#Stock-Market  #Basic-of-Stock-Market  #Finance 

Topics Covered

  • Market Terminology: Stock opening definitions, Face Value, Topline, and Bottomline.
  • Market Participants: Understanding Investors (RII, HNI, DII, FII), Brokers, Promoters, and SEBI.
  • Structural Entities: The roles of Clearing Houses, Depositories, and Depository Participants (DPs).
  • Market Operations: Trading segments, T+2 settlement, Contract Notes, Stock Splits, and Bonus Issues.

1. Market Terminology

To understand stock market news and analysis, you need to be familiar with everyday financial terminology.

Stock Opening

The price at which a stock opens the trading day relative to its closing price the previous day dictates market sentiment.

  • Gap-Up Opening: The stock opens at a significantly higher price than yesterday's close, usually driven by positive after-market news.
  • Gap-Down Opening: The stock opens lower than yesterday's close, usually following negative news.
  • Unchanged (Unch): The opening price matches exactly with yesterday’s closing price.

Face Value & Financial Growth

  • Face Value (FV): This is the original, nominal price of the share at which promoters bought it when the company was incorporated (e.g., as a Private Limited). It is always a multiple of 1 (often ₹10 per share).
  • Topline Growth: Refers to a company’s total Turnover or total gross sales. When a company’s revenue increases, its topline grows.
  • Bottomline Growth: Refers to the company’s Profit After Tax (PAT). It is calculated by subtracting all expenses from the topline sales.

2. Market Participants

Members and Brokers

In the stock exchange ecosystem, Brokers are officially known as “Members.” Individual investors cannot go directly to the stock exchange; they must execute trades in the secondary market through these registered Members.

Types of Investors

Retail and institutional investors are categorized based on their investment footprint:

  • RII (Retail Individual Investors): Everyday individuals who apply for shares worth less than ₹2 Lakh in an IPO.
  • HNI (High Net-worth Individuals): Individuals making larger investments, applying for more than ₹2 Lakh in an IPO.
  • DII (Domestic Institutional Investors): Large Indian institutions investing heavily in the market (e.g., Banks, Mutual Funds, LIC).
  • FII / FPI (Foreign Institutional/Portfolio Investors): Global funds bringing foreign currency investments into the Indian market.

Promoters

Promoters are the founders and original visionaries who started the company.

  • Company Evolution: A business usually starts as a Private Ltd -> evolves to a Public Ltd -> and finally becomes a Listed Company on the stock exchange.
  • As the company grows from needing a few dozen shareholders to hundreds (e.g., crossing the 200/500 shareholder limit), it generally converts from Private to Public and ultimately releases an IPO to the general public to raise massive capital.

The Regulator: SEBI

The Securities and Exchange Board of India (SEBI) is the primary regulator of the Indian stock market (playing a role similar to the RBI for banks). Established in 1992, SEBI regulates IPOs, rights issues, buybacks, foreign investors, mutual funds, and broker registrations. Most importantly, it actively prohibits fraud and unfair trade practices, protecting the retail investor.

3. Structural Entities

Clearing Houses

While the exchange matches the buyer and seller, the Clearing House guarantees the safety of the transaction, ensuring shares and money are properly exchanged.

  • NSCCL (National Securities Clearing Corporation Ltd): Serves the NSE
  • ICCL (Indian Clearing Corporation Limited): Serves the BSE

Depositories and DPs

  • Depositories: These central vaults safely hold your shares in an electronic format (having converted old physical share certificates to “Demat” format). You will receive monthly consolidated statements on your linked email showing your Stocks and Mutual Funds. India has two main depositories: NSDL and CDSL.
  • Depository Participant (DP): Brokers act as agents (DPs) to these depositories. They can be Discount Brokers (Zerodha, Upstox) or Full-Service Brokers (HDFC Securities, ICICI Direct).

4. Market Operations & Corporate Actions

Market Segments & Trading Hours

The exchange operates on a strict clock:

  • 9:00 AM - 9:15 AM (Pre-Open Session): Used to discover opening prices and absorb overnight volatility.
  • 9:15 AM - 3:30 PM (Normal Market Hours): Active secondary market trading.
  • 3:30 PM - 4:00 PM (Closing Session): Used primarily for broker settlements.
  • 4:00 PM - 9:00 AM (After Market Orders - AMO): Investors can place orders for the next day while the market is closed.
  • Mahurat Trading: A special 1-hour evening trading session held strictly once a year during Diwali (Laxmi Puja) for good fortune.
  • IPO Listings: Newly launched IPOs typically execute their listing ceremonies and start trading at exactly 10:00 AM.

Stock Split

When a stock’s price becomes too high natively (e.g., ₹20,000 per share), retail investors may struggle to buy it, lowering market liquidity. The company can execute a “Stock Split,” reducing the Face Value and exponentially increasing the number of shares.

  • Example: If you hold 25 shares of a company priced at ₹5,000 (FV ₹2), and the stock splits 1:2 (New FV ₹1), you will now own 50 shares priced at ₹2,500. Your total investment value remains identical, but liquidity increases.

Bonus Issues

When a company achieves excellent profits and builds up heavy cash reserves, it can reward investors through Dividends, Expansion, Buybacks, or Bonus Shares.

  • Bonus Ratio: A “1:2” bonus means you receive 1 free share for every 2 shares you already hold.
  • Important Dates:
    • Declaration Date: The day the boardroom announces the bonus.
    • Record Date: The cut-off date by which the shares must be sitting in your Demat account for you to be eligible.
    • Ex-Date: Usually one or two days prior to the Record Date; the date on which the stock price chemically adjusts downward proportionally to the bonus ratio.

Administrative Terms

  • Share Certificate: The physical document proving ownership. Materialized means physical; Dematerialized (Demat) means electronic.
  • Contract Note: A digital, legally binding receipt issued by your broker within 24 hours of any trade, detailing your buy/sell activities, prices, and complex taxing/brokerage fees.
  • T+2 Settlement: The system cycle defining when funds/shares shift hands. If you buy a stock on Monday (Trade Day), it will reflect permanently in your Demat account by Wednesday (T+2 working days). (Note: Historically this was an arduous T+30 days before the 1996 Demat Act).

Gyan

Did you know?
If an individual or institution purchases more than 5% of a publicly listed company’s total shares, they cannot do it silently. SEBI mandates that they immediately issue a formal public disclosure to the company and the exchange!

Reference