Equity Market and Research

Module:1
Company
A company is a legal entity formed by a group of individuals to engage in and operate a
business—commercial or industrial—enterprise.

Shares:

Shares is defined as a smaller part of capital that is known as “Share” and a person, who owes
shares is known as the shareholder.
Shares as one of the units in the company into which the total capital of the company is divided.
Share capital of a company is collected by the issue of shares

Justice Farewell defines Share in the following words “A share is the interest of the shareholder
in the company. It is measured by the sum of money for the purpose of liability in the first place
and of interest in the second place”. Holders of the shares are called shareholders or members of
the company.

1. The share of a company shall be a moveable property. It is transferable in the manner

provided by the articles of the company.
2. The share capital is non refundable except in the case of winding up and reduction of
capital.
3. Each share in a company shall have a distinctive number.

Example:

Total capital of a company is? 5, 00,000 divided in to 50,000 shares of Rs. 10 each, each
unit of Rs. 10 is called share. In this case there are 50,000 unit i.e. shares of Rs. 10 each
and the capital is Rs. 5, 00,000.

Types of Shares

1. Equity shares
2. Preference shares
3. Deferred Shares

Equity Shares

Equity share are also called ordinary shares. The holders of equity shares are the real owners of a
company. The ordinary shareholders have voting rights in the meetings of the company. They are
entitled to receive dividend as are declared by the board of directors. The equity share capital
cannot be redeemed during the life time of the company.

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Merits of Equity Shares

The merits of equity shares are as under:-

01- Venture capital. Equity Shares are the most important and popular type of shares. It is
therefore, called a venture capital of the company.

02- No burden on a company’s resources. Since the dividend is to be paid out of the profit of
the company, therefore they impose no load on the resources of a company.

03. Provision of long term finance. The equity shares provide long term finance to the
company.

04- No charge on the assets. The equity shares do not create any charge on the assets of a
company. The Company can raise further funds. If it desires, through mortgage of property or
other assets.

05- Payment of profit. Equity shareholders are paid profit after all the other claims are met by
the company.

06- Rate of dividend. The rate of dividend on ordinary shares depends upon the profit of the
company.

2. Preferences Shares

Preferences Share as the name suggested, it has certain preferences as compared to other types of
shares. The main preferences of these shareholders over others in brief are as under:-

1. The first preference is for compensation of dividend. Whenever the company distributes
profits, the dividend is first paid on preferences share capital.
2. In case of winding up the company, the preferences shareholders have a prior right in
regard to repayments of capital.

Classes of Preferences Shares

(a) Cumulative Preference Share

If the company does no earn adequate profit in any year, dividends on preference shares may not be
paid for that year. But if the preference shares are cumulative such unpaid dividends on these shares go
on accumulating and become payable out of the profits of the company, in subsequent years. Only after
such arrears have been paid off, any dividend can be paid to the holder of quality shares. Thus a
cumulative preference shareholder is sure to receive dividend on his shares for all the years our of the
earnings of the company.

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(ii) Non-cumulative preference shares:
In the case of non-cumulative preference shares, the dividend is only payable out of the net
profits of each year. If there are no profits in any year, the arrears of dividend cannot be claimed
in the subsequent years. If the dividend on the preference shares is not paid by the company
during a particular year, it lapses. Preference shares are presumed to be cumulative unless
expressly described as non-cumulative.

(iii) Participating preference shares:

Participating preference shares are those shares which are entitled in addition to preference
dividend at a fixed rate, to participate in the balance of profits with equity shareholders after they
get a fixed rate of dividend on their shares. The participating preference shares may also have the
right to share in the surplus assets of the company on its winding up. Such a right may be
expressly provided in the memorandum or articles of association of the company.

(iv) Non-participating preference shares:

Non- participating preference shares are entitled only to a fixed rate of dividend and do not share
in the surplus profits. The preference shares are presumed to be non-participating, unless
expressly provided in the memorandum or the articles or the terms of issue.

(v) Convertible preference shares:

Convertible preference shares are those shares which can be converted into equity shares within
a certain period.

(vi) Non-Convertible preference shares:

These are those shares which do not carry the right of conversion into equity shares.

(vii) Redeemable preference shares:A company limited by shares, may if so authorized by its
articles issue preference shares which are redeemable as per the provisions laid down in Section
80. Shares may be redeemed either after a fixed period or earlier at the option of the company.

(viii) Guaranteed preference shares:

These shares carry the right of a fixed dividend even if the company makes no or insufficient
profits.

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Difference between Equity shares and Preference shares
Difference Equity shares
Meaning Equity shares are the ordinary
shares of the company
representing the part
ownership of the shareholder
in the company.
Rate of dividend Depend upon the profit,
Fluctuating
Preference right Profit will be received after
preference share holder
Winding up In the event of winding up of In the event of winding up of
the company, equity shares are the company, preference
repaid at the end.
Voting rights Equity shares carry voting
rights.Election of directors etc
Arrears of Dividend Equity shareholders have no
rights to get arrears of the
dividend for the previous
years.
Right to participate in Management and control of
management company
Stock market trade yes
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Preference shares
Preference shares are the
shares that carry preferential
rights on the matters of
payment of dividend and
repayment of capital.
Fixed dividend
profit will be first preferred
shares are repaid before equity
shares.
Normally, preference shares
do not carry voting rights.
However, in special
circumstances, they get voting
rights.
Preference shareholders
generally get the arrears of
dividend along with the
present year's dividend, if not
paid in the last previous year,
except in the case of non-
cumulative preference shares.
No right of interference
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Deferred Shares

Deferred Shares are also called founders Shares. They were used to be issued to the promoters of
the company. Dividend on deferred shares was paid after the claim of all other shareholders has
been met including equity shareholders. The deferred shareholder has one vote. These shares
enabled the promoters to control the working of the company with a very small investment

Terminology

 Shares outstanding are those that are authorized by the government, issued by the company,
and held by third parties. The number of shares outstanding times the share price gives
the market capitalization of the company, which if the trading price held constant would be
sufficient to purchase the company.
 Treasury shares are authorized, issued, and held by the company itself.
 Issued shares is the sum of shares outstanding and treasury shares.
 Shares authorized include both issued (by the board of directors or shareholders) and
unissued but authorized by the company's constitutional documents.

BUY-Back of share :-

 A buyback is repurchase of shares, means company purchase their own shares from
market which in turn reduces the open share in market .

 Reason of Buy- Back of share :-

1 To Increase in the value of share by reducing the supply of share.

2. Eliminate any threats by shareholders who may be looking for a controlling stake.

3.Company always aware that their product , and if they know they are undervalued and
they are certain that company will perform better in next quarter then buy their own
shares at low price and will sell when it is in peak .

4. Comany sometimes Buy back their shares for Compensation purpose , company
reward their employes with stock option after buy back .

Funding of Buy- Back of shares

A company can fund its buyback by taking on debt, with cash on hand or with its cash
flow from operations. So whenever we hear about buy back we must investigate whether
company is buying the share with Debt, which is always alaraming to
the shareholder.So it is always advisable to check why company is buying back its share .

Comapany mostly buy back their shares to send postive sentiment to their shareholder
means they believe in company to such an extent that they are Willing to invest in their
money in buying the share.

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 During Recession , Reliance industry price was very low , mukesh Ambani was aware
that reliance industry will perform way better in future so he spent his own money to buy
huge Reliance shares at very nominal price and made a lot of money .

Example of a Buyback

A company's stock price has underperformed its competitor's stock even though it has had a
solid year financially. To reward investors and provide a return to them, the company announces
a share buyback program to repurchase 10 percent of its outstanding shares at the current market
price. The company had $1 million in earnings and 1 million outstanding shares before the
buyback, equating to earnings per share (EPS) of $1. Trading at a $20 per share stock price,
its P/E ratio is 20. All else equal, 100,000 shares would be repurchased and the new EPS would
be $1.11, or $1 million in earnings spread out over 900,000 shares. To keep the same P/E ratio of
20, shares would need to trade up 11 percent, to $22.22.

'Bonus Share'
Bonus shares are additional shares given to the current shareholders without any additional cost,
based upon the number of shares that a shareholder owns. These are company's accumulated
earnings which are not given out in the form of dividends, but are converted into free shares.

The following conditions must be satisfied, before issuing bonus shares:

(a) It is authorized by its articles;

(b) It has, on the recommendation of the Board, been authorized in the general meeting of the
company;

(c) It has not defaulted in payment of interest or principal, in respect of fixed deposits or debt
securities issued by it;

(d) It has not defaulted in respect of the payment, of statutory dues of the employees, such as,

Contribution to provident fund, gratuity and bonus;

(e) The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;

(f) It complies with such conditions as may be prescribed.

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'Equity Market'

Equity markets are the meeting point for buyers and sellers of stocks.

A equity market, often know as stock market or share market, shares of companies or entities are
issued and traded.

An equity market is a market in which shares are issued and traded, either through exchanges or
over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a
market economy because it gives companies access to capital and investors a slice of ownership
in a company with the potential to realize gains based on its future performance.

The securities traded in the equity market can be either public stocks, which are those listed on
the stock exchange, or privately traded stocks. Often, private stocks are traded through dealers,
which is the definition of an over-the-counter market.

Also known as the stock market, it is one of the most vital areas of a market economy because it
gives companies access to capital and investors a slice of ownership in a company with the
potential to realize gains based on its future performance.

Understanding an Equity

Equity consists of funds that shareholders invest in a company plus a certain amount of profit
earned by them that is retained by the company for further growth and expansion.
Equity is a primary asset class when it comes to investing and diversifying one’s portfolio.
Trading in equity needs in-depth analysis and research of the share market, services that Angel
Broking offers to all of its investors. Additionally, derivatives allow equity to diversify beyond
just shares into securities such as bonds, commodities and currencies.

Trading Equity
Equity may be traded in the primary market, when a company makes an Initial Public Offering
(IPO) and new securities may be bought. Shares that have already been issued are bought and
sold in the secondary market. Investors may also own private equity, that is, shares of a company
that is still private and not listed on the bourses. In order to trade in equities, investors must have
a demat account and trading account, and Angel Broking offers both of these.

Benefits of Equity
One of the benefits of trading in the share market is that investors can become partial owners
of a company. These shares, offered by companies in return for money, are called equities. In the
Indian stock market, equities are available for trading at the National Stock Exchange (NSE)
and the Bombay Stock Exchange (BSE).

An equity market, also known as the stock market, is a platform for trading in company
shares. It is the place where buyers and sellers meet to trade in listed companies. Listed
companies are those entities that have offered some part of their equity to public investors
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 Share market investments, in comparison to other types of assets, have given one of the best
returns during inflation. This enables investors to maintain their current lifestyles without cutting
costs even when the prices of goods are steadily increasing.
 Equity, while being a risky investment, offers higher returns than a savings account or a fixed
deposit because the profit that may be earned is virtually unlimited
 It is possible to minimize risks and maximize profits through the use of equity derivatives,
specifically by trading in the Options market
 Using sound share market knowledge to invest in equity is the key to building a large corpus
for a future financial need, because equity gives high returns in the long run
 Investing in the equity of reputable companies has the added benefit of dividends. Dividends are
payments that shareholders receive from the company’s earnings. While giving them out is not
compulsory, established businesses do pay dividends to increase their shareholder base.

Equity for a Shareholder

Apart from knowing the value of equities in which one has invested, it is also important to know
the value of personal share of equity, which may be calculated by subtracting total liabilities
owed from total assets owned.
Equity = value of assets – value of liabilities

Equity investment returns

Return on equity measures a company’s ability to use its investors’ funds to increase its profit
and earnings. It is important to keep track of equity returns to understand if there are long-term
benefits from investing in a particular company.

Equity Market Procedures

 Trading:
The stock exchanges provide an automated screen-based trading platform that is fully automated
and computerized. The platform is an open trade system where buyers and sellers can see all the
trades and place their orders to suit their personal requirements.

 Clearing and Settlement:

The exchanges clear and settle all the trades that are executed during the trading day. These
exchanges operate well-defined settlement cycles without any deviations and/or deferments from
the procedures. The trades during the trading session are aggregated and positions are netted off
with the objective of determining the liabilities of the trading members. These procedures also
ensure movements of the funds and shares are completed in the right manner. The settlement
cycle adopted by the exchanges operating in the Indian stock market is T+2. This means that all
securities and funds movements are completed two days after Day 1 (which is the day on which
the trades are executed). Under the T+2 cycle, buyers receive credits of the shares in their demat

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 account, and sellers receive the sale proceeds in the bank accounts that are linked to the trading
account within two days.

 Risk Management:
A widely known stock market basic is that investing in the equity market has several risks. The
stock exchanges have developed a comprehensive system for risk management. This system
ensures the investors’ interests and prevents fraudulent activities by the companies. The stock
exchanges constantly upgrade the risk management system to pre-empt market failures and stay
abreast of the changing mechanisms. Some components of the risk management system include
margin requirements, pay-ins, and voluntary close-out facilities, and liquid assets.

Equity market investing can help investors meet their future financial requirements by beating
the rising prices due to inflationary pressures. Understanding the stock market basics and
learning more about the market and its regulation, and following a disciplined approach to share
market investment can provide huge returns in the long run.

Types of Equity Markets

1.Primary Market:
Every company that proposes to go public must come out with an initial public offering (IPO).
During the IPO, the company offers a certain portion of its equity to the public. After the closing
of the IPO, the shares are listed on one of the stock exchanges, which are an important
component of the stock market. The primary exchanges in India are the National Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE).

Primary Market, also called the New Issue Market, is the market for issuing new securities.
The main players of these markets are the private and public companies that offer equity or debt
based securities such as stocks and bonds in order to raise money for their operations such as
business expansion, modernization and so on.
They sell their securities to the public through an Initial Public Offering (IPO). The securities
can be directly bought from the shareholders, which is not the case for the secondary market. The
primary market is a market for new capital that will be traded over a longer period. Here the
securities are issued on an exchange basis.
A Primary Market is not inclusive of sources, from where companies can generate external
finance over a long term, such as loans provided by financial organizations. Through these
markets, companies can also go public, which means changing private capital to public
capital.
Many companies have entered the primary market to earn profit by converting their capital,
which is basically a private capital, into a public one, releasing securities to the public.

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2.Secondary Market:
After the listing of the IPO shares, these are traded on the secondary market. This platform offers
the initial investors an option to exit their investments. In addition, investors who failed to
procure shares during the IPO can purchase these from the secondary market. Trading in the
Indian stock market is commonly done through brokers. The brokers act as intermediaries
between the stock exchanges and the investors.

step 1: Hire an investment bank

A company seeks guidance from a team of under-writers or investment banks to start the process
of IPO. More often than not, they take services from more than one bank. The process begins
with nominating merchant banker or investment banker represented by them known as Book
running Lead Manager (BRLM)

Step 2: Register with SEBI

The Company and the under-writers together file the registration statement which comprises of
every fiscal data and business plans of the company. It will also have to declare how the
Company is going to utilize the funds it will raise from the IPO and about the securities of public
investment.
If the registration statement has compliance to the stringent guidelines set by the SEBI, which
ensures that the company has disclosed every detail a potential investor should know, then it gets
a green signal.
Else it is sent back with comments. The company should then work on the comments and file for
registration again.

Step 3: Draft the Red Herring document

An initial prospectus which contains the probable price estimate per share and other details
regarding the IPO is shared with the people who are involved with the IPO. It is called a red
herring document because the first page of the prospectus contains a warning which states that
this is not a final prospectus. This phase tests waters for the IPO among the potential investors.

Step 4: Go on road show

Before the IPO goes public, this phase happens over an action-packed two week. The executives
of the Company travel around the country marketing the upcoming IPO to the potential
investors, mostly QIBs. The agenda of the marketing includes presentation of facts and figures,
which will drum up the most positive interest.

5: IPO is priced

Based on whether company wants to float a fixed price IPO or Book Building Issue, the price or
price band is fixed. A fixed price IPO will have a fixed price in the order document, and the book
building issue will have a price band within which an investor can bid. Number of shares that

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 will be sold is decided. The Company should also decide the stock exchange where it be going to
list their shares. The Company asks the SEC to announce the registration statement effectual so
that purchases can be made.

Step 6: Available to public

On a planned date, the prospectus and application forms are made available to public online and
offline. People can get a form from any designated banks or broker firms. Once they fill in the
details, they can submit them with a cheque. Or they can submit it online as well. SEBI has fixed
the period of availability of an IPO to public, which is usually 5 working days.

Step 7: Going through with the IPO

After the IPO price is finalized, the stakeholders and under-writers work together to decide how
many shares will every investor receive. Investors will usually get full securities unless it is
oversubscribed. The shares are credited to their demat account. The refund is given if the shares
are oversubscribed. Once the securities are allotted, the stock market will start trading the
Company’s IPO.

Book Building process

It is a process used in IPOs for efficient price discovery. The price at which securities would be
offered is not known initially. It is known only after the closure of the book building process. It
is a common method of marketing of new issues in several developed countries. In book building
method, the market discovers the price instead of the company determining the price

Characterstics of Book building;

 Tendering process
 Floor price : minimum price level
 Price Band: lower price and higher price
 Bid: Application forms, Allotment ,participants

STEPS INVOLVED IN BOOK BUILDING PROCESS

The following are the steps involved in book building:

i. Appointment of book runner.

ii. Advertisements.
iii. Members bid.
iv. Issue of Red herring Prospectus.
v. Issue of Draft Prospectus to institutional buyers.
vi. Analysis of bids.
vii. Firming cf underwriting contracts.
viii. Submission of prospectus to the ROC (Registrar of Companies)

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ix. Collection of application forms with money.
x. Allotment of securities.
Important points in book building process:
1. The Issuer who is planning an offer nominates lead merchant banker(s) as ‘book runners’.

2. The Issuer specifies the number of securities to be issued and the price band for the bids.

3. The Issuer also appoints syndicate members with whom orders are to be placed by the
investors.

4. The syndicate members put the orders into an ‘electronic book’. This process is called
‘bidding’ and is similar to open auction.

5. The book normally remains open for a period of 5 days.

6. Bids have to be entered within the specified price band.

7. Bids can be revised by the bidders before the book closes.

8. On the close of the book building period, the book runners evaluate the bids on the basis of
the demand at various price levels.

9. The book runners and the Issuer decide the final price at which the securities shall be issued.

10. Generally, the number of shares is fixed; the issue size gets frozen based on the final price
per share.

Demat account

Demat Account or dematerialised account provides facility of holding shares and securities in
electronic format. During online trading, shares are bought and held in a Demat account, thus
facilitating easy trade for the users. A Demat Account holds all the investments an individual
makes in shares, government securities, exchange-traded funds, bonds and mutual funds in one
place.

Dematerialisation

Dematerialisation is the process of converting the physical share certificates into electronic form,
which is a lot easier to maintain and is accessible from anywhere throughout the world. An
investor who wants to trade online needs to open a Demat with a Depository Participant (DP).

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The purpose of dematerialisation is to eliminate the need for the investor to hold physical share
certificates and facilitating a seamless tracking and monitoring of holdings.

Facilities offered by a Demat Account

 Transfer of shares
A Demat Account is used to transfer share holdings of an investor. It can be done by
using a Delivery Instruction Slip (DIS) in order to conduct share trading. You can
provide all the relevant details in this slip for smooth execution of a transaction.

 Loan facility
The securities held in your Demat Account can give you access to a variety of loans from
the bank. You can pledge these securities as a collateral to secure a loan from your bank.

 Dematerialization & rematerialization

If you have a Demat Account, then conversion of the securities into different forms
becomes a simple task. You can give necessary instructions to your depository participant
(DP) for dematerialisation i.e. to get the physical share certificates converted into
electronic form. Conversely, you can get the electronic securities converted back to the
physical form as per your requirements.

 Multiple access options

Owing to electronic operation, a Demat Account can be accessed using numerous media.
You can conduct investing, trading, monitoring and other security related operations
using facility of the Internet on a computer, smartphone, or other handheld devices.

 Corporate actions
Having a Demat Account can help you avail benefits associated with owning securities.
Whenever a company provides dividends, interest or refunds to its investors, all the
Demat account holders get access to these benefits automatically. Additionally, corporate
actions related to equity shares like stock split, right shares or bonus issue is updated in
the shareholders’ Demat Accounts.

 Freezing Demat accounts

Demat account holders have the option to freeze their accounts for a specific duration, as
per the requirement. It is done to avoid any unpredicted debit/credit into the Demat
Account. To avail the freezing option, the account holder needs to hold a specific
quantity of securities in his/her account.

 Speed E-Facility
The National Securities Depository Limited (NSDL) keeps extending various facilities
for the Demat account holders. Instead of physical submission of the slip, the account
holder may send instruction slips electronically to the depository participant. It is done to
make the process faster and less cumbersome.

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How to open a Demat Account?
You can open a Demat Account by following these easy steps:

 Firstly choose a Depository Participant (DP) with whom you would like to open a Demat
Account.
 Afterwards, fill an account opening form and attach a passport-sized photograph along
with photocopies of the required documents stating proof of address and identity. You
should have a PAN card unless otherwise exempted. Remember to carry the original
documents along for verification.
 The DP will give you a copy of the rules and regulations, the terms of the agreement and
necessary charges that you need to pay.
 During an In-Person Verification, a representative of the DP would contact you to verify
the details provided in the account opening form.
 After processing of the application, you will get an account number/ client ID from the
DP. These details will be required to access Demat Account online.
 When you become a demat account holder, you would be required to pay an annual
maintenance fee for maintenance of your account. Additionally, you would be charged a
transaction fee for conducting buying/selling transaction via the Demat Account. In case
your shares are in physical form, the DP may charge you a separate fee for
dematerialisation of the shares.
 You can open a Demat Account without having any shareholdings. Moreover, there’s no
mandate to maintain a minimum balance.

Benefits of a Demat account

 Lower risks:

Physical securities are risky due to thefts, losses, or damages. In addition, bad deliveries
or fake securities pose further risks. These risks are completely eliminated with the
opening of a Demat account, which provides holders with the option of holding all their
investments in electronic form..

 Easy holding:

Maintaining physical certificates is a tedious job. Moreover, keeping track of their

performance is an added responsibility. Demat account holders can make it more
convenient to hold and track all their investments through a single account.

 Odd lots:

With physical certificates, buying and selling were possible only in the specified
quantities. The convenience of dealing with odd lots or single security was also not
available. Demat accounts eliminate this issue.

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  Reduced costs:

Physical certificates involved several additional costs, such as stamp duty, handling
charges, and other such expenses. These extra expenses are completely eliminated with
Demat accounts.

 Reduced time:

Due to the elimination of paperwork, the time required in completing a transaction gets
reduced. The reduced time requirement enables the account holder to make more
purchases and sales of security holdings in a shorter time and with greater efficiency.

Depository

A depository is an organisation which holds securities (like shares, debentures, bonds,

government securities, mutual fund units etc.) of investors in electronic form at the request of the
investors through a registered depository participant. It also provides services related to
transactions in securities.

Services provided by Depository

 Dematerialisation (usually known as demat) is converting physical certificates of Securities

to electronic form
 Rematerialisation, known as remat, is reverse of demat, i.e. getting physical certificates from
the electronic securities
 Transfer of securities, change of beneficial ownership
 Settlement of trades done on exchange connected to the Depository
 Pledging and Unpledging of Securities for loan against shares
 Corporate action benefits directly transfer to the Demat and Bank account of customer.

Depository Participant

Depository Participant (DP) is described as an Agent of the depository. They are the
intermediaries between the depository and the investors. The relationship between the DPs and
the depository is governed by an agreement made between the two under the Depositories Act.

Depository System in India Multi-Depository System:

The depository model adopted in India provides for a competitive multi-depository system.
There can be various entities providing depository services. A depository should be a company
formed under 4 the Company Act, 1956 and should have been granted a certificate ofregistration
under the Securities and Exchange Board ofIndia Act, 1992. Presently, there are two depositories
registered with SEBI, namely:

 National Securities Depository Limited (NSDL),

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  Central Depository Service Limited (CDSL)

Depositories in India

At present there are two depositories in India,

National Securities Depository Limited (NSDL) and Central Depository Services (CDS).

NSDL is the first Indian depository; it was inaugurated in November 1996. NSDL was set up
with an initial capital of US$28mn, promoted by Industrial Development Bank ofIndia (IDBI),
Unit Trust ofIndia (UTI) and National Stock Exchange of India Ltd. (NSE). Later, State Bank
ofIndia (SBI) also became a shareholder.

The other depository is Central Depository Services (CDS). It is still in the process of linking
with the stock exchanges. It has registered around 20 DPs and has signed up with 40 companies.
It had received a certificate of commencement ofbusiness from SEBI on February 8,1999. These
depositories have appointed different Depository Participants (DP) for them. An investor can
open an account with any of the depositories5 DP. But transfers arising out of trades on the stock
exchanges can take place only amongst account-holders with NSDL’s DPs. This is because only
NSDL is linked to the stock exchanges (nine of them including the main ones-National Stock
Exchange and Bombay Stock Exchange)

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 Exchanges act as the clearinghouse for every transaction which means that they collect and
deliver the shares, guaranteeing payment to the sellers.

 NYSE: A history of the New York Stock Exchange.

 SEC: The official website of the US Securities and Exchange Commission.
 NASDAQ: The largest electronic-based stock exchange in the United States.
 CBOE: The largest options exchange in the world.

Here’s a glossary of stock market terms, suitable for beginners just learning how to pick stocks.

After-hours Deal: The stock market usually closes at 4:00pm. After this scheduled time, deals
can also be made but the transaction is dated the next day, known as an after-hours deal.

Annual Report: An audit report to shareholders produced yearly. This report of stock market
news is produced by all publicly quoted companies.

Balance Sheet: The financial statement which shows the liabilities and assets of a company.

Bargain: Regarding sale or purchase in the stock market, bargain is a common word.

Bearer Stocks: This is the stock that is unregistered with the owner’s name.

Bed and Breakfast Deal: This refers to the sale of share and repurchase on another day. It’s done
to set up profit or loss for the purpose of tax.

Bid Price: This term indicates the sale price of stocks or shares.

Blue Chip: These are shares of big and reputed companies.

Book Value: The net worth of the company as listed on the balance sheet.

Bull: A person who considers the share price of the stock exchange to be on the rise.

Call: An extra installment due on shares.

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Capital: The amount of money used for setting up a new business.

Cash Settlement: In the stock exchange, there are certain deals like Gilts which are rendered for
cash and not for account settlement. They are settled the next day of the deal.

Contract Note: This is a printed confirmation letter from any broker indicating a bargain which is
carried out.

Coupon: Refers to interest amount payable only for fixed interest stock.

Cum Dividend: These are shares that are sold, allowing the buyer to receive the
following dividend.

Dawn Raid: Refers to the buying of a huge amount of shares in the morning at the opening of
stock market.

Dealing: This means the purchase and sale of shares.

Debenture: The stock that a company issues which are backed by assets.

Depreciation: The amount of money set aside for replacement of the assets.

Dividend: The part of the company’s profits which is usually distributed to company’s
shareholders, normally on regular basis.

Equities: These are the ordinary shares. They are different from debenture and also from loan
stock.

Ex-dividend: The share which is bought without any right for receiving the next dividend. This is
usually retained by sellers.

Final Dividend: This is the dividend which is declared according to the company’s annual
results.

Financial Ratio: Various ratios that indicate the health of a business and value in the stock.

Futures: Contracts that allow any holder the legal right to buy or sell Indexes and Commodities
in the future at a price set today.

Gross: The interest paid without deducting of tax.

Hedge: This means to insure the risk.

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Initial Public Offering: The issue of new shares by a previously private company as it becomes a
public company.

Limit Order: This is an order to any stockbroker specifying any fixed price limit.

Liquidation: Converting the prevailing assets to cash.

Loan Stock: The stock that bears a fixed interest rate. It’s different from debenture stock because
it’s not required to be secured by any asset.

Options: The term means the right to purchase (call option) and sell (put option) a particular
share at a particular price within a particular period.

Ordinary Share: This is a share where the dividends usually vary in the amount.

Over the Counter Market (OTC): Refers to a marketplace outside the main stock market.

Portfolio: A selection of shares usually held by a person or fund. Also known as investment
portfolio or a stock portfolio

Proxy: Anybody who votes on another person’s behalf if the person is unable to attend a
shareholders’ meeting.

Stock: Also referred to share or equity, stock is the basic ownership unit of a company.

Stock Warrants: An instrument that conveys the right to buy additional stock within a fixed time
period at a set price. Warrants differ from stock options in the way they are exercised.

Value Stocks: Stocks that appear to be trading at a discount to their intrinsic worth, as measured
by various different valuation metrics.

Yearlings: Bonds issued for twelve-month term, mainly by local authorities.

Yield: The gross dividend presented as the percentage of the share price.

More definitions

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