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.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

Play It The Jhunjhunwala Way!!

Rakesh Jhunjhunwala, born 5^th July 1960, a qualified Chartered Accountant, manages his own portfolio as a partner in his asset management firm, Rare Enterprises.

He made his first big profit of Rs 0.5 million in 1986 when he sold 5,000 shares of Tata Tea at a price of Rs 143 which he had purchased for Rs 43 a share just 3 months prior. Between 1986 and 1989 he earned Rs 2–2.5 million. His first major successful bet was iron mining company Sesa Goa (now Sesa Sterlite). He bought 400,000 shares of Sesa Goa in forward trading, worth Rs 10 million and sold about 2-250,000 shares at Rs 60–65 and another 100,000 at Rs 150–175. The price rose to Rs 2200 and he sold some shares.

Jhunjhunwala is the chairman of Aptech Limited and Hungama Digital Entertainment Pvt. Ltd. and sits on the board of directors of various Indian companies such as Prime Focus Limited, Geojit BNP Paribas Financial Services Ltd., Bilcare Limited, Praj Industries Limited, Provogue India Ltd., Concord Biotech Limited, Innovasynth Technologies (I) Limited, Mid Day Multimedia Limited, Nagarjuna Construction Company Limited, Viceroy Hotels Limited and Tops Security Limited.

Below is the list of stocks held as of October 2014 by Rakesh Jhunjhunwala, Rekha Jhunjhunwala or Rare Enterprise Equity:

Titan Company, Lupin, CRISIL, Rallis India, Delta Corp, Aptech, Geometric, NCC, Praj Industries, Firstsource Solutions, Escorts, TV18 Broadcast, Kesoram Industries, Pipavav Defense and Offshore, Prime Focus, Geojit BNP Paribas Financial, Anant Raj, Sterling Holiday Resorts, SpiceJet, A2Z Maintenance and Engineering, DB Realty, Viceroy Hotels, Autoline Industries, Bilcare, Ion Exchange (India), Hindustan Oil Exploration Company, Mcnally Bharat Engineering, Prozone Capital Shopping Centres, and, Adinath Exim Resources.

About DreamGains

DreamGains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.

Stocks vs Futures

There are plenty of differences between the cash segment of the capital market and the futures segment. Here are few of the easy to understand differences.

1) Ownership

When you buy shares in the cash market and take delivery, you are the owner of these shares or you are a shareholder, until you sell the shares. You can never be a shareholder when you trade in the derivatives segment of the capital market.

2) Holding period

When you buy shares in the cash segment, you can hold the shares for life. This is not true in the case of the futures market, where you have to settle the contract within three months at the very maximum.

3) Dividends

When you buy shares in the cash segment, you normally take delivery and are a owner. Hence, you are entitled to dividends that companies pay. No such luck when you buy any derivatives contract.

4) Risk

Both, cash and futures markets pose risk, but the risk in the case of futures can be higher, because you have to settle the contract within a specified period and book losses. In the case of shares bought in the cash market, you can hold onto them for an indefinite period and can hence sell when prices are higher.

5) Investment objective differs

You buy a contract in the derivatives market to hedge risk or to speculate. Individuals buying shares in the cash market are investors.

6) Lots vs shares

In the derivatives segment you buy a lot, while in the cash segment you buy shares.

About DreamGains

Dreamgains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.