Introduction to Indian Stock Market
What is stock market?
Why do companies come to Share Market?
A
company enters the primary market to raise funds. It is in the primary market
that a company gets registered to issue shares to the public and raise money.
Companies generally get listed on the stock exchange through the primary market
route.
IPO
Initial Public Offering
Initial
Public Offering (IPO) is the process by which a private company can go public
by the sale of its stocks to the public. It could be a new, young company, or
an old company that decides to be listed on an exchange and hence goes public.
Companies can raise equity capital with the help of an IPO by issuing new
shares to the public or the existing shareholders can sell their shares to the
public without raising any fresh capital.
ASAB
ASBA
process facilitates retail individual investors bidding at a cut-off, with a
single option, to apply through Self Certified Syndicate Banks (SCSBs), in
which the investors have bank accounts. SCSBs are those banks that satisfy the
conditions laid by SEBI. SCSBs would accept the applications, verify the
application, block the fund to the extent of the bid payment amount, upload the
details in the web-based bidding system of NSE, unblock once the basis of
allotment is finalized, and transfer the amount for allotted shares to the
issuer.
Applications Supported by Blocked Amount (ASBA) is a process developed by India's
Stock Market Regulator SEBI for applying to IPO. In ASBA, an IPO applicant's
account doesn't get debited until shares are allotted to them. ASBA allows the
investors’ money to remain with the bank till the shares are allotted after the
IPO. Only then does the money transfer out of the investor’s account to the
company? This eliminates the need for refunds on shares not being allotted.
What is SEBI?
Securities and Exchange Board of India (SEBI) is the regulatory body for the stock market of India. It was established in 1992, under section 3 of SEBI Act. SEBI has the power to regulate all market intermediaries and to penalize them in case of fraudulent activities and unfair trade practices. SEBI has the authority to regulate and develop the stock market.
Founded:
12 April 1988
Headquarters: Mumbai, Maharashtra
Founder: Government of India
Agency executive: Madhabi Puri Buch, Chairperson
Employees: 867+ (2020)
Formed: April 12, 1988; 35 years ago (Established); January 30, 1992; 32 years
ago (Acquired Statutory Status)
Key document: : Securities and Exchange Board of India Act, 1992;
Objectives
of SEBI:
▪ To
regulate the activities of the stock exchange
▪ Protecting the rights of investors
▪ Preventing fraudulent and unfair activities
▪ Develop a code of conduct for intermediaries
Purpose
of SEBI:
The main purpose for which SEBI was setup was to keep a check on malpractices
and protect the interests of investors. It was set up in order to meet the
needs of three groups:
Issuers: To
provide a marketplace in which they can raise capital easily.
Investors: To provide
protection and supply of information.
Intermediaries: To provide a competitive
professional market.
List of exchanges in India
1.NSE
The
National Stock Exchange (NSE) is the leading stock exchange of India, located
in Mumbai. It was established in the year 1992 as the first demutualized
electronic exchange in the country. NSE was the first exchange in the country
to provide a modern, fully automated screen-based electronic trading system
which offered easy trading facility to the investors spread across the country.
Currency: Indian rupee (₹)
Founded: 1992; 32 years ago
Indices: NIFTY 50; NIFTY Next 50; NIFTY 500; NIFTY Midcap 100; NIFTY Small cap
100
Key people: Girish Chandr Chaturvedi; (Chairperson); Ashishkumar Chauhan; (MD
& CEO)
Location: Mumbai, Maharashtra, India
Market cap: ₹334.7 trillion (US$4.2 trillion) (December 2023)
No. of listings: 2,190 (December 2023)
2.BSE
Bombay Stock Exchange
The
Bombay Stock Exchange (BSE) is India's & Asia's oldest exchange which began
140 years ago under a banyan tree! It was India's primary exchange till the
emergence of the NSE. Evolving from an open outcry system, the BSE also shifted
to electronic trading mode in a record 50 Days. With increased connectivity,
the BSE was the first Indian Exchange to launch Mobile Trading in 2010. Despite
being 140 years old, the BSE is India's fastest exchange with 6 microseconds!
There are few more exchanges in India which are not so active in the market.
Currency:
Indian rupee (₹)
Founded: 9 July 1875; 148 years ago
Indices: S&P BSE SENSEX; S&P BSE 100; S&P BSE 500; S&P BSE
MidCap; S&P BSE SmallCap;
ISIN: INE118H01017
Location: Mumbai, Maharashtra, India
Market cap: ₹366 trillion (US$4.6 trillion) (January 2024)
No. of listings: 5,309
What is DEMAT Account?
DEMAT
account or dematerialized account provides the facility of holding shares and
securities in electronic format. During online trading, shares are bought and
held in a DEMAT account, thus facilitating easy trade for users. A DEMAT
account holds all the investments an individual makes in shares, government
securities, exchange traded funds, bonds and mutual funds in one place.
In India, DEMAT account service is provided by depositories such as NSDL and
CDSL through intermediaries / Depository Participant / Stock Broker. The
charges of DEMAT account vary as per the volume held in the account, type
subscribed, and the terms and conditions laid by the depository and the stock
broker.
Benefits of DEMAT Account:
• Easy and a convenient way to hold securities.
• Safer than paper-shares.
• Reduced paperwork for transfer of securities.
• Reduced transaction cost.
• No "odd lot" problem: even one share can be sold
• Transmission of securities is done by DP, eliminating the need for notifying
companies.
• Automatic credit into DEMAT account for shares arising out of bonus/split,
consolidation/merger, etc.
• A single DEMAT account can hold investments in both equity and debt
instruments.
• Traders can work from anywhere.
HOLDINGS
Holdings are basically shares that an investor can keep in his/her DEMAT
account for long term. A holding represents the securities (stocks or bonds)
held in the market. Imagine a bucket filled with rocks, the bucket is the DEMAT
account and each rock is a single stock or bond holding.The sum of all rocks
(stocks or bonds) equals the total number of holding.
What is a Depositary?
A
depository is a facility such as a building, office, or warehouse in which
something is deposited for storage or safeguarding. It can refer to an
organization, bank, or institution that holds securities and assists in the
trading of securities. The term can also refer to a depositoryinstitution that
accepts currency deposits from customers.There are two depositaries in India
and those are NSDL and CDSL.National Securities Depository Limited (NSDL) is an
Indian central securities depository based in Mumbai. It was established on 8th
November 1996 as the first electronic securities depository in India with
national coverage. It was established based on a suggestion by a national
institution responsible for the economic development of India.
&
Central Depository Services Limited (CDSL) is the second Indian central
securities depository based in Mumbai. Its main function is the holding
securities either in certificated or dematerialized form, to enable book entry
transfer of securities.
What is Trading Account?
Trading
account is a special account through which you can conduct transactions.
Without one, you cannot trade in stock market. A trading account shows all the
transactions that are done over a period of time. It gives us complete
information on the amount that has been debited &also the amount that has
been credited in the Trading Account.
For example: You have Rs.100 in your wallet. You go to a shop and tell the
seller that you want a packet of chips, you check the price, and finalize the
transaction. Then, you take the moneyout of your wallet and give it to the
seller. In this case, the wallet acts as the DEMAT account, while you act as
the trading account.
Market timings
Segment
Timings
Equity & FNO
09:15 AM - 3:30 PM
Commodity 09:00:00 AM - 11:30 PM or
11:55PM
Currency
09:00 AM - 05:00 PM
Cross currency 09:00 AM - 07:30 PM
Equity Market
Definition of Equity Market:
An equity market is a market in which shares are issued and traded, either
through exchanges or over-the-counter markets. Also known as the stock market,
it is one of the most vital areas of a market economy because it gives
companies access to capital and investors a slice of ownership in a company
with the potential to realize gains based on its future performance.
Breaking Down of Equity Market:
Equity markets are the meeting point for buyers and sellers of stocks. The
securities traded in the equity market can be either public stocks, which are
those listed on the stock exchange, or privately traded stocks.
Trading in the Equity Market:
In the equity market, investors bid for stocks by offering a certain price, and
sellers ask for a specific price. When these two prices match, a sale occurs.
Often, there are many investors bidding on the same stock. When this occurs,
the first investor to place the bid is the first to get the stock. When a buyer
will pay any price for the stock, he or she is buying at market value;
similarly, when a seller will take any price for the stock, he or she is
selling at market value.
Companies sell stocks in order to get capital to grow their businesses. When a
company offers stocks on the market, it means the company is publicly traded,
and each stock represents a piece of ownership. This appeal to investors, and
when a company does well, its investors are rewarded as the value of their
stocks rise. The risk comes when a company is not doing well, and its stock
value may fall. Stocks can be bought and sold easily and quickly, and the
activity surrounding a certain stock impacts its value. For example, when there
is high demand to invest in the company, the price of the stock tends to rise,
and when many investors want to sell their stocks, the value goes down.
Delivery Trading
Delivery Trading is said to be one of the secured ways of trading in stock
market. If we buy shares today and sell them after 1 day then the type of
trading is called as Delivery Trading. The main advantage of Delivery Trading
is that, the Fear for Loss of Money is very less when compared with Intraday
Trading. Customer can take delivery for undefined period and need not sell them
on the same day with loss, even if the market price of share value reduces.
This is a kind of long-term investments.
Definition of 'Squaring Off'
Squaring off is a trading style used by investors/traders mostly in day
trading, in which a trader buys or sells a particular quantity of an asset
(mostly stocks) and later in the day reverses the transaction, in the hope of
earning a profit (price difference net of broker charges and tax).
For
example: Person A buys 100 shares of Reliance from the BSE Sensex through a
broker for a price or Rs 10 per share. Later in the day, Person A sells all the
shares for Rs 12 per share and by paying broker charges of Rs 10. The net
profit A earns is Rs (200-10)= Rs 190.
Derivatives / F&O Market
What are Derivatives?
=>A
derivative is a financial instrument whose value is derived from the value of
another asset, which is known as the underlying.
=> When the price of the underlying changes, the value of the derivative
also changes.
=> A Derivative is not a product. It is a contract that derives its value
from changes in the price of the underlying.
Example: The value of a gold futures contract is derived from the value of the
underlying asset
i.e. Gold.
Derivatives are divided into 2 parts –
Derivatives & Futures Options
What is a Futures Contract?
A
futures contract is a legal agreement to buy or sell a particular commodity or
asset at a predetermined price at a specified time in the future. Futures
contracts are standardized for quality and quantity to facilitate trading on a
futures exchange. The buyer of a futures contract is taking on the obligation
to buy the underlying asset when the futures contract expires. The seller of
the futures contract is taking on the obligation to provide the underlying
asset at the expiration date.
Lot Size-
A lot size is the minimum quantity to be purchased when entering a particular
contract. The future contract can only be brought in multiples of that lot size
Example- A lot size of Reliance future is 500qty one can only buy future of
500qty or in multiples of 500qty.
Future price-
There are several factors which determines future price basically it is derived
from the price of underlying assets other than this expiry date, volatility,
Open Interest, etc also determines the price of future contract.Contract
Name-One can buy /Sell future of current month + 2 months maximum
Example- If you want to buy a future contract one can buy current month i.e.
March one can buy for April or May.
Index Future-Index is a basket of particular stocks(Depending on the
nature of index) which come together and make an index Index futures are the
future contracts of these index.
Options
What are Option Contracts?
Call
Option –
Call option refers to the Assuming that the stock or underlying asset price
will Rise. Technically a call option is defined as an option to buy assets at
an agreed price on or before a particular date.
Put Option –
Put option refers to the Assuming that the stock or underlying asset price will
Fall. Technically a put option is defined as an option to sell assets at an
agreed price on or before a particular date.
Contract Name (Expiry)-
Similar to future contract expiry one can buy /Sell Option of current month + 2
months maximum
Example- If you want to buy a Option contract one can buy current month i.e.
March one can buy for April or May.
Option Premium-
Premium is the amount paid to get the right.
Example-Let’s say you want to buy a house but before buying you give a token to
the seller both agreeing that the Buyer may buy the said house at a particular
date and at a particular price and the sell may sell the said house at that
particular date and price.So the amount which is given to the seller i.e. token
is the premium. Premium is basically the amount required to be paid to get that
particular right, As the example suggest that the buyer and seller may have
right to buy/sell but not a obligation (Compulsory) the sell/buyer may deny the
contract.
Option Strike Price-
Strike Price is basically a price you are quoting option for.
Example- Let take a price scale of Reliance Industries Stock The strike price
is defined as the price at which the holder of options can buy (in the case of
a call option) or sell (in the case of a put option) the underlying security
when the option is exercised. Hence, strike price is also known as exercise
price.
Index Future-Index is a basket of particular stocks (Depending on the
nature of index) which come together and make an index Options are the option
contracts of these indexes.
Difference between Delivery & Derivative Trades
|
Delivery Trading |
Derivative Trading |
|
When you purchase shares and hold them
overnight, then you take delivery of the shares. Your DEMAT account receives these shares. You enjoy complete
ownership of the stocks. |
Derivatives are essentially just standard contracts that are traded off the back of underlying assets and fluctuations. |
|
Leverage is not
provided in delivery because investors must use the amount in their accounts
because stocks can be sold at any time. |
In derivatives, leverage is built in to the nature of the contract. For
example, Rs 1,000 worth of options might actually control Rs 10,000 worth of
stocks, |
|
Because the shares
remain in your possession until you decide to sell them, which could take
days, weeks, months, or years, delivery trading carries very little risk. You
appreciate total responsibility for stocks. |
While it is within
the realm of possibilities to procure a powerful pace of profit from your
subsidiaries venture before long, it's likewise more than conceivable to lose
the greater part of your |
|
Shares remain
fundamentally volatile in delivery, but they are not subject to the same wild
movements as derivatives. |
Derivatives often
experience greater volatility than their stock counterparts. While this can
lead to more substantial price movements in a profitable direction, it also
exposes investors to the possibility of significant losses. Successfully
handling heightened volatility requires a skillful balancing act. |
CDS / Currency
What is Currency
Markets?
The
currency market comprises of two main components, namely the Foreign Currency
Market and the Euro-currency Market. Unlike a physical market, the Foreign
Currency Market is a virtual entity that operates within the dealing rooms of
central banks, international banks, and large corporations. These dealing rooms
are interconnected through telephone, computer, and fax systems. In some cases,
certain countries choose to centralize their dealing rooms in one location. On
the other hand, the Euro-currency Market facilitates the borrowing and lending
of currencies, with interest rates being determined within this market.
MCX /
Commodity
What is the Commodity Market?
A
commodity market is a physical or virtual marketplace for buying, selling and
trading raw or primary products, and there are currently about 50 major
commodity markets worldwide that facilitate investment trade in approximately
100 primary commodities. Commodities are split into two types: hard and soft
commodities. Hard commodities aretypically natural resources that must be mined
or extracted (such as gold, rubber and oil), whereas soft commodities are
agricultural products or livestock (such as corn, wheat, coffee, sugar,
soybeans and pork).
Types of Commodities
• Metals (such as gold, silver, platinum and copper)
• Energy (such as crude oil, heating oil, natural gas and gasoline)
• Livestock and Meat (including lean hogs, pork bellies, live cattle and feeder
cattle)
• Agricultural (including corn, soybeans, wheat, rice, cocoa, coffee, cotton
and sugar)
Types of Trading
CNC / Cash and carry
CNC is used for buying equity shares in delivery. So while buying shares in
delivery the client requires a complete margin of the shares eg-If a client
wants to buy 100 shares of Reliance for delivery and the current market price
of Reliance is 1000 then the client requires 1000*100 i.e. 100000rs to do this
transaction.
Intraday
Intraday trading involves buying and selling of stocks within the same trading
day. Here stocks are purchased, not with an intention to invest, but for the
purpose of earning profits by harnessing the movement of stock indices. Thus,
the fluctuations in the prices of the stocks are harnessed to earn profits from
the trading of stocks.
Types of Intraday Trading:
MIS – Marginal Intraday Square-off
As the name suggests, it is an intraday order that gets squared off the same
day; but lets you transact with low margin in cash, futures and currencies
futures.
CO – Cover Order
A Cover Order is a special type of order through which the user can take an
intra-day position and take advantage of extra exposure while being protected
through a stop loss order. Here is how it works. The system will place two
orders simultaneously: a market order and a corresponding stop loss market
order which would only get triggered at the specified stop loss trigger price.
If the trigger price is hit, the stop loss order gets executed as a market
order. The combination of both these orders being placed simultaneously is
known as a Cover Order. Cover Orders help you limit any potential losses that
could be incurred on a position.
How Cover Orders Work:
• A Cover Order is basically a two legged order. The client needs to place a
buy/sell order with compulsory corresponding stop loss order in the opposite
direction.
• The first entry order will always be a market order.
• The corresponding stop loss order will sit in the order book as Stop-Loss
trigger pending order; once the trigger price hits the stop loss limit price,
it gets triggered as a market order.
• The trigger price range will be defined daily and the client must place the
stop loss order within
the specified range. For example, suppose Reliance Industries is trading at Rs.
900 and the range is specified as 10%. In this case the client can specify the
Stop Loss order between the price ranges of Rs.810 to 990 as the trigger price.
BO – Bracket Order
Bracket orders are designed to help limit your loss and lock in a profit by
"bracketing" an order with two opposite-side orders. A BUY order is
bracketed by a high-side sell limit order and a low-side sell stop order. A
SELL order is bracketed by a high-side buy stop order and a low side buys limit
order. The order quantity for the high and low side bracket orders matches the
original order quantity. By default, the bracket order is offset from the
current price by 1.0. This offset amount can be changed on the order line for a
specific order, or modified at the default level for an instrument, contract or
strategy using the Order Presets feature in Global Configuration.
General terms
INDEX
A stock index or stock market index is a measurement of a section of the stock
market. It is computed from the prices of selected stocks. It is a tool used by
investors and financial managers to describe the market, and to compare the
return on specific investments.
You may often hear people speaking that the ‘market’ fell one day, or that the
‘market’ jumped. However, if you read the stock table, you will realize that
not all stocks rose or fell. There were some which moved in the opposite
direction. This is called INDEX.
NIFTY 50
The NIFTY 50 index is National Stock Exchange of India's benchmark broad based
stock market index for the Indian equity market. Full form of NIFTY is National
Stock Exchange Fifty. It comprises of 50 Indian company stocks in 12 sectors
and is one of the main stock indices used in India. NIFTY 50 Index has shaped
up as a largest single financial product in India, with an ecosystem comprising
of exchange traded funds, exchange-traded futures and options, other index
funds and OTC derivatives.
SENSEX
The BSE SENSEX is a free-float market-weighted stock market index of 30
well-established and financially sound companies listed on Bombay Stock
Exchange. The 30 component companies which are some of the largest and most
actively traded stocks, are representative of various industrial sectors of the
Indian economy.
Volatility
Volatility is the range of price change that a security experiences over a
given period of time. If the price stays relatively stable, the security has
low volatility. A highly volatile security is one that hits new highs and lows,
moves erratically, and experiences rapid increases and dramatic falls.
Liquidity
Liquidity describes the degree to which an asset or security can be quickly
bought or sold in the market without affecting the asset's price. Market
liquidity refers to the extent to which a market, such as a country's stock
market or a city's real estate market, allows assets to be bought and sold at
stable prices. Cash is considered the most liquid asset, while real estate,
fine art and collectibles are all relatively illiquid.
What is Pledge / Un-pledge of share?
Pledging
of shares basically means mortgaging of shares in return of funds to trade in
the market. Un- pledge is vice versa of pledging of shares. It takes Rs 60 +
GST to pledge shares, The timings for share pledge and un-pledge is if placed a
request before 4.00 pm then working 24 hours will be taken for the process (4pm
to 7pm it’s not allowed). After 7pm if the request is placed then 48 working
hours will be taken for the process (4pm to 7pm it’s not allowed). For instant
sell for stock plus a charge of Rs 90 + GST will be charged after 30 minutes of
the submission of OTP in back office. To place pledge and un-pledge requests,
go to SAMCO STAR -> Holdings -> Pledge/Un-pledge.
What is open Position?
An open
position in investing is any trade, established or entered, that has yet to be
closed with an opposing trade. An open position can exist following a buy, a
long position or a sell or a short position. In any case, the position remains
open until an opposing trade takes place.
What is margin Position?
Any
position taken in the market using the Cash plus Product with the margin
provided by SAMCO on the cash balance of the client is known as Margin
position.
What is Ledger?
A ledger
is the principal book or computer file for recording and totaling economic
transactions measured in terms of a monetary unit of account by account type,
with debits and credits in separate columns and a beginning monetary balance
and ending monetary balance for each account.
What is Trade book?
A
trading book is the portfolio of financial instruments held by a brokerage or
bank. Financial instruments in a trading book are purchased or sold for reasons
including to facilitate trading for the institution's customers, to profit from
trading spreads between the bid and ask prices, or to hedge against various
types of risk. Trading books can range in size from hundreds of thousands of
dollars to tens of billions depending on the size of the institution.
What is Contract note?
Contract
note is a legal document which every stock brokers issues to their investors
who invest into shares or other listed securities through them. In normal
trading cycle, when an investor wishes to invest or sell securities he
contracts a stock broker.
What is ISIN number?
The
International Securities Identification Number (ISIN) is a code that uniquely
identifies a specific securities issue. Every stock listed in the stock market
will have a unique ISIN number.
What is Bhavcopy?
Bhavcopy
is a compilation of Day's Open + Day's High + Day's Low + Day's Closing prices
of all scripts. It includes volumes and values too. Most of the Brokers need
this for settlement purposes. Many analysts use these to predict the future
movement of stocks as well as indices as this is the only authentic source of
information for them.
Read More:Step By Step Guide How to learn Trading A road Map for Beginner from zero.