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Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
Basics Of Broking
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Basics Of Broking

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  • 1. Basics of Broking By : Kaushal Mandalia Associate Financial Planner M LEARNING S Made Simple Kaushal@thefinancialplanners.in
  • 2. What is Equity Market Share = Share Equity Market Share Market In Business Profit is divided Business earns Among shareholders PROFIT Profit = Earning Per Share Equity Represents Portion of BUSINESS (PROFIT) which is GROWING M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 3. How to EARN From Equity Market Equity RETURNS = Price GAP (Capital Earnings) + Dividend Selling Price Less Buying Price Share in Profit Advise Based Broking…. Pick fundamentally strong Minimize Loss, Maximize Gains Company based on Advise If you Believe that Corporate Profits will grow Rest is IRRELAVENT…. M LEARNING S Made Simple
  • 4. Traditional Business V/s Equity Market Traditional Business Equity Market • Bottom-line = Profit • Bottom-Line = Profit • Time, Energy and Money Needed • Only Money Required. No requirement of Time and Energy • Large Capital Required • Small Capital Required • Exit Route is Long and difficult • Shortest Possible Exit Route • Control on daily operation • No Control Required. Best of the required Best Brains are doing that for you. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 5. Bottom Line of Investment… Earning Savings Fixed Deposit Equity Market in Bank @ 10% Bank lends this money to Businessman and earned 15% Interest Whether you invest in Debt Market or Equity Market, Money flows to Business Sector only. Money Finally Invested in Business M LEARNING S
  • 6. Equity Market – Classification Exit Route M LEARNING Entry Route S Made Simple
  • 7. Who is Broker? • Broker is an intermediary who facilitates Entry or Exit into Equity Market • They levy fees on Transactions (Buy or Sell) which is called Brokerage. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 8. What is Stock Exchange • A Place where one can trade his/her Shares. It’s a formal or Organized BAZAAR. • Two Main Stock Exchanges • Bombay Stock Exchange (BSE) • National Stock Exchange (NSE) • National Stock Exchange is the World’s Third Largest Stock Exchange in terms of Number of Trades after NASDAQ and NYSE M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 9. Electronic Trading • Eliminates the need of physical trading floors • Fully Automated. One can trade from anywhere. • Workstations are connected to stock exchange’s central computer via VSAT (Very Small Aperture Terminus) • The orders placed by brokers reach exchange’s central computer and matched electronically. • Completely Hassle FREE. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 10. What is INDEX? • Weighted Average of Selected Stock Price. • Measure of Market Trends. • Comprises stocks that have large liquidity and market capitalization. • Two Main Index • BSE’s Sensex and NSE’s NIFTY • Other Examples • BSE Midcap, BSE Small Cap etc, M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 11. ORDER Execution • Select a broker and enter into broker client agreement and fill client registration form. • Get a trade confirmation through phone and ask for the contract note on the end of the day. • Contract note describes the rate, date, time at which the trade is transacted and brokerage rate. • Contract Note establishes a legally enforceable relationship between the client and the member. • Client must receive contract note within 24 hours of trade execution. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 12. IMPORTANT TERMS M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 13. Book Closure / Record Date • When shares of a joint stock company invariably change hands during trading, identifying owner of share becomes difficult. • So when a company declares dividend (Share in Profits) there has to be a cut off date for such benefits to be transferred to the share holders. This date is termed as “Book Closure Date” or “Record Date”. • It is the date after which company will not handle any transfer of shares request until the benefits are transferred. Analogy :For E.g. a company policy says, Candidate joining before 15th Sept of the year are qualified for Performance Appraisal to be conducted at the end of Financial Year. Kaushal@thefinancialplanners.in
  • 14. Book Closure Announcement M LEARNING Source : Moneycontrol as on 31st October 2008 S Made Simple
  • 15. No Delivery Period, Ex Dividend Date, Ex Date • No Delivery Period • Once company declares record date, Exchange set up No Delivery Period – A time during which only trading is permitted and all trades are settled after the period gets over. • Ex Dividend Date • The date on or after which a security begins trading without the dividend included in the contract price. • Ex Date • The first date of the No Delivery Period. • The buyers of the shares on or after Ex Date will not get any M LEARNING benefits of Dividend or Bonus. S Made Simple
  • 16. Buy Back • A process by which a company buys back its shares. • No of ways in which company can buy back • From existing Shareholders on proportionate basis • Thro’ tender offer from open market • Thro’ Book Building Process • From Stock exchange or • From ODD lot holders.(Odd lot is any transaction less than 100 shares are generally called Odd Lots) • A Company can not buy back thro’ negotiated deals on or off stock exchange, through spot transaction or thro’ any private arrangement, clearing and settlements. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 17. Pay in and Pay Out Pay In Date Pay In Date Funds made available Securities transferred to Exchange to Exchange Buyer Seller Securities Transferred Funds transferred to Buyer to Seller Pay Out Date Pay Out Date Stock Exchange
  • 18. Short Selling • A Legal Trading Strategy. • Normal Process : First Buy and then Sale • Assumption : Price will go up in near future. • Short Selling : First Sell and then Buy. • Assumption : Price will go down in near future. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 19. Auction • Auction is conducted for those securities that members fall to deliver / short deliver during pay-in • There are three factors which give rise to auction • Short Deliveries • Un-rectified Bad Deliveries • Un-rectified company obligations • The buy / sell auction for a capital market is managed thro’ auction market • If the shares are not bought at auction, i.e. if the shares are not offered for sale, exchange squares up the transaction as per SEBI guidelines. Square-up happens at the highest price from the relevant trading period till the auction day or at 20% above the last available closing price whichever is higher. Kaushal@thefinancialplanners.in
  • 20. Fundamental Analysis • Analysis of Historical Data. • Analyzing factual information like • Financial Statement • Management and Competitive Advantage • Industry Current Scenario and Future Outlook • Finding out Intrinsic (True) Value of Stock and analyze whether stock is overpriced or underpriced. • Perfect Blend of Macro and Micro Analysis. • Recommended For Long Term Investment. M LEARNING S Made Simple
  • 21. Technical Analysis • In stock market, share price is fluctuating and resulting in a TREND. • This TREND is predictable in NEAR FUTURE (If showing any pre-determined pattern) • The analysis of Price Trend is called Technical Analysis. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 22. Example – Technical Analysis Source : Angel Technical Analysis research as on 30th October 2008 M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 23. Key Ratios • PE ratio • Market Value to Book Value Ratio M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 24. PE Ratio Reliance Industries Ltd • PE ratio = Price per Share / Earning per Share • In other words, it indicates how much money you need to invest to get one rupee earning per share. • Lower the ratio better the investment proposition. Kaushal@thefinancialplanners.in
  • 25. Lowest PE Ratio Scripts Company Name Last Price EPS PE Ratio (Rs) (Rs) Southern Gas Lt 231.45 1090.22 0.21 Singer India 5.76 16.66 0.35 Bombay Oxygen 5371.55 10759 0.50 IFB Industries 20.05 24.29 0.83 Amtek India 34.90 30.92 1.13 CEAT 39.70 32.41 1.22 Source : Moneycontrol as on 31st October 2008 M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 26. Highest PE Ratio Company Name Last Price EPS PE Ratio (Rs) (Rs) KGN Industries 1573.75 0.74 2126 TCI Industries 1180.30 1.41 837.09 UTV Software 474.90 1.41 336.81 Fortis Health 59.60 0.20 298 IndiaNivesh 631.55 4.82 131.03 Reliance Natural 43.55 0.43 101.28 Source : Moneycontrol as on 31st October 2008 M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 27. Price to Book Value • This ratio is used to find whether stock is undervalued or overvalued. • Ratio = Price of Share / Book Value of Share • Book Value = Net Worth. • If ratio <1, Its undervalued, if Ratio is > 1, its overvalued. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 28. Most Undervalued Stocks Company Name Last Price Book Value PBV Ratio (Rs) (Rs) MTNL 65.70 189.23 0.35 Allahbad Bank 48.70 117.47 0.41 Parshvnath 40.55 97.81 0.41 Bajaj Hind 45.25 101.43 0.45 Essar Shipping 33.50 72.08 0.46 Videocon Ind 120 243.14 0.49 Source : Moneycontrol as on 31st October 2008 M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 29. Most Overvalued Stocks Company Name Last Price Book Value PBV Ratio (Rs) (Rs) Asian Paints 956.75 96.80 9.88 Divis Lab 1096.65 135.03 8.12 ABB 535.65 76.06 7.04 NMDC 143.83 20.91 6.88 Glenmark 282.15 41.10 6.87 GlexoSmithKline 1070.35 160.67 6.66 Source : Moneycontrol as on 31st October 2008 M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 30. Demat - Meaning • Demat is an abbreviation of Dematerialization which is a process whereby securities like shares, debentures are converted from physical form to electronic form. • There are two depository participants • NSDL and CDSL • The Depository provides its services to investors through its agents called Depository Participants (DP’s). M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 31. Arbitrage • Its an act of buying securities in One Market and Selling in Another Market at Higher Price. • It takes advantage of a price differential existing in the prices of the same commodity or security in two or more different markets. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 32. IPO and Book Building  An IPO is an abbreviation for initial public offer. Its applicable when any company issues shares for the first time to Retail Investors and Financial Institutions.  Book Building process  A Process of Price Discovery thro Bids from Retail Investors and Financial Institutions  Only Price Range is Provided. Allotment price is decided once book is closed. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 33. Learning.. Kaushal@thefinancialplanners.in
  • 34. INVESTOR’S PSYCHOLOGY M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 35. A Small Complication • Equities are unique assets that investors feel more comfortable buying at higher price and selling at lower price. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 36. Investor psyche - wrong emotion dominates at the wrong time M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 37. When everyone is GREEDY you should be FEARFUL and when Everyone is FEARFUL You should be GREEDY WARREN BUFFET M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 38. Sentiments V/s Business Efficiency..
  • 39. Long Term Earnings.. M LEARNING Kaushal@thefinancialplanners.in S Made Simple
  • 40. Important Parameters for Investing in Equity Market • Set your Objective • Long Term or Short Term, • Dividend Earning or Taking advantage of Short Term Fluctuation • Diversify • Diversify among sectors and companies. Select 10 Different Stocks • Always Minimize Risk • Use STOP LOSS as feature to minimize losses • Avoid TIPS • Check Fundamentals and Technical • Check Key Ratios • Price to Book Value • PE Ratio Kaushal@thefinancialplanners.in M LEARNING S Made Simple
  • 41. Landmark Study by Hood and Bee bower M LEARNING S Made Simple
  • 42. Thank You. M LEARNING S Made Simple Visit : www.finance-sapm.blogspot.com

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