Basics of Stock Markets


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Basics of Stock Market

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Basics of Stock Markets

  1. A <br />Journey <br />into <br />Stock Markets<br />Presented to <br />Prof R. S. Verma<br />Presented By,<br />Rohit Mundhara P-21<br />Jignesh Thakkar P-36<br />Nahush Mhaskar P-19<br />Aditi Sabaria C-31<br />Kiran Pawar P- 26<br />
  2. STOCK MARKET<br />
  3. STOCK EXCHANGES IN INDIA <br />BSE<br />NSE<br />
  4. BSE SENSEX 30<br />Started on 01 January, 1986<br />Value-weighted index<br />Consists of the 30 largest <br /> and most actively traded stocks<br />
  5. NSE NIFTY 50<br /> The 50 stocks that were most favored by institutional investors in the 1960s and 1970s. <br />
  6. HOW THE INDICES ARE CALCULATED?<br />Find out the “free-float market cap” of all the 30 companies that make up the Sensex!<br />Add all the “free-float market cap’s” of all the 30 companies!<br />3. Make all this relative to the Sensex base. The value you get is the Sensex value!<br />
  7. Depository <br />A bank or company which holds funds or securities deposited by others, and where exchanges of these securities take place.<br />National Securities Depository Limited<br />Central Depository Services Limited <br />
  8. Depository Participant<br /> In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors.<br />
  9. Transaction Process(How To Start Trading And Investing)<br />We need to have a DEMAT account.<br />We need to have a Trading account.<br />And of course money <br />
  10. Rules for earning money in the market<br />Rule 1: Never lose your money in the market.<br />Rule 2: Never forget Rule 1.<br />
  11. Settlement Procedure For Cash Markets <br />Settlement is done on T+2 basis for cash markets.<br />Trades entered in to on a particular day are settled on third day.<br />Eg. If u purchase shares on Monday, the settlement day would be Wednesday.<br />
  12. FACTORS AFFECTING STOCK MARKET<br />Economic Factors<br />Market trends & Rumours<br />Global Market indicators<br />Govt Policies and Regulations<br />Company wide factors<br />
  13. Sectoral Indices<br />Realty<br />PSU<br />Auto <br />Power <br />Consumer Durables<br />Oil & gas<br />Bankex<br />FMCG<br />Capital Goods<br />Metal <br />Teck<br />IT<br />
  14. Capitalisation<br />Large Cap - Above 750 cr.<br />Mid Cap : Between Rs 75 cr. and Rs 750 cr.<br />Small Cap : Below Rs. 75 cr.<br />
  15. Groups<br />A : It is the most tracked class of scripts consisting of about 216 scripts.<br />B <br />S <br />T : Traded on trade to trade basis.<br />Z : companies which have failed to comply with its listing requirements.<br />
  16. Control Mechanism<br />Circuit is the price limit or range, outside which the stock price can&apos;t go.<br />For example, let&apos;s say closing price of X stock yesterday was 100 Rs. The applicable circuit limit for X is 5%. In this circumstances, the price of X can&apos;t go above 105 (5% above previous close) and below 95 (5% below previous close).<br />
  17. Why IPO’s?<br />Raise Capital to meet working capital, debt repayment, expansion, and a host of other uses.<br />Company valuations are done on the basis of which the share value is calculated.<br />It is offered to all categories of investors like Retail Investors, Private Placements, FII’s, Mutual funds, LIC,GIC<br />
  18. IPO’s<br />Issue is either brought as a book building issue which is priced at a price band OR is brought at fixed price<br />Company’s have to file DRHP(Draft red herring prospectus) with Sebi as a guide line.<br />After DRHP the IPO is given ratings by ICRA & CRISIL depending on the valuations, business risk, future growth policies of the company, Investor risk appetite.<br />
  19. IPO – Grey Market<br />Before listing of IPO there is a market value which exists amongst the brokers who do business in GREY MARKET were the premiums are predefined depending on the demand and supply availability<br />This orders are booked in advance and settled on the date of listing and the difference if any is settled in cash<br />Highest ever Grey market premium for any IPO was for Reliance Power which was 100%<br />
  20. Kinds of Trading<br />Intra-day Trading<br />Delivery based Trading<br />
  21. Intraday Trading<br /><ul><li>Buying and Selling on the same day.
  22. Brokerage will be different for intra-day and delivery based trading, intra-day being lesser </li></li></ul><li>Delivery Trading<br /><ul><li>Buying and Selling are on different days
  23. Brokerage will be higher than intra-day
  24. Delivery charges </li></li></ul><li>Short Selling<br /><ul><li> Selling the shares which you don’t have
  25. Ex: Lets consider a company Reliance
  26. Its priced at Rs 2,500/-. You know it’s goingto fallthat day because of some reason. But you don’t have any shares with you of Reliance.
  27. But still you can sell the shares, this is called as short selling. </li></li></ul><li>Short Covering<br /><ul><li>Assume you sold 10 RIL shares in morning at Rs 2,500/- and by evening as you had thought, it had Fallen down to Rs 2,400/-
  28. Now you buy back those 10 shares what you had sold.
  29. So the difference in amount per share 2,500 – 2,400 = 100
  30. 100 * 10 = 1000, Profit is yours.
  31. This process of buying back is called Short covering. </li></li></ul><li>Consequences if not covered<br />You will become a defaulter.<br />Lets understand this with an Example.<br /> Assume you short sold on Monday, as you haven’t short covered it, you need to deliver it on Wednesday(T + 2). But you don’t have the shares to deliver. So NSE or BSE will buy the shares on behalf of you in auction market, and deliver it to the buyer in (T + 3 days). <br />You will have to pay penalty<br />
  32. How to Select Stocks<br />Fundamental Analysis<br />Technical Analysis<br />
  33. What is Fundamental Analysis?<br />Analyzing a stock based on the fundaments of the country, the sector, and the company individually.<br />It includes going through balance sheet and profit-loss statement of the individual company and checking various ratios.<br /><ul><li>Analyzing a stock based on the fundaments of the country, the sector, and the company individually.
  34. It includes going through balance sheet and profit-loss statement of the individual company and checking various ratios.</li></li></ul><li>Fundamental Basics<br />EPS<br />PE<br />MPS/B<br />Interest Coverage<br />Debt – Equity Ratio<br />
  35. What is Technical analysis<br />Forecasting the future direction of prices through the study of past market data, primarily price and volume<br />
  36. Basics in Technical analysis<br />Support<br />Resistance<br />Stop Loss<br />
  37. Effects on Prices of Shares:- <br />Bonus<br />Split<br />Right Issues<br />Buyback<br />
  38. Record Date<br />What Does Record Date Mean?The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.<br />
  39. Foreign Markets <br />Dowjones<br />Nasdaq<br />Nikkei<br />Shanghai<br />
  40. Economic Times & CNBC<br />Click<br />
  41. CNBC<br />
  42. Derivatives<br />NSE is the largest derivatives exchange in India<br />Derivatives contracts have a maximum of 3months expiration cycle<br />Contracts are available for trading with:<br /> 1 month<br /> 2month<br /> 3 months expiry<br />Turnover of derivatives market is 75,000cr.<br />
  43. Derivatives <br />
  44. Premium & Discount<br />
  45. M2M adjustments<br />Assume,<br />You Bought 1 lot of Suzlon (i.e 3000 Shares @ 100/- = 300000/-)<br />Margin money Rs 60000/- (i.e @ 20% of 300000/-)<br />Now on the Other day if Price Goes down to 90/- <br />Then you will have to pay M2M loss of Rs 10/- per share i.e<br /> Rs 30000/-<br />And If the Price increases to 110/- then we will get M2M profit credited in our A/c. <br />i.e Now we will get the M2M profit Rs 60000/- Credited in our A/c<br />
  46. Options<br />Call Option – An option to buy is called Call Option<br />Example:<br />Price of Reliance in Cash markets is 1000/-<br />Price in Futures is 1020/-<br />Trader will not block his money in cash markets<br />Rather he will buy a call option in futures market<br />Pay the premium of Rs30 per share<br />
  47. Contd……<br />If the price in cash markets<br />Price of Call Option also (vice versa)<br />
  48. Hedging<br />Hedging means insuring against a negative event<br />It is done to reduce exposure to various risks<br />Hedgers try covering the risks<br />Hedgers try to reduce the risks associated with uncertainty<br />
  49. Hedging Example<br /><ul><li> Infosys bags a deal worth $ 100000 from US Company
  50. Rate of $ is Rs 48/-
  51. Amount to be realised after 2 months
  52. But Infosys estimates Dollar will fall to Rs 44/-
  53. Hence to reduce the loss Infosys will Hedge its Position</li></ul> by selling $ 100000 in Future Markets<br />
  54. After Two months Infosys gets the Payment <br /> Dollar price is Rs 44/- <br /> So Infosys will bear a loss of Rs 4 per $ in Cash Markets<br /> and will gain a Profit of Rs 4 per $ in Future Markets<br /> In this way Infosys have Reduced the Risk of $ Price Fluctuation<br />Hedging Example<br />
  55. Speculation<br />Opposite of hedging<br />Speculators are risk lovers<br />Speculators make bets or guesses<br />A hedger seeks to cover a foreign exchange risk<br />A speculator accepts and seeks out to accept it to make profit<br />
  56. Example…<br />Speculator believes Price of foreign currency <br />Purchases the currency<br />Holds it<br />Resale later<br />Profit on each unit of foreign currency<br />
  57. Arbitrage<br />When the futures price deviates substantially from its fair value arbitrage opportunities arise<br />
  58. How a stock price changes<br />
  59. Things to be avoided while trading & investing<br />Never risk more than 10% of your trading capital in a single trade. <br />Always use stop loss orders.( Here you should know your loss you can give in a situation where the trade starts going against you.) <br />Never do overtrading.<br />Don&apos;t enter a trade if you are unsure of the trend. <br />
  60. When in doubt, get out, and don&apos;t get in when in doubt. <br />Only trade active stocks<br />Distribute your risks equally among different markets. <br />Extra money from successful trades should be placed in a separate account. <br />Never average a loss. <br />Things to be avoided while trading & investing<br />
  61. Never get out of the market because you have lost patience, or get in because you are anxiously waiting. <br />Avoid taking small profits and large losses. <br />Avoid getting in and out of the market too soon. <br />Be willing to make money from both sides of the market. <br />Never buy or sell just because the price is low or high. <br />Things to be avoided while trading & investing<br />
  62. Never change your position without a good reason. <br />Don&apos;t try to guess tops or bottoms. <br />Don&apos;t follow a blind man&apos;s advice. <br />When you lose don&apos;t blame it on luck.<br />Things to be avoided while trading & investing<br />
  63. Attributes of good investors<br />One should be a good Manager and not day trader.<br />A well diversified portfolio.<br />Investment in good shares.<br />Have patience.<br />
  64. Thank You<br />