Indian Stock Markets

Indian Stock Markets

W A ~stock is a share in the ownership oI a company.
W A stock represents a claim on the company's assets and earnings.
W Acquiring more stocks, once ownership stake in the company becomes greater.
W Being a shareholder oI a public company does not mean you have a say in the
day-to-day running oI the business but to only elect the BOD oI the company.
W Company issues stock because it needs to "raise money' Ior which it can either
borrow it Irom somebody or raise it by selling part oI the company, which is
known as issuing stock.
W Stock markets reIer to a market place where investors can buy and sell stocks.
,t is Sensex ?
W %he Sensex & Nifty is an "index".
W ndex - An index is basically an indicator. It gives you a general idea about
whether most oI the stocks have gone up or most oI the stocks have gone
down.
W %he Sensex is an indicator oI all the major companies oI the BSE.
W II the Sensex goes up, it means that the prices oI the stocks oI most oI the
major companies on the BSE have gone up
W %he Sensex is the oldest index in the country. It was born in 1986.
W SENSEX is an index oI 30 companies, 30 stocks tells us how the market is
Iaring.
,t is Nifty
W NSE : National Stock Exchange has an index called the NiIty (oIIicially
called S&P CNX NiIty). %his name can be credited to the 50 stocks that
comprise its index.
W II the NiIty goes up, it means that the prices oI the stocks oI most oI the
major companies on the NSE have gone up
o selects tese stocks?
W %hey are selected by the Index Committee.
W %his committee consists oI all sorts oI individuals including academicians,
mutual Iund managers, Iinance journalists, independent governing board
members and other participants in the Iinancial markets.
Synonyms
W Indian Stock Market is one oI the oldest in Asia and its history dates back
to nearly 200 years ago.
W By 1830's business on corporate stocks and shares in Bank and Cotton
presses took place in Bombay.
W %he 1850's witnessed a rapid development oI commercial enterprise and
brokerage business attracted many men into the Iield.
W 1850's - the Iirst stock exchange in India was established when the East
India Company created and developed a "community" oI brokers.
W By 1860, there were already 60 broker members oI the exchange.
W Near 1874 as a result oI rapidly expanding share trading industry, these
brokers gathered regularly at a well-known location which is now known as
Dalal Street) in order to conduct their business
%ypes of s,7es
A company may have many diIIerent types oI shares that come
with diIIerent conditions and rights.
%here are Iour main types oI shares:
1. Ordinary shares
2. PreIerence shares
3. Convertible shares
4. Redeemable shares
Ordinary shares & their Ieatures
%ypes oI shares..cont.
Ordinary shares are standard shares with no special rights or restrictions. %hey
have the potential to give the highest Iinancial gains, but also have the highest
risk. Ordinary shareholders are the last to be paid iI the company is wound up.
(1) Limited Liability
Ordinary shareholders have limited liability, in other words, their liability is
limited to those shares. %hey cannot be Iorced to pay anything out oI their own
money in the event oI bankruptcy. %hey are Iully protected against any
Iinancial obligations incurred by the organizations.
(2) Liquidation Rights
II a company goes bankrupt and liquidates all its assets, the ordinary
shareholders have the right to receive their share oI sale proceeds. However
they are the last to receive money aIter the creditors, bondholders and
preIerence shareholders are paid.
(3) Preemptive Rights
II a company plans to issue new shares, existing shareholders have the
rights to subscribe to new shares, oIten at lower prices, beIore they are
issued to the public.
(4) Voting Rights
Ordinary shareholders have the rights to vote in general meeting oI the
company. Each share carries the right to one vote. Shareholders can
exercise control by electing the board members, who will oversee the
major decisions and policies implemented by the management.
(5) Dividend Payments
Ordinary shareholders are entitled to a share oI the proIits in the Iorm
oI dividend. However the amount oI dividend payments is not based on
a Iixed percentage rate, it is recommended and decided by the board oI
directors.
PreIerence shares typically carry a right that gives the holder preIerential treatment when
annual dividends are distributed to shareholders. Shares in this category receive a Iixed
dividend, which means that a shareholder would not beneIit Irom an increase in the business'
proIits. However, usually they have rights to their dividend ahead oI ordinary shareholders iI
the business is in trouble.
1) PreIerence Shareholders are entitled to a Iixed rate oI dividend and thereIore they are
also known as Iixed income securities. %he dividend can be speciIied as a percentage oI
the nominal value or as a Iixed amount. %hey will receive a Iixed rate
oI dividend whether the company has made a huge proIit or even a loss.
2) %his is diIIerent Irom ordinary shares whereby the ordinary dividend will only be paid
iI the company makes a proIit and declares a dividend.
3) PreIerence shares are comparatively less risky Ior investors. As such, the investors do
not generally entitled to vote in company matters.
4) PreIerence Shareholders are given preIerence in paying the dividend in case the
company is wound up. In other words, they will receive the money Iirst and their
accounts will be settled beIore that oI the ordinary shareholders.
PreIerence shares & their Ieatures
%ypes oI shares..cont.
%ypes oI PreIerence Shares
1) Cumulative and Non cumulative shares:
Cumulative preIerence shares give the right to the preIerence shareholders to
claim the dividends that are not paid in the previous year and they are paid in
preIerence to ordinary dividends.
For non-cumulative or simple preIerence shares, any dividends that are unpaid
or accrued in the previous year cannot be carried Iorward to the subsequent
year or years in respect oI that year, and that is considered lost by the
shareholders.
2) Redeemable and Non-redeemable:
A redeemable preIerence share is issued on the terms where they are liable to
be redeemed at either a Iixed time, or the company's option or at the
shareholders option. In other words, the company can buy
back preIerence shares at an agreed time and price.
Non-redeemable or Irredeemable preIerence shares need not be repaid by the
company except on winding up oI the company. %he company is not oIIering
to buy back the securities.
%ypes oI PreIerence Shares...Cont.
3) Convertible and Non-convertible shares:
1. Convertible PreIerence Shares are corporate Iixed-income securities
that the shareholders have the option oI converting them into a
certain number oI ordinary shares aIter a predetermined time span or on
a speciIic date.
2. Non-Convertible PreIerence Shares are those which do not have the
option oI their conversion into the equity shares.
4) Participating and Non-participating:
1. Participating PreIerence Shares are entitled to a Iixed preIerential
dividend and have the right to participate Iurther in the surplus proIits
aIter payment oI certain rate oI dividend on equity shares.
2. A non-participating share is entitled to Iixed rate oI dividend only.
%hey do not have such rights to participate or claim Ior a part in the
surplus proIits oI a company.
W Sum more Lhlng Lo be added on 1ypes of share
W leaLure of preferences shares
1 reference share have been prlorlLy over paymenL of dlvldend and
repaymenL of caplLal
2 references shares do noL hold voLlng rlghLs
a CumulaLlve preference shares Lhese shares have been a rlghL Lo clalm
dlvldend for Lhose years also for whlch Lhere were no proflLs
b non cumulaLlng preference shares Lhe holders of Lhese share have no
clalm for Lhe arrears of dlvldend 1hey are pald a dlvldend lf Lhere are
sufflclenL proflLs
c 8edeemable preference share nelLher Lhe company can reLurn Lhe
share caplLal nor Lhe shareholder can demand lLs repaymenL
d lrredeemable preference shares Lhe shares whlch cannoL be
redeemed unless Lhe company ls llquldaLed are known as lrredeemable
preference shares