Sensex

•  It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. • These companies account for around onefifth of the market capitalization of the BSE. • The base value of the sensex is 100 on April 1, 1979, and the base year of BSESENSEX is 1978-79

• Launched on full market capitalization method and from September 01, 2003, calculation method shifted to free-float market capitalization. • The free-float method, therefore, does not include restricted stocks, such as those held by promoters, government and institutional investors

TOP 10 companies(M.cap)

Diff index on BSE

Some more terms..
• • • • Bull run Bear market Short selling Beta of a stock

ADR(Indirect method)
An American Depositary Receipt (or ADR) represents ownership in the shares of a non-U.S. company and trades in U.S. financial markets. ADRs enable U.S. investors to buy shares in foreign companies without the hazards or inconveniences of crossborder & cross-currency transactions. First introduced by the investment house of JP Morgan in 1927

Each ADR is issued by a U.S. depositary bank The price of an ADR often tracks the price of the foreign stock in its home market, adjusted for the ratio of ADRs to foreign company shares A United States bank or investment institution places a certain amount of stock of a foreign company into its vaults - the "depositary" part of the name - then allows investors to buy shares in that collection of stocks, priced in US dollars.

ADRs carry prices in US dollars, pay dividends in US dollars JPMorgan, Citibank, Deutsche Bank and the Bank of New York Mellon Example- ICICI bank ADR, INFOSYS ADR, MTNL ADR  Satyam ADR went down by 90% after disclosure

GDR
• A Global Depository Receipt is a certificate issued by a depository bank(US), which purchases shares of foreign companies and deposits it on the account. • Global Depository Receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets

Contd..
• GDRs are often listed in the Luxembourg Stock Exchange and in the London Stock Exchange, where they are traded on the International Order Book (IOB) • Normally 1 GDR = 10 Shares, but not always

What is the difference between ADR and GDR?
• The only difference is the location where they are traded. • If the depository receipt is traded in the United States of America (USA), it is called an American Depository Receipt, or an ADR. • If the depository receipt is traded in a country other than USA, it is called a Global Depository Receipt, or a GDR.

QIP
• Qualified institutional placement (QIP) is a capital raising tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants, which are convertible into equity shares, to a qualified institutional buyer (QIB). • Apart from preferential allotment, this is the only other speedy method of private placement for companies to raise money.

QIP contd……..
• It scores over other methods, as it does not involve many of the common procedural requirements, such as the submission of pre-issue filings to the market regulator.  • To enable listed companies raise money from domestic markets in a short span of time, market regulator Sebi introduced the concept of QIP in 2006.

QIP CONTD………
• This was also done to prevent listed companies in India from developing an excessive dependence on foreign capital.  • Prior to introduction of QIPs, the complications associated with raising capital in the domestic markets had led many companies to look at tapping overseas markets via foreign currency convertible bonds (FCCB) and global depository receipts (GDR)

QIB
• Public financial institution • Scheduled commercial banks; •  Mutual funds; Foreign institutional investor registered • with SEBI; • Foreign Venture capital investors registered with SEBI. Insurance Companies registered with the • Insurance Regulatory and Development Authority (IRDA). • Provident Funds with minimum corpus of Rs.25 crores •  Pension Funds with minimum corpus of Rs. 25 crores

FCCB
• A type of convertible bond issued in a currency different than the issuer's domestic currency.   • In other words, the money being raised by the issuing company is in the form of a foreign currency. • A convertible bond is a mix between a debt and equity instrument. • It acts like a bond by making regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.

Contd….
• Companies with FCCBs maturing in the next one or two years are now in a tight spot, especially so for companies whose stock prices have fallen way below the conversion prices originally fixed. Take the case of Tata Motors. For 11,760 million yen worth FCCBs maturing in March 2011, the conversion price has been set at Rs 1,001. But the stock currently trades at Rs 600.

Contd……
• While companies whose FCCBs mature twothree years down the line can expect the markets to rebound, others such as Wockhardt, whose FCCBs worth $110 million (Rs 517 crore) mature in October 2009 do not have the luxury of time. • Its shares now trade at Rs 104 as against its FCCB conversion price of Rs 486, virtually ruling out the possibility of conversion

• Generally the conversion to equity takes place after completion of the project for which the funds are raised through the FCCB route • The conversion prices for most of the FCCBs were agreed upon years back when the market was experiencing a bull-run. As a result of the steep fall in share prices, the rates are not attractive enough for investors to exercise the conversion. Hence the issuing companies have to find ways to finance the repayment of these bonds.

Why company issue FCCB?
• It may appear to be more stable and predictable than their domestic currency • Companies can use the process to break into foreign markets

Pledged shares
If you wish to take a loan from a Bank against the security of your physical share, the certificate must be physically lodged with the Bank. This action is called a Pledge.. • Most companies have pledged their shares as collateral to raise working capital or a term loan, to increase their holding or to fund an acquisition as a multinational had done to buy an Indian company •

Contd…
• If the company’s share price goes down below a certain level, the company will have to make immediate payment in whole or part, or pledge more shares. If the company cannot do this, the bank will sell the shares and recover that much money. • This is why usually only 50-60% of share value is given as loan against securities

Pledged shares contd…
• Capital markets regulator Securities and Exchange Board of India (Sebi) has made it mandatory for promoters to disclose details of shares pledged by them in their listed entities • Aban Offshore promoters pledged 30.8 lakh shares representing 8.14 per cent of the value of the total paid-up equity capital.

• In Bear market, stocks sometimes suddenly lose even 50% of value in few sessions. Lenders may ask promoters to cover margins by either paying money or pledging more shares. • If promoters failed to do so, lenders resort to selling of shares in the open market which lead to

Why investors should be careful with promoter pledging?

Hedge funds

Hedge funds contd…..
• Estimated to be a $1 trillion industry and growing at about 20% per year with approximately 8350 active hedge funds. • Includes a variety of investment strategies, some of which use leverage and derivatives while others are more conservative and employ little or no leverage. Many hedge fund strategies seek to reduce market risk specifically by shorting equities or through the use of derivatives.

Contd…….
• Many hedge fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets. • Inclusion of hedge funds in a balanced portfolio reduces overall portfolio risk and volatility and increases returns. • Huge variety of hedge fund investment styles – many uncorrelated with each other – provides investors with a wide choice of hedge fund strategies to meet their investment objectives.

Contd……
• What are hedge funds? These funds, like mutual funds, collect money from investors, and use the money to buy stocks and bonds • A hedge fund may take long positions in certain stocks, and short positions in certain other stocks such that their portfolio beta is close to zero. A beta close to zero means that the portfolio will remain relatively unchanged due to the broad market movement. Such a portfolio will primarily change if the stocks move more than the broad market.

Contd…
• consider, for instance, Hero Honda and Bajaj Auto. The hedge fund may buy Bajaj Auto and short Hero Honda, such that the portfolio beta is close to zero. Suppose Bajaj Auto moves up by 10 per cent, and Hero Honda and the broad market move up by 7 per cent. The fund's net gain is 3 per cent. • The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.

High net worth individual
• A high net worth individual (HNWI) is a person with a high net worth In the private banking business, these individuals typically are defined as having investable assets (financial assets not including primary residence) in excess of US$1 million • ultra-HNWIs as those who hold at least US$30 million in financial 

CRR
• Cash Reserve Ratio is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes • Currently it is – 5% • It can’t go below 3 as per RBI guidelines. • 100 basis point reduction infuses 40000 crore into the market

Statutory Liquidity Ratio
• SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. • SLR at present is 24

Repo rate and reverse repo rate
• At present repo rate -4.75 • Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive

Reverse repo rate
• Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest • At present Reverse repo rate- 3.25

Commodity market
• Headquartered in the financial capital of India, Mumbai, Multi Commodity Exchange of India Ltd (www.mcxindia.com) is a demutualised nationwide electronic commodity futures exchange set up by Financial Technologies (India) Ltd. with permanent recognition from Government of India for facilitating online trading, clearing & settlement operations for futures market across the country

• Monday to Friday • 10.00am to 5.00pm All commodities launched by MCX • Monday to Friday 5.00pm to 11. 55pm (Winter) All commodities except agri • 5.00pm to 11.30pm (Summer) commodities and Sponge Iron. • Saturday 10.00am to 2.00pm All commodities launched by MCX

• Long Position: Taking a long position is buying a contract. • Short Position: Taking a short position is selling a contract.

Shareholders of MCX
• Key shareholders of MCX are Financial Technologies (India) Ltd., State Bank of India, NABARD, NSE, HDFC Bank, State Bank of Indore, State Bank of Hyderabad, State Bank of Saurashtra, SBI Life Insurance Co. Ltd., Union Bank of India, Bank Of India, Bank Of Baroda, Canara Bank, Corporation Bank

Participatory notes
• PNs are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India. • Hedge funds, which invest through participatory notes, borrow money cheaply from Western markets and invest these funds into stocks in emerging markets.

Unit Linked Insurance Polices
• A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs.

Contd…..
• In ULIPs, a part of the investment goes towards providing you life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund opted by you.

Contd……
• Simply put, ULIPs are structured in such that the protection element and the savings element are distinguishable, and hence managed according to your specific needs. In this way, the ULIP plans offers unprecedented flexibility and transparency.

Benefits with ULIPS
• • • • Flexibility Transparency  Goal Based Savings  Tax Benefits

Is investment return guaranteed in ULIPs?
• Investment returns from ULIP may not be guaranteed.” the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

Treasury bills
• Treasury Bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price • Minimum Amount Of Bids for treasury bills are to be made for a minimum amount of Rs 25000/- only and in multiples thereof

Contd..
• All the treasury Bills are highly liquid instruments available both in the primary and secondary market. • The auction of treasury bills is done only at Reserve Bank of India, Mumbai.

Govt. and Corporate bonds
• A bond, whether issued by a government or a corporation, has a specific maturity date, which can range from a few days to 20-30 years or even more. • Bonds have a fixed face value, which is the amount to be returned to the investor upon maturity of the bond. 

• During this period, the investors receive a regular payment of interest, semi-annually or annually, which is calculated as a certain percentage of the face value and know as a 'coupon payment • Banks are the largest investors in the bond market. In the low-interest scenario that prevailed, it made more sense for banks to invest in government bonds than to give out loans.

Currency market
• Its trading volumes,($4 trillion) • The extreme liquidity of the market • Its long trading hours: 24 hours a day except on weekends • The low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes) • There are three exchanges which trade in currency in India– NSE, MCX and BSE, with a 4th exchange, 

• Yes, to a certain extent the forex market is a bit more complex because rather than company related news, economic factors affect this market more • Moreover, you have to deal in pairs when you trade in forex – you have to buy a certain currency and at the same time sell another currency, which people find complex

•  This market is also very transparent and there is no insider information about currency market for anybody to take advantage of. • This market is greatly influenced by macro and micro economic factors of a country. Economic factors such as GDP, interest rates, employment news, FII and FDI investments, weather information, crop information and consumer confidence among others have a great impact on the currency market. 

• Trading on exchanges to hedge currency risk is particularly beneficial to SMEs because the lot size here is only USD 1000  • FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another

• According to the Bank for International Settlements, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion • Traders include large banks, central banks, currency speculators,corporations, govern ments, and other financial institutions

• Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.36 trillion, or 34.1% of the total, making London by far the global centre for foreign exchange. In second and third places respectively, trading in New York accounted for 16.6%, and Tokyo accounted for 6.0%.[

Private equity
• Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange • Returns on private equity generally occur in three ways: a merger or sale, an initial public offering, or a recapitalization

• Private equities are generally illiquid and thought of as a long-term investment. Private equity investments are not subject to the same high level of government regulation as stock offerings to the general public. • Capital for private equity is raised primarily from institutional investors. • As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace

Venture capital
•  Refers to equity investments made, typically in less mature companies, for the launch, early development, or expansion of a business. Venture investment is most often found in the application of new technology, new marketing concepts and new products that have yet to be proven

Contd……..
comes from institutional • Venture capital investors and high net worth individuals and is pooled together by dedicated investment firms • In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions,

Contd…….
• Young companies wishing to raise venture capital require a combination of extremely rare yet sought after qualities, such as innovative technology, potential for rapid growth, a well-developed business model, and an impressive management team. VCs typically reject 98% of opportunities presented to them, reflecting the rarity of this combination.

Large,Mid & Small cap
• Mid caps-A company with a market capitalization between $2 and $10 billion (mid cap) • Large caps-A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization“ like infosys,

chip-A nationally recognized, well• Blue established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth

Contd……
• Small cap-The definition of small cap can vary among brokerages, but generally it is a company with a market capitalization of between $300 million and $2 billion.

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