Investment Analysis and Stock Market

Operations

Insight about InvestmentsDifferent classes of investmentsWhy do people investCriteria of choosing assets for investmentsWhat makes investment profitable oneHow does stock market operatesHow can you deal in stock market

Objectives of Learning

Short term: Mid term: Long term: (Be specific with amount and nature of

a Goal) for example I want to buy Rs. 5 lakhs Maruti car after a year or may be 2 years etc.

What is my Financial Goal

By increasing my Income By spending less or saving more with given

income

(OR is there any other way out) to achieve my finacial goals.

How I am going to achieve them

What is Investment

Investment is defined as a sacrifice made now to obtain a return later

(It is current consumption that is sacrificed to obtain more money later)

Time ExpectedReturn Risk(you start a business with sum of Rs.100000

with expectation of earning p.a 10% profit on it, due to lack of demand for goods, your business could get you return of 8% on it)

Structure of an Investment

Return

wealthperiod-of-beginning wealthperiod-of-beginning wealth period-of-endReturn --

0V

1V

001

VVVr

Initial value of investment

Final value of investment

Return is

Or as a percentage 1000

01

V

VVr

Return Example 1

◦An initial investment of 10,000 is made. One year later, the value of the investment has risen to 12,500. The return on the investment is

Example 2◦An investment initially costs 5,000. Three

months later, the investment is sold for 6,000. The return on the investment per three months is

%2510010000

1000012500 r

%201005000

50006000 r

Risk is the variability, or the uncertainty, of its return that is expected from securities

( Business Risk, Exchange Rate Risk, Credit risk)

Risk

Broadly speaking Investments can be classified into two categories

Real InvestmentFinancial Investment

• Ornaments• Bars etc.

• Residential • Commerical

• Life Insurance• General Insurance• FDRS• RDS etc

• Ruby• Diamonds etc

Gold Properties

Insurance &

Banking Precious Stones

Categories of Real Investment

Money Market Securi

ties

Capital Market Securi

ties

Financial Investments

Treasurey Bills

Commerical Papers

Certificate of Deposits

Money market Mutual Funds

Money Market Securities

Stocks•Blue chip stock•Income stocks•Cyclical stocks•Defensive stocks•Growth stocks•Speculative stocks•Penny stocks

Bonds•Govt Bonds( Infrastructure Bonds)•Corporate Bonds (Debentures)

Mutual Fundsand Derivative

Instruments•Growth Funds•Balance Funds•Income Funds•Future•Forward contracts•Options•Hedge Funds•Fund of Funds

Capital Market Securities

Stock Exchange operations & Equity Trading Strategies

ECONOMY STOCK EXCHANGEAUSTRALIA AUSTRALIAN SECURITIES EXCHANGEGERMANY DEUTSCHE BORSESWITZERLAND SIX SWISS EXCHANGE

CHINA SHENZHEN STOCK EXCHANGE

SPAIN BME SPANISH EXCHANGES

INDIA BOMBAY STOCK EXCHANGE

SOUTH KOREA KOREA EXCHANGEINDIA NATIONAL STOCK EXCHNGE

RUSSIA MICEX – RTSSOUTH AFRICA JSE LIMITED

ECONOMY STOCK EXCHANGE

US & EUROPE NYSEUS & EUROPE (NORTH) NASDAQ

JAPAN TOKYO STOCK EXCHANGE

UNITED KINGDOM LONDON STOCK EXCHANGE

EUROPE EURONEXTCHINA SHANGHAI STOCK EXCHANGE

HONG KONG HONGKONG STOCK EXCHANGE

CANADA TORONTO STOCK EXCHANGE

BRAZIL BM&F BOVESPA

MAJOR STOCK EXCHANGES

EXCHANGEBOMBAY STOCK EXCHANGE

NATIONAL STOCK EXCHANGE

JAIPUR STOCK EXCHANGE

UP STOCK EXCHANGE ASSOCIATIONMADRAS STOCK EXCHANGE

COCHIN STOCK EXCHANGE

BANGLORE STOCK EXCHANGE

GAUHATI STOCK EXCHANGE

LUDHIANA STOCK EXCHANGE

CALCUTTA STOCK EXCHANGE

There are 23 STOCK EXCHANGES in IndiaLOCATION

MUMBAI

MUMBAI

JAIPUR

KANPUR

CHENNAI

COCHIN

BENGULURU

GAUHATHI

LUDHIANA

KOLKATA

BSE Limited formerly known as Bombay Stock Exchange (BSE) , is the oldest stock exchange in Asia. It is situated at Dalal Street Mumbai.

No of listed Companies as of March 2014 : 5133 No of Scrips(Shares): 8196

BSE 30 (index) : “sensex” Total market capitalization: app. USD

1.32trillionRolling clearance and settlement: T+2 daysTimings: Opening- 9:15 am Closing-3:30 pm

Mon to Friday

BOMBAY STOCK EXCHANGE

The National Stock Exchange (NSE) is stock exchange located at Mumbai, India. NSE (index 50): S&P CNX Nifty No of listed Companies 1635

Total market capitalization US $ 989 BillionRolling clearance and settlement: T+2 daysTimings: Opening- 9:15 am Closing-3:30 pm Mon to

Friday

.

NATIONAL STOCK EXCHANGE

The index is an aggregate of the market capitalization of all of the industrial equities listed in the market.

Stock Index (sensex, Nifty, Dowjoes)

Computation of the NSE index

Current Market Value of Companies X Preceding Index Value /Preceding Market Value of Companies

(It may be price weighted or value weighted)

Stock Index Construction

Stock BrokerAn agent that charges a fee or commission for executing buy and sell orders submitted by an investor

Demat account A  ‘dematerialised’ account holds shares in electronic form like a bank’s saving account holds cash of its customer.

CDSL and NSDL: are Depositaries that keeps scrips in their custody

Depositary participants: are Bank, Financial Institutions, clearing houses, brokers and broking houses

To open a Depositary account one must submitt1. Account opening fee2. Annual maintenance fee3. Transaction fee(Besides the above, depository participants also charge service tax as applicable.)

For opening a demat account one needs to provide a set of documents to the agent. They are:

1.Duly completed account opening form and passportsize photos;2.A copy of PAN card as proof of identity;3.Personalised cheque/Copy of the bank passbook4.A copy of passport/voter ID/ ration card as a proof of address5.Signing of the DP-investor agreement.

To start with trading you need to have two a/c A trading account -with the broker and2.A de-mat account – you may choose a bank/financial institution or a stock broker who could provide you the DP services.

Dmat Form

How to trade in Equity Stocks atStock exchange?

Broker

What do you needTRADING A/CDEMAT A/C

For Buying and Selling sharesFor depositing the shares PurchasedMARG

IN Amount for trading is known as Margin

Day order Open order Market order Limit order Stop loss order

Types of order

TYPES OF TRADEINTRADAY

DELIVERY OF SHARE

Means the transaction or trade is to be done on a particular day

Trade can be done several time in a day At the end of the day all trade should be square

off

Means the transaction or trade is done on a particular day and shares are credited in demat account

Shares can be sold any time i.e. day, months and years later

Benefits on buying shares :- Dividend, Bonus etc

An order Book

Types of Investors in equity market1. Arbitragers2. Speculators3. Hedgers

An outlook of a MarketBull Bear and Stags

Categories of an Investor

Fundamental Analysis( P/E ratio, EPS, DPS, Dividend pay out,

Market Capitalization, Industry and company life cycle, Goodwill, Asset Valuation, Current strategies)

Technical Analysis( Price pattern, volume of trade, Advance declines, Low-high, market information

How to select stock for Investing

Value Investing

•Value investors look for undervalued stock

Growth Investing

•Growth investors look for price momentum

Investment Styles in Stocks

News paper has stock quotes that will look something like the image below: 

Columns 1 & 2: 52-Week High and Low - These are the highest and lowest prices at which a stock has traded over the previous 52 weeks (one year). This typically does not include the previous day's trading. 

Column 3: Company Name & Type of Stock - This column lists the name of the company. If there are no special symbols or letters following the name, it is common stock. Different symbols imply different classes of shares. For example, "pf" means the shares are preferred stock. 

Column 4: Ticker Symbol - This is the unique alphabetic name which identifies the stock. If you watch financial TV, you have seen the ticker tape move across the screen, quoting the latest prices alongside this symbol. If you are looking for stock quotes online, you always search for a company by the ticker symbol. If you don't know what a particular company's ticker is you can search for it at: http://finance.yahoo.com/l. 

Column 5: Dividend Per Share - This indicates the annual dividend payment per share. If this space is blank, the company does not currently pay out dividends. 

Column 6: Dividend Yield - The percentage return on the dividend. Calculated as annual dividends per share divided by price per share. 

Column 7: Price/Earnings Ratio - This is calculated by dividing the current stock price by earnings per share from the last four quarters. For more detail on how to interpret this, see our P/E Ratio tutorial. 

Column 8: Trading Volume - This figure shows the total number of shares traded for the day, listed in hundreds. To get the actual number traded, add "00" to the end of the number listed. 

Column 9 & 10: Day High and Low - This indicates the price range at which the stock has traded at throughout the day. In other words, these are the maximum and the minimum prices that people have paid for the stock. 

Column 11: Close - The close is the last trading price recorded when the market closed on the day. If the closing price is up or down more than 5% than the previous day's close, the entire listing for that stock is bold-faced. Keep in mind, you are not guaranteed to get this price if you buy the stock the next day because the price is constantly changing (even after the exchange is closed for the day). The close is merely an indicator of past performance and except in extreme circumstances serves as a ballpark of what you should expect to pay. 

Column 12: Net Change - This is the dollar value change in the stock price from the previous day's closing price. When you hear about a stock being "up for the day," it means the net change was positive. 

Price Patterns : Shift in Demand Supply

Figure 7.12: The Tech Boom

0

100

200

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700

1994

: I

1994

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1994

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95: I

1995

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1995

: IV19

96: I

1996

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1996

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1996

: IV19

96: I

1997

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1997

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1997

: IV19

98: I

1998

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: IV19

99: I

1999

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: IV20

00: I

2000

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: IV20

01: I

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Quarter

Inte

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Inte

rnet

Inde

x

0

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NA

SDA

Q

Internet Index NASDAQ

S&P CNX Nifty Stock Watch

Actual trading process

Broker of Mr. X

Broker of Mr. Y

Mr. XWant to buy a Share

Mr. YWant to sell a Share

Stock Exchange

Delivery of sharesMarginRs.

10000 Price of a share

Rs. 100

Shares can be purchased100

shares

Price 102 shares

Profit EarnedPer share Rs.2 * 100 shares = Rs. 200 Profit

Thank you