Getting started!

September 27, 2022July 25, 2022 by Rohansharma

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

Getting started

Firstly, You are now ready to delve deeper, assuming you have finished reading and comprehending all 12 chapters in our first module, Introduction to Stock Markets.

Secondly, Your quick, practical introduction to the stock markets is the goal of the first module. We have chosen the concepts you should understand with care in our effort to introduce the stock markets to you, especially if you are completely unfamiliar with markets. It is a good sign if you still have a lot of questions at this point. As we move on to other modules, you will discover your answers.

You need to comprehend why we have so many different learning modules and how they relate to one another at this point.

You need to comprehend why we have so many different learning modules and how they relate to one another at this point. To give you a head start, I’ve listed some of the Varsity modules we’ll be studying.

Introduction to Stock Markets
Technical analysis
Fundamental Analysis
Futures Trading
Option Theory
Option Strategies
Quantitative Concepts
Commodity Markets
Risk Management & Trading Philosophy
Trading Strategies & Systems
Financial Modeling for Investment practice

how are they interrelated?

The goal of “Varsity at Zerodha” is to build a library of excellent market-related educational materials. The information will include topics like risk management, financial modelling, derivatives, trading strategies, and fundamental and technical analysis. Each major subject is divided into a module. If you’re unfamiliar with the financial markets, you might be wondering where each of these subjects stand in relation to the bigger picture.

Allow me to post a straightforward question to you in order to help you gain perspective.

What do you consider to be the single most crucial element for market success? Market success is simple to define: if you consistently make money, you are successful; if not, you are not!

So if you were to answer this question for me, chances are you will think about risk management, discipline, market timing, access to information, etc. as the key to success in markets.

While one cannot deny the importance of these factors, what is even more compelling and primary is developing a point of view (POV).

A point of view is the art of developing a sense of direction on a stock or the markets in general. If you think the stock is going up, your POV is bullish hence you would be a buyer of the stock. Likewise, if you think a stock is going down your POV is bearish, you would be a stock seller.

Having said that, how do you actually develop a point of view? How do you figure out if the stock is going up or down?

To develop a point of view, one needs to develop a systematic approach to analyze the markets. A few methods are using which you can figure out/ analyze what to buy or sell. They are:

Fundamental Analysis (FA)
Technical Analysis (TA)
Quantitative Analysis (QA)
Outside views

Here is an example of a trader’s typical thought process when determining a POV (whether to buy or sell stocks) based on a specific method of analysis to give you a sneak peek:

FA-based POV: The third-quarter results appear to be impressive. The business reported a 25% increase in top line revenue and a 15% increase in bottom line revenue. The company’s forecast appears promising as well. The stock looks bullish because all the fundamental factors are in favor; as a result, it is a buy.

QA-based POV – The stock’s price to earnings (PE) recently increased and reached the third standard deviation. The PE’s chance of crossing the third standard deviation is just 1%. Therefore, it is wise to anticipate a return to the mean; as a result, the stock is a sell.

From a distance, the stock appears to be a buy because the TV analyst suggested it.

You should always adopt a point of view that is based on your own analysis rather than on what someone else thinks, as doing so almost always leads to regret.

Buy the stock in the spot market.
Buy the stock in the derivatives markets.
1. Within derivatives, you can choose to buy the futures.
2. Or choose to trade via the options market.
  1. Within the options market, there are call options and put options.
  2. You can also do a combination of call and put options to create a synthetic bullish trade

Therefore, what you decide to do after developing a POV is entirely different. Trading successfully depends heavily on selecting the appropriate instrument that supports your point of view (POV).

For instance, I would be better off making a delivery trade if I had a 1-year outlook and was extremely bullish on the stock. But if I’m blatantly bullish on the stock from a short-term (let’s say, one-week) perspective, I’d rather pick a futures instrument to trade.

It would be wise to pick an option instrument if I’m bullish with restrictions (for instance, if I expect the markets to rise as a result of a strong budget announcement but don’t want to take on much risk).

So the message here is – the market participant should develop a point of view and complement the POV with the right trading instrument. A well researched POV combined with the right instrument to trade is a perfect recipe for market success.

Also by now, hopefully, you have got a sense of how all the different modules in “Varsity” play an important role in assimilating the market.

Go ahead and explore the content on Varsity at Zerodha while keeping this in mind.

The concepts that will enable us to develop POV based on Technical and Fundamental Analysis will be covered in the following two modules.

You will have a better understanding of how to develop a point of view on markets after reading these two modules. We will talk about the various trading instruments you can use to complement your perspective in the later modules. In order to help you start calibrating your trades with efficient risk management strategies, we will speed up the flow as we go along.

Without a doubt, Learning Sharks Institute puts a lot of effort into keeping our list of share market training courses current. However, if there is a conflict between the programs listed on this list and those in the Learning Sharks Academic Calendar, the Calendar will take precedence.

News and Events

September 27, 2022July 25, 2022 by Rohansharma

Overview of News and Events

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

9.1 Overview

A market participant may find it insufficient to make decisions solely on the basis of company-specific information. Understanding the events that affect the markets is also crucial. Numerous external factors, such as economic and/or non-economic events, have a substantial impact on the performance of equities and markets as a whole.

We’ll attempt to comprehend some of these events in this chapter, as well as how the stock market responds to them.

Also, interdependent financial intermediaries work together to form the ecosystem that supports the financial markets. You can learn more about these financial intermediaries and the services they provide by reading this chapter.c

9.2 – Monetary Policy

One of the most crucial financial intermediaries you should be aware of is the stockbroker.

Whereas stockbroker is a business that has registered with the stock exchange as a trading member and has a stockbroking license. They adhere to the rules established by SEBI.

Your entry point into stock exchanges is a stockbroker. To begin, you must open a “Trading Account” with a broker who satisfies your requirements. Your requirement might be as straightforward as the broker’s office’s proximity to your home. At the same time, finding a broker who can give you a single platform through which you can conduct business on numerous exchanges around the world can be challenging. We’ll go over what these requirements might be later on, as well as how to pick the best broker at this time. Firstly you can conduct financial transactions in the market using a trading account. A trading account is a brokerage account that enables the investor to buy and sell securities.

The Reserve Bank of India (RBI) uses monetary policy as a tool to manage the money supply by regulating interest rates. They adjust interest rates to achieve this. The RBI is the nation’s main bank. The central bank of every nation on earth is in charge of deciding on interest rates.

The RBI must strike a balance between growth and inflation when determining interest rates. Simply put, if interest rates are high, borrowing costs are also high (particularly for corporations). Corporations cannot expand if borrowing is difficult. If businesses don’t expand, the economy sputters.

On the other hand, borrowing is simpler when interest rates are low. This results in more money in the pockets of businesses and customers. With more money comes more spending, which causes retailers to raise prices, which causes inflation.

The RBI must carefully set a few key rates and take into account all the variables to achieve balance. Economic chaos can result from any inequity in these rates. The following are the important RBI rates that you should monitor:

Repo Rate: Banks can borrow money from the RBI whenever they need to. The repo rate is the interest rate at which the RBI lends money to other banks. The cost of borrowing is high when the repo rate is high, which causes the economy to grow slowly. In India, the repo rate is currently 8%. Markets disagree with the RBI’s decision to raise repo rates.

Reverse repo rate – The reverse repo rate refers to the interest rate at which the RBI borrows money from banks. Banks are happier to lend money to RBI than to a corporation because they are confident that RBI won’t default when they do so. However, the amount of money available in the banking system declines when banks decide to lend money to the RBI rather than a corporate entity. Reverse repo rate increases tighten the money supply, which is bad for the economy. Right now, the reverse repo rate is 7 percent.

Every bank must abide by the cash reserve ratio and maintain funds on deposit with the RBI (CRR). The CRR affects how much they keep in reserve. The economy suffers because more money is removed from circulation as CRR rises.

Every two months, the RBI meets to discuss rates. The market keeps an eye out for this important event. Interest-rate-sensitive stocks from a variety of industries, including banks, automobiles, housing finance, real estate, metals, etc., would be the first to respond to rate decisions.

9.3 – Inflation

Inflation is the term used to describe a steady increase in the average price of goods and services. The value of money decreases as inflation rises. If everything else is equal, inflation is to blame for the price increase if the price of 1 kg of onions went from Rs. 15 to Rs. 20. Although inflation is unavoidable, a high inflation rate is not preferred because it might cause economic unrest. A high inflation rate typically sends the markets the wrong message. Governments strive to bring inflation down to a manageable level. An index is typically used to calculate inflation. Inflation is rising if the index increases by a certain percentage point, and it is cooling off if the index decreases.

There are two types of inflation indices – The wholesale Price Index (WPI) and Consumer Price Index (CPI).

WPI, or the wholesale price index The wholesale price index, or WPI, tracks changes in wholesale prices. It tracks pricing fluctuations when commodities are exchanged between businesses rather than with actual clients. WPI is a straightforward and useful method of calculating inflation. However, it may not accurately reflect consumer inflation if institutional inflation is recorded here.

As I write this, the WPI inflation for May 2014 stands at 6.01%.

Consumer Price Index (CPI)– The CPI, on the other hand, captures the effect of the change in prices at a retail level. As a consumer, CPI inflation is what really matters. The calculation of CPI is quite detailed as it involves classifying consumption into various categories and subcategories across urban and rural regions. Each of these subcategories has its own index. This means the final CPI index is a composition of several internal indices.

The computation of CPI is quite rigorous and detailed. It is one of the most critical metrics for studying the economy. A national statistical agency called the Ministry of Statistics and Programme Implementation (MOSPI) publishes the CPI numbers around the 2^nd week of every month.

9.4 - Index of Industrial Production (IIP)

A short-term gauge of how the nation’s industrial sector is doing is the Index of Industrial Production (IIP). The Ministry of Statistics and Programme Implementation releases the information each month, along with data on inflation (MOSPI). The IIP, as its name suggests, measures production across all industrial sectors in India while maintaining a constant benchmark. India currently uses the reference period of 2004–2005. The base year is another name for the reference point.

The ministry receives production data from about 15 different industries, compiles it, and then publishes it as an index number. If the IIP is rising, this is a good sign for the economy and markets because it denotes a dynamic industrial environment (as production is rising).

To sum up, an upswing in industrial production is good for the economy, and a downswing rings an alarm. As India is getting more industrialized, the relative importance of the Index of Industrial Production is increasing.

The RBI is under pressure to lower interest rates if the IIP number drops. The following graph displays the percentage change in IIP over the previous year.

9.5-Purchasing Managers Index (PMI)

The purchasing managers’ index (PMI) is a measure of business activity used to assess the health of the nation’s manufacturing and service industries. This indicator is based on a poll, and the respondents, who are frequently buying managers, offer input on how their opinions of the company have evolved over the past month. Manufacturing and services each receive their survey. Using the survey’s data, a single index is produced. New orders, output, business expectations, and employment are typical survey topics.

An economic indicator called the purchasing managers’ index (PMI) aims to gauge business activity in both the country’s manufacturing and service sectors. This survey-based indicator captures how respondents—typically purchasing managers—perceived their company’s performance over the previous month. Each of the service and manufacturing industries are surveyed separately. The survey’s statistics are all compiled on one index. The survey frequently covers topics like new orders, output, business expectations, and employment.

Typically, the PMI value ranges from 50 to 60. Readings above 50 imply an economic expansion, while readings below 50 suggest a downturn. A result of 50 also indicates no change in the economy.

9.6 – Budget

The Ministry of Finance discusses the finances of the nation in depth during a budget. The Finance Minister delivers the budget on behalf of the ministry to the entire nation. The budget contains significant economic and policy announcements that have an impact on a range of market sectors and industries. Consequently, the budget is essential to the economy.

To further demonstrate this, consider that raising the taxes on cigarettes was one of the budget’s July 2014 expectations. . The Finance Minister increased the taxes on cigarettes during the budget, as was to be expected, which increased the price of cigarettes. A higher cigarette price has the following effects:

It goes without saying that this is debatable, but higher cigarette prices deter smokers from purchasing cigarettes, which lowers the profitability of cigarette manufacturing companies like ITC. Investors may want to sell shares of ITC if profitability declines.

Because ITC is an index heavyweight, the markets will decline if traders start selling ITC.

ITC traded 3.5 percent lower after the budget announcement for this specific reason.

The budget is released every year during the last week of February. However, under some rare circumstances, such as the election of a new administration, the budget presentation may be postponed.

Corporate actions

September 27, 2022July 25, 2022 by Rohansharma

Corporate actions

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

8.1 Overview of Corporate Actions

Corporate actions are projects undertaken by a corporate body that alter its stock. An entity has a wide range of corporate action options at their disposal. When deciding whether to buy or sell a particular stock, a thorough understanding of these corporate actions provides a clear picture of the company’s financial health.

The five most significant corporate actions and their effects on stock prices will be examined in this chapter.The board of directors proposes a corporate action,which the company’s shareholders then approve.

8.2 Dividends

The business distributes dividends to its stockholders. In order to share out the company’s annual profits, dividends are paid. On a per-share basis, dividends are paid. For instance, Infosys declared a dividend of Rs. 42 per share for the fiscal year 2012–2013. A percentage of the face value is another way to describe the dividend payment. In the aforementioned instance, Infosys’ face value was Rs. 5 and the dividend was Rs. 42; as a result, the dividend payout is stated to be 840 percent (42/5).

Dividend payments are not required to be made each year. The business has the option to use the same cash to fund a new project for a better future if it decides that doing so would be preferable to paying dividends to shareholders.

Furthermore, dividends don’t have to be paid entirely from profits. The company can still pay dividends from its cash reserves if it had a loss for the year but did have a healthy cash reserve.

Occasionally, paying out dividends might be the best course of action for the business. It would make sense for the company to reward its shareholders in order to repay the faith the shareholders have in the company when the company’s growth opportunities have been exhausted and the company has extra cash.

The Annual General Meeting (AGM), where the company’s directors gather, is where the dividend payment decision is made. Dividends are not paid immediately following the announcement. This is because it would be challenging to determine who receives the dividend and who does not because the shares are traded throughout the year. You can better understand the dividend cycle by looking at the timeline below.

Dividend Declaration Date: This is the date on which the AGM takes place, and the company’s board approves the dividend issue

Ex-Date/Ex-Dividend Date: Two business days prior to the record date is typically the ex-dividend date. The dividend is only payable to shareholders who owned the shares prior to the ex-dividend date. This is so because the standard settlement in India operates on a T+2 basis. Therefore, in all actuality, you must ensure that you purchase the shares prior to the ex-dividend date in order to be eligible to receive a dividend.

Cum Dividend: Up until the ex-dividend date, the shares are referred to as cum dividend.

The stock typically declines to the extent of dividends paid when it goes ex-dividend. For instance, if ITC (currently trading at Rs. 335) announced a dividend of Rs. The stock price will decrease to the extent of the dividend paid on the ex-date; in this instance, ITC’s price will fall to Rs. 330. The amount paid out no longer belongs to the company, which is the cause of the price decrease.

Anytime during the fiscal year, dividend payments may be made. It is known as the interim dividend if it is paid during the fiscal year. The final dividend is the term used when a dividend is paid at the end of the fiscal year.

8.3 Bonus Issue

A stock dividend distributed by a company to its shareholders is known as a bonus issue. The company’s reserves are used to issue the bonus shares. These are free shares that shareholders receive in exchange for the shares they already own. These allocations frequently come in predetermined ratios like 1:1, 2:1, 3:1, etc.

If the ratio is 2:1 ratio, the existing shareholders get 2 additional shares for every 1 share they hold at no additional cost. So if a shareholder owns 100 shares, he will be issued an additional 200 shares, so his total holding will become 300 shares. When the bonus shares are issued, the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same.

When a company’s share price is very high and it becomes difficult for new investors to purchase shares, companies issue bonus shares to encourage retail participation. The example above demonstrates how issuing bonus shares increases the number of outstanding shares while decreasing the value of each share. The face value stays the same.

8.4 Stock Split

The term “stock split” may sound strange to some people at first, but it occurs frequently in the markets. The obvious conclusion from this is that the stocks you currently own have been split.

When the company declares a stock split, the number of shares held increases, but the investment value/market capitalization remains similar to the bonus issue. The stock is split concerning the face value. Suppose the stock’s face value is Rs.10, and there is a 1:2 stock split then the face value will change to Rs.5. If you owned 1 share before the split, you would now own 2 shares after the split.

8.5 Rights Issue

The idea behind a rights issue is to raise fresh capital. However, instead of going public, the company approaches its existing shareholders Think about the rights issue as a second IPO and a select group of people (existing shareholders). The rights issue could be an indication of promising new development in the company. The shareholders can subscribe to the rights issue in the proportion of their shareholding. For example, 1:4 rights issue means every 4 shares a shareholder owns; he can subscribe to 1 additional share. Needless to say, the new shares under the rights issue will be issued at a lower price than what prevails in the markets.

A word of warning, though: The investor should look beyond the company’s discount and not let it influence them. In contrast to a bonus issue, one must pay money to purchase shares in a rights issue. Therefore, a shareholder should only invest if they have complete faith in the company’s future. It is obviously less expensive to purchase it from the open market if the market price is lower than the subscription price or right issue price.

8.6 Buyback of shares

A buyback can be viewed as a way for a company to invest in itself by purchasing shares from other market participants. Although buybacks reduce the number of shares outstanding in the market, they are a crucial corporate restructuring strategy. There may be a variety of factors at play when corporations decide to buy back shares.

Increase the per-share profitability.
to increase their ownership of the business.
to prevent competition from other businesses.
to demonstrate the promoters’ faith in their business.
to prevent competition from other businesses.
to demonstrate the promoters’ faith in their business.

When a company makes an announcement about a buyback, it expresses confidence in the company. Thus, this typically has a positive impact on the share price.

Day end settlements

September 27, 2022July 25, 2022 by Rohansharma

Overview of day end settlement

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

7.1 Overview of day end settlements

Although clearing and settlement are very theoretical, it is crucial to comprehend the principles involved. Investors and traders don’t need to worry about how transactions are cleared and completed because skilled intermediaries will handle this responsibility expertly on your behalf.

But if the clearing and settling process is not understood, learning won’t seem to be complete. We will therefore examine what takes place in the background between the time you purchase a stock and the time it appears in your DEMAT account.

7.2 What happens when you buy a stock?

Let’s say you purchase 100 shares of HDFC on Monday, June 23, 2014, for Rs. 1,000 each. The total cost of the purchase is Rs. 100,000 (100 x 1000). The trade date, abbreviated as “T Day,” is the day you complete the transaction.

Your broker will charge Rs. 100,000 plus any applicable fees toward your purchase by the end of the trading day. The fees listed below would be incurred if the deal went through Zerodha.

Sl No	Chargeable Item	Applicable Charges	Amount
1	Brokerage	Zero charges on Equity Delivery or 0.03% or Rs.20/- whichever is lower for intraday trades	Zero
2	Security Transaction Charges	0.1% of the turnover	100/-
3	Transaction Charges	0.00325% of the turnover	3.25/-
4	GST	18% of Brokerage + Transaction charges	0.585/-
5	SEBI Charges	Rs.10 per crore of transaction	0.1/
Total			103.93/-

As a result, on the day of the transaction, the full sum of Rs. will be debited from your trading account. 103.93 (which includes all applicable fees). Keep in mind that although money leaves your account, stocks have not yet arrived in your DEMAT account.

The broker also creates a “contract note” and sends you a copy of it on the same day generated bill that includes a list of all the purchases you’ve made is similar to a contract note. It is wise to keep this important document on hand for future use. A contract note typically includes the trade reference number and a breakdown of all transactions carried out during the day. It also outlines the breakdown of the broker’s fees.

Day 2 – Trade Day + 1 (T+ day, Tuesday)

The T+1 day is the day following the transaction that you made. You can sell the stock you bought the day before on day T+1. By doing this, you are essentially making a “Buy Today, Sell Tomorrow” (BTST) or “Acquire Today, Sell Tomorrow” trade (ATST). Keep in mind that the stock is not yet in your DEMAT account. There is therefore a risk, and you run the risk of getting into trouble for selling a stock that you don’t own. This doesn’t necessarily mean that you get into trouble every time you make a BTST trade, but it does occasionally, particularly when you trade B group and illiquid stocks. We purposely won’t discuss this subject at this time because of how complicated this situation is.

If you are a beginner in the markets, I advise against engaging in BTST trades unless you are aware of the risks.

From your perspective, nothing happens on T+1 day. However, in the background, the exchange, exchange transaction fees, and security transaction tax are collecting the money needed to buy the shares.

Day 3 – Trade Day + 2 (T+2 day, Wednesday)

On day 3, also known as the T+2 day, at approximately 11 AM, shares are debited from the person who sold you the shares and credited to the brokerage with whom you are trading. By the end of the day, the brokerage will then credit your DEMAT account. similar to how the person who sold the shares received credit for the money that was taken from you.

Now that you own 100 shares of Tata, the shares will start reflected in your DEMAT account.

In actuality, you should only plan on getting the share in your DEMAT account by the end of day T+2 if you buy a share on day T Day. Starting at T+3day, shares will go on sale.

7.3 What occurs when a stock is sold?

The trading day, abbreviated as “T Day,” refers to the day you sell the stocks. When you sell shares using your DEMAT account, it becomes prohibited. The blocked shares are delivered to the exchange before T+2 day. After deducting any necessary fees, the sale’s proceeds would be deposited to your trading account on T+2 day.

Appreciation

Undoubtedly, learning sharks institute works hard to maintain this list of share market Training courses up to date. However, In the event of a dispute between the programs mentioned in the Learning sharks Academic Calendar and this list, the Calendar will take precedence nevertheless. In addition, Please contact the Enrollment Desk if you have any further questions about admissions or program offerings. Nevertheless, Please contact us at [email protected] to edit a program listing. Alternatively, you can reach us directly for any course queries. On the contrary, one can call our number 8595071711.

Even so, we launch new stock market integrated trading programs every 6 months. Despite stock market trends and conditions. While we have you here. Of course, we do not want to miss asking you to share a review. It is necessary and appreciated. our Trading community has been growing evidently. Surely, the credit goes to our mentors and our hard-working trading students. For this reason, we keep coming out with discounts and concessions on our programs. Besides, We believe each citizen has the right to learn about the market.

Because we believe each student should be successful. Since our program is so powerful. So, we encourage and invite more applications, therefore. Of course, we feel proud to invite the differently abled students too. Moreover, the stock market does not care about any race, religion, family background, or religion also. Then, again, We are there to assist you with the best education. Finally, head over to our contact page to speak to our counselor. For one thing, we do not want our students to fail, which is why give regular and repeated classes too.

Trading system

September 27, 2022July 22, 2022 by Rohansharma

Trading system

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

6.1-Overview of Trading system

Firstly, How could you possibly do it if I asked you to give me a real-time summary of the traffic situation?

Importantly, It is unlikely that you would check every road in the city to find the answer, even though there may be thousands of roads and junctions there. The better course of action for you to take would be to quickly check a few key intersections and roads in the four directions of the city and watch how the traffic is moving. If the traffic is chaotic on these roads, you can simply call the situation chaotic; otherwise, it can be thought of as normal.

Undoubtedly, The few key intersections and roads that you monitored to gauge the city’s overall traffic situation served as a barometer!

Making an analogy, how would you respond if I asked you how the stock market is performing right now? The National Stock Exchange has about 2,000 listed companies, while the Bombay Stock Exchange has about 5,000 listed companies. To check every company, determine whether they are up or down for the day, and then respond in detail would be awkward.

Instead, you would just check a few important companies across key industrial sectors. If a majority of these companies are moving up, you would say markets are up, if the majority are down, you would say markets are down, and if there is a mixed trend, you would say markets are sideways!

So essentially identify a few companies to represent the broader markets. Every time someone asks you how the markets are doing, you would just check the general trend of these selected stocks and then answer. These companies that you have identified collectively make up the stock market index!

6.2-The Index

Fortunately, you don’t need to follow these particular companies closely to get a sense of how the markets are faring. To give you this information, the significant businesses have been pre-packaged and are under constant observation. The “Market Index” is the name of this pre-assembled market information tool.

In India, there are two primary market indices. The National Stock Exchange is represented by the CNX Nifty and the Bombay Stock Exchange by the S&P BSE Sensex.

Standard and Poor’s, a major credit rating agency, is known by the initials S&P. S&P has granted the BSE a licence to use their technical know-how in creating the index. As a result, the index also bears the S&P label.

The largest and most active stocks on the National Stock Exchange make up CNX Nifty. India Index Services & Products Limited (IISL), a partnership between the National Stock Exchange and CRISIL, is in charge of keeping it up to date. The letters “CNX” actually stand for CRISIL and NSE.

An ideal index gives us minute by minute reading about how the market participants perceive the future. The movements in the Index reflect the changing expectations of the market participants. When the index goes up, it is because the market participants think the future will be better. The index drops if the market participants perceive the future pessimistically.

6.3- Practical uses of the Index

Information – Over time, the index reflects the broad market trend. The index gives a comprehensive picture of how the economy is doing in the nation. A rising stock market index is a sign that investors are upbeat about the future. Similar to how people have pessimistic views of the future when the stock market index is down.

For instance, the Nifty value on January 1st, 2014 was 6301, and on June 24th, 2014, it was 7580. This corresponds to an increase of 20.3 percent and a change of 1279 points in the index. This simply means that the markets have increased significantly over the time period under consideration, signalling a robust and optimistic economic future.

Benchmarking – For all the trading or investing activity that one does, a yardstick to measure the performance is required. Assume over the last 1 year you invested Rs.100,000/- and generated Rs.20,000 return to make your total corpus Rs.120,000/-. How do you think you performed? Well on the face of it, a 20% return looks great. However, what if Nifty moved to 7,800 points from 6,000 points generating a return on 30% during the same year?

Well, suddenly it may seem to you that you have underperformed the market! If not for the Index, you can’t really figure out how you performed in the stock market. You need the index to benchmark the performance of a trader or investor. Usually, the objective of market participants is to outperform the Index.

Trading – Trading on the index is probably one of the most popular uses of the index. Majority of the traders in the market trade the index. They take a broader call on the economy or general state of affairs and translate that into a trade.

For example, imagine this situation. At 10:30 AM, the Finance Minister is expected to deliver his budget speech. An hour before the announcement Nifty index is at 6,600 points. You expect the budget to be favourable to the nation’s economy. What do you think will happen to the index? Naturally, the index will move up. So to trade your point of view, you may want to buy the index at 6,600. After all, the index is the representation of the broader economy.

Portfolio Hedging –Typically, investors assemble a portfolio of securities. Ten to twelve stocks that they would have purchased with the long term in mind make up the average portfolio. Although the stocks are held for the long term, they may anticipate a sustained market downturn in 2008, which could deplete the portfolio’s capital. Investors can use the index to hedging the portfolio in such a case. This subject will be covered in the risk management module.

6.4 – Index construction methodology

If one wants to advance as an index trader, it is crucial to understand how the index is built and calculated. As we previously covered, the Index is made up of numerous stocks from various industries that collectively reflect the state of the economy. An investment must meet certain requirements in order to be included in the index. As long as it meets the requirements, it should continue to be eligible as an index stock. The stock is replaced by another stock that meets the requirements if it fails to maintain the criteria.

The selection process is used to populate the list of stocks. A specific weighting should be given to each stock in the index. In plainer terms, weightage describes how much importance a particular stock in the index receives in comparison to the others. For instance, if ITC Limited has a 7.6% weight on the Nifty 50 index, then it is equivalent to saying that 7.6% of the movement of the Nifty can be attributed to ITC.

The logical question is: How do we give the stocks that make up the Index weights?

Weights can be assigned in a variety of ways, but the Indian stock exchange uses the free-float market capitalization method. The free-float market capitalization of the company determines the weights; the higher the market capitalization, the higher the weight.

The total number of outstanding shares on the market multiplied by the stock price results in the free float market capitalization.

If, for instance, company ABC has 100 outstanding shares and a share price of 50, its free-float market capitalization is 100*50, or Rs. 5,000.

The 50 stocks that make up the Nifty at the time this chapter was written are listed below in order of their weight:

6.5 – Sector-specific indices

While the Sensex and Nifty represent the larger markets, other indices stand in for particular industries. We refer to these as sectoral indices. For instance, the Bank Nifty on the NSE symbolises the mood unique to the banking sector. The behaviour of all IT stocks on the stock markets is represented by the CNX IT on the NSE. Sector-specific indexes are available on the BSE and NSE. These indices are created and maintained similarly to other significant indices.

Appreciation

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Even so, we launch new stock market integrated trading programs every 6 months. Despite stock market trends and conditions. While we have you here. Of course, we do not want to miss asking you to share a review. It is necessary and appreciated. our Trading community has been growing evidently. Surely, the credit goes to our mentors and our hard-working trading students. For this reason, we keep coming out with discounts and concessions on our programs. Besides, We believe each citizen has the right to learn about the market.

Because we believe each student should be successful. Since our program is so powerful. So, we encourage and invite more applications, therefore. Of course, we feel proud to invite the differently abled students too. Moreover, the stock market does not care about any race, religion, family background, or religion also. Then, again, We are there to assist you with the best education. Finally, head over to our contact page to speak to our counselor. For one thing, we do not want our students to fail, which is why give regular and repeated classes too.

Stock Market returns

September 27, 2022July 22, 2022 by Rohansharma

Stock Market returns

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

5.1 Overview of stock market returns

We are now prepared to continue our investigation of the stock markets because we have a better understanding of the IPO process and what actually happens when a company moves from the primary to the secondary market.

Due to its status as a public company, the company is now required to make all information about it publicly available. On stock exchanges, shares of limited liability companies are traded every day.

Participants in the stock market trade for a limited number of reasons. This chapter will discuss these motives.

5.2 – What really is the stock market

The stock market is an electronic marketplace, as we covered in chapter 2. Buyers and sellers interact and exchange opinions.

Take At the time this essay was published, Infosys was coping with a succession problem, and the majority of its senior-level management experts were leaving the organization for internal reasons. It appears that the company’s reputation is suffering greatly due to the leadership void. The stock price consequently decreased from Rs. 3,500 to Rs. 3,000. The stock prices react whenever there are fresh reports about an Infosys management change.

Assume there are two traders – T1 and T2.

T1’s evaluation of Infosys Because it will be difficult for the business to find a new CEO, the stock price is expected to decline far more. The stock price will probably continue to fall.

If T1 trades as per his point of view, he should be a seller of the Infosys stock.

T2, however, views the same situation in a different light and therefore has a different point of view – According to him, the stock price of Infosys has overreacted to the succession issue and soon the company will find a great leader, after whose appointment the stock price will move upwards.

T2 should buy Infosys stock if the market behaves as it believes it should.

In Infosys, T1 will be a seller and T2 will be a buyer. 3, 000.

Now both T1 and T2 will place orders to sell and buy the stocks respectively through their respective stock brokers. The stock broker obviously routes it to the stock exchange.

The stock exchange must confirm that these two orders match, allowing for the execution of the trade. This is the primary job of the stock market – to create a marketplace for the buyer and seller.

5.3What affects stock price?

Let’s keep using the Infosys example to better understand how stocks fluctuate. Consider yourself a market observer keeping tabs on Infosys.
The price of Infosys is 3000 at 10:00 AM on June 11th, 2014. The management announces to the media that they have succeeded in hiring a new CEO who will lead the business to greater heights. The new CEO will exceed expectations because they trust his ability and judgment to do so.

Two inquiries:-

What impact will this news have on Infosys’ stock price?
What trade would you make on Infosys, if you were to do so? Would it be a sell or a buy?

The stock price will increase, which is a straightforward response to the first query.

Infosys had a leadership problem, which the business has now resolved. Market participants frequently purchase the stock at any price when encouraging announcements are released, which results in a stock price surge.

Take note: The buyer is prepared to pay the seller’s desired prices. The share price usually increases as a result of this buyer-seller reaction.

So as you can see, the stock price jumped 16 Rupees in a matter of 5 minutes. Though this is a fictional situation, it is a very realistic, and typical behavior of stocks. The stock price tends to go up when the news is good or expected to be good.

In this particular case, the stock moves up because of two reasons. The corporation no longer has a leadership issue, and the new CEO is anticipated to take the company to new heights.

The answer to the second question is now quite straightforward; you purchase Infosys stocks taking into account the positive news that surrounds the stock.

Now, moving forward on the same day, at 12:30 PM ‘The National Association of Software & Services company, popularly abbreviated as NASSCOM makes a statement. For those who are not aware, NASSCOM is a trade association of Indian IT companies. NASSCOM is considered to be a very powerful organization and whatever they say has an impact on the IT industry.

The customer’s IT budget is anticipated to decrease by 15%, according to NASSCOM, which could have an impact on the sector going forward.

By 12:30 PM let us assume Infosys is trading at 3030. Few questions for you.

What effects might this new information have on Infosys?
What new trade would you start if you had access to this information?
What would happen to the other IT stocks in the market?

The answers to the earlier queries are fairly straightforward. Let’s examine NASSCOM’s statement in more detail before we begin to respond to these questions.

According to NASSCOM, the customer’s IT budget is expected to drop by 15%. This indicates that IT company revenues and profits are most likely to decline soon. For the IT sector, this is bad news.

Now let’s attempt to respond to the questions above.

Infosys a leading IT major in the country will react to this news. The reaction could be mixed because earlier during the day there was good news specific to Infosys. But a 15% drop in sales is a major issue, so Infosys shares are probably going to trade lower.
If a fresh trade were to be started at 3030 based on the recently disclosed information, it would be a sell on Infosys.
The data disclosed by NASSCOM is relevant to all IT stocks, not just Infosys. As a result, all IT companies will certainly experience selling pressure.

So as you notice, market participants react to news and events and their reaction translates to price movements! This is what makes the stocks move.

You might be mulling over a very practical and pertinent question at this point. What if there isn’t any news about a specific company today, you might be wondering. Will there be no change at all in the stock price?

Well, the answer is both yes and no, and it depends on the company in focus.

For example, let us assume there is no news concerning two different companies.

Reliance Industries Limited
Shree Lakshmi Sugar Mills

Reliance is one of the biggest companies in the nation, as we all know, and whether or not there is news, market participants want to buy or sell the company’s shares, causing the price to fluctuate constantly.

Due to its relative obscurity and the lack of news or events involving it, the second company might not catch market participants’ attention. In such cases, the stock price might not change at all, or if it does, it might change very little.

In conclusion, the expectation of news and events causes price movements. The news or events may have a direct bearing on the business, the sector, or the overall economy. For instance, the news of Narendra Modi’s selection as Indian Prime Minister caused the entire stock market to move.

5.4 How is the stock transacted?

You decide to purchase 200 Infosys shares at 30.30 and hold them for a full year. What is the mechanism behind it? How exactly does one go about purchasing it? What happens once you purchase it?

Thankfully, there are systems in place that are logically integrated.

You must sign into your trading account, which is provided by your stock broker, after deciding to purchase Infosys. After you submit your order, an order ticket is generated with the following information:

The details of your trading account, through which you intend to buy Infosys shares, show your identity.
The price at which you intend to buy Infosys
The number of shares you intend to buy

Your broker needs to confirm you have enough cash on hand to purchase these shares before sending this order to the exchange. If so, the stock market receives this order ticket. The stock exchange searches for a seller willing to sell you 200 shares of Infosys at 3030 once the order reaches the market using its order matching algorithm.

Now, the seller could be a lone individual willing to sell all 200 shares at $30 each, ten individuals selling 20 shares each, or two individuals selling 1 and 199 shares, respectively. It doesn’t matter what combinations and permutations exist. You have already placed an order for 200 shares of Infosys at 3030, which is all you need. As long as there are sellers in the market, the stock exchange guarantees that the shares are available to you.

The shares will be electronically credited to your DEMAT account after the trade is complete. The seller’s DEMAT account will likewise be electronically debited in order to purchase the shares.

5.5 – What happens after you own stock?

After you buy the shares, they will remain in your DEMAT account. To the extent of your shareholding, you are now a shareholder in the business. To put things in perspective, 200 shares of Infosys equal 0.000035 percent ownership of the company.

You are instantly qualified for a number of corporate perks such as dividends, stock splits, bonuses, rights issues, voting rights, etc. simply by virtue of owning the shares. Later, we’ll go through each of these shareholder rights in more depth.

5.6- A note on holding period

The holding term is the length of time you intend to keep the stock. You might be surprised to learn that the holding period could last anywhere between a few minutes and “forever.” Warren Buffet, a renowned investor, actually said “forever” when asked what his preferred holding period was.

In a previous example from this chapter, we showed how 5 minutes could cause Infosys stock to go from 3000 to 3016. Well, for a holding period of only five minutes, this return is actually pretty good! You can certainly close the trade and look for another opportunity if you are happy with it.

5.7- Where do you fit in?

Every market participant approaches the market in a different, distinctive way. Their fashion changes as they advance and experience market cycles. The kind of market risk they are willing to take also determines their style. Whatever they do, they fall into one of two categories: traders or investors.

The definition of a trader is someone who recognizes an opportunity, enters the trade, and intends to profitably exit the trade as soon as possible. Typically, a trader views markets in the short term. During market hours, a trader is vigilant and constantly on the lookout for opportunities while weighing the associated risk and reward. He doesn’t care whether you go long or short. We’ll talk more specifically about going long or short later.

There are different types of traders :

Day Trader – During the day, a day trader opens and closes the position. His positions are no longer upheld. He dislikes taking overnight risks because he is risk-averse. As an illustration, he might purchase 100 shares of TCS at 2212 at 9:15 AM and sell them at 2220 at 3:20 PM, earning Rs. 800 in profit. A day trader often deals with 5–6 stocks every day.
Scalper – less time with the goal of quickly and modestly profiting. As an illustration, he might purchase 10,000 shares of TCS at 2212 at 9:15 and sell them at 2212 at 9.16. In this trade, he makes a profit of $1000. He would have made a lot of these trades in a typical day. A scalp trader is extremely risk-averse, as you may have noticed.
A swing trader – holds onto his trade for a little bit longer; the holding period can last from a few days to weeks. Usually, he is more willing to take chances. As an illustration, he might purchase 100 shares of TCS on June 12 at 2212 and sell them on June 19 at 2214.

Traders like George Soros, Ed Seykota, Paul Tudor, Michael Steinhardt, Van K Tharp, Stanley Druckenmiller, and others have achieved great success.

An investor is a person who purchases stock with the expectation that the price will rise significantly. He is prepared to wait for the development of his investment. Investors typically hold their investments for a few years. Investors generally fall into one of two categories.

A) Investors in growth Finding businesses that are predicted to grow significantly as a result of macro and emerging industry trends is the goal here. An iconic instance in the context of India would be the 1990s purchase of Hindustan Unilever, Infosys, and Gillette India. Due to the alteration in the industry landscape, these businesses experienced tremendous growth, creating.

B) Value traders The goal is to identify strong firms that are either established or growing yet have been wildly undervalued by the short-term market sentiment. These companies would be fantastic value purchases. L&T is one recent instance of this. L&T suffered significant harm in August or September 2013 as a result of short-term unfavorable sentiment. The stock price dropped to 690 from 1200. A company like L&T is viewed as inexpensive at 690, making it a solid value buy given its fundamentals as of August 2013. The stock price eventually scaled back to 1440 around May 2014, indicating that it did pay off.

IPOs

September 27, 2022July 21, 2022 by Rohansharma

IPOs

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

4.1 Overview

Firstly, The first three chapters have provided background information on some of the fundamental market ideas you should understand. At this point, answering the fundamental question of why companies go public becomes crucial.

Secondly, A thorough understanding of this subject lays the groundwork for all subsequent subjects. Throughout this chapter, new financial ideas will be introduced to us.

4.2 Origin of a Business

Definitely, Let’s spend some time understanding a more fundamental idea first: the beginnings of a typical business before moving on to try to find an explanation for why companies go public. Especially we will create a concrete story around this idea in order to better comprehend it. For a better understanding of how the business and the funding environment develop, let’s divide this story into several scenes.

Scene 1 – The Angels

firstly we try to find an explanation for why companies go public, let’s first spend some time understanding a more fundamental concept: the beginnings of a typical business. To better understand this concept, we will particularly build a concrete story around it. Let’s break this story down into different scenes to better understand how the business and the funding environment develop.

He would likely face the typical problem faced by entrepreneurs: where would he get the money to finance the idea? If the entrepreneur has no prior business experience, he won’t initially be able to draw in any serious investors. Most likely, he would solicit support for the idea from his loved ones and close friends. Also could have asked the bank for a loan, but that wasn’t the best course of action.

For Example 4.1

Assume he gathers his own funds and convinces two of his close friends to contribute to his business. These two friends are placing a blind wager on the entrepreneur importantly known as the Angel investors and investing in the pre-revenue stage. Please be aware that the money provided by the angels is an investment rather than a loan.

Whereas, let’s imagine that the promoter and the angel investors raise INR 5 Crore in the capital. The “Seed Fund” is the name given to the initial funding someone receives to start his business. It is significant to note that the seed money will reside in the business’ bank account rather than the promoter’s (also known as the entrepreneur’s) personal account. Once the seed money has been transferred into the business’s bank account, the monies are referred to as the original share capital of the company.

For Example 4.1.1

Moreover, The promoter and the two angel investors will receive share certificates that entitle them to the company in exchange for their initial seed investment.

Furthermore, The original three (the promoter and two angels) will receive share certificates from the company as payment for their initial seed investment, entitling them to ownership of the business.

Especially, The process of issuing shares is quite straightforward. The company assumes that each share is worth Rs. 10, and since there must be 50 lakh shares with an Rs. 5 crore share capital, each share must be worth Rs. 10. In this context, The share’s “Face Value” is 10 dollars (FV). Certainly, Any number could be the face value. The number of shares would be 1 crore if the FV was Rs. 5, and so on.

Surely, The authorized shares of the company are 50 lakh in number. The Promoter, two Angel Investors, and the Company shall each get a portion of the Shares and the Company shall retain the balance of the Shares for future issuance.

Assume, for the time being, that the promoter keeps 40% of the shares, the two angel investors receive 5% each, and the firm keeps 50% of the shares. This portion is referred to as “issued shares” because the promoter and two angel investors own 50% of the shares.

1	Promoter	20,00,000	40%
2	Angel 1	2,50,000	5%
3	Angel 2	2,50,000	5%
Total		25,00,000	50%

It should be emphasized that the firm owns 2,500,000 equity shares or the remaining 50% of the shares. Despite being authorized, these shares have not yet been distributed.

Without a doubt, The promoter now launches his company operations with the support of a solid corporate structure and a sizable seed fund. He wants to proceed with caution. Therefore, he decides to only open one store to sell his product and one small manufacturing facility.

Scene 2 – The Venture Capitalist

His perseverance pays off, and business begins to increase. The business begins to break even after its first two years of operation. The promoter is no longer a start-up company owner. Instead, he has more in-depth knowledge of his own company and, obviously, more confidence.

Without a doubt, of his confidence, the promoter now wants to grow his company by opening a few more retail stores and one more manufacturing unit in the city. Never, He develops the strategy and decides that a new investment of INR 7 Cr is necessary for the growth of his business.

Also, Comparing where he is now to where he was two years ago, he is in a better place. The main distinction is that his company is bringing in money. The consistent influx of income validates the company and its goods. He is now in a position where he can access investors who are reasonably well-informed about his industry. Let’s assume he runs into one such experienced investor who is willing to give him 7 Cr. in exchange for a 14.4% stake in his business.

. Series A funding is the name of the finance the company receives at this point, and a venture capitalist is a person who often invests in a company at this early stage (VC).

After the company agrees to allot 14% to the VC from the authorized capital, the shareholding pattern looks like this:

Sl No	Name of Share Holder	No of Shares	%Holding
1	Promoter	20,00,000	40%
2	Angel 1	2,50,000	5%
3	Venture Capitalist	7,00,000	14%
4	Angel 2	2,50,000	5%
Total		32,00,000	64%

Notably, the remaining 36% of the shares, which have not been allocated, are still owned by the company.

With the VC’s money coming into the business, an exciting development has taken place. The VC values the entire business at INR 50 Crs by valuing his 14% stake in the company at INR 7Crs. With the initial valuation of 5Crs, there is a 10-fold increase in the company’s valuation. This is what a good business plan, validated by a healthy revenue stream, can do to businesses. It works as a perfect recipe for wealth creation.

Scene 3 – The Banker

Apart from this after three more years, the business achieves incredible success. The business decides to open stores in at least three more cities. The company also intends to boost its production capacity and hire more personnel to support the retail presence it has established in three cities. The term “Capital Expenditure” or simply “CAPEX” refers to any expenditure a company plans to make to enhance its overall operations.

The management predicts 40Crs in CAPEX expenditures. How does the business obtain this funding, or how does it manage to meet its CAPEX needs?

The corporation has few choices for raising the money needed for their CAPEX:

The company’s recent profits, which have enabled it to turn a profit, can be used to cover a portion of the CAPEX requirement.
By allocating shares from the authorized capital, the company can approach a different venture capitalist (VC) and raise Series B funding.
The business may approach a bank to ask for a loan. The company has been doing reasonably well, so the bank would be happy to offer this loan. Another name for the loan is “Debt.”

To raise money for Capex, the company decides to use all three of its available options. It invests 15 crores from internal accruals, plans a series B, sells 5 crores of equity to another VC for 10 crores, and obtains 15 crores of debt from the banker.

Note, with 10Crs coming in for 5%, the company’s valuation now stands at 200 Crs. Of course, this may seem a bit exaggerated, but then the whole purpose of this story is to drive across the concept!

Scene 4 – The Private Equity

A few years go by, and the business’ success is still evident. The ambitions of this eight-year-old, $200 million company are rising along with its success. The business makes the decision to raise the bar and expand across the nation. Additionally, they choose to diversify the business by producing and selling designer cosmetics, perfumes, and fashion accessories.

The CAPEX budget for the new target is presently 60 Cr. Because the finance charges, also known as interest rates, would reduce the company’s profits, the company does not want to raise money through debt.

From the authorized capital, they choose to distribute shares for a Series C funding. Since typical VC funding is typically modest and only amounts to a few crores, they are unable to approach one. A private equity (PE) investor enters the picture at this point.

PE investors are very intelligent. They are extremely skilled and come from a strong professional background. They put their own people on the board of the investee company to make sure the business is steering in the right directions and invest sizable sums of money to provide the capital for useful use.

Scene 5 – The IPO

Not only but also after the PE investment, the company has made great progress five years later. They have a presence in all of the major cities across the nation and have successfully diversified its product line. Revenues and profitability are both robust, and the investors are happy. The promoter, however, is not content to stop there.

The promoter now has international ambitions! He wants at least two outlets in every significant city around the world, ensuring that his brand is present in all major international cities.

This means the business must spend money on market research to learn what other people want, invest in its workforce, and expand its manufacturing capabilities. In addition, they also need to invest in the global real estate space.

This time, there is a significant CAPEX requirement that the management anticipates will cost $200 Cr. The company’s options for funding the necessary CAPEX are limited.

From internal accruals, finance Capex
Raise Series D through a different PE fund.
borrow more money from banks
Bond flotation (this is another form of raising debt)
Publish an Initial Public Offering (IPO) by distributing shares from the authorized capital.

For convenience, let us assume the company decides to fund the CAPEX partly through internal accruals and files for an IPO. When a company files for an IPO, they have to offer its shares to the general public. The general public will subscribe to the shares (i.e. if they want to) by paying a certain price. Due to the fact that the corporation is presenting the shares to the public for the first time, it is now known as the “Initial Public Offer.”

4.3 Overview of The IPO Markets

In the last topic, we learnt how a company develops from the point at which ideas are conceived to the point at which it decides to file for an IPO. The hypothetical scenario in the previous chapter was designed to give you an idea of how a business evolves through time. Clearly, the focus was on the various business stages and the funding options available at each stage. You can see what a company would have gone through before going public and offering its shares in the previous chapter.

This is crucial information to understand because the primary market, also known as the IPO market, occasionally attracts businesses that offer their shares to the public without actually having gone through a robust round of funding in the past. Credible VC and PE firms have validated the quality of the company and its promoters through a few rounds of funding. Although you should take this with a grain of salt, it nonetheless serves as a sign of well-run businesses.

4.4 What drives a company's IPO?

We came to some important conclusions in the previous chapter. One of which is: Why did the business choose to file for an IPO, and generally speaking, why do businesses go public?

Firstly primary motivation for a company to file for an IPO is almost always to raise money to support their CAPEX requirement. Third benefits flow to the promoter from making his business public:

He is raising funds to meet CAPEX requirement
By avoiding the need to raise debt, he will avoid finance charges, which will increase his profitability.
You essentially assume the same level of risk when you purchase stock in a company as the promoter does. It goes without saying that the risk’s percentage and its effect will depend on how many shares you own.
Nevertheless, whether you like it or not, purchasing shares involves taking on risk. Secondly promoter is actually distributing his risk among a large number of people when the company goes public.

There are other advantages as well in going for an IPO

Reward employees- As a reward for their work, the company would assign shares to its employees. The term “Employee Stock Option” refers to this type of agreement between the company and the employee. The employees receive the shares at a reduced price. When the business goes public, the staff members may benefit from share price growth. Google, Infosys, Twitter, Facebook, and other companies are a few instances where employees have benefited from ESOPs.
Provide an exit for early investors – Once the company goes public, the shares of the company start trading publicly. Any existing shareholder of the company – could be promoters, angel investors, venture capitalists, or PE funds; can use this opportunity to sell their shares in the open market. By selling their shares, they get an exit on their initial investment in the company. They can also choose to sell their shares in smaller chunks if they wish.
Increased visibility – The company’s visibility is unquestionably increased by the status of being publicly held and traded that comes with becoming public.

4.5 – Merchant Bankers

Firstly the business must now take a number of actions to ensure a successful initial public offering after deciding to go public. Choosing a merchant banker would be the first and most important step. whereas other names for merchant bankers include Book Running Lead Managers (BRLM) and Lead Manager (LM). A merchant banker’s responsibility is to help the company with various IPO-related tasks, such as:

Conduct due diligence on the company filing for an IPO, ensure their legal compliance and also issue a due diligence certificate
should closely collaborate with the business to create their listing materials, such as a draught Red Herring Prospectus (DRHP). Later on, we will go into more detail about this.
Underwrite shares – When a merchant banker underwrites shares, they essentially agree to purchase all or a portion of the IPO shares and resell them to the general public.
assist the company in determining the IPO price range. A price band is a range between which a company will list its shares on the stock exchange. In our example, the price range will be between Rs. 1661 and Rs. 1871.-
Assist the company with its roadshows – For example, a marketing or advertising campaign for the company’s IPO

4.6 Sequence of events during an IPO

It should be noted to say, each and every step involved in the IPO sequence has to happen under the SEBI guidelines. In general, the following are the sequence of steps involved.

Appoint a merchant banker. In case of a large public issue, the company can appoint more than 1 merchant banker
Apply to SEBI with a registration statement – The registration statement contains details on what the company does, why the company plans to go public and the financial health of the company
Getting a nod from SEBI – Once SEBI receives the registration statement, SEBI takes a call on whether to issue a go-ahead or a ‘no go’ to the IPO
DRHP – If the company gets the initial SEBI nod, then the company needs to prepare the DRHP. A DRHP is a document that gets circulated to the public. The following information should be included in DRHP along with a lot of other information:

Size of the planned IPO
The projected number of shares that will be made public.
It is stated clearly that the company wants to go public, what it intends to do with the proceeds, and when it anticipates using them.
Description of the business, including the revenue model and financial information
Discussion and analysis of management: how the company anticipates future business operations to develop

4.7 What happens after the IPO?

Investors may offer to purchase shares during the bidding process (also known as the date of issue) within the predetermined price range. The Primary Market is the term used to describe the entire system where buyers and sellers compete for shares around the issue date. Public trading of the stock starts as soon as it is listed and makes its debut on the stock exchange. The term “secondary market” refers to this.

Once the stock transitions from primary markets to secondary markets, it is traded every day on the stock exchange. People begin regularly buying and selling stocks.

As to why people trade, Why does the price of the stock change? Well, in the following chapters, we’ll address all of these inquiries and more.

4.8 Few key IPO jargons

Under subscription – Let’s say the company wants to sell 100,000 shares to the general public under subscription. The issue is considered under-subscribed when it is revealed throughout the book-building process that only 90,000 bids were received. This situation is not ideal because it reflects unfavorable attitudes among the general public.
Oversubscription – If 200,000 bids are received for every 100,000 shares offered, the issue is considered to be two times oversubscribed (2x)
In the case of an oversubscription, the Green Shoe Option provision in the underwriting agreement allows the issuer to distribute additional shares, often 15% more. The overallotment option is another name for this.
Price Band and Cut off price – The price band is a price range between which the stock gets listed. For example, if the price band is between Rs.100 and Rs.130, then the issue can list within the range. If it is advertised at $125, that amount is referred to as the cutoff price.

4.9 – Recent IPO’s in India*

Financial interdependence

September 27, 2022July 20, 2022 by Rohansharma

Why invest?

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

Overview of Financial Intermediaries

At this time corporate entities are actively involved in making this work for you from the point at which you access the market —say, let’s buy a stock—to the point at which the stocks arrive and hit your DEMAT account. These organisations quietly carry out their duties in the background while always abiding by SEBI regulations, ensuring a simple and straightforward experience for your stock market transactions. The Financial Intermediaries are the general name for these organizations.

The Broker of Stock

One of the most crucial financial intermediaries you should be aware of is the stockbroker. Whereas stockbroker is a business that has registered with the stock exchange as a trading member and has a stockbroking licence. They adhere to the rules established by SEBI.

Your entry point into stock exchanges is a stockbroker. To begin, you must open a “Trading Account” with a broker who satisfies your requirements. Your requirement might be as straightforward as the broker’s office’s proximity to your home. At the same time, finding a broker who can give you a single platform through which you can conduct business on numerous exchanges around the world can be challenging. We’ll go over what these requirements might be later on, as well as how to pick the best broker at this time.Firstly you can conduct financial transactions in the market using a trading account. A trading account is a broker account that enables the investor to buy and sell securities.

How to deal with broker

First, assuming you have a trading account, you must communicate with your broker whenever you want to make a transaction in the markets. There are a few common ways you can communicate with your broker

1.You can meet the dealer in the broker’s office and go there to tell him what you want to do. An employee of the stock broker’s office known as a dealer executes these transactions on your behalf.

2.You can call your broker and place an order for your transaction by providing your client code (account code) during the call. While you are still on the call, the dealer on the other end will execute the order for you and confirm its status.

3.Do it yourself: This is arguably the most popular market trading strategy. Through a programme referred to as the “Trading Terminal,” the broker grants you access to the market. Once you’ve logged in to the trading platform, you can view real-time market price quotes and submit your own orders.

The basic services provided by the brokers include…

Give you access to markets and letting you transact
Give you trading margins; we’ll talk about this in more detail later.
Dealing support is available if you need to call and trade. If you have problems with the trading terminal, contact software support.
Create contract notes for the exchanges A contract note is a document that confirms in writing the actions you have taken throughout the day.
Make it easier to transfer money between your trading account and bank account.
Give you access to a back-office login so you can view a summary of your account.
For the services he delivers, the broker is paid a fee known as the “brokerage charge” as well as that simply brokerage. Finding a broker who strikes a balance between the fee he charges and the services he offers is up to you because brokerage rates vary.

Depository Participants and Depository

Producing the property papers is the only way to prove your ownership of a property after you purchase it. Importantly, keeping the property papers in a safe location becomes crucial.

The only way to prove your ownership of a share, which represents a portion of a company, is to present your share certificate. A share certificate is nothing more than a piece of paper proving your ownership of company shares.

Prior to 1996, share certificates were printed on paper; however, after 1996, they were converted to digital format. “Dematerialization,” also known as DEMAT, is the process of converting a paper share certificate into a digital share certificate.

Whereas Share certificates must be digitally stored in DEMAT format. The “DEMAT Account” is where the digital share certificate is kept. A Depository is a type of financial intermediary that provides the Demat account service. All the shares you purchased in electronic form will be stored in a DEMAT account in your name. Consider your DEMAT account to be a virtual safe for your shares.

Infosys example

For instance, if your plan is to purchase Infosys stock, all you have to do is open a trading account, check the stock’s prices, and place your order. Your trading account’s function is finished once the transaction is finished. The Infosys shares will automatically arrive and sit in your DEMAT account after you make a purchase.

Similar to buying Infosys shares, selling them only requires opening a trading account and doing so. This completes the transaction part… However, the shares that are currently in your DEMAT account will be debited in the background, and the shares will then move out of your DEMAT account.

At present, only two depositaries are offering you DEMAT account services. They are The National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited. There is virtually no difference between the two, and both of them operate under strict SEBI regulations.

You cannot open a DEMAT account by walking into a Depository, just as you cannot open a trading account by walking into the office of the National Stock Exchange. Contact a Depository Participant if you want to open a DEMAT account (DP). Your DEMAT account is created with a Depository with the aid of a DP. A DP serves as the Depository’s agent. Of course, even the DP is subject to the rules established by the SEBI.

Banks

The role that banks play in the market ecosystem is very simple. They assist in making the money transfer between your bank account and trading account easier. A bank account that is not in your name cannot have money transferred from it.

Even so you can transfer money between and trade through various bank accounts that you can link to your trading. You can add up to 2 secondary bank accounts in addition to 1 primary bank account at Zerodha. All the bank accounts can be used to deposit money, but only the primary bank account can receive withdrawals. Additionally, dividend payments and buyback proceeds will be transferred to the main bank account. Your trading account, as well as the Depository, Registrar, and transfer agents, are all connected to your primary bank account (RTA).

Finally you must have realised by this point that the three financial intermediaries each use a different trading account, DEMAT account, and bank account to conduct their business. You will have a very seamless experience thanks to the interlinking and electronic operation of all three accounts.

NSCCL and ICCL

NSCCL – National Security Clearing Corporation Ltd and Indian Clearing Corporation are wholly owned subsidiaries of National Stock Exchange and Bombay Stock Exchange.

Even so, clearing corporation’s responsibility is to guarantee the settlement of your trades and transactions. For instance, if you were to purchase 1 HDFC share at Rs. 1,363.55 per share, that share must have previously been sold to you for Rs. 1,363.55. You will have Rs. 1,363.55 taken out of your trading account for this transaction, and someone else must credit that amount to the sale of HDFC. The clearing corporation’s responsibility in a transaction like this is to guarantee the following:

1.dentify the buyer and seller and match the debit and credit process

2. Ensure no defaults – The clearing company also makes sure neither party defaults. For example, after selling the shares, the seller shouldn’t be able to cancel the deal and default on his obligations.

3. Practically speaking, you don’t need to know much about the NSCCL or ICCL since you won’t be dealing with them directly as a trader or investor. You should be aware that some professional institutions are subject to strict regulation and work to ensure efficient clearing activity.

What is the stock market and Who Regulates ?

September 27, 2022July 19, 2022 by Rohansharma

Basics of stock market

• Why invest?
• who regulates?
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

What is the stock market?

Firstly, One crucial investment we make to produce returns that outperform inflation is in stocks. We came to this conclusion after reading the previous chapter. After that, how do we invest in stocks? It is imperative to comprehend the environment in which stocks operate before we delve further into this subject.

Similarly, Similar to how we visit our local supermarket or Kirana store to buy our daily necessities, we visit the stock market to buy and sell equity investments. Anyone looking to buy or NRI’s and OCI –sell shares goes to the stock market. To buy and sell is to transact, to put it simply. Practically speaking, there is no other way to purchase or sell shares of a publicly traded company like Infosys than through the stock markets.

Moreover, The stock market’s main goal is to make your transactions easier for you. Thus, the stock market facilitates the meeting of buyers and sellers of shares.

Furthermore, The stock market does not have a physical location like a supermarket, however. It is accessible electronically. You use your computer to access the market electronically and proceed to complete your transactions (buying and selling of shares).

Importantly, It is also significant to remember that a registered intermediary known as a stockbroker can be used to access the stock market. The stockbrokers will be covered in more detail later.

At last, e-stock markets in India are composed of the two main stock exchanges. They are the National Stock Exchange and the Bombay Stock Exchange, respectively. In addition to these two exchanges, there are numerous other regional stock exchanges, such as the Bangalore Stock Exchange and the Madras Stock Exchange, that are essentially being phased out and no longer serve any significant function.

The need for regulation of stock market participants

Accordingly, The stock market draws companies and people from all walks of life. A market participant is a person who engages in stock market trading. The market participant can be divided into several groups. Following are a few of the different types of market participants:

1. Domestic Retail Participants – These are regular people like you and me who conduct transactions in markets.

2. NRI’s and OCI – These individuals are based outside of India but have Indian ancestral roots.

3. Domestic Institutions – These are large corporate entities based in India. A classic example would be the LIC of India

4. Domestic Asset Management Companies (AMC) –Typical participants in this category would be the mutual fund companies such as SBI Mutual Fund, DSP Black Rock, Fidelity Investments, HDFC AMC, etc

5. Foreign Institutional Investors –corporate bodies that are not Indian. These could be other investors, hedge funds, and foreign asset management firms.

Now, everyone’s goal is the same: to conduct profitable transactions, regardless of the category of market participant. To put it more simply: to make money.

Especially, Human emotions such as fear and greed are often at their peak when money is involved. These feelings are easily exploited, and engaging in unfair behavior is easy. Due to operations run by Harshad Mehta and other individuals, India has its fair share of such perverse practices.

Nevertheless, Given this, the stock markets require a person who can establish the rules of the game (commonly referred to as regulation and compliance) and make sure that players abide by them, creating a level playing field for all participants.

Who Regulator

For this reason, The Securities and Exchange Board of India, or SEBI, is the organization in charge of regulating the stock market in India. Whereas, The mission of SEBI is to safeguard the interests of small investors, advance the growth of stock exchanges, and control the activities of market participants and financial intermediaries. SEBI generally ensures:

The BSE and NSE stock exchanges operate ethically.
The way that stockbrokers and sub-brokers conduct business are ethical
Corporate entities (such as Satyam Computers) do not unfairly benefit from the markets.
Participants refrain from engaging in unethical behavior.
The interests of small retail investors are safeguarded
Market manipulation should not be done by large investors with large cash reserves.
Overall development of markets

Why Investing is Important & Where to Invest?

January 10, 2023July 19, 2022 by Rohansharma

Why invest?

Basics of stock market

• Why invest?
• who regulates
• financial interdependence
• IPOs
• Stock Market returns
• Trading system

• Day end settlements
• Corporate actions
• News and Events
• Getting started
• Rights, ofs,fpo and more
• Notes

Why Investing is Important & Where to Invest?

Investing is a great way to grow your money and save for the future. It puts your money to work for you, allowing it to appreciate in value over time. You can invest in stocks, bonds, mutual funds, or ETFs (exchange-traded funds) and use the returns from those investments for retirement savings or other goals you may have. Different types of investments have different levels of risk and reward—so it’s important to conduct research and speak with a financial professional before taking a plunge into investing. Once you determine where and how much to invest, make sure you’re diversifying your portfolio across multiple investments so that no one type of investment represents all your holdings.

This helps reduce financial risks down the road by ensuring that if one investment falls through, others will still be able to support you financially. With careful planning and due diligence, investing could ultimately help you build wealth over time!

Why Should You Invest?

Also, Investing is essential to achieve your goals. It is the only way to make your future better. By making investments, you are also saving and accumulating a corpus for a rainy day. Apart from that, making regular investments forces you to set aside a sum regularly, thereby helping you instill a sense of financial discipline in the long run.

Impact of Inflation & Importance of Investing

Importantly, Simply put, inflation is a rise in the cost of goods and services. However, Your purchasing power and money’s value are both diminished. Undoubtedly, With the same amount of money, you can buy fewer things when inflation rates rise. The inflation rate is outside of your control. If you want to stay ahead of inflation, you must have enough money now to buy the full range of the goods you plan to buy in the future.

Surely, Money doesn’t, however, grow on its own. Whereas, Your money must generate returns if it is to grow. You must invest if you want to get returns. Investments are therefore required to combat inflation. At last, An 8 % inflation rate means that you will need 8 % more money than you do now to buy the same thing next year. Here is how Rs. 1 lakh would be worth after eight years of inflation at 8%.

Where can I invest?

Having figured out the reasons to invest, the next obvious question would be – Where would one invest, and what are the returns one could expect by investing?

For example, Once one has determined why one should invest, the next logical question is where to invest and what kind of returns one can anticipate. A category of investments with specific risk and return characteristics is referred to as an asset class. Popular asset classes include the ones listed below.

Fixed income instruments
Equity
Real estate
Commodities (precious metals)

Fixed Income Instruments

Investable securities have a low risk to the principal, and the investor receives a return in the form of interest based on the specific fixed-income security. Whereas, The intervals at which interest is paid can be quarterly, semi-annual, or annual. Capital invested is returned to the investor at the conclusion of the term of deposit, also referred to as the maturity period.

An example of a fixed income investment is:

Firstly, Banks offer fixed deposits
Secondly, Bonds issued by government-related organizations like NHAI and HUDCO,corporate-issued bonds
Thirdly, Bonds issued by the Indian government
Last but not least, The typical return on a fixed income investment ranges between 8% and 11% as of June 2014.

Equity

Accordingly, Purchasing stock in publicly traded companies is an example of investing in equities. Even so, Shares are exchanged on the National Stock Exchange and the Bombay Stock Exchange also known as NSE and BSE.

Also, When a person invests in equity, there is no capital guarantee, in contrast to a fixed income instrument. As a compromise, the returns on equity investments can be quite good. Indian equities have generated returns with a CAGR (compound annual growth rate) of roughly 14 to 15% over the past 15 years.

In addition, Long-term returns on investments in some of the best and most efficiently run Indian companies have exceeded 20% CAGR. Such investment opportunities require skill, diligence, and perseverance to identify.

Long-term returns on investments in some of the best and most efficiently run Indian companies have exceeded 20% CAGR. Such investment opportunities require skill, diligence, and perseverance to identify.

Real Estate

Furthermore, Transactions involving the purchase and sale of both commercial and noncommercial land are a part of real estate investment. Examples of typical transactions would be those that occur in sites, apartments, and commercial structures. Rental income and capital growth of the investment amount are the two sources of income from real estate investments.

Transaction process, which involves document legalization, can be quite complicated. Real estate investments typically require a sizable cash outlay. Returns produced by real estate are not formally quantified. It would therefore be difficult to comment on this.

Commodity – Bullion

Especially, One of the most well-liked investment options is to buy gold and silver. Over an extended period, gold and silver have increased in value. In the past 20 years, investments in these metals have generated a CAGR return of about 8%. Gold and silver investments can be made in a variety of ways. Especially, , Exchange Traded Funds or jewelry are two options for investing (ETF).

An investment note

Clearly, Investments should be well-balanced across all asset classes. It is a good idea to spread your investment across several asset classes. Asset allocation refers to the process of distributing funds among different asset classes.

Undoubtedly, A young professional might. For example, take on more risk given his age and the years of investment he has under his belt. Generally speaking, investors should invest about 70% of their available funds in equity, 20% in precious metals, and the remaining 30% in fixed-income investments.

According to the same logic, a retiree could allocate 80% of his savings to fixed income, 10% to equity markets, and 10% to precious metals. An investor’s risk tolerance determines the ratio in which investments are spread across asset classes.

What should you know before investing?

Definitely, Investing is a fantastic option, but you should be aware of the following things before getting started.

1. Risk and return are mutually exclusive. Higher return at higher risk. The return is lower than the risk.

2. Best course of action, if you want to safeguard your principal, is to invest in fixed income. It is considerably less dangerous. When you adjust the inflation return, though, you run the risk of losing money. For instance, receiving a fixed deposit that pays 9 percent when inflation is 10 percent results in a net loss of 1 percent annually. Investors who are extremely risk-averse should consider fixed-income investments.

3. Real Estate investment requires a large outlay of cash and cannot be done with smaller amounts. Also, Liquidity is another issue with real estate investment – you cannot buy or sell whenever you want. Moreover, You always have to wait for the right time and the right buyer or seller to transact with you

Basics of stock market

Getting started

how are they interrelated?

Basics of stock market

9.1 Overview

9.2 – Monetary Policy

One of the most crucial financial intermediaries you should be aware of is the stockbroker.

Whereas stockbroker is a business that has registered with the stock exchange as a trading member and has a stockbroking license. They adhere to the rules established by SEBI.

The Reserve Bank of India (RBI) uses monetary policy as a tool to manage the money supply by regulating interest rates. They adjust interest rates to achieve this. The RBI is the nation’s main bank. The central bank of every nation on earth is in charge of deciding on interest rates.

On the other hand, borrowing is simpler when interest rates are low. This results in more money in the pockets of businesses and customers. With more money comes more spending, which causes retailers to raise prices, which causes inflation.

The RBI must carefully set a few key rates and take into account all the variables to achieve balance. Economic chaos can result from any inequity in these rates. The following are the important RBI rates that you should monitor:

Every bank must abide by the cash reserve ratio and maintain funds on deposit with the RBI (CRR). The CRR affects how much they keep in reserve. The economy suffers because more money is removed from circulation as CRR rises.

Every two months, the RBI meets to discuss rates. The market keeps an eye out for this important event. Interest-rate-sensitive stocks from a variety of industries, including banks, automobiles, housing finance, real estate, metals, etc., would be the first to respond to rate decisions.

9.3 – Inflation

As I write this, the WPI inflation for May 2014 stands at 6.01%.

9.4 - Index of Industrial Production (IIP)

9.5-Purchasing Managers Index (PMI)

9.6 – Budget

Basics of stock market

8.1 Overview of Corporate Actions

8.2 Dividends

Dividend Declaration Date: This is the date on which the AGM takes place, and the company’s board approves the dividend issue

8.3 Bonus Issue

8.4 Stock Split

8.5 Rights Issue

8.6 Buyback of shares

Basics of stock market

7.1 Overview of day end settlements

7.2 What happens when you buy a stock?

7.3 What occurs when a stock is sold?

Appreciation

Basics of stock market

6.1-Overview of Trading system

6.2-The Index

6.3- Practical uses of the Index

Trading – Trading on the index is probably one of the most popular uses of the index. Majority of the traders in the market trade the index. They take a broader call on the economy or general state of affairs and translate that into a trade.

6.4 – Index construction methodology

The 50 stocks that make up the Nifty at the time this chapter was written are listed below in order of their weight:

6.5 – Sector-specific indices

Appreciation

Basics of stock market

5.1 Overview of stock market returns

5.2 – What really is the stock market

The stock market is an electronic marketplace, as we covered in chapter 2. Buyers and sellers interact and exchange opinions.

Assume there are two traders – T1 and T2.

T1’s evaluation of Infosys Because it will be difficult for the business to find a new CEO, the stock price is expected to decline far more. The stock price will probably continue to fall.

If T1 trades as per his point of view, he should be a seller of the Infosys stock.

T2, however, views the same situation in a different light and therefore has a different point of view – According to him, the stock price of Infosys has overreacted to the succession issue and soon the company will find a great leader, after whose appointment the stock price will move upwards.

T2 should buy Infosys stock if the market behaves as it believes it should.

In Infosys, T1 will be a seller and T2 will be a buyer. 3, 000.

Now both T1 and T2 will place orders to sell and buy the stocks respectively through their respective stock brokers. The stock broker obviously routes it to the stock exchange.

The stock exchange must confirm that these two orders match, allowing for the execution of the trade. This is the primary job of the stock market – to create a marketplace for the buyer and seller.

5.3What affects stock price?

Two inquiries:-

What impact will this news have on Infosys’ stock price?

What trade would you make on Infosys, if you were to do so? Would it be a sell or a buy?

The stock price will increase, which is a straightforward response to the first query.

Infosys had a leadership problem, which the business has now resolved. Market participants frequently purchase the stock at any price when encouraging announcements are released, which results in a stock price surge.

Take note: The buyer is prepared to pay the seller’s desired prices. The share price usually increases as a result of this buyer-seller reaction.

So as you can see, the stock price jumped 16 Rupees in a matter of 5 minutes. Though this is a fictional situation, it is a very realistic, and typical behavior of stocks. The stock price tends to go up when the news is good or expected to be good.

In this particular case, the stock moves up because of two reasons. The corporation no longer has a leadership issue, and the new CEO is anticipated to take the company to new heights.

The answer to the second question is now quite straightforward; you purchase Infosys stocks taking into account the positive news that surrounds the stock.

The customer’s IT budget is anticipated to decrease by 15%, according to NASSCOM, which could have an impact on the sector going forward.

By 12:30 PM let us assume Infosys is trading at 3030. Few questions for you.

What effects might this new information have on Infosys?

What new trade would you start if you had access to this information?

What would happen to the other IT stocks in the market?

The answers to the earlier queries are fairly straightforward. Let’s examine NASSCOM’s statement in more detail before we begin to respond to these questions.

According to NASSCOM, the customer’s IT budget is expected to drop by 15%. This indicates that IT company revenues and profits are most likely to decline soon. For the IT sector, this is bad news.

Now let’s attempt to respond to the questions above.

Infosys a leading IT major in the country will react to this news. The reaction could be mixed because earlier during the day there was good news specific to Infosys. But a 15% drop in sales is a major issue, so Infosys shares are probably going to trade lower.

If a fresh trade were to be started at 3030 based on the recently disclosed information, it would be a sell on Infosys.

The data disclosed by NASSCOM is relevant to all IT stocks, not just Infosys. As a result, all IT companies will certainly experience selling pressure.

So as you notice, market participants react to news and events and their reaction translates to price movements! This is what makes the stocks move.

You might be mulling over a very practical and pertinent question at this point. What if there isn’t any news about a specific company today, you might be wondering. Will there be no change at all in the stock price?

Well, the answer is both yes and no, and it depends on the company in focus.

For example, let us assume there is no news concerning two different companies.

Reliance Industries Limited

Shree Lakshmi Sugar Mills

Reliance is one of the biggest companies in the nation, as we all know, and whether or not there is news, market participants want to buy or sell the company’s shares, causing the price to fluctuate constantly.