Basics of Stock Market - 5

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:

1. ACC Ltd. (Housing Related)
2. Bharat Heavy Electricals Ltd. (Capital Goods)
3. Bharti Airtel Ltd. (Telecom)
4. DLF Ltd. (Housing Related)
5. Grasim Industries Ltd. (Diversified)
6. HDFC (Finance)
7. HDFC Bank Ltd. (Finance)
8. Hero Honda Motors Ltd. (Transport Equipments)
9. Hindalco Industries Ltd. (Metal,Metal Products & Mining)
10. Hindustan Unilever Ltd. (FMCG)
11. ICICI Bank Ltd. (Finance)
12. Infosys Technologies Ltd. (Information Technology)
13. ITC Ltd. (FMCG)
14. Jaiprakash Associates Ltd. (Housing Related)
15. Larsen & Toubro Limited (Capital Goods)
16. Mahindra & Mahindra Ltd. (Transport Equipments)
17. Maruti Suzuki India Ltd. (Transport Equipments)
18. NTPC Ltd. (Power)
19. ONGC Ltd. (Oil & Gas)
20. Reliance Communications Limited (Telecom)
21. Reliance Industries Ltd. (Oil & Gas)
22. Reliance Infrastructure Ltd. (Power)
23. State Bank of India (Finance)
24. Sterlite Industries (India) Ltd. (Metal,Metal Products & Mining)
25. Sun Pharmaceutical Industries Ltd. (Healthcare)
26. Tata Consultancy Services Limited (Information Technology)
27. Tata Motors Ltd. (Transport Equipments)
28. Tata Power Company Ltd. (Power)
29. Tata Steel Ltd. (Metal,Metal Products & Mining)
30. 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:

• 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.
  

NIFTY
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.

1. ABB Ltd. (ELECTRICAL EQUIPMENT)
2. ACC Ltd. (CEMENT AND CEMENT PRODUCTS)
3. Ambuja Cements Ltd. (CEMENT AND CEMENT PRODUCTS)
4. Axis Bank Ltd. (BANKS)
5. Bharat Heavy Electricals Ltd. (ELECTRICAL EQUIPMENT)
6. Bharat Petroleum Corporation Ltd. (REFINERIES)
7. Bharti Airtel Ltd. (TELECOMMUNICATION - SERVICES)
8. Cairn India Ltd. (OIL EXPLORATION/PRODUCTION)
9. Cipla Ltd. (PHARMACEUTICALS)
10. DLF Ltd. (CONSTRUCTION)
11. GAIL (India) Ltd. (GAS)
12. Grasim Industries Ltd. (CEMENT AND CEMENT PRODUCTS)
13. HCL Technologies Ltd. (COMPUTERS - SOFTWARE)
14. HDFC Bank Ltd. (BANKS)
15. Hero Honda Motors Ltd. (AUTOMOBILES - 2 AND 3 WHEELERS)
16. Hindalco Industries Ltd. (ALUMINIUM)
17. Hindustan Unilever Ltd. (DIVERSIFIED)
18. Housing Development Finance Corporation Ltd. (FINANCE - HOUSING)
19. I T C Ltd. (CIGARETTES)
20. ICICI Bank Ltd. (BANKS)
21. Idea Cellular Ltd. (TELECOMMUNICATION - SERVICES)
22. Infosys Technologies Ltd. (COMPUTERS - SOFTWARE)
23. Jindal Steel & Power Ltd. (STEEL AND STEEL PRODUCTS)
24. Larsen & Toubro Ltd. (ENGINEERING)
25. Mahindra & Mahindra Ltd. (AUTOMOBILES - 4 WHEELERS)
26. Maruti Suzuki India Ltd. (AUTOMOBILES - 4 WHEELERS)
27. NTPC Ltd. (POWER)
28. National Aluminium Co. Ltd. (ALUMINIUM)
29. Oil & Natural Gas Corporation Ltd. (OIL EXPLORATION/PRODUCTION)
30. Power Grid Corporation of India Ltd. (POWER)
31. Punjab National Bank (BANKS)
32. Ranbaxy Laboratories Ltd. (PHARMACEUTICALS)
33. Reliance Capital Ltd. (FINANCE)
34. Reliance Communications Ltd. (TELECOMMUNICATION - SERVICES)
35. Reliance Industries Ltd. (REFINERIES)
36. Reliance Infrastructure Ltd. (POWER)
37. Reliance Power Ltd. (POWER)
38. Siemens Ltd. (ELECTRICAL EQUIPMENT)
39. State Bank of India (BANKS)
40. Steel Authority of India Ltd. (STEEL AND STEEL PRODUCTS)
41. Sterlite Industries (India) Ltd. (METALS)
42. Sun Pharmaceutical Industries Ltd. (PHARMACEUTICALS)
43. Suzlon Energy Ltd. (ELECTRICAL EQUIPMENT)
44. Tata Communications Ltd. (TELECOMMUNICATION - SERVICES)
45. Tata Consultancy Services Ltd. (COMPUTERS - SOFTWARE)
46. Tata Motors Ltd. (AUTOMOBILES - 4 WHEELERS)
47. Tata Power Co. Ltd. (POWER)
48. Tata Steel Ltd. (STEEL AND STEEL PRODUCTS)
49. Unitech Ltd. (CONSTRUCTION)
50. Wipro Ltd. (COMPUTERS - SOFTWARE)

Again, these scrips are reviewed periodically and changed. For more details on how it is computed and history CLICK HERE

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

For example, when Montek Singh said the Indian agriculture will be hit due to poor monsoon, the market fell that day, but regained immediately. It is not that one day's rain that Montek said. :-)

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

Continue Reading...

Basics of Stock Market - 4

Let us see how the shares are issued and at what price.

At what price a Share is issued?

Every share will have a Face Value (FV). Normally it will be Rs.10. Now every company decides their own (Rs.5, Rs.2, Re.1, Rs.100). For example, if the Share Capital of a company is Rs.100,00,000, it will be either

• 10,00,000 shares of Rs.10 each
• 100,00,000 shares of Re.1 each
• 20,00,000 shares of Rs.5 each

So the face value will decide how many number of shares to be issued for a given share capital.

• If a Share is issued at that Face Value, then it is said to be issued at PAR.
• If a Share with a Face Value of Rs.10 is issued at Rs.15, then it is issued at a Premium of Rs.5 per share (Rs.10 + Rs.5)
• If a share with a Face Value of Rs.10 is issued at Rs.8, then it is issued at Discount of Rs.2 per share (Rs.10 - Rs.2).

To summarise, if a share is issued above its Face Value, it is an issue at PREMIUM and if issued at the face value then it is an issue at PAR and if issued below the Face Value, then it is issued at a DISCOUNT. The Adani Power corporation issue, which was priced at Rs.100 is a issue at a premium of Rs.90 (Rs.10+Rs.90). The issue price is depends on various parameters and also the demand & supply.

Okay..let us now see what are the types of Issue.

1. Public Offer / Issue
2. Rights Issue
3. Bonus Issue

Again, there are 2 types of public issues:

(a) Initial Public Offer and (b) Follow-on-Public Offer

Initial Public Offer (IPO)

As the name says, it is the first ever issue of shares to the public. For example, Adani Power issue of share is an IPO. It can be either an issue of fresh shares or offer of existing shares of Promoters to the publice (atleast 25%) for the purpose of getting the shares listed in a stock exchange. As discussed earlier, listing of shares in a stock exchange gives liquidity to the holder of the shares.

Follow-on-Public Offer (FPO)

Any public offer after the IPO is an FPO. Refer Rights Issue below.

Rights Issue

This further issue of shares (after IPO or FPO) should be first made to the existing shareholders and only if the shareholders agree in a General Meeting (Annual General Meeting or Extraordinary General Meeting), then the shares can be issued to the Public. Since this is a right of the existing shareholder, it is called Rights Issue. If the shareholders decide to forego their rights and issue the shares to the Public, it will be an FPO.

Bonus Issue

This is an issue is only to the existing shareholders. As the name says, it is a Bonus (reward) to the shareholders. There is no need to pay for this share. The Reserves of the company (current year or previous years Profits, any share premium collected during the issue of shares) are capitalised and given to the existing shareholders. How it is done? Normally they look at the amount of Reserve that are available for capitalisation and the number of shares outstanding (that is the number of shares issued so far). For example, if the company is having Rs.1,00,00,000 in reserves , has 10,000 shares outstanding and want to capitalise the entire reserves, it will divide the Reserve amount by the Face Value (will explain why face value later). Let us take the face value as Rs.10 per share. Then, it is Rs.1,00,00,000 / Rs.10 = 10,00,000 shares. It is already having 10,000 shares outstanding. So each share will be eligible for 100 shares (10,00,000 / 10,000). That is every existing share will be getting 100 share as Bonus. In sharemarket parlance, they say the Bonus issue is 100:1 (that is 100 bonus shares for every 1 share held). Now let us see why the Bonus share is issued at Par? From where are we issuing the Bonus Shares? from the reserves (Profits & Share Premium). If we issue the Bonus Shares at Premium, it is nothing but transfering the Share Premium to Share Premium itself. That is why the Bonus Shares are issued at PAR (face value) and has no cost to the existing shareholder.

Apart from the above issues, there are other ways of issuing Shares for raising capital. It is called Private Placement (now you can see lot of Qualifies Institutional Placement - QIP in the news). For more details on QIP - CLICK HERE

Who is SEBI?

The Securities and Exchange Board of India (SEBI) is the regulatory authority in India. SEBI was created for

• protecting the interests of investors
• promoting the development of the securities market; and
• regulating the securities market.

SEBI's role is the regulate/control the share market and all the listed companies are governed by SEBI.

Let us get to the fundamentals of the share market in the next blog. Happy weekend.

Cheers,

Gopal

Continue Reading...

Pranams to the teachers !

Today being the Teachers' Day, let us salute the teachers, who helped us to grow to this level and and wish them very good health and prosperity.

My sweet memories on the School, the teachers Ms.Joseph, Ms.Radha, and them to the High School - RR- Rajagopalan, Rangarajan (Tamizh) B.Radhakrishnan, PTG, TKG, KTG, Kannan (maths), Basheer (maths), KND (Desikachar), KDR (K.Dharmaraj, Accounts), SRK (Economics), Janakiraman (Navy), Madhavan (Commerce), VPKrishnamurthy, Mani (Crafts), AV (Sanskrit) and the PT masters - Karmegam, Radhakrishnan(NCC-Air wing), Selvaraj and Nammalvar (NCC-Army).

In my college - DP (Durai Pandian, Accounts), Kanakasabesan (Stats) Arun (Tamizh),  Kayaroganan (Tamizh), Suresh (English), SKR (Ramakrishnan, Income Tax), Balamurugan (Auditing), Ramasamy (Commercial Law), Kalyanaraman (Accounts), M.Sakthivelmurugan (Corporate Law), COSTING, Gopal Muralidhar (Management Accounting). They laid the seed for my higher education.

In CWA - Sundaresan, who was my guru in Costing. If I am good in costing today, the credit goes to him. Sankaranarayanan, Sethuraman, Sundaram (4 S) .

In CA - Nagarajan (Accounts), Murali (Auditing and Company Law..thanks to Murali for inspiring me in quoting the relevant sections, when you say something on Company Law), Thangapandian, Sivakumar (Standard Costing), LSS (Maths & Stats), VenkatSivakumar (Costing). My flair for Taxation increased because of T.N.Manohar & Bhupathi. Of course my friend T.G.Suresh (TGS), whom I never knew that he is a professor in my college.

In IIM - (Pofessors) - MSN, Ramesh Kumar (Mrkg), Amit Gupta, Shyamal Roy, Ganesh Prabhu, Padmini Srinivasan, Ashok Thampy. Krishna Sundar - He taught the supply chain management by a beer game. A tough person in class - cool outside. Krishnamoorthy - A chartered accountant with lot of wits & humor in his teaching. MSN- (like Microsoft Network - he builds a good network among participants). Always willing to help with a smile - even when he says NO.

It is not that only the school and college had teachers. I had good teachers in the organisations, where I worked.

My CA Articleship

• Ramanathan - Under whom I did my CA articleship. Apart from the auditing and accounting, he exposed me to Costing for the products in the manufacturing units, for which we were the Internal Auditors.He guided me in all these areas.

Merchant Banking

• K.Gopala Krishnan (KGK) - He taught me how to appraise projects, sell financial products and price them to the clients. He always encourage those who think out of the box.He is the one who gave me full power to run a Merchant Banking division and guided me on all stock market related areas. It was my first employment.

Kothari Group

• R.Srinivasan (CEO- Kothari Biotech, currently with Rane group) - He is the one who given me the free hand to learn and taught me the basics of Corporate Finance.
• Rangesh (CGM- Kothari Biotech, (currently with Orchid Chemicals). he taught me how to handle people. He is a great HR person, I have ever come across. He is also my mentor for Public Relations
• W.R.Vasudevan (CGM-Kothari Biotech, currently with Parry). He taught me how to handle projects and monitor them. He is very patience and when he looses his cool, very difficult to face him. Nice human being.
• Sam (Thirugnanasambandham) - GM-Kothari Biotech (Heard that he has moved out from Orchid Chemicals). He taught me how to remain cool in any circumstances. He is the one who taught me all about plants and the tissue culture. Thanks to him, I learnt the technology also. Very good teacher of plants.

Southern LPG

• Raghavan (Rags), the CEO. Though it was a short stint in that company, I was exposed to the various aspects of the LPG/LNG imports and bottling. Withing a month of joining, I was good enough to make out project reports on my own to present to the Board.

Servion

• T.Nataraajan (TN). SVP & CFO in Servion and currently CEO for GRT Group Hotels. My guru and mentor at a growth stage. He is the one who taught more on the Banking relationships, getting private placements. He gave the full power to run the Finance & Secretarial functions of the group and stood behind me as a great support. I enhanced my Secretarial, Legal and Finance skill under him, which paved way for my growth. He shares his knowledge with an incident in his career. A nice human being and a guide. We always call him Thalaivar.

Scope International

• Sumanth (Head of FSSC) (currently with Infosys BPO) - You can learn how to be calm and cool, if you work with him. Nice gentleman, never jumps to conclusion. Analyse and takes a calculated risk
• Hemant Kulkarni ( Head-FSSC) Learnt how to take quick decisions and people management skills
• Romi Malhotra (MD of Scope, currently Chairman of Dominion)- You need to learn from him the tactics of Project Manangement and Leadership skills. Anyone who has worked with Romi will vouch for this.
• Venkat VI (Head of Accounting operations). You need to learn from him how to handle your team members with a smile. A perfect fit for BPO (though came to Scope from controllers background).

Though I learnt a lot in my current employment, I am not mentioning anyone in particular, as it is not correct in my part, as people may think that I am doing it to please them.

Here comes the great TEACHERS & GURUs of my life - YES...

My PARENTS. Not that they gave me the life, but also guided me and guiding me all along. If not for them, I would not have reached this level in my life. Especially my father who encouraged me to study, whatever I liked and never forced anything on me. My WIFE and Daughter - They still teach me a lot on how to be patience with a soul like me. While I learn cooking from my wife, my daughter teaches me drawing.

My Athimber, who made mathematics very simple for me and every academic year I step into the school - having learnt the maths syllabus during the summer holidays.

My friends - Rengesh (since 1980), Muthuraman (since 1985), Prakash (since 1990), Sivaram (since 1999), Raja (since 1999), Pushpavaneswaran (Since 1996), Ashok (since 2002), Gopal Ramesh (since 1994), Krishnakumar (TTE) (since 1994), Suanand (since 2002) Kolazhi Ramanan (since 2004) and my CWA group (big list), who taught me what friendship is.

My heartfelt thanks to all of my gurus and teachers on this wonderful day. If I had left some names, it is not intentional - It is memory failure (I am getting old day by day). I am sure that I will gather all the names and write more about them, when I write my biography.

Cheers,

Gopal

Continue Reading...

Andhra Pradesh CM, Shr.YSR Reddy is dead

Today all the news channels finally confirmed that Shri.YSR Reddy, the Chief Minister of Andhra Pradesh is dead in the helicopter crash. It is so sad. I can see lot of people sympathizing for YSR ( as he is called popularly).

What I could see among those in the office cafeteria , who were watching the news, said that he is a very good person. Of late very few Indian politician got this praise from educated lot. He was not looking as he is 60. I was told that he is very down to earth person and visits the villages in AP and meet up with people.

It is a sad incident. What surprises me is the technology! It took almost 20 hours to trace a helicopter!

Let us pray for the parted soul and let the soul rest in peace.

Gopal

Continue Reading...

Basics of Stock Market - 3

Let us see what is a Stock Market

It is an organised market where the listed shares are traded. This place enables to buy or sell the shares they hold in a Company. Again only the shares of the Company, which was allowed to trade in the particular stock can be dealt with.

What is a Stock Exchange?
Stock Exchange’ is 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. A Stock exchange could be a regional stock exchange (Madras Stock Exchange, Bombay Stock Exchange, Bangalore Stock Exchange) whose area of operation/jurisdiction is specified at the time of its recognition or national exchanges (National Stock Exchange), which are permitted to have nationwide trading since inception.

Different types of Issues.
Whenever a Company wants the shares to be listed and traded in a Stock Exchange, it has to Offer or Issue atleast 25% of the Share Capital to the public. There is a difference between Issue and Offer. Issue means issuing fresh shares and Offer means offering 25% of the existing shares. In case of an Issue, the Capital will increase. In case of an Offer the Capital remains same.

Why do companies need to issue shares to the public?
Normally a company is started by few people (known as Promoters). Over a period, they get Loans or Private Equity or Venture Capital to meet the growing needs of the business. So they invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a ‘Public Issue’. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by Securities Exchange Board of India. (SEBI). In case of Offer of shares - normally the promoters or the Private Equity player or the Venture Capitalist will offer the share to the public to get the shares listed & traded.

What is the main benefit of getting a share listed?
Listing enables liquidity, which is otherwise not available to a normal company's share.

That's all for now, as I am tied up with office work.

Cheers,
Gopal

Continue Reading...

Request feedback on the Blog

Friends,

The only thing that is constant is Change. So, with the growing need and to look better, I tried to change the layout and contents of the blog. Would like to add some more features like Email etc., with my very little technical knowledge.
May I seek your valuable comments and feedback on the new look and also scope for improvement of this blog. Also, let me know the topics that can further be discussed.

Thank you all for your support!

Cheers,
Gopal

Continue Reading...