Stock Market Related Terms

8/14/2019 Stock Market Related Terms

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Sensex

It consists of the 30 largest and mostactively traded stocks, representative ofvarious sectors, on the Bombay Stock

Exchange. These companies account for around one-

fifth of the market capitalization of theBSE.

The base value of the sensex is 100 onApril 1, 1979, and the base year of BSE-SENSEX is 1978-79


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Launched on full market capitalizationmethod and from September 01, 2003,calculation method shifted to free-float

market capitalization. The free-float method, therefore, does

not include restricted stocks, such as

those held by promoters, governmentand institutional investors


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TOP 10 companies(M.cap)


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Diff index on BSE


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Some more terms..

Bull run

Bear market

Short selling Beta of a stock


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ADR(Indirect method)

An American Depositary Receipt (orADR) represents ownership in theshares of a non-U.S. company and

trades in U.S. financial markets.ADRs enable U.S. investors to buyshares in foreign companies without

the hazards or inconveniences of cross-border & cross-currency transactions.

First introduced by the investment

house of JP Morgan in 1927


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Each ADR is issued by a U.S. depositary bank

The price of an ADR often tracks the price ofthe foreign stock in its home market,adjusted for the ratio of ADRs to foreigncompany shares

A United States bank or investmentinstitution places a certain amount of stockof a foreign company into its vaults - the"depositary" part of the name - then allowsinvestors to buy shares in that collection ofstocks, priced in US dollars.


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ADRs carry prices in US dollars, pay dividends in USdollars

JPMorgan, Citibank, Deutsche Bank and the Bank ofNew York Mellon

Example- ICICI bank ADR, INFOSYS ADR, MTNL ADR

Satyam ADR went down by 90% after disclosure


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GDR

A Global Depository Receipt is acertificate issued by a depositorybank(US), which purchases shares of

foreign companies and deposits it onthe account.

Global Depository Receipts facilitate

trade of shares, and are commonlyused to invest in companies fromdeveloping or emerging markets


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Contd..

GDRs are often listed inthe Luxembourg Stock Exchange andin the London Stock Exchange, where

they are traded on the InternationalOrder Book (IOB)

Normally 1 GDR = 10 Shares, but notalways


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What is the differencebetween ADR and GDR?

The only difference is the location wherethey are traded.

If the depository receipt is traded in the

United States of America (USA), it is calledan

American Depository Receipt, or an ADR.

If the depository receipt is traded in acountry other than USA, it is called a GlobalDepository Receipt, or a GDR.


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QIP

Qualified institutional placement (QIP) is a capitalraising tool, whereby a listed company can issueequity shares, fully and partly convertibledebentures, or any securities other than warrants,

which are convertible into equity shares, to aqualified institutional buyer (QIB).

Apart from preferential allotment, this is the onlyother speedy method of private placement for

companies to raise money.


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QIP contd..

It scores over other methods, as it doesnot involve many of the commonprocedural requirements, such as the

submission of pre-issue filings to themarket regulator.

To enable listed companies raise moneyfrom domestic markets in a short span oftime, market regulator Sebi introducedthe concept of QIP in 2006.


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QIB

Public financial institution

Scheduled commercial banks;

Mutual funds;

Foreign institutional investor registeredwith SEBI;

Foreign Venture capital investors registered withSEBI.

Insurance Companies registered with theInsurance Regulatory and Development Authority(IRDA).

Provident Funds with minimum corpus of Rs.25crores

Pension Funds with minimum corpus of Rs. 25crores


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FCCB

A type of convertible bond issued in a currencydifferent than the issuer's domestic currency.

In other words, the money being raised by the issuingcompany is in the form of a foreign currency.

A convertible bond is a mix between a debt andequity instrument.

It acts like a bond by making regular coupon andprincipal payments, but these bonds also give thebondholder the option to convert the bond into stock.


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Contd

While companies whose FCCBs mature two-three years down the line can expect themarkets to rebound, others such as Wockhardt,whose FCCBs worth $110 million (Rs 517 crore)

mature in October 2009 do not have the luxuryof time.

Its shares now trade at Rs 104 as against itsFCCB conversion price of Rs 486, virtually

ruling out the possibility of conversion


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Generally the conversion to equity takes placeafter completion of the project for which thefunds are raised through the FCCB route

The conversion prices for most of the FCCBs were

agreed upon years back when the market wasexperiencing a bull-run. As a result of the steepfall in share prices, the rates are not attractiveenough for investors to exercise the conversion.Hence the issuing companies have to find ways to

finance the repayment of these bonds.


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Why company issue FCCB?

It may appear to be more stable andpredictable than their domesticcurrency

Companies can use the process tobreak into foreign markets


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Pledged shares

If you wish to take a loan from a Bankagainst the security of your physicalshare, the certificate must be physicallylodged with the Bank. This action is calleda Pledge..

Most companies have pledged theirshares as collateral to raise workingcapital or a term loan, to increase theirholding or to fund an acquisition as amultinational had done to buy an Indiancompany


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Contd

If the companys share price goes down belowa certain level, the company will have tomake immediate payment in whole or part, orpledge more shares. If the company cannot

do this, the bank will sell the shares andrecover that much money.

This is why usually only 50-60% of sharevalue is given as loan against securities


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Pledged shares contd Capital markets regulator Securities and

Exchange Board of India (Sebi) has made itmandatory for promoters to disclose detailsof shares pledged by them in their listedentities

Aban Offshore promoters pledged 30.8 lakhshares representing 8.14 per cent of thevalue of the total paid-up equity capital.

Why investors should be


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Why investors should becareful with promoter

pledging? In Bear market, stocks sometimessuddenly lose even 50% of value in fewsessions. Lenders may ask promoters

to cover margins by either payingmoney or pledging more shares.

If promoters failed to do so, lenders

resort to selling of shares in the openmarket which lead to


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Hedge funds


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Hedge funds contd..

Estimated to be a $1 trillion industry andgrowing at about 20% per year withapproximately 8350 active hedge funds.

Includes a variety of investment strategies,some of which use leverage and derivativeswhile others are more conservative and employlittle or no leverage. Many hedge fundstrategies seek to reduce market riskspecifically by shorting equities or through theuse of derivatives.


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Contd.

Many hedge fund strategies have the ability togenerate positive returns in both rising andfalling equity and bond markets.

Inclusion of hedge funds in a balanced portfolio

reduces overall portfolio risk and volatility andincreases returns.

Huge variety of hedge fund investment styles many uncorrelated with each other providesinvestors with a wide choice of hedge fund

strategies to meet their investment objectives.


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Contd

What are hedge funds? These funds, like mutualfunds, collect money from investors, and use themoney to buy stocks and bonds

A hedge fund may take long positions in certain

stocks, and short positions in certain other stockssuch that their portfolio beta is close to zero. Abeta close to zero means that the portfolio willremain relatively unchanged due to the broad

market movement. Such a portfolio will primarilychange if the stocks move more than the broadmarket.


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Contd

consider, for instance, Hero Honda and BajajAuto. The hedge fund may buy Bajaj Autoand short Hero Honda, such that the portfoliobeta is close to zero. Suppose Bajaj Automoves up by 10 per cent, and Hero Hondaand the broad market move up by 7 per cent.

The fund's net gain is 3 per cent.

The primary aim of most hedge funds is toreduce volatility and risk while attempting to

preserve capital and deliver positive returnsunder all market conditions.


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High net worth individual

A high net worth individual (HNWI) isa person with a high net worth Inthe private banking business, these

individuals typically are defined ashaving investable assets (financialassets not including primary

residence) in excess of US$1 million ultra-HNWIs as those who hold at

least US$30 million in financial


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CRR

Cash Reserve Ratio is a bankregulation that sets the minimumreserves each bank must hold to

customer deposits and notes Currently it is 5%

It cant go below 3 as per RBI

guidelines. 100 basis point reduction infuses 40000

crore into the market


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Statutory Liquidity Ratio

SLR (Statutory Liquidity Ratio) is theamount a commercial bank needs tomaintain in the form of cash, or gold orgovt. approved securities (Bonds) beforeproviding credit to its customers. SLR rateis determined and maintained by the RBI(Reserve Bank of India) in order to controlthe expansion of bank credit.

SLR at present is 24


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Repo rate and reverse reporate

At present repo rate -4.75

Whenever the banks have any shortage offunds they can borrow it from RBI. Repo

rate is the rate at which our banks borrowrupees from RBI. A reduction in the reporate will help banks to get money at acheaper rate. When the repo rate

increases borrowing from RBI becomesmore expensive


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Reverse repo rate

Reverse Repo rate is the rate atwhich Reserve Bank of India (RBI)borrows money from banks. Banks

are always happy to lend money toRBI since their money are in safehands with a good interest

At present Reverse repo rate- 3.25


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Commodity market

Headquartered in the financial capital of India,Mumbai, Multi Commodity Exchange of India Ltd(www.mcxindia.com) is a demutualisednationwide electronic commodity futures

exchange set up by Financial Technologies (India)Ltd. with permanent recognition from Governmentof India for facilitating online trading, clearing &settlement operations for futures market across

the country


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Monday to Friday 10.00am to 5.00pm All commodities

launched by MCX

Monday to Friday 5.00pm to 11. 55pm

(Winter) All commodities except agri

5.00pm to 11.30pm (Summer)commodities and Sponge Iron.

Saturday 10.00am to 2.00pm Allcommodities launched by MCX


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Long Position: Taking a long positionis buying a contract.

Short Position: Taking a shortposition is selling a contract.


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Shareholders of MCX

Key shareholders of MCX areFinancial Technologies (India) Ltd.,State Bank of India, NABARD, NSE,

HDFC Bank, State Bank of Indore,State Bank of Hyderabad, State Bankof Saurashtra, SBI Life Insurance Co.

Ltd., Union Bank of India, Bank OfIndia, Bank Of Baroda, Canara Bank,Corporation Bank


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Participatory notes

PNs are instruments issued by registered foreigninstitutional investors to overseas investors,who wish to invest in the Indian stock marketswithout registering themselves with the marketregulator, the Securities and Exchange Board ofIndia.

Hedge funds, which invest through participatorynotes, borrow money cheaply from Westernmarkets and invest these funds into stocks inemerging markets.


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Unit Linked Insurance

Polices A ULIP is a life insurance policy

which provides a combination of riskcover and investment. The dynamicsof the capital market have a directbearing on the performance of the

ULIPs.


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Contd..

In ULIPs, a part of the investmentgoes towards providing you lifecover. The residual portion of

the ULIP is invested in a fund whichin turn invests in stocks or bonds; thevalue of investments alters with the

performance of the underlying fundopted by you.


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Contd

Simply put, ULIPs are structured insuch that the protection element andthe savings element are

distinguishable, and hence managedaccording to your specific needs. Inthis way, the ULIP plans offers

unprecedented flexibility andtransparency.


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Benefits with ULIPS

Flexibility

Transparency Goal Based Savings

Tax Benefits

Is investment return


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Is investment returnguaranteed in ULIPs?

Investment returns from ULIP may not beguaranteed. the investment risk in investmentportfolio is borne by the policy holder.

Depending upon the performance of the unitlinked fund(s) chosen; the policy holder mayachieve gains or losses on his/her investments.It should also be noted that the past returns of

a fund are not necessarily indicative of thefuture performance of the fund.


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Treasury bills

Treasury Bills are money market instrumentsto finance the short term requirements of theGovernment of India. These are discountedsecurities and thus are issued at a discount toface value. The return to the investor is thedifference between the maturity value andissue price

Minimum Amount Of Bids for treasury bills are

to be made for a minimum amount of Rs25000/- only and in multiples thereof


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Govt. and Corporate bonds

A bond, whether issued by agovernment or a corporation, has aspecific maturity date, which can

range from a few days to 20-30 yearsor even more.

Bonds have a fixed face value, which

is the amount to be returned to theinvestor upon maturity of the bond.


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During this period, the investors receive a

regular payment of interest, semi-annuallyor annually, which is calculated as a certainpercentage of the face value and know as a'coupon payment

Banks are the largest investors in the bondmarket. In the low-interest scenario thatprevailed, it made more sense for banks toinvest in government bonds than to give out

loans.


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Currency market Its trading volumes,($4 trillion)

The extreme liquidity of the market

Its long trading hours: 24 hours a dayexcept on weekends

The low margins of profit compared withother markets of fixed income (butprofits can be high due to very large

trading volumes) There are three exchanges which trade

in currency in India NSE, MCX and BSE,with a 4th exchange,


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Yes, to a certain extent the forex marketis a bit more complex because rather thancompany related news, economic factors

affect this market more Moreover, you have to deal in pairs when

you trade in forex you have to buy acertain currency and at the same time sell

another currency, which people findcomplex


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This market is also very transparent and there isno insider information about currency market foranybody to take advantage of.

This market is greatly influenced by macro and

micro economic factors of a country. Economicfactors such as GDP, interest rates, employmentnews, FII and FDI investments, weatherinformation, crop information and consumer

confidence among others have a great impact onthe currency market.


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Trading on exchanges to hedgecurrency risk is particularly beneficialto SMEs because the lot size here is

only USD 1000 FX transactions typically involve one

party purchasing a quantity of one

currency in exchange for paying aquantity of another


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According to the Bank for InternationalSettlements, average daily turnover inglobal foreign exchange markets is

estimated at $3.98 trillion Traders include large banks, central

banks,currency speculators,corporations, govern

ments, and other financial institutions


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Private equities are generally illiquid and

thought of as a long-term investment. Privateequity investments are not subject to the samehigh level of government regulation as stockofferings to the general public.

Capital for private equity is raised primarilyfrom institutional investors.

As they are not listed on an exchange, anyinvestor wishing to sell securities in private

companies must find a buyer in the absence ofa marketplace


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Venture capital

Refers to equity investments made,typically in less mature companies,for the launch, early development, or

expansion of a business. Ventureinvestment is most often found in theapplication of new technology, new

marketing concepts and newproducts that have yet to be proven


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Contd..

Venture capital comes from institutionalinvestors and high net worth individuals and ispooled together by dedicated investmentfirms

In exchange for the high risk that venturecapitalists assume by investing in smaller andless mature companies, venture capitalistsusually get significant control over companydecisions,


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Contd.

Young companies wishing to raise venturecapital require a combination of extremelyrare yet sought after qualities, such asinnovative technology, potential for rapid

growth, a well-developed business model,and an impressive management team. VCstypically reject 98% of opportunitiespresented to them, reflecting the rarity of this

combination.


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Large,Mid & Small cap

Mid caps-A company with a marketcapitalization between $2 and $10 billion(mid cap)

Large caps-A term used by the investmentcommunity to refer to companies with amarket capitalization value of more than$10 billion. Large cap is an abbreviation of

the term "large market capitalization likeinfosys,


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Blue chip-A nationally recognized, well-established and financially sound company.Blue chips generally sell high-quality, widelyaccepted products and services. Blue chip

companies are known to weather downturnsand operate profitably in the face of adverseeconomic conditions, which helps tocontribute to their long record of stable and

reliable growth


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Contd

Small cap-The definition of small capcan vary among brokerages, butgenerally it is a company with a

market capitalization of between$300 million and $2 billion.

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Stock Market Related Terms

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