Class - 01 - Introduction To Capital Market FINAL

CapitalMarkets
Certified Professional Trader (CPT)

Certified Market Professional (CMP)
Stock Market Expert (SME)
Stock Market for Beginner (SMB)
Certified Equity Research Analyst (CERA)
Course Introduction
2 Kredent EduEdge Kredent Academy www.kredentacademy.com
3
Beginners finance
Capital market
Primary market
Secondary market
Stock trading
Macroeconomics
3
Kredent EduEdge Kredent Academy www.kredentacademy.com
Fundamental research
Introduction
Qualitative & quantitative factors
Financial statement analysis
Ratio analysis
Valuation
Case studies
Derivatives
Introduction
Futures & forward
Option
Option premium
Option strategies
Option greeks
Open interest
Technical research
Introduction
Charts
Dow theory
Trends
Indicators
Patterns
Commodity
Introduction
Market participants
Agri commodities
Metal commodities
Energy commodities
Tracking price movements
Inter asset relationships
Currency
Introduction
Economic significance
Currency future
Macroeconomics
Discussion of INR
Introduction
What is capital market
Market institutions
Basic terminology
What do we mean by Financial Market?
What is this?
Or this?
What is a market?
An actual or virtual place where forces of demand and supply operate, and where buyers
and sellers interact (directly or through intermediaries) to trade goods, services, or
contracts or instruments, for money or barter.*
In simple terms market is a platform which enables buyers and sellers to interact and
transact
13
*Source: businessdictionary.com
Markets
Physical Markets
Online Market
Telephonic Market
Who are the buyers of capital?
Who are the sellers of capital?
The intermediaries
Overall structure of capital market
Buyers Intermediaries Sellers
- Entrepreneurs through
financial institutions like
banks in the form of loan
- Entrepreneurs/Corporates in
the form of equity from stock
market
- Entrepreneurs in the form of
loan from debt market
- Government in the form of
loan from debt market
- Banks
- Banks and other FIs to
channelize savings
- Exchanges to facilitate
equity/debt sale
- Brokers to facilitate transaction
in stock exchanges
- Investment bankers/ merchant
bankers to facilitate the
complete process
- Credit Rating Agencies
- Registrar & Transfer Agents,
DPs
- Retail investors directly
- Institutional Investors
(Mutual funds, Insurance,
PF) as a collective
investment scheme)
- Banks
- Foreign Institutional
Investors
REGULATORS SEBI, RBI, FMC, Govt . Mi ni st r i es et c
19
FINANCIAL MARKET
market of capital and credit
Capital market
Money market
relatively long term
(greater than one year)
short term borrowing
(less than one year)
What is a financial market?
It is a mechanism that allows people to
buy and sell (trade)
financial securities (such as stocks and
bonds), commodities (such as precious
metals or agricultural goods), etc.
It facilitates -
The raising of capital (in the capital
markets)
The transfer of risk (in
the derivatives markets)
The transfer of liquidity (in
the money markets)
International trade (in the currency
markets)
Interaction between those who
want capital to those who have it
Types of financial markets
Capital market
Equity (Stocks)
Debt (Bonds)
Equity
Debt
21
Owner of the business with all the risks and
rewards of the business
An obligation to pay with interest for a
specified time. A Basic Loan is the simplest
form of Debt
Financialisation of Assets
Commodities market
Currency market
Real Estate
22
Financial markets continued
Financialisation of
current Assets
Financialisation of
Risk
More to Come..
23
Credit Risk, Default Risk (MBO, CDO)
Securitization of Car Loan, Home Loan,
Recievables
CAPITAL MARKET
Primary market
Secondary market
Newly formed securities
ex: IPO, Bonds, NCDs issue
Existing securities
sold by investors
Investor Company Investor Investor
A quick question
Which of the following is the
largest market of all?
Stocks
Bonds
Commodities
Currency (Forex)
Phases in market
Phases in market
Phases in market
Bull market
When economic indicators point to a
healthy and growing economy, companies
are making money, future looks good, and
people have more money to invest.
Bear market
When the economy is shrinking,
businesses are not making as much
money, and people are losing their jobs
and have less money left over, stock
prices on the whole will be falling.
Sideways markets
Price movement in the markets are
uncertain and there is no established
trend to arrive at a conclusion
Market is a jungle
29
The terms "bull" and "bear" to describe the markets comes from the way the animals attack
their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. Thus
the terms Bear and Bull are metaphorically used.
Animals in the capital market
Bulls
Market participants who have no qualms
in buying securities above the prevailing
stock prices.
Supposed to be aggressive and jack up
the prices when the trend is in their
favour
Bears
Market participants who wish that the
prices would decline for them to buy.
Typically aggressive in battering down
prices when the trend supports them
Herd
Market participants who lap up a trend
with very little regard to the fundamental
reasons of the trend
Who is the bigger fool?
Behavioral Biases
Cognitive Bias
Emotional Bias
Confirmation Bias
Gamblers' Fallacy
Status Quo Bias
Negativity Bias
Loss-Aversion Bias
Overconfidence Bias
Endowment Bias
Market capitalization
Market capitalization (often market cap) is a measurement of value of a business enterprise
which is equal to the share price times the number of shares outstanding (shares that have
been authorized, issued, and purchased by investors)
So today if you want to purchase a company like Reliance Industries Ltd, what you have to
do is to BUY ALL the shares of the company and PAY the market price for each share
If Reliance has 100 shares and price per share is Rs.1000, then you will have to shed
Rs.1,00,000 to BUY the company
We use market capitalization to classify the companies in
order of their market value:
Large Cap: Sensex comprises companies with
MCAP > 16,000 crores
Mid Cap: Bse Mid Cap Index comprises companies
with MCAP of Rs 13,000 -1,000 crores
Small Cap: BseSmall Cap Index comprises
companies with MCAP < 2,000 crores
The rupee amounts used for the
classifications, "large cap", mid cap", or
"small cap" are only approximations that
change over time.
Among market participants, their exact
definitions may vary
Market capitalization contd.
Large cap
Mid cap
Small cap
Free float market cap
Free-float market capitalization takes into
consideration only those shares issued by the
company that are readily available for trading in
the market
It generally excludes promoters' holding,
government holding, strategic holding and other
locked-in shares that will not come to the market for
trading in the normal course
Thus, if someone wants to buy the Reliance
Industry, she can buy only those shares which are
freely traded in market and not the ones which
Mukesh Ambani holds
Index
An Index is simply the barometer of the
overall stock market performance
It is the report card of all the stock listed on the
index which shows the performance of all the
stocks
Index computation
Let us assume that the day
Nifty started, it had only 3
companies with their market
price/share, total number of
shares and the market cap
being-
Now assume that a day later
based on the market forces,
the share prices of all the
three companies changes and
the new ones are:
40
Company No. of Shares Price / Share Market Cap.
Reliance 200 5 1000
Infosys 100 3 300
ICICI 250 2 500
Market Capitalization of Nifty 1800
Company No. of Shares Price / Share Market Cap.
Reliance 200 6 1200
Infosys 100 4.5 450
ICICI 250 2.2 550
Market Capitalization of Nifty 2200
Index
Indexing simply means Anchoring or Fixing
So what we assume here further is that 1800 is indexed or fixed or assumed to be 1000
This 1800, the value of Index the day it started, is also known as the Base Market
Capitalization
And so when the market cap of the Index changes to 2200, we get a new Index Value
(earlier one being 1000):
1800 is equivalent to : 1000
1 is equivalent to : 1000/1800
2200 is equivalent to : 1000/1800 * 2275 = 1222
Free float market cap weighted index
42
Free Float methodology means that the index will be computed on the market cap
represented by openly held market shares of the company only
The index will be computed by reducing promoters share from overall market cap of the
company. We do it by multiplying the market cap with the free float factor for the company
A company might have a higher market cap but with low public holding; it would have a lesser
weight in indices e.g. TCS, ONGC and NTPC
In case of companies with less promoters holding/strategic holding, market cap and free float
market cap would be the same e.g. ITC, ICICI Bank
Company Price No. of Shares
(crores)
Mkt cap
(Rs/crore)
Free float
(%)
Free cap
(Rs/crore)
Index weight
(%)
ITC
322.7 790 254,992 70% 178494.5 11.18
Reliance
871 324 281,898 55% 155043.9 9.71
Infosys
2955.5 57 169,713 85% 144255.7 9.03
Total
3,093,418 1,597,033
WHICH IS LARGEST
MARKET CAPITALISATION
COMPANY IN INDIA
What is circuit breaker
In order to control the speculations that is causing the stock or index to enter in a circuit, SEBI
has formed rules (different for index and stocks) which help in controlling the situation
Exchanges implement on a quarterly basis, the index based market wide circuit breaker
system i.e., the percentages are calculated on the closing index value of the quarter
The index-based market-wide circuit breaker system applies at 3 stages of the index
movement, either way viz. at 10%, 15% and 20%
These circuit breakers when triggered, bring about a coordinated trading halt in all equity and
equity derivative markets nationwide
The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the
NSE S&P CNX Nifty, whichever is breached earlier
Circuit breaker contd.
The exchange has fixed circuit filters for the Sensex:
If the index moves by 10% up/down:
Before 1 PM , trading would be halted for one hour
Between 1-2:30 PM, trading to be halted for half an
hour
After 2:30 PM, no halt in trading
If in case index moves by 15% up/down:
Before 1 pm, trading to be halted for 2 hours
Between 1-2 PM, trading to be halted for one hour
After 2 PM, trading to be halted for rest of the day
In the case of 20% up/down movement in the index,
trading to be halted for the rest of the day
45
Circuit breaker
Circuit for individual stocks
The reason behind such a move is heavy speculation either about the economy or about a
particular stock
There are two directions of movement (up and down), therefore there are two types of circuits
possible upper circuit and lower circuit
If on any day the stock prices increases/decreases by 5 - 20% (% defined by SEBI for each
share) of the previous day price, then the stock is said to be in upper/lower circuit
A price band is essentially the price range within which a stock is permitted to trade during a
day
Usually a daily price band of 2%, 5%, 10% , 20% (either way) is applicable on securities
No price bands are applicable on: F&O stocks
A price band of 20% (either way) on products other than stocks including debentures,
preference shares, warrants, etc
With circuit
Circuit view
Without circuit
Summary
Introduction to the class
Financial market
Market participants
Kinds of Financial Market - Equity/Debt
Market phases
Market capitalization
Indices
Free float
Circuits
Thank You

Class - 01 - Introduction To Capital Market FINAL

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Class - 01 - Introduction To Capital Market FINAL

Încărcat de

Drepturi de autor:

Formate disponibile

CapitalMarkets

Certified Professional Trader (CPT)

S-ar putea să vă placă și