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

Mistake in Stock Market(SM)

  1. Impatience
  2. Trading
  3. Following the Crowd
    • Be fearful when others are Greedy and be Greedy when others are Fearful
  4. Not putting Effort
    • Successful investor = Effort + Discipline approach
  1. Timing the Market
    • You can’t time the Market
    • Time in the Market is more important than Timing the market
  2. Investing in Penny stock
    • Use only as party fund
    • Only very low amount or use None

Types of Equity Share

  • Common Equity Share
    • Commonly traded on SE
  • Preferred Equity Share
    • Private placement
    • No voting rights
    • Prefference in Divident distribution
    • Prefference to be paid before common equity shareholders in case of bankruptcy

Differential Voting Rights (DVR)

  • Types:
    • High Voting rights DVR
    • Lower Voting rights DVR
  • In India only Lower Voting rights DVR are issued.
    • To retain control safeguard
    • To avoid Hostile takeover (Eg: Mindtree acquisition)
    • Traded at a cheaper price
    • High dividend
    • Eg: Tata Motors, Pantaloon Retail, Gujrat NRE Coke, Jain Irrigation

Holdings

  • At max Promoters can hold is 75% by new SEBI rule.
  • Bank has a different rule

Electronic Trading

  • Order Driven (No middleman)
  • Transparent
  • Anonymity of Trading
    • Only NSE and BSE will know

Warrant

  • A warrant is a certificate to buy an ordinary share at a set price in future
    • Set a price for the future and have the right to invest today
    • warrant exercise is not compulsory
  • Eg:
    • Current price: 100
    • Exercise price: 150 (future price say 2yrs)
    • Warrant price: 10
    • So, pay only 10 and have the right to buy the share @150 after 2 yrs
      • Even if the price is 200 (400% profit, i.e 40)
      • Or don’t buy if price falls to 80 (100% loss, i.e 10)
  • Maybe RISKY investment

Why warrant is issued?

  • To raise additional capital
  • To expand the investor base

Pledging of shares

  • Pledging of shares means taking loans against the shares that one holds.
  • Shares are considered assets.
  • Pledging of shares is a way for the promoters of a company to get loans to meet their business or personal requirements by keeping their shares as collateral to lenders
  • +ve of pledging
    • To meet working capital req of core business
  • -ve of pledging
    • To fund other ventures & business
      • Eg: promoter pledging in Zee Entertainment
    • To meet personal needs

Insider Trading

  • Insider
    • A person who is on the company’s board or holds a key managerial position
    • A person who knows critical info
  • An insider buying/selling their company stocks is called Insider trading
  • The Company must notify the exchanges within a few days about the trading details if securities worth ₹10 lakh plus are traded.
  • Types:
    • Legal Insider trading
      • ESOP selling
      • Disclosure of trading
    • Illegal Insider trading
      • Eg: SunPharma

Stock Categorization

  1. Market Capitalization
SEBI has categorized stocks into Large, Mid and Small Cap based on their Market Cap
* Large Cap: Top 100 stocks
	* BlueChip stocks, Lower risk
* Mid Cap: 101 - 250 Stocks
	* Higher risk than Large Cap
* Small Cap: 251 onwards
	* Higher risk
* Micro
	* 501 onwards 
	* Not categorized by SEBI
  1. Investing style
* Growth
	* Stocks with high growth opportunies
	* Strong earning visiblity
	* May trade at higher P/E
	* Eg: 
	  * Private Bank not PSU bank
* Value
	* Eg:
	  * ITC 
* Income Stock
	* Stock with high divident
	* High Cash flow
	* Eg:
	  * PFC,REC, ITC
  1. Sector
    • FMGC, Auto, IT, Banking

Reference