Know The Market- (Session-3)

Q- How to start Investing?

Ans-

Once you decide to invest the money in stocks then you can go through online or offline. You can buy your shares online or you can depend on the broker who can done for you.

Offline Trading-

• Placing orders with the help of a registered sub-broker.
• It is better to start offline so that you get familiarity with it.(At the starting time of stock market we are just like a lay man, we need the some functions or some important points of stocks or we must be familiarity with the market.

Online Trading-

• Placing orders by oneself.
• This can be done once you comfortable with the trading process.

Stock-

Stock represents an ownership interest in the company. May be the ownership is small but is valuable. It confirms three rights to owner of the share.

1. Voting rights at company meetings on various business decisions.
2. Receiving periodic dividend payments.
3. Sell the share at share holders discretion(there could be some restriction)

Why is an Equity Share?

Ans-

• Equity capital of a company is divided into equal units of small denominations, each called a share.
• Ex- in a company the total equity capital of Rs-2 crores is divided into 20,00,000 shares of Rs-10 each. Each such unit of Rs-10 called a share.

     a. The company has 20,00,000 shares of Rs-10 each.

    b. The holders of such shares are members of the company and have voting rights.

Q- What are the types of Shares?

Ans-

A company can issue two main types of shares- Equity and Preference.

Equity Shares-

• It is also called ordinary shares.
• Give equal ownership to all the share holders.
• Give voting rights in the company to its shares holders.
• These share holders are given last preference at the time of distribution of profits.
• They are the people who's capital will be paid last on winding up of the company. When it comes to the liquidity of the money the equity share holders are get the money at last.

Preference Shares-

• Shares which carry a preferential right in respect of dividend at a fixed rate.
• They also carry preferential right in regard to payment of capital on winding up of the company.
• Have characteristics of both debt and equity.
• Usually do not provide voting right.

Share Price-

• The price at which the stock of a company in available in the market to buy or sell.
• In a particular day the share price can be divided into 5 parts-

        a. Open- The price at which the stock starts trading.

        b. High- The highest price at which the stock start trading.

        c. Low- The lowest at which the stock reached for the day.

        d. Close- The price at which stock ended the trade for the day.

        e. Previous Close- Yesterday close price.

Here is the  equation-

                Today's Close = Tomorrow's Open

• 52 week high/low : identifies the highest and the lowest price that a particular stock traded for the past 52 weeks/1year.

        Ex- TCS 52 week High/Low : 1024/968 

• Day Range : The day range shows the highest and lowest price that the stock had for the day.

Q- How companies earn?

Ans-

• Companies generate revenue by the sale of goods or products or services.
• For the generation of this revenue the companies various costs such as raw material costs, labor costs etc.
• The part of revenue that remains with the company after the deduction of the costs is called as earning of a company.
• Earning important to you as an investor because, if the company does well and earns more profits, you receive more as dividend or price of the stock goes up.

People who participate in the market-

1. Individual
2. Professional
3. Short term trader's

Individual/Retail Investor-

• Small investors who invest directly or through mutual funds in the stock market.
• They plan to hold the stocks for long term.

Professional investors/ Traders-

• They are the people who use other people's money to invest or to trade.
• Professional traders include institutions such as mutual funds, insurance companies, pension funds etc.
• Since they are large participants, they can influence individual stock market.

Short term traders-

• They do not care about the long term prospects of the company.
• They take advantages of short term price movements in the stock.
• They may buy and sell with in few minutes or few hours or few days.
• There are many kinds of short term traders like : Day traders- who buy or sell with in the same day.
• Swing traders- Who hold the position for a week or so till the target is reached.

Stock Exchanges-

There are two major stock exchanges in India.

    1. BSE : Bombay Stock Exchange

    2. NSE : National Stock Exchange

Both the exchanges follow a same trading mechanism, trading hours, settlement process etc.

No. of Listed Companies in Exchanges-

    BSE : Here 5000 listed companies

    NSE : Here about 1600+ listed companies

Not all of them are liquid shares. Many of them are illiquid. That means not all of them are liquid shares frequently.

What is an Index?

Ans-

• Index is a basket of securities.
• The average price movement of the basket of securities indicates the index movement, whether upwards or downwards.
• Constitutes a specified group of shares which tend to move in similar pattern to indicate the market trends.

           Example : Sensex and Nifty

Stock Market Indices-

• There are two indices which are followed in India as benchmarks against investment in equity asset class.
• Sensex: sensex is the oldest market index with 30 companies listed on BSE. It compries of large, well established and financially sound companies across.
• Sensex today widely reported in both domestic and international markets through print as well as electronic media.
• S&P CNX Nifty : It includes 50 shares listed on the NSE spread across 20 sectors.

It is more broadly based then Sensex. Index shares are highly liquid with high market capitalization.

Face Value or Par Value-

• Face value, also referred to as par value or nominal value.
• It is the value shown on the face of a security certificate including currency.
• When the share starts trading in the stock market, face value may go up or down depending on demand and supply for the stock.
• So the share with a face value of Rs-10, may be quoted at Rs-55(market value higher than the face value), or even Rs-9(market value lower than the face value).

            Ex- A companies capital = 10crores

• If a company's capital is Rs-10 crore that can be divided into 1 crore shares of Rs-10 each.
• Then Rs-10 is called the face value of the share.
• The value of a share in the market at any point of time is called the price of the share or the market value of the share.
• Generally face value has no relation to market price.

Dividends-

• Dividend is an amount that a company distributes every year to it's shareholders out of the profits it earns.
• Price of the stock declines by the amount of dividend on the ex-dividend day.
• The dividend is paid to people who already own the stock prior to ex-dividend date.
• In india dividends from listed companies are not taxable.

            Ex- ITC declares 600% dividend.

Bull Market: When stocks goes up

• Bull market is term used to describe a raising market.
• A bull takes an optimistic view of the market.
• Buys shares at current price in the hope of selling them later at a higher price.
•  Ex- buy a share of SpLearn ltd. at Rs-100/- with a hope to sell it at Rs-150/- making a profit of Rs-50/-
• When many bulls dominate the market, it is called a bull market.

Bear Market : When stocks go down

• A bear is a person who takes a pessimistic view of the future.
• He expects share prices to fall in the immediate future and seeks to make money in selling shares now in the hope of buying them at a lower price.
• Ex- Selling the shares of SpLearn ltd. at the prevailing market price Rs.150 with a hope to buy it at a lower price Rs.100 or lesser.
• A bear market is one which is characterized by a lot of bear activity.

Sideways Market : when market goes Nowhere

• Market tries to go up or down but ends up just about where it started.
• It is hard to make money in sideways market.
• Neither the bulls nor bears make money although some opportunity short term traders can find.
• It takes lot of patience to invest during sideways market.

Online Trading-

• Buying and selling stocks and other financial instruments through the internet.
• Requires an online trading platform offered by most of online brokers for order execution.
• Many online brokers also offers free demo accounts allowing anyone connected to the internet the possibility of virtual trading.

Intraday Trading-

• Buying and selling of stock in the same trading session/same day.
• Brokerage tends be less than delivery(mostly between 0.02% - 0.05% on the total cost of transaction)

        Ex- A trader buys SpLearn ltd. shares on Date-03-Mar-2020 at 10:50 am at a price of Rs-300 and sell at 4:00 pm for Rs-350 on the same day.

Delivery Trading-

• Buying and selling of shares or vice versa in two different trading sessions.(that means buying and selling day must be different)
• Brokerage are likely to be higher compare to intraday trading.

        Ex- Buying SpLearn ltd. shares on Date-03-Mar-2020 at Rs-250 and selling the same share on Date-04-Aug-2020 at Rs-420.

Penny Stocks-

• Stocks that trades at a very low price below Rs-10.
• Easily manipulated due to low price.
• High risk reward ratio.
• Less information about promoters.

       Ex- Gujarat NRE Coke-CMP : Rs-5.80/share.

Blue chips-

• No stadard defination- Subjective/personal preference.
• Large in size, technologically advanced, having professional management.
• Growing company, high dividend payments.
• High level integrity in business dealings.

             Ex- L&T, Infosys, BHEL etc

Buy back of shares-

• Situation where a company buys back its own shares with its own capital.
• Reduces the equity the capital of the company.
• EPS likely to go up.
• It is a method of cancellation of share capital.

        Ex- Reliance industries initiate a buyback program of 4.62 cr shares to bring in a price stability and investor confidence.

Bonus shares-

Additional shares given to the existing shareholders without any additional cost.

Are a result of companies accumulated earning which are not paid in the form of dividends.

Issued to encourage retail participation and increase their equity base.

Does not lead to the increase of share capital.

Decrease the share price.

        Ex- Infosys issues bonus shares with a ratio of 1:1.

---Thank You---

1. Know The Market- Session-1

2. Know The Market- Session-2

3. Know The Market- Session-3

4. Know The Market- Session-4

5. Know The Market- Session-5

6. Know The Market- Session-6

7. Know The Market- Session-7

8. Know The Market- Session-8