EQUITIES

Topics

STOCK MARKETS INDIAN STOCK MARKETS INVESTMENT IN STOCKS

Is this how you feel???

WHAT IS AN EQUITY / SHARE ? HOW SHARES ARE TRADED

WHAT IS an EQUITY, SHARE or STOCK ?

STOCKS

Stocks or Shares represent the ownership of a company in proportion to stocks or shares held Stock represents a claim on the company's Assets , Earnings and have Voting Rights Holding a company's stock means that you are one of the many owners

FEATURES

Entitled to a portion of the companys profits and have a claim on assets

Claim on profit Dividend, if paid out Claim on Asset Residual claim if business is liquidated

Limited liability

Liability limited to amount paid to buy stocks

Tradability

Stock are tradable at recognised stock exchanges through its members (Stock Brokers)

WHY we NEED STOCK MARKETS?

Capital Requirement of a Company: LONG TERM

Sources of New Capital for companies

Requirements of Capital Providers:??? SHORT TERM / MEDIUM TERM / LONG TERM

Investors can convert their stock into cash

STOCK EXCHANGE
A common place for buyer and sellers

WHY DOES a COMPANY ISSUE STOCKS ?

Why would the Promoters share the profits with thousands of people when they could keep profits to themselves? The reason is that company needs to raise money. Companies can either borrow it, DEBT FINANCING or raise it by selling part of the company, EQUITY FINANCING

WHAT is the DIFFERENCE BETWEEN BANKING SYSTEM and CAPITAL MARKETS?

Equity Issuance

In practice a company offers its shares to several interested participants; institutions and individuals When a company issues its equity for the first time (through Initial Public Offer) it decides on offer price Post listing, at stock exchanges participants decide the price. market

WHAT is an IPO?

AN EXAMPLE

The Aditya Birla-owned Idea Cellular, entered the capital market on Feb 12 with an initial public offering (IPO) aggregating Rs. 2,125 crore of equity shares of Rs. 10 each for cash at a premium to be decided through the 100 per cent book-building process The price band for the issue was fixed between Rs 65 and Rs 75 per equity share Shares were issued at Rs.75 and listed at NSE and BSE now trading at Rs.90 per share

Listing of Securities
A security is said to be listed when, at a stock exchange, it is added to the list of securities in which trading is permitted

WHAT are the ADVANTAGES of LISTING?

FOR CAPITAL PROVIDERS : Ready marketability and liquidity Ensure proper supervision and control in dealing Protect the interest of shareholders FOR COMPANIES : Cost-effective access to capital The highest visibility and the fairest pricing

WHAT are PRIMARY MARKETS and SECONDARY MARKETS?

Primary and Secondary Market

The primary market is where securities are created (by means of an IPO) In the secondary market, investors trade previously-issued securities without the involvement of the issuing-companies

When we talk about markets we refer to secondary market

WHAT is the REGULATORY STRUCTURE ?

Ministry of Finance

SEBI
Stock Exchange Broker Advisor

WHAT are MARKET ACTIVITIES?

Market Place

The purpose of a stock market is to facilitate the exchange of securities between buyers and sellers Interactive ,Information driven and Volume driven Stocks are held and traded in Demat form Tech savvy & Screen based trading Expanding product range Advanced settlement and regulatory mechanism in place Major Stock Exchanges are BSE

NSE

Market Activities

Normal working hours 9.15 am to 3.30 pm, Monday to Friday Buying and Selling of stocks during this period moves price up or down When we talk about markets are up or down we refer to market indices

HOW SENSEX and NIFTY INDICES are CALCULATED?

Some Indices -BSE

Sensex

Seen as barometer of Indian Capital Market Comprises of 30 high market cap / liquid stocks Free Float based calculation
Broad based index of 100 stocks Stocks inclusion based on market activity and industry representation.

BSE-100

Some Indices - NSE

S&P CNX Nifty

Index of well diversified 50 stocks Benchmark for index funds and index based derivatives Market Cap based calculation

CNX IT: Index of IT companies BANK NIFTY: Index of Banking Companies

HOW EQUITY SHARES are TRADED?

Bank A/c

DEMAT

BUYER

BROKER
STOCK EXCHANGE

SELLER

BROKER
Cash

Bank A/c

DEMAT

Shares

The process is not that Easy !

Market liquidity may not be there Large spread in Bid and Ask Impact cost Required quantity is not available to buy / sell Buyer has bought the shares but delivery is not available or vice-versa

BID and ASK for TAJGVK

Order Book Buy Qty 100 100 50 Buy Price 183.3 183.25 183.2 Sell Price 184.4 184.45 184.5 Sell Qty 22 50 26

100 300

183.15 183

184.75 184.9

1 5

7522

Total Buy Qty

Total Sell Qty

5839

Depository

Shares held in Demutualization form. Transferred in electronics forms. Two types of depositories.

NSDL CDSL

DP With POA and without POA.

DP with POA means investors gives right to its trading member to settle their trades on behalf of him. DP without POA means Investors have to give DIC slips at time when he sold his scrips. Please refer to Statement -1.

Share transfer process

Off- Market Transfer- Transaction take place between same depository. Inter depository Transfer Transaction takes place between two different depository.

LEDGER & BILLING

Ledger Statement of a/c which reveals the daily transaction of the clients. Billing Confirmation of all trades relating gross purchase and gross sale from exchange. Timing between 4:30 to 5:30. Please refer statement -2

Auction and Short Delivery

Auction- Initiated by exchange on behalf of Trading Member.

Suppose Mr. A place buy order for 1000 share of TISCO at 11:22:01 for Rs 450 per share and Mr. B places a sell order for 2000 share of Tisco at 11:22:05 for 455 per share. Assume that no other order were available in the system . Mr. B sold extra 1000 share and he have no delivery . Auction Takes Place on T+ 3 days Close Out on T+ 5 Days

Auction Calculated:
The closing price of TISCO on 21st March= 455 Last traded price of TISCO = 450 The Previous day close price on 23rd March = 465. The difference between the closing price on 21st March and Previous close price is Rs 10. Suppose price band of auction is (-/+ 15%). = 465 * 1.15 = 535 Penalty paid by MR. B

Short Delivery
Suppose Mr. A place buy order for 1000 share of TISCO at 11:22:01 for Rs 450 per share and Mr. B places a sell order for 500 share of Tisco at 11:22:05 for 455 per share. Assume that no other order were available in the system . Mr. B sold extra 1000 share and he have no delivery . Auction Takes Place on T+ 3 days Close Out on T+ 5 Days

Investor v/s Trader

Investors Vs Traders
Investor

Trader

For Long Term

Follows Fundamentals Stays invested as long as theme is continuing

For short term

Follows Technical

Trades with Stop Loss and Price Target

An Example
Rakesh purchased 1000 shares of Satyam @ 475 per share for long term and at the same time 1000 shares of satyam are bought by Rajiv @ 475 per share and sold it next week @ Rs 490 and booked the profit of Rs.15000 Rakesh is an investor while is Rajiv a Trader

DIFFERENT ANALYSIS USED in STOCKS BEFORE TAKING a POSITION

A.

Fundamental Analysis
Technical Analysis & Information

B.

HOW FUNDAMENTAL ANALYSIS is DIFFERENT from TECHNICAL ANALYSIS

Product Grid
Investors are advised by dedicated relationship managers through various advisory products
Market Analysis Regular Yearly Technical Analysis Fundamental Research Inquire Company & Sector reports Thematic Research

Wealth Creation report Budget Coverage

MOSt Momentum Futures Weekly

Quarterly

Results Preview MOSt MOSt

India

Strategy

Monthly
Weekly Daily

Value

Guide

Mutual
MOSt Morning

MOSt Commodity

Market Hours

Market Information &

Morning Calls Derivative Strategy Market Dairy Pivot Points MOSt Market Action

Research

Intraday Calls

DO you know COMMONLY USED TERMS in the STOCK MARKETS

Bull market Bear market Large Cap Shares Mid Cap Shares Blue Chip Shares

Market Capitalization or Market cap

Floating share x Market price per share

Equity earnings / Number of Outstanding shares Market price per share / Earnings per share Equity earnings / Networth

Earnings per share

Price to Earnings ratio (P/E)

Return on Equity

WHAT is the ROLE of a BROKER ? WHAT is BROKING BUSINESS?

Why Broker ?

A stock broker sells or buys stock on behalf of its clients A transaction on a stock exchange must be made between two members of the exchange A typical person may not simply walk into the Bombay Stock Exchange, and ask to trade stock. Such a transaction must be done through a broker

Transaction Network

Equity share trading is regulated through a exchange. The exchange takes care of smooth trading and timely settlement of outstanding dues. All these done through proper network. The exchange have a network of Brokers ,Sub-brokers and a clearing corporation. The brokers and sub brokers under takes the timely delivery and settlement of funds and share. The clearing corporation undertakes the transaction of brokers on behalf of the exchange.
Stock exchange ------ Brokers----------- buyer/seller

(clear and settle) - (Execute orders)- (Purchase& sale of securities)

WHAT is the REVENUE MODEL for a TRADITIONAL STOCK BROKER ?

Brokerage Firms And Brokerage

Revenue for a broker is charges and commission, known as brokerage for executing buy/sell order submitted by the clients

Eg: If 1000 shares of Reliance @ 1200 are bought by a client and the brokerage charges are 0.50 %, then the brokerage income from this transaction is (1000 x 1200 x0.50%) Rs 6000/-

WHAT are the COST COMPONENT of a CLIENT in a SHARE TRANSACTION

Charges Brokerage Stamp Duty Transaction Charges Contribution to Investor Protection Fund Service Tax Securities Transaction Tax (STT)

Income Source for Broker State Govt. Exchange Exchange ( For Investors)

Central Govt. ( On Brokerage) Central Govt.

TRADING NonBrokerage 0.006%

DELIVERY 0.014%

F&O 0.0041%

STT Service Tax

0.025% 12.24%

0.125% 12.24%

0.017% (only SELL) 12.24%

Different Types of Brokerages

Cash Market
Intraday (0.01%-0.10%) Delivery (0.10%-0.50%)

Derivatives Market
Intraday (0.01%-0.10%) Carry Forward ( )

Cash Market-Intraday

The client wants to earn the price differential in the same day. i.e. The position is entered and squared off in the same trading session The Brokerage rates are typically lower in such kind of transaction, since there is no share settlement There is also a concept of single side and double side brokerage varies from region to region

Benefit For Brokers

Intra day example

1000 share of Reliance bought @ 1100 and sold @ 1150 on the same day, brokerage rate is 0.05% both sides Revenue is (1000 x 1100 x 0.05%) Rs 550 one sided and (1000 x 1150 x 0.05%) Rs 575 = Rs 1125 1000 share of Reliance bought @ 1100 and sold @ 1150 on the same day, brokerage rate is 0.07% one side Revenue is (1000 x 1100 x 0.07%) Rs. 770

Cost Pay by the client

Revenue is (1000 x 1100 x 0.05%) Rs 550 one sided and (1000 x 1150 x 0.05%) Rs 575 = Rs 1125.Charged on Total turnover. Services tax is 12.24% charged on total brokerage =67.32 Transaction charge 0.004 %Charged on total turnover= 44. STT is 0.025% charged on total turnover = 275 Stamp duty is 0.0024% charged on total turnover = 26.4 Total Cost of Purchase = 1100962.72

Cash Market-Delivery

The client purchases or sells in a single trading session which results in actual delivery of stocks The Brokerage rates are higher in such kind of transaction, since there is share settlement

Delivery Example

If 1000 shares of Reliance @ 1200 are bought by a client and the brokerage charges are 0.50 %, then the brokerage income from this transaction is (1000 x 1200 x0.50%) Rs 6000/If 1000 shares of Reliance @ 1200 are bought by a client and the brokerage charges are 0.20 %, then the brokerage income from this transaction is (1000 x 1200 x0.20%) Rs 2400/Brokerage income has come down significantly because of pricing Therefore negotiating correct pricing is one of the most important part of converting broking accounts

Derivatives Intraday

The client wants to earn the price differential in the same day. i.e. The position is entered and squared off in the same trading session The Brokerage rates are typically lower in such kind of transaction, since there is minimum value of Rs 200 000 per transaction Brokerage rates vary between 0.01% to 0.10% on the value of transactions There is also a concept of single side and double side brokerage varies from region to region

Intraday Example

A client enters into a contract to buy one lot of Reliance March Futures(150 shares lot) @ 1250 brokerage 0.03% and sells @ 1280 brokerage 0.03% Revenue is (150 x 1250 x 0.03%) Rs 57 and ( 150 x 1280 x 0.03%) Rs 58 so, total is Rs 115 Similarly if the selling is done on the next day with the same brokerage rate then also the revenue will remain the same

Derivatives-Carry Forward

The position is entered and squared off in different trading session The Brokerage rates are typically very much similar to intraday brokerage rates, since in F&O exchanges have not yet started settlement by stock deliveries Brokerage rates vary between 0.01% to 0.10% on the value of transactions

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