📊 NISM Series X-AChapter 8 of 20⚖ 10 marks weightageCase-Based ✓
Ch.8: Investing in Stocks
Practice questions for NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination
(mandated by SEBI under the Investment Advisers Regulations, 2013).
Chapter 8 carries 10 out of 150 marks
in the final examination. The exam has 90 MCQs + 9 case-based sets (5 sub-questions each, mixed 1-mark
and 2-mark weighting), 180-minute duration, 60% passing score, and 25% negative marking on the marks
of each wrong answer.
49
MCQ
1
Case Sets
53
Total Qs
10
Exam Marks
60%
Pass Score
−25%
Neg. Marking
What You Will Learn in This Chapter
Understand equity share characteristics and basic valuation
Learn fundamental and technical analysis basics for stock selection
Understand corporate actions and their impact on shareholders
Chapter 8 explains why equity is risky, how risk can be reduced, and how analysts pick and value stocks. Expect questions on types of risk, the top-down (EIC) approach, the industry life cycle, valuation ratios with small sums, and the basics of technical analysis.
1. Equity and its risks
Shareholders are owners with a residual claim and voting rights, but no promised dividend or repayment. That extra risk is why they expect higher returns than lenders.
Risk
Key point
Market risk
Hits all stocks; cannot be diversified, only hedged; beta measures it
Sector / company risk
Idiosyncratic; reduced by holding many sectors and companies
Transactional risk
Counterparty may fail; exchange clearing reduces it
Liquidity risk
Measured by impact cost; thinly traded stocks have high impact cost
Currency risk
Comes in through foreign investor flows and exchange rate swings
Diversify cross-sectionally (across sectors and countries) and over time (stay invested: time in the market beats timing the market).
2. Research and the EIC framework
Top-down: economy → industry → company. Bottom-up runs the other way.
Economy: GDP, inflation, interest rates, unemployment, IIP, CPI/WPI. Banks are rate-sensitive and pharma less so. The stock market is a leading indicator.
Industry: cyclicals shine in early recovery, basic materials gain at an inflationary peak, and defensives (FMCG, pharma) hold up in recessions. Life cycle: introduction → growth (high margins) → maturity (longest stage) → decline.
Company: financial statements, ratios and SWOT. Strengths and weaknesses are internal; opportunities and threats are external. A good company can still be a poor buy if it is overpriced.
Sell-side analysts (brokers) publish for clients. Buy-side analysts (funds) advise their own managers.
3. Valuation
Price is a fact; value is an opinion. DCF needs cash flows, their timing and a discount rate. Asset-based valuation suits asset-heavy firms but ignores future earnings. Relative valuation compares multiples with peers.
Ratio
Formula / rule
P/E
Price ÷ EPS (trailing = last 4 quarters; forward = next 4). ₹100 ÷ ₹5 = 20
P/B
Price ÷ book value per share; popular for banks
P/S
Market cap ÷ last 12 months' sales; useful for loss-makers
EVA = NOPAT − capital × cost of capital; MVA = market value − capital invested
Dividend yield
DPS ÷ price × 100 (₹2 on ₹40 = 5%)
Earnings yield
EPS ÷ price × 100, the inverse of P/E (₹2.5 on ₹25 = 10%)
Sector fit: DCF for steady FMCG and pharma, replacement cost for cement and steel, P/B for banks. Multiples are really a shortcut version of DCF.
4. Technical analysis
Technicians assume prices already reflect all information and move in persistent trends driven by supply and demand. They study price, volume and time. Popular tools are trend lines, moving averages (5 to 200 days) and Bollinger Bands, where two standard deviations above the average suggests overbought and two below suggests oversold. The same tools work for bonds when price and volume data exist. A common saying: pick stocks with fundamentals, time trades with technicals.
5. Qualitative checks
Corporate governance is the cornerstone of qualitative evaluation. Frauds, accounting scandals and excessive pay have sunk companies whose numbers looked fine.
Summary written by BullWiser from the NISM Series X-A workbook (March 2026 edition), Chapter 8. Always refer to the current NISM workbook before your exam.
Multiple Choice Questions (49)
Q1MCQ · 1 markEasyEquity basics
What kind of claim do equity shareholders have on a company?
AA residual claim on what is left after all liabilities are paid
BA claim only on the company's cash
CA fixed claim to interest
DA first claim ahead of lenders
Q2MCQ · 1 markEasyEquity basics
Which right do equity shareholders have that lenders normally do not?
APriority repayment in liquidation
BA fixed coupon
CVoting rights
DA guaranteed return of capital
Q3MCQ · 1 markMediumEquity basics
Why is the expected return on equity usually higher than on debt?
ADividends are fixed by law
BEquity is guaranteed by SEBI
CEquity has no market risk
DEquity investors bear more risk and receive all residual benefits
Q4MCQ · 1 markMediumDiversification
What is cross-sectional diversification in equities?
ABuying and selling the same stock repeatedly
BHolding shares of many different businesses, sectors and countries at the same time
CHolding one stock for a very long period
DInvesting only in large caps
Q5MCQ · 1 markMediumDiversification
What does time diversification rely on?
AHolding only cash in downturns
BTiming entry and exit perfectly
CSwitching sectors every month
DStaying invested long enough for good periods to offset bad ones
Q6MCQ · 1 markMediumBusiness cycles
Businesses that do well even when the economy is in a trough are called:
ADeep cyclical
BLagging sectors
CCounter-cyclical or defensive
DLeading sectors
Q7MCQ · 1 markEasyRisks
Which type of risk cannot be diversified away?
AMarket risk
BCompany-specific risk
CSector-specific risk
DIdiosyncratic risk
Q8MCQ · 1 markMediumRisks
A ban on international travel hurts airlines and hotels but not domestic-focused businesses. What kind of risk is this?
AMarket risk
BSector-specific risk
CTransactional risk
DCurrency risk
Q9MCQ · 1 markMediumRisks
How is transactional (counterparty) risk in equity trades mainly reduced?
ABy investing abroad
BBy trading through a stock exchange with its risk-management systems
CBy holding more stocks
DBy buying only large caps
Q10MCQ · 1 markHardLiquidity
How is the liquidity of a stock measured?
ABy the dividend yield
BBy the number of shareholders
CBy impact cost, the price move caused by an order of a given size
DBy the P/E ratio
Q11MCQ · 1 markMediumCurrency risk
How does currency risk enter the Indian equity market?
AIndian shares are priced in dollars
BSEBI fixes the rupee rate
CCurrency risk affects only bonds
DForeign investors buy or sell in response to exchange rate and home-rate changes
Q12MCQ · 1 markEasyListed vs unlisted
Why are listed equities generally preferred over unlisted equities for most investors?
AThey are more liquid and subject to listing rules and disclosures
BThey are guaranteed by the exchange
CThey pay fixed dividends
DThey have no market risk
Q13MCQ · 1 markMediumEquity research
What is the core aim of equity research?
APredicting tomorrow's index level exactly
BWriting the company's annual report
CEstimating intrinsic value to compare with the market price
DFixing the IPO price for SEBI
Q14MCQ · 1 markMediumBuy vs sell side
Who do buy-side analysts work for?
AFund managers such as mutual funds, pension funds and PMS firms
BStock exchanges
CBroking firms that publish public reports
DCredit rating agencies
Q15MCQ · 1 markMediumFundamental analysis
According to fundamental analysis, when should an investor buy a stock?
AWhenever the index rises
BWhen its price has risen for five days
CWhen its volume is highest
DWhen its market price is below its intrinsic value, after costs
Q16MCQ · 1 markMediumTop-down vs bottom-up
Which sequence describes the top-down approach?
ACompany, then industry, then economy
BEconomy, then industry, then company
CCompany only
DIndustry, then company, then economy
Q17MCQ · 1 markMediumEconomy analysis
Why is the stock market called a leading economic indicator?
APrices reflect expectations of future activity, so they often turn before the economy
BIt is published by RBI
CIt always lags the economy
DIt measures only past GDP
Q18MCQ · 1 markMediumEconomy analysis
Which sector is typically among the most sensitive to interest rate changes?
AFMCG
BPharmaceuticals
CBanking and financial services
DInformation technology
Q19MCQ · 1 markMediumIndustry analysis
In which phase of the business cycle do cyclical sectors like autos and consumer durables become attractive?
AOnly during high inflation
BThe early stage of economic recovery
CThe peak of the cycle
DDeep recession
Q20MCQ · 1 markMediumIndustry analysis
Which industries tend to do well when inflation rises near the peak of a cycle?
ACompanies with long fixed-price contracts
BAirlines with fixed fares
CIndustries that cannot pass on costs
DBasic materials such as oil and metals, which can raise prices
Q21MCQ · 1 markEasyIndustry analysis
Which sectors tend to outperform during a recession?
ALuxury car makers
BCapital goods
CDefensive sectors such as FMCG and pharmaceuticals
DReal estate developers
Q22MCQ · 1 markMediumIndustry life cycle
Which is usually the longest stage of an industry's life cycle, with growth roughly matching the economy?
AMaturity
BDecline
CIntroduction
DGrowth
Q23MCQ · 1 markMediumIndustry life cycle
In which stage do firms typically enjoy high margins with few competitors?
AIntroduction
BGrowth
CDecline
DMaturity
Q24MCQ · 1 markHardCompany analysis
Why is a good company not always a good investment?
AGood companies never pay dividends
BSEBI limits investment in good companies
CGood companies are always unlisted
DIts share price may already be well above its intrinsic value
Q25MCQ · 1 markMediumCompany analysis
In a SWOT analysis, which are external factors?
AStrengths and weaknesses
BStrengths and opportunities
COpportunities and threats
DWeaknesses and threats
Q26MCQ · 1 markEasyValuation
Which statement best captures the difference between price and value?
APrice is an estimate; value is a fact
BPrice is a fact; value is an opinion
CValue is set by the stock exchange
DPrice and value are always equal
Q27MCQ · 1 markMediumDCF
Which three inputs does a discounted cash flow valuation need?
AFuture cash flows, their timing and the discount rate
BMarket cap, volume and beta
CBook value, face value and EPS
DP/E, P/B and dividend yield
Q28MCQ · 1 markMediumDCF
Why do analysts convert profits into cash flows for DCF valuation?
ACash flows are easier to manipulate
BProfits are always overstated by law
CSEBI requires cash-based valuation
DAccounting profit includes accrual entries that do not involve cash
Q29MCQ · 1 markMediumAsset-based valuation
For which businesses is asset-based valuation most used?
AConsulting firms
BMedia companies
CAsset-heavy firms such as financial institutions, real estate and jewellery
DSoftware start-ups
Q30MCQ · 1 markEasyP/E
A share trades at ₹100 and its EPS is ₹5. What is its P/E ratio?
A500 times
B5 times
C0.05 times
D20 times
Q31MCQ · 1 markMediumP/E
How is a trailing P/E calculated?
ACurrent price ÷ sum of the last four quarters' EPS
BLast year's price ÷ current EPS
CCurrent price ÷ last quarter's EPS
DCurrent price ÷ next four quarters' estimated EPS
Q32MCQ · 1 markMediumP/E
A company's P/E is 18 while its industry and peers trade at 22. On this basis alone, the stock looks:
AImpossible to judge without its dividend
BUndervalued
COvervalued
DFairly valued
Q33MCQ · 1 markMediumP/E
Which is a limitation of the P/E ratio?
AIt is hard to interpret for loss-making companies with negative EPS
BIt never changes
CIt ignores the share price
DIt can only be used for banks
Q34MCQ · 1 markMediumP/B
For which sector is the price-to-book ratio especially popular?
AMedia
BPharmaceuticals
CBanks and financial services
DIT services
Q35MCQ · 1 markHardP/B
A stock trades below book value and investors are correctly informed. What might that indicate?
AThe stock is always a bargain
BThe books may contain worthless assets or overstated reserves
CThe company is about to pay a bonus
DThe company has no debt
Q36MCQ · 1 markMediumP/S
When is the price-to-sales ratio especially useful?
AOnly for banks
BOnly for government companies
COnly for companies with no sales
DFor companies not yet making profits, or when earnings may be manipulated
Q37MCQ · 1 markMediumPEG
A stock's PEG ratio is 0.8. Using the rule of thumb, how is it valued?
AExactly fairly valued
BImpossible to tell
COvervalued relative to its growth
DUndervalued relative to its earnings growth
Q38MCQ · 1 markHardEVA
How is Economic Value Added (EVA) calculated?
ADividends minus taxes
BNet operating profit after tax minus invested capital × cost of capital
CMarket value minus book value of debt
DSales minus all expenses
Q39MCQ · 1 markMediumMVA
What does a negative Market Value Added (MVA) indicate?
AThe firm pays high dividends
BThe firm's EVA must be positive
CThe firm has destroyed value compared with the capital invested
DThe firm has no debt
Q40MCQ · 1 markHardEnterprise value
How is Enterprise Value (EV) calculated?
AMarket capitalisation + market value of debt − excess cash
BBook value + debt
CMarket cap − debt + cash
DSales × P/E
Q41MCQ · 1 markMediumEnterprise value
Why is EV/EBITDA useful for capital-intensive firms?
AIt ignores debt completely
BIt uses only dividend data
CIt reflects cash earnings available to all capital providers, even before book profits appear
DIt is required by SEBI
Q42MCQ · 1 markMediumDividend yield
A share priced at ₹40 pays a dividend of ₹2. What is its dividend yield?
A8%
B5%
C20%
D2%
Q43MCQ · 1 markMediumEarnings yield
A company has EPS of ₹2.5 and a share price of ₹25. What is its earnings yield?
A25%
B2.5%
C4%
D10%
Q44MCQ · 1 markMediumSector metrics
Which valuation method is typically used for capital-intensive sectors such as cement and steel?
AReplacement cost
BPrice-to-sales only
CDividend yield only
DPEG ratio only
Q45MCQ · 1 markEasyTechnical analysis
What do technical analysts mainly study?
AManagement quality
BPatterns in past prices and trading volumes
CIndustry regulations
DCompany balance sheets
Q46MCQ · 1 markMediumTechnical analysis
What role does trading volume play in technical analysis?
AIt has no role
BIt sets the stock's face value
CIt shows the strength behind a price trend
DIt is used to calculate EPS
Q47MCQ · 1 markMediumTechnical indicators
Using Bollinger Bands, a stock is two standard deviations above its moving average. How might a technician read this?
AOverbought
BDelisted
COversold
DFairly valued
Q48MCQ · 1 markMediumTechnical vs fundamental
Which statement about technical and fundamental analysis is correct?
DFundamental analysis identifies what to buy; technical analysis is often used for timing
Q49MCQ · 1 markMediumQualitative factors
What is described as the cornerstone of qualitative evaluation of a company?
AThe share's face value
BCorporate governance practices
CThe colour of the logo
DThe number of employees
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Case-Based Questions (1 set)
Case 1Case-Based · 2 marks eachRelative valuation of two stocks
An adviser is comparing two listed companies in the same industry. Company A: share price ₹200, EPS ₹10, expected EPS growth 25% a year, book value per share ₹80, dividend per share ₹4. Company B: share price ₹150, EPS ₹10, expected EPS growth 10% a year, book value per share ₹120, dividend per share ₹6. The industry average P/E is 18.
Easy Sub-question 1
What are the P/E ratios of A and B?
AA: 20, B: 15
BA: 2.5, B: 1.25
CA: 15, B: 20
DA: 10, B: 10
Medium Sub-question 2
What are the PEG ratios of A and B?
AA: 1.0, B: 1.0
BA: 0.8, B: 1.5
CA: 5.0, B: 1.5
DA: 1.5, B: 0.8
Medium Sub-question 3
Based on PEG alone, which stock looks better valued relative to growth?
ACompany B, because its P/E is lower
BNeither, since PEG cannot compare stocks
CCompany A, despite its higher P/E
DBoth are equally valued
Medium Sub-question 4
What is Company B's dividend yield?
A2%
B6%
C1.5%
D4%
About this content: These practice questions are based on the
NISM-Series-X-A: Investment Adviser (Level 1) Certification Examination Workbook
published by the National Institute of Securities Markets (NISM), Mumbai.
NISM is a SEBI-established institution. Questions cover Investing in Stocks with verified answers and explanations.
BullWiser is an independent exam preparation platform — not affiliated with NISM or SEBI.
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