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2 understanding the stock market

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The document discusses various topics related to the stock market including the financial system, primary and secondary markets, SEBI, types of investors and investments, trading, exchanges, and analysis techniques. It defines key terms and describes the roles of important entities like brokers, depositories, and exchanges.

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Understanding the Stock Market
The Financial System Van Horne defined the financial system as, the system to allocate savings efficiently in an economy to ultimate users either for investment in real assets or for consumption.
Subsystems of the Financial System Financial System Institutions Instruments Markets Direct Indirect Derivatives Money Capital Market Market
MINISTRY OF FINANCE NBFCs SEBI RBI Banks IRDA Insurance Companies Mutual Funds Stock Exchanges Underwriters Stock Brokers FIIs Retail Investors Pension, Provident Funds Financial Institutions Term Lending IDBI, IFCI, ICICI Sectoral EXIM, TFCI, NHB NABARD State Level SFC,SIDC
Stock Market A stock market is a public market (a loose network of economic transactions not a physical facility or discrete entity) for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange.
Primary and Secondary Markets Primary market is the new issue market dealing in securities which are not previously available but are offered to the investors for the first time. Secondary market deals in already issued securities. It performs the essential function of providing liquidity and marketability to investors.
SEBI The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. The basic functions of the Securities and Exchange Board of India are to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.
Investors The ones who invest money in the market by buying shares of companies are called the investors. They purchase securities with an expectation to earn capital gains as well as dividends.
Why do investors invest? Dividends - Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. Capital Appreciation - Arise in thevalue of an asset based on a rise in market price.
Categories of Investors Qualified Institutional Investors (QIB) Retail Individual Investors (RII) High Net-worth Individuals (NII)
Portfolio The term portfolio refers to any collection of financial assets such as stocks, bonds and cash held by individual investors and/or managed by financial professionals, banks and other financial institutions.
The Traders There is another category of market participants - the traders . They are the ones who buy and sell securities within a short period of time.
Why do traders invest? Their prime motive is to use the rise and fall of prices of securities on the stock exchange to make money.
Equity and Derivatives Market The market in which shares are issued and traded is the equity market. It is one of the most vital areas of a market economy because The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets.
Types of Issues
Prospectus In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information.
Draft Offer Document Draft Offer document' means the offer document in draft stage. The draft offer documents are filed with SEBI, at-least 21 days prior to the filing of the Offer Document with ROC/SEs.
Book Building Book Building is basically a process used in primary market for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.
Red -herring prospectus "Red-herring prospectus" means a prospectus, which does not have complete particulars on the price of the securities offered and quantum of securities offered.
Abridged prospectus 'Abridged Prospectus' is a shorter version of the Prospectus and contains all the salient features of a Prospectus. It accompanies the application form of public issues.
IPO Grading IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or other convertible securities.
Minimum Subscription Clause If the company does not receive the minimum subscription of 90% of the issued amount on the date of closure of the issue, or if the subscription level falls below 90% after the closure of issue on account of cheques having being returned unpaid or withdrawal of applications, the company shall forthwith refund the entire subscription amount received.
FV/IP/MP/BP Face Value Issue price Market Price Book Value
Stock Exchange The stock exchanges provide a trading platform where buyers and sellers can meet to transact in securities. The trading platform provided by NSE/BSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens.
Major Stock Exchanges The largest stock market in the United States is the New York Stock Exchange (NYSE). The NASDAQ is the second-largest stock exchange In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche B旦rse (Frankfurt Stock Exchange).
Major Stock Exchanges In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.
The National Stock Exchange The National Stock Exchange (NSE) is a stock exchange located at Mumbai, Maharashtra , India. The NSE's key index is the S&P CNX Nifty.
The Bombay Stock Exchange (BSE) The Bombay Stock Exchange (BSE) is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The BSE SENSEX, also called "BSE 30", is a widely used market index in India and Asia.
Dalal Street Dalal Street in downtown Mumbai, India is the address of the Bombay Stock Exchange (in the Phiroze Jeejeebhoy Towers) and several related financial firms and institutions. It is the busiest street in the city.
Online Trading Online Trading is a service offered on the Internet whereby one can access the brokers website through his Internet enabled PC and place orders for purchase / sale of securities through the brokers Internet based trading platform.
Accounts Demat Account Trading Account Bank Account
Dematerialization Dematerialization is the process by which a client can get physical certificates converted into electronic balances.
The Depositories Act,1996 Introduction of Depository system in India. Issue, hold & transact in securities through depositories. Two depositories operational i.e. NSDL & CDSL. Securities dematerialized at time of issue or subsequently.
Entities Involved Depository Depository Participant (DP) Stock Exchange Broker Clearing House SEBI
Fundamental analysis Fundamental analysis of a business involves analyzing its financial health through: Economic analysis Industry analysis Company analysis
Technical analysis Technical analysis is a financial term used to denote a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Support and resistance
Stop loss An order in a stock market, bond market, commodity market or financial derivative market or an instruction from customers to brokers to buy or sell on the exchange. The purpose is to limit the loss.
Factors affecting share prices Demand and Supply News Market Sentiment Earning Per Share Price/Earning Ratio etc
Market sentiment-Bulls and Bears Market sentiment is the general prevailing attitude of investors as to anticipated price development in a market. Bullish or bearish?
PE ratio The P/E ratio ( price-to-earnings ratio ) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. The P/E ratio can therefore alternatively be calculated by dividing the company's market capitalization by its total annual earnings.
Derivatives Asecurity whose price is dependent upon or derived fromone or more underlying assets.The most common underlying assets includestocks, bonds,commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
Futures/Forwards Futures/Forwards are contracts to buy or sell an asset on or before a future date at a price specified today.
Options Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset.
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2 understanding the stock market

  • 2. The Financial System Van Horne defined the financial system as, the system to allocate savings efficiently in an economy to ultimate users either for investment in real assets or for consumption.
  • 3. Subsystems of the Financial System Financial System Institutions Instruments Markets Direct Indirect Derivatives Money Capital Market Market
  • 4. MINISTRY OF FINANCE NBFCs SEBI RBI Banks IRDA Insurance Companies Mutual Funds Stock Exchanges Underwriters Stock Brokers FIIs Retail Investors Pension, Provident Funds Financial Institutions Term Lending IDBI, IFCI, ICICI Sectoral EXIM, TFCI, NHB NABARD State Level SFC,SIDC
  • 5. Stock Market A stock market is a public market (a loose network of economic transactions not a physical facility or discrete entity) for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange.
  • 6. Primary and Secondary Markets Primary market is the new issue market dealing in securities which are not previously available but are offered to the investors for the first time. Secondary market deals in already issued securities. It performs the essential function of providing liquidity and marketability to investors.
  • 7. SEBI The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. The basic functions of the Securities and Exchange Board of India are to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.
  • 8. Investors The ones who invest money in the market by buying shares of companies are called the investors. They purchase securities with an expectation to earn capital gains as well as dividends.
  • 9. Why do investors invest? Dividends - Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. Capital Appreciation - Arise in thevalue of an asset based on a rise in market price.
  • 10. Categories of Investors Qualified Institutional Investors (QIB) Retail Individual Investors (RII) High Net-worth Individuals (NII)
  • 11. Portfolio The term portfolio refers to any collection of financial assets such as stocks, bonds and cash held by individual investors and/or managed by financial professionals, banks and other financial institutions.
  • 12. The Traders There is another category of market participants - the traders . They are the ones who buy and sell securities within a short period of time.
  • 13. Why do traders invest? Their prime motive is to use the rise and fall of prices of securities on the stock exchange to make money.
  • 14. Equity and Derivatives Market The market in which shares are issued and traded is the equity market. It is one of the most vital areas of a market economy because The derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets.
  • 16. Prospectus In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information.
  • 17. Draft Offer Document Draft Offer document' means the offer document in draft stage. The draft offer documents are filed with SEBI, at-least 21 days prior to the filing of the Offer Document with ROC/SEs.
  • 18. Book Building Book Building is basically a process used in primary market for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.
  • 19. Red -herring prospectus "Red-herring prospectus" means a prospectus, which does not have complete particulars on the price of the securities offered and quantum of securities offered.
  • 20. Abridged prospectus 'Abridged Prospectus' is a shorter version of the Prospectus and contains all the salient features of a Prospectus. It accompanies the application form of public issues.
  • 21. IPO Grading IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or other convertible securities.
  • 22. Minimum Subscription Clause If the company does not receive the minimum subscription of 90% of the issued amount on the date of closure of the issue, or if the subscription level falls below 90% after the closure of issue on account of cheques having being returned unpaid or withdrawal of applications, the company shall forthwith refund the entire subscription amount received.
  • 23. FV/IP/MP/BP Face Value Issue price Market Price Book Value
  • 24. Stock Exchange The stock exchanges provide a trading platform where buyers and sellers can meet to transact in securities. The trading platform provided by NSE/BSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens.
  • 25. Major Stock Exchanges The largest stock market in the United States is the New York Stock Exchange (NYSE). The NASDAQ is the second-largest stock exchange In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche B旦rse (Frankfurt Stock Exchange).
  • 26. Major Stock Exchanges In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.
  • 27. The National Stock Exchange The National Stock Exchange (NSE) is a stock exchange located at Mumbai, Maharashtra , India. The NSE's key index is the S&P CNX Nifty.
  • 28. The Bombay Stock Exchange (BSE) The Bombay Stock Exchange (BSE) is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The BSE SENSEX, also called "BSE 30", is a widely used market index in India and Asia.
  • 29. Dalal Street Dalal Street in downtown Mumbai, India is the address of the Bombay Stock Exchange (in the Phiroze Jeejeebhoy Towers) and several related financial firms and institutions. It is the busiest street in the city.
  • 30. Online Trading Online Trading is a service offered on the Internet whereby one can access the brokers website through his Internet enabled PC and place orders for purchase / sale of securities through the brokers Internet based trading platform.
  • 31. Accounts Demat Account Trading Account Bank Account
  • 32. Dematerialization Dematerialization is the process by which a client can get physical certificates converted into electronic balances.
  • 33. The Depositories Act,1996 Introduction of Depository system in India. Issue, hold & transact in securities through depositories. Two depositories operational i.e. NSDL & CDSL. Securities dematerialized at time of issue or subsequently.
  • 34. Entities Involved Depository Depository Participant (DP) Stock Exchange Broker Clearing House SEBI
  • 35. Fundamental analysis Fundamental analysis of a business involves analyzing its financial health through: Economic analysis Industry analysis Company analysis
  • 36. Technical analysis Technical analysis is a financial term used to denote a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Support and resistance
  • 37. Stop loss An order in a stock market, bond market, commodity market or financial derivative market or an instruction from customers to brokers to buy or sell on the exchange. The purpose is to limit the loss.
  • 38. Factors affecting share prices Demand and Supply News Market Sentiment Earning Per Share Price/Earning Ratio etc
  • 39. Market sentiment-Bulls and Bears Market sentiment is the general prevailing attitude of investors as to anticipated price development in a market. Bullish or bearish?
  • 40. PE ratio The P/E ratio ( price-to-earnings ratio ) of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. The P/E ratio can therefore alternatively be calculated by dividing the company's market capitalization by its total annual earnings.
  • 41. Derivatives Asecurity whose price is dependent upon or derived fromone or more underlying assets.The most common underlying assets includestocks, bonds,commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
  • 42. Futures/Forwards Futures/Forwards are contracts to buy or sell an asset on or before a future date at a price specified today.
  • 43. Options Options are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset.