The document provides an overview of equity investments and security markets. It discusses various topics including types of capital markets, structure of securities exchanges, types of orders and margin transactions. It also summarizes key concepts related to stock market indices, market efficiency, security valuation techniques, industry and company analysis factors that affect stock valuation. The document is aimed to educate readers on fundamentals of equity investments and security analysis.

1. Equity InvestmentsHimanshuShah9970836701shahhr21@gmail.com

2. OverviewOrganization and Functioning of Securities Market

3. Overview of Markets

4. Security market indices

5. Efficient Capital Markets

6. Market Efficiency and Anomalies

7. Security Valuation

8. Industry, Company and Stock Analysis

9. Types of Price MultiplesCharacteristics ofSecurity Market

10. Types Of Capital MarketsPrimary Markets

11. Sale of new issues of securities

12. Initial Public offerings (IPOs)/Seasoned Issues

13. Most issues are distributed with the help of underwritersTypes Of Capital MarketsSecondary Markets

14. Where securities trade after their initial offerings

15. Provide liquidity to the investors

16. Liquid secondary market makes the task easier of raising funds in primary market.TYPES Order driven (NYSE) – Brokers match buying and selling orders Quote Driven (NASDAQ) – Dealers provide bid-ask quote and dealer markets bring together buyers and sellers to transact at efficient prices

17. Types Of Capital Markets3rd market:

18. Trade in exchange listed securities on an OTC basis(save commission)

19. 4th market:

20. Direct trading amongst institutions (Computerized Systems)Structure of Securities ExchangesCall Markets

21. Stock is only traded at specific times

22. All bids, asks are declared and then one price is set at which all trades occurSmall exchanges adopt this kind of structure

23. This method is generally used for setting opening price or setting prices after halting the trade Continuous Markets

24. Trade occur at any time till the market is open

25. The price is set either by auction process (Order Driven) or by dealer bid-ask quotes(Quote Driven)

26. Functions Of UnderwritersOrigination: Bring to bear their knowledge and understanding of the current market needs so as to create and optimally priced issuePlanning and registration of the issueRisk Bearing:The underwriter takes on the risk that the public may not be willing to take up at the time of IPOsEnsures and Guarantees the price Distribution:sales network that can identify buyers for the securities either through private placement or for the general public

27. Types of Exchange MembershipThe Specialist

28. Controls the limit order book. Use the information to stabilize the markets. Posts bid and ask prices and trades on their own account to maintain liquidity in the market. Provides bridge the liquidity to market. Helps to improve Bid-Ask spread. Known as Market Making. The Commission broker - Executes clients’ trades

29. Floor Brokers – Work as a broker for other commission broker

30. Registered Traders – Trade for their own accountTypes of OrdersMarket order:

31. Best possible price when the order reaches the trading floor

32. Executes the transaction at current price

33. Limit order:

34. Execute order at price limit or better

35. Buy: price < = limit and Sell: price > = limit

36. May have time limits- Day, Week, GTC (Good till Cancelled)

37. Stop order:

38. Becomes a market order when the stop price is reached

39. Used to limit the losses. Specially used with Short Sales Oreder

40. Short sales:

41. Sale of borrowed shares; requires margin to insure adverse movement in prices;

42. Borrower needs to pay the dividends to the owner during the short period;

43. Uptick Rule is scrapped by SEC from June,2007.Margin TransactionsBuying securities on borrowed money, brokers lend money against clients securitiesIn US, Margin lending limit is fixed by US Fed reserve board.Due to leveraged position, investor enjoys magnification of profits as well as bears the high risk.Initial Margin-

44. It is the minimum amount investor should provide as equity at inception

45. Current requirement – 50%Types Of Margin

46. Maintenance Margin-

47. It is the minimum equity amount investor is required to maintain for his open trade.

48. Current requirement – 25%

49. Margin balance falls below margin requirement, investor receives margin call, either he has to liquidate the position or bring the margin amount to minimum requirement. Trigger Price for margin call = Initial Price 1 – Initial Margin 1 – maintenance MarginFormula

50. Stock Market IndexMeasure of average performance of a group of stocks

51. Functions include:Enable indexed portfolio creationWorks as a Benchmark for investment managersProxy for market portfolio to measure beta and systematic riskFacilitate comparisons across international marketsAiding market technicians for investment decisions

52. Key considerations in index analysisComposition of index Securities to be included for index constructionMathematics behind the index

53. How it is weighted?

54. Type of average: simple vs. geometricTypes Of IndexesPrice Weighted Index

55. Market Value Weighted Index

56. Un weighted Index

57. Style IndexPrice Weighted IndexPrice of stocks comprising the index are added together and divided by the no. of stocks

58. Market Return can be matched by purchasing equal no of shares of each stock

59. Biased by higher priced securities

60. Special adjustment of denominator in case of stock splits to hold average constant

61. Since most portfolios do not have equal number of shares this is not a good benchmark of portfolio evaluation

62. Example : DJIA and Nikkei DJAMarket Value Weighted IndexBased on percentage change in market capitalization of stocks in index

63. Index(1) = index(0) x [market cap(1)/ market cap(0)] and market cap = sum of (Price x No. of shares)

64. Stocks with highest market cap can bias index

65. Calculated on free floating shares.

66. Market Return can be matched by proportionate market value investments

67. Good benchmark since institutional investors invest more into higher market cap stocks

68. Examples include: S&P, NASDAQ, Wilshire 5000, etc.Un weighted IndexPlaces equal weight on returns of all stocks, no differentiation on price or market cap

69. Here, all attention is given to returns of each stock

70. Index may be calculated on arithmetic or geometric basis.

71. Index Value (Arithmetic Mean) = ƩXi /n…. Xi is return on each stock (Geometric Mean) = n√X1 * X2 *…Xn - 1 …..Xi is (1+Holding period Return) Use of geometric mean rather than arithmetic mean will always result lower index value. Style IndexIndexes that reflect investment styles used by portfolio managers or market capitalization or investment classification (Growth/ Value Stocks).

72. Can be used to measure the relative performance of portfolio managers. Bond Market IndexRelatively new

73. Difficult in creation of bond index rather than stock index-