Types of stocks

TYPES  OF  STOCKS

Stocks are classified into different types depending on their mcap, risk, growth, fundamentals, etc. As a trader/investor one should classify stocks into different characteristics to know where to invest or trade. Every investor is different in behavior and holding period, so the stocks should be selected by person to person on the trading style. 

1) Dividend stocks

Income earned through the dividend is passive income and income is granted till the stock returns are positive. 

Dividends are not noticed by traders but the investors has to take it into accounts. 

Dividends cannot be primary source of income. Stocks price appreciation is the main source of income for investors in stock market. 

It is mainly seen that PSU companies pay more dividends than private companies, but the returns of private companies are much larger than public enterprises.

2) Fundamentally strong stocks

Fundamentals of the company are mainly studied in long term Investments. Fundamental analysis is not applicable for trading, but technical analysis is applicable for both long term and short term.

Fundamentals are mainly focused on the intrinsic value. Intrinsic value is calculated through mainly ratios and combination of business model study.

If the share price is above the intrinsic value then the share price is considered as expensive to buy and vice-versa. 

3) Risky stocks 

Risky and non risky stocks are classified on depending upon their fluctuation. Mainly the smallcap and penny stocks show more fluctuations than large or stable stocks.

Penny stocks mainly fluctuate on the news basis. Circuit to circuit trading is common in penny stocks due to low liquidity. 

Some smallcap stocks has a higher potential of returns than largecap stocks, but risk management and strong analysis is required to take smallcap stocks. 

4) Stable stocks 

Stable stocks are stable business companies, stable earnings growth & lower debt. 

Largecap private companies with stable growth business are mostly the stable stocks in nature.

Stable companies stocks are safe in nature. 

5) Growth stocks

Growth stocks refer to those companies who show high growth in top line and bottom line, this results in high growth in their stock prices. 

Growth stocks donot pay high dividends. They try to reinvest their large amount of profits into business.

Stocks like Asian paints, pidilite, reliance, etc donot pay high dividends, they show the high growth in stock prices. 

Payment of dividend is also a disadvantage in returns of investors. Before paying a dividend companies have to pay a tax on amount and investors have to pay tax accordingly to their tax slab. 

Growth stocks reinvest their profits into business and save taxes on dividends and help to gain more return on investment.

6) Cyclical stocks

Some businesses affects by the cycles of economy. Growth of specific business can face adverse effects on economic slowdown and vice-versa. 

Cyclical stocks cannot be a long term Investments for many years. It can be taken for 1 to 5 years depending on the economic cycle. 

Cyclical stocks can outperform the markets in a good economic cycle and may underperform in an adverse cycle. 

Some examples of Cyclical business are metal, infrastructure, auto, etc.

7) Non cyclical stocks 

Opposite of Cyclical stocks, non Cyclical stocks donot depend on the cycles of market and economy. 

Returns of non Cyclical stocks are good in economic slowdown and may underperform in capex cycles. 

FMCG, pharma, breweries, etc are some examples of non Cyclical businesses. 

8) Stocks on the basis of market capitalization

8a) largecap stocks 

Companies with the market cap of more than 20000 crores are called as large cap companies or large cap stocks. 

Large cap are mainly stable businesses and high market share companies. 

Nifty, Nifty junior, etc are some examples of large cap indexes on NSE.

8b) Midcap stocks

The companies with the market cap of 5000 to 20000 cr.

Midcap stocks can also be considered are potential future large cap stocks. 

Nifty midcap 100, Nifty midcap 250 are some examples of midcap indexes on NSE

8c) Smallcap stocks

Small cap stocks refer to those with the Mcap of 500 to 5000 crores.

Small cap stocks can provide large returns in favourable economic conditions. 

Nifty smallcap 100 is a EXAMPLE of small cap index on NSE

8d) Microcap stocks

Microcap companies stands for the mcap of 50 crores to 500 crores

8e) Nanocap stocks

Nano cap companies have a market cap less than 50 crores. Nano cap companies have a higher potential of multibagger returns and the chances of failures