share market(stock market)

7/28/2019 Share Market(Stock Market)

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Some truths about stock markets

by aniket on August 2nd,

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Hi there,

From this post onwards, I am going to kick off the discussion on shares as an

option to create wealth. Let me start by saying 7 straight truths about stock

markets.

First, nobody gets rich quickly in stock markets. Some of your friends mighthave blindly invested in some stocks which, to their luck, gave them

exceptional profits. Yet, they never became rich. Did they? So thats the first

truth about stock markets its not a place where you get rich quickly.It

takes time to grow your money.

Second, it isnt easy for beginners to make money on the stock exchange. If it

was such a simple exercise, Mr. Warren buffet wouldnt have become so

famous. It takes genuine effort to spot profitable investments.

Third, your broker, friends, neighbor, colleagues et al would come up with

sure shots everyday; there are too many stock analysts out there giving outfee based stock recommendations. Its easy to get tempted by all these

people around you. After many years in the market, my thoughts keep

wavering when somebody comes up with such sure shots. Should I explain

the fate of a beginner? Its important to stay off from these temptations. It

implies that you ought to have independent thought. Independent thought

is something very hard to carry through.

Fourth, most of the investors are a bit too casual with stock markets. They

play in stock markets. Stock exchange is a wrong place to have fun,

speculate and try luck. Stock market is a place dominated by heavy

investment houses and financial experts. This is a place where the worlds

brightest finance professionals put their best efforts to make right investment

decisions. They do all this because its real business, with real money and

real profits. Nobody is playing around. So, to be successful, you too, need to

be serious. You have to view it as a business. When you buy shares, you are

buying a company to that extent. Buying a company is no Fun!


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Fifth, realise the fact that brokers income is the commissions you give. The

more you trade, the more they get. When I was serving as the manager of a

broker, I used to get monthly targets for the volume of brokerage that should

be generated. If I dont do that, my salary payment gets delayed. Each

branch was viewed as a profit center. Myself and my colleagues used to hit

our targets but our investors rarely did! Most of the brokerage housesencourage their clients to do as many trades as possible whether its good for

them or not, and keep doing it until you have used up all their money. If you

get too many frequent Sure shot market tips thru sms, mails and phone calls

think twice. Your broker may be interested only in generating commissions.

Make sure you dont get into such traps. Do have faith in your broker, but

dont blindly follow them. They can give you advice but they cant guarantee

that you will make a return on any investment in the stock market.

Sixth, as you begin to study the principles, youll hear about derivative

instruments like futures and options. Things like options and futures are NOT

for the beginner with limited resources. They are highly technical, involve thepotential to lose all of your investment quickly and need constant monitoring.

Playing Futures and options without adequate working knowledge is like

gambling at Las Vegas.

Finally, you have to keep on working on your stock picking skills. Keep

following the market developments. Youll also need to study some basics on

economics, accountancy, income tax and mathematics.

So, # No quick riches in stock markets # its not the place to have fun with

money # you shouldnt be blindly believing your brokers recommendations #

never try your luck # and, learning is the only way -to make right choices instock markets.

So, lets begin from the roots. My next post would explain what shares are.

Till then ..

. Think about the above said 7 points and take a decision that

Youll put maximum efforts to learn the game and be serious with

investments.

Youll not be tempted to make money quickly.

Youll become a smart investor!

May God help you to achieve your goals.

Bye!!Stocks-explained



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Share

Hi there,

The first step for anyone is to understand stocks.

INTRODUCTION

Share means a portion of anything. In our context, share means a portion of

ownership of a company.Now, let me discuss the concept with the help of an

example. This will help you to get a clear idea of what a share is. Lets look at

a fictional company Say-it-with-flowers.

SCENE 1- The beginning

A young couple decides to start a business. Since they knew floral

decorations, they decide to start a flower shop. They name their business as

Say-it-with-flowers. They borrowed some money from the bank and started

their shop in a small space. The business became successful. However, they

made little profit because; all the earnings were invested back into business

to buy more flowers to accommodate the increasing level of customers.

SCENE 2- A decade after.

Ten years later, the business has grown rapidly. The bank loan has been paid

off. Profits are over Rs 10 lakhs per year. It also has a book value of Rs 50lakhs. (Book value is the net value of what the company owns- machinery,

furniture, building less any loans). Convinced that Say-it-with-flowers

could do well in neighboring cities, the couple decides to open two new

branches. They research their options and find out that its going to cost over

Rs 52 Lakhs to open two outlets. To find this 52 lakhs, they had two options-

one, take out a loan from the bank. Two, sell part of their company. Since

interest rates are high, they decide to take the second route. But how? What

would be the cost of a share in say-it-with-flowers? Who will do the valuation?

There were several questions to be answered.

SCENE 3-The big leap

To sell part of their company, the company has to be valued. The person who

values a company is called an underwriter. The underwriter researches the

past records, future prospects, background of the promoters etc and

discovers that the company is worth 10 times its current profits.

What does this mean? Simply, you would multiply the earnings of Rs 10,


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00,000 by 10. In this companys case, the answer is Rs 1 Crore. Add book

value, and you arrive at Rs 1crore and 50 Lakhs. This means, in the

underwriters opinion, Say-it-with-flowers is worth Rs 150 lakhs.

40% of 150 is 60 lakhs. So, the couple decides to sell 40% of their company

to the public. The underwriters find investors who are willing to buy the 40%share, and give a check for Rs 60 lakhs to the couple. Since the couple still

has 60% share, the control of say-it-with-flowers is still with them.

SCENE 4- The benefit

Now the couple gets 60 lakhs by selling 40% stake in their business to the

public.

Using that money, Say-it-with-flowers successfully opens the two new

outlets for Rs 52 lakhs.The balance 8 lakhs is used for day to day operations

of the three shops.

The two new stores both make around Rs 10, 00,000 a year in profit

each.Between the three stores, Say-it-with-flowers now makes an annual

profit of Rs 30 lakhs. The value of the business is now Rs. 450 lakhs (3 shops

x 10 lakhs x 10 times + 50 lakhs x 3) and the couples 60% stake is worth Rs

270 lakhs.(450 x 60%)

SCENE 5 At the stock market.

Since the people who bought 40% of the share for 60 lakhs, is now worth 180

lakhs, the shares of say-it-with-flowers is in great demand. Since the

company increased the wealth of shareholders 3 times, there are investorswho are willing to purchase the shares even for an amount higher than 180

lakhs. Each day, shares of say-it-with-flowers are sold to the highest bidder.

The place at which the bidding and buying process takes place is called the

stock market.

SCENE 6 You as an investor..

Lets assume that the total shares of the company are 50,000 shares. So,

40% available to the public is 20,000 shares. The issue price was Rs 300 (60

lakhs/20000) but, now the share is worth Rs 900(180 lakhs / 20000). Since a

section of the public feels that this winning streak of the company wouldcontinue, there is heavy demand for the share and due to this, the price

keeps moving up.

Suppose the price is Rs 1250 now. Should you buy?

The answer is no. Why? Because, the shares are trading above the real

value of Rs 900. This real value is also called intrinsic value.


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Price drops to Rs 750. Should you buy?

Now, one day, due to some rumors, the stock market crashes, and

consequent to that, the price of the share plummets to Rs 750 per share.

Should you buy? May be, yes! Why? Because, now the share price is below

the real value and some time later , you can expect the rumors to settle and

that will result in the prices moving back to its original level of Rs 1250 or

more.

Where should you sell?

Although the price may move back to Rs 1250, your selling point theoretically

should be at Rs 900 . Why? Because thats the actual value point. The price

rise above Rs 900 may be due to several reasons like investor sentiment

which should be ignored.

CONCLUSION.

The good investors job is to identify companies like say-it-with-flowers that

are selling below their true worth due to some illogical reason and invest in

such stocks.

Hope Ive made it clear.

Bye for now !!Basic charcteristics of shares


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Share

SHARES OR STOCKS?

Hi there,

Let me clarify that point first. Shares and stocks mean the same thing.

Shares are collectively called stocks.

If someone says he owns stocks, what he means to say is that he has bought

shares of different companies.

If someone says he owns shares then, what he means to say is that he has

bought shares of a particular company.

CHARACTERISTICS OF SHARES


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Shares have these following distinctive characteristics:

Ownership

When you buy stock, you are buying a piece of a company you become a

part owner. This ownership gives you certain rights, including voting on

important matters before the company and participating in the profits.

Upside potential

When you own stock, you participate in the growth of the company. As the

value of the company increases, the share prices also move up. You benefit

from capital appreciation.

For example: Many of the early employees of Infosys are millionaires because

their stock has gone up dramatically.

Risk

Along with the potential for extraordinary gain is the potential for loss. These

two go hand in hand. If you are not careful, you can lose money by investing

in stocks. Not only in stocks, in fact, even the safest savings deposits carry

unseen risks. When you account for inflation and taxes , youll find that most

of the so called risk free investments are not so safe.

Source of Income

Since share holders are part owners of the company, they are entitled to get

a part of the annual profits of the company. Shareholders get income by way

of dividends and bonus shares.

KNOW IT

Shares and stocks mean the same thing. Shares are collectively called stocks.

Shares give you right to ownership, voting, decision making and profits in a

company.

Investment in shares can be risky if recklessly done.

Share investments have the potential to make you millionaires.Should you

invest or trade in stocks?


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well you time the market.

7. Short term profits or trading profits are taxable income in India. Where as

profits from long term investments are tax free.

8. Trading tends to become more speculative as you try to make profits from

every price movement. Some of these price movements may be due to

rumors or manipulations and its easy to get trapped in such situations. When

you invest, you take a lot of time to study the fundamentals and about whats

happening around. Hence its highly ulikely that you get into such traps.

CONCLUSION

To trade or to invest in stock markets would depend on ones age, nature of

income and attitude. In any case, you should go by the fundamentals

supported by the technical factors. Technical analysis and fundamental

analysis are seen by many as polar opposites but many market participants

have experienced great success by combining the two. Having both the

fundamentals and technicals on your side would only have advantages. We

will be discussing in detail about fundamental analysis and technical analysis

later onThree ways to make money from stocks


Share

Hi there,

In this article, Lets look at the possible ways to make money from stock

markets.

There are three ways to benefit from buying shares:

1. Selling the shares at a higher rate than what you bought them

As the company expands and grows, it acquires more assets and makes more

profit. As a result, the value of its business increases. This, in turn, drives upthe value of the stock. So when you sell, you will receive a premium over

what you paid. This is known as capital gain and this is the main reason why

people invest in stocks. They want to make money by selling the stock at a

profit.

2. Earning a dividend


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Usually, a company distributes the profit it earns in the form of dividends to

shareholders. It is not mandatory for the companies to pay dividends. The

company can use the profits for alternative uses like expansion. The decision

to pay or not to pay dividends is taken at the annual meeting by the majorityvoting of the shareholders.

3. Getting bonus shares

For the time being, let us understand that bonus shares are Free shares are

given to you .Later on we will discuss about bonus shares in detail.

Apart from the above three benefits, there one more indirect benefit as

mentioned below.

Rights issue

An indirect benefit is the rights issue. A company may need more funds to

expand and for that it may need to issue more equity shares.A rights issue

involves issuing of additional shares to the existing shareholders of the

company. A company wishing to issue additional shares should first offer

them to the existing shareholders so that it allows the existing shareholders

to maintain the same degree of control of the company.Thus you can

maintain the participation in the company profits.

Capital appreciation or dividends?

So what is more important, capital appreciation or dividends? Should you look

for a company with big dividends or one that has potential for great surge in

prices? Well, this depends on you investment strategy. Companies that pay

out big dividends are usuallyblue chip shares . Great capital appreciationare usually associated with startups so therefore quite risky.Stock markets in

india


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THE HISTORY OF BOMBAY STOCK EXCHANGE

The Bombay stock exchange traces its history back to the 1850s, when 4

Gujarati and 1 Parsi stock broker would gather under a banyan tree in front of


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mumbais Town hall.The location of these meetings changed many times, as

the number of brokers constantly increased.The group eventually moved to

Dalal Street in 1874 and in 1875 became an official organization known as

The Native Share stock Brokers association.

THE PRESENT SCENARIO

There are 19 recognized stock exchanges in India. The Bombay stock

exchange (popularly known as The BSE ) and The National stock exchange

(popularly known as The NSE ) are the most prominent in terms of volume

and popularity.

The Bombay Stock Exchange Popularly called The BSE is the oldest stock

exchange in Asia and has the third largest number of listed companies in the

world, with 4900 listed as of Feb . It is located at Dalal Street , Mumbai ,

India . National Stock Exchange comes second to BSE in terms of popularity.

Over the decades, the stock market in the country has passed through good

and bad periods. Till the decade of eighties, there was no measure or scale

that could precisely measure the various ups and downs in the Indian stock

market. BSE, in 1986, came out with a Stock Index-SENSEX-

(SENSitive indEX) that subsequently became the barometer of the

Indian stock market.

WHAT IS A STOCK MARKET INDEX?

Stock market indexes provide a consolidated view of how the market is

performing. Stock indexes are updated constantly throughout the trading day

to provide instant information.

The SENSEX and other indexes

The BSE SENSEX (SENSitive indEX)is a basket of 30 stocks representing a

sample of large, liquid and representative companies. The base year of

SENSEX is 1978-79 and the base value is 100. The index is widely followed by

investors who are interested in Indian stock markets. During market hours,

prices of the index scrip, at which trades are executed, are automatically

used by the trading computer to calculate the SENSEX every 15 seconds and

continuously updated on all trading workstations connected to the BSE

trading computer in real time

30 stocks that represent SENSEX.(Updated on 7/7/)

ACC Ltd. Bharat Heavy Electricals Ltd.

Bharti Airtel Ltd. Cipla Ltd.

DLF Ltd. Jindal Steel & Power Ltd.


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HDFC HDFC Bank Ltd.

Hero Honda Motors Ltd. Hindalco Industries Ltd.

Hindustan Unilever Ltd. ICICI Bank Ltd.

Infosys Technologies Ltd. ITC Ltd.

Jaiprakash Associates Ltd.Larsen & Toubro Limited

Mahindra & Mahindra Ltd.Maruti Suzuki India Ltd.

NTPC Ltd. ONGC Ltd.

Reliance Communications Limited Reliance Industries Ltd.

Reliance Infrastructure Ltd. State Bank of India

Sterlite Industries (India) Ltd. Tata Consultancy Services Limited

Tata Motors Ltd. Tata Power Company Ltd.

Tata Steel Ltd. Wipro Ltd.

The BSE Sensex is not the only stock market index in India. The NSE has The

NSE S&P CNX Nifty 50 index a well diversified 50 stock index accounting for

24 sectors of the economy. While both SENSEX and NIFTY would give you an

overall direction of the stock market there are other indices which track a

particular sector.

For example The NSE CNX IT Sector Index tracks companies that have morethan 50% of their turnover (or revenues) from IT related activities like

software development, hardware manufacture, vending, support and

maintenance. So for those who are tracking the performance of IT Sector this

index would become a benchmark for investing. Yet another example is the

BSE BANKEX index which tracks the banking sector shares.

WHATS GOOD ABOUT INDEXES

Indexes provide useful information including:

Trends and changes in investing patterns.

Snapshots, even if they are out of focus.

Yardstick for comparison.

KNOW IT

A stock market index is a statistical indicator which gives an idea about how


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the stock market is performing. In India the main indexes to be tracked are

The BSE SENSEX and The NSE NIFTY.

The SENSEX comprises of 30 companies representing different sectors and

the broader NIFTY comprises of 50 companies from 24 sectors. There are

many other indexes that track particular sectors of the economy. Theseindexes would give you an idea about how that particular sector is

performing.

World over, there are a number of indexes as there are stock markets. DOW

JONES INDUSTRIAL AVERAGE and NASDAQ COMPOSITE INDEX both track

US stock markets. NIKKEI 225 is the stock market index of Japan, HANG SENG

index for Hong Kong, FTSE 100 For UK, KOSPI for Korea, SHANGHAI for China

etc. All these indexes serve the same purpose. It gives an idea about where

the financial growth of a country is headed to.

Next time you watch CNBC or NDTV Profit, watch these indexes flashing onthe corner of your screen.What is a stock index?


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STOCK INDEX.

Till the decade of 80s there was no measure or scale that could precisely

measure the various ups and downs in the Indian stock market. BSE, in

1986, came out with a stock index-SENSEX-(or SENSitve indEX)-that

subsequently became the barometer of the Indian stock market.

In January 1989, the BSE launched the BSE National Index (Base 1983-84 =

100).It comprised 100 stocks listed at five major stock exchanges in India-

Bombay, Calcutta, Delhi, Ahmadabad and Madras. The BSE National Index

was renamed BSE-100 index from October 14,1996 and since then, it is being

calculated taking into consideration only the prices of stocks listed at the

BSE. BSE launched the dollar-linked version of BSE 100 index on May 22,2006.

HOW IS THE INDEX CONSTRUCTED?

Stock market index consists of selected stocks and is supposed to reflect the

overall market sentiment. The two most widely followed indexes in India are

Sensex (consisting of 30 stocks) and the Nifty (50 stocks).


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ITS EASY ! ..

We will try the construction with a single stock. The base value is 100 points.

The share in question is quoted at Rs 150. Suppose, tomorrow the price hits

Rs 195 (30% increase), so the index will move up 30% at 130 points. Suppose

on day 3, market price falls to Rs 156 (20% fall from Rs 195) the index too,will be reduced by 20 % to 104 points.

The same logic will apply to two or more stocks except that now, the market

capitalization of the stocks will be considered (market capitalization denotes

the size of the company measured as- current market Price multiplied by

number of outstanding shares- More about it in the fundamental lessons).

WHY IS THE BASE VALUE SET TO 100 POINTS?

The purpose of market index is to function as a benchmark to gauge the

overall trend of the economy.At the time of constructing the index, there will

be many companies listed in the stock exchange and not just a single

company. So , the total value of shares in the market (or total market

capitalization) at the time of index construction is assumed to be 100 in

terms of points. Now, the index becomes easy to construct. Next day, if the

market capitalization moves up 10%, the index also moves 10% to 110.

Lets see one more example-

Lets assume that there are two stocks- A Ltd with market price of Rs 120

and B Ltd with the market price of Rs 140.Let us further assume that A Ltd

has 1 lakh shares outstanding and B Ltd has 2 lakh shares outstanding.

Hence, the total market capitalization is (120 x 100000 + 140 x 200000) Rs400 lakhs. This will be equivalent to 100 points.

Suppose the next day market price of A Ltd decreases by 10% and that of B

Ltd decreases by 4%. Their market capitalization then becomes (108 x

100000 + 134.4 x 200000) Rs 376.80 lakhs. The capitalization has fallen by

5.80% (400-376.80/400 x 100).so the index will be dropped by 5.80% to

94.20.

what would happen if A Ltds and B Ltds price moves up 15% on the next day

? A Ltd moves up 15% to 124.20 (115% of 108) and B Ltd moves up to

154.56. The market capitalization is now Rs 433.76 Lakhs.( 124.20 x 100000+ 154.56 x 200000 ). The capitalization has increased by 15% and so, the

index moves up 15% to 108.33 (94.20 x 115%)

The market capitalization method automatically adjusts the index for bonus

issue. In the case of rights issue, the previous days value will have to be

adjusted for computing the post rights value.


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THE PURPOSE OF STOCK INDICES

The stock index function as an indicator of the general economic scenario of

a country. If the stock market indexes are on the high, it reflects that the

overall financial condition of the different companies in the country and the

general economy of the country are stable. If, however, there is a plungenoticed in the stock market index, it is indicative of poor economic condition

of the companies and therefore, the general economyMore about Sensex


Share

The Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia.

Bombay stock exchange was established in 1875 when 318 persons by

paying a then princely amount of Re. 1, under the Securities ContractRegulation Act, 1956.BSE rose to prominence in the last 133 years. In

the1850s, stock brokers met under a banyan tree. Some 25 years later, some

of them found a permanent place for their activities and named it Dalal

Street (Dalal means Broker).

Until 2002, BSE was named The Stock Exchange, Mumbai. On August 19,

2005, the exchange changed into a corporate entity from an Association of

Persons and was renamed Bombay Stock Exchange Limited.

THE SENSEX

BSE Sensitive Index or Sensex was launched on January 1, 1986. Being the

oldest index in the country, it provides a fair time series data from 1979

onwards. Today, it has become one of the most prominent brands in the

country.

It was calculated on a market capitalisation-

weighted methodology of 30 component stocks

represented by large, well-established and financially

sound companies across key sectors. The base year of

the Sensex was taken as 1978-79.

SENSEX LISTING PARAMETERS

Listed History: The scrip should have a listing history of at least 3

months at BSE. Exception may be considered if full market

capitalization of a newly listed company ranks among top 10 in the

list of BSE universe. In case, a company is listed on account of


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merger/ demerger/ amalgamation, minimum listing history would not

be required.

Trading Frequency: The scrip should have been traded on each and

every trading day in the last three months at BSE. Exceptions can be

made for extreme reasons like scrip suspension etc.

Final Rank: The scrip should figure in the top 100 companies listed

by final rank. The final rank is arrived at by assigning 75%

weightage to the rank on the basis of three-month average full

market capitalization and 25% weightage to the liquidity rank based

on three-month average daily turnover & three-month average

impact cost.

Market Capitalization Weightage: The weightage of each scrip in

SENSEX based on three-month average free-float market

capitalization should be at least 0.5% of the Index.

Industry/Sector Representation: Scrip selection would generally take

into account a balanced representation of the listed companies in

the universe of BSE.

Track Record: In the opinion of the BSE Index Committee, the

company should have an acceptable track record.BSE stock

classifications


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SIX HEADERS- A, B, T, S, TS and Z

Hi there ,

Do you know that he BSE classifies stocks under six headers?

The Bombay Stock Exchange classifies stocks under six grades A, B, T, S,

TS and Z that scores stocks on the basis of their size, liquidity and

exchange compliance and, in some cases, also the speculative interest inthem. You can look up any stocks grade in the Stock Reach page in the BSE

Web site, under the head Group. Alternately, you can also follow the link

below:

http://www.bseindia.com/about/list_comp.asp

A GROUP HIGHLY LIQUID
http://www.bseindia.com/about/list_comp.asphttp://www.bseindia.com/about/list_comp.asp


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These are the most liquid counters among the whole lot of stocks listed in the

BSE.

These are companies which are rated excellent in all aspects.

Volumes are high and trades are settled under the

normal rolling settlement (i.e. to say intraday buy-sell

deals are netted out).

These are best fit for a novice investors portfolio considering that information

about them is extensively available. For instance, all the 30 stocks in Sensex

are A grade stocks.

T GROUP TRADE TO TRADE

The stocks that fall under the trade-to-trade settlement system of the

exchange come under this category.

Each trade here is seen as a separate transaction and theres no netting-out

of trades as in the normal rolling system.

The trader needs to pay to take delivery for his/her buys and deliver shares

for his/her sells, both on the second day following the trade day (T+2). For

example, assume you bought 100 shares ofT grade scrip and sold another

100 of it on the same day. Then, for the shares you have bought, you would

have to pay the exchange in two days. As for the other bunch that you sold,

you should deliver the shares by T+2 days, for the exchange to deliver it to

the one who bought it.

Failure to produce delivery shares against the sale made would be considered

as short sales. The exchange will, in that case, on the T+3rd day, debit an

amount that is 20 per cent higher than the scrips closing price that day. This

means unless the scrips price falls more than 20 per cent from the price of

your sale transaction, you would have to pay a penalty for the short sale so

made.

Even so, there will be no credit made to you in the case of substantial fall in

the share price. The exchange will, instead, credit the gain to its investor

fund.

Stocks are regularly moved in and out of trade-to-trade settlement depending

on the speculative interest that governs them.

S GROUP SMALL AND MEDIUM

These are shares that fall under the BSEs Indonext segment.


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The BSE Indonext comprises small and medium companies that are listed in

the regional stock exchanges (RSE).

S grade companies are small and typically ones with turnover of Rs 5 Crore

and tangible assets of Rs 3 Crore. Some also have low free-float capital with

the promoter holding as high as 75 per cent.

Besides their smaller size, the other risk that comes with investing in them is

low liquidity. Owing to lower volumes, these stocks may also see frenzied

price movements.

TS GROUP A MIX OF T AND S GROUPS

Stocks under this category are but the S grade stocks that are settled on a

trade-to-trade basis owing to surveillance requirements.

This essentially means that these counters may not come with an easy exit

option, as liquidity will be low and intraday netting of buy-sell trades isntallowed either.

Z GROUP CAUTION

Z grade stocks are companies that have not complied with the exchanges

listing requirements or ones that have failed to redress investor complaints.

This grade also includes stocks of companies that have dematerialisation

arrangement with only one of the two depositories, CDSL and NSDL.

These stocks may perhaps be the riskiest in terms of various grades

accorded. For one, not much information would be available in the public

domain on these companies, making it tough to track them. Second, the low

media coverage that keeps them relatively hidden from public scrutiny also

makes them more vulnerable to insider trading. Third, these companies

already have a poor score in redressing investor complaints.

B GROUP LEFT BEHIND

This category comprises stocks that dont fall in any of the other groups.

These counters see normal volumes and are settled under the rolling system.

In all respects these stocks resemble their counterparts in A but for theirsize. Typically, stocks of mid- and small market capitalisation come under this

grade.

SLB GROUP

Securities Exchange Board of India, in 2007, has announced the introduction

of Securities Lending & Borrowing Scheme (SLBS). Securities Lending &


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Borrowing provides a platform for borrowing of securities to enable

settlement of securities sold short. There are 207 companies in the SLB list.

Investors can sell a stock which he/she does not own at the time of trade. All

classes of investors, viz., retail and institutional investors, are permitted to

short sell.

OTHER CLASSIFICATIONS

The F Group represents the Fixed Income Securities.

Trading in Government Securities by the retail investors is done under the G

group.

Thats about stock classifications in BSE.

When you invest, be aware of the category in which the stock falls.

have a nice day !!How is Sensex calculated?


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Hi there ,

Ever wondered how the index moves?

Lets take Sensex as an example. Sensex consists of 30 different companies.

All of them have different share prices, free-float adjustment factors,

free-float market value and weightage in the index.

With the top seven companies, in terms of weightage, occupying nearly 50

per cent index any movements in these seven in the same direction could

move nearly half of the Sensex!

SO WHAT DOES THE INDEX SHOW?

The level of index at any point of time reflects the market value of its

component stocks relative to a base period.

Sensex value = Current free-float market value of constituents stocks/Index

Divisor

FREE FLOAT MARKET VALUE


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The market value of a company is determined by multiplying the number of

equity shares that it has issued by their market price. This market value is

further multiplied by the free-float factor to determine the free-float market

value.

Free float is that part of the companys capital thats not held by promoters,governments or other strategic investors and is available to trade on the

stock exchange freely.

The free float market capitalization method simply means that the company

with a higher free float will have a higher weight in the index.

A company which has more public holding will have the highest free float

factor in the Sensex.

When you think about weight of a stock in the Sensex most of us think of it

as a static value for example Reliance has 12%, ICICI Bank has 7% and so

on, but that is not true because the weight changes every second as the price

changes.

You need not calculate the free float market capitalization since its available

straight on the BSE website Click this link to get it.

EXAMPLE:

For example, letss assume that the market value of a company is Rs 100,000

Crore since it has 100 Crore shares having a value of Rs 1,000 each.Now, a

free-float index such as the Sensex claims to reflect market trends more

rationally as it takes into consideration only those shares that are availablefor trading in the market.In our example, the might have a total of 100 Crore

shares but in reality only 20 Crore shares are available as the rest are treated

as controlling/strategic holdings. This pegs the free-float factor of the

company at 0.20 (20/100) and free-float market value at Rs 20,000 Crore.So,

if you add up the current free-float market values of all the 30 companies,

you will get the numerator for the Sensex formula.

NOW, THE DENOMINATOR

The Sensex is calculated using a methodology that focuses upon the base

period. Since this base period of Sensex is taken as 1978-79 and the basevalue as 100 index points what the index divisor does is to adjust the

original base period of the Sensex to its present level. This keeps the Sensex

comparable over time.

CALCULATE SENSEX ON YOUR OWN.

Step 1: Find out the free-float market capitalisation of all the 30 companies


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that make up the Sensex.

Step 2: Then, add all them. Make all this relative to the Sensex base. For

example, for a free-float market capitalisation of Rs 9,00,000 Crore, the

Sensex value is 14,500 then, for a free-float market capitalisation of Rs

9,50,000 Crore, the Sensex value would be.. ??

(Those who cant find the answer may go back to the ratios and proportions

chapter elsewhere in school text book)

The answer is 15,306.

Bye for now ,

Have a nice day!Why Sensex and Nifty wont tell you the right story.


14

Share

Where will the markets go is the most asked and the least relevant question

for a learned investor.

Hi there,

Recently my friend, who has invested some money in stock markets talked

about his knowledge about Sensex and the logic he follows -he said, I invest

when the Sensex is down, and sell when it goes up! Why? Because, he

believes that when the Sensex is down in the dumps, his equity investments

too will take a similar hit and when the Sensex is up, his equity investments

too, will proportionately move up. Is he right? No. Heres why

SENSEX AND NIFTY ARE JUST INDICATORS.

The Sensex is an index that is composed of only 30 stocks from about 12

sectors. Similarly, Nifty comprises of 50 stocks from selected sectors. Thesestocks are the most liquid (most traded) and well-known ones. This means

that, the so-called market barometer gives you a picture of only 30 or 50

large stocks from about 12 sectors. Not only Sensex and nifty, but any index

you follow around the world represent only a small sample size selected

based on certain parameters.

If you would like to read in detail about how the Sensex works , heres the


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link.

WHY INDICES ARE UNIMPORTANT

As an investor, you should be aware that though the Sensex and nifty are

widely tracked barometer of the stock markets, the shares you hold might not

behave like the indexes at all. Even the most skilled investors assume that

when the Sensex tanks by 400 points in a day, the whole stock market

reactsand that all stocks are affected in the same way.

The sample of stocks selected to construct an index may not be a very good

representation of the aggregate market because they are not selected in

random, but are selected based on market size, liquidity, and industry group

representation. Important sectors such as textiles, BPO services, niche

service-oriented companies and segments such as auto ancillaries and

consumer durables are not well represented in the Sensex.So, if you happen

to have investments in such sectors, broader indices such as BSE 200 or evenBSE 500, which represents more sectors and 200/500 companies, could be

better benchmarks, as can the BSE Sectoral indices.

USES OF AN INDEX

Its worth mentioning here that the Nifty and the Sensex are representative

samples, with the scrips and the weights given to them carefully chosen. The

indexes are best designed to reflect the stock market as a whole and give an

idea of investor sentiment on the state of the economy.(whether it would

work for you or not is a different story ). In fact, its usefulness depends on

what kind of users we are talking about. Technical analysts or technicians,

who believe they can predict future prices by using the past stock prices, use

indices to analyze market trends and price movements. The stock index is

also used as a proxy for investor confidence in the capital markets.More

specifically, tracking a stock index has the following advantages to the

investor:

First, Investors who do not know which individual stocks to invest in can use

index as a method of choosing their stock investments. Investors can invest

in index based mutual funds that track the performance of the indexes with

which they are aligned. This form of investing gives investors the opportunity

to do as good as the markets and not significantly under perform themarkets.

The second benefit of stock market indexes is that they provide a yardstick

with which investors can compare the performance of their individual stock

portfolios.

The indices can also be used as a forecasting tool. By studying the historical


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movement of the indices , you can try to forecast market trends.

Indices can also be used to track how the market reacted to specific events

like terrorists attacks and wars. By studying the historical data, you can

forecast the way market would behave should an unforeseen event like war

breaks out.

CONCLUSION

The Sensex captures the movement of just 30 stocks, against the 7,000 or so

listed companies in India. If the Sensex is down, your investments in a

particular companys shares can actually be UNaffected. Neither of the

indices represents the whole of the respective stock exchange. Neither the

full market capitalisation nor the entire range of stocks listed is captured by

them.

Bye for now ..

have a nice day !Bulls, Bears and Stags

by aniket on August 3rd,

6

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Hi there,

Lets catch up with Bulls and bears. The two most commonly used terms in

stock markets.

A common story is that the terms Bull market and Bear market are derived

from the way those animals attack. Bulls are supposed to be aggressive and

attacking while bears would wait for the prey to come down.

However, this is not the origin of the terms.

Long ago, bear skin jobbers were known for selling bear skins that they did

not own; i.e., Bear Trappers would set a price for a bearskin and then hope to

catch one and make a profit. Because the item didnt yet exist at the time of

the agreement it became synonymous with a market not based on readily

available stock. This was the original source of the term bear. This term

eventually was used to describe short sellers, speculators who sold shares

that they did not own, bought after a price drop, and then delivered the

shares.


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Bulls was understood as the opposite of bears. The bull seemed a natural

contrast, an animal that charges ahead, moves forward, and is strong and

powerful (just like a strong stock market). The bulls were those people who

bought in the expectation that a stock price would rise, not fall.

BULL MARKETS

When can you say its a bull market? The market shows confidence. The

sentiment is positive. Prices are going up quickly. The market index keeps

hitting highs and so are individual shares. The volume of shares being traded

is high and the number of players entering the stock market is also more. If

you see all this in a stock market, you may assume that its a bull market.

If there is a continuous run of bullish days then you may hear that the market

is having a bull market run. Technically a bull market is a rise in value of the

market by at least 20%.

BEAR MARKETS

A bear market is the opposite of a bull market. If the markets fall by more

than 20% then its understood that we have entered a bear market. A bear

market is a market showing lack of confidence. Prices hover at the same price

and then go down, indices fall and volumes are stagnant. In a bear market,

players wait for the bulls to start driving the prices up again. You can also say

that a bear is a tentative bull or a bull thats asleep.

STAGS

This is another category of market participant. The stags are not interested ina bull run or a bear run. Their aim is to buy and sell the shares in very short

intervals and make a profit from the fluctuation. Its a daily tussle for stags in

the stock market.

MARKET TIMING

The basic idea behind stock market investment is simple- Buy low, sell high

and make money. So to make money, you buy stocks in a bear market when

stock prices are low and sell stocks in a bull market when stock prices are

high.

However, knowing the exact time when a bear market would start or when a

bull market run would come is not possible. Just when you thought the

markets would go up, it may surprise you by trading low. Your strategy should

be to pick up shares in the bear market and sell it when theres a bull market

run.

HERES THE CRUX..


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especially if they get a handsome profit on their first trade itself.

Theres one more situation where people end up committing more money in

stock markets-To recoup all the loses they made earlier.

Both these situations are dangerous. More than 80% of the retail investors in

India have this problem of committing more. In the first case, they do it

because they are excited about making more money quickly and in the

second case they do it out of despair to somehow recoup the losses and get

out of the market. Ask any broker whom you know personally he will have a

list of hundreds of clients who came in opened de-mat accounts and

vanished in a years time.

HOW MUCH ? IS THERE A FORMULA?

Most of you would have traded more to get back what has been lost-and lost

even more. Right? Investing is entirely personal. If you are a high risk taker, a

dare devil type- who can block you from taking risks?

So what i am trying to give you is a set of two tips that would help you have

control over your money invested in stock markets:

First of all never try the daily money making process in stock markets. I

know quite few of them who has tried playing in stock markets to make a

daily income-and lost all their money.

Secondly, There is a limit to which you should expose your money in stock

markets. Theres no hard and fast rule as to how much should be exposed.

However to help you out, heres a formula which tells you what percentage ofyour long-term investment money should be invested in stocks.

It simply is:

90 (minus) YOUR AGE = % of income to be exposed In stock markets.

So, if you are 35 years old , you can expose a maximum of 50% of your

income into stocks. Ok. Fine. so does that mean you can expose 15% of your

income at 75? May be not. Investments in stock markets ideally should be

stopped at the age of 65 or 70 maximum. Again , as I said earlier , investing

is entirely personal. If you have the money, health and will to invest at 70 or

even at 90 , Go ahead ! ! Sir Warren Buffet is 81 years old now, and he hasnt

stopped investing !

This formula is straightforward and makes logical sense. When youre young,

you have time on your side. If one of your investments goes in the tank, it

may be upsetting at first. However, you have many years before your

retirement to rebuild your fortune before you actually need to touch the


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money. The main risk you have to overcome when you are young is not losing

your fortune, but not growing your fortune fast enough.

THIS FORMULA DOESNT LIE..

Clearly, when you grow older, more of your assets should be invested into

conservative, income-producing investments such as bonds. Thats because

when youre 50 years old you have a lot less time in the job market to rebuild

your retirement fortune than when youre, say, 25 years old.

Bye for now.

Have a nice day !What drives the stock market ?

by aniket on August 3rd,

Share

WHAT DRIVES THE STOCK MARKETS?

In the last few post we discussed how the index is constructed and how it

moves.

In this article well look at the factors that drive the index up and down.

Earnings growth

In the long term, the most important factor that drives the stock market is the

direction of the corporate earnings. In other words, over the long term, stock

markets are driven by the underlying fundamentals of the individual

companies that make up the market and the economy in which these

companies operate.

The best time to buy the stocks is when earnings are declining, which means

when the economy is moving into a recession. Thats the time when you get

excellent stocks at throw away prices.

Sentiments.

In the short term however, financial markets are driven by sentiment. Marketsentiment is the collective views of all market participants at a given point in

time. Sentiment never remains static; it is always in a constant state of

change. As the future economic outlook changes, so will market sentiment.

Valuation

Investors would purchase heavily when the stock market is under valued and


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sell when the market is overvalued. One of the value measures is the P/E

ratio. A high P/E ratio implies that the market is over valued , while a low P/E

suggests an undervalued market.

Monetary policies

The monetary policy of the RBI has a major impact on stock prices. The stock

market will be in an upbeat mood when the money flow into the economy is

more. This is logical since increased money flow means more money can be

invested in the stock market.

Interest rates

Interest rates affect the borrowing costs of corporates thereby influencing

their earnings. Firstly, A rise in the borrowing cost affects the growth plans

and earnings of corporates negatively. Changes in interest rates also affect

the discounting of the stream of future earnings implicit in stock prices.

Secondly, fixed interest bearing instruments such as bonds and fixed deposits

pose a major competition to stock markets. Bond prices have an inverse

relationship with interest rates. As bond prices rise, yields will fall. Typically

this is bullish for stocks as investors move to the equity markets to look for

better returns. In this situation the stocks and bond markets generally trend

in line with one another. In a deflationary situation, this situation is reversed

and stocks and bond prices move inversely. So a bullish bond market means

rise in stock prices and a bearish bond market means declining stock prices.

Inflation

Inflation is another major factor that droves the stock markets. Inflation eats

into a companys earnings. So, if a company reports 10% earnings when the

inflation rate is 10% , that not an impressive show. Inflation also increases the

cost of goods purchased. Therefore money moves from investment to

consumption, in effect causing a downturn in demand for the stock.

The economy.

The economy also has a major impact on the stock market. If investors

expect the economy to do well in the future, they will expect higher future

earnings, leading to higher stock prices.

Most people believe that a strong economy should mean a corresponding

increase in stock prices. But, the relationship of stock market and the

economy is not that simple. Stock market is a discounting mechanism where

it discounts the future earnings to derive at current stock prices. The stock

market does not the discount the present. The present has already been

discounted by the market 6 or 12 months ago. If the economy is doing well at


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the moment, it is very likely that the stock market expected it 6 or 12 months

back and acted accordingly at that time.What are Blue-chip shares?

by aniket on August 5th,

6

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Hi there,

When I was a newbie to stock markets, the term Blue-chip was one little

word that puzzled me a lot. Every investor around me seemed to inherently

understand that word. But later, i found that most of them were not so clear

about what the term actually meant.If you dont know what a blue-chip share

is and the advantage of investing in such sharesHeres the answer:

A blue chip is the nickname for a stock that is thought to be a safe

investment. These companies would be considered as leaders in its field. Blue

chips generally pay dividends and are favorably regarded by investors. Blue

chip stocks are sometimes referred to as bellwethers.

The term comes from the game called poker where the highest chip

denomination is colored blue. Stock market History says that the phrase was

coined by Oliver Gingold of Dow Jones sometime in 1923 or 1924. Company

folklore recounts that the term apparently got its start when Gingold

remarked that he intends to write about some blue-chip stocks that were

then trading at a high price of USD 200 .Thus the phrase was born. It has

been in use ever since, originally in reference to high-priced stocks, more

commonly used today to refer to high-quality stocks.

The exact criteria used to classify a companys stock as a blue chip is

relatively subjective. Most professional investors agree that blue chips share

several important characteristics including:

An established record of stable earnings over several decades

An equally long record of paying dividends to common stock holders

A history of regular increases in the dividends payable to each share

Strong balance sheet with moderate liabilities.

High credit rating


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Large size in terms of revenue and market capitalization

Diversified product lines and / or geographic location.

All the 30 stocks in Sensex index can be considered as blue-chip companies.

You can also see the Dow Jones list of Indian blue chips at -

http://www.bluechiplist.com/indices/dow-jones-india-titans-30/

ARE THESE SHARES SAFE FOREVER?

No. These shares may be assumed to be relatively safer than others,

provided , the positive factors that drive the company remains intact. A blue

chip today could become a dud tomorrow. Remember that Bombay Deying

and Century textiles were once blue-chips.On the other hand, some of the

insignificant ones of yesterday are todays blue-chips. For example, Infosys

was not considered as a blue-chip a decade ago. But now , its one of the best

blue-chip shares in India.

SHOULD YOU INVEST IN BLUE-CHIPS?

Of course, Yes !You must have some portion of your investments in Blue-

chips.They reduce the volatility of your portfolio.You may make less money

from blue-chips and more money from mid-caps and small caps since these

are low priced shares and has the potential to become tomorrows blue-

chips.But remember, mid-caps and small caps carry a higher risk than blue

chips. Also, their earnings are much more volatile and lack liquidity.

Deciding to invest in a blue chip company is definitely a good idea.But, thatsonly part of the game.Blue-chips,like any other shares, cannot be bought at

whatever price its available.. You have to determine the appropriate price to

buy blue-chip shares.For that, you need to do some homework.

Thats about blue chips!

Have a nice day!Invest for a long term or short term?

by aniket on December 10th,

5

Share

Imagine the thrill when the stock you just invested in, zooms! What an easy

way to make money! Are not good returns over a short period very tempting?

Your next move: Identify other stocks that have this potential. From now on,
http://www.bluechiplist.com/indices/dow-jones-india-titans-30/http://www.bluechiplist.com/indices/dow-jones-india-titans-30/


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all your energy will be directed towards making that quick buck, daily.

You will find yourself taking tips from every trader, reading every available

material on the subject, spending hours studying charts and sighing at every

small fall in the indices. Yet, with all the time and energy spent on it, you may

end up burning your fingers. This is a reality that every newbie has faced, Iam sure.Not only newbies- I have seen most of the investors trying the same.

If you have decided to invest money in stock markets, its always better to

remain invested for a long term. Heres why:

BENEFITS OF LONG TERM INVESTING

Short term investments may have the potential to give you quick bucks, but

long term investment has several significant advantages.

Advantage #1:Compounding: Time can be investors best friend because it

gives compounding time to work its magic. Compounding is the mathematical

process where interest on your money in turn earns interest and is added to

your principal.

Advantage #2: Dividends: Holding a stock to take advantage of payouts from

dividends is another way to increase the value of an investment. Some

companies offer the ability to reinvest dividends with additional share

purchases thereby increasing the overall value of your investment. Consistent

dividend payout is a reflection of a companys overall business strategy and

success.

Advantage #3: Reduction Of The Impact Of Price Fluctuations: When you

invest for a long term, your investments are less affected by short termvolatility. The market tends to address all factors that keep changing in the

short term. So a person involved in long term investment will not be affected

as much by short term instability due to factors such as liquidity, fancy of a

particular sector or stock which may make the price of a stock over or

undervalued. In the long term, good stocks which may have been affected

due to some other factors (in the short term) will give better than average

returns.

Long-term investors can ride out down markets without dramatically affecting

his or her ability to reach their goals.

Advantage #4:Making Corrections: It is highly likely that you could achieve a

constant return over a long period. The reality is that there will be times when

your investments earn less and other times when you make a lot of money in

short term. There may also be times when you lose money in short term but

as you are in quality stocks and have long perspective of investment you will

earn good returns over a period of time.


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There are always times when some stocks do not perform and it is the wise

choice to pull out of an investment. With a long term perspective based on

quality stocks, it is easier to make decisions to change in a more timely

manner without the urgency that accompanies short term and day trading

strategies chasing volatile changes.

Advantage #5: Less Time Spent Monitoring Stocks: day trading requires

constant monitoring of stocks throughout the day to capitalize on intraday

volatility. But, Long term trading can be carried out effectively using a weekly

monitoring system. This approach is most often far less stressful than

watching prices constantly on a daily basis. Moreover, long term investment

strategy helps you to concentrate more on your job/profession.

Advantage #6: Tax Effect: In India, short term capital gains (The profit you

make by buying shares and selling it off anytime within a year) is taxable at

15% and there are no exemptions to it. Long term capital gains (The profit

you make by buying shares and selling it off after a year) are totally tax free

Advantage #7:Oppurtunity to average down: Suppose you invest in a blue

chip like reliance at Rs.1000 and for some reason the stock falls unexpectedly

to Rs 850. That gives you an opportunity to buy more shares and bring the

average cost down. This can bring dramatic increase in profits in the long

term.

Advantage #8: Opportunity to make huge returns: Long term investments, if

done after careful study of fundamentals, would give opportunity to create

huge wealth over a period of time.Investors like Warren Buffet has followed

this strategy to create wealth.

Overall, investors that begin early and stay in the market have a much better

chance of riding out the bad times and capitalizing on the periods when the

market is rising. When you invest for a short term, you miss out all these

advantages.Indices of the World.

by aniket on January 2nd, 2011

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Almost Every country has stock exchanges and these stock exchanges have

constructed indexes to serve as a barometer for economic growth. There are

more than 350 indices world wide.

TYPES OF INDICES

World stock market index


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Stock market indices may be classed in many ways. A world or global stock

market index includes (typically large) companies without regard for where

they are domiciled or traded. Main indexes in this category are:

BBC Global 30- combines Europe, Asia and North America the three power

centers of the global economy in a single index. BBC Global 30 a useful toolto see where the worlds most important companies are and thus, where the

global economy are heading. No Indian company has found a place in the list.

MSCI World- free-float weighted equity index. Index includes stocks of all the

developed markets. Common benchmark for world stock funds. The index

includes 6000 companies from the developed markets.

MSCI emerging markets index- covers over 2,600 securities in 21 markets

that are currently classified as Emerging Markets countries.

S & P Global 1200- Global stocks index covering 31 countries and around 70

percent of global market capitalization. It is composed of 6 regional indices.

NATIONAL INDICES

A national index represents the performance of the stock market of a given

nationand by proxy, reflects investor sentiment on the state of its economy.

Main amount them are:

Dow-Jones Industrial average- one of the most widely quoted of all the

market indicators. Consists of 30 of the largest publicly traded firms in the

U.S.

NASDAQ Composite- broad market index of all of the common stocks and

similar securities traded on the NASDAQ stock market

S & P 500 - stock market index containing the stocks of 500 Large-Cap

corporations. Comprises over 70% of the total market cap of all stocks traded

in the U.S. Owned by Standard & Poors.

Hang-Seng Index- record daily changes of the largest companies of the Hong

Kong stock market (represent about 67% of capitalization of the Hong Kong

Stock Exchange)

BSE sensex 30- includes the 30 largest and most actively traded stocks onthe Bombay Stock Exchange.

S & P CNX Nifty -index for 50 large companies on the National Stock

Exchange of India.

Nikkei 225 stock market index for the Tokyo Stock Exchange.


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KOSPI- index of all common shares on the Korean Stock Exchanges.

SSE Composite- index of all listed stocks (A shares and B shares) at Shanghai

Stock Exchange.

FTSEurofirst 300 index- free-float capitalization-weighted price index.

Measures the performance of Europes largest 300 companies by market

capitalization. Covers 70% of Europes market cap.

DAX - measures the performance of the Prime Standards 30 largest German

companies in terms of order book volume and market capitalization.

AEX index- index of Euronext Amsterdam, consists of the 25 most active

securities in the Netherlands.

FTSE 100- Financial times Stock exchange index- capitalization-weighted

index of the 100 most highly capitalized companies traded on the London

Stock Exchange.

Bovespa index- index of about 50 stocks that are traded on the Sao Paulo

Stock Exchange.Ethical Stock Investing

by aniket on January 2nd, 2011

Share

ETHICAL INVESTING

Ethical investing or socially responsible investing is also known as

sustainable, socially conscious investing an investment strategy which

seeks to maximize both financial return and social good.

Some investors feel that there are no standards which can be created for

ethical investing since each individual has their own set of values and morals.

If no standards are created, however, then even the most harmful

investments can be called ethical by some. Anyone who tries to invest

responsibly faces the ethical investment dilemma. This dilemma really

revolves around two simple questions. They are: What is or is not ethical?

andWho decides?

Fortunately, there are several basic values that most people share:

Avoid Causing Illness, Disease & Death

Avoid Destroying or Damaging the Environment

Avoid Treating Honest People with Disrespect etc..


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So, arms makers, polluters, tobacco companies, pesticides manufacturers,

companies with poor management record such as Enron and satyam, oil

companies are some examples of businesses which are generally excluded.

In , the OIC announced the initiation of a stock index that complies with

Islamic laws ban on alcohol, tobacco and gambling. The Dow Jones IslamicMarket World Index is another example.

Another important trend is strict mechanical criteria for inclusion and

exclusion to prevent market manipulation. Ethical indices have a particular

interest in mechanical criteria, seeking to avoid accusations of ideological

bias in selection, and have pioneered techniques for inclusion and exclusion

of stocks based on complex criteria. Another means of mechanical selection

is mark-to-future methods that exploit scenarios produced by multiple

analysts weighted according to probability, to determine which stocks have

become too risky to hold in the index of concern.

Critics of such initiatives argue that many firms satisfy mechanical ethical

criteria, e.g. regarding board composition or hiring practices, but fail to

perform ethically with respect to shareholders, e.g. Enron. Indeed, the

seeming seal of approval of an ethical index may put investors more at

ease, enabling scams. One response to these criticisms is that trust in the

corporate management, index criteria, fund or index manager, and securities

regulator, can never be replaced by mechanical means, so market

transparency and disclosure are the only long-term-effective paths to fair

markets.

ETHICAL INVESTING ENTERS INDIA

There is growing market demand for Socially Responsible Investment (SRI)

and more investors are willing to invest over the longer term in the

organisations that contribute positively to sustainable development, public

benefit and environmental protection.ABN Amro launched Indias first SRI

fund (called ABN Amro Sustainable Development Fund).

Global index provider Dow Jones indexes and Dharma Investments, a private

investment company, in Jan, 2008 announced the launch of Dow Jones

Dharma index for measuring the performance of companies selected

according to the value systems and principles of Dharmic religions, especiallyHinduism and Buddhism. This index has been put together by Wallstreet.

Stocks will be screened on industry, environmental and corporate governance

parameters before being included in the Dharma indexes. The index

constituents would be reviewed on a quarterly basis.

CONCLUSION


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Ethical investing depends on an investors views; some may choose to

eliminate certain industries entirely or to over-allocate to industries that meet

the individuals ethical guidelines. A good way to start with an ethical

investing policy is to write down the areas you want to avoid as well as where

you want to see your money invested. From there you can come up with an

asset allocation plan and begin researching individual securities.Indirect wayto invest in stocks Mutual funds.

by aniket on January 7th, 2011

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What is it?

The term itself gives some hint about its nature. Mutual means combined

and Funds means money. So, mutual funds are the collective investmentcontributed by many investors and managed by professional individual or

company (your fund manager). The fund manager invests this combined

money in stocks, bonds, short-term money market instruments, and/or other

securities

Whats the advantage?

You do not have to constantly keep an aye on the stock market. The fund

manager will invest the funds wisely and in profitable companies.

The funds are invested in various companies and that too by theprofessionals. So, you are not keeping all your money in one pocket. This

minimizes the risk of huge loss investment loss. Even your Rs 5000 invested

is diversified.

You can plan and invest systematically. (That can be done in share markets

to, but SIP process in mutual funds works well)

Unlike companies, mutual funds will not close down. Rather they would be

merged into another successful fund

Normally the NAVs do not show a significant rise or crash

Any Disadvantages?

You dont have a say in deciding where your money is invested. The fund

manager decides for you and he may be wrong, thus causing a loss

You dont own shares directly, so you are not eligible for any rights due to the

owner.


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Dividend is optional and if chosen will affect the value of your investment by

the amount of dividend declared

Scheme philosophy

Whenever a mutual fund scheme is launched there is a specific mandate

(philosophy of investing) based on which investing is done by that mutual

fund. This mandate outlines the debt-equity mix and the type of instruments

that the fund would invest.For example, the prospectus of a mutual fund will

always mention the stock universe that fund invests in viz, large cap, mid

cap, small cap, sector funds etc.. or it will have a theme for example

energy opportunities fund or emerging leaders fund etc.. From the name

itself,you could get a basic idea of where your money will be invested. Since

Mutual funds offer a whole bouquet of products , you must first decide on the

types of funds that would suit your needs. Only then should you start

selecting the best funds within those categories.

NAV and its importance.

Net Asset Value, or NAV, is the sum total of the market value of all the shares

held in the portfolio including cash, less the liabilities, divided by the total

number of units outstanding. Thus, NAV of a mutual fund unit is nothing but

the book value.

The NAV of the fund has no impact on the returns it will deliver in the future.

For example Lets assume you plan to invest in an index fund and you havetwo choices - Fund A is a new fund with an NAV of Rs. 10, which will mimic

the Nifty and a Fund B, which is an existing Nifty index fund with an NAV of

Rs. 200.

Suppose you invest Rs. 10,000 in Fund A and Rs. 10,000 in Fund B. You will

get 1000 units of Fund A and 20 units of Fund B. After 1 year, the Nifty has

appreciated by 25%, which means that both funds would have also

appreciated by 25%, as they are a replica of the Nifty.

So after 1 year, the NAV of Fund A would become Rs. 12.50 and that of Fund

B Rs. 250. But what is the value of your two investments? Fund A would nowbe Rs. 12,500 (1000 units * Rs. 12.50/unit) and Fund B also would be Rs.

12,500 (20 units * Rs. 250/unit).

The bottom line is that dont bother about the NAV of a mutual fund, as you

might do for the price of a share.

Conclusion


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When you buy shares in the secondary market ( stock markets) , the money

which you pay goes to the seller of the shares and not to the

company.Generally when we speak about investing or trading at the stock

market we mean trading at the secondary stock market. It is the secondary

market where we can invest and trade in the stocks to get the profit from our

stock market investment.

ISSUE OF SHARES: Face value vs Premium.

When a company launches an IPO to the public, it can offer those shares at

face value or at a Premium.

Shares carry a fixed rate, as declared in the legal documents of the company.

Its also called par value. For example, a company may issue 10 lakhs

shares of Rs 10 each at par.

Over and above the fixed rate, a company can issue shares at a premium

from its subscribers if the management is able to justify the reason for such

premium. For example, a company may issue 10 lakh shares of Rs 10 each at

a premium of Rs 50. So the total cost of one share becomes Rs 60.

WHY NOT AT DISCOUNT?

Yes, theoretically speaking, shares can be issued at a discount also.

Practically, nobody does that. Shares are either issued at par or at a

premium.

ITs NO EASY PROCESS

To successfully complete the share issue process, a company will have to

appoint a lot of intermediaries like

Lead managers who would take care of all the paper work with SEBI and other

regulatory authorities, with the stock exchanges, bankers, Underwriters,

allotment of shares.. in short, everything from A to Z

Bankers to the issue who would ensure the collection of funds from the

public.

Registrars to the issue who would scrutinize the applications, reject the

disqualified ones and allot the shares to eligible allotees , transfer thoseshares to their demat accounts and refund the amount to unsuccessful

applicants.

Underwriters who would undertake to buy the shares that are not taken up

by the public so that the IPO is complete.

PRICING OF SHARE ISSUES.


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Shares issued through an IPO can be priced in two ways. First method is

straight forward The company can decide the price at which it will offer its

shares.

The second method is The Company, in consultation with the lead

managers, would fix a price band for the issue. The price band is nothingbut a range. For example If the issue document says that the shares are

issued in a price band of Rs 50 to Rs 75. It means, that the investors willing to

subscribe the shares are free to bid for any price between that range. The

lower end of the band is called the floor price and the upper end of the band

is called the cap.

The highest price at which there are maximum numbers of subscribers is

taken as the issue price. All bids at or above this price are valid bids and

considered for allotment.

INVESTORS WHO CAN INVEST IN AN IPO

The total issue of shares is divided into three parts for three categories of

investors. These categories are:

Retail investors For You, me, residents, NRIs and Hindu undivided families,

whose share application size is less than Rs 1 lakh, 35% of the issue is kept

aside.

Qualified institutional bidders: For mutual funds, banks, insurance companies,

foreign institutional investors etc 50% of the issue is kept aside.

Non-institutional bidders individuals, companies, NRIs, HUFs, societies,trusts whose share application size is more than 1 lakh, the balance 15% is

given.

This being an article In our primary section, Im keeping things simple in a

laymans language. We will take up the IPO issue process in our advanced

lessons series.

Bye for now..

Have a nice time!Stock Market timings.

by aniket on December 5th, 2011

9

Share


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INDIAN MARKETS

Trading on the Indian equities segment takes place on all weekdays.

There is No trading on Saturday, Sunday and Published Indian Stock MarketHolidays declared by the Indian Stock Exchange in advance.

The Market Opens at: 09:15 hours and Closes at: 15:30 hours

Pre open trade session will be from 09:00 ~ 09:15 hours

Pre-open trade session is a 15 minute trade session from 9:00AM to 9:15AM

on the 50 stocks of NIFTY index .

Only 50 stocks of the NIFTY index can be traded during this time on both NSE

and BSE. Normal trading for all other stocks will start at 9:15AM till 3:30PM.

WHY PRE MARKET SESSION?

In case a major event or announcement comes overnight before market

opens, such events are likely to bring heavy volatility on the next day when

the market opens. Special events include merger and acquisition

announcements, open offers, delistings, debt-restructurings, credit-rating

downgrades etc which may have a deep impact on investors wealth. In order

to stabilize this, pre open call auction is conducted to discover the right price

and to reduce volatility.

BREAK-UP OF 15 MINUTES

The 15 minutes of pre open session is broken into 8 + 4 + 3.

The first 8 minutes: During this session investors can place/ modify /cancel

orders on the basis of which the exchanges would determine the rates at

which trading would happen. Orders are not accepted after this initial 8

minutes.

Limit orders will get priority over market orders at the time of execution of

trades .All orders shall be disclosed in full quantity, i.e. orders where revealed

quantity function is enabled, will not be allowed during the pre-open session

In the next four minutes, orders are matched, executable price is discovered

and trades are confirmed. The next 3 minutes is just a buffer period for

transmission from pre-market session to normal market session.

PRICE DISCOVERY


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Hong Kong stock exchange - Opens at 7.55 Am

Tokyo stock exchange - Opens at 5.50 Am

South Korea Opens at 5.50 Am

NYSE, New York Opens at 8.30 Pm

NASDAQ Opens at 8.30 Pm

BOVESPA , Brazil Opens at 7 Pm

Bogota, Columbia Opens at 7 Pm

Dow Jones Opens at 7.30 Pm

You can also get the market timing of any other stock or commodity

exchange at marketclocks.com

Bye for now ..

have a nice day !

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