By

Bhanu Pratap Ojha

A

Journey

into

Stock Markets

STOCK MARKET

STOCK EXCHANGES IN INDIA

BSE NSE

BSE SENSEX 30

• Started on 01 January, 1986

• Value-weighted index

• Consists of the 30 largest

and most actively traded stocks

Name of company Weightage

RIL 13.10

Infosys Tech 9.37

L&T 8.44

ICICI Bank 7.67

HDFC 5.71

ITC 5.46

Bharti Airtel 4.87

HDFC Bank 4.64

SBI 4.13

ONGC 3.67

BHEL 3.26

HUL 2.50

TCS 2.25

Tata Steel 1.88

Tata Power 1.78

Name of Company Weightage

Maruti Suzuki 1.75

Sterlite Industries 1.71

Grasim Industries 1.69

NTPC 1.69

RCOM 1.61

Jaiprakash Associates 1.60

M&M 1.56

Wipro 1.53

Reliance Infra 1.49

DLF 1.41

Hero Honda 1.25

Tata Motors 1.22

Hindalco 1.09

Sunpharma 0.82

ACC 0.75

NSE NIFTY 50

The 50 stocks that were most favored by

institutional investors in the 1960s and 1970s.

Name of company Weightage

RIL 11.23

Infosys Tech 8.02

L&T 7.23

ICICI Bank 6.58

HDFC 4.89

ITC 4.67

Bharti Airtel 4.17

HDFC Bank 3.98

SBI 3.53

ONGC 3.15

BHEL 2.87

HUL 2.14

TCS 1.93

Tata Steel 1.61

Jindal Steel 1.58

Tata Power 1.53

Name of Company Weightage

Maruti Suzuki 1.50

Axis Bank 1.48

Sterlite Industries 1.46

Grasim Industries 1.45

NTPC 1.45

RCOM 1.38

M&M 1.34

Wipro 1.31

Reliance Infra 1.27

DLF 1.21

Unitech 1.19

GAIL 1.19

Hero Honda 1.07

Tata Motors 1.04

Idea Cellular 1.01

Cipla 1.00

Name of

company

Weightage

Hindalco 0.93

Cairn 0.90

Rel Capital 0.79

SAIL 0.75

PNB 0.71

Sun Pharma 0.70

ACC 0.64

Ambuja Cement 0.64

Siemens 0.61

ABB 0.61

BPCL 0.52

Name of

Company

Weightage

HCL Techno 0.50

Power Grid 0.49

Reliance Pow 0.46

Suzlon Energy 0.44

Ranbaxy Lab 0.39

Tata Comm 0.27

NALCO 0.22

HOW THE INDICES ARE CALCULATED?

1. Find out the “free-float market cap” of all the 30 companies that

make up the Sensex!

2. Add all the “free-float market cap’s” of all the 30 companies!

3. Make all this relative to the Sensex base. The value you get is the

Sensex value!

Depository

A bank or company which holds funds or securities

deposited by others, and where exchanges of

these securities take place.

• National Securities Depository Limited

• Central Depository Services Limited

Depository Participant

In India, a Depository Participant (DP) is

described as an agent of the depository. They

are the intermediaries between the depository

and the investors.

Transaction Process

(How To Start Trading And Investing)

• We need to have a DEMAT account.

• We need to have a Trading account.

• And of course money

Rules for earning money in

the market

• Rule 1: Never lose your money in the market.

• Rule 2: Never forget Rule 1.

Settlement Procedure

For Cash Markets

• Settlement is done on T+2 basis for cash markets.

• Trades entered in to on a particular day are settled

on third day.

• Eg. If u purchase shares on Monday, the settlement

day would be Wednesday.

FACTORS AFFECTING STOCK

MARKET

• Economic Factors

• Market trends & Rumours

• Global Market indicators

• Govt Policies and Regulations

• Company wide factors

Classification of Companies

Sector Capitalisation Groups

Sectoral Indices

• Realty

• PSU

• Auto

• Power

• Consumer Durables

• Oil & gas

• Bankex

• FMCG

• Capital Goods

• Metal

• Teck

• IT

Capitalisation

• Large Cap - Above 750 cr.

• Mid Cap : Between Rs 75 cr. and Rs 750 cr.

• Small Cap : Below Rs. 75 cr.

Groups

• A : It is the most tracked class of scripts consisting of

about 216 scripts.

• B

• S

• T : Traded on trade to trade basis.

• Z : companies which have failed to comply with its listing

requirements.

Control Mechanism

• Circuit is the price limit or range, outside which the

stock price can't go.

• For example, let's say closing price of X stock

yesterday was 100 Rs. The applicable circuit limit for

X is 5%. In this circumstances, the price of X can't go

above 105 (5% above previous close) and below 95

(5% below previous close).

Why IPO’s?

• Raise Capital to meet working capital, debt

repayment, expansion, and a host of other uses.

• Company valuations are done on the basis of which

the share value is calculated.

• It is offered to all categories of investors like Retail

Investors, Private Placements, FII’s, Mutual funds,

LIC,GIC

IPO’s

• Issue is either brought as a book building issue which is

priced at a price band OR is brought at fixed price

• Company’s have to file DRHP(Draft red herring

prospectus) with Sebi as a guide line.

• After DRHP the IPO is given ratings by ICRA & CRISIL

depending on the valuations, business risk, future growth

policies of the company, Investor risk appetite.

IPO – Grey Market

• Before listing of IPO there is a market value which exists

amongst the brokers who do business in GREY MARKET were

the premiums are predefined depending on the demand and

supply availability

• This orders are booked in advance and settled on the date of

listing and the difference if any is settled in cash

• Highest ever Grey market premium for any IPO was for

Reliance Power which was 100%

Kinds of Trading

• Intra-day Trading

• Delivery based Trading

Intraday Trading

• Buying and Selling on the same day.

• Brokerage will be different for intra-day and

delivery based trading, intra-day being lesser

Delivery Trading

• Buying and Selling are on different days

• Brokerage will be higher than intra-day

• Delivery charges

Short Selling

• Selling the shares which you don’t have

• Ex: Lets consider a company Reliance

• Its priced at Rs 1,000/-. You know it’s going to fall that day

because of some reason. But you don’t have any shares with you of

Reliance.

• But still you can sell the shares, this is called as short selling.

Short Covering

• Assume you sold 10 RIL shares in morning at Rs 10,000/- and by

evening as you had thought, it had Fallen down to Rs 9,000/-

• Now you buy back those 10 shares what you had sold.

• So the difference in amount per share 10,000 – 9,000 = 1,000

• 100 * 10 = 1000, Profit is yours.

• This process of buying back is called Short covering.

Consequences if not covered

• You will become a defaulter.

• Lets understand this with an Example.

• Assume you short sold on Monday, as you haven’t short

covered it, you need to deliver it on Wednesday(T + 2). But

you don’t have the shares to deliver. So NSE or BSE will buy

the shares on behalf of you in auction market, and deliver it

to the buyer in (T + 3 days).

• You will have to pay penalty

How to Select Stocks

• Fundamental Analysis

• Technical Analysis

What is Fundamental Analysis?

• Analyzing a stock based on the fundaments of the country, the sector, and the company individually.

• It includes going through balance sheet and profit-loss statement of the individual company and checking various ratios.

• Analyzing a stock based on the fundaments of the country, the sector, and the company individually.

• It includes going through balance sheet and profit-loss statement of the individual company and checking various ratios.

What is Technical analysis

• Forecasting the future direction of prices through

the study of past market data, primarily price and

volume

Basics in Technical analysis

Support

Resistance

Stop Loss

Effects on Prices of Shares:-

• Bonus

• Split

• Right Issues

• Buyback

Foreign Markets

• Dowjones

• Nasdaq

• Nikkei

• Shanghai

Derivatives

• NSE is the largest derivatives exchange in India

• Derivatives contracts have a maximum of 3months expiration cycle

• Contracts are available for trading with:

1 month

2month

3 months expiry

• Turnover of derivatives market is 75,000cr.

Derivatives

Scrip Name Lot Size Margin Total

Ambuja Cements 4124 Rs 88,913/- Rs 4,08,276/-

Hindalco 3518 Rs 1,05,311/- Rs 3,59,891/-

Reliance 150 Rs 65,147/- Rs 2,97,750/-

Reliance Power 2000 Rs 72,410/- Rs 3,20,000/-

Suzlon 3000 Rs 83,280/- Rs 2,85,450/-

Premium & Discount

Scrip Name Spot Price Future Price Pre/Disc

Suzlon 95.25 95.15 0.10 Discount

Reliance 1980.85 1985.10 4.25 Premium

Hindalco 104.10 102.30 1.80 Discount

Nifty 4619 4621 2 Premium

M2M adjustments

• Assume,

• You Bought 1 lot of Suzlon (i.e 3000 Shares @ 100/- = 300000/-)

• Margin money Rs 60000/- (i.e @ 20% of 300000/-)

• Now on the Other day if Price Goes down to 90/-

• Then you will have to pay M2M loss of Rs 10/- per share i.e

Rs 30000/-

• And If the Price increases to 110/- then we will get M2M profit credited

in our A/c.

• i.e Now we will get the M2M profit Rs 60000/- Credited in our A/c

Options

• Call Option – An option to buy is called Call Option

• Example:

• Price of Reliance in Cash markets is 1000/-

• Price in Futures is 1020/-

• Trader will not block his money in cash markets

• Rather he will buy a call option in futures market

• Pay the premium of Rs30 per share

Contd……

• If the price in cash markets

• Price of Call Option also (vice versa)

Hedging

• Hedging means insuring against a negative event

• It is done to reduce exposure to various risks

• Hedgers try covering the risks

• Hedgers try to reduce the risks associated with uncertainty

• Infosys bags a deal worth $ 100000 from US Company

• Rate of $ is Rs 48/-

• Amount to be realised after 2 months

• But Infosys estimates Dollar will fall to Rs 44/-

• Hence to reduce the loss Infosys will Hedge its Position

by selling $ 100000 in Future Markets

Hedging Example

• After Two months Infosys gets the Payment

• Dollar price is Rs 44/-

• So Infosys will bear a loss of Rs 4 per $ in Cash

Markets

• and will gain a Profit of Rs 4 per $ in Future Markets

• In this way Infosys have Reduced the Risk of $ Price

Fluctuation

Hedging Example

Speculation

• Opposite of hedging

• Speculators are risk lovers

• Speculators make bets or guesses

• A hedger seeks to cover a foreign exchange risk

• A speculator accepts and seeks out to accept it to make profit

Example…

• Speculator believes Price of foreign currency

• Purchases the currency

• Holds it

• Resale later

• Profit on each unit of foreign currency

Arbitrage

• When the futures price deviates substantially from its fair value arbitrage opportunities arise

Spot Markets(Cash) Futures

Purchase@1000/- Sell@1025/-

Hold for 1 month

The spot and futures price converge

Closes@1015/- Closes@1015/-

Profit booking of Rs.15 Profit booking of Rs.10

How a stock price changes

Things to be avoided while trading

& investing

• Never risk more than 10% of your trading capital in a single trade.

• Always use stop loss orders.( Here you should know your loss you can give in a situation where the trade starts going against you.)

• Never do overtrading.

• Don't enter a trade if you are unsure of the trend.

Attributes of good investors

• One should be a good Manager and not day trader.

• A well diversified portfolio.

• Investment in good shares.

• Have patience.