Module 1 - BASICS OF INDIAN STOCK MARKET.pptx
- 1. STOCK MARKET LEARNING COURSE – DAY 1 - BY STOCK U
- 2. MODULE 1 : INTRODUCTION TO INDIAN STOCK MARKET AND INVESTMENT BASICS INDIAN STOCK EXCHANGES S. NO. Recognized Stock Exchange Segments Permitted 1. BSE Ltd. a. Equity b. Equity Derivatives c. Currency Derivatives (including Interest Rate Derivatives) d. Commodity Derivatives e. Debt f. Electronic Gold Receipt (EGR) 2. Metropolitan Stock Exchange of India Ltd. a. Equity b. Equity Derivatives c. Currency Derivatives (including Interest Rate Futures) d. Debt 3. Multi Commodity Exchange of India Ltd. a. Commodity Derivatives 4. National Commodity & Derivatives Exchange Ltd. a. Commodity Derivatives 5. National Stock Exchange of India Ltd. a. Equity b. Equity Derivatives c. Currency Derivatives (including Interest Rate Derivatives) d. Commodity Derivatives e. Debt
- 3. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) ESTD. IN 12 APRIL 1988 AND CAME IN POWER IN 30 JAN, 1992 FOLLOWING IS THE STRUCTURE OF SEBI Ownership Ministry of Finance, Govt. of India Subsidiary Nation Securities Depository Limited (NSDL) Headquarters Mumbai Representatives of the Board Members From the RBI, The Ministry of Finance & other nominated by Central Govt.
- 4. SEBI PLAYS AND INTEGRAL PART IN THE UNINTERRUPTED FUNCTIONING OF MARKETS. ITS PRIMARY ROLE INCLUDE PROTECTIVE, REGULATORY AND DEVELOPMENT FUNCTIONS LIST OF FOLLOWING FUNCTIONS Protective Functions 1. Checks the Artificial inflation of prices 2. Stops insider trading 3. Prohibits unfair and fraudulent trade practices by participants, traders or investors Regulatory Functions 1. Regulates the takeover of companies 2. Registers & Regulates the working of MF 3. Registers & Regulates the working of share transfer agents, stock brokers, trustees, sub-brokers, merchant bankers and others associated with Stock Market 4. Frames a Code of Conduct to regulate the intermediaries 5. Audits the Stock Exchanges & conduct enquires Development Functions 1. Promotes the training of the intermediaries in stock market 2. Encourages Exchange Stock activities by adopting a flexible approach
- 5. CAPITAL MARKET IN INDIA : AN OVERVIEW Any location or system that gives buyers and sellers the ability to exchange and trade in financial assets, such as bonds, shares, different international currencies, and derivatives, is referred to as a financial market. The connection between people with capital to invest and those who need capital is facilitated by these financial markets. The Money Market and Capital Market together comprise the financial market. This article dives deep into the various aspects and details of the Capital Market. WHAT IS CAPITAL MARKET ? The Capital Market is a marketplace that acts as the meeting point for the suppliers and the interested parties in savings and investments. Suppliers referred to here are the parties that are willing to invest their capital or lend it to parties in need of such loans. These suppliers include banks and investors. In this market, companies, governments, and the general public are looking for funds. In technical terms, it is a place where buyers and sellers of financial securities meet to engage in trading these securities. Both individuals and institutions participate in the trading procedure. Primary and secondary markets make up capital markets. The stock market and the bond market are the two most popular capital markets. By connecting suppliers with people looking for money and offering a platform where they may trade securities, they aim to provide transactional efficiency. Most securities traded on the Indian capital market are long-term ones. Because the scale of a country's capital markets closely relates to the size of its economy, little movements in one area can have significant effects elsewhere.
- 6. CAPITAL MARKET VS MONEY MARKET CAPITAL MARKET MONEY MARKET It is in which long-term debt or equity-backed securities are traded. It refers to trading in very short-term debt investment. Shares, bonds, government securities Treasury bills, commercial papers, certificate of deposits, bills of exchange Stock brokers, underwriters, mutual funds, financial institutions, individual investors Commercial banks, non-banking finance companies, chit funds, etc. They are formal in nature They are informal in nature They are comparatively less liquid They are highly liquid They are riskier than money market They have minimum risks They take longer to attain maturity They are matured within a year Helps achieve long term credit requirements of businesses Helps achieve short term credit requirements of businesses There is a high ROI involved Comparatively lesser ROI is involved
- 7. STRUCTURE OF CAPITAL MARKET The Capital Market is divided into: Primary Market: It deals with new or fresh issues of securities, and therefore it is also known as new issue market. Secondary Market: It provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange. PRIMARY MARKETS (New Issues) SECONDARY MARKETS ( Stock Exchange) Sale of securities by new firms or further (new issues of securities by existing companies to investors). Trading of existing shares only. Securities sold by the company to the investor directly. Ownership of existing securities is exchanged between investors, without any involvement by the firms. Flow of funds is from savers to investors, i.e. the primary market directly promotes capital formation. It enhances liquidity of shares, i.e. the capital formation is indirectly promoted by the secondary market. Only buying of securities takes place in the primary market, securities cannot be sold. Both the buying and the selling of securities takes place on the stock exchange Prices are decided by the management of the company. Prices are determined on the basis of demand and supply for the security. There is no fixed geographical location. Located at specific places only.
- 8. CAPITAL MARKETS - FUNCTIONS 1. Bringing together those requiring capital and those who possess capital in excess. 2. Aims to achieve better transactional efficiency 3. Helps in economic growth 4. Ensures continuous availability of funds 5. Ensures the movement and efficient utilization of capital, resulting in increased national income 6. Minimizes transaction and information costs 7. Offers insurance against market risks
- 9. ADVANTAGES OF CAPITAL MARKET 1. The capital market provides the following advantages for both capital suppliers and capital seekers: 2. Money movement between individuals who need capital and who possess the capital 3. Increased efficiency in the transactions 4. Securities like shares help in earning dividend income 5. Growth in the value of investment increases in the long run 6. Interest rates provided by bonds and securities are higher than the banks’ interest rates 7. Investors can avail tax benefits by investing in stock markets 8. Securities of capital markets can be used as a collateral for availing loans from banks
- 10. MARKET PARTICIPANTS • Investors • Companies • Stock exchanges • Stockbrokers • Regulators • Financial intermediaries • Clearing corporations • Depository and depository participant
- 11. INVESTORS • Domestic institutions: This includes investors who mediate or undertake investments in the security field of financial assets of the country they are situated in. They are major investors in both primary and secondary markets. • Asset management companies: Mostly mutual funds companies that invest their clients’ funds into securities matching their declared financial objective. • Foreign Institutional Investors: This includes foreign AMCs, hedge funds, and other investors transacting in the stock market. They trade in large money and heavily influence market movements. • OCI and NRI: Investors of Indian origin but based outside of the country.
- 12. COMPANIES Companies enlist themselves in the stock market through an IPO (Initial Public Offering ). They get listed in the stock exchanges, after which the shares of the company are freely traded by market participants. They use the money raised from the IPO to meet their management costs and expand the business. Companies may also invest in other companies as institutional investors.
- 13. STOCK EXCHANGES Stock exchanges are the facilitators of buying and selling securities. It is where the actual trade happens. They provide the issue and retrieval of securities, capitals, and other instruments. Securities traded in the stock exchange include many different products ranging from stocks listed by companies, bonds, derivatives, unit trusts, and other investment products. Stock exchanges are known for functioning as a continuous auction. Buyers and sellers are constantly in the process of transactions on the best floor price available. Investors, however, cannot directly deal with the exchanges. They need to go through stockbrokers or dealers who facilitate the trade.
- 14. STOCK BROKERS & REGULATORS Stockbrokers are registered entities that primarily act as a bridge between investors and the markets. One of the most important financial intermediaries, they buy and sell securities and stocks for both retail investors and institutional ones. They charge a fee or commission for the process and are usually associate with a brokerage firm. A third-party regulation organisation supervises the functioning of markets. SEBI, called the ‘Watch Dog of Indian markets,’ functions primarily to protect investors and ensure fair trading in the markets. A part of their job is to formulate and enforce a set of guidelines to regulate the market participants as well as the intermediaries
- 15. FINANCIAL INTERMEDIARIES & CLEARING CORPORATION FI - Financial intermediaries are entities that help facilitate transactions between two parties in the market. Banks, AMCs, etc., all fall under this category. They are the invisible backbone of the entire stock market ecosystem. In today’s world, with technology integrated through the internet and smartphones, one can easily open an account, deposit money, and even start trading through these intermediaries. CC - They ensure the fulfilment of your trades and transactions. Basically, they match the debit and credit process at the end to ensure the completion of the trade. The regulatory authorities strictly regulate these companies. Their main objective is to provide you with the right asset – either cash in case you are selling stock or shares in case you are buying – to balance the trade books and ensure smooth clearing activity.
- 16. DEPOSITORY AND DEPOSITORY PARTICIPANT • When you transact in shares, you are provided with a certificate that entitles you as the shareholder. Although these certificates were in paper formats earlier, they went digital in 1996. • This conversion of the certificates digitally is called Dematerialization or Demat. The share ownership certificates are placed in your Demat Account, which works like a vault to keep a count of your stocks. There are only 2 depositories in India – CDSL (Central Depository Services Ltd) and NSDL (National Securities Depository Ltd) – who hold the Demat accounts. • However, you can only access a Demat account with the help of a depository participant – your registered broker, sub-brokers, discount brokers, etc. They act as agents to the Depository and help you set up Demat accounts. Your Demat account and trading accounts are interlinked.
- 17. IMPORTANCE & AVENUES OF INVESTING MONEY One way to make money is to work: either via employment or through business. Another way to make money is through investments. An investment is the purchase of an asset with the intention of creating wealth through regular income or by profiting through the sale of an asset. Investment decisions are an important component of financial planning. Why should you invest money ? Some people rely on saving rather than investing. However, in a dynamic world, savings my not be adequate to guarantee continued financial security. Idle money in lockers or even in a bank account may not serve the purpose. Investments could help beat inflation through capital appreciation. The power of compounding also assists in wealth creation. Investing is further helpful in meeting future goals such as purchasing a house, going on a foreign vacation, or planning your retirement.
- 18. AVENUES OF INVESTING MONEY IN INDIA 1. Fixed Deposits (FD) 2. Mutual Funds (MF) 3. Recurring Deposits (RR) 4. Public Provident Fund (PPF) 5. Employee Provident Fund (EPF) 6. National Pension Scheme (NPS) 7. Stocks / Equity