Professional Documents
Culture Documents
Market indices and overview of Securities market in India Primary and Secondary market
What is Investment? Investment Alternatives Investment Vs Speculation Investment Vs Gambling Financial Markets and its Functions Classification of Financial Markets What is Capital Market? Bonds or Fixed Income Securities Equity Shares Attraction of Global Capital Market Stock Market Indices and its computation SEBI Overview of Security Analysis Overview of Portfolio Management
The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.
Investment Alternatives
Non-Marketable Financial Assets (eg: Bank Deposits, Post office deposits etc) Equity Shares Bonds Money Market Instruments (Debt Instruments having maturity of less than one year at the time of issues) Mutual Funds Life Insurance Real Estate Precious Objects Financial Derivatives
Investment Vs Speculation
"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative. Graham & Dodd Speculation: The activity of forecasting the psychology of the market. John Maynard Keynes
Investment Vs Speculation
Investor Planning Horizon Speculator Relatively longer Very short planning planning horizon, usually horizon at least one year Normally not willing to assume more risk Usually seeks a modest rate of return. Attaches greater significance to fundamental factors and attempts a careful evaluation of the prospects of the firm Typically uses his own funds. Ordinarily willing to assume high risk Looks for high rate of return Relies more heavily on hearsay, technical charts and market psychology
Leverage
Investment Vs Gambling
Gambling is fundamentally different from speculation
and investment. Compared to investment and speculation, the result of gambling is known more quickly Rational people gamble for fun, not for income Gambling creates risk without providing any commensurate economic return
exchange of financial assets. Functions: Facilitates Price Discovery Provides Liquidity to Financial assets Considerably reduce the cost of transacting
MONEY MARKET
Function of a money market is to channel savings into short term productive investment with minimum risk. Money market instruments: Call money Term money Treasury bills Commercial papers Certificates of deposits, etc. Assignment 1: Write a brief description of the above terms? Submission by Monday evening.
Financial Markets Capital Market Money Market Primary Market Secondary Market Forex Market Forward Market
Primary Market
Secondary Market
Spot Market
Cash Market
Derivatives Market
equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year.
The capital market includes the stock market (equity
players who have excess funds to players who are in need of funds.
Capital Market
Primary Market Secondary Market
Stock Market
Bond Market
Equity Shares
Equity capital represents ownership capital. Equity shareholders bear the risk and enjoys the reward of ownership.
Stock markets classify equity shares as:
Blue chip shares (Shares of Large well established, and financially strong companies with an impressive record of earnings and dividend)
Growth shares (Shares of companies which enjoys an above average rate of growth as well as profitability) Income shares (Shares of companies with fairly stable operations, high dividend payout ratios).
Equity Shares
Defensive shares (Shares of companies that are generally unaffected by ups and down in general business conditions)
Speculative shares (Shares that tend to fluctuate widely because there is a lot of speculation trading in them).
Common Stock
Variable dividends, based on companys profits.
Convertible
Preferred stock that can be converted into
Lowers the cost of capital. Investors perspective Provides a wider range of investment opportunities.
Growth of Global capital market: - TECHNOLOGY. - Deregulation by governments of capital flows and financial services.
Number of stocks
0.27 0.12 1 10
20 30 40 Number of stocks
50
exchange and NSE, it is not possible to look at the prices of every stock to find out whether the market movement is upward or downward.
An index is basically an indicator. It gives you a general idea
about whether most of the stocks have gone up or most of the stocks have gone down.
Some of the stock market indices are BSE Sensex, BSE-200,
NSE-50 etc.
The Sensex is an indicator of all the major companies of the BSE
Shares
Total Shares
Held by Promoters
Current Total Market Market Price Capitali zation 120 200 120000 400000
A B
1000 2000
200 1000
800 1000
So as of today the market capitalization of the index (i.e. stocks A and B) is Rs 520,000 (Rs 120,000 + Rs 400,000); while the free-float market capitalization of the index is Rs 296,000. (Rs 96,000 + Rs 200,000).
value set to 100. What this means is that suppose at that time the market capitalization of the stocks that comprised the index then was, say, 60,000 then we assume that an index market cap of 60,000 is equal to an index-value of 100. Thus the value of the index today is = 296,000 x 100/60,000 = 493.33 This is how the Sensex is calculated. The factor 100/60000 is called index divisor. Note: During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate Sensex every 15 seconds and disseminated in real time.
Security Analysis
The process of analyzing the individual securities and the
market as a whole and estimating the risk and return expected from each of the investments with a view to identifying undervalued securities for buying and overvalued securities for selling is both an art and a science and this is what is called security analysis.
Security Analysis involves the projection of future
dividend, or earnings flows, forecast of the share price in the future and estimating the intrinsic value of a security based on the forecast of earnings or dividends.
Portfolio Management
The portfolio analysis is an analysis of the risk-return
characteristics of individual securities in the portfolio and changes that may take place in combination with other securities due to interaction among themselves and impact of each one of them on others.
Thank You