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TRANSCRIPT
Investment in Shares
Dr. S M Shafi
Department of Business & Financial Studies
University of Kashmir.
Synoptic View
• Investment Instruments & Avenues
• Stock Market
• Case for Investing in Shares
• Market Index
Investment Instruments & Avenues
Financial Instruments
Two Categories:
1. Money Market Instruments
2. Capital Market Instruments
Money Market Instruments
1. Certificate of Deposits
2. Commercial Paper
3. Treasury Bills
All maturing within One Year [ Short Term
Instruments]
Capital Market Instruments
1. Shares
2. Debentures ( Bonds )
S h a r e s
1. Equities ( No Fixed Dividend, Voting Right)
2. Preference Shares ( Dividend Fixed, No Voting Right)
[ Maturing after One Year]
Debentures:
15% 5000 Debentures of Rs.1000 each
Types of Debentures
Secured/Unsecured
or Naked
Debentures
Redeemable/
Irredeemable
Convertible/
Non-Convertible
Debentures
Zeero Coupon
Rate/ Specific
Coupon Rate
Investment Options Available To Small Investors
Investment Options
• Land
• Bank deposits
• Shares
• Bonds
Remarks
• Require huge investment
• No stream of regular income
• Low risk, highly rewarding. low liquidity
• Low return; low risk & high liquidity
• Regular income plus capital appreciation high return/risk
• Generate steady regular income
• Low return & low risk 8
Stock Market
Stock Market
Raising of Capital From market:
1. Primary Market [Through IPO]
2. Secondary Market [ Stock Exchange]
Why Stock Exchange Market?
Two Reasons
1. For exit & Entry Purposes
2. Price Discovery
Stock Exchanges
• 23 Stock Exchanges in India
• BSE & NSE – The most followed
• BSE is the Oldest
• NSE is modern and professionally driven
• Regional Stock Exchanges
• Bourses in French Language
Listing
• Initial Listing in Regional Stock Exchange is
Mandatory.
• Then you can List in BSE or NSE or both
• Initial Listing Fee and Yearly Listing Fee
Specified/Non-Specified Group
Specified Group Non-Specified Group
Non-Cash List
Cash List
Three years Mandatory in this
Group
After Three Years shift to
Non- Specified Group
Stock Markets: Then & Now
Earlier Now
Physical Exchange Virtual
Open Outcry System,
Trading Floor
Screenbased Traded
Client Broker, Floor
Brokers
Internet
Types of Players in the Market
• Gamblers
• Speculators
• Investors
Types of Brokers
Bull [ Tejiwala]
Bear [ Mandiwala]
Jobber [Tarawaniwala]
Stag [ who buys fresh issues from IPO]
Speculative Transaction
Bulls & Bears Earlier:
a) Carry Forward System
b) Badla System
C) Margin Trading
Now : a) Carry Forward Abolished
b) T+2
c) Margin Trading Continues
d) Govt. Thinks of T+1
The Case for Investing in
Stocks
The Case for Investing in Shares
Company Price
Nov.
2004
Price
Nov. 2005
Gain
Times
RIL 440 810 About 2
times
J&K BANK 250 465 About 2
times
INFOSIS 1250 2700 More than
2 times
BHEL 450 1200 About 3
times
19
The Case for Investing in Shares
Shares bought in 1980-81 100
Bonus issue in 1982 [ 1 : 1 ] 100 200
Bonus issue in 1985 [ 1 : 1 ] 200 400
Bonus issue in 1987 [ 1 : 1 ] 400 800
Bonus issue in 1989 [ 1 : 1 ] 800 1600
Bonus issue in 1992 [ 3 : 5 ] 960 2560
20
Colgate India Ltd: Capital Appreciation by 90 times
The Case for Investing in Shares Colgate India Ltd: Capital Appreciation by 90 times
No of Shares bought in 1980 100 2560
Market price per share 125 440
Market value of investment 12500 11,26,400
Growth in investment 90 times
Market price of gold 1400 4200
Growth in gold value 3 times 21
1980-81 1993-94
Different Issue Prices
Issue at Par
Issue at Premium
Issue at Discount
Methods of Pricing
1. Fixed Pricing Mechanism
2. Book Building
Fixed Pricing Mechanism
• Price is fixed by the promoter…..
• Same price is paid by all the subscribers
23
Book Building Method
Book Building Method
• Bids are invited from the investors with a
band price say 450-900
• On the basis of the bids, cut-off price is
fixed.
• The cut off price to be paid by all
Different Values
What are the different values?
: Face value
: Book value
: Market value
25
Market Index
Major Indices
BSE Sensex = 30 Scrips
Covers 16 Sectors
NSE CNX S&P Nifty = 50 Scrips
Covers 22 Sectors
Thursday, May 08, 2008
Scrip Code Scrip Name Close Price No. of
Shares(normal) Full Mkt. Cap.(Rs.
in Crores) Free-Float Adj. Factor
Free-Float Mkt. Cap
(Rs.in Crores)
Weight in Index(%)
500325 RELIANCE 2,666.15 1,453,648,601 387,564.52 0.50 193,782.26 16.56
532174 ICICI BANK L 891.30 1,111,477,508 99,065.99 1.00 99,065.99 8.46
500209 INFOSYS TECH 1,779.80 571,995,750 101,803.80 0.85 86,533.23 7.39
500510 LARSEN & TOU 2,886.20 292,147,098 84,319.50 0.90 75,887.55 6.48
500010 HOUSING DEVE 2,720.60 284,029,121 77,272.96 0.85 65,682.02 5.61
500875 I T C LTD 215.05 3,768,561,010 81,042.90 0.70 56,730.03 4.85
532454 BHARTI ARTL 827.60 1,897,907,446 157,070.82 0.35 54,974.79 4.70
500112 STATE BANK O 1,729.80 631,558,654 109,247.02 0.45 49,161.16 4.20
500312 ONG CORP LTD 1,028.35 2,138,872,530 219,950.96 0.20 43,990.19 3.76
500470 TATA STL 845.65 731,234,846 61,836.87 0.70 43,285.81 3.70
500180 HDFC BANK LT 1,508.40 354,432,920 53,462.66 0.80 42,770.13 3.65
532712 REL COM LTD 542.95 2,064,026,881 112,066.34 0.35 39,223.22 3.35
500103 BHEL 1,760.20 489,520,000 86,165.31 0.35 30,157.86 2.58
500376 SATYAM COMP 471.10 670,479,293 31,586.28 0.95 30,006.97 2.56
500696 HIND UNI LT 250.95 2,177,983,566 54,656.50 0.50 27,328.25 2.33
532555 NTPC LTD 192.70 8,245,464,400 158,890.10 0.15 23,833.51 2.04
532540 TCS LTD. 943.70 978,610,498 92,351.47 0.25 23,087.87 1.97
500390 RELIANCE ENR 1,394.10 234,668,582 32,715.15 0.70 22,900.60 1.96
532532 JAIPRAK ASSO 269.05 1,170,563,191 31,494.00 0.60 18,896.40 1.61
532868 DLF LIMITED 643.80 1,704,832,680 109,757.13 0.15 16,463.57 1.41
500300 GRASIM INDUS 2,331.85 91,674,210 21,377.05 0.75 16,032.79 1.37
500570 TATA MOTORS 669.10 385,490,822 25,793.19 0.60 15,475.91 1.32
500440 HINDALCO IN 180.05 1,227,184,963 22,095.47 0.70 15,466.83 1.32
507685 WIPRO LTD. 497.15 1,461,439,242 72,655.45 0.20 14,531.09 1.24
500520 MAHINDRA & M 678.75 245,741,813 16,679.73 0.80 13,343.78 1.14
500359 RANBAXY LABO 470.05 373,227,647 17,543.57 0.70 12,280.50 1.05
532500 MARUTISUZUK 770.25 288,910,060 22,253.30 0.50 11,126.65 0.95
500087 CIPLA LTD. 211.55 777,291,358 16,443.60 0.65 10,688.34 0.91
500425 AMBUJA CEME 111.40 1,522,373,923 16,959.25 0.55 9,327.59 0.80
500410 ACC LTD 743.25 187,634,983 13,945.97 0.60 8,367.58 0.71
TOTAL 2,388,066.86 1,170,402.47
Construction of Stock Market Indices: Market Capitalisation Method
Share Price in Price in No. of Out- M.Cap. In M.Cap. in
base Yr current Yr standing shares Base year Current year
( In million )
A 50 70 10 500 700
B 40 50 8 320 400
C 100 90 7 700 630
D 20 80 5 100 400
E 15 24 9 135 216
------- ---------
1755 2346
Market Cap. Index = 2346/1755 = 133.67
Index Divisor
• 100/base year market capitalization • Suppose base year M. Capitalisation= 5500 crores
• Remember the base year Market Capitalization was kept equal to 100 Points
• Thus Index Divisor= 100/5500=1/55
• Suppose further that the Current Market Capitalisation= 10,00,000 crores
• Thus Index would be= 1/55X 10,00,000= 18818
Other BSE & NSE Indices
• BSE 100 BSE IT
• BSE 200 BSE FMCG
• BSE 500 BSE Capital Goods
• BSE Tech BSE Consumer Dur
• Dollex 30 BSE H Care
• DOLLEX 100 BSE Bankex
• Dollex 200 BSE Auto
• BSE PSU BSE Metal
Foreign Indices
• NASDAQ 100
• NYSE
• LSE 100
• Standard & Poor 500
• Dow Jones Industrial Averages( DJIA) 200
• CAC 40 ( French)
• Dax 15 ( German)
• Nikkei 225 ( Japan)
• Hang Seng ( Hong Kong)
WHO SELECTS THESE STOCKS? They are selected by the Index committee of IISL.
Some of the criteria they follow include :
1)Market capitalization.
2)Liquidity.
3)Continuity.
4)Industry representation.
5)Listed history.
Represents 44% of market capitalization 16 sectors 52% of trading volumes
Risk Profile of Various Assets
Return speculative share.
growth share.
Debentures bluechip sh.
PSU Bonds
Govt. sec.
Risk
………………RISK – RETURN – RELATIONSHIP……………….
33
R e g u l a t o r 1947 To 1992 From June ,1992
Capital Issues Control Act , 1947 Securities and Exchange Board of India
SEBI, 1992
Stricter Liberal
IPOs not easily Possible strict pricing
regime
IPOs Possible with Free Pricing Regime
Transparency:
No Transparency ensured
Transparency:
More Transparency ensured:
1. Risk Factors
a) Internal b) External
Regulates:
Equities & Debentures, Bonds
Derivatives, Mutual Funds,
How to Set a Limit to Your Greed?
Here Are Some Tips:
1. Have a realistic profit goal & sell once it is reached
2.Don’t aim to sell at peak levels? You don’t know
what the peak price is until the market starts sliding
down
3. Realize your profits & don’t worry about profits you
may have lost by not waiting longer
4. Sell when price is moving up
35
Rules of the Stock Market Investment Game
You Should not buy……
1. Unlisted shares
2. Inactive shares
3. Shares of closely held companies.
36
Derivatives Financial Instruments
1. Forwards
2. Futures
3. Options:
a) Call Option
b) Put Option
4. Swaps
a) Currency Swaps
b) Interest Rate Swaps
Thank You All