Fundamental of Stock / Share
There are four main investment
types, or asset classes, that you can choose from, each with distinct
characteristics, risks and benefits.
- Growth investments. ...
- Shares. ...
- Property. ...
- Defensive investments. ...
- Cash. ...
Why stock market
is the best business ?
There are many motivating reasons to choose
trading stocks. Here are the some of the top reasons why trading stocks is
really the perfect business.
Ø
No inventory
Ø
No angry
customers or complaints, no returns
Ø
Can work from
home anywhere in the world
Ø
No paperwork -
year end statement is sent to you
Ø
No selling, no
recruiting, no networking
Ø
Compounding
effect
Ø
Recession free
business
Ø
Gives you
financial freedom
Ø
Anyone can easily
scale up
Gives you more
free time for friends and family Master of your
own destiny
What
do you mean by share?
In
simple terms, a share is a percentage of ownership in a company or a financial
asset. Investors who hold shares of any company are known as shareholders.
For example ; if the market capitalization of a company is Rs. ... 10 then the
number of shares to be issued will be 1 lakh. A share or a stock is a part of the
company that it makes available for sale. So when you buy a stock, you’re basically buying a
part of
the company.
Companies sell their shares when they need to raise money.
What
is share and types of share?
A share is referred to as a unit of ownership which represents an equal
proportion of a company's capital. A share entitles the shareholders to an
equal claim on profit and losses of the company. There are majorly two kinds of
shares i.e. equity shares and preference shares
What
is share and how it works?
Stocks,
shares and equities work by giving direct exposure to a company's
performance. Shares will rise in value when the company is doing well, and
they'll fall in value when the company is doing poorly. Stock exchanges
facilitate the exchange of shares in publicly listed companies
What is the stock market?
In
its most basic form, the share or stock market is the place where
buying
and selling of shares take place.
How does the stock market exactly work?
To
understand the process, let’s take a look at the four main parties
involved
in any share market transaction:
SEBI: SEBI stands
for Securities and Exchange Board of India and its main purpose is to make sure
that all the activities that happen in the share market are fair and do not
jeopardize the interests of any specific participant(s) involved.
Stock Exchanges:
A stock exchange is essentially the place where stock buyers meet the stock
sellers. To participate in the trading process, participants must first be
registered with the stock exchange and SEBI.
India
has these two main stock exchanges:
BSE
(Bombay Stock Exchange)
NSE
(National Stock Exchange)
Brokers: The role of
brokers (or brokerage firms) is to act as a mediator between you (the investor)
and the stock exchange to help facilitate the buying and selling of shares.
Traders: These are the people who are looking to buy or sell shares
The Process: The
process starts with a company that wants to raise money, they release the
details of their stocks that they want to sell through an IPO. An IPO
(Initial Public Offering ) is basically the first time a company sells
its shares to the public. This is the primary market stage. After this,
the company’s stocks can be traded between the sellers and the buyers.
This is the secondary market stage. But due to a large number of potential
traders, it’s not possible for them to conduct the trade at the same
time and place. Hence, stockbrokers and brokerage firms step in to act
as the intermediary party between the buyers and the stock exchange.
Now
if the trader wants to buy a share, the request is forwarded to
the
broker who sends the order to the stock exchange. The stock
exchange
then matches the traders buy request with that share’s sell request. Once both
the parties (seller and buyer) agree to the price of the share, the transaction
is finalized which is intimated by the exchange to the broker, who in turn
passes on the confirmation status to the investor. This entire process takes
place in about two days. It is important to keep in the mind the fact that the
prices of shares keep fluctuating as the demand for that stock increases or
decreases.
What is demat and trading account?
Demat
account is a repository where the digital copies of your stocks are held. If
you buy 100 shares of Tata Steel, it will be held in your Demat account. Trading
account is a platform in which you credit funds, and buy and sell shares.
Trading account enables you to do stock transactions. E.g after logging into
your trading account, and buying shares, it will be credited to your demat account.
Like, when you sell these shares, they will be digitally removed to the buyers
account. You usually require both - one to buy / sell and other to hold the scripts
that you have bought.
Yes,
you need to fund your account before you buy stock for delivery. Brokerage is
deducted from your trading account. Demat account has no role in it.
.
How
to invest in stocks in six steps
1. Decide how you want
to invest in the stock market. ...
2. Choose an investing
account. ...
3. Learn the difference
between investing in stocks and funds. ...
4. Set a budget for your
stock market investment. ...
5. Focus on investing
for the long-term. ...
6. Manage your stock
portfolio.
Why
do company issue shares?
Companies
issue equity shares to investors in return for capital, which is used to
grow and operate the firm. Unlike debt capital, obtained through a loan or bond
issue, equity has no legal mandate to be repaid to investors, and shares, while
they may pay dividends as a distribution of profits, do not pay interest
Do
you get money from shares?
There
are two ways you could make money from investing. One is if the shares
increase in value, meaning you reap a profit when you sell them. The other
is if they pay dividends. Dividends are a bit like interest on a savings
account.
Indices
What are Sensex and Nifty:
The
Sensex and Nifty are "indices(meaning indicator) of a stock
market".
There are many other indices other than these indices.
A
stock market is a place where you can sell or buy shares or
stocks
of companies. An index is basically an indicator which gives us a general idea about
stocks going up or down. The Nifty is an indicator of all the major companies
listed on NSE(National Stock Exchange). The Sensex is an indicator of all the major
companies listed on BSE (Bombay Stock Exchange). The Nifty goes up when prices
of stock of major companies on NSE goes up and it goes down when the latter
goes down. The same condition applies to Sensex. These two are the major stock
exchanges in the country. Most of the stock trading in the country is done
though the BSE & the NSE.
BSE, the first ever
stock exchange in Asia established in 1875 and the first in the country
to be granted permanent recognition under the Securities Contract Regulation
Act, 1956, has had an interesting rise to prominence over the past 143 years.
Who started BSE?
It is an integral
component of the “$1 trillion” club, having the 11th largest market
capitalisation value at $2.2 trillion. BSE stock exchange was founded by
Premchand Roychand in 1875 and is currently managed by Sethurathnam
Ravi, serving as the chairman.
Which is the
first company listed in BSE?
D.S. Prabhudas
& Company
Which was the first
company to be registered in the BSE? It was D.S. Prabhudas
& Company (now known as DSP, and a joint venture partner with
Merrill Lynch).
Who is the
chairman of BSE?
Shri T.C. Suseel
Kumar
Multi Commodity Exchange of India Ltd (MCX)
(BSE: 534091) is an independent Indian government owned commodity exchange
based in India. It is under the ownership of Ministry of Finance , Government
of India. It was established in 2003 by the Government of India and is
currently based in Mumbai.
NSE was incorporated
in 1992. It was recognised as a stock exchange by SEBI in April 1993 and
commenced operations in 1994 with the launch of the wholesale debt market,
followed shortly after by the launch of the cash market segment.
Why
was NSE formed?
National
Stock Exchange was incorporated in the year 1992 to bring about
transparency in the Indian equity markets. ... NSE was set up by a group
of leading Indian financial institutions at the behest of the Government of
India to bring transparency to the Indian capital market.
Who
is the owner of NSE?
Mr.
Vikram Limaye
is the Managing Director and CEO of NSE.
BSE Limited,
also known as the Bombay Stock Exchange, is an Indian stock exchange
located on Dalal Street in Mumbai.
Established in 1875,[5]
it is Asia's oldest stock exchange.[6]
The BSE is the 9th largest stock exchange
with an overall market capitalization
of more than ₹2,18,730 billion on as of May
2021
Now coming to how the Sensex and Nifty are calculated:
The
Nifty is calculated taking into consideration stock prices of 50
different
companies listed on BSE . The 50 companies that are
taken
into consideration are changed from time to time. This is
done
to make the Nifty an accurate index
What is MCX future?
First it is important to know mcx full form: Multi
Commodity Exchange. It is an online platform wherein commodities like gold,
silver, lead, copper, zinc, crude oil, etc. ... It is the largest commodity
futures exchange in India.
Who invented MCX?
In 2007 Jignesh Shah, founder of MCX, India's
largest commodities market, realized his long-held dream of becoming a
billionaire. At the time, his 47% stake in Financial Technologies, MCX's
parent, was worth $1.1 billion, earning him a spot on our billionaires list of
2008.
What Is the National Commodity &
Derivatives Exchange (NCDEX)?
The National Commodity & Derivatives Exchange
(NCDEX) is a commodities exchange dealing primarily in agricultural commodities
in India. The National Commodity & Derivatives Exchange was established in
2003, and its headquarters are in Mumbai. Many of India's leading financial
institutions have a stake in the NCDEX. As of September 2019, significant
shareholders included Life Insurance Corporation of India (LIC), the National
Stock Exchange of India Limited (NSE),
and the National Bank for Agricultural and Rural Development (NABARD).
7 Categories of Stocks that Every Investor
Should Know
- Income
Stocks. An income stock is an equity security that offer high yield that
may generate from the majority of security's overall returns. ...
- Penny
Stocks. ...
- Speculative
Stocks. ...
- Growth
Stocks. ...
- Cyclical
Stocks. ...
- Value
Stocks. ...
- Defensive
Stocks
A stock's fundamentals are the factors
that are thought to contribute to the underlying company's value or worth as a
business. Fundamentals can include measurable, quantitative data (like cash
flow and debt-to-equity ratio) and qualitative, situational factors (like
business model and competitive advantage).
What
are market fundamentals?
The
market fundamental (or fundamental value) of an asset is the discounted
present value of the stream of future cash flows attached to the asset. This
evidence, especially in the case of the stock market, suggests that asset
prices deviate from their fundamental values.
Who
is a father of fundamental analysis?
The
Father of Fundamental Analysis: Benjamin Graham
What
a portfolio is?
A
portfolio is a compilation of materials that exemplifies your beliefs,
skills, qualifications, education, training and experiences. It provides
insight into your personality and work ethic
What
is fundamental analysis stocks?
Fundamental
analysis attempts to identify stocks offering strong growth potential at a
good price by examining the underlying company's business, as well as
conditions within its industry or in the broader economy.
How
do you find the fundamental of a share?
How
to do Fundamental Analysis of Stocks:
1. Understand the
company. It is very important that you understand the company in which you
intend to invest. ...
2. Study the financial
reports of the company. ...
3. Check the debt. ...
4. Find the company's
competitors. ...
5. Analyse the future
prospects. ...
6. Review all the
aspects time to time
An
Initial Public Offering (IPO) refers to the process of offering shares
of a private corporation to the public in a new stock issuance. Public share
issuance allows a company to raise capital from public investors. ...
Meanwhile, it also allows public investors to participate in the offering In an
IPO, an unlisted company issues fresh shares and goes public. In
a follow-on public offer (FPO), an already listed company issues fresh
shares to new investors or existing shareholders. ... But OFS, as
previously mentioned, is for diluting promoter stake in a listed company. No
new shares are created.
Market
Capitalisation: Large-cap
companies have a market cap of Rs 20,000 crore or more. Meanwhile, the
market cap of mid-cap companies is between Rs 5,000 crore
and less than Rs 20,000 crore. Small-cap companies have a market cap
of below Rs 5,000 crore.
Ø Small Cap. Below => 5000 Cr
Ø Mid Cap. 5000 Cr => less than 20000 Cr
Ø Large Cap. 20000 Cr => More .
Stock Picking: 7 Things You Must Know
About a Company
- Earnings
Growth. Check the net gain in income that a company has over time. ...
- Stability.
Every company is going to have periods where the stock loses
value. ...
- Relative
Strength in Industry. Take a look at the company's industry overall. ...
- Debt-to-Equity
Ratio. ...
- Price-to-Earnings
Ratio. ...
- Management.
...
- Dividends
What
does fundamental mean in investing?
In
business and economics, fundamentals represent the primary characteristics
and financial data necessary to determine the stability and health of an asset.
... For businesses, information such as profitability, revenue, assets,
liabilities, and growth potential are considered fundamentals.
How do I choose stocks like Warren
Buffett?
Here's how you can build a stock
portfolio using the Oracle of Omaha's investing principles.
1. Invest in what you
know.
2. Learn the basics of
value investing.
3. Identify cheap stocks.
4. Find businesses that
will stand the test of time.
5. Invest in good
management.
6. Be aggressive during
tough times.
7. Keep a long-term
mindset.
Fundamentals of Stock Fundamentals
- Cash
flow.
- Return
on assets.
- Conservative
gearing.
- History
of profit retention for funding future growth.
- The
soundness of capital management for the maximization of shareholder
earnings and returns.
What
is good PE ratio?
The
P/E ratio is calculated by dividing the market value price per share by the
company's earnings per share. Earnings per share (EPS) is the amount of a
company's profit allocated to each outstanding share of a company's common
stock, serving as an indicator of the company's financial health. If you were wondering
“Is a high PE ratio good?”, the short answer is “no”. The higher the P/E
ratio, the more you are paying for each rupees of earnings. ... The market
average P/E ratio currently ranges from 20-25, so a higher PE above that could
be considered bad, while a lower PE ratio could be considered better. The
average P/E for the S&P 500 has historically ranged from 13 to 15. For
example, a company with a current P/E of 25, above the S&P average, trades
at 25 times earnings. The high multiple indicates that investors expect higher
growth from the company compared to the overall market.
What
is a good PE ratio for stocks?
As
far as Nifty is concerned, it has traded in a PE range of 10 to 30
historically. Average PE of Nifty in the last 20 years was around 20. * So PEs
below 20 may provide good investment opportunities; lower the PE below 20, more
attractive the investment potential.
The
P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is
undervalued or overvalued — and generally speaking, the lower the P/E ratio
is, the better it is for the business and for potential investors
What
if PE ratio is negative?
A
negative P/E ratio means the company has negative earnings or is losing
money. ... However, companies that consistently show a negative P/E ratio
are not generating sufficient profit and run the risk of bankruptcy. A negative
P/E may not be reported
How
is PB ratio calculated?
The price-to-book ratio (P/B) is calculated
by dividing a company's market capitalization by its book value of equity as
of the latest reporting period. Alternatively, the P/B ratio can be
calculated by dividing the latest closing share price of the company by its
most recent book value per share.
What
is a good PB ratio?
The
price-to-book (P/B) ratio has been favored by value investors for decades and
is widely used by market analysts. Traditionally, any value under 1.0 is
considered a good P/B value, indicating a potentially undervalued stock.
However, value investors often consider stocks with a P/B value under 3.
Why
bullish and bearish?
These
are the two words which represents the trends of stock
market.
In share market if prices tend to be moving upward then
you
can say that market is Bullish, similarly if price are moving
downward
then it will be called Bearish. These two are taken
from
animals Bull and Bear. There is a lot of confusion about why
Bullish
and Bearish is used to represents the trend of market but
people
are using these terms before a long time.
Bullish Trades (Bullish Market): Bullish trades means you are
going
to long in the market means you are going to buy.
Bearish Trades (Bearish Market): Bearish trades means you are
going to
short in the market means you are going to sell.
What
is trading?
Trading
is the practice of buying and selling assets over a short-term
period.
Assets here refer to any financial security, commodity, or
currency
that an economic agent purchased. Market participants
that
practice trading are referred to as traders. Trading is distinct from
investing. Investing refers to the practice of purchasing assets with the
objective of gradually growing wealth from the asset over a period of time. The
market participant may purchase a range of assets, and hold the portfolio of
assets over a period of time. While the price of the assets in the portfolio
may fluctuate over time, the goal of the economic agent is to ride out the short-term
price fluctuations and gradually earn a positive return over a period of time.
Market participants that engage in the practice of investing are typically
referred to as investors. While investors seek to earn a return, perhaps with a
range of 5% to 15%, over a year, traders seek to make such returns over a much
shorter time period, ranging from a day to a few weeks. Traders try to take advantage
of short-term price fluctuations in assets. When they execute some of these
assets may include stocks, bonds, mutual funds, exchange traded funds and other
investment instruments. A portfolio is a group of assets. The return is the
profit from an asset. It is gain (loss) from price increases (decreases) plus
the gains from dividends if any are paid. Traders can be categorized basis upon
their style of trading. The next section will explore different trading styles.
Trading styles
Trading
styles may be categorized into the following:
·
Position trading
·
Swing trading
·
Intraday trading
· Scalping
·
Position trading
: Position trading is where the position is held by the economic agent
for several weeks to several months. Position traders first try to identify
trends in the price of assets. If they expect a bullish trend, then they would
go long on the asset. If they detect a bearish trend, they may short sell the
asset. Position traders may not necessarily try to forecast the future prices
of the asset, rather they try to ride the ‘wave’ of the trend which has
been firmly established, and benefit from the overall movement of a
stock in a market. Position traders typically exit a position when the
trend breaks.
Swing trading: Swing
trading is where a market participant holds a position for
a
few days, to a few weeks. Once the trader holds more than few
weeks,
it is called position trading. Swing trading is slower paced
than
day trading since the time frame for holding trades is longer.
It
is very important that a swing trader have a trading strategy,
as
stocks will be moving up and down, but they will not be always
available to
constantly monitor the market like a day trader.
Intraday trading:
Intraday trading refers to the practice of buying and selling assets in the
same day. Positions are not held overnight. All positions are closed within the
same day. Intraday traders try to make profits by exploiting the volatility in
an asset price in a day. Like scalpers, Intraday traders profit by moving a
large volume of stocks. Intraday traders’ trading interval is the active hours
of a trading day, whereas scalpers’ trading intervals range from a few seconds to
a few minutes Traders select their trading style based upon: the size of their trading
account; their level of experience; the amount of time they are willing to
dedicate to trading; and their risk tolerance.
Scalping :
Scalping refers to where traders’ long (or short) assets, hold them for a few
seconds or minutes then close the position. Scalpers try to exploit small moves
in price by trading large volumes of the asset over a very short period of
time. Scalpers try to take
advantage of the volatility in the market.
Fundamental
Analysis (FA) is a holistic approach to study a business.
When
an investor wishes to invest in a business for the long term
(say
3 – 5 years) it becomes extremely essential to understand the
business
from various perspectives. It is critical for an investor
to
separate the daily short term noise in the stock prices and
concentrate
on the underlying business performance. Over the long
term,
the stock prices of a fundamentally strong company tend to
appreciate,
thereby creating wealth for its investors.
Fundamental
analysis focuses on studying all the financial ,
macro
and micro-economic factors that can affect the value of
a
security. Macroeconomic factors include factors like industrial
conditions
, government policies , business trade cycles etc, whereas
micro-economic
factors include the performance of a company , its
competitors
, revenues etc.
Order Types
An
order can be for intraday or positional trade. In intraday,
the
positions are squared off within the same trading session
whereas
in positional trading, either delivery is taken or it is car
ried
forward to a later date (Futures and Options). Let us discuss
about
Marker order and also other Types of trading orders:
The
following are the types of trading orders:
Market Order : Market
Order is an order to buy or sell a security at the best price at the
trading hours of the market that means if the order to buy or sell is entered
then the system will execute the orders with best prices which are
available in the market. The trader or investor do not have control on
the price in the market order.
buy
100 shares of TCS, It will match this order with lowest offer
price
available and your trade will be executed.
There
can be little difference between the price at which the
order
gets executed and the price we are seeing on our screen as
the
price we see on the watchlist is the last price at which a
transaction
took place.
Limit Order : Limit
order is a type of order in which the trader can set a price to either
buy or sell a security. In limit order the trader can set the price
unlike market order in which the trader doesn’t have control over price.
Stop-Loss Order : Stop-Loss
order is an order in which a trader can limit his or her losses through
exiting a trade if a particular price is reached. By placing a stop-loss
order, one can reduce losses if the price goes against them. When a
trader places a buy order, he is expecting that the price will rise to
earn a profit. But instead of the price rising, the price may fall.
Therefore To avoid high losses he can place a stop-loss order at a price
below the buy price.
Example:
A
trader places a buy order:
Share
price = Rs. 1600
Stop
loss at Rs. 1500
He
expects the share price to go higher, to earn profit. In case
the
price falls below Rs. 1500, say it falls to Rs. 1450.The trader
will
book a loss of Rs. 100 per share (1600 – 1500) and exit the
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