equity and equity advisory

8/3/2019 Equity and Equity Advisory

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EQUITIES AND DERIVATIVES


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Topics

STOCK MARKETS

INDIAN STOCK MARKETS

INVESTMENT IN STOCKS BROKING BUSINESS

BUSINESS OF ADVICE


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FIRST STOCK EXCHANGE in the WORLD?

FIRST COMPANY LISTED on the STOCK

EXCHANGE?


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WHAT IS AN EQUITY

/ SHARE ?HOW SHARES ARE

TRADED

WHAT IS BROKING

BUSINESS

WHAT IS EQUITY

ADVISORY

Is this how you feel???


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WHAT IS an EQUITY, SHARE or STOCK ?


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STOCKS Stocks or Shares represent the ownership of

a company in proportion to stocks or shares

held

Stock represents a claim on the company's

Assets , Earnings and have Voting Rights

Holding a company's stock means that you

are one of the many owners


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FEATURES

Entitled to a portion of the companysprofits and have a claim on assets Claim on profit Dividend, if paid out Claim on Asset Residual claim if business is liquidated

Limited liability Liability limited to amount paid to buy stocks

Tradability Stock are tradable at recognised stock exchanges through its

members (Stock Brokers)


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WHY we NEED STOCK MARKETS?


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Requirements

of CapitalProviders:???

SHORT TERM /

MEDIUM TERM /

LONG TERM

Capital

Requirement of

a Company:

LONG TERM

STOCK

EXCHANGE

Sources of

New Capital

forcompanies

Investors

can convert

their stockinto cash

A common place for buyer

and sellers


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WHY DOES a COMPANY ISSUE STOCKS ?


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Why would the Promoters share the profits withthousands of people when they could keepprofits to themselves?

The reason is that company needs to raisemoney.

Companies can either borrow it, DEBTFINANCING or raise it by selling part of thecompany, EQUITY FINANCING


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WHAT is the DIFFERENCE BETWEEN

BANKING SYSTEM

and CAPITAL MARKETS?


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Equity Issuance

In practice a company offers its shares toseveral interested participants; institutionsand individuals

When a company issues its equity for thefirst time (through Initial Public Offer) itdecides on offer price

Post listing, at stock exchanges marketparticipants decide the price.


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WHAT is an IPO?


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AN EXAMPLE

Recently, The Aditya Birla-owned IdeaCellular, entered the capital market on Feb 12with an initial public offering (IPO)aggregating Rs. 2,125 crore of equity sharesof Rs. 10 each for cash at a premium to bedecided through the 100 per cent book-building process

The price band for the issue was fixedbetween Rs 65 and Rs 75 per equity share

Shares were issued at Rs.75 and listed atNSE and BSE now trading at Rs.90 per share


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WHY COMPANIES go FOR LISTING?


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Listing of Securities

A security is said to be listed when, at

a stock exchange, it is added to the list

of securities in which trading ispermitted


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WHAT are the ADVANTAGES of LISTING?


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FOR CAPITAL PROVIDERS :

Ready marketability and liquidity

Ensure proper supervision and control in

dealing

Protect the interest of shareholders

FOR COMPANIES :

Cost-effective access to capital The highest visibility and the fairest pricing


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WHAT are PRIMARY MARKETS and

SECONDARY MARKETS?


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Primary and Secondary Market

The primary market is where securities arecreated (by means of an IPO)

In the secondary market, investors tradepreviously-issued securities without theinvolvement of the issuing-companies

When we talk about markets we refer tosecondary market


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WHAT is the REGULATORY STRUCTURE ?


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Ministry of Finance

S E B I

Stock Exchange

Broker

Advisor


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WHAT are MARKET ACTIVITIES?


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Market Place

The purpose of a stock market is to facilitate theexchange of securities between buyers and sellers

Interactive ,Information driven and Volume driven

Stocks are held and traded in Demat form

Tech savvy & Screen based trading Expanding product range

Advanced settlement and regulatory mechanism in

place

Major Stock Exchanges are

BSE

NSE


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Market Activities

Normal working hours 9.55 am to 3.30 pm,

Monday to Friday

Buying and Selling of stocks during this

period moves price up or down

When we talk about markets are up or

down we refer to market indices


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WHAT was the

SENSEX / NIFTYYESTERDAY?


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DO we need MARKET INDICE?


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HOW SENSEX and NIFTY INDICES are

CALCULATED?


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Some Indices -BSE

Sensex Seen as barometer of Indian Capital Market

Comprises of 30 high market cap / liquid

stocks Free Float based calculation

BSE-100

Broad based index of 100 stocks Stocks inclusion based on market activity and

industry representation.


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Some Indices - NSE

S&P CNX Nifty

Index of well diversified 50 stocks

Benchmark for index funds and index based

derivatives

Market Cap based calculation

CNX IT: Index of IT companies

BANK NIFTY: Index of Banking Companies


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DO you/family INVEST in STOCKS?

YES ? NO ?


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HOW EQUITY SHARES are TRADED?


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BUYER

SELLER

BROKER

BROKER

STOCK

EXCHANGE

Bank A/c DEMAT

Bank A/c DEMAT

Cash

Shares


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The process is not that Easy !

Market liquidity may not be there

Large spread in Bid and Ask

Impact cost Required quantity is not available to buy /

sell

Buyer has bought the shares but deliveryis not available or vice-versa


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BID and ASK for TAJGVK

Order Book

Buy Qty Buy Price Sell Price Sell Qty

100 183.3 184.4 22

100 183.25 184.45 50

50 183.2 184.5 26

100 183.15 184.75 1

300 183 184.9 5

7522 Total Buy Qty Total Sell Qty 5839


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Depository

Shares held in Demutualization form.

Transferred in electronics forms.

Two types of depositories.

NSDL CDSL


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DP With POA and without

POA.

DP with POA means investors gives right

to its trading member to settle their trades

on behalf of him.

DP without POA means Investors have to

give DIC slips at time when he sold his

scrips.

Please refer to Statement -1.


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Share transfer process

Off- Market Transfer- Transaction take

place between same depository.

Inter depository Transfer Transaction

takes place between two different

depository.


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LEDGER & BILLING

Ledger Statement of a/c which reveals

the daily transaction of the clients.

Billing Confirmation of all trades

relating gross purchase and gross sale

from exchange. Timing between 4:30 to

5:30.

Please refer statement -2


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Auction and Short Delivery

Auction- Initiated by exchange on behalf of Trading

Member.

Suppose Mr. A place buy order for 1000 share of TISCO

at 11:22:01 for Rs 450 per share and Mr. B places a sellorder for 2000 share of Tisco at 11:22:05 for 455 per

share. Assume that no other order were available in the

system . Mr. B sold extra 1000 share and he have no

delivery .Auction Takes Place on T+ 3 days

Close Out on T+ 5 Days


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Auction Calculated:

The closing price of TISCO on 21st March= 455

Last traded price of TISCO = 450

The Previous day close price on 23rd March =

465.

The difference between the closing price on 21st

March and Previous close price is Rs 10.

Suppose price band of auction is (-/+ 15%).= 465 * 1.15 = 535

Penalty paid by MR. B


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Short Delivery

Suppose Mr. A place buy order for 1000 share of TISCO

at 11:22:01 for Rs 450 per share and Mr. B places a sell

order for 500 share of Tisco at 11:22:05 for 455 per share.

Assume that no other order were available in the system .

Mr. B sold extra 1000 share and he have no delivery .Auction Takes Place on T+ 3 days

Close Out on T+ 5 Days


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FOR CLIENTS :What are the STOCK MARKETS for


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Achieving financial goals

Speculation

( Perception of easy money)

Excitement !!!


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NUMBER of PEOPLE INVESTING in theSTOCK MARKET?

NUMBER of DP ACCOUNTS in INDIA?


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CLIENTS


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Client Profiling

Profiling is required to assess level of risk

tolerance

To categorise client in three categories

Investor

Investor & trader

Trader

Leads to higher productivity

Long term relationship with the client


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An Example

Rakesh purchased 1000 shares of Satyam@ 475 per share for long term and at thesame time 1000 shares of satyam are

bought by Rajiv @ 475 per share andsold it next week @ Rs 490 and bookedthe profit of Rs.15000

Rakesh is an investor while is Rajiv aTrader


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Investors Vs Traders

Investor For Long Term

FollowsFundamentals

Stays invested as

long as theme iscontinuing

Trader For short term

Follows Technical

Trades with Stop

Loss and PriceTarget


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Type ofClients

Net-worthRs

Potential

By 2010

Channel Brokerage

Rs. p.m.

PCG PCG > 5 crs

> 4 crs

0.50 LACS PCG, EB 1,00,000 +

MN+

U-HNI 3-5/4 crs 1.50 LACS BR, EB 50,000+

HNI 1-3 crs 10 LACS BR, EB 20,000+

MNI 10 / 25lacs- 1 crs

25 LACS BR, FR, EB 6000+

Retail Retail < 25 lacs


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KNOW YOUR CLIENT

Primary

Interest

Day-Trader

PositionalTrader

Investor

Occupation Business Self Emp Salaried

Risk

App-cap

High Medium Low

Net-worth HNI MNI Retail

Participate-ion

SelfDirected

Validator Delegator


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CLIENT / PRODUCT / CHANNEL

CHANNEL

TYPE

INVESTOR

TYPE

HNI MNI SmallInvestor

PREMIUM Delegator PMS-MF PMS-MF MF

Validator Broking:EQ & CX

Broking: EQ& CX

Broking:EQ & CX

DISCOUNT Self-directed

Internet

EQ & CX

Internet

EQ & CX

Internet

EQ & CX


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Allocations

ASSET ALLOCATION

STYLE ALLOCATION

SECTOR ALLOCATION

SCRIP ALLOCATION


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DIFFERENT ANALYSIS USED in STOCKS

BEFORE TAKING a POSITION


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A. Fundamental Analysis

B. Technical Analysis

&

Information


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HOW FUNDAMENTAL ANALYSIS isDIFFERENT from

TECHNICAL ANALYSIS

P d t G id


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Product GridInvestors are advised by dedicated relationship managers through various

advisory products

Market Analysis Technical Analysis Fundamental

Research

Thematic Research

Regular Inquire Company &

Sector reports

Yearly Wealth Creation

report

Budget CoverageQuarterly

Results Preview

IndiaStrategy

Monthly MOSt MomentumMOSt

Value

MOSt

Mutual

Weekly Futures Weekly

Guide

Daily MOSt CommodityMorning Calls

Derivative Strategy

Market Dairy

Pivot Points

MOSt Market

Action

MOSt Morning

Research

Market

Hours Market Information &

Intraday Calls


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DO you know COMMONLY USED

TERMS in the STOCK MARKETS


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Bull market

Bear market

Large Cap Shares

Mid Cap Shares

Blue Chip Shares


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Market Capitalization or Market cap

Floating share x Market price per share

Earnings per share

Equity earnings / Number of Outstanding shares

Price to Earnings ratio (P/E)

Market price per share / Earnings per share

Return on Equity

Equity earnings / Networth


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WHAT is the ROLE of a BROKER ?

WHAT is BROKING BUSINESS?


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Why Broker ?

A stock broker sells or buys stock onbehalf of its clients

A transaction on a stock exchange must

be made between two members of theexchange

A typical person may not simply walk intothe Bombay Stock Exchange, and ask totrade stock. Such a transaction must bedone through a broker


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Transaction Network

Equity share trading is regulated through a exchange.The exchange takes care of smooth trading andtimely settlement of outstanding dues.

All these done through proper network. The exchangehave a network of Brokers ,Sub-brokers and a

clearing corporation. The brokers and sub brokers under takes the timely

delivery and settlement of funds and share. The clearing corporation undertakes the transaction

of brokers on behalf of the exchange.

Stock exchange ------ Brokers----------- buyer/seller(clear and settle) - (Execute orders)- (Purchase& sale of securities)


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WHAT is the REVENUE MODEL for a

TRADITIONAL STOCK BROKER ?


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Brokerage Firms And Brokerage

Revenue for a broker is charges andcommission, known as brokerage forexecuting buy/sell order submitted by theclients

Eg: If 1000 shares of Reliance @ 1200are bought by a client and thebrokerage charges are 0.50 %, thenthe brokerage income from thistransaction is (1000 x 1200 x0.50%)Rs 6000/-


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WHAT are the COST COMPONENT of

a CLIENT in a SHARE TRANSACTION


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Charges Income Source for

Brokerage Broker

Stamp Duty State Govt.

Transaction Charges Exchange

Contribution to InvestorProtection Fund

Exchange ( For Investors)

Service Tax Central Govt. ( On Brokerage)

Securities Transaction Tax (STT) Central Govt.


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TRADING DELIVERY F&O

Non-

Brokerage

0.006% 0.014% 0.0041%

STT 0.025% 0.125% 0.017%(only SELL)

Service Tax 12.24% 12.24% 12.24%


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Different Types of Brokerages Cash Market

Intraday (0.01%-0.10%)

Delivery (0.10%-0.50%) Derivatives Market

Intraday (0.01%-0.10%)Carry Forward ( )


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Cash Market-Intraday

The client wants to earn the pricedifferential in the same day. i.e. Theposition is entered and squared off in thesame trading session

The Brokerage rates are typically lower insuch kind of transaction, since there is noshare settlement

There is also a concept of single side anddouble side brokerage varies fromregion to region


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Benefit For Brokers

Intra day example

1000 share of Reliance bought @ 1100 and sold @ 1150on the same day, brokerage rate is 0.05% both sides

Revenue is (1000 x 1100 x 0.05%) Rs 550 one sided and(1000 x 1150 x 0.05%) Rs 575 = Rs 1125

1000 share of Reliance bought @ 1100 and sold @ 1150on the same day, brokerage rate is 0.07% one side

Revenue is (1000 x 1100 x 0.07%) Rs. 770


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Cost Pay by the client

Revenue is (1000 x 1100 x 0.05%) Rs 550 one sided and(1000 x 1150 x 0.05%) Rs 575 = Rs 1125.Charged on

Total turnover.

Services tax is 12.24% charged on total brokerage

=67.32Transaction charge 0.004 %Charged on total turnover=

44.

STT is 0.025% charged on total turnover = 275

Stamp duty is 0.0024% charged on total turnover = 26.4

Total Cost of Purchase = 1100962.72


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Cash Market-Delivery

The client purchases or sells in a single

trading session which results in actual

delivery of stocks

The Brokerage rates are higher in suchkind of transaction, since there is share

settlement


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Delivery Example

If 1000 shares of Reliance @ 1200 are bought by aclient and the brokerage charges are 0.50 %, then thebrokerage income from this transaction is (1000 x1200 x0.50%) Rs 6000/-

If 1000 shares of Reliance @ 1200 are bought by aclient and the brokerage charges are 0.20 %, then thebrokerage income from this transaction is (1000 x1200 x0.20%) Rs 2400/-

Brokerage income has come down significantly

because of pricing Therefore negotiating correct pricing is one of the

most important part of converting broking accounts


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Derivatives Intraday

The client wants to earn the price differential inthe same day. i.e. The position is entered andsquared off in the same trading session

The Brokerage rates are typically lower in such

kind of transaction, since there is minimum valueof Rs 200 000 per transaction Brokerage rates vary between 0.01% to 0.10%

on the value of transactions

There is also a concept of single side anddouble side brokerage varies from region toregion


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Intraday Example

A client enters into a contract to buy one lot ofReliance March Futures(150 shares lot) @ 1250

brokerage 0.03% and sells @ 1280 brokerage

0.03%

Revenue is (150 x 1250 x 0.03%) Rs 57 and

( 150 x 1280 x 0.03%) Rs 58 so, total is Rs 115

Similarly if the selling is done on the next day

with the same brokerage rate then also therevenue will remain the same


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Derivatives-Carry Forward

The position is entered and squared off in

different trading session

The Brokerage rates are typically very

much similar to intraday brokerage rates,since in F&O exchanges have not yet

started settlement by stock deliveries

Brokerage rates vary between 0.01% to0.10% on the value of transactions


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WHY BROKING is a GREAT BUSINESS?


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In the developed markets at least one brokingfirm is among the top 10 in terms of marketcapitalization

If the market are bullish the broking firms tend to

make super normal profits You are aware that bonuses at times exceed the

whole years CTC in broking firms

This is where a great opportunity lies to make arewarding and profitable career, if you are ableto properly get a hang of direct equities business

B i Ri k


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Business Risk

Fortunes of a broking firm are cyclical in

nature

If the market are bearish for a vary long

time profits are substantially squeezed

Direct Vs Indirect


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Direct Vs Indirect

Investing

Broking Mutual Fund

Revenue ScopeRs 10 00 000 x 2 timesdelivery per month x 12

months x 0.30 % deliverybrokerage = Rs 72000

Revenue ScopeRs 10 00 000 x 2 timeschurning in a year x 2 % = Rs

40000

Risks are higher, since costs arehigher and holding period isvery less

Risks are lower

A BROKARGE FIRM


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A BROKARGE FIRM

Two facets Front office and backoffice

Front office: Functions of the front office

include acquisition, Relation shipmanagement, Advise and entry of orders.

Back office: Clearance processing,

ensures payment and shares delivery
http://en.wikipedia.org/wiki/Front_officehttp://en.wikipedia.org/wiki/Back_officehttp://en.wikipedia.org/wiki/Back_officehttp://en.wikipedia.org/wiki/Front_office


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WHAT is the DIFFERENCE BETWEEN

BROKERAGE FIRM and MOSt?

Th d t i


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The product is:

ADVICE

EQUITY Ad i


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EQUITY Advisory

Recommend Investment and Trading ideas to

their clients.

The Clients receive the research and the

business receives the revenue

Research Team


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Research Ideas

Strategy Desk

Idea Filtering

Advisors

Ideas according to Profile

Clients


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THANK YOU

equity and equity advisory

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