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Introduction to StockMarket
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Bombay Stock &Cotton Exchange
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The origins of the BSE canbe traced to the 1830s whenan informal group of around22 brokers traded in cottonunder an old Banyan tree.
The tree still stands in theHorniman Circle Park nearFlora Fountain. This grouporganised themselves as
The Native Share &Stockbrokers' Association,which, in 1875, was formally
christened as the BombayStock Exchange (BSE).
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Horniman Circle - known as Bombay Greens in the 18th century
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First lady traderMeera Patel withdaughter, in 1989.
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Outcry System to BOLTBSE followed the familiar
Outcry System for trading till 1995 when it was replaced
by BOLT, or the BSE OnLine Trading system.
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Technology replaced lung-power on the BSE in 1995.There were new Gods to be worshipped that Mahurat Day.
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What are various options available for
investment?
One may invest in:
Physical assets like real estate, gold / jewellery,
commodities etc.
and/or
Financial assets such as fixed deposits with banks, smallsaving instruments with post offices, insurance /
provident / pension fund etc. or securities market related
instruments like shares, bonds, debentures etc.
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Bonds
It is a fixed income (debt) instrument issued
for a period of more than one year with the
purpose of raising capital. The central or
state government, corporations and similar
institutions sell bonds. A bond is generally a
promise to repay the principal along with afixed rate of interest on a specified date,
called the Maturity Date.
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Mutual Funds
These are funds operated by an investmentcompany which raises money from the public
and invests in a group of assets (shares,
debentures etc.), in accordance with a statedset of objectives. It is a substitute for those who
are unable to invest directly in equities or debt
because of resource, time or knowledgeconstraints. Benefits include professional
money management, buying in small amounts
and diversification.
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Mutual fund units are issued and redeemed
by the Fund Management Company based on
the fund's net asset value (NAV), which is
determined at the end of each tradingsession. NAV is calculated as the value of all
the shares held by the fund, minus expenses,
divided by the number of units issued.
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What is a Depository?
A depository is like a bank wherein the deposits
are securities (viz. shares, debentures, bonds,government securities, units etc.) in electronic
form.
What is Dematerialization?
Dematerialization is the process by which
physical certificates of an investor are convertedto an equivalent number of securities in
electronic form and credited to the investors
account with his Depository Participant (DP).
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Which are the securities one can invest in?
Shares
Government Securities
Derivative productsUnits of Mutual Funds etc.
are some of the securities investors in thesecurities market can invest in.
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What is the role of the Primary Market?
The primary market provides the channel
for sale of new securities. Primary market
provides opportunity to issuers ofsecurities; Government as well as
corporates, to raise resources to meet
their requirements of investment and/ordischarge some obligation.
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What are the different kinds of issues?
Initial Public Offering (IPO) is when an unlisted company makes either a fresh
issue of securities or an offer for sale of its existing securities or both for the
first time to the public. This paves way for listing and trading of the issuerssecurities. The sale of securities can be either through book building or
through normal public issue.
A follow on public offering (Further Issue) is when an already listed company
makes either a fresh issue of securities to the public or an offer for sale to the
public, through an offer document.
Rights Issue is when a listed company which proposes to issue fresh securities
to its existing shareholders as on a record date. The rights are normally offered
in a particular ratio to the number of securities held prior to the issue. This
route is best suited for companies who would like to raise capital without
diluting stake of its existing shareholders. For e.g. a 2:3 rights issue at Rs. 125,
would entitle a shareholder to receive 2 shares for every 3 shares held at a
price of Rs. 125 per share.
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A Preferential issue is an issue of shares or of
convertible securities by listed companies to
a select group of persons under Section 81 ofthe Companies Act, 1956 which is neither a
rights issue nor a public issue. This is a faster
way for a company to raise equity capital.The issuer company has to comply with the
Companies Act and the requirements
contained in the Chapter pertaining topreferential allotment in SEBI guidelines
which inter-alia include pricing, disclosures in
notice etc.
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What is meant by Face Value of a share/debenture?
The nominal or stated amount (in Rs.) assigned to a security
by the issuer. For shares, it is the original cost of the stockshown on the certificate; for bonds, it is the amount paid to
the holder at maturity. Also known as par value or simply
par. For an equity share, the face value is usually a very
small amount (Rs. 5, Rs. 10) and does not have muchbearing on the price of the share, which may quote higher in
the market, at Rs. 100 or Rs. 1000 or any other price. For a
debt security, face value is the amount repaid to the investor
when the bond matures (usually, Government securities andcorporate bonds have a face value of Rs. 100). The price at
which the security trades depends on the fluctuations in the
interest rates in the economy.
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What do you mean by the term Premium
and Discount in a Security Market?
Securities are generally issued in
denominations of 5, 10 or 100. This is
known as the Face Value or Par Value of thesecurity.
When a security is sold above its face value,it is said to be issued at a Premium and if it
is sold at less than its face value, then it is
said to be issued at a Discount.
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Who decides the price of an issue in IPO?
Indian primary market ushered in an era of free pricing in
1992. Following this, the guidelines have provided that theissuer in consultation with Merchant Banker shall decide
the price. There is no price formula stipulated by SEBI. SEBI
does not play any role in price fixation. The company and
merchant banker are however required to give fulldisclosures of the parameters which they had considered
while deciding the issue price. There are two types of
issues, one where company and Lead Merchant Banker fix a
price (called fixed price) and other, where the company and
the Lead Manager (LM) stipulate a floor price or a price
band and leave it to market forces to determine the final
price (price discovery through book building process).
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What is a Price Band in a book built IPO?
The prospectus may contain either the floor price for the
securities or a price band within which the investors can
bid. The spread between the floor and the cap of the price
band shall not be more than 20%.
*In case the price band is revised, the bidding period shall
be extended for a further period of three days, subject to
the total bidding period not exceeding ten days.
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What does price discovery through Book
Building Process mean?
Book Building is basically a process used in
IPOs for efficient price discovery. It is a
mechanism where, during the period forwhich the IPO is open, bids are collected
from investors at various prices, which are
above or equal to the floor price. The offerprice is determined after the bid closing
date.
What is the main difference between offer of shares
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What is the main difference between offer of shares
through book building and offer of shares through normal
public issue?
Price at which securities will be allotted is not known in
case of offer of shares through Book Building while in case
of offer of shares through normal public issue, price is
known in advance to investor. Under Book Building,investors bid for shares at the floor price or above and after
the closure of the book building process the price is
determined for allotment of shares.
In case of Book Building, the demand can be known
everyday as the book is being built. But in case of the
public issue the demand is known at the close of the issue.
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What is Cut-Off Price?
In a Book building issue, the issuer is required
to indicate either the price band or a floor
price in the prospectus. The actual discovered
issue price can be any price in the price bandor any price above the floor price. This issue
price is called Cut-OffPrice. The issuer and
lead manager decides this after consideringthe book and the investors appetite for the
stock.
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What is minimum number of days for which a bid should remain
open during book building?
The Book should remain open for a minimum of 3 days.
How does one know if shares are allotted in an IPO/offer for sale?
What is the timeframe for getting refund if shares not allotted?
As per SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009 the Basis of Allotment should be completed
within 8 days from the issue close date. As soon as the basis of
allotment is completed, within 2 working days the details of credit
to demat account / allotment advice and despatch of refund order
needs to be completed. So an investor should know in about 11
days time from the closure of issue, whether shares are allotted tohim or not.
How long does it take to get the shares listed after issue?
It takes 12 working days after the closure of the book built issue.
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Minimum Subscription
The minimum shares the company
needs to get from the public out of the
total issue by the date of closure.
(Presently every company need to raise90% of the issued amount). Else, the
company shall refund the whole
amount received. This 90 % has to be
exclusive of the cheques that are notcleared.
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What is a Derivative?
Derivative is a product whose value is derived
from the value of one or more basic variables,
called underlying. The underlying asset can be
equity, index, foreign exchange (forex),
commodity or any other asset.
Derivative products initially emerged as hedging
devices against fluctuations in commodity pricesand commodity-linked derivatives remained the
sole form of such products for almost three
hundred years.
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What are Types of Derivatives?
Forwards: A forward contract is a customized contract between two
entities, where settlement takes place on a specific date in the
future at todays pre-agreed price.
Futures: A futures contract is an agreement between two parties tobuy or sell an asset at a certain time in the future at a certain price.
Futures contracts are special types of forward contracts in the sense
that the former are standardized exchange-traded contracts, such
as futures of the Nifty index.
O ti A O ti i t t hi h i th i ht b t t
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Options: An Option is a contract which gives the right, but not an
obligation, to buy or sell the underlying at a stated date and at a
stated price. While a buyer of an option pays the premium and buys
the right to exercise his option, the writer of an option is the one who
receives the option premium and therefore obliged to sell/buy theasset if the buyer exercises it on him.
Options are of two types - Calls and Puts options:
Callsgive the buyer the right but not the obligation to buy a given
quantity of the underlying asset, at a given price on or before a given
future date.
Putsgive the buyer the right, but not the obligation to sell a given
quantity of underlying asset at a given price on or before a given
future date.
Presently, at NSE futures and options are traded on the Nifty, CNX IT,
BANK Nifty and 116 single stocks.
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What is an Option Premium?
At the time of buying an option contract, the
buyer has to pay premium. The premium is the
price for acquiring the right to buy or sell.
It is price paid by the option buyer to the option
seller for acquiring the right to buy or sell. Option
premiums are always paid upfront.
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Who is a Depository Participant (DP)?
The Depository provides its services to investors
through its agents called depository participants
(DPs). These agents are appointed by the depository
with the approval of SEBI. According to SEBI
regulations, amongst others, three categories ofentities, i.e. Banks, Financial Institutions and SEBI
registered trading members can become DPs.
What is an ISIN?
ISIN (International Securities Identification Number) is
a unique identification number for a security.
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What is an ETF?
Think of an exchange-traded fund as a mutual fund thattrades like a stock. Just like an index fund, an ETF
represents a basket of stocks that reflect an index such as
the Nifty. An ETF, however, isn't a mutual fund; it trades
just like any other company on a stock exchange. Unlike amutual fund that has its net-asset value (NAV) calculated
at the end of each trading day, an ETFs price changes
throughout the day, fluctuating with supply and demand.
It is important to remember that while ETFs attempt toreplicate the return on indexes, there is no guarantee
that they will do so exactly.
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What is the maximum brokerage that a broker can
charge?
The maximum brokerage that can be charged by a
broker from his clients as commission cannot be more
than 2.5% of the value mentioned in the respective
purchase or sale note.
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Stock ExchangeThe Securities Contract (Regulation) Act, 1956 [SCRA] defines StockExchange
as any body of individuals, whether incorporated or not, constituted for the
purpose of assisting, regulating or controlling the business of buying, selling
or dealing in securities.
The main financial products/instruments dealt in the capital market are:
Equity Shares
Rights Issue / Rights Shares
Bonus Shares
Preferred Stock / Preference shares
Cumulative Preference Shares
Cumulative Convertible Preference
Shares
Participating Preference Share
Security Receipts
Government securities (G-Secs)
Debentures
Bond
Zero Coupon Bond
Convertible Bond
Commercial Paper
Treasury Bills
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Index
An Index shows how a specified portfolio of
share prices is moving in order to give an
indication of market trends. It is a basket ofsecurities and the average price movement
of the basket of securities indicates the
index movement, whether upwards ordownwards.
BSE 30
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BSE 30
ICICI BANK LTD. BAJAJ AUTO LIMITED
HOUSING DEVELOPMENT FINANCE CORP. LTD HERO MOTOCORP LIMITED
LARSEN & TOUBRO LIMITED MARUTI SUZUKI INDIA LTD.
INFOSYS LTD JINDAL STEEL & POWER LTD
HDFC BANK LTD. STERLITE INDUSTRIES (INDIA) LTD
MAHINDRA & MAHINDRA LTD. STATE BANK OF INDIA,
DR. REDDY'S LABORATORIES LTD., SUN PHARMACEUTICAL INDUSTRIES LTD.
ITC LTD GAIL (INDIA) LTD.
TATA MOTORS LTD. BHARTI AIRTEL LTD.
TATA STEEL LIMITED BHARAT HEAVY ELECTRICALS LTD.,
TATA POWER CO. LTD TATA CONSULTANCY SERVICES LTD.
HINDALCO INDUSTRIES LTD. OIL AND NATURAL GAS CORPORATION LTD
CIPLA LTD., WIPRO LTD.,
RELIANCE INDUSTRIES LTD NTPC LIMITED
HINDUSTAN UNILEVER LTD., COAL INDIA LIMITED
NIFTY 50
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NIFTY 50S.No. Company Name S.No. Company Name
1 ACC Ltd. 26 IDFC Ltd.
2 Ambuja Cements Ltd. 27 Jaiprakash Associates Ltd.
3 Asian Paints Ltd. 28 Jindal Steel & Power Ltd.
4 Axis Bank Ltd. 29 Kotak Mahindra Bank Ltd.
5 Bajaj Auto Ltd. 30 Larsen & Toubro Ltd.
6 Bank of Baroda 31 Mahindra & Mahindra Ltd.
7 Bharat Heavy Electricals Ltd. 32 Maruti Suzuki India Ltd.
8 BPCL 33 NTPC Ltd.
9 Bharti Airtel Ltd. 34 Oil & Natural Gas Corporation Ltd.
10 Cairn India Ltd. 35 Power Grid Corporation of India Ltd.
11 Cipla Ltd. 36 Punjab National Bank12 Coal India Ltd. 37 Ranbaxy Laboratories Ltd.
13 DLF Ltd. 38 Reliance Industries Ltd.
14 Dr. Reddy's Laboratories Ltd. 39 Reliance Infrastructure Ltd.
15 GAIL (India) Ltd. 40 Sesa Goa Ltd.
16 Grasim Industries Ltd. 41 Siemens Ltd.
17 HCL Technologies Ltd. 42 State Bank of India
18 HDFC Bank Ltd. 43 Steel Authority of India Ltd.19 Hero MotoCorp Ltd. 44 Sterlite Industries (India) Ltd.
20 Hindalco Industries Ltd. 45 Sun Pharmaceutical Industries Ltd.
21 Hindustan Unilever Ltd. 46 Tata Consultancy Services Ltd.
22 HDFC Ltd. 47 Tata Motors Ltd.
23 I TC Ltd. 48 Tata Power Co. Ltd.
24 ICICI Bank Ltd. 49 Tata Steel Ltd.
25 Infosys Ltd. 50 Wipro Ltd.
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Market Capitalization Meaning
The total rupee market value of all of acompany's outstanding shares. Market
capitalization is calculated by multiplying a
company's shares outstanding by the currentmarket price of one share. The investment
community uses this figure to determining a
company's size, as opposed to sales or total assetfigures. Market Capitalization is
frequently referred to as "market cap".
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If a company has 35 million shares outstanding,
each with a market value of Rs. 100, the
company's market capitalization is Rs. 3.5 billion(35,000,000 x Rs. 100 per share).
Company size is a basic determinant of assetallocation and risk-return parameters for stocks
and stock mutual funds. The term should not be
confused with a company's "capitalization,"
which is a financial statement term that refers
to the sum of a company's shareholders' equity
plus long-term debt.
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Classification of Stocks
The stocks of large, medium and small companies are referred to aslarge-cap, mid-cap, and small-cap, respectively. Investment
professionals differ on their exact definitions, but the current
approximate categories of market capitalization are:
Large Cap
$10 billion plus and include companies with largest market
capitalization Excellent track record Strong Balance Sheet Good investor coverage (Financials widely tracked) Typically in the stable phase of growth with good dividend policies
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Mid Cap
Medium sized companies with market capital of
$2 billion to $10 billion and good financials
Balance Sheet varies from moderately strong tobeing wobbly
Good growth prospectus but the aggressivephase behind it
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Small Cap
Startups to very small companies in an earlystage of growth with less than $2 billion of
market capital.
Typically not so strong Balance Sheet
Promises high growth along with a lurkingchance of bankruptcy.
The Bombay Stock Exchange (BSE)
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The Bombay Stock Exchange (BSE)Vision
"Emerge as the premier Indian stock exchangeby establishing global benchmarks"
Logo
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The Bombay Stock Exchange (BSE) is the oldest stock
exchange in Asia. The equity market capitalization of the
companies listed on the BSE was US$1 trillion as of December
2011, making it the 6th largest stock exchange in Asia and the14th largest in the world. The BSE has the largest number of
listed companies in the world.
As of March 2012, there are over 5,133 listed Indiancompanies and over 8,196 scrips on the stock exchange,the
Bombay Stock Exchange has a significant trading volume. The
BSE SENSEX, also called "BSE 30", is a widely used market
index in India and Asia. Though many other exchanges exist,
BSE and the National Stock Exchange of India account for themajority of the equity trading in India. While both have
similar total market capitalization (about USD 1.6 trillion),
share volume in NSE is typically two times that of BSE.
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Base Year : 1978-79
Base Index Value : 100
Date of Launch : 01-01-1986Number of scripts : 30
Method of calculation: Launched on full market
capitalization method and
effective 01-9-03, calculation method shifted to
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SENSEX - Scrip Selection Criteria
The general guidelines for selection of constituents in SENSEX are as follows:
Listed History: The scrip should have a listing history of at least 3 months at BSE. Exception may be
considered if full market capitalization of a newly listed company ranks among top 10 in the list of BSEuniverse. In case, a company is listed on account of merger/ demerger/ amalgamation, minimum
listing history would not be required.
Trading Frequency: The scrip should have been traded on each and every trading day in the last three
months at BSE. Exceptions can be made for extreme reasons like scrip suspension etc.
Final Rank: The scrip should figure in the top 100 companies listed by final rank. The final rank is
arrived at by assigning 75% weightage to the rank on the basis of three-month average full market
capitalization and 25% weightage to the liquidity rank based on three-month average daily turnover &
three-month average impact cost.
Market Capitalization Weightage: The weightage of each scrip in SENSEX based on three-month
average free-float market capitalization should be at least 0.5% of the Index.
Industry/Sector Representation: Scrip selection would generally take into account a balanced
representation of the listed companies in the universe of BSE.
Track Record: In the opinion of the BSE Index Committee, the company should have an acceptable
track record.
National Stock Exchange (NSE)
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National Stock Exchange (NSE)The National Stock Exchange (NSE) is the 16th largest stock
exchange in the world by market capitalization and largest in
India by daily turnover and number of trades, for both equitiesand derivative trading. NSE has a market capitalization of
around US$985 billion and over 1,646 listings as of December
2011.
The NSE's key index is the S&P CNX Nifty, known as the NSE
NIFTY (National Stock Exchange Fifty), an index of 50 major
stocks weighted by market capitalisation.
In 2011, NSE was the 3rd largest stock exchange in the world interms of the number of contracts (1221 million) traded in equity
derivatives. It is the 2nd fastest growing stock exchange in the
world with a recorded growth of 16.6%.
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Currently, NSE has the following major segments of the capital market:
Equity
Futures and Options
Retail Debt Market
Wholesale Debt Market
Currency futures
MUTUAL FUND
STOCKS LENDING & BORROWING
NSE also set up as index services firm known as India Index Services & Products
Limited (IISL) and has launched several stock indices, including:
S&P CNX Nifty (Standard & Poor's CRISIL NSE Index)
CNX Nifty Junior CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)
S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)
CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)
Session Timings
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Session Time Action
Order Entry
Period 9:00am -9:07/08am
Order Addition/Modification/CancellationRandom stoppage between 7th and 8th minuteDissemination of Indicative Price, Cumulative buy &
sale Quantity & Indicative IndexUniform price band of 20% is applicable
Order Matching &
Confirmation
Period 9:08am - 9.12amNo Order Addition/Modification/Cancellation
Opening price determination, order matching and
trade confirmation & trade confirmation
Buffer Period 9:12am - 9:15am To facilitate transition between pre open andcontinuous trading session
Continuous Trading Session 9:15am 3:30pm
Trades occur continuously as orders match at time/price priority
g
Index Closure Algorithm
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The closing SENSEX on any trading day is computedtaking the weighted average of all the trades on
SENSEX constituents in the last 30 minutes of
trading session. If a SENSEX constituent has not
traded in the last 30 minutes, the last traded priceis taken for computation of the Index closure. If a
SENSEX constituent has not traded at all in a day,
then its last day's closing price is taken for
computation of Index closure. The use of IndexClosure Algorithm prevents any intentional
manipulation of the closing index value.
Index Closure Algorithm
Typical Terms used in the Capital Market
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Typical Terms used in the Capital Market
Typical Terms used in the Capital Market
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Market Top: A recent top after which prices started fallingMarket Bottom: A recent bottom after which prices reboundedRally: Used to indicate that prices increased during a time periodCorrection: Used to indicate a brief reversal after a good riseTrader/Speculator: Used to indicate a person who takes a short term bet on
market.Investor: Typically a market participant who has a longer time horizonShort Selling: The process of selling a borrowed security with the hope of buying
at a lower priceLeveraging: The act of using borrowing money to participate in the marketsIntra-day Trading: The process of buying/selling and reversing it the same dayDelivery: The process of buying a security for more than a trading session
yp p
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Bear Market Rally: A period in which prices of stocks increase during a bear
market. A bear market rally is usually a short-lived market increase following a
period of market decline and is followed by another period of market declineleading to a pronounced down trend.
Black Friday: A day of stock market catastrophe. Originally, September 24,
1869, was deemed Black Friday. The crash was sparked by gold speculators,
including Jay Gould and James Fist, who attempted to corner the gold market.
The attempt failed and the gold market collapsed, causing the stock market toplummet.
Lemon: A very disappointing investment. Your expected return wasn't even
close to being achieved.
Panic Selling: Wide-scale selling of an investment, causing a sharp decline in
price. In most instances of panic selling, investors just want to get out of the
investment, with little regard for the price at which they sell.
Some Animals in the Capital Markets
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Some Animals in the Capital Markets
Some Animals in the Capital Markets
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Bear: An investor who believes that a particular security or market is headed
downward. Bears attempt to profit from a decline in prices. Bears are
generally pessimistic about the state of a given market.
Bull: An investor who thinks the market, a specific security or an industry will rise.
Bulls are optimistic investors who are presently predicting good things for the
market, and are attempting to profit from this upward movement.
Elephants: Slang for large institutions that have the funds to make high volumes
trades. Due to the large volumes of stock that elephants deal in, any investmentdecisions that they make will have a large influence on the price of the
underlying financial asset.
Herd Instinct: A mentality characterized by a lack of individuality, causing people
to think and act like the general population. This term is used in the investing
world to refer to the forces that cause unsubstantiated rallies or sell-offs.
Lame Duck: A person who has defaulted on his or her debts or has gone
bankrupted due to the stock market. The financial use of the term is most
commonly used in Europe.
Factors that influence the Capital Market and Price of a stock
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Macroeconomic Data
(IIP, Inflation, GDP, Industrial Growth,
Consumer confidence, Employment,
Unemployment etc.)FII activitiesCrude PricesGovernment/PoliticsDraught/MonsoonFederal Policies
(Interest Rates, Monetary Policies)Company ResultsGlobal CuesStock ManipulationsInsider TradingMergersAcquisitionsMoney MarketsNew Orders
Buy BackBonus
Split
Tax Benefits
Change in stock Group
Inclusion in an IndexLoss of customerShort and Long PositionsLawsuits (win or loss)Change in DemandChange in SupplyBudgetRaw MaterialsWarTerrorist AttacksManagement ChangesDividendRights IssueJoint VenturesBusiness ExpansionNew InventionRumors
h i id d k i ?
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What is Bid and Ask price?
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Rakesh Jhunjhunwala
Rakesh (born 5 July 1960) is an Indian investor
and trader by profession. He is a Chartered
accountant by qualification. He is also an
equity investor in India and manages his ownportfolio as a partner in his asset management
firm, Rare Enterprises. Jhunjhunwala was
described in a magazine as the "pin-up boy ofthe current bull run" and by another as "Pied
Piper of Indian bourses".
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Presented By :-
Piyush GoenkaMBA-FT 1
Section A
Fine$$e Member
THE END