A Primer on Share

Market
Presented by
C.A. Dr. V.M.Govilkar
M.COM.,LL.B.,F.C.A., Ph.D.
Stock Market
It is the place where the shares of listed
companies are bought and sold. In India, you
have BSE and NSE as two big stock
exchanges.
Shares
are bought and sold by you and me only
through approved brokers.
Approved brokers
are banks like the ICICI, HDFC, IDBI, UTI
Bank, or companies and firms like SHCI, LKP
Securities Ltd, JM Financials, Kotak
Securities Ltd, Sharekhan are to name a few.
Capital raised by the Company

Owned Borrowed

1. Equity Shares Debentures
2. Preference Shares NCD
Cumulative/ Non Cum. FCD
Redeemable / Non red. PCD
Convertible / Non Convt.
Share market meaning -
its a system where shares of companies
and their derivatives are bought and sold at
the agreed prices.
Earlier it was a place
now BOLT (BSE On Line Trading)
- Terminals
Only listed shares are traded
Advantages to Companies
Investors
Economy
SHARE MARKET

PRIMARY SECONDARY

PUBLIC ISSUE CAPITAL MARKET SEGMENT
RIGHT ISSUE F & O SEGMENT
BONUS ISSUE
PRIVATE PLACEMENT
PUBLIC ISSUE (IPO)

Fixed Price Method

The Issue price of the shares is
announced at the time of offer

Book Building Method

Combination of the Two

PROCEDURE OF BOOK BUILDING
Appointment of lead merchant bank as BOOK
RUNNER.
Appointment of SYNDICATE MEMBERS.
Declaration of base price / Price band.
Applicants to apply to syndicate members.
Applications are entered in electronic book.
Applicants can amend offers any no. of times
before book closure.
Book runners study the applications.
Cut off price is decided and shares are alloted.
Secondary market
Trading of existing shares.
Provides liquidity to share holders.
Provides possibility of capital appreciation.
Facilitates issue of additional shares in the
market.
CONSISTS OF TWO SEGMENTS
Capital market segment.
Futures and options segment.[ F & O]
Trading and Settlement
First you need to open a Demat account with
the Depository Participant- DP.

A Demat account is nothing, but the account
where the shares bought by you will be kept
separately. It is like a bank statement or a bank
pass book.

Only you could operate that account online,
through Internet.


You could open the online facility
offered by the ICICI, HDFC or
ShareKhan or others and buy shares
you wish and decide the quantity and
the price.
The bank will act as a broker. Your
online order for purchase would be
carried out by the bank. They charge
broker commission, much less
compared to private brokers.

D Mat account
Securities can be held in
Physical form or
D MAT form

National Securities Depository ltd. NSDL
Central Depository Services[ I] ltd. CDSL
DP Depository Participant
BO Beneficial Owner / Client / Investor
Trading and Settlement
The settlement cycle in India is T+2 days i.e.
Trade + 2 days.
T+2 means the transactions done on the Trade
day, will be settled by exchange of money and
securities on the second business day
(excluding Saturday, Sundays, Bank and
Exchange Trading Holidays).
Pay-in and Pay-out for securities settlement is
done on a T+2 basis.
Summary of trading and settlement
process in India.

Investors place orders from their trading
terminals.
Broker houses validate the orders and route
them to the exchange (BSE or NSE depending
on the clients choice)
Order matching at the exchange.
Trade confirmation to the investors through
the brokers.
Trade details are sent to Clearing Corporation
from the Exchange.
Clearing Corporation notifies the trade
details to clearing members/Custodians who
confirm back.

Based on the confirmation, Clearing
Corporation determines obligations.

Download of obligation and pay-in advice of
funds/securities by Clearing Corporation.

Clearing Corporation gives instructions to
clearing banks to make funds available by
pay-in time.
Clearing Corporation gives instructions to
depositories to make securities available by pay-
in-time.

Pay-in of securities: Clearing Corporation
advises depository to debit pool account of
custodians/Clearing members and credit its
(Clearing Corporations) account and depository
does the same.

Pay-in of funds: Clearing Corporation advises
Clearing Banks to debit account of
Custodians/Clearing members and credit its
account and clearing bank does the same.
Payout of securities: Clearing Corporation
advises depository to credit pool accounts of
custodians/Clearing members and debit its
account and depository does the same.

Payout of funds: Clearing Corporation
advises Clearing Banks to credit account of
custodians/ Clearing members and debit its
account and clearing bank does the same.

Note: Clearing members for buy order and
sell order are different and Clearing
Corporation acts as a link here.
Depository informs custodians/Clearing
members through Depository Participants
about pay-in and pay-out of securities.

Clearing Banks inform custodians/Clearing
members about pay-in and pay-out of funds.

In case of buy order by normal investors
Clearing members instruct his DP to credit the
clients account and debit its account. The
money will be debited (Total settled amount -
margins paid at the time of trade) from the
clients account.
In case of sell order by normal investors
Clearing members instruct his DP to debit the
clients account and credit its account. The
money will be credited to the clients account.

Please note that a clearing member is the
brokerage firm which acts as a trading member
and clearing member of clearing agency where
as custodians are only clearing members. Even
if the clients dont meet their obligations
clearing members are required to meet their
obligations to the clearing corporations.
Types of companies
Large Caps Capitalisation > Rs. 5000 Cr.
Mid Caps Capitalisation - Rs. 1000 to 5000
Small Caps capitalisation < Rs. 1000 Cr.
Capitalisation =
No. of shares of a Company * Market Price
of the share

Sensex
Sensitive index -
BSE established in 1875
Thousands of listed shares
to know the trend in prices
sensex is based on 30 shares
base year 1978-79 = 100
Free float Index -
based on shares held by outsiders
(excluding shareholding by promoters)

Nifty -
Index for NSE
Based on 50 shares
3
rd
November 1995 Index 100

Index calculated every minute, every day
30 companies of BSE & 50 companies of NSE
keep on changing on the basis of their
performance
It gives only a general indication
Some hints for share investments
Shares is one of the options of investments.
Do not treat it as a speculation tool.
Buy shares on the basis of fundamentals and
not on tips.
Dividend on shares is tax free.
Shares held for more than a year are long term
assets and long term capital gain tax is at 10%.
Keep a watch on news and reports about the
company in the media.
Know about EPS and P/E ratio.
Study Annual Accounts and Directors Report
of the company.
Be cautious about intra day trading.
Investment in shares yields not only dividend
income but also gives Rights, Bonus and
capital appreciation.


THANK YOU