Basics of

Indian Stock Market

OUTLINE
 What is Share Market?
 What are stocks?
 How Does the Stock Market Work?
 Stock Market For Beginners
 Types of Stock Market
 Difference Between Primary Markets and Secondary Markets
 Who Can Invest in India?
 Market Regulation
 What is Stock Market?
 A platform through which you can Buy or Sell stocks.
 A place in which you can exchange the pre-owned stocks for
the monetary value.
 Both “stock market” and “stock exchange” are often used
interchangeably.
 What are Stocks?
 A share is simply an investment instrument through which you
can become a partner (part owner) of that company.
 If a company has 100 outstanding shares and you own one
share, i.e., you own 1% of that company.
 If you hold a Controlling Stake (>50%), then you can
participate in the management decisions and may get a seat in
the Board.
 It gives you the rights and privileges which the stakeholder
should get:
 Participation in AGMs.
 Receiving Dividends.
 Voting Rights.
 What is a Debt Instrument?
Types of
 Debt instrument is a contract in which one party lends money to another on
Debt Instruments
pre-determined terms and conditions in term of interest rate, time period,
repayment of principal, among others. Long Term Medium to Short Term
 Bonds – Issued by the Govt., large co., or finance institutes which are
backed by collateral and may not be converted in equity. It has lower risk vs.
debenture due to availability of collateral.
 Debenture – It is issued mostly by Pvt. Co. and may not be backed by Bonds & Money Market
collateral and has high risk vs. bonds. It may also be converted to equities. Debentures Instruments

 Both, Bonds and Debentures are Long Term in Nature.

 Money market instruments can be easily converted to cash, thereby
preserving an investor's cash requirements. Certificate of Commercial Repurchase
Notes Treasury Bills
Deposits Paper Agreements
 What is a Derivative? TYPES OF FINANCIAL DERIVATIVES
Futures: A future contract is an agreement to buy or sell
an asset at a future date
 Derivative is a financial instrument whose value is derived
from the value of one or more underlying assets which could be Forwards: Forwards are contracts that don't trade on
an open exchange. Each forward contract is a custom
equity, index, currency, commodity, weather, etc. contract between the two parties
 These products initially emerged as hedging instruments Options: The Stock option gives you the right, but not
against fluctuations in commodity prices and commodity-linked the obligation to buy or sell the stock at the strike price
derivatives remained the sole form of such products for almost by the expiration date of option
three hundred years. Swaps: Swaps are typically used to hedge interest rates
 What is a Mutual Fund?
 A Mutual Fund is a body corporate registered with the SEBI that pools money from individuals/corporates and invests in a variety of
financial instruments such as equity shares, Government Securities, Bonds, etc.
 It is considered as financial intermediary.
 It issue units to the investors. The appreciation of the portfolio leads to an appreciation in the value of the units.
 They outline the investment objectives in prospectus.
 The schemes vary from fund to fund. Some are pure equities; others are a mix of equity and bonds.
 What is an Index ? Index Fund
 An index is a method to track the performance of a group of
assets in a standardized way. Indices typically measure the
performance of a basket of securities intended to replicate a
certain area of the market

Key Takeaways:
• An index measures the price performance of a basket of securities using a
standardized metric and methodology.
• Indexes in financial markets are often used as benchmarks to evaluate an
investment's performance against.
• Some of the most important indexes in the Indian markets are the Nifty-50
Index and the S&P BSE Sensex.

A type of mutual fund or exchange-traded fund

(ETF) with a portfolio constructed to match or track
the components of a financial market index.
 What is Stock Trading
Trading is essentially the exchange of goods and services
between two entities.
In this context, the entities are investors/traders who are
exchanging stocks of different companies.
Stock trading takes place in the stock market. With online
trading and investing, stock markets have become accessible
to a larger section of people
 How Does the Stock
Market Work?
 Companies raise money on the stock market by selling
ownership stakes to investors.
 By listing shares for sale on the stock exchanges, companies
get access to the capital they need to operate and expand
their businesses without having to take on debt.
 As companies put that money to grow and expand their
businesses, it profits the investors as their shares become
valuable over time, leading to capital gains.
 In addition, companies pay dividends to their shareholders
as their profits grow.
Types of Stock Market
There are
2 types of
Stock
market:

Primary Market: It creates Secondary Market: Here, investors

securities and acts as a platform trade in securities without involving
where firms float their new the companies who issued them in
stock options and bonds for the the first place with the help of
general public to acquire. brokers.
 What is Primary Markets?
 The primary market is where companies issue new security, not previously traded on any exchange. A company offers securities to
raise funds to finance its long-term goals or debt repayment.
 Main function of the primary market is to facilitate the company to raise long term funds by making fresh issues of shares or
debentures.
 Other types of primary market activities are Follow on Public Offer (FPO), Private placement, Preferential issue, Qualified institutional
placement, Rights issue, etc.

Bond of shares
Corporates

Buy Side
Contacts SELL SIDE Contacts Fund
Manager

Capital
 What are the Key Features
of Primary Market?
(1 ) It is related with New Issues: The first important feature of the primary market is that it is related with the new issues. Whenever
a company issues new shares or debentures, it is known as Initial Public Offer (IPO).
(2) It has No Particular Place: Primary market is not the name of any particular place but the activity of bringing in new issues is
called the primary market.
(3) It has Various Methods of Floating Capital: Following are the methods of raising capital in the primary market:-
(i) Public Issue: Under this method, the company issues a prospectus and invites the general public to purchase shares or
debentures.
(ii) Offer for Sale: Under this method, firstly the new securities are offered to an intermediary (generally firms of stock
brokers) at a fixed price. They further resell the same to the general public. The advantage of doing this is that the issuing
company feels free from the tedious work of making a public issue.
 What are the Key Features
of Primary Market?
(iii) Private Placement: Under this method, the company sells securities to the institutional investors or brokers instead of
selling them to the general public. They, in turn, sell these securities to the selected clients at a higher price. This method is
preferred as it is a cheaper method of raising funds as compared to a public issue
(iv) Right Issue: This method is used by those companies who have already issued their shares. When an existing company
issues new shares, first of all it invites its existing shareholders. This issue is called the right issue. In this case, the shareholder
has the right either to accept the offer for himself or assign a part or all of his right in favor of another person.
(4) It Comes before Secondary Market: The transactions are first made in the primary market, post which securities are traded in the
secondary market.
 Initial Public Offer (IPO)
 Initial Public Offer (IPO) is the selling of securities to the public
in the primary market. It is the largest source of funds with long
or indefinite maturity for the company. An IPO is an important
step in the growth of a business. It provides a company access to
funds through the public capital market.
 Advantages of Primary Market
Players of Primary Market
 Companies can raise capital for their business cost-
effectively and seamlessly in a primary market. Also, securities There are four key players:
offered in the primary market can almost be instantly sold in
the secondary market, thus providing high liquidity.
 What is Secondary Market
Wants to sell

INVESTMENT FUND
 Secondary market refers to the market where previously BANK MANAGER
issued financial instruments, such as stocks, bonds, and
derivatives, are bought and sold by investors. It is distinct from
the primary market, where new securities are issued and sold
to the public for the first time. STOCK
 Secondary markets are primarily of two types – Stock EXCHANGE/OTC
exchanges and over-the-counter markets. Stock exchanges are
centralized platforms where securities trading take place, sans
any contact between the buyer and the seller. National Stock
Exchange (NSE) and Bombay Stock Exchange (BSE) are
examples of such platforms.
Wants to Buy
 A secondary market is more commonly known as second- INVESTMENT FUND
hand security market or stock exchange market. BANK MANAGER

investment banks help facilitate the trade in shares and bonds

 What is the role of Secondary Market?
 The secondary market is a common platform where securities are traded between investors. It is a figurative place where investors buy and sell
securities they already own. Securities that anchor investors purchase from the primary market are further bought and sold between retail investors
in the secondary market

What are the Key Feature of Secondary Market?

Chief Features of Secondary Market
• Creating Liquidity: The most important feature of the secondary market is to create liquidity, that means, immediate conversation of the securities into
cash.
• Follows the primary market: Unlike the primary market, any new security cannot be sold for the first time in the secondary market. All the new
securities are first issued in the primary market and then are sold and bought in the secondary one.
• Stock Exchange: The secondary market has a particular place wherein the securities are traded, it is called the Stock Exchange.
• Encourages new investment: As the rates of the securities often fluctuate in the share market, many investors come to trade and earn profits, giving
rise to new investment. This results in increased investment in the industrial sector.
 Instruments of Secondary
Market FIXED INCOME

 The instruments traded in a secondary market consist of:-

• Fixed Income instruments – Bonds / Debentures
• Variable Income Instruments – Stocks Secondary
VARIABLE INCOME
• Hybrid Instruments – Convertible Bonds Market

HYBRID
Difference Between Primary
Markets & Secondary Markets
Features Primary Market Secondary Market
Definition Securities issued for the first time to Trading of already issued and listed
the public securities

Also called as New Issue Market Post Issue Market

Price determination By issuer company in consultation Supply and demand forces of market
with merchant bankers

Key Intermediaries Merchant Bankers and RTAs Stock Brokers and DPS.
Purpose Raise capital for expansions, • Trading of securities
diversification , etc. • Providing Liquidity to investors.
• Raising further capital for
expansion.
What is the Settlement Cycle?
A Settlement Cycle refers to a calendar according to which all purchase and sale transactions done
on T Day are settled on a T+1 basis.
T = Trading Day and +1 means 1 consecutive working days after T (excluding all holidays).
SEBI is gearing up to introduce same-day settlement of trades on the bourses, known as T plus
zero (T+0) settlement trade, by the end of FY24
 Market Regulation
 The overall responsibility of development, regulation, and
supervision of the stock market rests with the Securities and
Exchange Board of India (SEBI), which was formed in 1992 as an
independent authority. Since then, SEBI has consistently tried to
lay down market rules in line with the best market practices. It
enjoys vast powers of imposing penalties on market participants,
in case of a breach.
 Who Can Invest in India?
Foreign investments are classified into two categories:
• Foreign direct investment (FDI)
• Foreign portfolio investment (FPI)
An investment made by a company or individual in one country
into business interests situated in another country is known as a
FDI.
Investments in securities and other financial assets issued in
another country are referred to as FPI.
 Requirements for Trading in
Stock Market
 These are the 7 steps by which you can buy and sell shares online:
• Get your PAN Card
• Find a Stockbroker Place order to Shares get
buy a share Transaction
• Open a Demat & Trading Account Open demat credited to
through trading gets processed
& Trading your demat
• Transfer Money in your Account account at exchange
Accounts account
level
• Select the Shares you want to BUY or SELL
• Place your BUY or SELL Orders
How to Open a Demat Account
Choose Depository Fulfill KYC (Know Your Sign the
Participant (DP) Customer) Norms Agreement Copies

Submit Demat Go Through the Get Your BO ID

Account Opening Verification Process Number
Form
 What is Demat Account & How
It Works?
 Demat accounts are primarily used for investing in shares and
securities in an electronic form that is more accessible with a
Demat account.
 Specifically, these accounts are meant to convert share
certificates from physical to electronic format, thereby providing
greater accessibility for account holders.
 Who Needs a Demat Account?
 In India, any investors who want to own securities like stocks, bonds and mutual funds must open a Demat Account.
 Demat is short for dematerialized—Demat accounts are electronic records tracking your ownership of tradable assets

What is a Trading Account?

 A trading account is an online investment account that traders use to purchase securities and monitor trades. It allows investors
to buy and sell securities such as shares, commodities, foreign exchange, etc., in the public market. A trading account may also refer
to a primary account for a day trader.
 Benefits of Having a Demat
Account
 In India, any investors who want to own
securities like stocks, bonds and mutual
funds must open a Demat Account.
 Demat is short for dematerialized—
Demat accounts are electronic records
tracking your ownership of tradable assets
 Why is There a Need to Invest in
Stock Market??
 In India, any investors who want to own securities like stocks, bonds and mutual funds must open a Demat Account.
 Demat is short for dematerialized—Demat accounts are electronic records tracking your ownership of tradable assets