STOCK MARKETS

Tune in to a business news channel, pick up a business newspaper or the business page of any newspaper, listen to business news on the radio or visit any business site on the

WEB, you will invariable come across the following terms or phrases :

SENSEX, NIFTY, NASDAQ etc. SENSEX falls 1500 points during the day’s tradingNIFTY recovers 500 pointsthe BEARISH trendthe BULLISH trend

What does all this mean ?

To understand all this, let us first understand

What are Stocks or SharesHow are stocks tradedWhat are Stock Markets or Stock ExchangesWhat is BSE, NSE and other Stock ExchangesWhat is SENSEX, NIFTY and other Indices

In fact, let us understand the business of Trading in Stock Markets

What is a SHARE?

A share is a piece of ownership in a company. Buying shares in a company makes you a partial owner of that company. More the number of shares you buy, the bigger your ownership stake becomes in the given company and more is the say you can have in how the company is run.

Ownership of a share entitles you to one vote for every share owned. It also entitles you to a share in the profits of the Company (disbursed in the shape of dividend. Therefore, it is imperative that before you invest in a company’s share, you analyze its financial performance (past years), its future plans and the current financial performance.

The purpose of buying shares in a company is twofold. One, to invest in the Company to generate profit in the form of dividends (as and when the company announces the same) and/or to generate profit by trading your shares at prices higher than at what you bought them for.

How are the shares traded

Like we have markets for buying or selling commodities viz. Groceries, condiments, garments, medicines, toiletries etc. we have markets (commonly called Stock Exchanges or Stock Markets) for the purpose of buying or selling shares.

Now that one can do one’s shopping on line, one can shop for shares and trade them (buy or sell) on line as well.

One has intermediaries in the Stock markets called the brokers who buy and sell stocks on one’s behalf and charge a fee for all such transactions. The fee is called brokerage. You can place your “BUY’ or “SELL” orders on the broker who then transacts the deal on your behalf.

Today, all major stock exchanges in India conduct business on-line.

A company wishing to raise capital from the market by offering shares to the public for the first time (called the INITIAL PUBLIC OFFER or IPO in short) makes an offer to the prospective investors by publishing :

Its prospectusIts financial results/performanceFuture plans andPuts a price (and a premium) to its shares

A company wishing to raise additional capital from the market alsso would make an offer to the prospective investors by publishing :

Its prospectusIts financial results/performanceFuture plans andPuts a price (and a premium) to its shares

Raising of capital by any company from the public domain has to be approved by The Securities and Exchange Board of India (SEBI).

Investing in shares during the capital raising drives of a company is investing in the Primary Market while when you buy or sell shares that are individually owned, you are trading in the Secondary Market.

While prices in the Primary market are regulated and approved by SEBI, Prices in the secondary market are market-driven, depend on the past performance of the Company, its future plans as also external factors viz., Government fiscal policies, the foreign exchange rates, prices of certain commodities (like crude oil) in the international market etc.

The two major stock markets in India are :

BOMBAY STOCK EXCHANGE (BSE)NATIONAL STOCK EXCHANGE (NSE)

Bombay Stock Exchange (BSE) : Established in Mumbai in 1875, is the largest Stock Exchange in Asia. It is located on Dalal Street in Mumbai. Obtained permanent recognition from the Government of India in 1956 under the Securities Contracts (Regulation) Act, 1956. Its index is called Sensitive Index, SENSEX in short. SENSEX is tracked world-wide. Surveillance, Clearing and settlement functions of this Exchange are ISO 9001:2000 certified.

National Stock Exchange (NSE) was established in 1994 and is located at Bandra East in Mumbai. The NSE is a national exchange integrating the country's stock markets through nationwide automated on-line screen operations and electronic clearing and settlement

SENSEX and NIFTY are the indices of Bombay Stock Exchange and The National Stock Exchange respectively. SENSEX is based on 30 scrips while NIFTY is more broadly based on 50 Scrips.

SENSEX

Calculated on the Free Float Market Capitalization methodBased on 30 Shares with a base value of 100 for the year 1978-79Closed at an all time high of 26147 on Wednesday, the 23rd July 2014Is widely recognized as the leading Index of the Indian Stock Markets

NIFTY

Calculated as a weighted average of the prices of 50 select shares.The base is defined as 1000 at the price level of 3rd November 1995Closed at an all time high of 7796 on Wednesday, the 23rd July 2014

Trading in the Primary and Secondary markets is regulated by SEBI. The Securities and Exchange Board of India. It acts as a watch dog to protect the interests of the investors in the Stock Market. Companies wishing to raise capital in the primary market through Initial offer or additional issues are required to take necessary approvals from SEBI.

THE BULL & THE BEAR

A bull attacks its opponent by thrusting its horns in the air while a bear swipes its paws down.

These actions are metaphors for the movement of a market: if the trend is up, it is considered a bull market. And if the trend is down, it is considered a bear market

BULL MARKETS

Characterized by optimismHigh investor confidence and expectationsResulting in increased buying which pushes the prices upCertain Fiscal policies of the GovernmentExternal Factors viz. Political, International Market Trends etc.

BEAR MARKETS

Bear markets are characterized by a fall in PricesLoss of investor confidenceCertain Fiscal policies of the GovernmentExternal Factors viz. Political, International Market Trends etc.

BEARISH TREND is described as a continuous fall in the value of market indices while the BULLISH TREND signifies a continuous rise in the value of stock as well as the indices.