Post on 16-Apr-2017
Stock Market
For Dummies (Me and You!)
What is stock market?
Why are you telling me all this?
Why its important to me?(assets and earnings)
Debt v/s Equity Difference between Debt and Equity financing
IPO Initial Public Offer
Risk Risk of being an owner - Dividends
Common v/s Preferred Stocks Preferred Stock between Bond and Common
Different classes of Stock Class A and Class B Voting rights Steve Jobs Mark Zuckerberg Laxmi Mittal
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Authorities
How stocks trade
Farmer's market
Buyers and sellers meet
Primary and Secondary Market
Primary Market IPO
Secondary Market No control of company what so ever
Bombay Stock Exchange and National Stock Exchange
Over the counter exchange Trading floor and Virtual Trading
SENSEX
BSE SENSEX 30
Started 1 January 1986
Consists of 30 company across different sectors
Nerve of the economy
The index is calculated based on a free float capitalization methoda variation of the market capitalization method.
The base value of the SENSEX is taken as 100 on April 1, 1979, and its base year as 1978-79.
share price times the number of shares outstanding
Index divisor magic number
NIFTY
Same Index covers 50 companies across 22 sectors
The base period for the S&P CNX Nifty index is November 3, 1995
The base value of the index has been set at 1000, and a base capital of Rs 2.06 trillion
Nifty Index was developed by Ajay Shah and Susan Thomas.
Total return on Sensex and Nifty is around 20%
Depository
A bank or company which holds funds or securities deposited by others, and where exchanges of these securities take place.
NSDL National Security Depository Limited
CDSL Central Depository Services Limited
Depository Participant Intermediaries between depository and investors
SEBI Security and Exchange Board of India Regulator of securities market in India
What all needed? Trading account, demat account and of course MONEY!
Rules of making money!
Rule No 1 : Never lose money in stock market
Rule No 2 : Never forget rule no 1
Factors affecting stock market
Economic Factors
Market trends and rumors
Global market indicators
Govt policies and regulations
Company or sector wide factors
Capitalization Large Cap, Mid Cap and Small Cap
Groups A, B and Z
Circuit Control mechanism
Kinds of trade Intra day and Delivery
Short selling and Short covering
The Bear The Bull and Farm
Picking up the right stock!
Fundamental Analysis
Analyzing stocks on the basis of country, sector or individually
Includes going through the balance sheet of the company and P/L statement and checking various ratios
EPS = Net Earnings / Outstanding Shares
Trailing, Current and Forward EPS
P/E = Stock Price / EPS
High P/E Overpriced stock (Not always!)
Indicator of market sentiment towards the stock
PEG (Price to Future Growth ratio)
PEG = (P/E)/ (projected growth in earnings)
Technically Lower the better
Compare it to P/E
This is projected ratio, not always accurate!
Interest coverage ratio
IC = EBIT/ Interest expense
Below 1.5 = signs of trouble times!
Debt/Equity Ratio
D/E = Total Liabilities / Shareholders Equity
Sector based, Auto manufacturing High
IT companies Low
Check the competitor or top 5 sector based ratios when considering this
Technical Analysis
Support
Resistance
Depends on past prices and volumes of stock traded.
All about reading the graphs
Out of the reach for this presentation
Hedging and Speculation
Hedging means insuring against a negative event
It is done to reduce exposure to various risks
Hedgers try covering the risks
Hedgers try to reducethe risks associated withuncertainty
Speculation is opposite of hedging
Speculators are risk lovers
Speculators make bets or guesses
A hedger seeks to cover a foreign exchange risk
A speculator accepts and seeks out to accept it to make profit
Never risk more than 10% of your trading capital in a single trade.
Never do overtrading.
Don't enter a trade if you are unsure of the trend.
When in doubt, get out, and don't get in when in doubt.
Distribute your risks equally among different markets.
Avoid taking small profits and large losses.
Be willing to make money from both sides of the market.
Never change your position without a good reason.
Don't follow a blind man's advice.
When you lose don't blame it on luck.
A well diversified portfolio
Investment in good shares
Lot of patience