What is an IPO?
IPO stands for Initial Public Offering. When private companies invite the general public to subscribe to their shares, this issue of shares is called an Initial Public Offering (IPO). This means the company is no longer privately owned, but is owned by a variety of investors, some of whom are not involved with the day-to-day operations of the company -- these investors simply own some of the company's stock, which they purchased on the open market. Although IPOs can vary greatly from one company to another, and they require a long, expensive and complicated process, the IPO is basically a way for the company to make money based on expectations of future success and profit.
Types of IPO
Book Building and Fixed Price Issue are the two types of Initial Public Offerings (IPOs) through which a corporate can raise money in the capital market.
In a book building public issue the bids are received at different price levels and the demand for the issue is built up over a period of time. Depending upon the bids received at different price levels the issue price is ascertained. In a fixed price issue the issue price is pre ascertained by the issuer. In case of a fixed price issue the issue price is fixed.
Why do Company go for IPO?
The main purpose of an IPO is to raise capital for the corporation." Other than raising capital, the reasons may be:
1. Liquidation of the shares of the company so that the founders and the rest of the existing shareholders will be able to "cash out" and trade their shares for cash or other traded stocks (referred to as "exit event").
2. Expansion of the company into new territories or markets may require the company to become public, not only by means of more funding, but also by regulatory or marketing reasons. Being public is associated with credibility and accountability.
3. Expansion of the company either by acquisition or merger. Getting more money into the company allows the company to have more money to finance takeovers or mergers with other companies. Moreover, being public will allow the company to merge with private companies who want to become public without going through IPO (referred to as "reverse merger").
4. Levergaing future sales or business to create extra value for the company. In some cases, it is possible for a company to gain more money by pushing up the price of its traded shares more than by actual sales or business events. In the "happy dot com days" companies would buy other companies just because it created a good hype to their stock, eventhough the acquired company was closed shortly after that.
Issue Related Terms & FAQs?
Price Band: Price band indicates the different price levels within a given range in which the investor can enter his bid.
Floor Price: It is the lower end of the price band.
Cap Price: It is the upper end of the price band.
Offer Document: offer document means prospectus in case of a public issue, which is file with Registrar of companies (ROC) and stock exchanges. The offer document contains all relevant details pertaining to the issue upon which the investors can make his/her decision.
Draft Offer Document: means the offer document in the draft stage, which is filed with SEBI for its observations. The draft offer documents are filed with SEBI at least 21 days prior to filing the offer document with ROC and Exchange.
SEBI ROLE: Any company making a public issue or a listed company making a rights issue of value more then Rs 50 Lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after receiving observations from SEBI. The validity of SEBI observation is 3 months only i.e the company has to open its issue within 3 months period.
Cut off Price: In case of public issues the actual discovered price/ issue price can be anything between a given price band. The discovered issue price is called the cut off price.
Basis of Allotment: The allotment in case of QIB category is on a discretionary basis while in case of Retail and Non-QIB(HNI) category the allotment is on a proportionate basis.
Thursday, January 31, 2008
IPO - Initial Public Offering
BSE-NSE List of Holidays
The Exchange will observe the following days as Trading Holidays during the Calendar Year January to December, 2008.
6th March 2008 - Mahashivratri
20th March 2008 - Id-E-Milad
21st March 2008 - Good Friday / Holi (1 st Day)
14th April 2008 - Ambedkar Jayanti
18th April 2008 - Mahavir Jayanti
1st May 2008 - Maharashtra Day
19th May 2008 - Buddha Purnima
15th August 2008 - Independence Day
3rd September 2008 - Ganesh Chathurthi
2nd October 2008 - Ramzan Id / Gandhi Jayanti
9th October 2008 - Dasera
28th October 2008 - Diwali (Laxmi Pujan)
30th October 2008 - Diwali ( Bhaubeez)
13th November 2008 - Gurunanak Jayanti
9th December 2008 - Bakri-Id
25th December 2008 - Christmas
Types of Trading
Trading Styles
Difference of behavior, mindset and mental attitude led the human towards diversification even in the same field. In Forex Trading, this rule did validate itself and resulted in different types of trading styles. Some of the well-known common trading styles are:
Day Trading
This trading style refers to opening and closing positions within the same day. The markets do not fluctuate much over the course of a given day relative to their movements over longer periods of time. Therefore, day traders will look to use as much leverage as possible to magnify their exposure to those market moves that they can find. Most day traders treat market speculation as their full- or part-time job. They see trading through the lens of a daily employment regiment, punching in at the beginning of the day and closing out any positions at the end.
It is worth noting however that day trading, being a fast moving, highly challenging trading style may not be for everyone. Should decide that day trading is for you, then there are also many different styles and variations of day trading with the currency market that you may wish to sample before choosing the form that feels right for you, or maybe you will prefer to utilize a series of styles.
Position trading
Trader who, take a long-term, buy and hold approach. Run their trades for number of days even weeks and more. A position trader can be compared to a squatter who sets up a tent in the middle of a crowded shopping mall, letting people pass by and stare but remaining relatively untouched by them until the authorities come in to shoo him off.
Since position trading involves staying in one position for more than a day, unfavorable market conditions rarely phase traders who use this trading strategy, unless they continue for more than a couple of days. Of course there are risks involved with staying in one position for so long, but the risks are less than those experienced by day-traders, who have to enter and leave the market many times in a day, leaving too much opportunity for mistakes. One disadvantage to position trading is that any changes that occur overnight or after hours can result in a serious financial loss. However, because of the constant fluctuation in currency values, the same magnitude of value change can occur in the other direction as well, allowing the trader to realize a higher profit during hours when most day-traders are asleep.
Scalping
Scalping involves making dozens or hundreds of trades a day, trying to scalp a small profit from each trade by exploiting the bid-ask spread. Scalping works because not all stocks remain on the move at all times. Scalpers generate profits from these non-moving stocks or turn around and sell for a profit those stocks that fluctuate in the positive direction. This way, they receive a small profit. This profit quickly adds up. It takes lot of stamina for performing numbers of trades. Normally 1-minute chart is used for Scalping.
Swing trading
Traders who can react quickly to market changes, including at-home and day traders, benefit from swing trading, which is a trade strategy that involves holding a position for longer than a day. If a trade seems to be going sour, swing traders can exit the market before losing too much money. Swing traders usually maintain a position for 3-10 days, taking advantage of any positive swings in the market. They flow with the market, taking little trades here and there. Most swing traders have an interest in the trends of stocks rather than fundamental values, although it has often been said that swing trading is a variety of fundamental trading. In fact, swing trading sits squarely in the middle between day trading and trend trading in terms of the length of time invested in a position. These traders stick around just long enough to see how the wind will blow before deciding to stay and see a trend through or go on to more profitable pastures.
Mechanical trading
Mechanical trading system is often touted as the end-all to Forex trading. Traders choose a system to follow and enter it into a program that will then pick starting and stopping points for trades as well as maintain a position, without requiring a trader be present to control those actions.
Implementing a mechanical trading system can be the best decision a Forex trader can make. However, it can also be hard for those traders who work off of emotion. The idea of putting future profits into the hands of a computer program can be a scary situation, however, with free platforms available now, it is a limited-loss system: a computer program won't ride a trend just to see it plummet in the end, and a program can't get cold feet and sell too early.
As an automated system, a mechanical trading system is a good all-around program to keep in the background. Whether a trader wants to implement a break-out system, reversal, indicator or trend-following system, there are plenty of options available.
Discretionary trading
Discretionary traders rely on their intuition to decide when to enter or exit a market. While other trading methods emphasize the reading of signals based on formulae or patterns, discretionary trading involves using subjective experiences. They are the polar opposite of the mechanical trader.
Because discretionary trading is based on intuitive reaction, it is best suited to those traders who feel comfortable relying on their gut-feelings to tell them when to buy or sell. Many traders can make large profits by jumping on profitable position changes quickly. But there are also disadvantages to using this kind of trading system. Discretionary traders may end up making a great profit with their trades, but without using a formal system, there is no way to backtrack to find out how they succeeded, so there's no way to repeat the process.
Even without having a fool-proof system, discretionary trading can be very profitable, while at the same time offering traders the flexibility and control to jump in and stop a trade that appears to be going downhill or modifying a bid to maximize profit if it appears that a trade value is increasing.
Friday, January 25, 2008
Basics Stock Market terms
Ever come across words like Sensex, Nifty, correction, rally et al?
Well, a regular reader of business newspapers must have come across these and a host of other terms and terminology that describe the stock market activities.
Let us go through a few of these terms used in routine stock market parlance. This will help you understand the stock market.
Sensex
It is an index that represents the direction of the companies that are traded on the Bombay Stock Exchange, BSE. The word Sensex comes from sensitive index.
The Sensex captures the increase or decrease in prices of stocks of companies that it comprises. A number represents this movement. Currently, all the 30 stocks that make up the Sensex have reached a value of 14,355 points.
These companies represent the myriad sectors of the Indian economy. A few of these companies and the sector they represent are: ACC (cement), Bajaj Auto, Tata Motors, Maruti (automobile), Infosys, Wipro, TCS (information technology), ONGC, Reliance (oil & gas), ITC, HLL (fast moving consumer goods) etc.
The increase or decrease in this index, the Sensex, is the effect of a corresponding increase or decrease in the stock market price of these 30 companies.
Nifty
It is the Sensex's counterpart on the National Stock Exchnage, NSE.
The only difference between the two indices (the Sensex and Nifty) is that the Nifty comprises of 50 companies and hence is more broad-based than the Sensex.
Having said that one must remember that the Sensex is the benchmark that represents Indian equity markets globally.
The Nifty 50 or the S&P CNX Nifty as the index is officially called has all the 30 Sensex stocks.
The NSE Nifty functions exactly like (explained above) the BSE Sensex.
Bull
A particular kind of investor who purchases shares in the expectation that the market price of that company's share will increase. S/he sells her/his stock at a higher price and pockets the profit. Simply put, the bulls buy at a lower price and sell at a higher price. For instance, if a bull buys a company's share at Rs 100, s/he would prefer selling the same stock at Rs 120 or any price higher than Rs 100 to make a profit.
Usually, a bull buys first at a lower price and sells later at a price higher than her/his cost of purchase. Bulls are happy when the markets (the Sensex and Nifty) move upwards. A falling market takes bulls into hibernation.
Bear
Bull's counterpart is the bear. A bear sells stocks first that s/he owns or borrows from, say a friend, and then purchases the same quantity of shares at a lower price.
If a bear sells first, say 100 shares of Ranbaxy at Rs 400, and later purchases the same number of shares at Rs 375, then her/his profit is Rs 25 (400-375) per share. This way s/he has got back the 100 shares of Ranbaxy and simultaneously made a profit of Rs 2500. The shares can later be returned to the bear's friend if s/he had borrowed the same from a friend.
There are bears in the market that sell shares first without actually owning them unlike in the above example. Such selling is called naked short selling or going short on a stock.
Bears are happy in a falling market.
While individual investors can engage in selling first and buying later (also referred to as short selling), mutual funds and foreign institutional investors are not allowed this luxury in India yet.
Squaring off
A process whereby investors/traders buy or sell shares and later reverse their trade to complete a transaction is called squaring off of a trade.
Indian equity markets remain open between 9:55 am and 3:30 pm normally (At times there are sun outages when satellites fail to link with ground infrastructure of the two exchanges (the servers where buy and sell orders are matched). During these times the trading period is extended till 4:15 pm to compensate for the time lost in between).
If you purchase 50 shares of say Infosys and sell them later before the market closes then you have squared off your buy position.
Similarly, if you sell 100 shares of Maruti and purchase them later then you have squared off your sell position.
Equity market rules in Indian allow investors/traders to engage in day trading. Day trading is a mechanism whereby investors/traders can buy, say 100 shares of a company as soon as the BSE, NSE opens (the working hours are 9:55 am to 3:30 pm in normal times) and sell the same amount of shares later (bulls) before the two stock exchanges close. However, a stock bought on the BSE cannot be sold on the NSE and vice-versa.
Similarly investors/traders can also sell first and buy later (bears) during the course of the day to square off their sell positions.
Rally
The word suggests the gain made by the Sensex or Nifty during the course of the day. If such gains are made on a regular basis then market participants like investors, brokers etc call it as a market rally.
If the Sensex moves from 14,000 points to 15,000 points in a span of say 14 or for that matter 20 trading sessions (the stock markets remain closed on Saturdays, Sundays and other bank holidays) then the phenomenon is referred to as a rally.
Bulls are always said to be active during a market rally.
Crash
As the word suggests, crash refers to a fall in the value of Sensex and Nifty. In the first three trading days of this week(February 12-14) alone the Sensex had crashed by more than 700 points.
The Sensex then had plummeted from around 14,700 levels to around 14,000 points. This sudden and violent 700-point fall is referred to as th crash or market crash.
Bears are said to be active and happy during the market crash as their style of trading (sell first and buy later) helps them make good money during a crash.
Bonus shares
These are the free shares that a listed company gives its shareholders. A bonus is declared after a discussion amongst the board members that make up the management of a company.
A bonus issue is looked upon as a way of rewarding shareholders. For instance, let us take a company A that has made a profit of Rs 100 crore in the financial year 2007 (April 1, 2006 to March 31, 2007). Out of this amount the company may need Rs 50 crore for say buying machinery or constructing a new warehouse. And the remaining Rs 50 crore the company puts into its reserve pool or idle cash that the company has no plans to spend. It can then issue bonus shares out of these Rs 50 crore.
When a company declares a bonus issue it converts this idle cash into shares that are then distributed amongst its shareholders. This process is called capitalising of reserves. A bonus is usually declared as a ratio. A bonus issue in the ratio of 1:1 means you will get one free share for every one share of the company you own.
A 2:1 bonus issue (or two for every one held) means you will get two free shares of a company for every one that you own. Similarly, a 5:1 bonus issue will give you five free shares for every one share that you own.
Dividend
It is again a way of rewarding a company's shareholders. A dividend is generally issued as a percentage of the face value of a share. Face value is the nominal price of a company's share.
A share can have different face values like Re 1, Rs 2, Rs 5, Rs 10 or Rs 100. An 80% dividend on a share of face value Rs 2 (Rs 1.6) will always be less than a dividend of 20% declared on share of face value Rs 10 (Rs 4).
Like bonus shares, dividend amount also comes from a company's free cash reserves.
Book closure date
This is the date on which a company closes its books for business after it announces a bonus or dividend. The company's registrar keeps a track of who owns how many shares of that particular company.
Any investor having shares in his/her demat account before this date becomes eligible for the bonus issue or the dividend declared.
Say a company A announces a 1:1 bonus issue and the book closure date is February 28, 2007. If you don't own this company's share and want to avail of the bonus offer then you must not only buy this share before February 28 but also make sure that the number of shares purchased by you are transferred to your account from the seller before this date.
If the ownership of shares is reflected in your account after February 28 then you will not get any bonus shares. The same is also true for dividend announcements.
Source: rediff.com
Trading basics for the beginners
How does stock trading work?
The Share market immediately conjures up stories of fortunes made and lost. A share makes the holder a partial owner of the company and different types of shares have different rights associated with them. If you are able to sell off your share at a price higher than your buying price, you make a profit but you also run the risk of incurring a loss if the share price falls. The business you invested in makes profit and they provide you part of it as dividend. In the share market you are an anonymous player and many have made a reasonable profit. There is no unique formula to ensure consistent gain but before you venture into this market you should know the basics of stock trading.
What does trading stocks mean?
Buying and selling of stocks is referred to as trading in the financial market. You have to approach a broker in order to trade. You can trade either electronically or on the exchange floor. Exchange floor scene must be familiar to you; the NYSE has been on television as part of news coverage innumerable times. It is here that your broker arranges for your shares to be ordered. The floor clerk locates the floor trader from whom the shares can be bought. Once the price is agreed upon, the deal is finalized.
Electronic transaction is very common today. It is an efficient and fast method of stock trading. Here too you require a broker but you receive confirmations almost immediately .In online investing your broker will connect to the exchange network and search for a buyer or seller according to your order.
How are the stock prices determined?
The stock prices cannot be predicted, they depend on various factors like political unrest, if there is a huge demand for a particular share at a given time, prices can fluctuate, any event that could adversely affect the company will also cause the share prices to drop. Before you decide on which stock to buy you must answer the following questions.
Do you know the company well enough?
What is the company’s reputation in the market?
Have you gone through their annual report?
Do you have the confidence to invest in this company?
Is some negative news about the company circulating?
How are analysts predicting the future?
How is the management of the company?
What are their growth prospects?
Am I aware of the insider activity?
Is it an internationally renowned company?
How is their marketing strategy?
Have there been any changes in the management recently?
How consistent has been their performance?
Has there been a sudden shift in their production?
Whenever you invest you should be aware of your limits and remember not to exceed them. Share market involves a lot of risk , risk taking could either lead to fortunate gains or to bankruptcy.
• You should avoid investing money more than you can actually afford.
• Know about your investment well and do not blindly depend upon your broker.
• Follow regular stock market quotes to keep yourself abreast of the market swings.
The share provides you with an earning power, gives you partial ownership of a company and the freedom to buy or sell at any moment. But if you are a novice in stock trading you need to play safe and equip yourself with a lot of information. Unless you are a seasoned player you should invest only after surveying all the alternatives and never go beyond your risk tolerance. Know where to draw the line and begin trading in stocks!
How does the stock market work?
We have all heard the amazing stories about people making it big on the stock market. The tales are almost like the adult version of fairy tales; someone taking a small amount of money and making something truly amazing so that they never need to worry about money again.
We see example of the stock market heroes; people like Warren Buffet who know how to work the stock market in their favor. These kind of people always inspire me in a way. They fill me with some sort of desire to try my hand in the stock market and see if I can make some quick cash.
Before you start investing in the stock market it is a good idea to ask yourself, “How does the stock market work?” The answer to this question is simple. Companies go public by offering a specific number of shares in their company to the public through the stock exchange. Investors then can use the stock exchange to buy and sell stocks of companies that they are interested in. While this basic description of how the stock market works is adequate enough to understand what the stock market is, to get a better understanding of how it actually works it will be important to learn about some of the terms that are commonly used when discussing the stock exchange including stock prices and market capitalization.
The first term that you may hear when you start learning about how the stock market works is stock prices. Stock prices are the price that a specific stock sells for. This price is set by several market factors including the health of the economy, trading trends, spending trends, and financial or technical reports put out by a company or an independent third party. The next term that you may hear about is market capitalization. Market capitalization is the value of the company or the stock that is being offered. To calculate the market capitalization of a company, or stock, simply use this formula: The number of outstanding shares X the price of the stock = market capitalization of the company.
After you learn about the basics features of the stock exchange you will next need to learn how to buy and sell shares. To buy a stock you will need to establish some kind of investment account. In most cases you will open an investment account with a stock broker that works at a local firm. However, today you can also open an online investment account and make trades without the help of a stock broker. After you have set up your account you will need to fund it before you can make a purchase. Once your account is funded you will be able to enter your order for a stock purchase. When you are ready to sell your shares you will either tell your stock broker that you want to sell X number of shares of Company A, or you will need to enter a sell order via your online investment account.
Thursday, January 24, 2008
Want to become a successful day trader?
A lot of people will tell you day trading is really risky and not to do it. The problem with that is they are confusing "risk" with "time." Day trading is no more or less risky than any other kind of trading. The difference is that you will either make your money quicker, or lose your money quicker. The end result is the same. So if you want to day trade, go for it.
Here's the progression you need to follow:
1. Start out by learning the "50% retracement rule." The idea to take away from this, is that many major financial market moves are followed by substantial retracements. "50" is not particularly the magic number, it just means to be on the watch for large retracements in price.
This is the single most effective and reliable way to trade for a beginner. Other people will tell you about technical indicators, but trading these indicators is actually much LESS reliable in the long run.
2. Pay very little attention to news or tips. Other people will tell you that you should pay attention to a company's balance sheet, P/E, company news, etc. The reality is that these things have very LITTLE to do with stock price in the intermediate horizon (1-2 years), and have absolutely nothing to do with day to day price action. If you don't believe me ... you'll find out.
3. The best way to day trade is to trade leveraged products. This means things like currencies or commodity futures. Leverage is a double-edged sword. It can help you. It can hurt you.
4. The best way to day trade is with a company that offers low commissions and fees and real time quotes. They must be a member of the NFA (National Futures ASsociation), SIPC, and FINRA. These are regulatory agencies that make sure they won't steal your money.
5. Companies that offer futures and currency trading usually offer FREE demo accounts with which to practice. Take advantage of this.
6. As a trader, my concern is not to predict market behavior. My concern is to define expectations for risk and profit.
7. As a day trader, your trading plan must define your risk and profit objectives for each trade you enter. You must not stray outside of these parameters. You must not tie yourself into thinking that you can "predict" market behavior. Instead, you must identify the criteria under which you expect to make money and the method with which to control your risk.
8. As a beginning trader, you will do this by using "stop losses" to cut your losses once they progress outside your risk parameter. You may also take hedging positions in next month futures contracts. You may purchase/sell options. Anything to control your downside.
9. Trading is a probability game. You will take losses. You will make profits. Your trading plan must have a "reasonable" expectation of producing more profits than losses in the *long term.* Your plan should be based on the close observation and classification of the price behavior of financial instruments and their derivatives.
Those steps will get you started with the best chance of success.
If you are highly mathematical (ie. graduate level type of math), you may want to give consideration to the study of statistics as it is applied to finance. Your understanding of the advantages and shortcomings of financial derivatives (such as options) will be greatly improved.
Indian economy to grow at 8.5 percent
The Indian economy is set to grow at a rate of 8.5 per cent during 2008-09 after factoring in the volatility of the current global financial turbulence, said Finance Minister P Chidambaram at the World Economic Forum on Thursday. Chidambaram, who is leading the Indian delegation to the annual event, said that India expected the turbulence to continue for "a few months" but added that the country was not in favour of imposing capital controls to dampen capital inflows.
The US government move to lower interest rates will increase the differential with the Indian rate, which could see greater capital inflows into the Indian market, he said. However, he said a distinction needed to be drawn between "good and bad" capital inflows, the former category including foreign direct investment, remittances from non-resident Indians and tourism revenues.
Monday, January 21, 2008
Are Indian Markets headed for a crash?
Most of the stock market Analysts and investors are still quite bullish on Indian markets and expect it to rich even further in coming months.
While strong inflow of funds from foreign institutional investors (FIIs) has been a reason to cheer, it could turn into a nightmare and if the global investors make a sudden exit with about 12 billion dollars within a quarter, it can send the bourses crashing by around 30 per cent, according to global research and consultancy firm Evalueserve.
“This would imply a level of 14,000 for Sensex, which was the level around a year ago” Evalueserve chairman and founder Alok Aggarwal said in a white paper named ‘The Indian Stock Market Continued Boom or Impending Bust?’
This sudden exodus could also lead to the rupee depreciating by six per cent, it said, adding that such a scenario would lead to a bout of inflation and negatively impact the current account deficit, although, an immediate depreciation of rupee would not be catastrophic.
“This could potentially lead to a vicious cycle whereby more FII money leaves India, which in turn would lead to further losses in Sensex, depreciation of the rupee, and even higher inflation,” Aggarwal noted.
If you follow markets closely, you would have seen that last few days have seen global markets crash quite a bit on the news of US recession. However, Indian markets seemed to be quite immune to the news. Few analysts have even gone ahead and mentioned that FIIs are pulling out money from US / UK markets and putting it in India!
Sensex crashes another 2000 pts; trading suspended till 10:55
Trading is suspended for one hour at the BSE after the benchmark Sensex fell to the low of 15,576.30 within minutes of opening, crossing the circuit limit of 10 per cent.
On Monday, the 30-share barometer tumbled by 1,408 points on concerns regarding the US economy going into recession.
The market opened at 16,885 points. At the time of suspension, the Sensex was quoted at 15,576.30 points, plunging 11.53 per cent from yesterday's close.
Similar trend was witnessed at the National Stock Exchange, whose barometer Nifty opened at 5,203.35, and later spiralled downward to a low of 4,569.50, a slide of 12.1 per cent. It was last trading at 4,578.35 points.
BSE and NSE
Difference between BSE and NSE?
BSE - Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE(Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).
NSE - The National Stock Exchange (NSE), located in Bombay, is India's first debt market. It was set up in 1993 to encouragestock exchange reform through system modernization and competition. It opened for trading in mid-1994.Since BSE is older than NSE many stocks are listed on BSE but not on NSE. Most liquid stocks are listed on both exchanges. The turnover of NSE is higher than BSE because NSE became more investor friendly and transparent with computerization. BSE has a lot of catching up to do.
Bombay Stock Exchange BSE
The Bombay Stock Exchange was established in 1875. There are around 4,800 Indian companies listed with the stock exchange[1], and has a significant trading volume. As of August 2007, the equity market capitalization of the companies listed on the BSE was US$ 1.11 trillion, making it the largest stock exchange in South Asia.[2] The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widely used market index in India and Asia.
The BSE SENSEX (also known as the BSE 30 index) is a value-weighted index composed of thirty scrips, with the base April 1979 = 100. The set of companies which make up the index has been changed only a few times in the last twenty years. These companies account for around one-fifth of the market capitalization of the BSE.
Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other stock indices as well:
BSE 500
BSE 100
BSE 200
BSE PSU
BSE MIDCAP
BSE SMLCAP
BSE BANKEX
BSE Teck
BSE Auto
BSE Pharma
BSE Fast Moving Consumer Goods (FMCG)
[[BSE Consumer Durables (SYMBOL: Cons Dura)]]
BSE Metal
On 29 october 2007, the BSE sensex touched 20,000 points.
Following is the timeline on the rise and rise of the Sensex through Indian stock market history.
1000, July 25, 1990
On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.
2000, January 15, 1992
On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.
3000, February 29, 1992
On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.
4000, March 30, 1992
On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.
5000, October 8, 1999
On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.
6000, February 11, 2000
On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.
7000, June 20, 2005
On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy [Get Quote], Reliance Capital [Get Quote], and IPCL [Get Quote] made huge gains. This helped the Sensex crossed 7,000 points for the first time.
8000, September 8, 2005
On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.
9000, November 28, 2005
The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.
10,000, February 6, 2006
The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.
11,000, March 21, 2006
The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.
12,000, April 20, 2006
The Sensex on April 20, 2006 crossed the 12,000-mark and closed at a peak of 12,040 points for the first time.
13,000, October 30, 2006
The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000.
14,000, December 5, 2006
The Sensex on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark.
15,000, July 6, 2007
The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.
16,000, September 19, 2007
The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points.The Sensex finally ended with its biggest-ever single day gain of 654 points at 16,323. The NSE Nifty gained 186 points to close at 4,732.
17,000, September 26, 2007
The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark . Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.
18,000, October 09, 2007
The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an all-time high of 18,280. The market set several new records including the biggest single day gain of 789 points at close, as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election.
19,000, October 15, 2007
The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days. The index touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.The Nifty gained 242 points to close at 5,670.
20,000, October 29, 2007
The Sensex crossed the 20,000 mark on the back of aggressive buying by funds ahead of the US Federal Reserve meeting. The index took only 10 trading days to gain 1,000 points after the index crossed the 19,000-mark on October 15. The major drivers of today's rally were index heavyweights Larsen and Toubro, Reliance Industries, ICICI Bank, HDFC Bank and SBI among others. The 30-share index spurted in the last five minutes of trade to fly-past the crucial level and scaled a new intra-day peak at 20,024.87 points before ending at its fresh closing high of 19,977.67, a gain of 734.50 points. The NSE Nifty rose to a record high 5,922.50 points before ending at 5,905.90, showing a hefty gain of 203.60 points.
Wednesday, January 9, 2008
Indian Stock Market
Stock Market is a place where stock are traded between investors at a particular price that is purely determined by the demand and supply of the shares. For example, if the demand of the share is greater than the supply, the price of the share will keep rising until the demand is equal to supply. As a result the price of the share goes up. Alternatively, if the supply of the share is more than the demand, the price of the share falls till it equals demand.
Normally one would want to buy the shares of company that are performing good. This would result in a rise in demand of the shares and the price will start rising. The price will rise until the ivestors feel that the share price correctly co relates with the good performace of the company. Similarly one would try and sell shares of a company that is performing poorly and so the supply will rise. The price will continue to fall till investors feel that the price correctly corelates with the performance.It is worth noting that any news that has an effect on the performance of the company will be reflected in the price movement of the share. For example, if the government announces that there is an upward revision in the price of petrol, the most likely gainers will be companies like Indian Oil, BPCL, HPCL, ONGC, Reliance etc. Therefore, their stocks will start rising. Alternatively if the government announces that there is no revision in the price of petrol even though the price of crude is rising in the international market, the share prices of these companies will be under pressure and will probably fall.
Now a days shares are held in dematerialized or demat (i.e. in electronic form without any paperwork involved) form with a share broker who is registered with the stock exchange. In India, there are two stock exchanges viz - 1) The Bombay Stock Exchange 2) The National Stock Exchange. Both the exchanges are headquarted in Mumbai. A broker can be a member of either of the two or both. Sensex (Sensitive Index) is an index of the most commonly traded 30 stocks on the BSE. Time to time, the BSE allocates weightage to different stocks that reflect their importance in the stock markets. Take an example of two stocks RELAINCE and TATA POWER where both are included in the Sensex. If the stock price of Reliance goes up by Rs 10 and the stock price of TATA POWER falls by Rs 10, does it mean that they will balance each other? The answer is no. This is becuase the weight of the Reliance Stock is much more than Tata Power. In such a case the rise in the Reliance Stock will out weigh the loss in Tata Power's stock and the Sensex will rise (assuming other stocks remain where they are). It is to be noted that the sensex will either move upwards or downwards only the performace of these 30 stocks. Since the general mood of the market is reflected by the movement in the Sensex, it reamins in the news all the time. This explanation is a very simple explanation on the movement in the Indian Stock Market. There may be many other factors that determine the demand and supply of shares.
