basics-of-broking-1225553342081370-9

7/31/2019 basics-of-broking-1225553342081370-9

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Basics of BrokingBy : Kaushal Mandalia

Associate Financial [email protected]/in/kaushalmandalia
mailto:[email protected]:[email protected]


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Basic Philosophy

Earn Spend Save

EarnSave &Invest

Spend

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Where do People Invest?

Debt Market

Bank FD

PPF

RBI Bonds

Post Office Schemes

Traditional Insurance

Fixed Maturity Plans

Equity Market

Direct Investment in Equity

Market

Mutual Funds

Unit Linked Plan

PMS

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What is Equity Market

Equity Market Share MarketShare = Share

In Business

Business earns

PROFITProfit is divided

Among shareholders

Profit =

Earning Per Share Equity Represents Portion of BUSINESS

(PROFIT) which is GROWING

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How to EARN From Equity Market

Equity RETURNS =

Price GAP (Capital Earnings) + Dividend

Selling Price Less Buying Price Share in Profit

If you Believe that Corporate Profits will grow

Rest is IRRELAVENT.

Advise Based Broking.

Minimize Loss, Maximize GainsPick fundamentally strong

Company based on Advise


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Traditional Business V/s Equity Market

Traditional Business

Bottom-line = Profit

Time, Energy and Money Needed

Large Capital Required

Exit Route is Long and difficult

Control on daily operation

required

Equity Market

Bottom-Line = Profit

Only Money Required. Norequirement of Time and Energy

Small Capital Required

Shortest Possible Exit Route

No Control Required. Best of the

Best Brains are doing that for

you.

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Bottom Line of Investment

Earning Savings

Fixed Depositin Bank @ 10%

Equity Market

Bank lends this money to

Businessman and earned

15% Interest

Money Finally Invested in

Business

Whether you invest inDebt Market or EquityMarket, Money flowsto Business Sectoronly.


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Learning.

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Equity Market Classification

Entry Route

Exit Route


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Who is Broker?

Broker is an intermediary who facilitates Entry or

Exit into Equity Market

They levy fees on Transactions (Buy or Sell)

which is called Brokerage.

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What is Stock Exchange

A Place where one can trade his/her Shares. Its a formal or

Organized BAZAAR.

Two Main Stock Exchanges

Bombay Stock Exchange (BSE)

National Stock Exchange (NSE)

National Stock Exchange is the Worlds Third Largest Stock

Exchange in terms of Number of Trades after NASDAQ and NYSE

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Electronic Trading

Eliminates the need of physical trading floors

Fully Automated. One can trade from anywhere.

Workstations are connected to stock exchanges central

computer via VSAT (Very Small Aperture Terminus)

The orders placed by brokers reach exchanges central computer

and matched electronically.

Completely Hassle FREE.

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What is INDEX?

Weighted Average of Selected Stock Price.

Measure of Market Trends.

Comprises stocks that have large liquidity and market

capitalization.

Two Main Index

BSEs Sensex and NSEs NIFTY

Other Examples

BSE Midcap, BSE Small Cap etc,

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ORDER Execution

Select a broker and enter into broker client agreement and fill client

registration form.

Get a trade confirmation through phone and ask for the contract note on the

end of the day.

Contract note describes the rate, date, time at which the trade is transacted

and brokerage rate.

Contract Note establishes a legally enforceable relationship between theclient and the member.

Client must receive contract note within 24 hours of trade execution.

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IMPORTANT TERMS

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Book Closure / Record Date

When shares of a joint stock company invariably change hands during

trading, identifying owner of share becomes difficult.

So when a company declares dividend (Share in Profits) there has to bea cut off date for such benefits to be transferred to the share holders.

This date is termed as Book Closure Date or RecordDate.

It is the date after which company will not handle any transfer of

shares request until the benefits are transferred.

Analogy :For E.g. a company policy says, Candidate joining before 15th Sept of the year are

qualified for Performance Appraisal to be conducted at the end of Financial Year.

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Book Closure Announcement

Source : Moneycontrol as on 31st October 2008


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No Delivery Period, Ex Dividend Date, Ex Date

No Delivery Period

Once company declares record date, Exchange set up No Delivery PeriodA time

during which only trading is permitted and all trades are settled after the period

gets over.

Ex Dividend Date

The date on or after which a security begins trading without the dividend included

in the contract price.

Ex Date

The first date of the No Delivery Period.

The buyers of the shares on or after Ex Date will not get any

benefits of Dividend or Bonus.


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Bonus Share

It is a free share of stock given to current shareholder in a

company, based on number of shares that the shareholder

already owns.

E.g Bonus 1:2 means for every one share holding by shareholder,

he/she gets two shares free.

It does not increase value of the company.


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Bonus Announcement



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Share Split

A Split is a book entry wherein the face value of the

share is altered to create Volume (Larger number of

shares) without calling fresh capital.

For E.g. if a company announce two way split, it means

that the share of a face value of Rs 10 is now having

face value of Rs 5. If you have one share of face value

10, now you have two shares of face value Rs 5 each.


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Split Announcement



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Buy Back

A process by which a company buys back its shares.

No of ways in which company can buy back

From existing Shareholders on proportionate basis

Thro tender offer from open market Thro Book Building Process

From Stock exchange or

From ODD lot holders.(Odd lot is any transaction less than 100 shares are

generally called Odd Lots)

A Company can not buy back thro negotiated deals on or off

stock exchange, through spot transaction or thro any private

arrangement, clearing and settlements.

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Pay in and Pay Out

Stock Exchange

SellerBuyer

Securities transferredto Exchange

Funds made availableto Exchange

Pay In Date

Funds transferredto Seller

Securities Transferredto Buyer

Pay In Date

Pay Out DatePay Out Date


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Short Selling

A Legal Trading Strategy.

Normal Process : First Buy and then Sale

Assumption : Price will go up in near future.

Short Selling : First Sell and then Buy.

Assumption : Price will go down in near future.

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Auction

Auction is conducted for those securities that members fall to deliver / short

deliver during pay-in

There are three factors which give rise to auction

Short Deliveries

Un-rectified Bad Deliveries

Un-rectified company obligations

The buy / sell auction for a capital market is managed thro auction market

If the shares are not bought at auction, i.e. if the shares are not offered forsale, exchange squares up the transaction as per SEBI guidelines. Square-up

happens at the highest price from the relevant trading period till the auction

day or at 20% above the last available closing price whichever is higher.

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Fundamental Analysis

Analysis of Historical Data.

Analyzing factual information like

Financial Statement

Management and Competitive Advantage

Industry Current Scenario and Future Outlook

Finding out Intrinsic (True) Value of Stock and analyzewhether stock is overpriced or underpriced.

Perfect Blend of Macro and Micro Analysis.

Recommended For Long Term Investment.


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Technical Analysis

In stock market, share price is fluctuating and resulting

in a TREND.

This TREND is predictable in NEAR FUTURE (If showing

any pre-determined pattern)

The analysis of Price Trend is called Technical Analysis.

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Example Technical Analysis

Source : Angel Technical Analysis research as on 30th October 2008

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Key Ratios

PE ratio

Market Value to Book Value Ratio

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PE Ratio

PE ratio = Price per Share /

Earning per Share

In other words, it indicates how

much money you need to

invest to get one rupee earning

per share.

Lower the ratio better the

investment proposition.

Reliance Industries Ltd

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Lowest PE Ratio Scripts

Company Name Last Price(Rs)

EPS(Rs)

PE Ratio

Southern Gas Lt 231.45 1090.22 0.21

Singer India 5.76 16.66 0.35

Bombay Oxygen 5371.55 10759 0.50

IFB Industries 20.05 24.29 0.83

Amtek India 34.90 30.92 1.13

CEAT 39.70 32.41 1.22


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Highest PE Ratio


EPS(Rs)

PE Ratio

KGN Industries 1573.75 0.74 2126

TCI Industries 1180.30 1.41 837.09

UTV Software 474.90 1.41 336.81

Fortis Health 59.60 0.20 298

IndiaNivesh 631.55 4.82 131.03

Reliance Natural 43.55 0.43 101.28


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Price to Book Value

This ratio is used to find whether stock is undervalued

or overvalued.

Ratio = Price of Share / Book Value of Share

Book Value = Net Worth.

If ratio 1, its

overvalued.

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Most Undervalued Stocks


Book Value(Rs)

PBV Ratio

MTNL 65.70 189.23 0.35

Allahbad Bank 48.70 117.47 0.41

Parshvnath 40.55 97.81 0.41

Bajaj Hind 45.25 101.43 0.45

Essar Shipping 33.50 72.08 0.46

Videocon Ind 120 243.14 0.49


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Most Overvalued Stocks


Book Value(Rs)

PBV Ratio

Asian Paints 956.75 96.80 9.88

Divis Lab 1096.65 135.03 8.12

ABB 535.65 76.06 7.04

NMDC 143.83 20.91 6.88

Glenmark 282.15 41.10 6.87

GlexoSmithKline 1070.35 160.67 6.66


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Demat - Meaning

Demat is an abbreviation of Dematerialization which is a process

whereby securities like shares, debentures are converted from

physical form to electronic form.

There are two depository participants

NSDL and CDSL

The Depository provides its services to investors through its

agents called Depository Participants (DPs).

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Arbitrage

Its an act of buying securities in One Market and

Selling in Another Market at Higher Price.

It takes advantage of a price differential existing

in the prices of the same commodity or security

in two or more different markets.

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IPO and Book Building

An IPO is an abbreviation for initial public offer. Its applicable

when any company issues shares for the first time to Retail

Investors and Financial Institutions.

Book Building process

A Process of Price Discovery thro Bids from Retail Investors and Financial

Institutions

Only Price Range is Provided. Allotment price is decided once book is

closed.

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Learning..

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INVESTORS PSYCHOLOGY

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A Small Complication

Equities are unique assets that investors feel

more comfortable buying at higher price and

selling at lower price.

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Investor psyche - wrong emotion dominates at the

wrong time

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WARREN BUFFET

When everyone is GREEDY you should beFEARFUL and when Everyone is FEARFUL You

should be GREEDY

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Sentiments V/s Business Efficiency..


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Long Term Earnings..

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Important Parameters for Investing in Equity Market

Set your Objective

Long Term or Short Term,

Dividend Earning or Taking advantage of Short Term Fluctuation

Diversify

Diversify among sectors and companies. Select 10 Different Stocks

Always Minimize Risk

Use STOP LOSS as feature to minimize losses

Avoid TIPS

Check Fundamentals and Technical

Check Key Ratios

Price to Book Value

PE Ratio [email protected]


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Landmark Study by Hood and Bee bower


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Thank You.

Visit www.linkedin.com/in/kaushalmandalia

http://kaushalmandalia.rediffiland.com
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