Introduction:• A company form of organisation is a business entity which is established under provision of India`s Companies Act 1956, through promotion, incorporation and floatation.
• The total capital of company is estimated, registered and divided into units of equal value. This units are known as Shares and collectively they are known as Share Capital. Share Capital Shares
The amount is invested or contributed by the investors and thenthey are collectively sold and purchased by new or existinginvestors through various means such as brokers of stockmarket / companies etc. , thus directly or indirectly giving birthor using the STOCK MARKET (Share Market).
Incorporation of a Company:• The procedure for incorporating a co. may be divided into 4 principal stages : Promotion Incorporation or Registration of a Co. Capital Subscription Commencement of Business
What is Stock Market?• A stock market or equity market is a public entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.
Importance of Stock Market:• Function and purpose: The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market.
History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy.
Share prices also affect the wealth of households and their consumption Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security.
Major Stock Exchanges:• New York Stock Exchange (NYSE- USA)• Toronto Stock Exchange (Canada)• Amsterdam Stock Exchange• London Stock Exchange• Singapore Exchange• Tokyo Stock Exchange• Hong Kong Stock Exchange• Bombay Stock Exchange (BSE- India)
Major Participants:• Individual Retail Investors• Institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.
The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity.
Some Important Terms Relating To ‘Stock Market’
Market Capitalisation:Market capitalization is the measure of corporate size of a country. It shows the current stock price multiplied by the number of outstanding shares. It is commonly referred to as Market cap.
Capital Structure:• Capital structure means the proportion of debt and equity used for financing the operations of a business or an enterprises. The capital structure should be such which increases the value of equity shares or maximises the wealth of share holder.
Cornering:• In finance, to corner the market is to get sufficient control of a particular stock, commodity, or other asset to allow the price to be manipulated. Corner the market to have the greatest market share in a particular industry without having a monopoly. They may charge higher prices for their products without fear of losing too much business.
Speculation:• Speculation is the practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of a tradable good.• Speculation can in principle involve any tradable good or financial instrument.
Speculators:• Many speculators pay little attention to the fundamental value of a security and instead focus purely on price movements. Four kinds of speculators operate in the Indian Stock Exchange. They are known as : Bull Bear Stag and Lame duck.
Bull: A Bull also called as Tejiwala is an operator who is hopeful of price rise in the near future. In anticipation of price rise he makes purchases of shares and other securities with the intention of selling them at higher prices in future. He being a speculator has no intention of taking delivery of securities but deals only in difference of prices.
Bear: A bear does not have securities at present but sells them at higher prices in anticipation that he will supply them business purchasing at lower prices in the future.
Stag: A stag is that type of speculator who treads his path very carefully. He applies for shares in new companies and expects to sell them at a premium if he gets an allotment. He selects those companies whose shares are most in demand and are likely to carry a premium. He sells the shares before being called to pay the allotment money.
Lame Duck:A Lame Duck is nothing but a stressed bear. When abear finds it difficult to complete his promise he islabeled as a lame duck.
Stock Broker:• A stockbroker is a regulated professional individual, usually associated with a brokerage firm or broker- dealer, who buys and sells shares and other securities for both retail and institutional clients, through a stock exchange or over the counter, in return for a fee or commission.
Stock Exchanges names and their Indices Name:Country Stock exchange name Indices nameIndia National Stock Exchange S & P NiftyIndia Bombay Stock Exchange SensexHong Kong Hong Kong Stock Exchange Hang SengUSA New York Stock Exchange NYSEKorea Korean Stock Exchange KRX 100Russia Russian Stock Exchange RTS Index
National Stock Exchange• The National Stock Exchange (NSE) (Rashtriya Share Bazaar) is stock exchange located at Mumbai, Maharashtra, India. It is in the top 20 largest stock exchanges in the world by market capitalisation and largest in India by daily turnover and number of trades, for both equities and derivative trading.• NSE has a market capitalization of around US$1 trillion and over 1,652 listings as of July 2012.
Though a number of other exchanges exist, NSE and theBombay Stock Exchange are the two most significant stockexchanges in India, and between them are responsible forthe vast majority of share transactions.The NSEs key index is the S&P CNX Nifty, known as theNSE NIFTY (National Stock Exchange Fifty), an index offifty major stocks weighted by market capitalisation.
• NSE is mutually owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities.• There are at least 2 foreign investors NYSE Euronext and Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India.
In 2011, NSE was the third largest stock exchange in the world in terms of the number of contracts (1221 million) traded in equity derivatives. It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%.
Major Milestones of NSE : National Stock Exchange has achieved various milestones. Some major milestones of NSE are :• November 1992 Incorporation• October 1995 Became largest stock exchange in the country• April 1996 Launch of S&P CNX Nifty• November 1996 Best IT Usage award by Computer Society of India• December 1996 Launch of CNX Nifty Junior• October 1999 Setting up of NSE.IT
• January 2000 Launch of NSE Research Initiative• February 2000 Commencement of Internet Trading• January 2002 Launch of Exchange Traded Funds (ETFs)• April 2008 Launch of India VIX• December 2009 Commencement of settlement of corporate bonds
Bombay Stock Exchange:• Bombay Stock Exchange, commonly referred to as the BSE, (Bombay Share Bazaar) is a stock exchange located on Dalal Street, Mumbai, Maharashtra, India. It is the oldest stock exchange in Asia. The equity market capitalisation 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 the 14th 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 Indian companies and over8,196 scrips on the stock exchange, the Bombay Stock Exchange has asignificant trading volume.The BSE SENSEX, also called "BSE 30", is a widely used market indexin India and Asia. Though many other exchanges exist, BSE and theNational Stock Exchange of India account for the majority of the equitytrading in India.While both have similar total marketcapitalization (about USD 1.6 trillion),share volume in NSE is typicallytwo times that of BSE.
History of BSE:As we read in the history of Indian stock exchange; the stockexchange, Mumbai, popularly known as "BSE". BSE wasestablished in 1875 as "The Native Share and Stock BrokersAssociation". It is the oldest one in Asia, even older than the Tokyo StockExchange, which was established in 1878. It is a voluntarynon-profit making Association of Persons (AOP) and hasconverted itself into demutualised and corporate entity.
‘It has evolved over the years into its present status as thePremier Stock Exchange in the country. It is the first StockExchange in the Country to have obtained permanentrecognition in 1956 from the Govt. of India under theSecurities Contracts (Regulation) Act, 1956.’
Why do the prices of share increase or decrease in the market?• There is one major factor that causes the movement of the market and this is BUYER / BUYERS. The more buyers for a given security, the higher the price of that security will go, if there are no buyers, the price of the security will drop. Companies can have the greatest product/service in the world but if no one wants to buy, the price of the stock will go no where and if it does move it will move down.