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 –

 

  • 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