stock mkt basics.ppsx

7/29/2019 Stock Mkt Basics.ppsx

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Introduction to StockMarket


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Bombay Stock &Cotton Exchange


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The origins of the BSE canbe traced to the 1830s whenan informal group of around22 brokers traded in cottonunder an old Banyan tree.

The tree still stands in theHorniman Circle Park nearFlora Fountain. This grouporganised themselves as

The Native Share &Stockbrokers' Association,which, in 1875, was formally

christened as the BombayStock Exchange (BSE).


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Horniman Circle - known as Bombay Greens in the 18th century


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First lady traderMeera Patel withdaughter, in 1989.


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Outcry System to BOLTBSE followed the familiar

Outcry System for trading till 1995 when it was replaced

by BOLT, or the BSE OnLine Trading system.


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Technology replaced lung-power on the BSE in 1995.There were new Gods to be worshipped that Mahurat Day.


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What are various options available for

investment?

One may invest in:

Physical assets like real estate, gold / jewellery,

commodities etc.

and/or

Financial assets such as fixed deposits with banks, smallsaving instruments with post offices, insurance /

provident / pension fund etc. or securities market related

instruments like shares, bonds, debentures etc.


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Bonds

It is a fixed income (debt) instrument issued

for a period of more than one year with the

purpose of raising capital. The central or

state government, corporations and similar

institutions sell bonds. A bond is generally a

promise to repay the principal along with afixed rate of interest on a specified date,

called the Maturity Date.


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Mutual Funds

These are funds operated by an investmentcompany which raises money from the public

and invests in a group of assets (shares,

debentures etc.), in accordance with a statedset of objectives. It is a substitute for those who

are unable to invest directly in equities or debt

because of resource, time or knowledgeconstraints. Benefits include professional

money management, buying in small amounts

and diversification.


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Mutual fund units are issued and redeemed

by the Fund Management Company based on

the fund's net asset value (NAV), which is

determined at the end of each tradingsession. NAV is calculated as the value of all

the shares held by the fund, minus expenses,

divided by the number of units issued.


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What is a Depository?

A depository is like a bank wherein the deposits

are securities (viz. shares, debentures, bonds,government securities, units etc.) in electronic

form.

What is Dematerialization?

Dematerialization is the process by which

physical certificates of an investor are convertedto an equivalent number of securities in

electronic form and credited to the investors

account with his Depository Participant (DP).


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Which are the securities one can invest in?

Shares

Government Securities

Derivative productsUnits of Mutual Funds etc.

are some of the securities investors in thesecurities market can invest in.


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What is the role of the Primary Market?

The primary market provides the channel

for sale of new securities. Primary market

provides opportunity to issuers ofsecurities; Government as well as

corporates, to raise resources to meet

their requirements of investment and/ordischarge some obligation.


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What are the different kinds of issues?

Initial Public Offering (IPO) is when an unlisted company makes either a fresh

issue of securities or an offer for sale of its existing securities or both for the

first time to the public. This paves way for listing and trading of the issuerssecurities. The sale of securities can be either through book building or

through normal public issue.

A follow on public offering (Further Issue) is when an already listed company

makes either a fresh issue of securities to the public or an offer for sale to the

public, through an offer document.

Rights Issue is when a listed company which proposes to issue fresh securities

to its existing shareholders as on a record date. The rights are normally offered

in a particular ratio to the number of securities held prior to the issue. This

route is best suited for companies who would like to raise capital without

diluting stake of its existing shareholders. For e.g. a 2:3 rights issue at Rs. 125,

would entitle a shareholder to receive 2 shares for every 3 shares held at a

price of Rs. 125 per share.


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A Preferential issue is an issue of shares or of

convertible securities by listed companies to

a select group of persons under Section 81 ofthe Companies Act, 1956 which is neither a

rights issue nor a public issue. This is a faster

way for a company to raise equity capital.The issuer company has to comply with the

Companies Act and the requirements

contained in the Chapter pertaining topreferential allotment in SEBI guidelines

which inter-alia include pricing, disclosures in

notice etc.


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What is meant by Face Value of a share/debenture?

The nominal or stated amount (in Rs.) assigned to a security

by the issuer. For shares, it is the original cost of the stockshown on the certificate; for bonds, it is the amount paid to

the holder at maturity. Also known as par value or simply

par. For an equity share, the face value is usually a very

small amount (Rs. 5, Rs. 10) and does not have muchbearing on the price of the share, which may quote higher in

the market, at Rs. 100 or Rs. 1000 or any other price. For a

debt security, face value is the amount repaid to the investor

when the bond matures (usually, Government securities andcorporate bonds have a face value of Rs. 100). The price at

which the security trades depends on the fluctuations in the

interest rates in the economy.


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What do you mean by the term Premium

and Discount in a Security Market?

Securities are generally issued in

denominations of 5, 10 or 100. This is

known as the Face Value or Par Value of thesecurity.

When a security is sold above its face value,it is said to be issued at a Premium and if it

is sold at less than its face value, then it is

said to be issued at a Discount.


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Who decides the price of an issue in IPO?

Indian primary market ushered in an era of free pricing in

1992. Following this, the guidelines have provided that theissuer in consultation with Merchant Banker shall decide

the price. There is no price formula stipulated by SEBI. SEBI

does not play any role in price fixation. The company and

merchant banker are however required to give fulldisclosures of the parameters which they had considered

while deciding the issue price. There are two types of

issues, one where company and Lead Merchant Banker fix a

price (called fixed price) and other, where the company and

the Lead Manager (LM) stipulate a floor price or a price

band and leave it to market forces to determine the final

price (price discovery through book building process).


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What is a Price Band in a book built IPO?

The prospectus may contain either the floor price for the

securities or a price band within which the investors can

bid. The spread between the floor and the cap of the price

band shall not be more than 20%.

*In case the price band is revised, the bidding period shall

be extended for a further period of three days, subject to

the total bidding period not exceeding ten days.


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What does price discovery through Book

Building Process mean?

Book Building is basically a process used in

IPOs for efficient price discovery. It is a

mechanism where, during the period forwhich the IPO is open, bids are collected

from investors at various prices, which are

above or equal to the floor price. The offerprice is determined after the bid closing

date.

What is the main difference between offer of shares


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What is the main difference between offer of shares

through book building and offer of shares through normal

public issue?

Price at which securities will be allotted is not known in

case of offer of shares through Book Building while in case

of offer of shares through normal public issue, price is

known in advance to investor. Under Book Building,investors bid for shares at the floor price or above and after

the closure of the book building process the price is

determined for allotment of shares.

In case of Book Building, the demand can be known

everyday as the book is being built. But in case of the

public issue the demand is known at the close of the issue.


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What is Cut-Off Price?

In a Book building issue, the issuer is required

to indicate either the price band or a floor

price in the prospectus. The actual discovered

issue price can be any price in the price bandor any price above the floor price. This issue

price is called Cut-OffPrice. The issuer and

lead manager decides this after consideringthe book and the investors appetite for the

stock.


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What is minimum number of days for which a bid should remain

open during book building?

The Book should remain open for a minimum of 3 days.

How does one know if shares are allotted in an IPO/offer for sale?

What is the timeframe for getting refund if shares not allotted?

As per SEBI (Issue of Capital and Disclosure Requirements)

Regulations, 2009 the Basis of Allotment should be completed

within 8 days from the issue close date. As soon as the basis of

allotment is completed, within 2 working days the details of credit

to demat account / allotment advice and despatch of refund order

needs to be completed. So an investor should know in about 11

days time from the closure of issue, whether shares are allotted tohim or not.

How long does it take to get the shares listed after issue?

It takes 12 working days after the closure of the book built issue.


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Minimum Subscription

The minimum shares the company

needs to get from the public out of the

total issue by the date of closure.

(Presently every company need to raise90% of the issued amount). Else, the

company shall refund the whole

amount received. This 90 % has to be

exclusive of the cheques that are notcleared.


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What is a Derivative?

Derivative is a product whose value is derived

from the value of one or more basic variables,

called underlying. The underlying asset can be

equity, index, foreign exchange (forex),

commodity or any other asset.

Derivative products initially emerged as hedging

devices against fluctuations in commodity pricesand commodity-linked derivatives remained the

sole form of such products for almost three

hundred years.


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What are Types of Derivatives?

Forwards: A forward contract is a customized contract between two

entities, where settlement takes place on a specific date in the

future at todays pre-agreed price.

Futures: A futures contract is an agreement between two parties tobuy or sell an asset at a certain time in the future at a certain price.

Futures contracts are special types of forward contracts in the sense

that the former are standardized exchange-traded contracts, such

as futures of the Nifty index.

O ti A O ti i t t hi h i th i ht b t t


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Options: An Option is a contract which gives the right, but not an

obligation, to buy or sell the underlying at a stated date and at a

stated price. While a buyer of an option pays the premium and buys

the right to exercise his option, the writer of an option is the one who

receives the option premium and therefore obliged to sell/buy theasset if the buyer exercises it on him.

Options are of two types - Calls and Puts options:

Callsgive the buyer the right but not the obligation to buy a given

quantity of the underlying asset, at a given price on or before a given

future date.

Putsgive the buyer the right, but not the obligation to sell a given

quantity of underlying asset at a given price on or before a given

future date.

Presently, at NSE futures and options are traded on the Nifty, CNX IT,

BANK Nifty and 116 single stocks.


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What is an Option Premium?

At the time of buying an option contract, the

buyer has to pay premium. The premium is the

price for acquiring the right to buy or sell.

It is price paid by the option buyer to the option

seller for acquiring the right to buy or sell. Option

premiums are always paid upfront.


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Who is a Depository Participant (DP)?

The Depository provides its services to investors

through its agents called depository participants

(DPs). These agents are appointed by the depository

with the approval of SEBI. According to SEBI

regulations, amongst others, three categories ofentities, i.e. Banks, Financial Institutions and SEBI

registered trading members can become DPs.

What is an ISIN?

ISIN (International Securities Identification Number) is

a unique identification number for a security.


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What is an ETF?

Think of an exchange-traded fund as a mutual fund thattrades like a stock. Just like an index fund, an ETF

represents a basket of stocks that reflect an index such as

the Nifty. An ETF, however, isn't a mutual fund; it trades

just like any other company on a stock exchange. Unlike amutual fund that has its net-asset value (NAV) calculated

at the end of each trading day, an ETFs price changes

throughout the day, fluctuating with supply and demand.

It is important to remember that while ETFs attempt toreplicate the return on indexes, there is no guarantee

that they will do so exactly.


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What is the maximum brokerage that a broker can

charge?

The maximum brokerage that can be charged by a

broker from his clients as commission cannot be more

than 2.5% of the value mentioned in the respective

purchase or sale note.


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Stock ExchangeThe Securities Contract (Regulation) Act, 1956 [SCRA] defines StockExchange

as any body of individuals, whether incorporated or not, constituted for the

purpose of assisting, regulating or controlling the business of buying, selling

or dealing in securities.

The main financial products/instruments dealt in the capital market are:

Equity Shares

Rights Issue / Rights Shares

Bonus Shares

Preferred Stock / Preference shares

Cumulative Preference Shares

Cumulative Convertible Preference

Shares

Participating Preference Share

Security Receipts

Government securities (G-Secs)

Debentures

Bond

Zero Coupon Bond

Convertible Bond

Commercial Paper

Treasury Bills


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Index

An Index shows how a specified portfolio of

share prices is moving in order to give an

indication of market trends. It is a basket ofsecurities and the average price movement

of the basket of securities indicates the

index movement, whether upwards ordownwards.

BSE 30


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BSE 30

ICICI BANK LTD. BAJAJ AUTO LIMITED

HOUSING DEVELOPMENT FINANCE CORP. LTD HERO MOTOCORP LIMITED

LARSEN & TOUBRO LIMITED MARUTI SUZUKI INDIA LTD.

INFOSYS LTD JINDAL STEEL & POWER LTD

HDFC BANK LTD. STERLITE INDUSTRIES (INDIA) LTD

MAHINDRA & MAHINDRA LTD. STATE BANK OF INDIA,

DR. REDDY'S LABORATORIES LTD., SUN PHARMACEUTICAL INDUSTRIES LTD.

ITC LTD GAIL (INDIA) LTD.

TATA MOTORS LTD. BHARTI AIRTEL LTD.

TATA STEEL LIMITED BHARAT HEAVY ELECTRICALS LTD.,

TATA POWER CO. LTD TATA CONSULTANCY SERVICES LTD.

HINDALCO INDUSTRIES LTD. OIL AND NATURAL GAS CORPORATION LTD

CIPLA LTD., WIPRO LTD.,

RELIANCE INDUSTRIES LTD NTPC LIMITED

HINDUSTAN UNILEVER LTD., COAL INDIA LIMITED

NIFTY 50


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NIFTY 50S.No. Company Name S.No. Company Name

1 ACC Ltd. 26 IDFC Ltd.

2 Ambuja Cements Ltd. 27 Jaiprakash Associates Ltd.

3 Asian Paints Ltd. 28 Jindal Steel & Power Ltd.

4 Axis Bank Ltd. 29 Kotak Mahindra Bank Ltd.

5 Bajaj Auto Ltd. 30 Larsen & Toubro Ltd.

6 Bank of Baroda 31 Mahindra & Mahindra Ltd.

7 Bharat Heavy Electricals Ltd. 32 Maruti Suzuki India Ltd.

8 BPCL 33 NTPC Ltd.

9 Bharti Airtel Ltd. 34 Oil & Natural Gas Corporation Ltd.

10 Cairn India Ltd. 35 Power Grid Corporation of India Ltd.

11 Cipla Ltd. 36 Punjab National Bank12 Coal India Ltd. 37 Ranbaxy Laboratories Ltd.

13 DLF Ltd. 38 Reliance Industries Ltd.

14 Dr. Reddy's Laboratories Ltd. 39 Reliance Infrastructure Ltd.

15 GAIL (India) Ltd. 40 Sesa Goa Ltd.

16 Grasim Industries Ltd. 41 Siemens Ltd.

17 HCL Technologies Ltd. 42 State Bank of India

18 HDFC Bank Ltd. 43 Steel Authority of India Ltd.19 Hero MotoCorp Ltd. 44 Sterlite Industries (India) Ltd.

20 Hindalco Industries Ltd. 45 Sun Pharmaceutical Industries Ltd.

21 Hindustan Unilever Ltd. 46 Tata Consultancy Services Ltd.

22 HDFC Ltd. 47 Tata Motors Ltd.

23 I TC Ltd. 48 Tata Power Co. Ltd.

24 ICICI Bank Ltd. 49 Tata Steel Ltd.

25 Infosys Ltd. 50 Wipro Ltd.


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Market Capitalization Meaning

The total rupee market value of all of acompany's outstanding shares. Market

capitalization is calculated by multiplying a

company's shares outstanding by the currentmarket price of one share. The investment

community uses this figure to determining a

company's size, as opposed to sales or total assetfigures. Market Capitalization is

frequently referred to as "market cap".


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If a company has 35 million shares outstanding,

each with a market value of Rs. 100, the

company's market capitalization is Rs. 3.5 billion(35,000,000 x Rs. 100 per share).

Company size is a basic determinant of assetallocation and risk-return parameters for stocks

and stock mutual funds. The term should not be

confused with a company's "capitalization,"

which is a financial statement term that refers

to the sum of a company's shareholders' equity

plus long-term debt.


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Classification of Stocks

The stocks of large, medium and small companies are referred to aslarge-cap, mid-cap, and small-cap, respectively. Investment

professionals differ on their exact definitions, but the current

approximate categories of market capitalization are:

Large Cap

$10 billion plus and include companies with largest market

capitalization Excellent track record Strong Balance Sheet Good investor coverage (Financials widely tracked) Typically in the stable phase of growth with good dividend policies


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Mid Cap

Medium sized companies with market capital of

$2 billion to $10 billion and good financials

Balance Sheet varies from moderately strong tobeing wobbly

Good growth prospectus but the aggressivephase behind it


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Small Cap

Startups to very small companies in an earlystage of growth with less than $2 billion of

market capital.

Typically not so strong Balance Sheet

Promises high growth along with a lurkingchance of bankruptcy.

The Bombay Stock Exchange (BSE)


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The Bombay Stock Exchange (BSE)Vision

"Emerge as the premier Indian stock exchangeby establishing global benchmarks"

Logo


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The Bombay Stock Exchange (BSE) is the oldest stock

exchange in Asia. The equity market capitalization of the

companies listed on the BSE was US$1 trillion as of December

2011, making it the 6th largest stock exchange in Asia and the14th largest in the world. The BSE has the largest number of

listed companies in the world.

As of March 2012, there are over 5,133 listed Indiancompanies and over 8,196 scrips on the stock exchange,the

Bombay Stock Exchange has a significant trading volume. The

BSE SENSEX, also called "BSE 30", is a widely used market

index in India and Asia. Though many other exchanges exist,

BSE and the National Stock Exchange of India account for themajority of the equity trading in India. While both have

similar total market capitalization (about USD 1.6 trillion),

share volume in NSE is typically two times that of BSE.


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Base Year : 1978-79

Base Index Value : 100

Date of Launch : 01-01-1986Number of scripts : 30

Method of calculation: Launched on full market

capitalization method and

effective 01-9-03, calculation method shifted to


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SENSEX - Scrip Selection Criteria

The general guidelines for selection of constituents in SENSEX are as follows:

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 BSEuniverse. In case, a company is listed on account of 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.

National Stock Exchange (NSE)


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National Stock Exchange (NSE)The National Stock Exchange (NSE) is the 16th largest stock

exchange in the world by market capitalization and largest in

India by daily turnover and number of trades, for both equitiesand derivative trading. NSE has a market capitalization of

around US$985 billion and over 1,646 listings as of December

2011.

The NSE's key index is the S&P CNX Nifty, known as the NSE

NIFTY (National Stock Exchange Fifty), an index of 50 major

stocks weighted by market capitalisation.

In 2011, NSE was the 3rd largest stock exchange in the world interms of the number of contracts (1221 million) traded in equity

derivatives. It is the 2nd fastest growing stock exchange in the

world with a recorded growth of 16.6%.


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Currently, NSE has the following major segments of the capital market:

Equity

Futures and Options

Retail Debt Market

Wholesale Debt Market

Currency futures

MUTUAL FUND

STOCKS LENDING & BORROWING

NSE also set up as index services firm known as India Index Services & Products

Limited (IISL) and has launched several stock indices, including:

S&P CNX Nifty (Standard & Poor's CRISIL NSE Index)

CNX Nifty Junior CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)

S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)

CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

Session Timings


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Session Time Action

Order Entry

Period 9:00am -9:07/08am

Order Addition/Modification/CancellationRandom stoppage between 7th and 8th minuteDissemination of Indicative Price, Cumulative buy &

sale Quantity & Indicative IndexUniform price band of 20% is applicable

Order Matching &

Confirmation

Period 9:08am - 9.12amNo Order Addition/Modification/Cancellation

Opening price determination, order matching and

trade confirmation & trade confirmation

Buffer Period 9:12am - 9:15am To facilitate transition between pre open andcontinuous trading session

Continuous Trading Session 9:15am 3:30pm

Trades occur continuously as orders match at time/price priority

g

Index Closure Algorithm


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The closing SENSEX on any trading day is computedtaking the weighted average of all the trades on

SENSEX constituents in the last 30 minutes of

trading session. If a SENSEX constituent has not

traded in the last 30 minutes, the last traded priceis taken for computation of the Index closure. If a

SENSEX constituent has not traded at all in a day,

then its last day's closing price is taken for

computation of Index closure. The use of IndexClosure Algorithm prevents any intentional

manipulation of the closing index value.

Index Closure Algorithm

Typical Terms used in the Capital Market


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Market Top: A recent top after which prices started fallingMarket Bottom: A recent bottom after which prices reboundedRally: Used to indicate that prices increased during a time periodCorrection: Used to indicate a brief reversal after a good riseTrader/Speculator: Used to indicate a person who takes a short term bet on

market.Investor: Typically a market participant who has a longer time horizonShort Selling: The process of selling a borrowed security with the hope of buying

at a lower priceLeveraging: The act of using borrowing money to participate in the marketsIntra-day Trading: The process of buying/selling and reversing it the same dayDelivery: The process of buying a security for more than a trading session

yp p


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Bear Market Rally: A period in which prices of stocks increase during a bear

market. A bear market rally is usually a short-lived market increase following a

period of market decline and is followed by another period of market declineleading to a pronounced down trend.

Black Friday: A day of stock market catastrophe. Originally, September 24,

1869, was deemed Black Friday. The crash was sparked by gold speculators,

including Jay Gould and James Fist, who attempted to corner the gold market.

The attempt failed and the gold market collapsed, causing the stock market toplummet.

Lemon: A very disappointing investment. Your expected return wasn't even

close to being achieved.

Panic Selling: Wide-scale selling of an investment, causing a sharp decline in

price. In most instances of panic selling, investors just want to get out of the

investment, with little regard for the price at which they sell.

Some Animals in the Capital Markets


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Bear: An investor who believes that a particular security or market is headed

downward. Bears attempt to profit from a decline in prices. Bears are

generally pessimistic about the state of a given market.

Bull: An investor who thinks the market, a specific security or an industry will rise.

Bulls are optimistic investors who are presently predicting good things for the

market, and are attempting to profit from this upward movement.

Elephants: Slang for large institutions that have the funds to make high volumes

trades. Due to the large volumes of stock that elephants deal in, any investmentdecisions that they make will have a large influence on the price of the

underlying financial asset.

Herd Instinct: A mentality characterized by a lack of individuality, causing people

to think and act like the general population. This term is used in the investing

world to refer to the forces that cause unsubstantiated rallies or sell-offs.

Lame Duck: A person who has defaulted on his or her debts or has gone

bankrupted due to the stock market. The financial use of the term is most

commonly used in Europe.

Factors that influence the Capital Market and Price of a stock


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Macroeconomic Data

(IIP, Inflation, GDP, Industrial Growth,

Consumer confidence, Employment,

Unemployment etc.)FII activitiesCrude PricesGovernment/PoliticsDraught/MonsoonFederal Policies

(Interest Rates, Monetary Policies)Company ResultsGlobal CuesStock ManipulationsInsider TradingMergersAcquisitionsMoney MarketsNew Orders

Buy BackBonus

Split

Tax Benefits

Change in stock Group

Inclusion in an IndexLoss of customerShort and Long PositionsLawsuits (win or loss)Change in DemandChange in SupplyBudgetRaw MaterialsWarTerrorist AttacksManagement ChangesDividendRights IssueJoint VenturesBusiness ExpansionNew InventionRumors

h i id d k i ?


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What is Bid and Ask price?


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Rakesh Jhunjhunwala

Rakesh (born 5 July 1960) is an Indian investor

and trader by profession. He is a Chartered

accountant by qualification. He is also an

equity investor in India and manages his ownportfolio as a partner in his asset management

firm, Rare Enterprises. Jhunjhunwala was

described in a magazine as the "pin-up boy ofthe current bull run" and by another as "Pied

Piper of Indian bourses".


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Presented By :-

Piyush GoenkaMBA-FT 1

Section A

Fine$$e Member

THE END

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