A journey into stock market

SANYAM ARORA (“It's hard to beat a person who never gives up.”) (20158 Points)

14 December 2013

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.

“A Journey into Stock Market “

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 –