THE SECONDARY MARKETTHE SECONDARY MARKETINDIAN STOCK MARKET

PROF. SUNITA SAPRA

PROF. SUNITA SAPRA

STOCK MARKET OR SHARE MARKET

A stock is a small share that represents a partial ownership of a company. A Stock market is the place where buying and selling of stocks takes place. Nowadays due to internet and advanced technology buying and selling of stocks takes place anywhere in India and also from foreign country, there is no need to be physical present in exchanges like NSE and BSE

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STOCK MARKET

Stocks are issued by companies in order to raise capitals and are bought by investors in order to acquire a portion of the company. INDIAN STOCK MARKET There are 25 stock exchanges in the India. Bombay stock exchange is the largest, with over 6,000 stocks listed. Established in the year 1875

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STOCK MARKET

The National Stock Exchange (NSE), located in Bombay, and it is India's first debt market. It was set up in the year 1993 and it was opened for trading in mid-1994

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Name of Indian stock exchange

1. Bombay Stock Exchange 2. National Stock Exchange(Mumbai) 3. Bangalore Stock Exchange 4. Utter Pradesh Stock Exchange(Kanpur) 5. Magadh Stock Exchange(Patna) 6. Ahmedabad Stock Exchange 7. Vadodara Stock Exchange(Baroda) 8. Bhubaneswar Stock Exchange 9. Calcutta Stock Exchange(Kolkata) 10. Madras Stock Exchange
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Name of Indian stock exchange

11. Cochin Stock Exchange 12. Coimbatore Stock Exchange 13. Gauhati Stock Exchange 14. Hyderabad Stock Exchange 15. Madhya Pradesh Stock Exchange(Indore) 16. Jaipur Stock Exchange 17. Ludhiana Stock Exchange 18. Mangalore Stock Exchange 19. Pune Stock Exchange 20. Saurashtra Kutch Stock Exchange
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Name of Indian stock exchange

21. Interconnected Stock Exchange Of India 22. United Stock Exchange Of India 23. MCX Stock Exchange Ltd 24. OTC Exchange Of India 25. Delhi Stock Exchange Ltd.

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Stock market

Stock exchanges Mainly there are two exchanges in India.

NSE (National stock exchange) Nifty is listed with NSE.

BSE (Bombay stock exchange) Sensex is listed with BSE.

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Stock exchanges
Two types of Indices 1.Nifty 2. Sensex

Nifty - Nifty consist of a group of 50 shares.

Sensex - Sensex consist of a group of 30 shares.

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Stock exchanges
Index in share market Index consists of group of shares. Index denotes the direction of the entire market. Like when people say market is going up or down then that means Index is going up or down. Index consists of High market capitalization and High liquidity shares.

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Stock exchanges
High Market capitalization shares Companies having highest number of shares and highest price of each share. Market capitalization is calculated by multiplying current share price and number of shares in the market. High Liquidity shares - Shares in the market with high volumes.

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TRADING IN STOCK MARKET

One should have a demat and trading account, computer and internet connection and he/she can start the share trading or investing from anywhere.

A person want to buy/sell stocks in the stock market has to first place his/her order with a broker or can do themselves using online trading systems. The stocks purchased will be sent to the you either in physical or demat format. This process is called Rolling Settlement Cycle
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What is Demat account and why it is required?

Demat (Dematerialization) is the process by which an investor can get stocks converted into electronic form maintained in an account with the Depository Participant (DP). Depository Participant (DP) could be organizations involved in the business of providing financial services like banks, brokers, financial institutions etc. DPs are like agents of Depository.

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Cont
Depository is an organization responsible to maintain investor's securities in the electronic form. In India there are two such organizations called NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services India Ltd.)

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Is a demat account a must?

The market regulator, the Securities and Exchange Board of India (SEBI), has made it compulsory to open the demat account if you want to buy and sell stocks.

How to open a Demat account?

You have to approach a DP to open a Demat account. Most banks are DP participants so you may approach them. A broker and a DP are two different people. A broker is a member of the stock exchange, who buys and sells stocks on his behalf and also onSUNITA SAPRAof his customers. behalf PROF.

Important terms in stock market and in stock trading

Open - The first price at which the stock opens when market opens in the morning. High - The stock price reached at the highest level in a day. Low - The stock price reached the lowest level in a day.

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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.
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Important terms in stock market and in stock trading

Bid Quantity - The total number of stocks available for buying is called Bid Quantity. Offer Quantity - The total number of stocks available for selling is called Offer Quantity. Buying and selling of stocks - Buy is also called as demand or bid and selling is also called as supply or offer. First selling and then buying (this only happens in day trading) is called as shorting of stocks or short sell.
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Important terms in stock market and in stock trading

Stock Trading - Buying and Selling of stocks is called stock trading. Transaction - One complete cycle of buying and selling of stocks is called One Transaction. Squaring off - This term is used to complete one transaction. Means if you buy then have to sell (means square-off) and if you sell then you have to buy (means square-off).
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Important terms in stock market and in stock trading

Limit Order - In limit order the buying or selling price has to be mentioned and when the stock price comes to that price then your order will get executed with the mentioned price by you Market Order - When you put buy or sell price at market rate then the price get executes at the current rate of market. The market order get immediately executed at the current available price.
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Important terms contd.

Best rate order: here, the buyer and seller gives the freedom to the broker to execute the order at the best possible rate quoted on that particular date for buying, it may be the lowest rate for buying and the highest rate for selling. Discretionary order: the investor gives the range of price for purchase and sale. The broker can use his discretion to buy within the specified limit. Generally, the approximate price is fixed e.g. Rs. Buy ABC 100 shares around Rs. 300.
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Contd.
Stop loss order: The orders are given to limit the loss due to unfavourable price movements in the market. A particular limit is given for waiting, if the price falls below the limit, the broker is authorised to sell the shares to prevent further loss. E.g. sell ABC shares at Rs. 50, stop loss at Rs. 48.

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Different types of stock trading

Day trading and Delivery trading are the two main types of stocks trading. Day trading Buying and selling of stocks on daily basis is called day trading this is also called as Intra day trading. Whatever you buy today you have to sell it today OR whatever you sell today you have to buy it today and very importantly during market hours that is 9.00 am to 3.30 pm (Indian time).
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Different types of stock trading

Delivery Trading
In Delivery Trading, as the name say, you have to take the delivery of stocks and after getting these stocks in your demat account you can sell them at anytime (or you can hold them till you want, there is no restriction). In delivery trading you need to have the amount required to buy stock for example, if you want to buy 100 stocks of Reliance at price 500 than you must have (100*500) Rs. 5000 in your account; once you purchased these stocks will get deposited in your demat account (say after basically, trading day and 2 additional days). Then you can sell these stocks when the price of these stocks goes up or else you can sell whenever you want.

Please Note - First you have to buy and sell. You cant sell
before buying in delivery trading while its possible in day trading.
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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.

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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.

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Stock Market Conditions

There are two ways to describe the general conditions of the stock market:
BULL MARKET BEAR MARKET

BULL MARKET A Bull Market indicates the constant upward movement of the stock market. A particular stock that seems to be increasing in value is described to be bullish

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Stock Market Conditions

BEAR MARKET A bear market indicates the continuous downward movement of the stock market. stock that seems to be decreasing in value is described to be bearish.

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How Are Indices Of Sensex And Nifty Calculated

Sensex (sensitive index) has been calculated since 1986 and initially it was calculated based on the Total Market Capitalization methodology and the methodology was changed in 2003 to Free Float Market Capitalization. The Sensex is calculated for every 15 seconds

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How Are Indices Of Sensex And Nifty Calculated

Free Float Market Capitalization The value of all the shares available for public trading excluding the promoter equity, holdings through FDI Route, holdings by private corporate, and holdings by employee welfare funds.

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Why free flow market capitalization

1. It depicts the market more rationally. 2. It removes undue influence of government or promoter share holding, there by giving the equal opportunity for companies to be in the sensex. 3. Almost all the indices world over are calculated by this methodology. 4. It gives fund managers more authentic information for benchmark comparisons.

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Calculation of market capitalization

Market capitalization of a co. is determined by multiplying the price of its stock by the number of shares issued by the company.

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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 1978-79 100 is value during 1978-79

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Example on Sensex Index calculation Assume sensex has only 2 stocks namely SBI and RELIANCE. Total shares in SBI are 500 out of 200 are held by government and only 300 are available for public trading. Reliance has 1000 shares out of which 500 are held by promoters and 500 are available for trading. Assume price of SBI stock is Rs 100 & Reliance is 200.

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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
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Methodology

The methodology in the example is exactly followed to calculate the SENSEX. Only difference being the inclusion of 30 stocks.

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Index closure

The closing SENSEX on any trading day is computed taking the weighted average of all the traders on SENSEX constituents in the last 30 minutes of trading session.

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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

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CAUSES OF PRICE FLUCTUATION

1. DEMAND AND SUPPLY 2. BANK RATE 3. SPECULATIVE PRESSURE 4. ACTIONS OF UNDERWRITERS AND OTHER FINANCIAL INSTITUTIONS 5. CHANGE IN COMPANYS BOARD OF DIRECTORS 6. FINANCIAL POSITION OF THE COMPANY

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CAUSES OF PRICE FLUCTUATION

7. TRADE CYCLE 8. POLITICAL FACTORS 9. SYMPATHETIC FLUCTUATIONS 10. OTHER FACTORS: A. EXPECTED MONSOON B. PERSONAL HEALTH OF HEAD OF GOVERNMENT OR CHAIRMAN OF THE COMPANY C. OIL PRICES IN THE INTERNATIONAL MARKET
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MARGINS
Margins are additional filters applied by the stock exchanges to curb the price volatility. Broker has to pay a margin amount to the stock exchange for every transaction. Margin amount paid is a tool to discourage the speculative and circular trading. Margins are of different types: 1. gross exposure margins 2. net exposure margin 3. Mark to market margin 4. concentration ratio margin 5. special margin
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IMPORTANT QUESTIONS 1. What are the main functions of a stock exchange? In what ways is a stock exchange indispensable for an economy? 2. Briefly trace the history of stock markets in India.

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