Tag: finance terminology

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General Investing

WHAT IS SENSEX OR NIFTY 50?

In this post, we will discuss more on indices. Sensex and Nifty 50 are Indian stock market indices and are also used to study the trend of the investor sentiments.

Let us take an example of different types of markets like wholesale market and consumer market. They also have indices like consumer inflation index, wholesale inflation index. Economists use these indices to analyse and plan different policies. Our government periodically monitors the inflation rate and changes monetary policy accordingly.

Today we will see what is Sensex or Nifty50?.

Sensex is the index managed by BSE which contains top 30 companies by market capitalization whereas Nifty50 is the index managed by NSE which contains top 50 companies by market capitalization.  BSE and NSE periodically review the list of companies in the index and make changes accordingly.

Now the question arises what conclusions could be drawn based on these indices. As I told, an index gives a broader picture of a trend in the stock market. If an index is going up, then we can note the following observations:

  1. Investors are optimistic about the growth of the companies.
  2. There is more demand in the market and investors are investing more and more money in the stock market.
  3. As investors are optimistic about the companies, it directly shows they are optimistic about the country’s growth and its GDP.

Let us understand what is happening when an index is going down

  1.   Investors are pessimistic about the growth of companies.
  2.   Investors are pulling out money from the market, therefore, creating more supply and less demand in the markets.
  3.   Generally, the growth of companies is not affected by the decline in the index. But on a long run like 1-2 years, it can impact their businesses also.

I hope, now you will have a good picture of Sensex 30 and Nifty 50.

Read:  Why stock markets exist?

The same principle could be applied when an index is going down.

I hope now it will give you good picture what Sensex and Nifty stand for. We will take more such small concepts on our journey to improve financial literacy.

Read:  Why stock prices change every second?

Thanks for reading.

Categories
IPO Fundamentals Must Know Facts

ALL YOU NEED TO KNOW ABOUT IPO

In the present scenario, it is very unlikely that you have not heard about IPO. IPO stands for an Initial public offering and a company can go for it only once, though a company can raise money through other sources as well.

Need for IPO?

An IPO allows a company to raise funds from a large number of people and it also allows a company to get listed on stock exchanges (NSE/BSE). As everyone knows for doing business money or capital is needed and it is one source through which they can raise money.

Read: What are the Sensex and Nifty?

How will IPO help a company?

Apart from providing funds for the growth of the company, it also helps in providing an exit for existing investors.

How IPO proceeds?

Whenever a company decides to go for an IPO, it generally hires an investment bank. Investment bank prepares a Red herring prospectus and also decide the base price for the shares which will be going to be issued to the public. Finally, a company needs permission from SEBI in order to get listed on the exchanges. Once the approval is given, usually within a few weeks the company get listed on exchanges.

How to apply for an IPO?

Applications for IPO are allowed through a bidding system. Here one has to bid for the price between the prescribed limit and number of shares one wants to get allotted. There is minimum and maximum limit for the number of shares one can purchase. Nowadays, IPO Applications are processed only through ASBA (Application Supported Block Amount).In the application process, the amount remains blocked in your bank account for the IPO application. The amount is debited only when the shares are allotted to you.

When IPO company get listed?

Usually, the company get listed within 10 days of bidding application closure.

When can one sell IPO shares?

You can sell your allotted shares as soon as the company get listed on the exchanges.

Read: Thinking to apply for an IPO for 50% profit, Past known facts

I hope this will be useful. Thanks for reading.

Categories
General Investing

A INTRODUCTION TO THE STOCK MARKET

Introduction to Stock Market

Most of us have heard about SENSEX/ NIFTY at some or other point in our life. The SENSEX and NIFTY are the indices run by BSE and NSE respectively. We will talk more about these indices later on in this book. When I heard about SENSEX or NIFTY they did not matter much to me and they were very confusing to understand. Do not be amazed if I tell you a healthy stock market corresponds to the growing economy which directly correlates to a growing nation. Therefore the Stock Market is very much necessary for a nation.

How Stock Market came into the picture?

  1.      Starting of business

Now let me give you an example of why we need a stock market.

One fine day I was having a beer with my 2 besties. We were discussing our career and future prospects. Then I proposed to them a business idea of selling T-shirt merchandise. Both of them got excited about the idea and were willing to be a part of it.  But both of them were busy with their jobs. They decided to support me financially. Assume that we started our business next month with the basic capital I had and the rest contributed by my mates. Now, I and my mates are the promoters of the company. And after a month, I was lucky and my hard work paid off. We started earning decent profits within a month of starting my business.

  1.      Expansion of business

Now, if I want to move ahead and expand my business I find there is a problem. I do not have enough capital to start the operation in another city. But I know a bunch of people who are willing to invest in my company. So, I approached an investor for some investment in my company. Now I need to give him something in return. Therefore, I decided to give 5% equity of my company and this made him a shareholder of the company. In order to finalize the investment, I brought a legal stamp paper and complete the deal.

  1.      Raising money from Equity

As you saw, I transferred some amount of shareholding of my company to an interested investor. This is the real meaning of shares. So, whenever you are buying a share of the market, you are buying some ownership in the company. And only a handful of the successful companies are listed on stock exchanges.

  1.      Sharing of Ownership

Irrespective of your shareholding in the company, whenever the company makes profits or losses you will be the part of its profit or loss-making. Usually, Investors do not like loss-making companies.

The companies distribute profits to their shareholders by means of dividends. The dividend amount which is needed to be distributed is decided by the company management. If the company has performed very well then maybe the company will distribute good dividends. Approval of dividends is subject to the approval of management and shareholders. Now you must be a clear idea that a person who is buying a share of the particular company is actually investing in the future growth of the company. When you are investing in the company you are also taking a risk involved in the future developments of the company.

Read: All you need to know about IPO

Regulator of Stock Market: SEBI

In India, we have a government body SEBI (Securities and Exchange Board of India) which regulates the listing of the company on the stock exchanges. SEBI also provides certain compliances and guidelines for all listed companies.

SEBI is like a watchdog which protects investors rights and monitors any fraud or illegal activities. When any company wants to get listed on market, they need to get permission from SEBI. For the purpose of raising money from the public, promoters of the company hired investment banks (SBI Capital, Morgan Stanley etc) which help them to raise capital known as IPO. These investment banks analyse the company’s financial health which includes the balance sheet, P & L, the past performance, and goodwill. After doing a thorough research, they prepare a document containing the company’s financial records, owners of the company, past investments in the company and the price band of shares with a lot size.  Now, the company can issue shares to the general public and whoever is interested could subscribe to the IPO of the company. Once the issue is fully subscribed, then within a week or so the company will be listed in the market.

Who Runs These Exchanges: NSE or BSE?

Stock exchanges are private organizations which list other companies. As said earlier, these exchanges are monitored and directly work under regulation laid by SEBI. In India, we have BSE and NSE exchanges and across the globe, there are exchanges like NYSE, NASDAQ etc.

What is an Index?

SENSEX 30 or NIFTY 50 is a number which represents top 30 and top 50 companies listed on their respective exchanges. One day Sensex or Nifty falls which indicates that top 30 or top 50 companies aren’t performing well and their share prices are decreasing.

Share Price Increasing or Decreasing, Why?

Now again a very important question should arrive. Why does the share price increase or decrease?

Initially, the share prices are decided by the investment bank during the IPO. Once a company is listed on the stock exchange, based on people sentiments the value of the share is decided. Stock prices move based on demand and supply in the market. One should understand that people usually see the company financial records like quarterly or annual earnings, any new progress made by the company, future scopes of the company etc. There may be the times that a company is not showing any profits but showing huge revenue growth. This could signify that may be the company is expanding very fast or implementing new ideas and due to which it was not able to show profits. In such cases, if investors think that the company will give profits in the future and then also the stock prices increases.

Read: Which factor pushes an increase or decrease in Stock Prices

So when there is a surge in a number of buyers of a share than the share price increases and vice versa. So the next time you go and buy a share do your homework first. You should be assured enough that why you are buying the share of the particular company, why not other company. What is the future of that company?

Read: Why long-term investing creates wealth? 

Read:  Some bitter truth about Stock Markets

I hope this small article has helped you in your investor journey.

Categories
Important Concepts

KNOW ALL THE JARGONS USED IN MONEYCONTROL APP

 

Nowadays mobile is in use everywhere and we have tons of mobile app to make our life easy. MoneyControl is one such app which is very popular among investor and traders. It provides brief stock updates and latest information about companies listed on exchanges.

Ever wondered what all that jargon in the app mean?

MoneyControl app also provides full information about company financial reports like P/L and balance sheets. It can be easily used as a primary level of research for any company.

This is the homepage of the MoneyControl mobile app

On the home page of MoneyControl, it lists Indian and global indices. I guess everyone will be familiar with Nifty 50 and Sensex.

Nifty SML 100 Free– Index consists of top 100 small cap companies.

Nifty Mid 100 Free- Index consists of top 100 mid-cap companies.

Nasdaq– Index of American stock exchange

Dax– Index of  Frankfurt Stock Exchange

My portfolio– This section could be used to track all your investments on daily basis.

You can add stock, mutual funds, loans and other fixed sources of income.

Now let us check the main page of any stock. For reference, we will be discussing Ujjivan Financial.

 

 

Last Traded Price– It is shown on the top i.e. 358.30. Also known as current market price (CMP).

Volume– Total number of contracts traded for this particular stock. Here the value is 11,123,451.

Bid Price and Offer Price– Bid price is a price quoted by people who want to buy shares and they are quoting their price and quantity. When bid match with the sellers asks price, the trade will happen.

The offer price is the price at which a seller is ready to sell. Note, this data keep on changing per second.

Always notice bid is less and ask is high. Because Bidders want shares at low prices and Askers/Sellers want their shares to be sold at high prices.

For more information, you should refer Market Depth.

Today’s Low/High- this is the maximum and minimum price at which stock traded during the day. 

L/U Price Band- Lower and upper price band is the minimum and maximum price at which stock could trade in a day. It prevents unwanted volatility in the market. The stocks which are traded in options and futures do not follow circuit filter.

52WK Low/High– It is the maximum and minimum traded price of the stock in a year.

 

Market Capitalization– It is the product of current stock price and total no. of free shares of the company.

EPS (earning per share) – profits earned per share. It is calculated by dividing total profits by total no. of shares. It signifies profitability of the company and individual share.

P/E(Price to earning ratio)– Refer to the division of stock price by EPS. It signifies how much valuation in the market of the company. A high P/E denotes people are bullish on the stock and are expecting higher earnings growth in coming time.

Book Value-It gives a rough idea of the true value of the business. Usually used for financial companies.

Dividend– It the money paid by company from profits to its shareholder

Dividend Yield– Actual dividend is usually misleading so people use div. yield as a factor to compare stocks and to find total dividend paid by the company over a year. The dividend yield could be calculated as dividend yield percentage of CMP.

Market lot– It is generally one for equity shares but few SME companies are traded in some minimum quantity like 1000 or 2000. So an investor/traded can buy in multiples of the market lot only.

Face value–  A share of stock has a market value and a face value. The market value represents the current value that one share of stock trades at. The face value, also known as par value, is the legal capital of the share. The face value of the stock has no effect on the value of the stock but has legal and accounting consequences for the company. A company determines the face value of stock before distributing shares. The face value of a share of stock doesn’t change, while the market value can vary based on company performance. A company can’t sell stock for less than face value, 

but it can sell it for more. The difference between what shareholders pay for a share and the face value is referred to as additional paid-in capital. 

Usually, maximum face value is 10 and minimum face value is 1.

Industry P/E– Average P/E of companies in the same sector.

Deliverable– Percentage of shares which exchanged hands on a day. So here only 17.46% shares of total volume exchanged hands and rest were only traded during.

Understand the meaning of delivery in Stock Market

Wanna invest in Mutual Funds? Not sure where to start? Read

I hope this brief article has helped you in increasing your understanding of using Moneycontrol app.

Categories
Book Review

MUST READ FOR FIRST TIME INVESTORS: STOCK TO RICHES by Parag Parikh

It is wonderful that you have decided to get started with your investment journey in the stock market. Today I will highlight some of the common mistakes in the stock market from a wonderful book STOCK TO RICHES by Parag Parikh.

But remember there are no shortcuts in this path. During your journey as an investor, you will definitely learn a lot about market and lot of things. All this learning will help you to become a smart investor.

Remember, as becoming a doctor, engineer or learning any other occupation takes time so is the investment. You cannot become a successful investor overnight. Becoming an investor is your choice but being a successful investor through an act of discipline.

Today I will be sharing few insights from a recent book which I read.

  1. Obvious prospects for physical growth in a business do not translate into obvious profits for an investor.
  2. People curse markets to be ruthless and wealth destroyer etc. But it is not always the case.
  3. It matters that which company shares are you going to buy but what matters most is what price you paid for it to buy.
  4. You should keep individual stock exposure to around 10% and an industry exposure to 20%. This will help in getting you more profits in long term.
  5. Before starting any investment write down your vision for your portfolio.
  6. Whenever you invest in any stock you should write the rationale behind each investment. This could also be applicable to mutual funds.
  7. If you are deciding not to do anything that also is a decision. Sometimes we decide to sell a stock which has appreciated in value but later on not acting on our decision is also a decision.
  8. Never get married to stocks or any type of investment vehicles. Every investment vehicles have a purpose and once that is achieved you should sell that vehicle.
  9. Never get carried away with free lunches in stocks and AGM (annual general meetings). Usually, companies go for share split or give bonus shares to their shareholder to achieve their purpose. Everyone usually become overwhelmed with this cause and start acting regards to this.
  10. Beauty may lie in the eye of the beholder but value often lies in the eyes of buyers.
  11. Past performance is no guarantee for future performance.

 

Read: How to make money work for you?
Happy investing.

Categories
Important Concepts

YOUR STOCK TANKED 10%, DO NOT AVERAGE OUT

 

Buying a stock is easy but to remain invested in the same for a long time is very difficult. That is the basic reason not everyone is able to create wealth from the stock market. Today in this post we will understand why averaging out a stock is not a good idea.

Why does an investor think that once he has purchased a stock it should always go up?

The stock market does not care whether Ambani has bought shares or you. It all works on demand and supply concept.

Averaging out the stock: Averaging out means buying an equal number of stocks when a stock falls below your purchase price thereby reducing your average buy price.

Every investor has a different way of investing. Some think when prices go down, it is always an opportunity to add up. Whereas some investors say it is wise to start booking profits when prices go up.

If every investor does research properly then there will not be a much demand-supply gap in the market.

What will you do when your purchased stock starts falling below your buying price?

Will you buy more or sell at a loss?

Most of the new investors have a tendency to buy more stocks when its prices go down, in order to decrease the buying price. But foremost an investor should understand why the stock price has corrected/fallen so much.

Investors seldom think deep about the business of the company in which they are investing their hard earned money. Novice investors are happy investing in any stock as long as it increases in price. But the moment it starts going below for their purchase price, it became worrisome for them. An investor should know why he entered or bought in the first place. If an investor knows the idea and moat behind his investment they obviously he can reap a lot of profits without worrying about its future.

Read: Why stock prices change?

Some of the reasons for the decrease in stock price

  1. Some negative sentiments against the company are being spread which could be temporary.
  2. The company may be facing a tough time in managing its business.
  3. Raw material prices have been fluctuating in the market. The aviation sector is very susceptible to crude oil prices.
  4. You have entered at very high valuation and stock may go through a consolidation phase.

If nothing wrong with the company then also you should not go and buy the moment the stock fall below you purchased price. As an investor should let the prices settle down before making any hasty decision. In some case, there may be some news which is not out in public and some people are trying to manipulate the stock prices.

Averaging out could be very deadly if your prediction is wrong about the company. If stock prices start falling again then you will lose double of the previous invested amount.

Read: Why long-term investment creates wealth?

An investor should always know the answer to this question:  why he purchased this particular stock at first place?

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