A Primer on Share Market

A Primer on Share MarketPresented byC.A. Dr. V.M.GovilkarM.COM.,LL.B.,F.C.A., Ph.D.Stock Market It is the place where the shares of listed companies are bought and sold. In India, you have BSE and NSE as two big stock exchanges. Sharesare bought and sold by you and me only through approved brokers. Approved brokersare banks like the ICICI, HDFC, IDBI, UTI Bank, or companies and firms like SHCI, LKP Securities Ltd, JM Financials, Kotak Securities Ltd, Sharekhan are to name a few.Capital raised by the Company

Owned Borrowed

1. Equity Shares Debentures2. Preference Shares NCD Cumulative/ Non Cum.FCDRedeemable / Non red.PCDConvertible / Non Convt.Share market meaning - its a system where shares of companies and their derivatives are bought and sold at the agreed prices. Earlier it was a place now BOLT (BSE On Line Trading)- TerminalsOnly listed shares are traded Advantages to Companies Investors Economy SHARE MARKETPRIMARY SECONDARY

PUBLIC ISSUE CAPITAL MARKET SEGMENT RIGHT ISSUEF & O SEGMENTBONUS ISSUEPRIVATE PLACEMENT PUBLIC ISSUE (IPO)

Fixed Price Method

The Issue price of the shares is announced at the time of offer

Book Building Method

Combination of the Two

PROCEDURE OF BOOK BUILDINGAppointment of lead merchant bank as BOOK RUNNER.Appointment of SYNDICATE MEMBERS.Declaration of base price / Price band.Applicants to apply to syndicate members.Applications are entered in electronic book.Applicants can amend offers any no. of times before book closure.Book runners study the applications.Cut off price is decided and shares are alloted. Secondary marketTrading of existing shares.Provides liquidity to share holders.Provides possibility of capital appreciation.Facilitates issue of additional shares in the market.CONSISTS OF TWO SEGMENTSCapital market segment.Futures and options segment.[ F & O]Trading and SettlementFirst you need to open a Demat account with the Depository Participant- DP.

A Demat account is nothing, but the account where the shares bought by you will be kept separately. It is like a bank statement or a bank pass book.

Only you could operate that account online, through Internet. You could open the online facility offered by the ICICI, HDFC or ShareKhan or others and buy shares you wish and decide the quantity and the price. The bank will act as a broker. Your online order for purchase would be carried out by the bank. They charge broker commission, much less compared to private brokers.

D Mat accountSecurities can be held in Physical form or D MAT form

National Securities Depository ltd. NSDLCentral Depository Services[ I] ltd. CDSLDP Depository ParticipantBO Beneficial Owner / Client / InvestorTrading and SettlementThe settlement cycle in India is T+2 days i.e. Trade + 2 days. T+2 means the transactions done on the Trade day, will be settled by exchange of money and securities on the second business day (excluding Saturday, Sundays, Bank and Exchange Trading Holidays). Pay-in and Pay-out for securities settlement is done on a T+2 basis.Summary of trading and settlement process in India.

Investors place orders from their trading terminals. Broker houses validate the orders and route them to the exchange (BSE or NSE depending on the clients choice) Order matching at the exchange. Trade confirmation to the investors through the brokers.Trade details are sent to Clearing Corporation from the Exchange. Clearing Corporation notifies the trade details to clearing members/Custodians who confirm back.

Based on the confirmation, Clearing Corporation determines obligations.

Download of obligation and pay-in advice of funds/securities by Clearing Corporation.

Clearing Corporation gives instructions to clearing banks to make funds available by pay-in time. Clearing Corporation gives instructions to depositories to make securities available by pay-in-time.

Pay-in of securities: Clearing Corporation advises depository to debit pool account of custodians/Clearing members and credit its (Clearing Corporations) account and depository does the same.

Pay-in of funds: Clearing Corporation advises Clearing Banks to debit account of Custodians/Clearing members and credit its account and clearing bank does the same. Payout of securities: Clearing Corporation advises depository to credit pool accounts of custodians/Clearing members and debit its account and depository does the same.

Payout of funds: Clearing Corporation advises Clearing Banks to credit account of custodians/ Clearing members and debit its account and clearing bank does the same.

Note: Clearing members for buy order and sell order are different and Clearing Corporation acts as a link here. Depository informs custodians/Clearing members through Depository Participants about pay-in and pay-out of securities.

Clearing Banks inform custodians/Clearing members about pay-in and pay-out of funds.

In case of buy order by normal investors Clearing members instruct his DP to credit the clients account and debit its account. The money will be debited (Total settled amount - margins paid at the time of trade) from the clients account. In case of sell order by normal investors Clearing members instruct his DP to debit the clients account and credit its account. The money will be credited to the clients account.

Please note that a clearing member is the brokerage firm which acts as a trading member and clearing member of clearing agency where as custodians are only clearing members. Even if the clients dont meet their obligations clearing members are required to meet their obligations to the clearing corporations.Types of companies Large Caps Capitalisation > Rs. 5000 Cr.Mid Caps Capitalisation - Rs. 1000 to 5000 Small Caps capitalisation < Rs. 1000 Cr.Capitalisation = No. of shares of a Company * Market Price of the share

Sensex Sensitive index - BSE established in 1875 Thousands of listed shares to know the trend in prices sensex is based on 30 shares base year 1978-79 = 100 Free float Index - based on shares held by outsiders (excluding shareholding by promoters)Nifty - Index for NSE Based on 50 shares 3rd November 1995 Index 100Index calculated every minute, every day 30 companies of BSE & 50 companies of NSE keep on changing on the basis of their performance It gives only a general indicationSome hints for share investmentsShares is one of the options of investments.Do not treat it as a speculation tool.Buy shares on the basis of fundamentals and not on tips.Dividend on shares is tax free.Shares held for more than a year are long term assets and long term capital gain tax is at 10%.Keep a watch on news and reports about the company in the media. Know about EPS and P/E ratio.Study Annual Accounts and Directors Report of the company. Be cautious about intra day trading. Investment in shares yields not only dividend income but also gives Rights, Bonus and capital appreciation.

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