers lessons, quizzes, videos, and downloadable materials to teach individuals about value investing. The instructor encourages viewers to join the academy to gain a deeper understanding of investment strategies.

Highlights

Introduction to Curfew Classes with a focus on practical fundamental analysis using screen recordings.

Explanation of how to use ticker.finology.in for stock analysis, a tool provided by the speaker.

Step-by-step breakdown of market capitalization (market cap) using Hindustan Unilever Limited as an example.

Definition of market cap: the total cost of buying 100% of a company.

Explanation of PE (Price to Earnings) ratio and its relevance in determining the value of a stock.

Clear explanation of Earning Per Share (EPS) using a simple shop example.

Application of PE ratio to Hindustan Unilever’s stock, showing a 70 PE and its implications for investment.

Discussion of historical PE trends for Hindustan Unilever and the importance of comparing PE to historical growth.

Introduction to Colgate as a comparison stock with a lower current PE ratio than its historical average.

Exploration of profit growth trends for Hindustan Unilever and Colgate over 1, 3, and 5 years.

Guidance on using the PE ratio as a tool for filtering and researching stocks, but with caution.

Market cap comparison across industries: buying Hindustan Unilever versus Infosys or HDFC Bank with Rs-5,00,000 crore.

Encouragement to think intuitively about market cap when making investment decisions.

Invitation to comment on any difficult parts of the video for clarification in the next session.

Promotion of the Academy of Value Investing for more detailed lessons, and the Idea Back service for stock recommendations.

Transcripts

Hello friends

Welcome to Curfew Classes with Pranjal.

Most of you wanted that

that I teach you fundamental analysis, practically on screen.

That's why I'm very excited today.

Because today I will practically

with the help of screen recording

will teach you, how I do fundamental analysis

and how can you go to ticker.finology.in

ticker is our new stock analysis tool

which is for you, so you can visit ticker.finology.in

and analyse stocks, just like me.

Now keep in mind one thing

that a new video will come in every 20 days

and the videos will be simple at first.

But as the day passes and you start learning

then the videos will get a little complex

and after 20 days, I believe that

you can pretty much analyze stocks by yourself.

So as it's the first day, so we are starting with a simple company

Whose products you may use every day in your lives.

Hindustan Unilever Limited

Now I you tell you very simple terms

that how a FMCG company

FMCG means, "Fast-Moving Consumer Goods".

These companies makes everyday useful items

like Sope, Shampoo, Detergent, stuff like that.

And Hindustan Unilever is India's biggest FMCG company.

As it's the first day, so I will start with the basics

so anyone, who doesn't know about investing

can also learn investing with the help of these videos.

Now we will start in the order as the data is given.

First let's talk about, "Market Cap".

So what is market cap?

See it's very simple.

If you want to fully buy a company

which is becoming 100% owner of that company

then how much money you'll have to give.

That what market cap tells us.

In Hindustan Unilever's case, it's around Rs-4.5 lakh crore

little less than Rs-5 lakh crore, to buy the entirety of Hindustan Unilever.

Rs-4.5 lakh crore, which is among India's biggest companies.

So that's market cap.

How market cap turns out?

It's simple to get market capitalization out

you just have to get one thing.

You have to find the shares price

like when recording this video, the share price is Rs-2190

you have to take that and multiply it by the number of shares.

So now Hindustan Unilever's total share is 216 crore shares.

If you multiply 216 crore shares with Rs-2190

then you will get almost around this amount.

So the market cap is, "one shares price x number of shares".

So the amount you have to pay to buy off an entire company

is what market cap tells us.

So with this, we can know the size of that company.

And market cap comes in handy in another interesting comparison

very useful for me in selecting these stocks

I will tell you at the end of the videos, which is a little advanced.

Today you have to keep in mind one thing that

there 20 classes are like mathematics classes.

This means every time you will learn something

which will be connected with the previous videos.

So it's important to see the videos in line

and watch all videos

because what is important, what ration you have to keep in mind

what heading do you have to keep in mind

what business that company dose

it depends on that, so it's important to understand it.

Now the next ratio, which is PE ratio.

PE means, "Price to Earning" ratio.

Now to understand it

first, we have to understand something else, just as I said.

In finance investing everything in connected.

So to understand PE ratio

first, we have to know what's Earning Per Share (EPS).

I'll explain Earning Per Share with a simple example.

Let's think a shop makes Rs-100 a year

now that shop has four partners

and every ones share is 1/4

which means everyone has 25% partnership of that shop

if the shop has 4 shares, and each partner has 1 share

and in total, that shop makes Rs-100

so the shops net profit is Rs-100

and the total shares are

as the number of shares, we can see here

in that shop, the number of shares are 4.

Total profit is Rs-100, number of shares 4

so per share, the profit of a single person will be

Rs-25

and that's earning per share.

So in Hindustan Unilever's case

earning per share is around Rs-28.

I hope, the earnings per share are now clear to you.

That, to know the company's total profit

divide that with the company’s total shares.

So I will divide net profit, by the number of shares

and I'll get earning per share.

Let's understand it more,

if I want to buy Hindustan Unilever's share

and I'm getting it, in around Rs-2200.

And for that one share, per year I will earn around Rs-28.

So what's PE?

Simply PE means

to buy one share

how many times are you paying for its one-year earning?

So if Hindustan Unilever

makes Rs-28 in one year

and if you get Hindustan Unilever's share for Rs-28.

Then you are giving it a 1 PE.

So you’re buying that share for its one-year price.

But Hindustan Unilever's share is at Rs-2190

so Rs-2190, which is the price of this company or is the PE,

divide with the EPS 28, which in "E",

so "P" divided by "E", will be 70.

Which means to buy Hindustan Unilever today

for it's one year income, per share income

then you are paying 70x that money.

So is this 70 PE, more or less

should you buy the share or not

you ask it to yourself.

Would you buy such a shop, for Rs-70

that makes you a profit of Rs-1 per year.

If I say to you, that there is a shop

which makes Rs-1 a year, and sell you at Rs-70.

So will you buy that shop?

This is one thing.

Second thing is

a company like HUL, for years

who knows, for the past 30-50 years

has increased their profit for every year

at what rate? Come let's see.

See this profit growth chart

in past 1 year, HUL's profit has grown by 15%,

in past 3 years, on an average, has grown by 13%,

in past 5 years, at the rate of 10%,

on an average HUL grows their profit.

Bur before that, there is one simple way

that we can find out, is HUL expensive or not.

So we have seen, that PE is 70.

Now let's see, because the PE changes everyday

it's dependent on the price, the "P" is price.

If the price falls then PE will fall, price rises then PE rise.

So this share, every day rises, falls, becomes expensive and cheap,

Let's check what the usual PE is, for HUL share.

Usually what rate does the market give after 1 year of earning

like today is 70x times

Let’s check the history, you have to scroll a little

you'll find this, 6 months, 1 year, 3 years and 5 years more data.

You'll find 8 years more data, in 5 years one

it's tells you, at what PE, HUL runs.

So like at 2013, it was around 27 PE

2015 and 2017, it was at 40 PE.

From 2018, it started growing

and in the past 8 years, as much HUL is,

it has never been this expensive or at this high PE.

So a primary guess is that

now HUL is expensive.

And to think that, because the PE is highest in 5 years, that's why it's expensive

It's not right.

Market can give more PE, or it can increase

if the company shows more growth.

It can happen, that in the past 5 years, that companies growth was slow

now in the last 1-2 years, the growth is fast

meaning the company is making a fast profit.

So if the companies make a profit fast,

then the rate, which the market gives will also increase.

So at first look, HUL seems expensive

because, before it was on 40-50 PE, but now is at 70 PE,

Now let's see, is HUL increasing their profit like before,

let's see.

So this is the sales and profit growth chart

now see, in last 1 year, HUL has increased their profit by 15%,

in last 3 years, they increased it by 13%,

in last 5 years, they increased their profit by 9%.

So in past 3 years, their performance improved,

in past 1 years, their performance improved more.

So that's one reason, that the market is giving it more PE, then they used to.

Suppose a little profit has increased

because of that, is it justified that the PE has gone from 50 to 70

should you buy this share at 70 PE?

Its calculation is a little difficult, we'll learn tomorrow,

but today, one thing is important to learn.

You have learned, from today's PE to historical PE,

you should compare it, and

compare the historical PE, with its profit growth history.

We have learned this far.

So now imagine, there's such a company

whose profit has rapidly increased, in past 5 years

increased more in 3 years and more in last 1 year.

This means every year, there profit and performance have improved

besides from that, their valuation chart shows

their PE is decreasing.

This means the company, which was running on 50 PE,

first, the profit growth was 10% and now it's 20%

but first it's PE was 50 and now it's PE is 30-40.

So we can tell, just looking at the PE ratio

that company will be a good company.

Keep in mind, just looking at the PE ratio, and the things which I have taught today

you should not blindly invest in shares.

Invest then, when you have researched it,

and completed the 20 day course.

Today, it's just the simplistic examples.

So, I've searched for a company like that, for you.

I'm showing this for simplifying the

use and comparing of the PE ratio.

Colgate, this is also a well-known company.

Its PE ratio is around 39, nowadays.

Now let's see its historical PE.

Its historical PE is 40,

little less here, then 45,

around 50, here also.

So it's usually been between 40-50,

now it's 39, which means, it's going around its historical PE, or a little cheap.

Why this? Is Colgate performing badly?

Come let's see.

1 year profit growth 15%,

3 years 10%,

and 5 years 7%.

Which means this also, compare to 5 year,

better in 3 year and last year much better performance.

So if we see this fewer data, then there's no reason

that it got 39 PE, instead of 45-50 PE.

So in this case, my interest will grow,

I won't invest, but my interest will grow,

that this company looks good, I can check it out

because, it's cheaper than its historical valuation,

and compare to its historical performance, Its performance is becoming better.

So like this, by using PE ratio,

we can filter such companies

which I can further research and will pay attention to.

So what you have learned today, can be used to filter companies

where to pay attention to and where not to pay attention.

It's not a investing recommendation.

Now pay attention, I've said at the video's starting

that market cap, I told you

but how, just by looking at the market cap

I can get a slight idea, of where to invest and where not.

Every people have limited money

if I say, you have Rs-5,00,000 crore,

so, what would you buy with that Rs-5,00,000 crore?

Do you want to buy HUL, which is almost around Rs-4,50,000 crore,

or you'll buy INFOSYS, which we all know,

let's see its market cap.

Infosys's market cap is little up to Rs-2,50,000 crore,

if you want, you can buy Infosys,

and still you would have Rs-2,30,000 crore left.

So, how would you want to spend your Rs-5,00,000 crore?

Do you want to buy HDFC Bank?

HDFC Bank is almost equal to HUL, in market cap.

If you have Rs-5,00,000 crore, will you buy the whole HUL?

Or all of HDFC.

Do you like to buy Soap, Ketchup, Noodle making company,

or you will buy, the country's largest, well-managed Bank.

So like this, when you, industry by industry

company by company, will think like

I have this money, what can I buy with this money?

Like when we went to eat at school

our family members gave us Rs-50 or 100,

so there were many stalls outside

so we would think, should we eat chips or chocolate?

eat Bhel or something else, just like that

you have to think about the market cap,

with this money, should I buy HUL or Airline company,

or IT company or should I buy Bank.

So with that, your intuition will give you an idea

where can you put your valuable money.

Because your money is always limited,

and you find it's best use intuitively

if you compare market cap like this, across industries.

So let's hope you find this introductive video simple, and understood it.

If you find this video difficult, so comment about it

that what you found difficult and didn't understand,

and I'll make sure to clear those doubts, tomorrow.

And like this, if you want to learn detailed investing year on,

then you can join the Academy of Value Investing

where me and my team, year round

text lessons, quizzes, videos, downloadable materials

company research reports, excel sheet, every other way

will teach you value investing and become an expert investor.

You'll find the Academy of Value Investing link in the above card and in this video's description.

With that if you want to know,

in this market fall, which stock we bought

and what stocks we are recommending in our model portfolio,

you can join our model portfolio service

Idea Back.

You'll also get the link in videos description.

If you liked today's video, then don't forget to share it

and also create your ticker account

so you also can start research like this

and can practice everything that we learned.

see you tomorrow evening, at 7 pm,

In Curfew Classes with Pranjal, Bye Bye.