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Finlatics

Securities allow the transfer of money from those with capital to those who need it, and include debt instruments like bonds and equity shares. Debt involves lending money with interest to be repaid later, motivating lenders. Equity shares motivate investment through stock price appreciation and dividends from company profits. A portfolio is a collection of different assets like stocks, bonds, and real estate that is diversified to reduce risk. Stock exchanges like BSE and NSE allow buying and selling of securities, with indices like Sensex tracking market performance. Primary markets involve new stock issues while secondary markets facilitate trading of existing shares.

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190 views6 pages

Finlatics

Securities allow the transfer of money from those with capital to those who need it, and include debt instruments like bonds and equity shares. Debt involves lending money with interest to be repaid later, motivating lenders. Equity shares motivate investment through stock price appreciation and dividends from company profits. A portfolio is a collection of different assets like stocks, bonds, and real estate that is diversified to reduce risk. Stock exchanges like BSE and NSE allow buying and selling of securities, with indices like Sensex tracking market performance. Primary markets involve new stock issues while secondary markets facilitate trading of existing shares.

Uploaded by

Darshit
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INTRODUCTION

Introduction to Securities
What are Securities?
- Securities are financial instruments that allow the transfer of money from those who have it to
those who need it.
- Securities include broad universe of financial instrument.
Debt
Fixed Deposits
Equity
Debt
- Sum of money that is given from one party to other that helps the receiving party make a
purchase decision that could otherwise not make.
- Due to the debt it takes on goes ahead with the purchase decision on the precondition that it
would repay the party giving the debt after a specified period of time.
- The repayment does not only consist of the principle amount that is borrowed but also an
additional interest component. This is the additional interest that receiving party agrees to bear
on the debt it takes on.
- The interest components serves as the primary source of income for the party giving the debt.
Collateralize Debt
Non-convertible Debt
Convertible Debt
Motivation to investment in Equity Securities
- Appreciation in value
- Dividends : share the profit of company
Portfolio
What is portfolio?
- Basket that comprises both financial assets and physical asset.
- Financial assets popularly include popular classes like stocks, cash, bonds, commodities, cash
equivalent, and mutual funds.
- Physical assets popularly includes classes like gold and real estates.

Portfolio Return and Risk


- Portfolio return refers to the gain or loss realized by an investment portfolio.
- Portfolio risk is the chance that your portfolio might not generate the return that you are
expecting.
Segment Diversification
- Diversification is the practice of spreading your investments around so that your exposure to any
one type of segment is limited.
- Diversification can help mitigate the risk and volatility in your portfolio, potentially reducing the
number and severity of ups and down.
Large Cap Companies: The companies that rank between 1-100 terms of their value are known as Large
Cap funds.
Mid Cap Companies: The companies that rank between 101-250 terms of their value are known as Mid
Cap funds.
Small Cap Companies: The companies that rank between 1-100 terms of their value are known as Small
Cap funds.
EXCHANGE & HISTORY
Stock exchange & indices

What is stock exchange?


- Stock exchanges are a facility that allows for buying and selling of shares of stocks and other
securities
- Stock movements depend on the demand and supply of the stock.
- In India there are three primary stock exchange:
BSE (Bombay Stock Exchange): Sensex
NSE (National Stock Exchange): Nifty50
Metropolitan Stock Exchange: SX40

Reading market sentiment


- Market sentiment is popularly measured through movements in Indices.
- Indices simply measure the change in stock prices of select companies.
- Sensex is the primary index of the Bombay Stock Exchange that comprises of top 30 companies,
from various sectors of the Indian economy.

Is Sensex is the only stock exchange indices?


- Multiple indices are present based on sectors and segments
- E.g. BSE Tech, BSE Auto, BSE Oil & Gas etc.
- BSE Large Cap, BSE Small Cap, BSE Mid Cap
- BSE500, BSE Greenex (First live carbon efficient index) , BSE Dollex30

How is Sensex calculated?


- Market Capitalization = price * Quantity (No. of outstanding shares)
- Free Float: It is basically the percentage or number of shares of a company that are open to
public trading.
- Free Float Market Capitalization = Market Capitalization * Free Float Factor
- Base Market Cap: The Market capitalization of Sensex companies in the year 1978-79
- Base Index Value: 100
- Sensex = (Free Float Market Capitalization / Base Market Cap ) * Base Index Value
History of Stock Exchange in India

- Bombay Stock Exchange, established in 1875


- National Stock Exchange, established in 1992
- Metropolitan Stock Exchange, established in 2008

- The first traces of share trading in India can be dated back in 1830, where individuals are trading
in shares and stocks of Banks, Textile Mills and Cotton Exchange Mumbai.
- By 1850, a helpful to 22 individuals became stock brokers and started trading in shares opposite
the town hall in Bombay under a Banyan tree.
- 1850-1874: 22 Stock brokers to 250 Stock brokers  The native share and stock broking
association
- 1875: The Native Share and Stock Broking Association  BSE (Bombay Stock Exchange)
- 1930 BSE Building, Premchand Roychand  Architect of Procedure for trading of stocks
- 1956: The Govt. of India recognize BSE as India’s first stock exchange under securities contract
act.
- 1992: NSE established as fully electronics stock exchange
- 1994: NSE began operations on nationwide license
- 1995: BSE converted itself into electronics stock exchange and obtain nationwide license

Stock Exchange, a localized entity?


- Stock exchanges were a localized entities, with limitations as per municipal area.
- This lead to establishments of 23 localized exchanges, some of which are: Delhi Stock Exchange,
Calcutta Stock Exchange, Madras Stock Exchange
- Local companies had to mandatorily list in the local stock exchange.
Companies  Municipal Corporation  BSE
Stock broker had to be from local area.

Competitive pressure leads to inactivity


- Once BSE and NSE got nationwide licenses, restrictions on listing and brokerage requirements
were removed.
- As Bombay was the financial capital and center of these exchanges, most companies were listed
in Bombay.
- Even though other exchanges got the permit to go nationwide, they were unable to cope up with
their Bombay counterparts.
SECURITIES & TERMINOLOGY
Market Securities

- Primary Market: It is the part of security market involving fresh issue of security (like equity) sold
directly to investors by issuing company. Primary market instruments include:
Initial Public Offer (IPO)
Follow-on publics offer (FPO)
Rights issue
Bonus issue
- Secondary Market: It is the part of security market that involves buying and selling of securities
(like equity) among individual investors. Primary focus is on demand and supply mechanisms that
influence price of stocks. These includes:
Macro-economic and industry wide announcements and trends
News events
Fundamental of company

- Initial Public Offering (IPO): This is the process by which a company gets listed on the stock
exchange for the very first time.

- Two key differences in Primary and Secondary Markets


i. In primary markets the issuing company directly sell stocks in multiple individual
investors.
ii. In primary markets the shares are sold in a fixed price, even IPOs are often in fixed
price band. In secondary market price are highly dynamic based on supply and
demand mechanisms.

- Follow on Public Offering (FPO): This is the method through which a company raises additional
funds, after already having undergone an IPO.
- Rights Issues: Already listed company issues fresh shares to existing shareholders as proportion
of stocks held by them.

- Bonus Issues: Similar to a rights issue but shares are issues to existing shareholders free of cost

Factors determining price movements in Secondary Market:


- Market News:
 Often market reacts to both positive and negative news regarding specific companies.
 Your view can vary depending on the company and the news.
 On a lot of occasions, negative news can make for a good chance to buy quality stocks at
a discount.
- Macroeconomic and industry wide announcements
 These

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