CHAPTER 3 : Stock Fundamentals

A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. It is also known as "shares" or "equity".

Grouping of Shares:

Stock exchanges have divided the stocks in several groups on the basis of their market capitalization, compliance, volatility etc.

‘A' Category shares - The top 200 shares on the basis of merit as prescribed by BSE

‘B' Category shares - The remaining shares other than A, Z and T category shares

'T' Category shares - Also known as Trade to Trade (T 2 T) category shares; are those shares which cannot be traded on an intra-day Basis and only a delivery trade can be done in the Equity cash segment

'Z' Category shares - Those shares which have failed to comply with listing requirements, failed to resolve investor complaints or have not provided for their dematerialization of shares to CDSL, NSDL

Trading Volume - In capital markets, volume, or trading volume, is the amount of a security (or a given set of securities, or an entire market) that was traded during a given period of time.

Today's Low - The lowest price at which a stock trades over the course of a trading day is known as Today’s Low.

Today's High - The highest price at which a stock trades over the course of a trading day is known as Today’s High.

Opening Price - The price at which trading on the securities exchange starts on a particular day, is known as the Opening Price for that day.

Last Traded Price (LTP) – The last price, at which a stock traded at the end of a trading day, is known as the Last Traded Price (LTP).

Closing Price - The closing price of a stock is [not the LTP (Last Traded Price) of the stock but] the average price between 03:00 to 03:30 pm. This calculation takes place between 03:30 to 03:40 pm daily.

Gap-up Opening - If the opening price of a Stock/Index is more than the previous Day’s closing prices, it is known as a Gap-up Opening.

Gap-down Opening - If the opening price of a Stock/ Index is less than the previous Day’s closing prices, it is known as a Gap-down opening.

Tick size - The minimum movement allowed for a share on either side is called the Tick Size. The tick size in Equity markets is 0.05.

Dividend - A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders is known as Dividend. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.

Circuit Breakers:

In order to prevent HNI or Super HNI traders take undue advantage of their money power and to reduce the chances of artificial price manipulations, exchanges have put in a price band/ market protection limit or circuit limits on every stock on the exchanges which is calculated on the last closing price of the stock on a daily basis. Daily price bands are applicable on securities as below -

Daily price bands of 5% (either way), daily price bands of 10% (either way) and price bands of 20% (either way). No price bands are applicable on scripts on which derivative (F&O) products are available or scripts included in indices on which derivative products are available.

Ex: The closing price of a stock on Friday was 500, the price band currently applicable to the stock is 10%, the upper circuit limit for the stock would be 550 (110% of 500) and lower limit would be 450 (90% of 500).

Circuit_limits on Nifty/ Sensex :

The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.

• In case of a 10% movement of either of these indices, there would be a one-hour market halt if the movement takes place before 01:00 pm.
• If the 10% trigger is reached on or after 01:00 pm but before 02:30 pm, there would be trading halt for ½ hour.
• if the 10% trigger is reached on or after 02:30 pm, there will be no trading halt at the 10% level and market shall continue trading.
• In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes place before 01:00 pm.
• If the 15% trigger is reached on or after 01:00 pm but before 02:00 pm, there shall be a one hour halt.
• If the 15% trigger is reached on or after 02:00 pm, the trading shall halt for remainder of the day.
• In case of a 20% movement of the index, trading shall be halted for the remainder of the day.

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