Stock MarketsWin Big, Lose Big

What is a stock market?

• A stock market or equity market is a market for trading of company stocks (shares) and derivatives at an agreed price

• The size of the world stock market was estimated at about $64 trillion as of 28th Jan 2014.

What is a stock market?

• A stock market or equity market is a market for trading of company stocks (shares) and derivatives at an agreed price

• The size of the world stock market was estimated at about $64 trillion dollars as of 28th Jan 2014.

Trading Procedure

• Appointment of brokers (Only SEBI registered)

• Opening Demat Account• Placing the order• Executing the order• Settlement

Who is a shareholder?

• A shareholder (or stockholder) is an individual or company that legally owns one or more shares of a company.

• Shareholders are granted privileges depending on the class of stock.

• There are two types of shareholders; i. Equity Shareholders; ii. Preference Shareholders

• Shareholders vary from individual stock investors to large hedge fund traders.

Brokers

• should be SEBI registered• may be individuals, partnership firms or

corporate bodies• charges broker fees or commission• orders for buying shares can be

communicated to the broker through e-mail, telephone, or personally

• executes the order given by the client the contract note containing the name, price of securities, etc. is signed by the broker

Why does a company issue shares to the public?

• A company may want additional capital to invest in new projects.

• The promoters may simply wish to reduce their holding, freeing up capital for their own private use.

• Once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt.

• Financing a company through the sale of stock in a company is known as equity financing.

Share price determination

• At any given moment, the price is strictly a result of supply and demand. The supply is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time.

• Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place.

When to invest in a particular stock?

• Fundamental analysis refers to analyzing companies by their financial statements. A few parameters which are looked upon include Price to Earnings (PE) Ratio, Price to Book Value ratio, Equity to Debt ratio.

• Technical analysis studies price actions in markets through the use of charts and quantitative techniques. A few examples include Trend lines, Bollinger Bands, Oscillators etc.

Stock Market Index

• The movements of the prices in a market or section of a market are captured in price indices called stock market indices. Such indices are usually market capitalization weighted, with the weights reflecting the contribution of the stock to the index. Examples of index include Sensex, Nifty, DJIA, S&P500, Nikkei etc.

• The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment.

Importance and role of the stock markets

• Mobilizing savings for investment• Creating investment opportunities for

small investors• Barometer of the economy• Profit sharing• Maintenance of liquidity

Stock Market Crashes

• A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public's loss of confidence. Often, stock market crashes burst speculative economic bubbles.

• Famous stock market crashes have lead to the loss of billions of dollars and wealth destruction on a massive scale.

Procter and Gamble: An Analysis

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By Gautam Rath, Pooja Mishra, Swapnil, Naman Mohanty, Ayush Mohoparta