INDIAN STOCK MARKET

What is a Stock Exchange?

A stock exchange is an institution which provides a platform for buying and selling on existing securities including shares and debentures.

History of Indian Stock MarketAn informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall of Bombay from the mid-1850s, each investing a (then) princely amount of Rupee 1. This banyan tree still stands in the Horniman Circle Park, Mumbai. The informal group of stockbrokers organized themselves as the The Native Share and Stockbrokers Association which, in 1875, was formally organized as the Bombay Stock Exchange (BSE). The foot-dragging by the BSE helped radicalise the position of the government, which encouraged the creation of the National Stock Exchange (NSE), which created an electronic marketplace. NSE started trading on 4 November 1994.

SENSEX•Sensex is BSE’s Sensitive Index•Launched in 1986, it is made of 30 most actively traded stocks in market .•The basic purpose is to reflect price movements of shares.

•NIFTY is the index for NSE and covers over 22 sectors of Indian economy.•NSE is divided into two market segments i.e. Wholesale Debt Market & Capital Market Segment.•NSE is India’s one of the most technically advanced stock exchanges.

Trading Procedure on a Stock Exchange

Trading Procedure on a Stock Exchange

1. Selection of a broker

2. Opening Demat Account with Depository

3. Placing the Order

4. Executing the Order

5. Settlement

HOW TO FIND A GOOD STOCK?

There are two types of analysis

FUNDEMENTAL TECHNICAL

FUNDAMENTAL ANALYSIS• At the company level fundamental

Analysis may involve examination of financial data, management, business concept, and competition.

• At the industry level, there might be an examination of supply and demand forces for the products of the company.

• General steps to fundamental analysis:

Economic forecast, group selection, narrow within growth, company

analysis ( business plan, management etc.)

Some ratios are needed to be calculated for checking the fundamentals of the company:

P/E ratio Book value per share

Interest coverage

ratio

Cash earning per share

Dividend per share

Return on investment

Operating ratio

Current ratio

Asset to debt ratio Quick ratio Net profit

ratioOperating

ratio

P/E RATIO (price to earning ratio )

It is valuation ratio of a company's current share price compared to its per-share earnings. It is calculated as :

Market Value per Share / Earnings per Share (EPS) For example, If a company is currently trading at Rs1000 a share and earnings over

the last 12 months were Rs100 per share, the P/E ratio for the stock would be 10times (Rs1000/Rs100).

• It tells you about whether the share is worth buying or not.• And is also known as "price multiple" or "earnings multiple."

Now that we know the fundamentals of the company and we have identified the worthy share...but the true potential of the share is unlocked only when it is purchased at the right time...now you all must be wondering how to find that right time, so it can be done through technical analysis.

Ideally there is no standard procedure for technical analysis. Basically they follow the dow theory and a number of empirical rules developed by chartists for interpreting market movement.

TECHNICAL ANALYSIS

DOW THEORY• It was propagated by Charles H. Dows (1851–1902),

journalist, founder and first editor of The Wall Street Journal and co-founder of Dow Jones and Company.

• It stated that there are three important trends in the market the primary trend, then a secondary movement which is called a technical correction and then there is a third movement which is due to the day to day fluctuations and is not considered important.

• Basically if you study a share for over a period of time, you will get to know that a share follows a certain cycle, i.e. its long term movements can be tracked. And this helps you identify the right time to buy or sell the share.

The different types

Equity /cash

segment market

Derivative market

EQUITY/CASH SEGMENT MARKET

• In this market you trade according to the current market price and the deal is done on the spot.

• It follows a T+2 Settlement that is if the deal is done on Monday it will be settled on Wednesday.

DERIVATIVE MARKET• The derivatives market is the

financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets. The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives.

FUTURE AND OPTIONS MARKET (F&O)

Futures market• Why one should opt. For the future market...• Lets look at an example....first....• You bought L&T in cash market segment at Rs.1800 and you

predict that it will cross 1900 at the end of the month. If that happens and the share touches Rs.1920, you make a profit of Rs.120 on your investment of 1800, a profit of 6.6%.

• Whereas if you have bought the same deal in the futures market then you would have paid a margin of say suppose Rs.10 (not the whole amount) and you strike a deal quoting at Rs.1900, the moment share will cross Rs.1900 you will start earning profit, here on your investment of Rs. 10(which you will get back) you get a profit of Rs.20..a whooping return of 200%.

Options market Similar to futures markets, here

you have to pay a premium instead of a margin

And you are provided with two options that are call and a put...

You use a ‘call’ when you are bullish on a share , and you use a ‘put’ when you are bearish on the share.

Future Prospects

Indian stocks have witnessed gains especially since the current govt. won the elections in May 2014.From the end of June 2014 to the beginning of March 2015, the ETFs tracking NIFTY returned more than 15%.The run up in stocks was fueled up primarily by the hope of economic and social development under the leadership of Modi whose electoral campaign focused on development.