investinginstockmarkets-111106144251-phpapp02

7/28/2019 investinginstockmarkets-111106144251-phpapp02

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Investing In Stock Markets


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Why Invest in Stock Markets

Historically, on a long term horizon equities have givenhigher return than other asset classes


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Source: www.rbi.org.in


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Basics of the Stock Market

Stocks :It is a term used to symbolize an investorsownership of a company.

Stock Market : It is the place where buying & selling of theseshares happen. (also known as stock Exchanges)

(Issues in Market Design )

Primary: security markets where new issues of securitiesare initially sold.

Secondary: A market where securities are resold. E.g. theNSE.


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Basics of the Stock Market

Face Value

Market Value

Dividend

Bonus Shares

Market Capitalization :

No.of outstanding shares X Current Market Price


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Small Cap :Market Capitalization less than 75 crores (High Risk high returns )

Mid Cap :Market Capitalization between 75 to 7500 crores (Medium Risk Medium Returns)

Large Cap :Market Capitalization more than 7500 Crores (Low Risk Low returns )

Classification of Shares


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The Trading Process

The elements of the trading process can bedivided into 4 components:

Information

Order routing

Execution

Clearing


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Some Issues in Stock market design

The way the market is designed will affect

what type of traders participate, the overall

trading process and the behaviour of prices.

2 factors to consider:

Transparency

Automation


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Information

Bid Price

Ask Price

Volume

Percentage Change

Day High / Day Low


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Types of Orders

Market Orders:Most common type of order placed by an investor

on the NSE. It is an order to buy or sell at the best price currently

available.

Limit Orders:This is an order to buy/sell at a maximum/minimum

price. These orders control the price paid or received, but investor

has no way of knowing when the order will be filled.


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Delivery orders : Trades for which the investor takes orgives delivery of shares depending upon the trade he has

entered into.

IntraDay Orders : Trades which have to be squared offon the very same day

Types of Orders


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Market Participants

Regulators

Exchanges

Brokers

Depository Participants

Investors / Clients


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Online Trading

Aims at converting the Open Outcrysystem of trading to a screen based

trading system.


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Now what is Online Trading

Buying &Selling of stocks, options, bonds, and other

financial instruments using onlinebrokersweb sites and

systems

Management guru Tom Peters, "distance is dead".


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How is it Done

Online trading can be done through

A Trading Platform ( Software )

BrokersWebsite


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Why trade online

In a market where every second counts, you have toconstantly be up to speed.


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OBJECTIVES

OF ON LINE TRADING

Leads to transparent deals in the market.

Improves liquidity in the market

Increases the market depth through quote-continuity

Instantaneous dissemination of information through

channels.

Structured MIS reports for analysis.


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Service Providers in India

Brokerage Houses

Sharekhan

5paisa.com

Indiabulls

Angel Broking

Financial institutions

ICICIDirect

HDFC Securities

IDBI Capital

Kotak Securities


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Getting Started


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Starting up

Evaluate the Brokers

Select the best broker

Open a Demat A/c & Trading A/c with the broker.

Open a savings Bank A/c which is linked with the

Broker


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DEMAT ACCOUNT

Dematerialized account.

Approach the DP .

Must for trading and investing .


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Scenario 1 3 Entities for D / T / S

Date Particulars1stJan Give cheque to the broker

3rdJan Money comes to your account

5thJan Shares come in your trading A/c

9thJan Shares Come to your demat A/c

( T + 2 )


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Scenario 22 EntitiesD/TS(nl)

Date Particulars1stJan Give cheque to the broker

3rdJan Money comes to your account

5thJan Shares come in your trading A/c (same day transferred

to demat A/c)

( T + 2 )


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Scenario 3 2 EntitiesD/TS (l)

Date Particulars1stJan Give an online instruction money comes in your trading

A/c, You purchase the share that day itself.

3rdJan Shares come in your trading A/c (same day transferred to

demat A/c)

You may sell the shares off on the same day


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Investor

HDFC Bank

(Savings a/c)SHAREKHAN

(Demat a/c)

Puts BUY order on

www.sharekhan.com

SHAREKHAN

Savings account Balance

checked & blockedContract note is sent through E-mail

Buy order executed &

Savings a/c debited

Shares credited on T+2 day

SHAREKHAN

(Trading a/c)


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YOUR SAVINGS A/C

TRADING A/C

WITH BROKER

YOUR DP A/C

MONEYCOMES IN

PURCHASE SHARES

SHARES TRANSFERREDINTO DEMAT A/C


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Documents Required

Photo ID Proof - Election Card , Driving Licence, PAN

Residence ProofRation Card, MTNL bill, Electricity bill

Bank A/c proof (Statement)

PAN Card - MUST


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Comparative analysis of broking

firms


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Comparative Analysis of different Broking Firms

Following Broking Firms are taken for the purpose of comparative analysis :-Kotak SecuritiesSharekhanIDBI paisa builder.India BullsHDFC Securities


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Parameters Used

Parameters Used Weightage given

Portal 30

Brokerage 30

Range of services offered (BSE, NSE,F&O, Commodities, PMS Etc.)

20

Customer service 20

Total 100


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1st Parameter :- Quality of PortalUSER FRIENDLINESS

Name of the Firm Ranking Scores Total Weighted score(Scores * 30%)

Kotak Securities 4th 40 12

Sharekhan 2nd 80 24

IDBI paisa

builder.

1st 100 30

India Bulls 5th 20 6

HDFC

Securities*2nd 80 24


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2nd Parameter :- Brokerage ChargedName of the Firm Ranking Scores Total Weighted score

(Scores * 30%)

Kotak Securities

3rd

60 18Sharekhan 2nd 80 24

IDBI paisa

builder. 2nd

80 24India Bulls 1st 100 30HDFC Securities 2rd 80 24


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3rd Parameter :- Range of Services OfferedName of the Firm Ranking Scores Total Weighted score

(Scores * 20%)

Kotak Securities 3rd 60 12Sharekhan 2nd 80 16

IDBI paisa

builder. 3rd

60 12India Bulls 4th 40 08

HDFC Securities 1st 100 20


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4th Parameter :- Customer ServicesName of the Firm Ranking Scores Total Weighted score

(Scores * 20%)

Kotak Securities 2nd 80 16Sharekhan 1st 100 20

IDBI paisa

builder.4th 40

08

India Bulls 3rd 60 12

HDFC Securities 1st 80 16


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COMPARISON OF TOTAL WEIGHTED

SCORE OF ALL THE FIRMS


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Name ofthe firm

Weighted

Score onPortal

Weighted

Score onBrokerage

Weighted

Score on

Range ofServices

Weighted

Score on

CustomerServices

Total

Weightedscore

RelativeRanking

Kotak

Securities12 18 12 16 58 3rd

Sharekhan 24 24 16 20 84 1st

IDBI paisa

builder.30 24 12 08 74 2nd

India Bulls 6 30 08 12 56 4th

HDFC

Securities24 24 20 16 84 1st


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What is a Depository? ..a facility for holding securities which enablessecurities transactions to be processed by book entry. Physical securities may be immobilised by the depositoryor securities may be dematerialised (so that they existonly as electronic records).


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Depositories in IndiaCDSL

The Stock ExchangeMumbai (BSE) Bank of India

Bank of Baroda

State Bank of India

HDFC Bank

Standard Chartered Bank

Global Trust Bank

Union Bank of India

Centurion Bank

Bank of Maharashtra

The Calcutta Stock ExchangeAssociation Ltd.

NSDL Industrial Development Bank of

India

Unit Trust of India

The National Stock Exchange of India

State Bank of India

Global Trust Bank Limited Citibank NA

Standard Chartered Bank

HDFC Bank Limited

The Hong Kong and Shanghai

Banking Corporation Limited Deutsche Bank

Dena Bank

Canara Bank


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REGULATOR OF THE MARKET..

SEBI :-

Protecting the interest of the investors.

Promoting and developing securities

market.

regulation of securities market


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Exchanges

28 exchanges in India

Major exchanges are

1. NSE

2. BSE

Welcome to a NEW INDIA


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Real GDP Growth 6.5 to 7.5%Inflation estimates at ~ 5%

Nominal GDP Growth at 12.5%Corporate earnings growth at 15 18%

IndiaAn Investment Opportunity



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Capital expenditureTo grow

IIP(Industrial Index of Production) Growth to pick up again, will needcapacity expansion..Strong order book log improves revenue visibilityConsumption To get stimuli

Per capita income has grown by 7% CAGR over the pastdecade; positive demographics

Rising aspiration, availability and affordability of IndiansCompetitiveness Adds business confidence

Compelling and sustainable Cost and Skill advantage

Brand India gaining more acceptability globallyContinuation of structural reforms

VATa good beginning; abolition of LTCG( Long Term Capital Gains ) inequityThrust on infrastructure creation

Political will to push reforms despite resistance

Fundamentals: 4 C Effect




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Liquidity: More to come

Indian households are under-invested in equity, thanks

to high interest rate regime in the past

Cumulative FII holdings in India: ~ 40bnUSD against

total FII stocks globally: ~ 35trUSD. India still not rated

as an investment grade

More domestic institutional funds to come Insurance,

Pension Funds, AMCs etc

Long term global investors like pension funds and

institutional trusts also have started participating in

Opportunity India





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India has come a long way from near bankruptcy in early 90s to being

one of the fastest growing economy in the world

64% of Indias GDP is consumption-led; providing sustainability to

economic growth

Average EPS growth rate of Sensex companies over the last 5 years:

18% CAGR

Healthy balance sheet and operating efficiency improved capacity

utilisation, cash up, debt / equity down, growing profitability


Valuation: Supported by Earnings




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GDP growth to remain strong

Changing lifestyle to boost consumption

Capital spend to lead to increased demand for capital goods

Continuation of structural reforms

FDI to be more relaxed

Market cap / GDP ratio still low

Liquidity to continue Valuations Fair but not stretched

Way AheadIndiaAn Investment Opportunity



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Concerns Expectation of high Interest Rates

Expectation of high Oil Prices

High Fiscal and Current Account Deficits Geopolitical Tensions

Possibility of Liquidity Withdrawals

Reduction in leveraged positions Flight to non-risky assets

Huge VolatilityA Key Deterrent

Case for Investing


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Should we invest in equity?

If in-the market, possibility of capital loss!!!

If out-of the market, possibility of opportunityloss!!!

Capital Lossv/s

Oppor tun i ty Loss

Dilemma


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HOW MUCH SHOULD YOU EARN

TO FIGHT INFLATION - 6%

BANK INTEREST 7%

Hence, you have to earn 13% just to stayafloat.

Your real gain is the extra that you earn above13%. Equities gives you atleast 18 25% on aconservative estimate.(Moneylender calculation)

ASSET ALLOCATION DECISION


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Must be DRIVEN BY

Your Financial Goals

&

Your Risk Appetite

Hence, Time, Rate of Return & Risk

ASSET ALLOCATION DECISION


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Success of any Investment

Longevity Growth

Quality of Growth

What to Invest In ?


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i.e.: Which Stocks ?

1. External Opportunities

2. Sustainable Competitive Ability

3. Scalability and Operating Leverage

4. Management Quality and Capital efficiency

5. Price and Value Divergence( What we buy and at what price webuy ? )

What to Invest In ?

What options do we have today ?


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What options do we have today ?

Investment with Limited Understanding and many uncertainties. So,

Our entry pricing must give us a margin of safety

Reduce LOSS and EXTENT OF LOSS

LONG TERM rather than SHORT TERM

WHY INDIA ???


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WHY INDIA ???

INDIA is a confluence of CAPITAL EXPENDITURE andCONSUMPTION CYCLE in INDIA is the highest.

One of the several booming sectors therefore are: FMCG, Power,Construction and Engineering sector (infra).


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When INVESTING

Place greater emphasis on Superior Business Models rather thansectors for investing decisions.

An Entrepreneur makes an invaluable difference to the investment

returns.

Eg.: INFOSYS, ADITYA B IRLA NUVO,B IOCON, BHEL

Recognise the passion and the skills of the entrepreneur and thenbelieve in the VISION and BELIEFS of the entrepreneur, and above all

VALIDATE THE RISKS that may or may not have been perceived bythe entrepreneur.

Understand the broad drivers of PROFIT & GROWTH.


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Drivers for Indian Equities

Earnings Momentum Re-Rating Potential

Lack of Investment alternatives for Indias growing

Savings Larger Aspirations

Rising Risk Appetite Equity Participation by Indian & Foreign Investors is still at a fairly nascent

stage.

Equity Valuations are still far away from their Peak Valuations.


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To Summarise

Superior Investment Returns are from a combination of

WISDOM and PATIENCE

rather than

INTELLECT & EXPECTATIONS ofQUICK & HIGH RETURNS.


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USUAL BUY Strategies

INTRA DAY Buy in the morning when the market opens or during the day BUT selling it beforethe close of trading hours ON THE SAME DAY

( 9.55a.m to 3.30p.m).

Two options (1) BUY - SELL ----Buy at LCL & Sell at UCL

(2) SHORTSELL SELL at a High Price in anticipation of a drop in

price as the day goes along.

i.e.: Stock Opens at Higher Level SHORTSELL and then

BUY at LOWER LEVELS by the AFTERNOON.

INFORMATION With YOU from a RELIABLE Source.

NEWS tickers on NEWS Channels, investment bankers, brokers.

ON DELIVERY BASIS:

Short term Long term


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For Income Tax Purposes

On Long term gains NIL Tax

On Short term gains 10% income tax

On Day Trades gains The gains are addedto your gross income and subjected to tax.(

Treated as Business Income )


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BA

There was a one hour interview on

CNBC with Warren Buffet, the second

richest man who has donated $31 billion

to charity. Following are some very

interesting aspects of his life


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BA

1.He bought his first share at age 11 and he nowregrets that he started too late!

Things were very cheap that time

Encourage your children to invest2.He bought a small farm at age 14 with savings

from delivering newspapers.

One could have bought many things with little savingsEncourage your children to start some kind ofbusiness


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BA

3.He still lives in the same small 3-bedroom

house in mid-town Omaha , that he bought

after he got married 50 years ago. He saysthat he has everything he needs in that

house. His house does not have a wall or a

fence.

Don't buy more than what you "really need" and

encourage your children to do and think the same


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BA

4.He drives his own car everywhere and doesnot have a driver or security people around

him.

You are what you are

5.He never travels by private jet, although he

owns the world's largest private jet company.

Always think how you can accomplish things

economically


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BA

6.His company, Berkshire Hathaway, owns 63

companies. He writes only one letter each

year to the CEOs of these companies, giving

them goals for the year. He never holds

meetings or calls them on a regular basis.

Assign the right people to the right jobs


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BA

7.He has given his CEO's only two rules.

Rule number 1: do not lose any of your share

holder's money.

Rule number 2: Do not forget rule number 1.

Set goals and make sure people focus on them


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BA

8.He does not socialize with the high societycrowd. His past time after he gets home isto make himself some pop corn and watch

Television.

Don't try to show off, just be your self and do whatyou enjoy doing

9.Warren Buffet does not carry a cell phone,

nor has a computer on his desk.


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BA

9.Bill Gates, the world's richest man met himfor the first time only 5 years ago. Bill Gates

did not think he had anything in common

with Warren Buffet. So he had scheduledhis meeting only for half hour. But when

Gates met him, the meeting lasted for ten

hours and Bill Gates became a devotee of

Warren Buffet.


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BA

His advice to young people:

"Stay away from credit cards (bank loans) and invest

in yourself and Remember:

A. Money doesn't create man but it is the man who

created money.

B. Live your life as simple as you are.C. Don't do what others say, just listen them, but

do what you feel good.


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BA

D. Don't go on brand name; just wear thosethings in which you feel comfortable.

E. Don't waste your money on unnecessarythings; just spend on them who really in

need rather.

F. After all it's your life then why give chance

to others to rule our life."

Buffets maxims for future


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BA

Buffet s maxims for future

guidance (2009)

Hard work: All hard work bring a profit, butmere talk leads only to poverty.

Laziness: A sleeping lobster is carried

away by the water current. Earnings: Never depend on a single

source of income.. [At least make yourInvestments get you second earning]

Spending: If you buy things you don'tneed, you'll soon sell things you need.


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BA

Savings: Don't save what is left afterspending; Spend what is left after saving.

Borrowings: The borrower becomes the

lender's slave. Accounting: It's no usecarrying an umbrella, if your shoes areleaking.

Auditing: Beware of little expenses; Asmall leak can sink a large ship.


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BA

Risk-taking: Never test the depth of theriver with both feet. [Have an alternateplan ready]

Investment: Don't put all your eggs in onebasket.


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BA

"The HAPPIEST

people DONOTnecessarily have the

BEST of all.

They simply

APPRECIATE what

they find on theirway

Let us choose the way to live


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Power of Equity

Unbelievablebut it has

happened

Just imagine


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Just imagine

How much can you make in 26years by just investing Rs.10,000

initially in any of financialinstruments ?

Take a wild guess ???Let us look at the real

example


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If yo u h ave subs cr ibed in 100 shares o f ________ company w itha face value of Rs. 100 in 1980

In 1981 company declared 1:1 bonus = you have 200sharesIn 1985 company declared 1:1 bonus = you have 400shares

In 1986 company split the share to Rs. 10 = you have 4,000sharesIn 1987 company declared 1:1 bonus = you have 8,000sharesIn 1989 company declared 1:1 bonus = you have 16,000sharesIn 1992 company declared 1:1 bonus = you have 32,000sharesIn 1995 company declared 1:1 bonus = you have 64,000sharesIn 1997 company declared 1:2 bonus = you have 1,92,000sharesIn 1999 company split the share to Rs. 2 = you have 9,60,000sharesIn 2004 company declared 1:2 bonus = you have 28,80,000sharesIn 2005 company declared 1:1 bonus = you have 57,60,000shares


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At the end of 2005

You have 57,60,000shares of the

company

Any guess about the company ?

(Hint : Its an Indian company)Any guess about the presentvaluation ?


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The result ofPower of

Compounding

Your present valuation is aboutRs. 200 Cr.+

&

The company is WIPRO

O


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Other such examples

CIPLAInvestment of Rs. 10,000 in 1979

will fetch Rs. 95 cr.+

INFOSYSInvestment of Rs. 10,000 in 1992will fetch Rs. 1.5 cr.+

RANBAXYInvestment of Rs. 1000 in 1980

will fetch Rs. 1.9 cr.+

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