BASICS OF STOCK MARKET Dr Manish Dadhich Ph

BASICS OF STOCK MARKET Dr Manish Dadhich Ph. D. M. com, NET MBA, NET, SET

Content ØDefinition of Stock and Stock market ØTypes Of Stock Exchange ØStock exchange in World and India ØTrading In Stock Market ØDemat Account ØImportance Of Stock Market in stock trading ØInvestment in various types of trading ØStock Market Conditions ØCalculations Of Indices ØBenefits of Investing in shares ØCauses Of Price Fluctuation

STOCK MARKET OR SHARE MARKET A Stock market is the place where buying and selling of stocks takes place. Stocks are issued by companies in order to raise capitals and are bought by investors in order to acquire a portion of the company. Nowadays due to internet and advanced technology buying and selling of stocks takes place anywhere in India and also from foreign country. There is no need to be physical presence in exchanges like NSE, BSE, Nikkei 225 TOPIX and Tel Aviv. Stock markets are perfect competitive market.

Big Stock Markets ü NYSE ( New York Stock Exchange) ü NASDAQ-America ü Dow Jones ü S&P 500 ü Tokyo Stock Exchange ü London Stock Exchange ü Bombay Stock Exchange, India ü National Stock Exchange, India

Stock Broker A stockbroker is person who is licensed to trade in shares. Brokers also have direct access to the share market and can act as your agent in share transactions. For this service they charge a fee i. e. brokerage. They can also offer additional services like advice on shares, debentures, government bonds and listed property trusts and non-listed investment options (cash management trusts, property and equity trusts).

BROKER AND JOBBER ü BROKER: He is one acts as a intermidiary on behalf of others. A broker in a stock exchange , is a commission agent who transacts business in securities on behalf of non members. ü JOBBER: He is not allowed to deal with the public directly. They deals with brokers who are engaged with the investors. Thus, the securities is bought by the jobber from members and again sells to members who are operating on the stock exchange as broker.

Stock Exchanges in India There are 23 stock exchanges in India. But, two of them are biggest. NSE (National stock exchange) - is the 9 th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. BSE (Bombay stock exchange) - is the oldest stock exchange in Asia with a rich heritage of over 137 years of existence.

Bombay Stock Exchange Location: Mumbai Index: Sensex (SENSitve ind. EX) Members: 852 Date of Launch: 03 January 1986 Base period: 1978 -79 Base Index Value: 100 Timing: 09. 30 AM – 03. 30 PM Listed Co. : over 5500 Index calculation frequency – real time It is oldest and first stock exchange of India established in the year 1875. First it was started under baniyan tree opposite to town hall of Bombay over 22 stock brokers.

National Stock Exchange Location: Mumbai Index: Nifty (National Stock Exchange Fifty) Consist of group of 50 Stocks Date of Launch: April 1994 Base period: 1993 -94 Base index value: 1000 Members: 726 The NSE of India is the leading stock exchange of India, covering 370 cities and towns in the country. It was established in 1994 as a TAX company. It was established by 21 leading financial institutions and banks like the IDBI, ICICI, IFCI, LIC, SBI etc.

Features of NSE üNation wide coverage i. e. , investors from all over country üScreen-based trading i. e. , trading in this stock exchange is done electronically. üTransparency , i. e. , The use of computer screen for trading makes the dealings in securities transparent. üSafe & Secure. üUsers’ friendly. Monday, June 7, 2021 Microsoft Confidential 10

OVER-THE-COUNTER EXCHANGE OF INDIA(OTCEI) The OTCEI is a national, ringless and computerized stock exchange. It was established in october, 1990. it started its operation in september, 1992. Features of OTCEI 1. It is a nation-wide stock exchange. Its operational areas cover entire India. 2. It is a ringless stock exchange. The trading ring (i. e. , trading place) commonly found in a traditional stock exchange is not found in the OTCEI. 3. It is a computerized stock exchange.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) The SEBI was constituted on 12 th April, 1988 under a resolution of the Government of India. On 31 st january, 1992, it was made a statutory body by the Securities and Exchange board of India Act, 1992. The Companies (Amendment) Act, 2000 has given certain powers to SEBI as regards the issues and transfer of securities and non-payment of dividend.

Function Of SEBI üRegulating the business in stock exchange and any other securities markets. üPromoting and regulating self-regulatory organization. üRegistering and regulating the work of collective investment scheme, incluing mutual funds. üProhibiting fraudulent and unfair trade practices relating to securities market. üPromoting education, and training of intermediaries of securities market. 8/7/2018 13

What is Demat account? Ø DEMAT stands for DEMATerialization. It is process in which physical paper shares are converted into paperless (computerized) form. Ø In India there are two Depository organizations called NSDL (National Securities Depository Ltd. ) &CDSL (Central Depository Services India Ltd. ) Ø Brokers and most of Banks provides facility to open demat account.

TRADING IN STOCK MARKET The market regulator, the Securities and Exchange Board of India (SEBI), has made it compulsory to open the demat account if you want to buy and sell stocks. A person want to buy/sell stocks in the stock market has to first place his/her order with a broker or can do themselves using online trading systems. The stocks purchased will be sent to the your demat account. This process is called Rolling Settlement Cycle (t+2)

Important terms in stock market and in stock trading Open- The stock price in beginning of Day(i. e. in morning). High - The stock price reached at the highest level in a day. Low - The stock price reached the lowest level in a day.

Important terms in stock market and in stock trading Close - The stock price at which it remains after the end of market timings or the final price of the stock when the market closes for a day. Volume - Volume is nothing but quantity. Bid - The Buying price is called as Bid price. Offer - The selling price is called offer price.

Investment in Short term, Mid term and Long term trading Short Term Trading - Stock trading done from one week to couple of months is called short term. Mid term Trading - Stock trading done from one month to couple of months, say six to eight months is called mid term trading.

Investment in Short term, Mid term and Long term trading - Stock trading done form couple of months to couple of years is called long term trading. - Companies whose fundamentals are good and have good future plans then the stocks of these companies are used for long term trading. - Generally traders having good capital go for long term trading.

Trading Mechanism Trading at both the exchanges takes place through an open electronic limit order book, in which order matching is done by the trading computer. There are no market makers or specialists and the entire process is order-driven, which means that market orders placed by investors are automatically matched with the best limit orders. As a result, buyers and sellers remain anonymous. The advantage of an order driven market is that it brings more transparency, by displaying all buy and sell orders in the trading system. However, in the absence of market makers, there is no guarantee that orders will be executed. Monday, June 7, 2021 Microsoft Confidential 20

Settlement Cycle and Trading Hours Equity spot markets follow a T+2 rolling settlement. This means that any trade taking place on Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9: 55 am and 3: 30 pm, Indian Standard Time (+ 5. 5 hours GMT), Monday through Friday. Delivery of shares must be made in dematerialized form, and each exchange has its own clearing house, which assumes all settlement risk, by serving as a central counterparty. 21

SPECULATION AND SPECULATOR ü SPECULATION : It is the transaction of members to buy or sell securities on stock exchange with a view to make profits to anticipated raise or fall in price of securities. ü SPECULATOR : The dealers in stock exchange who indulge in speculation are called speculator. They do not take delivery of securities purchased or sold by them, but only pay or rescue the difference between the purchase price and sale price. The different types of speculators are: v. BULL v. BEAR v. STAG v. LAME DUCK

v. BULL {TEJIWALA} He is a speculator who expects the future raise in price of securities. He buys the securities to sell them at future date at the higher price. He is called as bull because his activities resembles as a bull, as the bull tends to throw its victims up in the air through its horns. In simple the bull speculator tries to raise the price of securities by placing a big purchase orders.

v. BEAR {MANDIWALA} -He is speculator who expects future fall in prices , he does an agreement to sell securities at future date at the present market rate. -He is called as bear because his altitude resembles with bear, as the bear tends to stamp its victims down to earth through its paws. -In simple the bear speculator forces of prices of securities to fall through his activities.

v. STAG {DEER} - He operates in new issue of market. He is just like a bull speculator. He applies large number of shares in the issue market only by paying , application money , allotment money. - He is not a genuine investor because, he sells the alloted securities at the premium and makes profit. - In simple words, he is cautious in his dealings. He creates an artificial rise in prices of new shares and makes profits.

v. LAME DUCK - He is speculator when the bear operator finds it difficult to deliver the securities to the consumer on a particular day as agreed upon, he struggles as a lame duck in fullfilling his commitment. This -happens when the prices do not fall as expected by the bear and the other party is not willing to postpone the settlement to the next period.

How Stock Market Index is calculated The formula for calculating the SM = (sum of Free Float Market capitalization of 30 benchmark stocks)* Index Factor Where; Index Factor = 100/market cap value in 1978 -79.

Example on Sensex Index calculation -Assume sensex has only 2 stocks namely SBI and RELIANCE. -Total shares in SBI are 500 out of 200 are held by government and only 300 are available for public trading. -Reliance has 1000 shares out of which 500 are held by promoters and 500 are available for trading. - Assume price of SBI stock is Rs. 100 & Reliance is Rs. 200.

Example on Stock calculation Solution – Then Free Float Capitalization of these two company = (300*100+500*200) = 30, 000+1, 000 = 1, 30, 000 Assume market cap during the year 1978 -79 was 25000 Then SENSEX = 1, 30, 000/25000 x 100 = 520

How Nifty Index is calculated The National Stock Exchange (NSE) is associated with Nifty The calculation of Nifty is same as we calculated SENSEX. But with two key differences. 1. Base year is 1995 and base value is 1000 2. Nifty is calculation based on 50 stocks. everything else remaining the same in nifty index calculation as well.

Example of Nifty Calculation Company Reliance Current Market Capitalisation In Lakhs) 16, 68, 791. 1 (Rs. Base Market Capitalisation (Rs. In Lakhs) 16, 54, 247. 5 ABAssuming &U 8, 72, 686. 3 Base index=1000 , 8, 60, 018. 25 Market Cap index consist 14, 52, 587. 65 of 5 stocks, then INFOSYS 14, 65, 218. 8 HLL 26, 75, 613. 3 26, 69, 339. 55 Tata Tea 6, 60, 887. 75 6, 62, 559. 3 Total 73, 30, 566. 1 73, 11, 383. 4

Cont……. . Index= ( Current Market Capitalization ) Base Market Capitalization Multiply by Base Value Index= 73, 30, 566. 1 x 1000 73, 11, 383. 4 Index= 1002. 62

What is Listing - Listing denotes registration of security as officially approved for dealing or trading on a stock exchange. - It means the admission of the securities of a company to trading privileges on a stock and to quotation of its share price. Monday, June 7, 2021 Microsoft Confidential 33

What is underwriting - Underwriting is an agreement whereby the underwriter promises to subscribe to a specified number of shares or debenture or a specified to the issue. - If a part of share issues remain unsold, the underwriter will buy that unsold part of share issue. Monday, June 7, 2021 Microsoft Confidential 34

What is depository system Depository system is that system in which ownership of security is changed by an electronic account entry and physical transaction of securities does not take place. Two types of depsitory – CDSL( Central depository service Ltd. ) – NSDL (National securities depository Ltd. ) Monday, June 7, 2021 Microsoft Confidential 35

Important Indices in the world Name of Index Country Weight No. Pf Stock Base Year Base Value S & P CNX Nifty NSE, India Market Capitalization 50 1995 1000 SENSEX 30 BSE, India Market Capitalization 30 1978 -79 100 NASDAQ , USA Market Capitalization 100 1985 125 FTSE 100 UK Market Capitalization 100 1984 1000 Hang Seng Hong Kong Market Capitalization 33 1964 100 Dow Jones USA Price 30 1928 Nikkei 225 Tokyo Price 225 1949

Japanese Stock Exchanges Tokyo Stock Exchange東京証券取引所 Type: Stock exchange Location: Tokyo, Japan Coordinates: 35° 40′ 57. 60″N 139° 46′ 43. 71″E Founded May 15, 1878; 138 years ago (as Tokyo Kabushiki Torihikijo) May 16, 1949 (as Tokyo Stock Exchange) Owner: Japan Exchange Group, Inc. (Tokyo Stock Exchange Group, Inc. ) Currency: Japanese yen No. of listings: 2, 292 Market cap: JPY¥ 492 trillion (Sep. 2014) Indices Nikkei 225 TOPIX Website: jpx. co. jp

Tel Aviv Stock Exchange, Israel Type: Stock exchange Location: Tel Aviv Israel Founded: 1953; 64 years ago (precursor 1935) Owner 15 banks and 11 investment houses. Currency: New Israeli Shekel No. of listings: 473 companies listing equities. Market cap: Equities: US$ 216 billion; Bonds: US$ 196 billion. Indices: TA-25 Index, TA-100 Index, TA Blue. Tech Index Website: tase. co. il

Benefits of investing in shares Possibility of increase in value of share. Income from dividends. Easy liquidity. Tax benefits on income earned such as exemptions U/s 10(34) for dividends, Sec 54 for calculating STCG & LTCG.

CAUSES OF PRICE FLUCTUATION 1. DEMAND SUPPLY 2. BANK RATE 3. SPECULATIVE PRESSURE 4. ACTIONS OF UNDERWRITERS AND OTHER FINANCIAL INSTITUTIONS 5. CHANGE IN COMPANY’S BOARD OF DIRECTORS

Cont… 6. FINANCIAL POSITION OF THE COMPANY 7. TRADE CYCLE 8. POLITICAL FACTORS 9. SYMPATHETIC FLUCTUATIONS 10. OTHER FACTORS: A. EXPECTED MONSOON(rainfall) B. PERSONAL HEALTH OF HEAD OF GOVERNMENT OR CHAIRMAN OF THE COMPANY C. OIL PRICES IN THE INTERNATIONAL MARKET

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