Greetings of the day to all the members of CCI Family.
After writing exams in Nov’13, I thought to start with a series on “A to Z of Finance”. After reading many novels, Articles and browsing net I finally feel that it’s the right time to convert my ideas into writing.
So as was promised to many members on the club that I will share knowledge relating to Finance, so here I come with the First part of my exclusive series i.e.
Introduction –
The series will comprise of :
- A journey into stock market
- Mergers & Acquisitions
- Tips for Investing
- And many more
In this Article I will be discussing the basics of stock market.:
- Things to be avoided
- Factors affecting stock market
- Derivatives
- Grey Market
- Other factors affecting the market
# Read the article very patiently, step by step try to analyze the points &in case you feel stuck start reading it again from the beginning.
Stock Exchanges in India –
- Bombay stock exchange (BSE)
- National stock exchange (NSE)
BSE – Started on 1 January 1986
- Consists of 30 largest and most actively traded stocks.
- E.g. RIL, L&T, HUL, TCS, etc.
NSE – Known as NIFTY 50
- E.g. SBI, ONGC, TCS, HERO, etc.
Depository and Depository Participants –
- Depository means a bank or company which holds securities deposited by others and where exchange of these securities take place.
- National securities Depository Limited (NSDL)
- Central Depository securities Limited (CDSL)
- Depository participants are an agent of the Depository.
- They are intermediaries between the Depository and investors.
- Modex, Sherkhan, Edelwis, etc.
Settlement Procedure –
- Settlement is done on a T + 2 basis for cash markets.
- Trades entered into on a particular day are settled on a third day. E.g. if stocks are purchased on Tuesday they must be settled on Thursday. Above mentioned procedure is also known as “Rolling Settlement”
Factors affecting Stock Market –
- Economic factors
- Market Trends & Rumours (Speculation)
- Insider Trading
- Government policies & Regulations
- Other factors
Medium of approaching Capital market –
- Equity shares
- Debentures
- ADR’S/ GDR’S
- Derivatives
IPO’s (Initial Public Offer) –
- It is a process through which companies raise capital to meet working capital, debt repayment, expansion, etc.
- It is offered to all the categories like Retail investors, Private placements, FI’s, etc.
- Issue is brought as a book building issue which is priced at a price band or at a fixed price.
- Companies have to file Draft Red Hearing Prospectus (DRHP) After DRHP the IPO is given credit rating by ICRA & CRISIL depending on the valuations, risk, growth policies of the company.
Grey Market –
- It is also known as “Fictitious Market”.
- Before listing of IPO’s there is a market value which exists among the brokers who do business in Grey market and the premiums are predefined depending upon the demand & supply. Highest ever grey market premium for any IPO was for Reliance Power i.e. 100%
Selection of stocks -
- Fundamental analysis
- Technical analysis
Fundamental analysis –
- Analyzing a stock on the basis of fundaments of the country, the sector and the company individually.
- It includes going through the Balance sheet and Profit & loss of the said company & checking various ratios.
- Checking of EPS, PE Ratio, MPS, Interest coverage, etc.
Technical Analysis –
- Forecasting the future directions of prices through the study of past market data primarily price & volume.
- Checking of support, resistance, stop loss, etc.
Foreign Markets –
- Dowjones
- Nasdaq
- Nikkei
- Shanghai
Derivatives –
- NSE is the largest derivative exchange in India.
- They have a maximum of 3 months expiration cycle.
- Contracts are available for trading with 1, 2 & 3 months.
Things to be avoided –
- Don’t follow a bind man’s advice.
- Avoid getting in & out of the market too soon.
- Only trade active stocks.
- Never invest without putting a stop loss.
- Never do overtrading.
- When in doubt get out and don’t get in when in doubt.
So this brings an end to my article. In this article I have covered the basics of some vital concepts which you all should be aware of.
In my next Article I would be discussing tips for investing in stock market.
I guess many of you might be aware of the above facts but I couldn’t ignore the above as these are necessary for my series.
So be patient and be ready for the next part.
About the Writer –
CA Final Student
CIMA Management Level
B.Com (P)
# Any sought of queries or suggestions for the remaining parts are most welcome. Feel free to contact me at sanyam.arora27@ gmail.com
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