class_01_introduction to capital market final
Post on 25-Apr-2017
218 Views
Preview:
TRANSCRIPT
Capital Markets
Certified Professional Trader (CPT)Certified Market Professional (CMP)Stock Market Expert (SME)Stock Market for Beginner (SMB)Certified Equity Research Analyst (CERA)
Course Introduction
2© Kredent EduEdge – Kredent Academy www.kredentacademy.com
3
Beginners’ finance
Capital market
Primary market
Secondary market
Stock trading
Macroeconomics
3© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Fundamental research
Introduction
Qualitative & quantitative factors
Financial statement analysis
Ratio analysis
Valuation
Case studies
4© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Derivatives
Introduction
Futures & forward
Option
Option premium
Option strategies
Option greeks
Open interest
5© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Technical research
Introduction
Charts
Dow theory
Trends
Indicators
Patterns
6© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Commodity
Introduction
Market participants
Agri commodities
Metal commodities
Energy commodities
Tracking price movements
Inter asset relationships
7© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Currency
Introduction
Economic significance
Currency future
Macroeconomics
Discussion of INR
8© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Introduction
What is capital market
Market institutions
Basic terminology
9© Kredent EduEdge – Kredent Academy www.kredentacademy.com
What do we mean by Financial Market?
10© Kredent EduEdge – Kredent Academy www.kredentacademy.com
What is this?
11© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Or this?
12© Kredent EduEdge – Kredent Academy www.kredentacademy.com
What is a market?
An actual or virtual place where forces of demand and supply operate, and where buyers
and sellers interact (directly or through intermediaries) to trade goods, services, or
contracts or instruments, for money or barter.*
In simple terms market is a platform which enables buyers and sellers to interact and
transact
13*Source: businessdictionary.com
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Markets
Physical Markets
Online Market
Telephonic Market
Who are the buyers of capital?
15© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Who are the sellers of capital?
16© Kredent EduEdge – Kredent Academy www.kredentacademy.com
The intermediaries
17© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Overall structure of capital marketBuyers Intermediaries Sellers
- Entrepreneurs through financial institutions like banks in the form of loan
- Entrepreneurs/Corporates in the form of equity from stock market
- Entrepreneurs in the form of loan from debt market
- Government in the form of loan from debt market
- Banks
- Banks and other FIs to channelize savings
- Exchanges to facilitate equity/debt sale
- Brokers to facilitate transaction in stock exchanges
- Investment bankers/ merchant bankers to facilitate the complete process
- Credit Rating Agencies- Registrar & Transfer Agents,
DPs
- Retail investors directly
- Institutional Investors (Mutual funds, Insurance, PF) as a collective investment scheme)
- Banks
- Foreign Institutional Investors
18© Kredent EduEdge – Kredent Academy www.kredentacademy.com
REGULATORS – SEBI, RBI, FMC, Govt. Ministries etc
19
FINANCIAL MARKETmarket of capital and credit
Capital market Money market
relatively long term (greater than one year)
short term borrowing(less than one year)
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
What is a financial market?
It is a mechanism that allows people to buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), etc.
It facilitates - ‒ The raising of capital (in the capital
markets)‒ The transfer of risk (in
the derivatives markets)‒ The transfer of liquidity (in
the money markets)‒ International trade (in the currency
markets)‒ Interaction between those who
want capital to those who have it
20© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Types of financial markets
Capital market Equity (Stocks)
Debt (Bonds)
Equity
Debt
21© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Owner of the business with all the risks and rewards of the business
An obligation to pay with interest for a specified time. A Basic Loan is the simplest form of Debt
Financialisation of Assets
Commodities market
Currency market
Real Estate
22© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Financial markets continued……
Financialisation of
current Assets
Financialisation of Risk
More to Come…..
23© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Credit Risk, Default Risk (MBO, CDO)
Securitization of Car Loan, Home Loan, Recievables
CAPITAL MARKET
Primary market Secondary market
Newly formed securitiesex: IPO, Bonds, NCDs issue
Existing securities sold by investors
Investor Company Investor Investor
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
A quick question
Which of the following is the
largest market of all?
‒ Stocks
‒ Bonds
‒ Commodities
‒ Currency (Forex)
25© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Phases in market
Phases in market
27© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Phases in market
Bull market When economic indicators point to a
healthy and growing economy, companies are making money, future looks good, and people have more money to invest.
Bear market When the economy is shrinking,
businesses are not making as much money, and people are losing their jobs and have less money left over, stock prices on the whole will be falling.
Sideways markets‒ Price movement in the markets are
uncertain and there is no established trend to arrive at a conclusion
28© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Market is a jungle
29
The terms "bull" and "bear" to describe the markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. Thus the terms “Bear” and “Bull” are metaphorically used.
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Animals in the capital market
Bulls ‒ Market participants who have no qualms
in buying securities above the prevailing stock prices.
‒ Supposed to be aggressive and jack up the prices when the trend is in their favour
Bears‒ Market participants who wish that the
prices would decline for them to buy.
‒ Typically aggressive in battering down prices when the trend supports them
Herd‒ Market participants who lap up a trend
with very little regard to the fundamental reasons of the trend
30© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Who is the bigger fool?
31© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Behavioral Biases
Cognitive Bias Emotional Bias
•Confirmation Bias
•Gamblers' Fallacy
•Status Quo Bias
•Negativity Bias
•Loss-Aversion Bias
•Overconfidence Bias
•Endowment Bias
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Market capitalization
Market capitalization (often market cap) is a measurement of value of a business enterprise which is equal to the share price times the number of shares outstanding (shares that have been authorized, issued, and purchased by investors)
‒ So today if you want to purchase a company like Reliance Industries Ltd, what you have to do is to BUY ALL the shares of the company and PAY the market price for each share
‒ If Reliance has 100 shares and price per share is Rs.1000, then you will have to shed Rs.1,00,000 to BUY the company
33© Kredent EduEdge – Kredent Academy www.kredentacademy.com
We use market capitalization to classify the companies in order of their market value:‒ Large Cap: Sensex comprises companies with
MCAP > 16,000 crores
‒ Mid Cap: Bse Mid Cap Index comprises companies with MCAP of Rs 13,000 -1,000 crores
‒ Small Cap: BseSmall Cap Index comprises companies with MCAP < 2,000 crores
The rupee amounts used for the
classifications, "large cap", mid cap", or
"small cap" are only approximations that
change over time.
Among market participants, their exact
definitions may vary
Market capitalization contd.
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Large cap
35© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Mid cap
36© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Small cap
37© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Free float market cap
Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market
It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not come to the market for trading in the normal course
Thus, if someone wants to buy the Reliance Industry, she can buy only those shares which are freely traded in market and not the ones which Mukesh Ambani holds
38© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Index
An Index is simply the barometer of the overall stock market performance
It is the report card of all the stock listed on the index which shows the performance of all the stocks
39© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Index computation
Let us assume that the day Nifty started, it had only 3 companies with their market price/share, total number of shares and the market cap being-
Now assume that a day later based on the market forces, the share prices of all the three companies changes and the new ones are:
40
Company No. of Shares Price / Share Market Cap.
Reliance 200 5 1000
Infosys 100 3 300
ICICI 250 2 500
Market Capitalization of Nifty 1800
Company No. of Shares Price / Share Market Cap.
Reliance 200 6 1200
Infosys 100 4.5 450
ICICI 250 2.2 550
Market Capitalization of Nifty 2200
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Index
Indexing simply means Anchoring or Fixing
So what we assume here further is that 1800 is indexed or fixed or assumed to be 1000
This 1800, the value of Index the day it started, is also known as the Base Market Capitalization
And so when the market cap of the Index changes to 2200, we get a new Index Value (earlier one being 1000):
1800 is equivalent to : 1000
1 is equivalent to : 1000/1800
2200 is equivalent to : 1000/1800 * 2275 = 1222
41© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Free float market cap weighted index
42
Free Float methodology means that the index will be computed on the market cap represented by openly held market shares of the company only
The index will be computed by reducing promoters ’ share from overall market cap of the company. We do it by multiplying the market cap with the free float factor for the company
A company might have a higher market cap but with low public holding; it would have a lesser weight in indices e.g. TCS, ONGC and NTPC
In case of companies with less promoters holding/strategic holding, market cap and free float market cap would be the same e.g. ITC, ICICI Bank
Company Price No. of Shares (crores)
Mkt cap (Rs/crore)
Free float (%)
Free cap (Rs/crore)
Index weight (%)
ITC322.7 790 254,992 70% 178494.5 11.18
Reliance871 324 281,898 55% 155043.9 9.71
Infosys2955.5 57 169,713 85% 144255.7 9.03
Total3,093,418 1,597,033
© Kredent EduEdge – Kredent Academy www.kredentacademy.com
WHICH IS LARGEST MARKET CAPITALISATION COMPANY IN INDIA
What is circuit breaker
In order to control the speculations that is causing the stock or index to enter in a circuit, SEBI has formed rules (different for index and stocks) which help in controlling the situation
Exchanges implement on a quarterly basis, the index based market wide circuit breaker system i.e., the percentages are calculated on the closing index value of the quarter
The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%
These circuit breakers when triggered, bring about a coordinated trading halt in all equity and equity derivative markets nationwide
The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier
44© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Circuit breaker – contd.
The exchange has fixed circuit filters for the Sensex:
‒ If the index moves by 10% up/down:
Before 1 PM , trading would be halted for one hour
Between 1-2:30 PM, trading to be halted for half an
hour
After 2:30 PM, no halt in trading
‒ If in case index moves by 15% up/down:
Before 1 pm, trading to be halted for 2 hours
Between 1-2 PM, trading to be halted for one hour
After 2 PM, trading to be halted for rest of the day‒ In the case of 20% up/down movement in the index,
trading to be halted for the rest of the day
45
Circuit breaker
46© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Circuit for individual stocks
The reason behind such a move is heavy speculation – either about the economy or about a particular stock
There are two directions of movement (up and down), therefore there are two types of circuits possible – upper circuit and lower circuit
If on any day the stock prices increases/decreases by 5 - 20% (% defined by SEBI for each share) of the previous day price, then the stock is said to be in upper/lower circuit
A price band is essentially the price range within which a stock is permitted to trade during a day
Usually a daily price band of 2%, 5%, 10% , 20% (either way) is applicable on securities‒ No price bands are applicable on: F&O stocks
‒ A price band of 20% (either way) on products other than stocks including debentures, preference shares, warrants, etc
47© Kredent EduEdge – Kredent Academy www.kredentacademy.com
With circuit
Circuit view
Without circuit
48© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Summary
Introduction to the class Financial marketMarket participants Kinds of Financial Market - Equity/DebtMarket phasesMarket capitalization Indices Free float Circuits
49© Kredent EduEdge – Kredent Academy www.kredentacademy.com
Thank You
50© Kredent EduEdge – Kredent Academy www.kredentacademy.com
top related