THE WORLD OF STOCK MARKET

What is SENSEX?Index of Bombay Stock ExchangeMost popular stock market index in india

First compiled in 1986Consists of 30 stockBase year 1978-79, base value 100Current sensex value is 17900

What is NIFTY?Index of National Stock ExchangeMost widely used index in indiaFirst published in 1995Base year 1995, base value 1000Consist of 50 stock from 21 sectorsCurrent value of Nifty is 5380

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BSE-17748Nifty-5381Nikkei- 8947Hangseng- 20783Straits- 2960Dowjones- 12801Nasdaq- 2903USD to INR 49.50

Uses of an IndexLead indicator of the economyBarometer to monitor market movement

Benchmark for portfoliosUse in Index fundsUnderlying asset in index derivatives

Reflection of expectation about future

Financial MarketsMarkets for financial assets or financial claims

1. Money markets2. Capital markets

Capital MarketsMarkets for long term fundsInstruments like shares, debentures, etc1. Primary markets2. Secondary markets

Primary MarketsMarket for new issuesInitial Public Offer (IPO)Qualified Institutional Placements (QIP)

Merchant bankingBook building

Secondary MarketsStock exchanges- BSE and NSETrading: floor trading to electronic trading

Dematerialization: NSDL and CDSL

Clearing and Settlement (T+2 rolling)

Type of TradingInvestment: SpeculationGambling

InvestmentsBuying for long termDividend income andLong term capital gain

Speculation Taking high risk for high return

Planned game for very short period

Based on rumors, guess work, intelligence

GamblingTaking high risk for enjoyment

Blind tradingGreed and Panic

Type of speculators1. BULLExpect market to go upBulls buy first sell next

2. BEARExpect market to go downBears sell first buy next

Security AnalysisFundamental analysisTechnical analysisEfficient market hypothesis

Factors to watchGlobal marketsMacro economic factors like inflation, interest rate, GDP data etc

General sentiment (institutional & retail)

Company specific newsTechnical levels

DerivativesFinancial contractsDerived from the value of an underlying asset

Types of derivativesForwardsFuturesOptionsSwaps

Forwards Vs Futures

Futures Forwards

Exchange traded Non exchange traded

Margin required No margin requirement

Standardized contracts Customized contracts

No counter party risk High counter party risk

Options Option or right to buy or sellNo obligation to buy or sellTwo typesCALL option – option to buyPUT option- option to sell

SwapsAgreements to exchange one series of cash flow with another series.

Example: plain vanilla fixed interest loan to floating interest loan

SwaptionsTwo typesPayer swaption: pay fixed, receive floating.

Equal to a call optionReciever swaption: receive fixed pay floating.

Equal to a put option

Thank You

abbasvattoli@yahoo.com