Okay. Having seen what is a Share, Share Market, SEBI etc., let us get little deeper into the Stock Market fundamentals. Before that let us see some important terminologies that are used more frequently.
The securities market essentially has three categories of participants, namely,
- the issuers of securities (The companies, for example L&T )
- the investors in securities (Individuals, Foreign Financial Institutions (FII), Domestic Financial Institutions (like LIC)
- the intermediaries, such as merchant bankers, brokers etc.
While the corporates and government raise resources from the securities market to meet their obligations, it is the households that invest their savings in the securities market along with the Institutions.
Srip /Counter : A company's share is being called like this. Those who are in the Stock Market often use this. Like - Buy this scrip. Do not enter that counter.
Market Capitalisation (Market Cap) : The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares the company has issued is called market capitalization. E.g. Company A has 10,00,000 shares issued. The current market price is Rs. 100. The market capitalisation of company A is Rs. 10,00,00,000 (Rs.10 crores)
Sensex
It is the short form for SENsitive indEX. This index represents the movement of the sensitive companies share price traded on the Bombay Stock Exchange (BSE). The base year for the index is 1978-79 and it was launched on 1-Jan-1986. The current 30 scrips (with the sectors that it represents) that make this SENSEX are:
- ACC Ltd. (Housing Related)
- Bharat Heavy Electricals Ltd. (Capital Goods)
- Bharti Airtel Ltd. (Telecom)
- DLF Ltd. (Housing Related)
- Grasim Industries Ltd. (Diversified)
- HDFC (Finance)
- HDFC Bank Ltd. (Finance)
- Hero Honda Motors Ltd. (Transport Equipments)
- Hindalco Industries Ltd. (Metal,Metal Products & Mining)
- Hindustan Unilever Ltd. (FMCG)
- ICICI Bank Ltd. (Finance)
- Infosys Technologies Ltd. (Information Technology)
- ITC Ltd. (FMCG)
- Jaiprakash Associates Ltd. (Housing Related)
- Larsen & Toubro Limited (Capital Goods)
- Mahindra & Mahindra Ltd. (Transport Equipments)
- Maruti Suzuki India Ltd. (Transport Equipments)
- NTPC Ltd. (Power)
- ONGC Ltd. (Oil & Gas)
- Reliance Communications Limited (Telecom)
- Reliance Industries Ltd. (Oil & Gas)
- Reliance Infrastructure Ltd. (Power)
- State Bank of India (Finance)
- Sterlite Industries (India) Ltd. (Metal,Metal Products & Mining)
- Sun Pharmaceutical Industries Ltd. (Healthcare)
- Tata Consultancy Services Limited (Information Technology)
- Tata Motors Ltd. (Transport Equipments)
- Tata Power Company Ltd. (Power)
- Tata Steel Ltd. (Metal,Metal Products & Mining)
- Wipro Ltd. (Information Technology)
To know more about how it is calculated, CLICK HERE (It will take you to the BSE site) - it is a bit technical one. For our understanding, if the Index goes up or down, we know the general movement of the market. You need to remember that a scrip's price will go up, even if the Index is going down. If the heavy weights pulls the market, the index will go down. Also, it is not necessary that all the Index scrips to go down to make the Index to go down.
You can see how the scrip moved (within the Index today) in the chart at the bottom of this Blog. The scrips there represents the NIFTY. Green indicates price moved upwards, Red indicates price moved downwards, White represents no movement. Darker shades of Green, Red indicates the grade of movement : 1%, 2%, 3% and so on...
This indication is with respect to the price of the last day's last traded price. For example on Friday evening, the share price of Suzlon at close was Rs95.80 and on Monday it closed at Rs.94.80 (It was down by Re.1 or 1.04%
Why they chose these 30 scrips is, they represent the market (as they are picked from various sectors and also they are actively traded).
These 30 scrips are reviewed periodically and changed accordingly, depending on the requirement. For example in 2009 the changes happened 2 times:
Like Sensex for BSE, the NIFTY is for National Stock Exchange (NSE). Niftfy is coined by combining NSE's Fifty shares. The list is already there in the grid (blow my blog) and for your reference I am reproducing the same.
Trading hours
It is the time the stock exchanges are open for trading in the scrips. For NSE, it is normally between 9.56am and 3.30pm (Monday to Friday).
Bulls & Bears
Bulls are those who expect the market to go up and they make money. The trend of Index (Sensex, Nifty etc.,) going upwards is called BULLISH trend or a BULL MARKET.
Bears are those who expect the market to fall, so that they can make money. This is also called short selling. To explain, if I feel the market is going to crash, I will sell my scrip which is currently trading at Rs.100 and once the scrip comes down to Rs.70 level, again I will buy the same. In this process, I have gained Rs.30 per share (Rs.100 - Rs.70) per share, while I still hold the share.
Just a days fall in the market cannot be termed as a BEARISH market. It should be a continuous one and around 20% drop in the index to be termed as a BEAR MARKET or a BEARISH trend.'
To give an example, Indian stock markets were on a BULL run till Jan 2008 and then in a BEAR run. From the election results, the markets are again in a bull phase.
How the trends are decided? This is a million dollar question to many of the investors. All I could say is that what drives the market are:
When China was in trouble, Indian market fell, as if we are totally dependent on China.
I am not denying the fact that the all of the above has an impact, but it cannot be a momentary impact.
Trader
One who trades in scrips for making money. He stays with the scrip for a very short duration for the purpose of making profit
Investor
One who stay invested in a scrip to get profits on a long term basis.
Broker
An individual cannot directly buy or sell a scrip to another and it should be only traded through a broker. There are exceptions. For example, Father selling his shares to his son or daughter, Sale between friends, etc., these are all called off-market trasactions. For any transactions in a Stock Exchange, it should be only through a registered broker.
The broker will buy and sell the scrips on your behalf and charges fee (called brokerage) for the services. The charges will be about 0.5% of the value of the transaction.
Cost of transaction
Some of the other charges which are levied (on the transaction value) while doing the transaction in scrips are:
Securities Transaction Tax (STT) - 0.125%
Stamp Duty....................................- 0.010%
Transaction Fee..............................-0.003%
So, roughly, if you buy a scrip for Rs.100, you cost would be Rs.100.65 (in effect about 0.65% is the cost of transaction). This will differ as brokerages are different.
Why I am mention this here is, some feel that buying a share at Rs.100 and selling it at 100.50 feel that they made money. Assuming one has bought 1000 shares @ Rs.100 per share and sold it at Rs.100.50 per share, the next day. That person may be thinking that he has made Rs.500 in a day. But, he is not considering the transaction costs.
His real position is : His cost of acquisition would be Rs.100.65*1000 = Rs.1,00,650. His net sale proceeds would be Rs.101*1000 = Rs.1,01,000 less 0.65% transaction cost, i.e. Rs.100.35*1000 = Rs.1,00,350.
In effect, he made a loss of Rs.300 (Rs.1,00,350 - Rs.1,00,650).
To break-even, he should have sold the shares at Rs.101.28 (you can work back to check this)
Most of the people, new to the trading missing these hidden cost, till they see the contract note (will explain below) from the brokers.
Contract Note
In simple terms, it is the bill from the broker. When you buy or sell a scrip, you need to enter into a contract with the broker. This is required, as the broker is buying or selling on your behalf and has to be made good for any loss. So, the contract note is generated. Normally the brokers take advance from the clients and then do the transactions on their behalf.
Rest in next....cheers, Gopal
You can see how the scrip moved (within the Index today) in the chart at the bottom of this Blog. The scrips there represents the NIFTY. Green indicates price moved upwards, Red indicates price moved downwards, White represents no movement. Darker shades of Green, Red indicates the grade of movement : 1%, 2%, 3% and so on...
This indication is with respect to the price of the last day's last traded price. For example on Friday evening, the share price of Suzlon at close was Rs95.80 and on Monday it closed at Rs.94.80 (It was down by Re.1 or 1.04%
Why they chose these 30 scrips is, they represent the market (as they are picked from various sectors and also they are actively traded).
These 30 scrips are reviewed periodically and changed accordingly, depending on the requirement. For example in 2009 the changes happened 2 times:
- On 12-Jan-09, Satyam Computers was removed and was replaced by Sun Pharmaceutical
- On 29-Jun-09, Ranbaxy was removed and was replaced by Hero Honda.
Like Sensex for BSE, the NIFTY is for National Stock Exchange (NSE). Niftfy is coined by combining NSE's Fifty shares. The list is already there in the grid (blow my blog) and for your reference I am reproducing the same.
- ABB Ltd. (ELECTRICAL EQUIPMENT)
- ACC Ltd. (CEMENT AND CEMENT PRODUCTS)
- Ambuja Cements Ltd. (CEMENT AND CEMENT PRODUCTS)
- Axis Bank Ltd. (BANKS)
- Bharat Heavy Electricals Ltd. (ELECTRICAL EQUIPMENT)
- Bharat Petroleum Corporation Ltd. (REFINERIES)
- Bharti Airtel Ltd. (TELECOMMUNICATION - SERVICES)
- Cairn India Ltd. (OIL EXPLORATION/PRODUCTION)
- Cipla Ltd. (PHARMACEUTICALS)
- DLF Ltd. (CONSTRUCTION)
- GAIL (India) Ltd. (GAS)
- Grasim Industries Ltd. (CEMENT AND CEMENT PRODUCTS)
- HCL Technologies Ltd. (COMPUTERS - SOFTWARE)
- HDFC Bank Ltd. (BANKS)
- Hero Honda Motors Ltd. (AUTOMOBILES - 2 AND 3 WHEELERS)
- Hindalco Industries Ltd. (ALUMINIUM)
- Hindustan Unilever Ltd. (DIVERSIFIED)
- Housing Development Finance Corporation Ltd. (FINANCE - HOUSING)
- I T C Ltd. (CIGARETTES)
- ICICI Bank Ltd. (BANKS)
- Idea Cellular Ltd. (TELECOMMUNICATION - SERVICES)
- Infosys Technologies Ltd. (COMPUTERS - SOFTWARE)
- Jindal Steel & Power Ltd. (STEEL AND STEEL PRODUCTS)
- Larsen & Toubro Ltd. (ENGINEERING)
- Mahindra & Mahindra Ltd. (AUTOMOBILES - 4 WHEELERS)
- Maruti Suzuki India Ltd. (AUTOMOBILES - 4 WHEELERS)
- NTPC Ltd. (POWER)
- National Aluminium Co. Ltd. (ALUMINIUM)
- Oil & Natural Gas Corporation Ltd. (OIL EXPLORATION/PRODUCTION)
- Power Grid Corporation of India Ltd. (POWER)
- Punjab National Bank (BANKS)
- Ranbaxy Laboratories Ltd. (PHARMACEUTICALS)
- Reliance Capital Ltd. (FINANCE)
- Reliance Communications Ltd. (TELECOMMUNICATION - SERVICES)
- Reliance Industries Ltd. (REFINERIES)
- Reliance Infrastructure Ltd. (POWER)
- Reliance Power Ltd. (POWER)
- Siemens Ltd. (ELECTRICAL EQUIPMENT)
- State Bank of India (BANKS)
- Steel Authority of India Ltd. (STEEL AND STEEL PRODUCTS)
- Sterlite Industries (India) Ltd. (METALS)
- Sun Pharmaceutical Industries Ltd. (PHARMACEUTICALS)
- Suzlon Energy Ltd. (ELECTRICAL EQUIPMENT)
- Tata Communications Ltd. (TELECOMMUNICATION - SERVICES)
- Tata Consultancy Services Ltd. (COMPUTERS - SOFTWARE)
- Tata Motors Ltd. (AUTOMOBILES - 4 WHEELERS)
- Tata Power Co. Ltd. (POWER)
- Tata Steel Ltd. (STEEL AND STEEL PRODUCTS)
- Unitech Ltd. (CONSTRUCTION)
- Wipro Ltd. (COMPUTERS - SOFTWARE)
Trading hours
It is the time the stock exchanges are open for trading in the scrips. For NSE, it is normally between 9.56am and 3.30pm (Monday to Friday).
Bulls & Bears
Bulls are those who expect the market to go up and they make money. The trend of Index (Sensex, Nifty etc.,) going upwards is called BULLISH trend or a BULL MARKET.
Bears are those who expect the market to fall, so that they can make money. This is also called short selling. To explain, if I feel the market is going to crash, I will sell my scrip which is currently trading at Rs.100 and once the scrip comes down to Rs.70 level, again I will buy the same. In this process, I have gained Rs.30 per share (Rs.100 - Rs.70) per share, while I still hold the share.
Just a days fall in the market cannot be termed as a BEARISH market. It should be a continuous one and around 20% drop in the index to be termed as a BEAR MARKET or a BEARISH trend.'
To give an example, Indian stock markets were on a BULL run till Jan 2008 and then in a BEAR run. From the election results, the markets are again in a bull phase.
How the trends are decided? This is a million dollar question to many of the investors. All I could say is that what drives the market are:
- Investors sentiments
- Economic condition (National as well as International)
- Liquidity in the market
When China was in trouble, Indian market fell, as if we are totally dependent on China.
I am not denying the fact that the all of the above has an impact, but it cannot be a momentary impact.
Trader
One who trades in scrips for making money. He stays with the scrip for a very short duration for the purpose of making profit
Investor
One who stay invested in a scrip to get profits on a long term basis.
Broker
An individual cannot directly buy or sell a scrip to another and it should be only traded through a broker. There are exceptions. For example, Father selling his shares to his son or daughter, Sale between friends, etc., these are all called off-market trasactions. For any transactions in a Stock Exchange, it should be only through a registered broker.
The broker will buy and sell the scrips on your behalf and charges fee (called brokerage) for the services. The charges will be about 0.5% of the value of the transaction.
Cost of transaction
Some of the other charges which are levied (on the transaction value) while doing the transaction in scrips are:
Securities Transaction Tax (STT) - 0.125%
Stamp Duty....................................- 0.010%
Transaction Fee..............................-0.003%
So, roughly, if you buy a scrip for Rs.100, you cost would be Rs.100.65 (in effect about 0.65% is the cost of transaction). This will differ as brokerages are different.
Why I am mention this here is, some feel that buying a share at Rs.100 and selling it at 100.50 feel that they made money. Assuming one has bought 1000 shares @ Rs.100 per share and sold it at Rs.100.50 per share, the next day. That person may be thinking that he has made Rs.500 in a day. But, he is not considering the transaction costs.
His real position is : His cost of acquisition would be Rs.100.65*1000 = Rs.1,00,650. His net sale proceeds would be Rs.101*1000 = Rs.1,01,000 less 0.65% transaction cost, i.e. Rs.100.35*1000 = Rs.1,00,350.
In effect, he made a loss of Rs.300 (Rs.1,00,350 - Rs.1,00,650).
To break-even, he should have sold the shares at Rs.101.28 (you can work back to check this)
Most of the people, new to the trading missing these hidden cost, till they see the contract note (will explain below) from the brokers.
Contract Note
In simple terms, it is the bill from the broker. When you buy or sell a scrip, you need to enter into a contract with the broker. This is required, as the broker is buying or selling on your behalf and has to be made good for any loss. So, the contract note is generated. Normally the brokers take advance from the clients and then do the transactions on their behalf.
Rest in next....cheers, Gopal
1 comments:
Sir, you are really great. You teach the fundementals in a very easy manner. Waiting for your next posts. Please do continue your great work.
Regards, Ravi
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