Unit 3
Unit 3
Unit 3
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1. Supply and demand: One of the main factors affecting the share market is the imbalance between supply and
demand which leads to the increase or decrease in the price of stocks. In addition, factors such as economic data
and interest rates affect the demand for stocks leading to fluctuations in the value of stocks.
2. Interest rates: The governing body, the Reserve Bank of India (RBI), regulates interest rates, directly influencing the
price of stocks. When the interest rate is low, the companies can borrow a considerable amount at a lower interest,
resulting in their profits due to an increase in the stock price. On the other hand, higher interest rates lead to lesser
profits and reduced stock prices.
3. Political factors: There have been multiple political factors affecting stock markets. For instance, the price of stocks
goes down in case of risk of war, weak government, public outrage against the government, etc. Budget
announcements or elections significantly impact the volatility of the market, affecting the stock prices. Moreover,
the new government policies introduced regarding the Indian economy can affect the share market.
4. Natural calamities: Natural calamities and pandemics such as floods, earthquakes, and pandemics such as Yellow
Fever, Ebola and the recent COVID-19 one too, can drastically affect the value of stocks. Due to the stock prices are
bound to fall due to the destruction of property, finances, and other assets. It affects not only a company’s
performance but also people’s capability to spend.
5. Inflation: Inflation directly affects the finances of people resulting in reduced capacity to invest. Moreover,
increased inflation rates discourage people from investing, making companies suffer. Hence, inflation has a critical
role in affecting one’s investing power, purchasing power, and the country’s overall economy.
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Types /Modes of Raising funds from Primary
Market
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Secondary Market- Major Players in the secondary
market
The secondary market is where investors buy and sell securities from other investors (think of stock
exchanges). For example, if you want to buy Apple stock, you would purchase the stock from investors who
already own the stock rather than Apple. Apple would not be involved in the transaction
1. Buyers and Sellers
In the secondary market, fund managers or any investors who wish to purchase securities or debts will have to
locate a seller. Transactions are facilitated through a central marketplace, including a stock exchange or over
the counter (OTC).
2. Investment Banks
While investment banks facilitate the issuance of bonds and shares in the primary market, they expedite the
sales and trading of issued debts and equities between buyers and sellers in the secondary market.
Examples of top investment banks: Goldman Sachs, JP Morgan, Credit Suisse, HSBC, Morgan Stanley
3. Corporations
In the capital markets, corporations behave as operating businesses that require capital to grow and run their
operations. These corporations can vary in industry, size, and geographical location. Careers at corporations
that relate to the markets include corporate development, investor relations, and financial planning and
analysis (FP&A).
Examples of publicly traded corporations: Alphabet, Amazon, Apple, Exxon, Toyota
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4. Institutions (“Buy Side” Fund Managers)
Institutions consist of fund managers, institutional investors, and retail investors. These investment
managers provide capital to corporations that need the money to grow and operate their businesses. In
return for their capital, corporations issue debt or equity to the institutions in the forms of bond and shares,
respectively. The exchange of capital and debt or equity completes the cycle of the two key players in the
capital markets.
Examples of top “Buy Side” Firms: Bridgewater Associates, Blackstone, KKR, The Carlyle Group, Apollo Global
Management
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Stock Exchange:
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Functions of Stock Exchange
1. Role of an Economic Barometer: Stock exchange serves as an economic barometer that is
indicative of the state of the economy. It records all the major and minor changes in the
share prices. It is rightly said to be the pulse of the economy, which reflects the state of the
economy.
2. Valuation of Securities: Stock market helps in the valuation of securities based on the
factors of supply and demand. The securities offered by companies that are profitable and
growth-oriented tend to be valued higher. Valuation of securities helps creditors, investors
and government in performing their respective functions.
3. Transactional Safety: Transactional safety is ensured as the securities that are traded in the
stock exchange are listed, and the listing of securities is done after verifying the company’s
position. All companies listed have to adhere to the rules and regulations as laid out by the
governing body.
4. Contributor to Economic Growth: Stock exchange offers a platform for trading of securities
of the various companies. This process of trading involves continuous disinvestment and
reinvestment, which offers opportunities for capital formation and subsequently, growth of
the economy
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5. Making the public aware of equity investment: Stock exchange helps in providing
information about investing in equity markets and by rolling out new issues to encourage
people to invest in securities.
6. Offers scope for speculation: By permitting healthy speculation of the traded securities,
the stock exchange ensures demand and supply of securities and liquidity.
7. Facilitates liquidity: The most important role of the stock exchange is in ensuring a
ready platform for the sale and purchase of securities. This gives investors the confidence
that the existing investments can be converted into cash, or in other words, stock exchange
offers liquidity in terms of investment.
8. Better Capital Allocation: Profit-making companies will have their shares traded actively,
and so such companies are able to raise fresh capital from the equity market. Stock market
helps in better allocation of capital for the investors so that maximum profit can be earned.
9. Encourages investment and savings: Stock market serves as an important source of
investment in various securities which offer greater returns. Investing in the stock market
makes for a better investment option than gold and silver
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Trading and Settlement Procedures
• Trade Settlement is the process of transferring securities to a buyer’s account
and cash to a seller’s account.
• Trade settlement is a two-way process in the final transaction stage relating to
trading stocks, bonds, futures, or other financial assets.
Types of settlements:
There are two broad categories of Trade settlements:
• Spot settlement is that settlement that takes place immediately following the
rolling settlement principle of T+2.
• Forward settlement is the settlement that takes place when one agrees to settle
the trade at a future date, T+5 or T+7.
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Steps of Trading Procedure
The trading procedure involves the following five steps:
1.Selecting a Broker: The stock market involves trading through only authorised brokers. These brokers can be
individuals, companies, or even partnerships. To begin the trading process, one should select a registered broker.
2.Opening a Demat Account: De mat is short for dematerialised. The Demat account is opened with the help of
depositories, which include brokers and banks. It is through this account that trading activities take place. This is an
electronic system. The depository helps keep the investor or account holder informed about their transactions and
the status of their investments.
3.Placing an Order: Once a Demat account is opened, investors can place orders in different ways, such as through
brokers or themselves. The order comprises the buying and selling of shares in the stock market.
4.Execution of the Order: Once an order is placed, it is executed by the broker. Once executed, a contract note is
issued, which informs the investor of all transaction details or orders, such as date, time, and amount.
5.Settlement: This is the final step in the trading procedure. It involves the actual transfer of securities between
the buyer and the seller. This also needs to be carried out by the broker. The two main kinds of settlement are On-
the-spot settlement, where funds are immediately transferred and exchanged on the second working day of the
transaction, and Forward settlement, which implies that the transfer or exchange will be carried out at some point
in the future.
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Leading Stock Exchanges in India.
• NSE
• BSE
• OTCEI
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NSE: National Stock Exchange
• National Stock Exchange of India Limited is the leading stock
exchange under the ownership of various group of domestic and
global financial institutions, public and privately owned entities and
individuals. It is located in Mumbai, Maharashtra.
• Indices: NIFTY 50; NIFTY Next 50; NIFTY 500
• Currency: Indian rupee (₹)
• Market capitalization: US$3.4 trillion (August 2021)
• Location: Mumbai
• Founded: 1992
• Key people: Girish Chandr Chaturvedi; (Chairperson); Ashishkumar
Chauhan; (MD & CEO)
• No. of listings: 2002
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Objectives/ Functions of NSE
National Stock Exchange of India was incorporated in the year1992. It
was recognised as Stock Exchange in 1993 and started operations in
1994. It was established by leading banks, financial institutions,
insurance companies and financial intermediaries.
The following are the objectives of NSE:
1. Establishing a nationwide trading facility for all types of securities.
2. Ensuring equal access to investors all over the country through an
appropriate communication network.
3. Providing a fair, efficient, and transparent securities market using an
electronic trading system.
4. Enabling shorter settlement cycles and book entry settlements.
5. Meeting international benchmarks and standards.
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BSE: Bombay Stock Exchange
•BSE Limited, also known as the Bombay Stock Exchange, is an Indian stock
exchange and is the leading stock exchange under the ownership of Ministry of
Finance, Government of India. It is located on Dalal Street in Mumbai.
•Location: Mumbai
•Market cap: ₹276.713 lakh crore (US$3.5 trillion) (Jan 2022)
•Indices: BSE SENSEX; S&P BSE SmallCap; S&P BSE MidCap; S&P BSE LargeCap; BSE
500
•Founded: 9 July 1875
•No. of listings: 5,439
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What is BSE (Bombay Stock Exchange)?
Located on Dalal Street, the Bombay Stock Exchange, or the BSE, is Asia’s
oldest stock exchange. Currently, it is the ninth largest stock exchange in
terms of overall market capitalisation. It is the backbone of the country’s
capital market system and has spread its reach and operations across
India.
What is SENSEX?
In 1986, the BSE started a stock index called SENSEX. It comprises 100
stocks listed at five major stock exchanges of Bombay, Calcutta, Delhi,
Ahmedabad and Madras. The launch of the SENSEX was followed with the
introduction of the National Index in 1989 and the BSE 200 and Dollex 200
in the year 1994. The index committee periodically revises all the indices
of the BSE.
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Objectives of BSE
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Parameters Bombay Stock Exchange National Stock Exchange
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OTCEI: Over The Counter Exchange of India
•The OTC Exchange Of India, also known as the Over-the-Counter Exchange of
India, was based in Mumbai, Maharashtra. It is under the ownership of Ministry of
Finance, Government of India. It is India's first exchange for small companies, as
well as the first screen-based nationwide stock exchange in India.
•Location: Mumbai
•Currency: Indian rupee (₹)
•Owner: Government of India
•Founded: 1990
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Stock Market Indicators
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Types of stock market Indices in India
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1. Benchmark Indices
•Nifty 50 – a collection of top 50 best-performing stocks
•BSE Sensex – a collection of top 30 best-performing stocks are indictors of the
National Stock Exchange and Bombay Stock Exchange, respectively.
2. Sectoral Indices
•Both BSE and NSE have some good indicators that measure companies falling under
one specific sector.
•Indices like S&P BSE Healthcare and NSE Pharma are considered good indicators of
their respective changes in the pharmaceutical sector.
•Another prominent example could be S&P BSE PSU, and Nifty PSU Bank Indices are
indicators of all the listed public sector banks.
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3. Market-Cap Based Indices
•Few indices choose companies based on their market capitalization. Market
capitalization means the market value of any public traded company in the stock
exchange.
•Indices like S&P BSE and NSE small cap 50 are a collection of companies that have a
lower market capitalization in accordance with the rules set by the Security Exchange
Board of India (SEBI).
4. Other Indices
•Several other indices like S&P BSE 500, NSE 100, S&P BSE 100, among others, are
slightly larger indices and come with a more significant number of stocks listed on
them.
•You may have a low-risk appetite and stock listed on Sensex may have a high-risk
appetite. Investment portfolio are not tailored to meet every needs. So investor has to
be focused and invest in which they feels safe.
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