STOCK “MARKETING”STOCK “MARKETING”

This presentation knowledges you----This presentation knowledges you----

1.1. BASICS OF SHARES AND BASICS OF SHARES AND INVESTMENTS IN SHARES.INVESTMENTS IN SHARES.

2.2. CALCULATION OF SENSEX IN STOCK CALCULATION OF SENSEX IN STOCK MARKET.MARKET.

What is stock?What is stock?

Stock is a share in the ownership of Stock is a share in the ownership of company. Technically, u will be company. Technically, u will be having a right in company’s assets having a right in company’s assets and earnings.and earnings.

As a owner, u will be getting a share As a owner, u will be getting a share in profits also. These are termed as “ in profits also. These are termed as “ DIVIDENDS”DIVIDENDS”

SHARES,EQUITY ALL ARE VARIOUS NAMES SHARES,EQUITY ALL ARE VARIOUS NAMES GIVEN FOR “STOCK”GIVEN FOR “STOCK”

EVERY STOCK IS REPRESENTED BY A EVERY STOCK IS REPRESENTED BY A CERTIFICATE “ CERTIFICATE “ STOCK CERTIFICATE OR STOCK CERTIFICATE OR SHARESHARE CERTIFICATECERTIFICATE”. NOW, ”. NOW, MATERIALISATION HAS BECOME INTO MATERIALISATION HAS BECOME INTO DEMATERIALISATION(DEMAT)DEMATERIALISATION(DEMAT) THEN THEN TURNED INTO TURNED INTO REMATERIALISATION(REMAT)REMATERIALISATION(REMAT)

AS A SHAREHOLDER, U NEED NOT AS A SHAREHOLDER, U NEED NOT SAY THE DAY- TO- DAY RUNNING OF SAY THE DAY- TO- DAY RUNNING OF THE BUSINESS.MANAGEMENT HAS THE BUSINESS.MANAGEMENT HAS TO WORK FOR THE MAXIMISATION TO WORK FOR THE MAXIMISATION OF VALUE OF SHAREHOLDERS, IF IT OF VALUE OF SHAREHOLDERS, IF IT DID NOT DO SO, THEY CAN BE DID NOT DO SO, THEY CAN BE REMOVED BY “ VOTING” IN THE REMOVED BY “ VOTING” IN THE AGMs.AGMs.

SHARES WILL BE HAVING LIMITED SHARES WILL BE HAVING LIMITED LIABILITY AND SO NOBODY WILL TOUCH LIABILITY AND SO NOBODY WILL TOUCH UR PERSONAL ASSETS IF SOMETHING UR PERSONAL ASSETS IF SOMETHING HAPPENS TO THE COMPANY.HAPPENS TO THE COMPANY.

U CAN GET THESE SHARES EITHER U CAN GET THESE SHARES EITHER FROM FROM PRIMARY OR FROM SECONDARY PRIMARY OR FROM SECONDARY MARKETS ( BSE AND NSE)MARKETS ( BSE AND NSE)

WHY PROMOTERS WILL SHARE THEIR WHY PROMOTERS WILL SHARE THEIR EFFORTS WITH SHARE HOLDERS?EFFORTS WITH SHARE HOLDERS?

RAISING OF MONEY CAN BE DONE RAISING OF MONEY CAN BE DONE IN TWO WAYS FOR ANY COMPANY.IN TWO WAYS FOR ANY COMPANY.

1.1. EQUITY FINANCING( ISSUE OF EQUITY FINANCING( ISSUE OF SHARES)SHARES)

2.2. DEBT FINANCING ( ISSUE OF DEBT FINANCING ( ISSUE OF BONDS).BONDS).

IN DEBT FINANCING, UR PRINCIPAL IN DEBT FINANCING, UR PRINCIPAL AMOUNT WILL BE GUARANTEED WITH AMOUNT WILL BE GUARANTEED WITH SOME INTEREST AGREED UPON.SOME INTEREST AGREED UPON.

IN EQUITY, U MAY OR MAY NOT GET IN EQUITY, U MAY OR MAY NOT GET DIVIDENDS. THE NEXT OPTION AVAILABLE DIVIDENDS. THE NEXT OPTION AVAILABLE IS CAPITAL APPRECIATION OF SHARE IS CAPITAL APPRECIATION OF SHARE WHICH WILL BE DONE BY INCREASE OR WHICH WILL BE DONE BY INCREASE OR DECREASE THE PRICE OF SHARE VALUE.DECREASE THE PRICE OF SHARE VALUE.

WHY PEOPLE ARE CRAZY ABT WHY PEOPLE ARE CRAZY ABT SHARES?SHARES?

DIVIDENDSDIVIDENDS CAPITAL APPRECIATIONCAPITAL APPRECIATION HIGH RETURNSHIGH RETURNS EASY LIQUIDITYEASY LIQUIDITY

WHY STOCK PRICES WILL WHY STOCK PRICES WILL CHANGE UP AND DOWN?CHANGE UP AND DOWN?

The best reason for this is LAW OF The best reason for this is LAW OF DEMAND AND LAW OF SUPPLYDEMAND AND LAW OF SUPPLY

IF DEMAND > SUPPLY—PRICES WILL IF DEMAND > SUPPLY—PRICES WILL INCREASEINCREASE

IF SUPPLY >DEMAND ---PRICES WILL IF SUPPLY >DEMAND ---PRICES WILL DECREASE.DECREASE.

WHY DEMAND WILL BE LOW WHY DEMAND WILL BE LOW OR HIGH?OR HIGH?

BECAUSE OF THE LIKINGS OR DISLIKINGS BECAUSE OF THE LIKINGS OR DISLIKINGS OF A PARTICULAR STOCK BY PEOPLE. OF A PARTICULAR STOCK BY PEOPLE. THESE BEHAVIOURS INTURN DEPEND ON “ THESE BEHAVIOURS INTURN DEPEND ON “ EARNINGS” OF THE COMPNAY AS IN THE EARNINGS” OF THE COMPNAY AS IN THE LONGRUN THEY BECOME THE JUST LONGRUN THEY BECOME THE JUST FACTORS.FACTORS.

““EARNING SEASONS”EARNING SEASONS” ( QUARTER RESULTS) ( QUARTER RESULTS) ARE THE FOREMOST FACTOR FOR ARE THE FOREMOST FACTOR FOR KNOWING THE STOCK BEHAVIOUR.KNOWING THE STOCK BEHAVIOUR.

HOW TO DECIDE THE BEST HOW TO DECIDE THE BEST STOCKS TO PURCHASE?STOCKS TO PURCHASE?

USE FUNDAMENTAL ANALYSIS OR USE FUNDAMENTAL ANALYSIS OR TECHN ICAL ANALYSIS FOR THIS TECHN ICAL ANALYSIS FOR THIS DECISION.DECISION.

BOTH REPRESENT THE FUTURE BOTH REPRESENT THE FUTURE VALUE OF THE SHARES BUT BASED VALUE OF THE SHARES BUT BASED ON DIFFERENT PARAMETRES.ON DIFFERENT PARAMETRES.

FUNDAMENTAL ANALYSIS.FUNDAMENTAL ANALYSIS.

Analysis of the company Analysis of the company performance based on financial and performance based on financial and economical grounds that predict the economical grounds that predict the price movements.price movements.

Study the overall economical changes,the Study the overall economical changes,the particular compnay history, its past data, particular compnay history, its past data, past performance,competency with their past performance,competency with their competetors,management experience competetors,management experience etc..to understand better about company.etc..to understand better about company.

Based on these observations, Based on these observations, fundamentalists will derive a value for the fundamentalists will derive a value for the share which is called as “ INTRINSIC share which is called as “ INTRINSIC VALUE” .VALUE” .

If intrinsic value > the current price, If intrinsic value > the current price, go for purchasing of share as the go for purchasing of share as the price will increase in future and vice- price will increase in future and vice- versa.versa.

We can even use some ratios and We can even use some ratios and tools for analysing two companies of tools for analysing two companies of different industries for better decision. different industries for better decision.

EARNINGS PER SHAREEARNINGS PER SHARE

EPS = Net Earnings / Outstanding EPS = Net Earnings / Outstanding Shares Shares

That means, it will give u an idea That means, it will give u an idea that for every share that u hold, how that for every share that u hold, how much earnings u r going to receive.much earnings u r going to receive.

It means….how much company is paying It means….how much company is paying from its earnings for every share ..!!!!!from its earnings for every share ..!!!!!

Net earnings = Rs 1,00,000Net earnings = Rs 1,00,000 Outstanding shares = Rs. 10000Outstanding shares = Rs. 10000

EPS = Rs. 10..which means that for every EPS = Rs. 10..which means that for every one share u held in the company, u get Rs. one share u held in the company, u get Rs. 10/- as profit.10/- as profit.

P/E RATIO..WHAT IS IT?P/E RATIO..WHAT IS IT?

The P/E looks at the relationship The P/E looks at the relationship between the stock price and the between the stock price and the company’s earnings. The P/E is the company’s earnings. The P/E is the most popular stock analysis ratio, most popular stock analysis ratio, although it is not the only one you although it is not the only one you should consider. should consider.

P/E = MARKET PRICE OF SHARE / EPSP/E = MARKET PRICE OF SHARE / EPS

WHAT DOES P/E TELL U?WHAT DOES P/E TELL U?

It is nothing but how much the share It is nothing but how much the share holders are ready to pay per share holders are ready to pay per share for every one rupee of earnings from for every one rupee of earnings from the company.the company.

A high P/E indicates that investors A high P/E indicates that investors are ready to pay high amount for the are ready to pay high amount for the stock, which is adversable from stock, which is adversable from market point of view.market point of view.

Better P/E ratio of 15 can be taken as Better P/E ratio of 15 can be taken as benchmark for the assessing the benchmark for the assessing the company.company.

PEG (Price to future growth PEG (Price to future growth ratio!) and what it tells ratio!) and what it tells

you!you! A ratio that will help you look at A ratio that will help you look at

future earnings growth is called the future earnings growth is called the PEG ratio. PEG ratio. PEG = (P/E) / (projected growth in earnings)

Lower the P/E ratio, higher u r safe.Lower the P/E ratio, higher u r safe.

These 3 ratios will give you a basic idea These 3 ratios will give you a basic idea on the performance of a share or on the performance of a share or performance of the market.performance of the market.

But, all investment flows, will attract some But, all investment flows, will attract some additional costs …visible and invisibleadditional costs …visible and invisible

Inflation, brokerage and taxation are the 3 Inflation, brokerage and taxation are the 3 things which eat the money slowly without things which eat the money slowly without knowing to the customer.knowing to the customer.

RATE OF RETURN > ( INFLATION RATE OF RETURN > ( INFLATION RATE+BROKERAGE ON TXN + TAX RATE+BROKERAGE ON TXN + TAX (STCG) TO GOVT)..(STCG) TO GOVT)..

THE INVESTMENT WILL BE MORE THE INVESTMENT WILL BE MORE RETURN ORIENTED AND CAN EARN RETURN ORIENTED AND CAN EARN SOMETHING FOR UR MONEY.SOMETHING FOR UR MONEY.

SENSEX-WHAT DOES IT SENSEX-WHAT DOES IT MEAN?MEAN?

We can not study each and every We can not study each and every stock in the market and hence we stock in the market and hence we need an indicator which shows the need an indicator which shows the performance of all stocks in the performance of all stocks in the market.market.

This indicator has to be formed from This indicator has to be formed from different sectors of company based different sectors of company based on some criteria which is most on some criteria which is most reliable and which can be assumed reliable and which can be assumed for the whole market.for the whole market.

SENSEX-WHAT DOES IT SENSEX-WHAT DOES IT MEAN?MEAN?

SENSEX is the index which SENSEX is the index which represents the trend of the stock represents the trend of the stock market ( BSE) by taking 30 market ( BSE) by taking 30 benchmark companies.benchmark companies.

S & P NIFTY INDEX is the S & P NIFTY INDEX is the benchmark index for NSE by taking benchmark index for NSE by taking 50 companies into consideration.50 companies into consideration.

SENSEX has been calculated since 1986 SENSEX has been calculated since 1986 and initially it was calculated based on and initially it was calculated based on the the Total Market Capitalization Total Market Capitalization methodologymethodology and the methodology was and the methodology was changed in 2003 to changed in 2003 to Free Float Market Free Float Market CapitalizationCapitalization. Hence, these days, the . Hence, these days, the SENSEX is based on the Free Floating SENSEX is based on the Free Floating Market cap of 30 SENSEX Stocks traded Market cap of 30 SENSEX Stocks traded on the BSE relative to the base value on the BSE relative to the base value which is 100(1978-79) and it is which is 100(1978-79) and it is calculated for every 15 seconds.calculated for every 15 seconds.

What is market capitalsiation ? What is market capitalsiation ?

MC = Market price of the company * MC = Market price of the company * No.of shares available in the No.of shares available in the companycompany

Free-float market capitalization takes into Free-float market capitalization takes into consideration only those shares issued by consideration only those shares issued by the company that are readily available for the company that are readily available for trading in the market. It generally excludes trading in the market. It generally excludes promoters' holding, government holding, promoters' holding, government holding, strategic holding and other locked-in shares strategic holding and other locked-in shares that will not come to the market for trading that will not come to the market for trading in the normal course. In other words, the in the normal course. In other words, the market capitalization of each company in a market capitalization of each company in a free-float index is reduced to the extent of free-float index is reduced to the extent of its readily available shares in the market.its readily available shares in the market.

HOW SENSEX IS HOW SENSEX IS CALCULATED?CALCULATED?

The formula for calculating the SENSEX The formula for calculating the SENSEX = (Sum of free flow market cap of 30 = (Sum of free flow market cap of 30 benchmark stocks)*Index Factorbenchmark stocks)*Index Factor

Index Factor = Index Factor = PREVIOUS DAY PREVIOUS DAY SENSEX SENSEX PREVIOUS DAY PREVIOUS DAY FFMCFFMC

FFMC = MARKET CAPITALISATION*FF FFMC = MARKET CAPITALISATION*FF FACTOR.FACTOR.

Assume SENSEX has only 2 stocks Assume SENSEX has only 2 stocks namely SBI and RELIANCE. Total shares namely SBI and RELIANCE. Total shares in SBI are 500 out of which 200 are held in SBI are 500 out of which 200 are held by Government and only 300 are by Government and only 300 are available for public trading. RELIANCE available for public trading. RELIANCE has 1000 shares out of which 500 are has 1000 shares out of which 500 are held by promoters and 500 are held by promoters and 500 are available for trading. Assume price of available for trading. Assume price of SBI Stock is Rs.100 and Reliance is SBI Stock is Rs.100 and Reliance is Rs.200. Rs.200.

Then "free-Floating Market Cap" of these 2 Then "free-Floating Market Cap" of these 2 companies =companies =

(300*100+500*200) = 30000+100000 = Rs. (300*100+500*200) = 30000+100000 = Rs. 130000130000

Assume Market Cap during the year 1978-79 was Assume Market Cap during the year 1978-79 was Rs.25000Rs.25000

Then SENSEX = 130000*100/25000 = 520.Then SENSEX = 130000*100/25000 = 520.

The methodology in the example is exactly followed The methodology in the example is exactly followed to calculate the SENSEX, only difference being the to calculate the SENSEX, only difference being the inclusion of 30 stocks.inclusion of 30 stocks.

SENSEX-SELECTION OF SENSEX-SELECTION OF STOCKSSTOCKS

LISTING HISTORYLISTING HISTORY TRADING FREQUENCYTRADING FREQUENCY RANK BASED ON MARKET CAPRANK BASED ON MARKET CAP MARKET CAP WEIGHTMARKET CAP WEIGHT HISTORICAL RECORDHISTORICAL RECORD INDUSTRY/SECTOR THEY BELONGINDUSTRY/SECTOR THEY BELONG

SENSEX EPSSENSEX EPS

We all know Earnings per Share (EPS) is We all know Earnings per Share (EPS) is calculated for all the companies to show calculated for all the companies to show how much a company generates the net how much a company generates the net profit for every outstanding share. profit for every outstanding share. Likewise EPS is calculated for SENSEX as Likewise EPS is calculated for SENSEX as well so that we can have a better well so that we can have a better understanding about the market.understanding about the market.

Let’s see how it is calculated. All you need Let’s see how it is calculated. All you need for this calculation is EPS of all the 30 for this calculation is EPS of all the 30 SENSEX stocks along with their Free Float SENSEX stocks along with their Free Float Adjustment Factor.Adjustment Factor.

EXAMPLEEXAMPLE Take HDFC Bank for the example. Present EPS for Take HDFC Bank for the example. Present EPS for

HDFC Bank is Rs. 44 and Free Float Adjustment HDFC Bank is Rs. 44 and Free Float Adjustment Factor is 0.85. Free Float Adjustment factor of Factor is 0.85. Free Float Adjustment factor of 0.85 just means 85% of the total outstanding 0.85 just means 85% of the total outstanding shares are held by Non-Promoters and are shares are held by Non-Promoters and are available in the market for trade.available in the market for trade.

Multiply the EPS with Adjustment Factor which is Multiply the EPS with Adjustment Factor which is 44*.85 = 37.4. This 37.4 is the contribution of 44*.85 = 37.4. This 37.4 is the contribution of HDFC Bank towards SENSEX EPS. Likewise we HDFC Bank towards SENSEX EPS. Likewise we need to calculate for all 30 stocks and add it need to calculate for all 30 stocks and add it together to get the final value of SENSEX EPS .together to get the final value of SENSEX EPS .

SENSEX PESENSEX PE PE Ratio is calculated for companies which show PE Ratio is calculated for companies which show

what the investors are ready to pay for every what the investors are ready to pay for every rupee of earnings. If we calculate the same thing rupee of earnings. If we calculate the same thing by taking into account all the 30 SENSEX stocks, by taking into account all the 30 SENSEX stocks, then we will end up with SENSEX PE.then we will end up with SENSEX PE.

How to calculate?How to calculate?

Consider the same HDFC Bank. Multiply the Market Consider the same HDFC Bank. Multiply the Market Price of HDFC Bank with number of shares Price of HDFC Bank with number of shares outstanding which should be equal to Market outstanding which should be equal to Market Capitalization.Capitalization.

Market Capitalization = Share Price * Total Market Capitalization = Share Price * Total SharesShares

Then calculate the Net Profit by Then calculate the Net Profit by multiplying the EPS with Total Shares.multiplying the EPS with Total Shares.

Do this for all the 30 SENSEX stocks.Do this for all the 30 SENSEX stocks.

SENSEX PE = Sum of Market Capitalization SENSEX PE = Sum of Market Capitalization of 30 SENSEX Stocks divided by Sum of of 30 SENSEX Stocks divided by Sum of Net Profit of all the 30 SENSEX Stocks.Net Profit of all the 30 SENSEX Stocks.