INTRODUCTION TO STOCK MARKET

FINANCIAL
SYSTEM
FINANCIAL
INSTITUTIONS
FINANCIAL
MARKETS
FINANCIAL
SERVICES
FINANCIAL
INSTRUMENTS

FINANCIAL
MARKET
MONEY
MARKET
CAPITAL
MARKET

Money market instruments
• Commercial bills
• Treasury bills(TB)
• Call and short notice
• Certificate of deposits(CD)
• Commercial paper(CP)
• Repurchase agreement(REPO)
• ADRs/GDRs

Primary market
• where new securities that have never been
previously issued, are offered.
• Its function is to facilitate the transfer of funds
from the willing investors to the entrepreneurs
setting up new corporate enterprises or going
in for expansion, diversification, growth or
modernisation.

Secondary market
• It refers to a market where securities are
traded after being initially offered to the public
in the public in the primary market and listed
in stock exchange.
• The transactions of secondary market are
generally done through the medium of stock
exchange.
• The chief purpose of the secondary market is
to create liquidity in securities.

Benefits of listing of securities
▪ Fund Raising and exit route to investors
▪ Supervision and Control of Trading in Securities
▪ Fair Price for the Securities
▪ Timely Disclosure of Corporate Information
▪ Collateral Value of Securities
▪ Better Corporate Practice
▪ Benefits to the Public
▪ Subdivision and Consolidation of Holdings

Bombay Stock Exchange
• Asia’s oldest stock exchange
• Major stock exchange in India
• Original named as “The Native Share & Stock
Brokers Association”
• Established : 1875
• Location : Mumbai, Dalal Street
• world's 11th largest stock exchange
• The automated screen based trading platform BSE
On-LineTrading (BOLT)

APPROVED STOCK EXCHANGES IN INDIA

Eligibity criteria for listing of securities
• The stocks would be chosen from amongst the top 500 stocks in terms
of average daily market capitalisation and average daily traded value
in the previous six-month period on a rolling basis.
• For a stock to be eligible, the median quarter-sigma order size over
the last six months should not be less than Rs. 10 lakh (Rs 1 million).
• The Market Wide Position Limit in the stock shall not be less than Rs
300 crore (Rs 3000 million). The Market Wide Position Limit is valued
taking into consideration 20% of number of shares held by Non-
Promoters (i.e. free-float holdings) in the relevant underlying stock
and the closing prices of the stock in the underlying cash market on
the date of expiry of contract in the month. Market Wide Position
Limit is calculated at the end of every month.

Method of calculating index
Market Capitalisation
Market capitalization is the total worth of all outstanding (issued) shares of
a company. It represents the total worth of a company.
Market capitalization=
No of shares outstanding x market price of share
Free Float Market Capitalization
Free float concept is an index construction methodology which makes use
of free float shares in the market.
Free float market capitalization is the total worth of all shares of a
company which are available for trading in the open market. These shares
are called free float shares and are available for trading by anyone.

STOCK MARKET INDEX
• It is a method of measuring a section of the stock market.
• Many indices are cited by news or financial services firms
and are used as benchmarks, to measure the performance
of portfolios such as mutual funds.
• An index may also be considered as an instrument (after
all it can be traded).
• The index may be weighted to reflect the market
capitalization of its components, or may be a simple index
which merely represents the net change in the prices of
the underlying instruments. Most publicly quoted stock
market indices are weighted.

• Stock market indices are useful in understanding the level
of prices and the trend of price movements of the market.
• A stock market index is created by selecting a group of
stocks that are capable of representing the whole market
or a specified sector or segment of the market.
• The change in the prices of this basket of securities is
measured with reference to a base period.
• There is usually a provision for giving proper weights to
different stocks on the basis of their importance in the
economy.
• A stock market index act as the indicator of the
performance of the economy or a sector of the economy.

• There is usually a provision for giving proper
weights to different stocks on the basis of their
importance in the economy.
• A stock market index act as the indicator of the
performance of the economy or a sector of the
economy.
• Stock market indices are the barometer of the stock
market.
• BSE SENSEX,NSE-50 etc are some of the market
indices.

Their usefulness:
• Indices help to recognize broad trends in the
market.
• The investor can use the indices to allocate the
funds rationally among the stocks.
• Technical analysts use these indices to predict the
future market.
• Indices function as a status report on the general
economy.

CRITERIA FOR SELECTING STOCKS TO
CALCULATE INDEX
• Listing history: The company should have listing history on
stock exchange for at least one year
• Track record: The company should have listing history
• Market capitalization: Company should have one among
100 market capitalizations of BSE,
• And each company should have more than0.5% of total
market capitalization of BSE INDEX
• Frequency of trading: Company stocks should be traded
on each and every trading day for the last one year
• Industrial representation : Company should be a leader in
the industry it represents

BSE INDEXES
• BSE SENSEX – Tracks 30 stocks of BSE
• BSEMIDCAP- track performance of companies
with relatively mid size market capitalization
• BSE 200 – Tracks 200 stocks on the BSE
• BSE 100- Tracks 100 stocks on the BSE

About NSE
• The National Stock Exchange of India Limited (NSE) is the
leading stock exchange of India
• located in Mumbai.
• NSE was established in 1992
• 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 length and breadth of the country.

• The national stock exchange of India was
promoted by leading financial institution at
the order of government of India and was
incorporated in November 1992 as a tax
paying company.
• In April 1993,it was recognized as a stock
exchange under the securities
contract(Regulation) Act, 1956…NSE
commenced operation in June 1994

• it is also the world’s 12th-largest stock exchange
• It is the first exchange in India to introduce electronic
trading facility thus connecting together the investor
base of the entire country
• National Exchange for Automated Trading system
(NEAT)
• NSE has been established with a diversified
shareholding comprising domestic and global
investors.

PURPOSE
• Establishing a National wide trading facility for all
type of securities.
• Ensuring equal access to investor all over the
country through an appropriate communication
network.
• Providing for a Fair, efficient and transparent
securities market using electronic Trading system.
• Enabling shorter Settlement cycles.
• Meeting up with international benchmark and
standard

INDICES
• NSE has launched several stock indices, including:
• S&P CNX Nifty(Standard & Poor's CRISIL NSE Index)
• CNX Nifty Junior
• CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)
• S&P CNX 500 (= CNX 100 + 400 major players across
72 industries)
• CNX Midcap (introduced on 18 July 2005 replacing
CNX Midcap 200)

Procedure for dealing at stock exchange
a) Selecting a broker
b) Placing an order
c) Making a contract
d) Contact note
e) Settlement:
I. Settlement of ready delivery contracts
II. Settlement of forward delivery contracts:
• Liquidation in full
• Liquidation by payment of differences
• Carry over to next settlement-badla or contago charge

Depository system
• For eliminating paper work, facilitates
automatic and transparent trading system in
scrip's, shortens the settlement period and
ultimately contributes to the liquidity of
investment in securities.
• ‘Scriples trading system’

TYPES OF SPECULATORS
• Bull -A bull is an optimistic speculator. He expects a rise in
the price of the securities in which he deals. Therefore, he
enters into purchase transactions with a view to sell them
at a profit in the future.
• Bear - A bear is a pessimistic speculator who expects a
sharp fall in the prices of certain securities. He enters into
selling contracts in certain securities on a future date. If
the price of the security falls as he expects he shall get the
price difference.

• Stag - A stag is considered as a cautious
investor. He is a speculator who simply applies
for fresh shares in new companies with the
sole object of selling them at a premium or
profit as soon as he gets the shares allotted.
• Lame Duck - When a bear is unable to meet his
commitment immediately, he is said to be
struggling like a lame duck.

INTRODUCTION TO STOCK MARKET

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