Stock Market
For Dummies (Me and You!)

What is stock market?

Why are you telling me all this?

Why its important to me?(assets and earnings)

Debt v/s Equity Difference between Debt and Equity financing

IPO Initial Public Offer

Risk Risk of being an owner - Dividends

Common v/s Preferred Stocks Preferred Stock between Bond and Common

Different classes of Stock Class A and Class B Voting rights Steve Jobs Mark Zuckerberg Laxmi Mittal

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Authorities

How stocks trade

Farmer's market

Buyers and sellers meet

Primary and Secondary Market

Primary Market IPO

Secondary Market No control of company what so ever

Bombay Stock Exchange and National Stock Exchange

Over the counter exchange Trading floor and Virtual Trading

SENSEX

BSE SENSEX 30

Started 1 January 1986

Consists of 30 company across different sectors

Nerve of the economy

The index is calculated based on a free float capitalization methoda variation of the market capitalization method.

The base value of the SENSEX is taken as 100 on April 1, 1979, and its base year as 1978-79.

share price times the number of shares outstanding

Index divisor magic number

NIFTY

Same Index covers 50 companies across 22 sectors

The base period for the S&P CNX Nifty index is November 3, 1995

The base value of the index has been set at 1000, and a base capital of Rs 2.06 trillion

Nifty Index was developed by Ajay Shah and Susan Thomas.

Total return on Sensex and Nifty is around 20%

Depository

A bank or company which holds funds or securities deposited by others, and where exchanges of these securities take place.

NSDL National Security Depository Limited

CDSL Central Depository Services Limited

Depository Participant Intermediaries between depository and investors

SEBI Security and Exchange Board of India Regulator of securities market in India

What all needed? Trading account, demat account and of course MONEY!

Rules of making money!

Rule No 1 : Never lose money in stock market

Rule No 2 : Never forget rule no 1

Factors affecting stock market

Economic Factors

Market trends and rumors

Global market indicators

Govt policies and regulations

Company or sector wide factors

Capitalization Large Cap, Mid Cap and Small Cap

Groups A, B and Z

Circuit Control mechanism

Kinds of trade Intra day and Delivery

Short selling and Short covering

The Bear The Bull and Farm

Picking up the right stock!

Fundamental Analysis

Analyzing stocks on the basis of country, sector or individually

Includes going through the balance sheet of the company and P/L statement and checking various ratios

EPS = Net Earnings / Outstanding Shares

Trailing, Current and Forward EPS

P/E = Stock Price / EPS

High P/E Overpriced stock (Not always!)

Indicator of market sentiment towards the stock

PEG (Price to Future Growth ratio)

PEG = (P/E)/ (projected growth in earnings)

Technically Lower the better

Compare it to P/E

This is projected ratio, not always accurate!

Interest coverage ratio

IC = EBIT/ Interest expense

Below 1.5 = signs of trouble times!

Debt/Equity Ratio

D/E = Total Liabilities / Shareholders Equity

Sector based, Auto manufacturing High

IT companies Low

Check the competitor or top 5 sector based ratios when considering this

Technical Analysis

Support

Resistance

Depends on past prices and volumes of stock traded.

All about reading the graphs

Out of the reach for this presentation

Hedging and Speculation

Hedging means insuring against a negative event

It is done to reduce exposure to various risks

Hedgers try covering the risks

Hedgers try to reducethe risks associated withuncertainty

Speculation is opposite of hedging

Speculators are risk lovers

Speculators make bets or guesses

A hedger seeks to cover a foreign exchange risk

A speculator accepts and seeks out to accept it to make profit

Never risk more than 10% of your trading capital in a single trade.

Never do overtrading.

Don't enter a trade if you are unsure of the trend.

When in doubt, get out, and don't get in when in doubt.

Distribute your risks equally among different markets.

Avoid taking small profits and large losses.

Be willing to make money from both sides of the market.

Never change your position without a good reason.

Don't follow a blind man's advice.

When you lose don't blame it on luck.

A well diversified portfolio

Investment in good shares

Lot of patience