equity presentation
TRANSCRIPT
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EQUITIES
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Topics
STOCK MARKETS
INDIAN STOCK MARKETS
INVESTMENT IN STOCKS
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WHAT IS AN EQUITY
/ SHARE ?
HOW SHARES ARE
TRADED
Is this how you feel???
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WHAT IS an EQUITY, SHARE or STOCK ?
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STOCKS Stocks or Shares represent the ownership of a
company in proportion to stocks or shares held
Stock represents a claim on the company'sAssets , Earnings and have Voting Rights
Holding a company's stock means that you are
one of the many owners
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FEATURES
Entitled to a portion of the company’s profitsand have a claim on assets Claim on profit – Dividend, if paid out
Claim on Asset – Residual claim if business is liquidated
Limited liability Liability limited to amount paid to buy stocks
Tradability Stock are tradable at recognised stock exchanges through itsmembers (Stock Brokers)
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WHY we NEED STOCK MARKETS?
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Requirements
of CapitalProviders:???
SHORT TERM /
MEDIUM TERM /
LONG TERM
Capital
Requirement
of a Company:
LONG TERM
STOCK
EXCHANGE
Sources of
New Capital
forcompanies
Investors
can convert
their stock
into cash
A common place for buyer
and sellers
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WHY DOES a COMPANY ISSUE STOCKS ?
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Why would the Promoters share the profits with
thousands of people when they could keep profits to
themselves?
The reason is that company needs to raise money.
Companies can either borrow it, DEBT FINANCING
or raise it by selling part of the company, EQUITYFINANCING
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WHAT is the
DIFFERENCE BETWEEN
BANKING SYSTEM
and CAPITAL
MARKETS?
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Equity Issuance
In practice a company offers its shares toseveral interested participants; institutions andindividuals
When a company issues its equity for the firsttime (through Initial Public Offer) it decides onoffer price
Post listing, at stock exchanges marketparticipants decide the price.
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WHAT is an IPO?
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AN EXAMPLE
The Aditya Birla-owned Idea Cellular, entered thecapital market on Feb 12 with an initial publicoffering (IPO) aggregating Rs. 2,125 crore of equity shares of Rs. 10 each for cash at a
premium to be decided through the 100 per centbook-building process
The price band for the issue was fixed betweenRs 65 and Rs 75 per equity share
Shares were issued at Rs.75 and listed at NSEand BSE now trading at Rs.90 per share
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Listing of Securities
A security is said to be ‘listed’ when, at a
stock exchange, it is added to the list of
securities in which trading is permitted
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WHAT are the ADVANTAGES of LISTING?
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FOR CAPITAL PROVIDERS :
• Ready marketability and liquidity
• Ensure proper supervision and control in
dealing• Protect the interest of shareholders
FOR COMPANIES :
• Cost-effective access to capital• The highest visibility and the fairest
pricing
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WHAT are PRIMARY MARKETS and
SECONDARY MARKETS?
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Primary and Secondary Market
The primary market is where securities arecreated (by means of an IPO)
In the secondary market, investors tradepreviously-issued securities without theinvolvement of the issuing-companies
When we talk about markets we refer tosecondary market
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WHAT is the REGULATORY STRUCTURE ?
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Ministry of Finance
S E B I
Stock Exchange
Broker
Advisor
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WHAT are MARKET ACTIVITIES?
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Market Place
The purpose of a stock market is to facilitate the exchangeof securities between buyers and sellers
Interactive ,Information driven and Volume driven
Stocks are held and traded in Demat form
Tech savvy & Screen based trading
Expanding product range
Advanced settlement and regulatory mechanism in place
Major Stock Exchanges are
• BSE
• NSE
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Market Activities
Normal working hours 9.15 am to 3.30 pm,
Monday to Friday
Buying and Selling of stocks during this
period moves price up or down
When we talk about markets are up or downwe refer to market indices
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HOW SENSEX and NIFTY INDICES are
CALCULATED?
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Some Indices -BSE
Sensex Seen as barometer of Indian Capital Market
Comprises of 30 high market cap / liquid stocks
Free Float based calculationBSE-100
Broad based index of 100 stocks
Stocks inclusion based on market activity and
industry representation.
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Some Indices - NSE
S&P CNX Nifty
Index of well diversified 50 stocks
Benchmark for index funds and index based
derivatives Market Cap based calculation
CNX IT: Index of IT companies
BANK NIFTY: Index of Banking Companies
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HOW EQUITY SHARES are TRADED?
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BUYER
SELLER
BROKER
BROKER
STOCK
EXCHANGE
Bank A/c DEMAT
Bank A/c DEMAT
Cash
Shares
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The process is not that Easy !
Market liquidity may not be there
Large spread in Bid and Ask
Impact cost
Required quantity is not available to buy / sell
Buyer has bought the shares but delivery is
not available or vice-versa
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BID and ASK for TAJGVK
Order Book
Buy Qty Buy Price Sell Price Sell Qty
100 183.3 184.4 22
100 183.25 184.45 50
50 183.2 184.5 26
100 183.15 184.75 1
300 183 184.9 5
7522 Total Buy Qty Total Sell Qty 5839
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Depository
Shares held in Demutualization form.
Transferred in electronics forms.
Two types of depositories.
NSDL
CDSL
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DP With POA and without POA.
DP with POA means investors gives right to
its trading member to settle their trades on
behalf of him.
DP without POA means Investors have togive DIC slips at time when he sold his
scrips.
Please refer to Statement -1.
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Share transfer process
Off- Market Transfer- Transaction take place
between same depository.
Inter depository Transfer – Transaction takes
place between two different depository.
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LEDGER & BILLING
Ledger – Statement of a/c which reveals the
daily transaction of the clients.
Billing – Confirmation of all trades relating
gross purchase and gross sale from
exchange. Timing between 4:30 to 5:30.
Please refer statement -2
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Auction and Short Delivery
Auction- Initiated by exchange on behalf of Trading Member.
Suppose Mr. A place buy order for 1000 share of TISCO at
11:22:01 for Rs 450 per share and Mr. B places a sell order for
2000 share of Tisco at 11:22:05 for 455 per share. Assume that
no other order were available in the system . Mr. B sold extra
1000 share and he have no delivery .
Auction Takes Place on T+ 3 days
Close Out on T+ 5 Days
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Auction Calculated:
The closing price of TISCO on 21st March= 455
Last traded price of TISCO = 450
The Previous day close price on 23rd March = 465.
The difference between the closing price on 21st March and Previous close price is Rs 10.
Suppose price band of auction is (-/+ 15%).
= 465 * 1.15 = 535
Penalty paid by MR. B
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Short Delivery
Suppose Mr. A place buy order for 1000 share of TISCO at
11:22:01 for Rs 450 per share and Mr. B places a sell order for
500 share of Tisco at 11:22:05 for 455 per share. Assume that no
other order were available in the system . Mr. B sold extra 1000
share and he have no delivery .
Auction Takes Place on T+ 3 days
Close Out on T+ 5 Days
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Investor v/s Trader
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Investors Vs Traders
Investor For Long Term
FollowsFundamentals
Stays invested aslong as theme iscontinuing
Trader For short term
Follows Technical
Trades with Stop
Loss and Price Target
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An Example
Rakesh purchased 1000 shares of Satyam @
475 per share for long term and at the same
time 1000 shares of satyam are bought by
Rajiv @ 475 per share and sold it next week@ Rs 490 and booked the profit of Rs.15000
Rakesh is an investor while is Rajiv a Trader
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DIFFERENT ANALYSIS USED in STOCKS
BEFORE TAKING a POSITION
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A. Fundamental Analysis
B. Technical Analysis
&
Information
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HOW FUNDAMENTAL ANALYSIS isDIFFERENT from
TECHNICAL ANALYSIS
P d G id
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Product GridInvestors are advised by dedicated relationship managers through various
advisory products
Market Analysis Technical Analysis Fundamental
Research
Thematic Research
Regular Inquire Company &
Sector reports
Yearly Wealth Creation
report
Budget Coverage
Quarterly Results Preview IndiaStrategy
Monthly MOSt Momentum MOSt
Value
MOSt
MutualWeekly Futures Weekly
Guide
Daily MOSt Commodity Morning Calls
Derivative Strategy
Market Dairy Pivot Points
MOSt Market
Action
MOSt MorningResearch
Market
Hours Market Information &Intraday Calls
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DO you know COMMONLY USED TERMS in the
STOCK MARKETS
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Bull market
Bear market
Large Cap Shares
Mid Cap Shares
Blue Chip Shares
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Market Capitalization or Market cap
Floating share x Market price per share
Earnings per share
Equity earnings / Number of Outstanding shares
Price to Earnings ratio (P/E)
Market price per share / Earnings per share
Return on Equity Equity earnings / Networth
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WHAT is the ROLE of a BROKER ?
WHAT is BROKING BUSINESS?
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Why Broker ?
A stock broker sells or buys stock on behalf
of its clients
A transaction on a stock exchange must be
made between two members of the exchange A typical person may not simply walk into the
Bombay Stock Exchange, and ask to trade
stock. Such a transaction must be donethrough a broker
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Transaction Network
Equity share trading is regulated through a exchange. Theexchange takes care of smooth trading and timelysettlement of outstanding dues.
All these done through proper network. The exchange havea network of Brokers ,Sub-brokers and a clearingcorporation.
The brokers and sub – brokers under takes the timelydelivery and settlement of funds and share.
The clearing corporation undertakes the transaction of brokers on behalf of the exchange.
Stock exchange ------ Brokers----------- buyer/seller(clear and settle) - (Execute orders)- (Purchase& sale of securities)
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WHAT is the REVENUE MODEL for a
TRADITIONAL STOCK BROKER ?
B k Fi A d B k
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Brokerage Firms And Brokerage
Revenue for a broker is charges and
commission, known as brokerage for executing
buy/sell order submitted by the clients
Eg: If 1000 shares of Reliance @ 1200 arebought by a client and the brokeragecharges are 0.50 %, then the brokerage
income from this transaction is (1000 x1200 x0.50%) Rs 6000/-
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WHAT are the COST COMPONENT of
a CLIENT in a SHARE TRANSACTION
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Charges Income Source for
Brokerage Broker
Stamp Duty State Govt.
Transaction Charges Exchange
Contribution to Investor Protection
Fund
Exchange ( For Investors)
Service Tax Central Govt. ( On Brokerage)
Securities Transaction Tax (STT) Central Govt.
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TRADING DELIVERY F&O
Non-
Brokerage
0.006% 0.014% 0.0041%
STT 0.025% 0.125% 0.017%
(only SELL)
Service Tax 12.24% 12.24% 12.24%
Diff T f B k
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Different Types of Brokerages
Cash Market
Intraday (0.01%-0.10%)
Delivery (0.10%-0.50%) Derivatives Market
Intraday (0.01%-0.10%)
Carry Forward ( “ )
C h M k I d
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Cash Market-Intraday
The client wants to earn the price differentialin the same day. i.e. The position is entered
and squared off in the same trading session
The Brokerage rates are typically lower in
such kind of transaction, since there is no
share settlement
There is also a concept of single side and
double side brokerage – varies from region toregion
Benefit For Brokers
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Benefit For Brokers
Intra day example
1000 share of Reliance bought @ 1100 and sold @1150 on the same day, brokerage rate is 0.05%
both sides Revenue is (1000 x 1100 x 0.05%) Rs 550 one
sided and (1000 x 1150 x 0.05%) Rs 575 = Rs 1125
1000 share of Reliance bought @ 1100 and sold @
1150 on the same day, brokerage rate is 0.07% oneside
Revenue is (1000 x 1100 x 0.07%) Rs. 770
C P b h li
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Cost Pay by the client
Revenue is (1000 x 1100 x 0.05%) Rs 550 onesided and (1000 x 1150 x 0.05%) Rs 575 = Rs1125.Charged on Total turnover.
Services tax is 12.24% charged on total brokerage
=67.32Transaction charge 0.004 %Charged on totalturnover= 44.
STT is 0.025% charged on total turnover = 275
Stamp duty is 0.0024% charged on total turnover =26.4
Total Cost of Purchase = 1100962.72
C h M k D li
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Cash Market-Delivery
The client purchases or sells in a single
trading session which results in actual
delivery of stocks
The Brokerage rates are higher in such kindof transaction, since there is share settlement
D li E l
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Delivery Example
If 1000 shares of Reliance @ 1200 are bought by a client andthe brokerage charges are 0.50 %, then the brokerageincome from this transaction is (1000 x 1200 x0.50%) Rs6000/-
If 1000 shares of Reliance @ 1200 are bought by a client and
the brokerage charges are 0.20 %, then the brokerageincome from this transaction is (1000 x 1200 x0.20%) Rs2400/-
Brokerage income has come down significantly because of pricing
Therefore negotiating correct pricing is one of the mostimportant part of converting broking accounts
D i i I d
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Derivatives – Intraday
The client wants to earn the price differential in thesame day. i.e. The position is entered and squaredoff in the same trading session
The Brokerage rates are typically lower in such kindof transaction, since there is minimum value of Rs200 000 per transaction
Brokerage rates vary between 0.01% to 0.10% onthe value of transactions
There is also a concept of single side and double
side brokerage – varies from region to region
I t d E l
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Intraday Example
A client enters into a contract to buy one lotof Reliance March Futures(150 shares lot)@ 1250 brokerage 0.03% and sells @ 1280brokerage 0.03%
Revenue is (150 x 1250 x 0.03%) Rs 57 and (150 x 1280 x 0.03%) Rs 58 so, total is Rs115
Similarly if the selling is done on the next daywith the same brokerage rate then also therevenue will remain the same
Deri ti es C rr For rd
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Derivatives-Carry Forward
The position is entered and squared off in
different trading session
The Brokerage rates are typically very much
similar to intraday brokerage rates, since inF&O exchanges have not yet started
settlement by stock deliveries
Brokerage rates vary between 0.01% to0.10% on the value of transactions
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THANK YOU