Equity Indian Stock Market overview
Indian Stock Market overview Back
 
The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273 crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9,21,500 crore (Rs 9215-bln). The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9,68,000 crore (Rs 9680-bln). Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks.
 
NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. The scrips traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrips are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.
 
SPECULATOR Vs INVESTOR
Legendary investor Benjamin Graham considered the distinction between the two so important that "Investment versus Speculation" is the title and subject of the first chapter of his classic book The Intelligent Investor. According to Graham, "The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against."
 
Speculation means the ownership of an asset with the intent to profit from expected changes in supply or demand. For example, a speculator buys a share of stock not to benefit from the dividends or the earnings of a company, but because he expects the demand for the stock to rise, lifting its price. Similarly, one speculates in a commodity such as silver because one expects demand to shift, or one might sell short wheat (selling to buy back later) if one thinks the supply will increase more than others expect. Sometimes speculators are termed as investors; following is how a speculator behaves in the stock market:
 
  1. They are tipped of a 'news'/'rumor' in a 'hot stock' from their broker.
  2. They impulsively buy the scrip.
  3. And after the purchase wonder why they bought the stock.
For a smarter approach to investing, you should do something as follows:
1. Check how much cash or equivalent you have and your risk aptitude.
Stock market can give you high return on your investments, but carry an equal risk of loss as well. So before investing you should find out you risk aptitude.
2. Know all the stock terminologies.
Following are the most commonly used market terminologies:
 
  1. P/E ratio (price-to-earnings ratio) = Current market price/Net Income
  2. Earning per share (EPS) = Net Income/Number of Outstanding Shares
  3. Market capitalization to sales ratio = Market Cap/Total revenues
  4. High (high) = The highest price for the stock in the trading day.
  5. Low (low) = The lowest price for the stock in the trading day.
  6. Close (close) = The price of the stock at the time the stock market closes for the day.
  7. Chg (Change) = The difference between two successive days' closing price of the stock.
  8. Yld (Yield) = Dividend divided by price
Bid and Ask (Offer) Price: When you enter an order to buy or sell a stock, you will essentially see the “Bid” and “Ask” for a stock and some numbers. What does this mean?
 
The ‘Bid’ is the buyer’s price. It is this price that you need to know when you have to sell a stock. Bid is the rate/price at which there is a ready buyer for the stock, which you intend to sell.
 
The ‘Ask’ (or offer) is what you need to know when you're buying i.e. this is the rate/ price at which there is seller ready to sell his stock. The seller will sell his stock if he gets the quoted “Ask’ price.
 
Bid size and Ask (Offer) size:
 
If an investor looks at a computer screen for a quote on the stock of say ABC Ltd, it might look something like this:
 
Bid Price: 3550
Offer Price : 3595
Bid Qty : 40T
Offer Qty : 20T
 
What this means is that there is total demand for 40,000 shares of company ABC at Rs 3550 per share. Whereas the supply is only of 20,000 shares, which are available for sale at a price of Rs 3595 per share. The law of demand and supply is a major factor, which will determine which way the stock is headed.
3. Research the company you are planning to invest in.
Armed with this information, you've got a great chance to pick up a winning stock. Again don’t be in a hurry, ferret out some more facts, try to find out as to who is picking up the stock (FIIs, mutual funds, big industrial houses? The significance of which you will learn in section II of our learning center). Watch for the daily volume in a day: is it more/less than the average daily volume? If it's more, maybe some fund is accumulating the stock.
4. Place an order with your broker
Having an experienced broker on your side can help you make a better decision. Get the current status of the stock movement such as real-time quote, average trades per day, total number of shares outstanding, dividend, high and low for the day and for the last 52 weeks. This information should give you an indication of the nature of the company’s performance and stock movement. Once you are fully satisfied with your research you should go ahead with your order.
BULL MARKET
A bull market is when everything in the economy is great, people are finding jobs, gross domestic product (GDP) is growing, and stocks are rising. Picking stocks during a bull market is easier because everything is going up. But Bull markets don’t last forever and there is always a correction, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".
BEAR MARKET
A bear market is when the economy is bad, recession is looming and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
 

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