STOCK MARKET BASICS

By Arun Kumar Raghavan Aarthi

PRIMARY AND SECONDARY MARKET

Primary Market
Part of the capital markets that deals with the issuance of new financial instruments. New stock issue is Initial Public Offering (IPO) and Follow on Public offer (FPO) Crucial function of facilitating capital formation in the economy.

Secondary Market
Financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. The major stock exchanges are the most visible example of liquid secondary markets.

STOCK & STOCK MARKET

Stock equity stake of its owners. Common Stock and Preferred stock. Stock Market Public entity for the trading of stock at an agreed price. Purpose Place to raise funds for companies. Raising additional capital for companies by selling minority stake. Indicator for countrys economic growth and development.

FACTS ABOUT STOCK EXCHANGE

Dutch East India Company issued the first shares that were made tradeable on the Amsterdam Stock Exchange. Total value of world equities was $54.57 trillion as on Dec 2012. The first stock ticker was invented by Edward A. Calahan in 1867. The NYSE is the worlds largest in both market capitalization and trade value, featuring over 8,000 listed issues. The oldest and most international is the London Stock Exchange featuring 3,000+ companies from 70 different countries.

STOCK EXCHANGES IN INDIA

BSE Bombay Stock Exchange

Dalal Street, Mumbai. Popular Index is Sensex 30 stocks Oldest Exchange in India(137 years). 10th largest in world by market capitalization. Worlds No 1 by no of shares listed in Exchange.

NSE National Stock Exchange

Mumbai Popular Index is Nifty 50 stocks 11th largest in world by market capitalization. 1st in India by daily turnover and no of trades.

REGULATOR SEBI (SECURITIES AND EXCHANGE BOARD OF INDIA)

Established under Section 3 of SEBI Act, 1992. U K Sinha, Chairman. SEBI takes care of Participants:

Issuers of securities Investors Market intermediaries

SEBI Members
Chairman nominated by Union Government of India. 2 officers from Union Finance Ministry. One member from Reserve Bank of India. 5 members nominated by Union Government of India.

IPO PROCESS

PARTICIPANTS IN STOCK MARKETS

Issuer of Securities (Financial Instrument)

Companies, Government, etc

Investors
Individuals Foreign Institutional Investor (FII) Domestic Institutional Investor (DII) Mutual Fund, Investment Companies like TVS Capital, etc.

Market intermediaries

Registered Brokers example: HDFC Securities, SBI caps, Axis direct, Sharekhan, Kotak Securities, etc.

PREREQUISITES FOR TRADING

Depository Account or Demat Account

Which holds the stocks and other securities in electronic form.

An account with a broker that enables an individual or other party to buy and sell securities.

Trading Account

Cash

HOW TRADING HAPPENS?

Stock Exchange NSE / BSE

Electronically
Stock Broker Electronically or Over Phone Individual

Electronically
Stock Exchange Member

KINDS OF TRADING

Intra-day Trading

Buy and Sell on the same day. Sell and Buy on the same day. Trading can done by having margin money. Brokerage is less.

Delivery based Trading

Buy and sell on different days. Brokerage is higher than intra-day. T+2 days for settlement. Trading can be done only if you have cash for the total amount of trading value.

ANALYSIS OF COMPANY

Fundamental Analysis
Analyzing based on the fundamentals of the company which includes financial strength, management, competitors and markets. Top Down Analysis Bottom Up Analysis

Technical Analysis
Methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Principles: Price move in trends and History tends to repeats itself.

Q&A

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