Stock markets basics

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SHARE MARKET FUNDAMENTALS Presented By: P.ADITHYA

Transcript of Stock markets basics

Page 1: Stock markets basics

SHARE MARKET FUNDAMENTALS

Presented By:

P.ADITHYA

Page 2: Stock markets basics

What is a Share?Share is nothing but the Ownership of thecompany divided into small parts and each part iscalled as Share or Stock.

Share Market

A Share market is the place where buying andselling of shares takes place.

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Basic Fact

• There is no official arbiter of stock prices, noperson or institution that “decides” a price.

• The market price of a stock is simply the priceat which a willing buyer and seller agree totrade.

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IMPORTANT ABBREVIATIONS

• NSE-National Stock Exchange

• BSE-Bombay Stock Exchange

• SENSEX-Stock Exchange Sensitive Index

• NIFTY -National Stock Exchange’s Fifty

• IPO-Initial Public Offering

• FPO-Follow-on Public Offering

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• Two types of IndicesNifty andSensex

• Stock exchangesMainly there are two exchanges in India.NSE - Nifty is listed with NSE.BSE - Sensex is listed with BSE.

Nifty - Nifty consist of a group of 50 shares.Sensex - Sensex consist of a group of 30 shares.

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CASH MARKET

• Cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which delivery is due at a later date.

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Type of Markets

Basically there are two types of markets.1. Primary market2. Secondary market

Primary MarketA primary market is a place where companies, government and other corporate bodies sell new shares and other financial products which are also called as financial products.

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• Secondary marketA market place where actual share trading (buying and selling) takes place is called secondary market.

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Meaning of Bid and Ask price

• Bid PriceThe bid price is the price at which buyers are ready to buy shares.The bid price is also called as buying price.

Ask PriceThe Ask price is the price at which sellers are ready to sell shares.The ask price is also called as selling price or offer price

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Types of Investment

• Basically there are three types of investment methods.i. Short term investmentii. Mid term investmentiii. Long term investment

i) Short term investmentInvestment done from couple of weeks to couple of months is called short term investment.It is done based on breaking news, or based on charts of technical analysis.ii) Mid term InvestmentInvestments done from couple of months to couple of years is called mid tem investment.It is done based on analysis of quarterly financial results or based on fundamental analysis.

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• iii) Long term investmentInvestment done from one year to couple of years like 3 years, 5 years, 10 years etcLong term investment is basically done after thoroughly analyzing the fundamentals of the company and its future growth prospects.

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'Market Capitalization'

• The total dollar market value of all of a company'soutstanding shares.

• Market capitalization is calculated by multiplying acompany's shares outstanding by the current market priceof one share.

• The investment community uses this figure to determine acompany's size, as opposed to sales or total asset figures.

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Outstanding shares

Outstanding shares are common stockauthorized by the company, issued, purchasedand held by investors.

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LARGE CAP,MID CAP,SMALL CAP

Large Cap - Big Cap'• 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".

'Small Cap'Refers to stocks with a relatively small market capitalization.

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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MID CAP

• A company with a market capitalizationbetween $2 and $10 billion, which iscalculated by multiplying the number of acompany''''s shares outstanding by its stockprice.

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• A listed company, either in BSE or NSE, declares theirperformance every quarter through out the day.

• Based on the performance of quarterly results market judgehow the company is performing and if analysis shows that thecompany is doing well then its share prices goes up and ifanalysis found that company is not performing, as perexpectation, then its share prices falls.

• First quarter duration - April to JuneSecond quarter duration - July to September

Third quarter duration - October to DecemberForth quarter duration - January to March

Results declaration in - April

Fourth quarter is considered as end of financial year end.

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How does Share Price Changes

• Every time a stock is sold, the exchange records the price at which it changes hands. If, a few seconds or minutes later, another trade takes place, the price at which that trade is made becomes the new market price, and so on.

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How sensex is calculated

• The formula for calculating SENSEX

= (sum of free flow market capital of 30 bluechip companies) X index factor

Where in:

Index factor= 100/ market capital in 1978-1979

Where 100 is the index value in 1978-1979

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FREE-FLOAT MARKET CAPITALIZATION

“It is defined as the value of the shares readilyavailable in the market for public tradingexcluding the promoters equity holdingthrough FDI route, holding by privatecorporate and holding by employees welfarefunds.”

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BENEFITS OF DEMAT ACCOUNT

• Easy and convenient way to hold securities

• Immediate transfer of securities

• No stamp duty on transfer of securities

• Safer than paper-shares (earlier risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. are mostly eliminated)

• Reduced paperwork for transfer of securities

• Reduced transaction cost

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Fees Involved in DEMAT Account

• Account opening Fee

• Annual Maintenance Fee

• Custodian Fee

• Transaction Fee