Stock Markets

Presented to Prof R. S. VermaA Journey into Stock MarketsPresented By,Rohit MundharaP-21Jignesh Thakkar P-36Nahush Mhaskar P-19Aditi Sabaria C-31Kiran Pawar P- 26

STOCK MARKET

STOCK EXCHANGES IN INDIA

BSENSE

BSE SENSEX 30Started on 01 January, 1986Value-weighted indexConsists of the 30 largest and most actively traded stocks

Name of company Weightage RIL13.10Infosys Tech9.37L&T8.44ICICI Bank7.67HDFC5.71ITC5.46Bharti Airtel4.87HDFC Bank4.64SBI4.13ONGC3.67BHEL3.26HUL2.50TCS2.25Tata Steel1.88Tata Power1.78

Name of CompanyWeightage Maruti Suzuki1.75Sterlite Industries1.71Grasim Industries1.69NTPC1.69RCOM1.61Jaiprakash Associates1.60M&M1.56Wipro1.53Reliance Infra1.49DLF1.41Hero Honda1.25Tata Motors1.22Hindalco 1.09Sunpharma 0.82ACC0.75

NSE NIFTY 50

The 50 stocks that were most favored by institutional investors in the 1960s and 1970s.

Name of company Weightage RIL11.23Infosys Tech8.02L&T7.23ICICI Bank6.58HDFC4.89ITC4.67Bharti Airtel4.17HDFC Bank3.98SBI3.53ONGC3.15BHEL2.87HUL2.14TCS1.93Tata Steel1.61Jindal Steel1.58Tata Power1.53

Name of CompanyWeightage Maruti Suzuki1.50Axis Bank1.48Sterlite Industries1.46Grasim Industries1.45NTPC1.45RCOM1.38M&M1.34Wipro1.31Reliance Infra1.27DLF1.21Unitech 1.19GAIL1.19Hero Honda1.07Tata Motors1.04Idea Cellular1.01Cipla 1.00

Name of companyWeightage Hindalco 0.93Cairn 0.90Rel Capital0.79SAIL0.75PNB0.71Sun Pharma0.70ACC0.64Ambuja Cement0.64Siemens 0.61ABB0.61BPCL0.52

Name of CompanyWeightage HCL Techno0.50Power Grid0.49Reliance Pow0.46Suzlon Energy0.44Ranbaxy Lab0.39Tata Comm0.27NALCO0.22

HOW THE INDICES ARE CALCULATED?Find outthe free-float market cap of all the 30 companies that make up the Sensex!Add all the free-float market caps of all the 30 companies!3. Make all this relative to the Sensex base. The value you get is the Sensex value!

Depository A bank or company which holds funds or securities deposited by others, and where exchanges of these securities take place.

National Securities Depository Limited

Central Depository Services Limited

Depository Participant

In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors.

Transaction Process(How To Start Trading And Investing)

We need to have a DEMAT account.We need to have a Trading account.And of course money

Rules for earning money in the marketRule 1: Never lose your money in the market.

Rule 2: Never forget Rule 1.

Settlement Procedure For Cash Markets

Settlement is done on T+2 basis for cash markets.Trades entered in to on a particular day are settled on third day.Eg. If u purchase shares on Monday, the settlement day would be Wednesday.

FACTORS AFFECTING STOCK MARKET

Economic FactorsMarket trends & RumoursGlobal Market indicatorsGovt Policies and RegulationsCompany wide factors

Sectoral IndicesRealtyPSUAuto Power Consumer DurablesOil & gasBankexFMCGCapital GoodsMetal TeckIT

CapitalisationLarge Cap - Above 750 cr.Mid Cap : Between Rs 75 cr. and Rs 750 cr.Small Cap : Below Rs. 75 cr.

GroupsA : It is the most tracked class of scripts consisting of about 216 scripts.B S T : Traded on trade to trade basis.Z : companies which have failed to comply with its listing requirements.

Control MechanismCircuit is the price limit or range, outside which the stock price can't go.For example, let's say closing price of X stock yesterday was 100 Rs. The applicable circuit limit for X is 5%. In this circumstances, the price of X can't go above 105 (5% above previous close) and below 95 (5% below previous close).

Why IPOs?

Raise Capital to meet working capital, debt repayment, expansion, and a host of other uses.Company valuations are done on the basis of which the share value is calculated.It is offered to all categories of investors like Retail Investors, Private Placements, FIIs, Mutual funds, LIC,GIC

IPOsIssue is either brought as a book building issue which is priced at a price band OR is brought at fixed priceCompanys have to file DRHP(Draft red herring prospectus) with Sebi as a guide line.After DRHP the IPO is given ratings by ICRA & CRISIL depending on the valuations, business risk, future growth policies of the company, Investor risk appetite.

IPO Grey MarketBefore listing of IPO there is a market value which exists amongst the brokers who do business in GREY MARKET were the premiums are predefined depending on the demand and supply availabilityThis orders are booked in advance and settled on the date of listing and the difference if any is settled in cashHighest ever Grey market premium for any IPO was for Reliance Power which was 100%

Kinds of Trading

Intra-day Trading

Delivery based Trading

Intraday TradingBuying and Selling on the same day.

Brokerage will be different for intra-day and delivery based trading, intra-day being lesser

Delivery TradingBuying and Selling are on different days Brokerage will be higher than intra-day

Delivery charges

Short Selling

Selling the shares which you dont have Ex: Lets consider a company Reliance Its priced at Rs 2,500/-. You know its going to fall that day because of some reason. But you dont have any shares with you of Reliance. But still you can sell the shares, this is called as short selling.

Short CoveringAssume you sold 10 RIL shares in morning at Rs 2,500/- and by evening as you had thought, it had Fallen down to Rs 2,400/-Now you buy back those 10 shares what you had sold. So the difference in amount per share 2,500 2,400 = 100 100 * 10 = 1000, Profit is yours. This process of buying back is called Short covering.

Consequences if not coveredYou will become a defaulter.Lets understand this with an Example. Assume you short sold on Monday, as you havent short covered it, you need to deliver it on Wednesday(T + 2). But you dont have the shares to deliver. So NSE or BSE will buy the shares on behalf of you in auction market, and deliver it to the buyer in (T + 3 days). You will have to pay penalty

How to Select Stocks

Fundamental Analysis

Technical Analysis

What is Fundamental Analysis?Analyzing a stock based on the fundaments of the country, the sector, and the company individually.

It includes going through balance sheet and profit-loss statement of the individual company and checking various ratios.Analyzing a stock based on the fundaments of the country, the sector, and the company individually.

It includes going through balance sheet and profit-loss statement of the individual company and checking various ratios.

Fundamental BasicsEPS

PE

MPS/B

Interest Coverage

Debt Equity Ratio

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What is Technical analysis

Forecasting the future direction of prices through the study of past market data, primarily price and volume

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Basics in Technical analysis

Support

Resistance

Stop Loss

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Effects on Prices of Shares:-

BonusSplitRight IssuesBuyback

Record DateWhat Does Record Date Mean?The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

Foreign Markets Dowjones

Nasdaq

Nikkei

Shanghai

Economic Times & CNBCClick

CNBC

DerivativesNSE is the largest derivatives exchange in IndiaDerivatives contracts have a maximum of 3months expiration cycleContracts are available for trading with: 1 month 2month 3 months expiryTurnover of derivatives market is 75,000cr.

Derivatives Scrip NameLot SizeMarginTotalAmbuja Cements4124Rs 88,913/-Rs 4,08,276/-Hindalco3518Rs 1,05,311/-Rs 3,59,891/-Reliance150Rs 65,147/-Rs 2,97,750/-Reliance Power2000Rs 72,410/-Rs 3,20,000/-Suzlon3000Rs 83,280/-Rs 2,85,450/-

Premium & DiscountScrip NameSpot PriceFuture PricePre/DiscSuzlon95.2595.150.10 DiscountReliance1980.851985.104.25 PremiumHindalco104.10102.301.80 DiscountNifty461946212 Premium

M2M adjustmentsAssume,You Bought 1 lot of Suzlon (i.e 3000 Shares @ 100/- = 300000/-)Margin money Rs 60000/- (i.e @ 20% of 300000/-)Now on the Other day if Price Goes down to 90/- Then you will have to pay M2M loss of Rs 10/- per share i.e Rs 30000/-And If the Price increases to 110/- then we will get M2M profit credited in our A/c. i.e Now we will get the M2M profit Rs 60000/- Credited in our A/c

OptionsCall Option An option to buy is called Call OptionExample:Price of Reliance in Cash markets is 1000/-Price in Futures is 1020/-Trader will not block his money in cash marketsRather he will buy a call option in futures marketPay the premium of Rs30 per share

Contd If the price in cash markets

Price of Call Option also (vice versa)

HedgingHedging means insuring against a negative event

It is done to reduce exposure to various risks

Hedgers try covering the risks

Hedgers try to reducethe risks associated withuncertainty

Infosys bags a deal worth $ 100000 from US Company Rate of $ is Rs 48/- Amount to be realised after 2 months But Infosys estimates Dollar will fall to Rs 44/- Hence to reduce the loss Infosys will Hedge its Position by selling $ 100000 in Future MarketsHedging Example

After Two months Infosys gets the Payment Dollar price is Rs 44/- So Infosys will bear a loss of Rs 4 per $ in Cash Markets and will gain a Profit of Rs 4 per $ in Future Markets In this way Infosys have Reduced the Risk of $ Price Fluctuation

Hedging Example

SpeculationOpposite of hedging

Speculators are risk lovers

Speculators make bets or guesses

A hedger seeks to cover a foreign exchange risk

A speculator accepts and seeks out to accept it to make profit

ExampleSpeculator believes Price of foreign currency

Purchases the currency

Holds it

Resale later

Profit on each unit of foreign currency

ArbitrageWhen the futures price deviates substantially from its fair value arbitrage opportunities arise Spot Markets(Cash) FuturesPurchase@1000/-Sell@1025/- Hold for 1 month The spot and futures price convergeCloses@1015/-Closes@1015/-Profit booking of Rs.15Profit booking of Rs.10

How a stock price changes

Things to be avoided while trading & investingNever risk more than 10% of your trading capital in a single trade.

Always use stop loss orders.( Here you should know your loss you can give in a situation where the trade starts going against you.)

Never do overtrading.

Don't enter a trade if you are unsure of the trend.

When in doubt, get out, and don't get in when in doubt.

Only trade active stocks

Distribute your risks equally among different markets.

Extra money from successful trades should be placed in a separate account.

Never average a loss.

Things to be avoided while trading & investing

Never get out of the market because you have lost patience, or get in because you are anxiously waiting.

Avoid taking small profits and large losses.

Avoid getting in and out of the market too soon.

Be willing to make money from both sides of the market.

Never buy or sell just because the price is low or high.

Things to be avoided while trading & investing

Never change your position without a good reason.

Don't try to guess tops or bottoms.

Don't follow a blind man's advice.

When you lose don't blame it on luck.Things to be avoided while trading & investing

Attributes of good investorsOne should be a good Manager and not day trader.

A well diversified portfolio.

Investment in good shares.

Have patience.

Thank You