INDEX

Definition of Stock and Stock marketTypes Of Stock ExchangeStock exchange in World and IndiaTrading In Stock MarketDemat AccountImportance Of Stock Market in stock tradingInvestment in various types of tradingStock Market ConditionsCalculations Of IndicesBenefits of Investing in sharesCauses Of Price Fluctuation

The Definition of a Stock

Plain and simple, stock is a share in the ownership of a company. Stock represents a

claim on the company's assets and earnings. As you

acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the

same thing.

STOCK MARKET OR SHARE MARKET

Stocks are issued by companies in order toraise capitals and are bought by investors inorder to acquire a portion of the company.

A Stock market is the place where buying andselling of stocks takes place. Nowadays due tointernet and advanced technology buying andselling of stocks takes place anywhere in Indiaand also from foreign country, there is no needto be physical present in exchanges like NSEand BSE. Stock markets are perfectcompetitive market.

Types of Market

1. Normal Market :

Order Traded in regular lot Size

For demat shares, lot size is 1 share

2. Odd Lot Market :

Used for limited physical Market

Order not traded in regular lot Size but both price & quantity should tally with each other.

3. Spot Market :

Different settlement periods depends on normal orders

Sell & Purchases takes place on same date.

4. Auction Market :

Initiated by exchange on behalf of members

for settlement related reasons

Reasons are shortage and bad deliveries

Loss is recovered from members

Big Stock Markets

NYSE ( New York Stock Exchange)

NASDAQ-America

Dow Jones

S&P‘ 500

Tokyo Stock Exchange

London Stock Exchange

Bombay Stock Exchange, India

National Stock Exchange, India

Stock Exchanges in India

There are 22 stock exchanges in India. But, two ofthem are biggest.

NSE (National stock exchange) - is the 9th largeststock exchange in the world by marketcapitalization and largest in India by daily turnover andnumber of trades, for both equities and derivativetrading.

BSE (Bombay stock exchange) - is the oldest stockexchange in Asia with a rich heritage of over 137 yearsof existence.

Bombay Stock Exchange Location: Mumbai

Index: Sensex (SENSitve indEX)

Consist of group of 30 Stock

Members: 852

Date of Launch: 03 January 1986

Base period:1978-79

Base Index Value:100

Sectoral indices

Timing: 09.30 AM – 03.30 PM

Listed Co. : over 6000

National Stock Exchange

Location: Mumbai

Index: Nifty (National Stock Exchange Fifty)

Consist of group of 50 Stocks

Date of Launch: April 1994

Base period: 1993-94

Base index value: 1000

Members 726

Stock Broker A stockbroker is person who is licensed to trade

in shares.

Brokers also have direct access to the share market and can act as your agent in share transactions.

For this service they charge a fee i.e. brokerage.

They can also offer additional services like advice on shares, debentures, government bonds and listed property trusts and non-listed investment options (cash management trusts, property and equity trusts.

TRADING IN STOCK MARKET The market regulator, the Securities and Exchange

Board of India (SEBI), has made it compulsory toopen the demat account if you want to buy andsell stocks.

A person want to buy/sell stocks in the stockmarket has to first place his/her order with abroker or can do themselves using online tradingsystems.

The stocks purchased will be sent to the yourdemat account. This process is called RollingSettlement Cycle.

What is Demat account?

DEMAT stands for DEMATerialization. It isprocess in which physical paper shares areconverted into paperless (computerized) form.

In India there are two Depository organizationscalled NSDL (National Securities Depository Ltd.)&CDSL (Central Depository Services India Ltd.)

Brokers and most of Banks provides facility toopen demat account.

Important terms in stock market and in stock trading

Open- The stock price in beginning of Day(i.e. in morning).

High - The stock price reached at the highest level in a day.

Low - The stock price reached the lowest level in a day.

Important terms in stock market and in stock trading

Close - The stock price at which it remains after the end of market timings or the final price of the stock when the market closes for a day.

Volume - Volume is nothing but quantity.

Bid - The Buying price is called as Bid price.

Offer - The selling price is called offer price.

Investment in Short term, Mid term and Long term trading

Short Term Trading -Stock trading done from one week to couple of months is called short term.

Mid term Trading -Stock trading done from one month to couple of months, say six to eight months is called mid term trading.

Investment in Short term, Mid term and Long term trading

Long term trading -Stock trading done form couple of months to couple of years is called long term trading.Companies whose fundamentals are good and have good future plans then the stocks of these companies are used for long term trading.Generally traders having good capital go for long term trading.

Stock Market Conditions

There are two ways to describe the general conditions of thestock market:

1)BULL MARKET

2)BEAR MARKET

Bull Market -A Bull Market indicates the constant upward movement ofthe stock market. A particular stock that seems to beincreasing in value is described to be bullish.

Stock Market Conditions

BEAR MARKET

A bear market indicates the continuousdownward movement of the stock market.stock that seems to be decreasing in value isdescribed to be bearish.

How Sensex Index is calculated

The formula for calculating the sensex =

(sum of Free Float Market capitalization of 30

benchmark stocks)* Index Factor

Where;

Index Factor = 100/market cap value in

1978-79.

Example on Sensex Index calculation

Assume sensex has only 2 stocks namely SBI andRELIANCE. Total shares in SBI are 500 out of 200 areheld by government and only 300 are available forpublic trading. Reliance has 1000 shares out of which500 are held by promoters and 500 are available fortrading. Assume price of SBI stock is Rs. 100 & Relianceis RS. 200.

Example on sensex calculation

Solution –

Then Free Float Cap of these two company

= (300*100+500*200)

= 30,000+1,00,000

= 1,30,000

Assume market cap during the year 1978-79 was 25000

Then SENSEX = 1,30,000*100/25000

= 520

How Nifty Index is calculated

The National Stock Exchange (NSE) is

associated with Nifty

The calculation of Nifty is same as we

calculated SENSEX. But with two key

differences.

1. Base year is 1995 and base value is 1000

2. Nifty is calculation based on 50 stocks.

everything else remaining the same in nifty

index calculation as well.

Example of Nifty Calculation

Assuming Base index=1000 , Market Cap

index consist of 5 stocks, then

Company Current Market Capitalisation (Rs. In Lakhs)

Base Market Capitalisation(Rs. In Lakhs)

Reliance 16,68,791.1 16,54,247.5

AB & U 8,72,686.3 8,60,018.25

INFOSYS 14,52,587.65 14,65,218.8

HLL 26,75,613.3 26,69,339.55

Tata Tea 6,60,887.75 6,62,559.3

Total 73,30,566.1 73,11,383.4

Cont……..

Index= ( Current Market Capitalisation )

Base Market Capitalisation

Multiply by Base Value

Index= 73,30,566.1 *1000

73,11,383.4

Index= 1002.62

Important Indices in the world

Name of Index

Country Weight No. Pf Stock

Base Year

Base Value

S & P CNX Nifty

NSEIL, India

Market Capitalisation 50 1995 1000

SENSEX 30 BSE, India Market Capitalisation 30 1978-79 100

NASDAQ 100 NASDAQ , USA

Market Capitalisation 100 1985 125

FTSE 100 UK Market Capitalisation 100 1984 1000

Hang Seng Hong Kong Market Capitalisation 33 1964 100

Dow Jones USA Price 30 1928

Nikkei 225 Tokyo Price 225 1949

Benefits of investing in shares

Possibility of increase in value of share

Income from dividends

Easy liquidity

Tax benefits on income earned such as exemptions U/s 10(34) for dividends, Sec 54 for calculating STCG & LTCG

CAUSES OF PRICE FLUCTUATION

1.DEMAND AND SUPPLY2.BANK RATE3.SPECULATIVE PRESSURE4. ACTIONS OF UNDERWRITERS AND OTHER

FINANCIAL INSTITUTIONS5.CHANGE IN COMPANY’S BOARD OF DIRECTORS

Cont…

6. FINANCIAL POSITION OF THE COMPANY7. TRADE CYCLE8. POLITICAL FACTORS9. SYMPATHETIC FLUCTUATIONS10. OTHER FACTORS:

A. EXPECTED MONSOONB. PERSONAL HEALTH OF HEAD OF GOVERNMENT OR CHAIRMAN OF THE COMPANYC. OIL PRICES IN THE INTERNATIONAL

MARKET

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