Professional Documents
Culture Documents
Stock Exchange (BSE)
Stock Exchange (BSE)
STOCK MARKET
September 01, 2017
"The value of a stock is the present value of all its future free cash flows. Do not rely
on any valuation methodology that does not reconcile with this concept."
PROJECT: STOCK MARKET
ACKNOWLEDGEMENT
I take the opportunity of submitting this thesis to express my deep regards towards those
who have offered their invaluable assistance and guidance in the hour of need.
I sincerely acknowledge with a deep sense of gratitude and show regards to Mr. Harsh of
M/s. Vedanta College of management & Information technology, for knowledge share during the
initial phase of the project. I highly obliges to him for their guidance, advice and co-operation
while assignment.
I would also like to thank to Mr. Girish for his kind support, guidance throughout this
process and allowing me to go ahead with this project.
REPORT PRESENTER:
SIGNATURE :
DATE :
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PROJECT: STOCK MARKET
INDEX
1 Cover page 01 to 01
2 Acknowledgement 02 to 02
3 Index 03 to 03
4 Introduction 04 to 05
5 History of stock market in India 06 to 19
6 Terminology in stock market 20 to 21
7 14 most interesting facts about Stock Markets 22 to 23
8 15 Most valuable stock Markets in the world 24 to 25
9 Principles of Stock Market 26 to 29
10 Functions of stock Market in economy 30 to 31
11 Features of stock Market 32 to 33
12 Risk & Rewards 34 to 36
13 Stock market working diagrams 37 to 41
14 Types of trading in Indian share market 42 to 46
15 DEMAT Account 47 to 49
16 SEBI 50 to 50
17 Performance of BSE & NSE in August 2017 51 to 52
18 Few records of earning by stocks in India 53 to 53
19 Successes & Failure stories of Stock Market 54 to 61
20 Bibliography 62 to 62
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PROJECT: STOCK MARKET
INTRODUCTION
PURPOSE
The purpose of this report is to demonstrate the stock market (working, feature &
functions, needs & expectations of the interested parties).
GOALS
To get the maximum knowledge of the activities occurring in “stock market”.
To understand the stock exchange market
To study the changing trends in the markets.
To give appropriate description of the stock exchange for the understanding of the common
man.
To solve misconceptions relating to stock markets
Share
A share represents the smallest recognized fraction of ownership in a publicly held
business. Each such fraction of ownership is represented in the form of a certificate known
as a share certificate. The breaking up of total ownership of a business into small
fragments, each fragment represented by a share certificate, enables them to be easily
bought and sold.
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PROJECT: STOCK MARKET
Exchange management:
Made some attempts in this direction, but this did not materially alter the situation. In view
of the less than satisfactory quality, of administration of broker-managed exchanges, the
finance minister in March 2001 proposed demutualization of exchanges by which
ownership, management and trading membership would be segregated from each other.
The regulators are working towards implementing this. Of the 23 stock exchanges in India,
two stock exchanges viz., OTCEI and NSE are already demutualised. Board of directors,
which do not include trading members, manages these.
These are purest form of demutualised exchanges, where ownership, management and
trading are in the hands of three sets of people.
The concept of demutualisation completely eliminates any conflict of interest and helps the
exchange to pursue market efficiency and investors interest aggressively.
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PROJECT: STOCK MARKET
The first organised stock Market in India was started in 1875 at Bombay and it is stated to
be the oldest in Asia.
In 1894 the Ahmadabad Stock Market was started to facilitate dealings in the shares of
textile mills there.
The Calcutta stock Market was started in 1908 to provide a market for shares of plantations
and jute mills.
Then the madras stock Market was started in 1920.
At present there are 24 stock Markets in the country, 21 of them being regional ones with
allotted areas.
Two others set up in the reform era, viz., the National Stock Market (NSE) and Over
the Counter Exchange of India (OICEI), have mandate to have nation-wise trading.
They are located at Ahmadabad, Vadodara, Bangalore, Bhubaneswar, Mumbai,
Kolkata, Kochi, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kanpur,
Ludhiana, Chennai, Mangalore, Meerut, Patna, Pune, and Rajkot.
The Stock Exchanges are being administered by their governing boards and
executive chiefs.
Policies relating to their regulation and control are laid down by the Ministry of
Finance. Government also Constituted Securities and Exchange Board of India
(SEBI) in April 1988 for orderly development and regulation of securities industry
and stock exchanges.
In November 1992, NSE (National Stock Exchange) was established as the first
electronically traded Stock Exchange in India. After a few years of operations, the NSE has
become the largest stock exchange in India. BSE also automated the systems in 1995 but it
never caught up with NSE Spot Market turnover.
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PROJECT: STOCK MARKET
There are two leading stock exchanges in India which help us trade are:
1. National Stock Exchange: NSE incorporated in the year 1992 provides trading in the
equity as well as debt market. Maximum volumes take place on NSE and hence enjoy
2. Bombay Stock Exchange: BSE on the other hand was set up in the year 1875 and is the
oldest stock exchange in Asia. It has evolved in to its present status as the premier stock
exchange. 17 At BSE you will find some scripts listed that are not available on NSE. Also
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PROJECT: STOCK MARKET
Introduction to BSE:
As we read in the history of Indian stock exchange; the stock exchange, Mumbai, popularly
known as "BSE".
BSE was established in 1875 as "The Native Share and Stock Brokers Association". It is the
oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in
1878.
It is a voluntary non-profit making Association of Persons (AOP) and has converted itself
into demutualised and corporate entity.
It has evolved over the years into its present status as the Premier Stock Exchange in the
country.
It is the first Stock Exchange in the Country to have obtained permanent recognition in
1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.
The Exchange, while providing an efficient and transparent market for trading in securities,
debt and derivatives upholds the interests of the investors and ensures redressal of their
grievances whether against the companies or its own member-brokers.
It also strives to educate and enlighten the investors by conducting investor education
programmes and making available to them necessary informative inputs.
A Governing Board having 20 directors is the apex body, which decides the policies and
regulates the affairs of the Exchange.
The Governing Board consists of 9 elected directors, who are from the broking community
(one third of them retire every year by rotation), three SEBI nominees, six public
representatives and an Executive Director & Chief Executive Officer and a Chief Operating
Officer.
The Executive Director as the Chief Executive Officer is responsible for the 18 day-to-day
administration of the Exchange and he is assisted by the Chief Operating Officer and other
Heads of Department the Exchange has inserted new Rule in its Rules, Bye-laws &
Regulations pertaining to constitution of the Executive Committee of the Exchange.
Accordingly, an Executive Committee, consisting of three elected directors, three SEBI
nominees or public representatives, Executive Director & CEO and Chief Operating Officer
has been constituted.
The Committee considers judicial & quasi matters in which the Governing Board has powers
as an Appellate Authority, matters regarding annulment of transactions, admission,
continuance and suspension of member-brokers, declaration of a member broker as
defaulter, norms, procedures and other matters relating to arbitration, fees, deposits,
margins and other monies payable by the member brokers to the Exchange, etc.
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PROJECT: STOCK MARKET
BSE is the largest stock exchange in India and Asia as well. BSE Sensex is calculated out of 30
stocks on daily basis.
BSE Hours of Operation
Beginning of the Day Session 8:00 - 9:00
Login Session 9:00 - 9:15
Trading Session 9:15 - 15:30
Position Transfer Session 15:30 - 15:50
Closing Session 15:50 - 16:05
Option Exercise Session 16:05 - 16:35
Margin Session 16:35 - 16:50
Query Session 16:50 - 17:35
End of Day Session 17:35
The hours of operation for the BSE quoted above are stated in terms of the local time in Mumbai,
India (also known as Bombay). This translates into a standard time zone UTC/GMT +5:30.
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PROJECT: STOCK MARKET
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Shri Keki Mistry ceased to be Shareholder Director with effect from 14th
August, 2014.
Shri Thomas Bendixen is appointed as Shareholder Director with effect from
25th September, 2014.
BSE computerized its trading and settlement activities by following a three-phased approach.
Phase I:
The primary objective of this phase was the real time dissemination of price data through
the Display Information Driver System (DIDS). DIDS was commissioned in November 1992 to
disseminate bids, offers, actual rates of transactions and indices on a real time basis.
Phase II:
In 1994, settlement related daily transactions inputs and outputs were uploaded and
downloaded from the TWS in the brokers’ offices.
Phase III:
Commissioned on March 14, 1995. Although, screen based trading started with 818 scrips,
by the 70th day of its commissioning, all scrips-exceeding 5000 had been put on the BOLT
system. The BOLT system was commissioned with the Himalya K 10,000 central trading computer
hardware. Since then the hardware has been upgraded to the Himalya K 20,000 system. The
system provides for a response time of two seconds and can handle more than two hundred
thousand trades in a day.
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PROJECT: STOCK MARKET
The listing requirements with the Exchange call for further disclosure by companies to
promote public confidence. Important disclosures are:
The company is required to furnish unaudited half-yearly financial results in the
prescribed Performa.
The company must explain to the Stock Exchange any large variation between
audited and unaudited results in respect of any item.
When any person or an institution acquires or agrees to acquire any security of a
company which would result in his holding five percent or more of the voting capital
of the company, including the existing holding the Exchange must be notified within
two days of such acquisition by the company or by authorized intermediary or by the
acquirer.
Any take-over offer made either voluntarily or compulsorily to a company requires a
public announcement by both the offeror and the offeree company.
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PROJECT: STOCK MARKET
Indices
The Exchange compiles four indices, which are based on market capitalization. The first
index to be compiled was the BSE Sensitive Index with 1978-79 as the base year. It comprises of
equity shares of 30 companies from both specified and non-specified securities groups. The
companies have been selected on the basis of market activity. Subsequently, a more broad based
index, BSE National Index with 1983-84 as base year, was compiled. This index is made up of 100
scrips, 98 of which are quoted on Bombay. This index also includes prices on the other major
stock exchanges of Delhi, Calcutta, Ahmedabad and Madras. If scrip is actively quoted on more
than one Exchange the average price of the scrip is used in the compilation of the index.
It was felt that the sensitive index-the most popular indicator of market movement-had
become oversensitive to a handful of scrips. With divestment of Public Sector Unit (PSU) equity by
government and a sharp increase in the number of companies listed over the last few years, it
was felt that a new index, which is more representative of the recent changes and is more
balanced is necessary. The BSE-200, which was introduced in May 1994, consists of equity shares
of 200 companies, which have been selected on the basis of market capitalization, volume of
turnover and strength of the companies' fundamentals. 1989-90 has been chosen as the base
year for BSE-200.
As the presence of the foreign investors grew, a need was felt to express the index values
by taking into account the Rupee-Dollar conversion rate. Consequently, dividing the current Rupee
market value by Rupee-Dollar modifies the BSE-200 conversion rate in the base year. This index,
which indicates the movement of the market in dollar values, is called the Dollex.
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PROJECT: STOCK MARKET
Exchange ticker
Sr. No. Company name
(Code)
1 532921 Adani Ports & SEZ
2 500820 Asian Paints
3 532215 Axis Bank
4 532977 Bajaj Auto
5 532454 Bharti Airtel
6 500087 Cipla
7 533278 Coal India
8 500124 Dr. Reddy's Laboratories
9 500180 HDFC Bank
10 500182 Hero MotoCorp
11 500696 Hindustan Unilever
12 500010 Housing Development Finance Corporation
13 532174 ICICI Bank
14 500209 Infosys
15 500875 ITC
16 500247 Kotak Mahindra Bank
17 500510 Larsen & Toubro
18 500257 Lupin
19 500520 Mahindra & Mahindra
20 532500 Maruti Suzuki
21 532555 NTPC
22 500312 Oil and Natural Gas Corporation
23 532898 Power Grid Corporation of India
24 500325 Reliance Industries
25 500112 State Bank of India
26 524715 Sun Pharmaceutical
27 532540 Tata Consultancy Services
28 500570 Tata Motors
29 570001 Tata Motors DVR
30 500470 Tata Steel
31 507685 Wipro
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PROJECT: STOCK MARKET
Introduction to NSE:
The National Stock Exchange (NSE) is India's leading stock exchange covering 364 cities
and towns across the country. NSE was set up by leading institutions to provide a modern,
fully automated screen-based trading system with national reach. The Exchange has
brought about unparalleled transparency, speed & efficiency, safety and market integrity.
It has set up facilities that serve as a model for the securities industry in terms of systems,
practices and procedures. NSE has played a catalytic role in reforming the Indian securities
market in terms of microstructure, market practices and trading volumes.
The market today uses state-of-art information technology to provide an efficient and
transparent trading, clearing and settlement mechanism, and has witnessed several
innovations in products & services viz. demutualisation of stock exchange governance,
screen based trading, compression of settlement cycles, dematerialisation and electronic
transfer of securities, securities lending and 19 borrowing, professionalization of trading
members, fine-tuned risk management systems, emergence of clearing corporations to
assume counterparty risks, market of debt and derivative instruments and intensive use of
information technology.
The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges, which recommended promotion of
a National Stock Exchange by financial institutions (FIs) to provide access to investors from
all across the country on an equal footing. Based on the recommendations, NSE was
promoted by leading Financial Institutions at the behest of the Government of India and
was incorporated in November 1992 as a tax-paying company unlike other stock exchanges
in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment commenced operations in
November 1994 and operations in Derivatives segment commenced in June 2000. NSE's
mission is setting the agenda for change in the securities markets in India.
The NSE was set-up with the following objectives:
Establishing a nation-wide trading facility for equities, debt instruments and hybrids
Ensuring equal access to investors all over the country through an appropriate
communication network
Providing a fair, efficient and transparent securities market to investors using
electronic trading systems
Enabling shorter settlement cycles and book entry settlements systems,
Meeting the current international standards of securities markets.
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PROJECT: STOCK MARKET
The standards set by NSE in terms of market practices and technologies have become
industry benchmarks and are being emulated by other market participants. NSE is more
than a mere market facilitator.
Till the advent of NSE, an investor wanting to transact in a security not traded on the
nearest exchange had to route orders through a series of correspondent brokers to the
appropriate exchange. This resulted in a great deal of uncertainty and high transaction
costs. One of the objectives of NSE was to provide a nationwide trading facility and to
enable investors spread all over the country to have an equal access to NSE.
NSE has made it possible for an investor to access the same market and order book,
irrespective of location, at the same price and at the same cost. NSE uses sophisticated
telecommunication technology through which members can trade remotely from their
offices located in any part of the country. NSE trading terminals are present in 363
cities and towns all over India.
NSE has been promoted by leading financial institutions, banks, insurance companies and
other financial intermediaries
NSE is one of the first demutualised stock exchanges in the country, where the ownership
and management of the Exchange is completely divorced from the right to trade on it.
Though the impetus for its establishment came from policy makers in the country, it has
been set up as a public limited company, owned by the leading institutional investors in the
country.
From day one, NSE has adopted the form of a demutualised exchange - the ownership,
management and trading is in the hands of three different sets of people. NSE is owned by
a set of leading financial institutions, banks, insurance companies and other financial
intermediaries and is managed by professionals, who do not directly or indirectly trade on
the Exchange.
The NSE model however, does not preclude, but in fact accommodates involvement,
support and contribution of trading members in a variety of ways. Its Board comprises of
senior executives from promoter institutions, eminent professionals in the fields of law,
economics, accountancy, finance, taxation, etc; public representatives, nominees of SEBI
and one full time executive of the Exchange.
While the Board deals with broad policy issues, decisions relating to market operations are
delegated by the Board to various committees constituted by it. Such committees include
representatives from trading members, professionals, the public and the management. The
day-to-day management of the Exchange is delegated to the Managing Director who is
supported by a team of professional staff.
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PROJECT: STOCK MARKET
Tata Motors Ltd DVR IN9155A01020 Zee Entertainment Enterprises Ltd. INE256A01028
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PHARMA IT
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by not trading frequently. Examples are the Dow Jones Industrial Average and Standard &
Poor’s 500.
13) Initial Public Offering (IPO): The first sale or offering of a stock by a company to the
public, rather than just being owned by private or inside investors.
14) Margin: A margin account lets a person borrow money (take out a loan essentially) from a
broker to purchase an investment. The difference between the amount of the loan, and the
price of the securities, is called the margin.
15) Moving Average: A stock’s average price-per-share during a specific period of time. Some
time frames are 50 and 200 day moving averages.
16) Order: An investor’s bid to buy or sell a certain amount of stock or option contracts. You
have to put an order in to buy or sell 100 shares of stock.
17) Portfolio: A collection of investments owned by an investor. You can have as little as one
stock in a portfolio to an infinite amount of stocks.
18) Quote: Information on a stock’s latest trading price. This is sometimes delayed by 20
minutes unless you are using an actual broker trading platform.
19) Rally: A rapid increase in the general price level of the market or of the price of a stock.
20) Sector: A group of stocks that are in the same business. An example would be the
“Technology” sector including companies like Apple and Microsoft.
21) Spread: This is the difference between the bid and the ask prices of a stock, or the amount
someone is willing to buy it and someone is willing to sell it.
22) Stock Symbol: A one-character to three-character, alphabetic root symbol, which
represents a publically traded company on a stock exchange. Apple’s stock symbol is AAPL.
23) Volatility: This refers to the price movements of a stock or the stock market as a whole.
Highly volatile stocks are ones with extreme daily up and down movements and wide
intraday trading ranges. This is often common with stocks that are thinly traded, or have
low trading volumes. This is also common with the stocks that Tim trades.
24) Volume: The number of shares of stock traded during a particular time period, normally
measured in average daily trading volume.
25) Yield: This usually refers to the measure of the return on an investment that is received
from the payment of a dividend. This is determined by dividing the annual dividend amount
by the price paid for the stock. If you bought stock XYZ for $40-a-share and it pays a
$1.00-per-year dividend, you have a “yield” of 2.5%
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PROJECT: STOCK MARKET
1) Bombay Stock Exchange (BSE) in India has the highest number of listed companies in
the world with an estimated 5689 companies. National Stock Exchange (NSE) of India
has around 1750 companies.
2) The most expensive stock in world is the Warren Buffet’s Hathaway, Class A, which is
priced at USD 2,13,330 per share. The reason for such a high price is that the company
doesn’t split the shares.
3) The oldest stock exchange in the world is Amsterdam Stock Exchange, which was
established in 1602 by Dutch East India Company dealing with the printed stocks and
bonds.
4) The NYSE MKT LLC earlier known as American Stock Exchange (AMEX) was originally
New York Curb Exchange until 1953. Because brokers used to trade their things standing
by the curb of the New York City.
5) In India, out of 22124.14 INR billion household savings, only 2% goes as investment into
equities. People in India are more inclined to invest their money in gold, banks and in
real estate.
6) The terms “Bear” and “Bull” are thought to be originated from the way of attacking by
each animal, with the bull thrusting its horn up in the air, while a bear swiping
downwards. Historically, the middleman used to speculate on the future price of the
bearskins by selling them which they yet had to receive from the tappers, with the
expectation that the price will drop. They used to call the middleman as bear jobbers and
in short “bears” which is known to describe the downturn in the market. As bull was
assumed to be opposite of the bear at that time so it was termed as the upward
movement of the market.
7) Historically, on an average the market declines mostly in the month of September. The
three leading indicator DJIA (Dow Jones), S&P 500 (Standard and Poor) and NASDAQ
have seemed to be performing poorly in this month. One of the reasons for this is that
the trading volume declines in summer as the investors take time for vacation and once
they return to work, they exit positions they had build up.
8) The financial bubbles, dot com bubbles we had come across in the stock market aren’t
the first things that happened. Way back in 1711, the share prices of South Sea
Company collapsed as they were in the midst of a huge bubble.
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PROJECT: STOCK MARKET
9) October is considered as the jinxed month as the two worst stock market crashes in
history occurred in this month. The first occurred in 1929 with a 25 percent declined in
the share prices, and by 1932 the value of shares was just 20% of the value of shares in
1929! The next crash occurred in 1987 October when the stock market declined by one
fourth!
10) In the year 2006, one third of the all stocks traded in US and European Union was traded
through Algorithmic Trading, a trading system heavily reliant on the mathematical
formulas and high speed algorithms and computer programming. And by 2008, almost
around 80% of trading was being done by algorithms, however due to various
regulations the trading volume via algorithms in percentage terms declined after 2008.
11) The Dow Jones Industrial Average (DJIA), a priced weighted average of 30 significant
stocks traded on NYSE and NASDAQ was created by Wall Street Journal editor and Dow
Jones & Company cofounder Charles Dow. However, it is named after Dow and one of his
associates, Edward Jones.
12) The highest-volume day on the NYSE (New York Stock Exchange) was on January 4,
2001, when 2,129,445,637 shares traded. The lowest volume was on March 16, 1830,
when only 31 shares traded.
13) Till the year 2000, markets in US, London and Paris were trading on prices which were in
fractions and not in decimals. But after year 2000, this changed and all these markets
moved to decimals. This made it easier for an average investor to better understand the
value of stocks.
14) The Securities Exchange Commission (SEC) in United States of America (USA) was
created in 1934 by the Securities Exchange Act to regulate the securities market,
prevent fraud and enforce laws that require companies to provide full disclosure
regarding their financial information.
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Warren Buffett is widely considered one of the greatest investors of all time, but if you were to
ask him whom he thinks is the greatest investor, he would probably mention one man: his
teacher, Benjamin Graham. Graham was an investor and investing mentor who is generally
considered the father of security analysis and value investing.
His ideas and methods on investing are well documented in his books "Security Analysis" (1934)
and "The Intelligent Investor" (1949), which are two of the most famous investing texts. These
texts are often considered requisite reading material for any investor, but they aren't easy reads.
In this article, we'll condense Graham's main investing principles and give you a head start on
understanding his winning philosophy.
To Graham, these business assets may have been valuable because of their stable earning
power or simply because of their liquid cash value. It wasn't uncommon, for example, for Graham
to invest in stocks where the liquid assets on the balance sheet (net of all debt) were worth
more than the total market cap of the company (also known as "net nets" to Graham followers).
This means that Graham was effectively buying businesses for nothing. While he had a number of
other strategies, this was the typical investment strategy for Graham.
This concept is very important for investors to note, as value investing can provide
substantial profits once the market inevitably re-evaluates the stock and ups its price to fair
value. It also provides protection on the downside if things don't work out as planned and the
business falters. The safety net of buying an underlying business for much less than it is worth
was the central theme of Graham's success. When chosen carefully, Graham found that a further
decline in these undervalued stocks occurred infrequently.
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PROJECT: STOCK MARKET
While many of Graham's students succeeded using their own strategies, they all shared
main idea of the "margin of safety”.
Investing in stocks means dealing with volatility. Instead of running for the exits during
times of market stress, the smart investor greets downturns as chances to find great investments.
Graham illustrated this with the analogy of "Mr. Market," the imaginary business partner of each
and every investor. Mr. Market offers investors a daily price quote at which he would either buy
an investor out or sell his share of the business. Sometimes, he will be excited about the
prospects for the business and quote a high price. Other times, he is depressed about the
business's prospects and quotes a low price.
Because the stock market has these same emotions, the lesson here is that you shouldn't
let Mr. Market's views dictate your own emotions, or worse, lead you in your investment decisions.
Instead, you should form your own estimates of the business's value based on a sound and
rational examination of the facts. Furthermore, you should only buy when the price offered makes
sense and sell when the price becomes too high. Put another way, the market will fluctuate,
sometimes wildly, but rather than fearing volatility, use it to your advantage to get bargains in the
market or to sell out when your holdings become way overvalued.
Here are two strategies that Graham suggested to help mitigate the negative effects of market
volatility:
1. Dollar-Cost Averaging
Dollar-cost averaging is achieved by buying equal dollar amounts of investments at
regular intervals.
It takes advantage of dips in the price and means that an investor doesn't have to be
concerned about buying his or her entire position at the top of the market.
Dollar-cost averaging is ideal for passive investors and alleviates them of the
responsibility of choosing when and at what price to buy their positions.
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PROJECT: STOCK MARKET
Graham advised that investors know their investment selves. To illustrate this, he made
clear distinctions among various groups operating in the stock market.
Active vs. Passive
Graham referred to active and passive investors as "enterprising investors" and "defensive
investors".
You only have two real choices:
The first choice is to make a serious commitment in time and energy to become a good
investor who equates the quality and amount of hands-on research with the expected return.
If this isn't your cup of tea, then be content to get a passive (possibly lower) return, but
with much less time and work. Graham turned the academic notion of "risk = return" on its
head. For him, "work = return". The more work you put into your investments, the higher your
return should be.
If you have neither the time nor the inclination to do quality research on your investments,
then investing in an index is a good alternative. Graham said that the defensive investor could get
an average return by simply buying the 30 stocks of the Dow Jones Industrial Average in equal
amounts. Both Graham and Buffett said that getting even an average return, such as the return of
the S&P 500, is more of an accomplishment than it might seem. The fallacy that many people buy
into, according to Graham, is that if it's so easy to get an average return with little or no work
(through indexing), then just a little more work should yield a slightly higher return. The reality is
that most people who try this end up doing much worse than average.
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In modern terms, the defensive investor would be an investor in index funds of both stocks
and bonds. In essence, they own the entire market, benefiting from the areas that perform the
best without trying to predict those areas ahead of time. In doing so, an investor is virtually
guaranteed the market's return and avoids doing worse than average by just letting the stock
market's overall results dictate long-term returns. According to Graham, beating the market is
much easier said than done, and many investors still find they don't beat the market.
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9. Maintenance of liquidity
The bank and insurance companies purchase large number of securities from the stock
Market. These securities are marketable and can be turned into cash at any time. Therefore
banks prefer to keep securities instead of cash in their reserve.
This it facilities the banking system to maintain liquidity by procuring the
marketable securities.
10. Promotion of the habit of saving
Stock Market provides a place for saving to general public. Thus it creates the habit of thrift
and investment among the public. This habit leads to investment of funds incorporate or
government securities.
The funds placed at the disposal of companies are used by them for productive purposes.
11. Refining and advancing the industry
Stock Market advances the trade, commerce and industry in the country. It provides
opportunity to capital to flow into the most productive channels. Thus the flow of capital
from unproductive field to productive field helps to refine the large scale enterprises.
12. Promotion of capital formation
It plays an important part in capital formation in the country. Its publicity regarding various
industrial securities makes even disinterested people feel interested in investment.
13. Increasing Govt. Funds
The govt. can undertake projects of national importance and social value by raising funds
through sale of its securities on stock Market.
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9. Specific location:
Stock Market is a particular market place where authorised brokers come together daily
(i.e. on working days) on the floor of market called trading circles and conduct trading
activities. The prices of different securities traded are shown on electronic boards. After
the working hours market is closed. All the working of stock Markets is conducted and
controlled through computers and electronic system.
10. Financial Barometers:
Stock Markets are the financial barometers and development indicators of national
economy of the country. Industrial growth and stability is reflected in the index of stock
Market.
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Sadly, retail investors might ends up losing a lot of money when they try to invest their
own money. There are many reasons for this, but one of those comes from the inability of
individual investors to manage risk. Risk/rewards a common term in financial vernacular, but what
does it mean? Simply put, investing money into the investment markets has a high degree of risk,
and if you're going to take the risk, the amount of money you stand to gain needs to be big.
If somebody you marginally trust asks for a INR 50 loan and offers to pay you INR 60 in
two weeks, it might not be worth the risk, but what if they offered to pay you INR 100? The risk of
losing INR 50 for the chance to make INR 100 might be appealing.
That's a 2:1 risk/reward, which is a ratio where a lot professional investors start to get
interested. A 2:1 ratio allows the investor to double their money. If that person offered you INR
150, then the ratio goes to 3:1.
For example:
Assume that you did your research and found a stock you like. You notice that XYZ stock is
trading at INR 25, down from a recent high of INR 29. You believe that if you buy now, in the not-
so-distant future, XYZ will go back up to INR 29 and you can cash in. You have INR 500 to put
towards this investment, so you buy 20 shares. You did all of your research, but do you know
your risk/reward ratio? If you're like most individual investors, you probably don't.
Before we learn if our XYZ trade is a good idea from a risk perspective, what else should we
know about this risk/reward ratio? First, although a little bit of gut feeling finds its way in to most
investment decisions, risk/reward is completely an objective. It's a calculation and the numbers
don't lie. Second, each individual has their own tolerance for risk. You may love bungee jumping,
but somebody else might have a panic attack just thinking about it.
Next, risk/reward gives you no indication of probability. What if you took your INR 500 and
played the lottery? Risking INR 500 to gain millions is a much better investment than investing in
the stock market from a risk/reward perspective, but a much worse choice in terms of probability.
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The Calculation
The calculation of risk/reward is very easy. You simply divide your net profit (the reward)
by the price of your maximum risk. Using the XYZ example above, if your stock went up to INR 29
per share; you would make INR 4 for each of your 20 shares for a total of INR 80. You paid INR
500 for it, so you would divide 80 by 500 which give you 0.16. That means that your risk/reward
for this idea is 0.16:1. Most professional investors won't give the idea a second look at such a low
risk/reward ratio, so this is a terrible idea. Or is it?
Unless you're an inexperienced stock investor, you would never let that INR 500 go all the
way to zero. Your actual risk isn't the entire INR 500.
Every good investor has a stop-loss or a price on the downside that limits their risk. If you
set a INR 29 sell limit price as the upside, maybe you set INR 20 as the maximum downside. Once
your stop-loss order reaches INR 20, you sell it and look for the next opportunity. Because we
limited our downside, we can now change our numbers a bit. Your new profit stays the same at
INR 80, but your risk is now only INR 100 (INR 5 maximum loss multiplied by the 20 shares that
you own), 80/100= 0.8:1. This is still not ideal.
What if we raised our stop-loss price to INR 23, risking only INR 2 per share or INR 40 loss
in total? 80/40 is 2:1, which is acceptable. Some investors won't commit their money to any
investment that isn't at least 4:1, but 2:1 is considered the minimum by most. Of course, you
have to decide for yourself what the acceptable ratio is for you.
Notice that to achieve the risk/reward profile of 2:1; we didn't change the top number.
When you did your research and concluded that the maximum upside was INR 29 that was based
on technical analysis and fundamental research. If we were to change the top number, in order to
achieve an acceptable risk/reward, we're now relying on hope instead of good research. Every
good investor knows that relying on hope is a losing proposition. Being more conservative with
your risk is always better than being more aggressive with your reward. Risk/reward is always
calculated realistically, yet conservatively.
The Steps:
To incorporate risk/reward calculations into your research, follow these steps:
Pick a stock using exhaustive research.
Set the upside and downside targets based on the current price.
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Once you start incorporating risk/reward, you will quickly notice that it's difficult to find good
investment or trade ideas. The pros comb through, sometimes, hundreds of charts each day
looking for ideas that fit their risk/reward profile. Don't shy away from this. The more meticulous
you are, the better your chances of making money.
The Bottom Line
Finally, remember that in the course of holding a stock, the upside number is likely to change
as you continue analysing new information. If the risk/reward becomes unfavourable, don't be
afraid to exit the trade. Never find yourself in a situation where the risk/reward isn't in your
favour.
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2. Swing Trading:
The principal difference between intraday trading and swing trading is the
timeframe. Swing traders attempt to predict the short-term fluctuation in stock
prices overnight. So positions can last anywhere from 1 day to a few weeks.
The leverage used by Swing traders is generally lesser than intraday trading. Due to
overnight risk, stockbrokers in India charge SPAN + Exposure margins. In a way, it
enables traders more firepower to withstand overnight price movements and hold
positions for longer hence trying to book higher profits per trade.
Most technical traders and chartists fall in this category. If you like to analyse short-
term price movements using technical analysis, then this is your ball game.
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True swing trading also involves a great deal of money flow analysis. If this is what
you like doing then stick to this trading style. It is rewarding and the price
movements are more predictable.
However, risk management will need to be more sophisticated. In this style, you
must be able to ignore minor intraday fluctuations without breaking a sweat or
getting worried. However, most swing traders also do intraday trading so it is one
style which can be merged but, it is important to draw a line somewhere and focus
on specializing in one particular trading style.
I must point out that you will require more capital to swing trade in comparison to
intraday trading because of diversification and also that overnight trades require
more margins.
Ideally, you should also keep some buffer capital and not be 100% invested at all
times to account for the volatility and avoid margin calls of any sort. To know the
exact margins required to trade in derivatives, check out our Margin Calculators.
3. Positional Trading:
This is a type of trading style which ignores the minor short-term fluctuations that
swing traders are fully focused on. Positional trading involves lesser leverage than
swing trading. The holding timeframe of each trade is higher as these traders
anticipate a big piece movement in the coming future.
Timing the market is not the top priority for this category of traders as they are
willing to weather the storm and wait out a few months to see a large gain.
Their focus is usually a hybrid of technical and fundamentals. To be able to hold
positions for a longer time period, they feel like they have to be sure of what’s
happening within the company.
They’re usually looking for the underlying stock to gain more than 20% in the near
future. Positional traders have the aptitude and inclination to lean more towards
investing in the long run. In India, positional traders will either have to trade futures
by maintaining a safety margin or invest in equity without leverage.
Point to note: It is hard to be short for too long unless futures contracts are rolled
over. But it does include a time premium for next month contracts.
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4. Options strategies:
Is your thought process very objective and mathematical? If you like outcomes to
be more defined and measured, then trading options strategies may be your thing.
The most difficult part about this is to formulate the strategies.
It takes quite some time to become proficient and start making your own strategies
and implement them seamlessly which is why there are very few options trading
specialists in India.
After understanding the crux of the problem, we launched Options Strategies
Lab to help traders choose from over 43 different options strategies based on
individual market outlook and preferences.
It is apt for those traders who are looking to clock a fixed and more predictable rate
of annual return. Due to the lack of knowledge and awareness, Indian retail traders
are gambling by buying far OTM options in bait to get outsized returns.
Don’t get me wrong, it is possible and many traders have earned exorbitantly high
amounts of money doing so (1000% returns in 2 months etc.) but the real question
is, is it sustainable?
If it is not sustainable then one ought to focus on what can work and what has a
higher probability of happening. If you use options strategically, it is very scale able
and requires much lesser attention than all other formats of trading primarily
because the risk is defined. Learn How to Trade Options the Right Way!
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The quant program analyses historical patterns when such news has occurred and
the impact it has had on oil prices and other correlated asset classes and presents it
with a risk/reward ratio based probability so that you can take a good trading
decisions.
Quantitative trading does not necessarily need to be HFT or even algorithmic order
execution. It just means that the method of analysing stocks is based on computer
models to increase efficiency. It definitely requires knowledge of programming, a
good trading capital and computing speed.
Most Importantly, the right knowledge of markets to be able to analyse data
correctly. No amount of programming will give you the desired results if you lose
focus of the markets. It is better to learn about markets thoroughly before you
attempt this.
9. Arbitrage Trading:
Arbitrage is only reserved for the prop trading firms and institutional traders as it
requires great network speed and does not require superior analysis skills.
The yields for vanilla arbitrage are not lucrative anymore and strategies have gotten
more advanced involving some element of risk.
There are many different kinds of risk arbitrage models which can only be exercised
by institutions or large traders due to the sheer complexity of information
acquisition, and risk management skills.
Only enter the field if you’re obsessed with no risk profits. Otherwise, you might get
bored soon.
10. High-Frequency Trading:
High-frequency trading is all about SPEED. The strategies have all got to do with
manipulating bids and offers (Bid/ask) at a rapid pace. This breed is looking to make
the smallest profits per trade and do hundreds or thousands of transactions in a day.
Currently, institutions and hedge funds compete in this space in the microseconds.
As we speak, it has got less to do with brains and more to do with speed so it is not
recommended at all. If this is what you want to do, then try starting your own fund
or joining one as a programmer. These are fully automated so there is no value for
analysis. Only order execution.
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DEMAT ACCOUNT
Definition:
In India, shares and securities are held electronically in a dematerialized (or Demat)
account, instead of the investor taking physical possession of certificates. A Demat
account is opened by the investor while registering with an investment broker (or sub-
broker).
Working principle:
Demat account in simple terms is like a savings account, Demat Account share get
electronically saved, in saving account money gets electronically saved. In India, shares
and securities are held electronically in a dematerialized or Demat account, instead of the
investor taking physical possession of certificates.
Opening of account:
Opening a demat account.
Step 1: To open a demat account; you have to approach a depository participant
(DP), an agent of depository, and fill up an account opening form.
Step 2: Along with the account opening form, you must enclose photocopies of some
documents for proof of identity and proof of address.
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The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory
body for the securities market, set up under the securities and Exchange Board of India act, 1992,
to “protect the interest of investors in securities and to promote the development of, and to
regulate the securities market and for matters connected therewith and incidental too.”
SEBI has its head office in Mumbai and it has now set up regional offices in the
metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two
members from the central government representing the ministries of finance and law, one
member from the Reserve Bank of India and two other members appointed by the central
government.
As per the SEBI act, 1992, the power and functions of the Board encompass the regulation
of Stock Exchanges and other securities markets; registration and regulation of the working stock
brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust deeds,
registrars to an issues, merchant bankers, under writers, portfolio managers, investment advisors
and such other intermediaries who may be associated with the stock market in any way;
registration and regulations of mutual funds; promotion and regulation of self- regulatory
organizations; prohibiting Fraudulent and unfair trade practices and insider trading in securities
markets; regulating substantial acquisition of shares and takeover of companies; calling for
information from, undertaking inspection, conducting inquiries and audits of stock exchanges,
intermediaries and self- regulatory organizations of the securities market; performing such
functions and exercising such powers as contained in the provisions of the Capital Issues (Control)
Act,1947 and the Securities Contracts (Regulation) Act, 1956, levying various fees and other
charges, conducting necessary research for above purposes and performing such other functions
as may be prescribes from time to time.
SEBI as the watchdog of the industry has an important and crucial role in the market in
ensuring that the market participants perform their duties in accordance with the regulatory
norms. The Stock Exchange as a responsible Self-Regulatory Organization (SRO) function to
regulate the market and its prices as per the prevalent regulations. SEBI and the Exchange play
complimentary roles to enhance the investor protection and the overall quality of the market.
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A/D
Sector Market-Cap % Chg Advance Decline
Ratio
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NSE Performance:
A/D
Sector Market-Cap % Chg Advance Decline
Ratio
Automotive 10,84,484 -0.82% 0.37 22 60
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b. Ajanta Pharma is another stock in the list, which has jumped 19,057 per cent in last 10
years. Adjusted share price of the company increased from Rs 9.85 in December 2006 to
Rs 1,886.95 this December. For the financial year ended March 31, 2016, the company
reported a net profit of Rs 410.90 Cr. against Rs 309.86 Cr., Rs 233.88 Cr., Rs 112.11 Cr.
and Rs 77.26 Cr. reported for FY15, FY14, FY13 and FY12, respectively.
c. Among other top wealth creators on BSE, the share prices of DFM Foods BSE 0.28 %,
Caplin Point BSE -0.69 % Labs and Vinati Organics have risen 14,997 per cent, 14,076 per
cent and 13,073 per cent, respectively, in last 10 years.
d. Among others, Relaxo Footwear, Mayur Uniquoters, Tasty Bite, La Opala RG, Manappuram
Finance, Capital Trust and Eicher Motors have soared between 6,000 per cent and 10,000
per cent during this period.
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2. Radkhakishan Damani
Radkhakishan Damani, also known as ‘Mr white and white’, because of his simple
dressing- white shirt and white trousers, is an investor and owner of D-mart. He is
also the mentor of billionaire investor Rakesh Jhunjhunwala. RK Damani is known for
his low profile and he rarely makes appearance in public events or press conferences.
On 21st March, 2017 i.e. the listing day of Avenue supermart (parent company of D-
markt), the stock price rose more than double, from the offer price of Rs 299 and
ended up 116% upwards to Rs 648. In the IPO of Avenue Superpart, RK Damani made
around Rs 6100 crores in just two days.
RK Damani owns 52% stake in Avenue Supermarts, and Bright Star Investments – his
investment company, holds another 16% stake.
RK’s journey in Indian stock market is truly inspiring. He was not always involved in
stock market. He started his career as a trader in ball bearing, with no intentions to
enter the stock market. However, his future has something else reserved for him.
At an age of 32, post his father’s death, RK was forced to close down his ball bearing
business and had to join his brother in the stock broking business, which was inherited
from their father.
RK Damani had no idea of what to do in the stock market then. His knowledge to stock
market was very limited and can be considered next to zero when he entered. He made
few mistakes initially by speculating the stock prices. However, he soon understood
that the market is a heaven for those who wants to make great fortune in life.
As he was invloved in stock broking, he also understood that he can’t make lots of
money just by watching other people invest. Finally, he started investing for the long
term. Gradually, his judgement began getting right, and within the next couple of years
he was standing as one of the most successful investors in the market.
RK Damani’s strategy is quite simple- Invest for long term, like 5 to 10 years. RK
always sees the future prospects of the company before investing and invests only if
the product has a potential far ahead in the future.
Net worth : 7.1 Billion USD
Age : 59
Occupation : Investor, Stockbroker, Trader and the Founder & Promoter of Dmart
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3. Ramesh Damani
Ramesh Damani, the investment guru and one of the most successful stock market
investors in India, started his journey to riches in 1990’s, when sensex was 600
points. He holds a bachelor’s degree in commerce from HR College, Mumbai and a
master’s degree in Business Administration from California State University.
Ramesh Damani works at privately owned Ramesh s Damani Finance Pvt Ltd.
The son of a successful stock investor, Ramesh Damani became a member of the
Bombay Stock Exchange (BSE) in 1989. Initially, Ramesh planned his carrear as a stock
broker. However, later he started enjoying picking winning stocks and switched to
become a long term investor.
Ramesh Damani’s first famous investment was ‘Infosys’. Coming from a techie
background in US, he knew that Infosys has great future potentials. So, when infosys
became public in 1993, he invested Rs 10 lakhs in it. By 1999, this investment has
given him more than 100 times return.
The investment philosophy of Ramesh Damani is easy and simple to understand. He is
a long term investor and suggests not investing for short term gain. Further, he advises
everyone to make an exit strategy clear before making investment in any stock. He
further adds that the economy of a market is hard to predict; however if you have
researched the stock carefully, and had made a good strategy, then you can can easily
make fortunes in stock market.
Net worth : 800 Crores (1.24 Billion USD)
Age :61
Education : HR College, Mumbai (Bachelor’s degree in Commerce)
California State University (Master’s Degree in Business Administration)
Occupation :Founder at Ramesh s Damani Finance Pvt Ltd
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4. Sujata Burla
Her life took an ugly turn on June 9, 2001. On a pilgrimage to Shirdi, where the Sai
Baba temple in Maharashtra is located, from Hyderabad, she met with an accident.
Four months later, the doctors and physiotherapists treating her told her she could not
walk for the rest of her life. The accident had turned her into a paraplegic. It meant
Sujata was immobile below the shoulders. She was just 21.
Soon people who she thought were her friends abandoned her and Sujata was left
alone. Compounding her tragedy was her father’s death in March 2004. Not one to be
easily cowed down by her circumstances, she started learning about the stock markets
that year.
Now she trades like a pro and earns anywhere between Rs 200,000 and Rs 250,000
every month. On a day like Wednesday, September 19, 2007, when the Nifty was up
186 points, Sujata made a cool Rs 600,000 in a single day. She has still not sold her
position.
“I expect the Nifty to touch 4800 in the next two, three trading days. I will sell my
position then,” Sujata told this correspondent in a telephone conversation from her
home in Hyderabad.
Sujata moves around in a wheelchair and does not regret this fact. Financial
independence is what she strove for and that is exactly what she has got through sheer
determination and discipline.
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I never traded in bank stocks, but somehow my homework indicated that all the banks
were doing well for quite some time then. So I invested in it. With In a week's time the
share prices dropped by Rs 12-14 and my kitty were shrunk by another Rs 15,000.
To, mitigate this loss; I relied upon my most trusted stock (I still trust it and believe
that it will do well). I bought another 2,000 shares of RNRL at Rs 215 on last trading
day of second week of January with the hope that a rise of Rs 10- 15 per share will help
me cover my short-term losses. I had just 25 per cent of that amount in my broker's
account so I owed him about Rs 4.3 lakhs.
For a couple of days it was doing good but when the international market fall started I
was helpless; just followed the wait and watch principle. On one single day (January 21
to be precise) I saw the profits that I had earned in the last six months evaporating
quickly; the next day it was the turn of my capital and by noon that day my capital was
fully gone. Now, I was in debit balance of about Rs 20,000.
On January 22, the scariest day of my trading experience, I was hoping that the market
will recover and I will at least get my capital back.
In the very first minutes of trading, the stock price of RNRL had fallen by other Rs 30-
35. Oh my good, I lost one lakh rupees in a minute. Gone in sixty seconds! I was in
tears. I could not console myself.
After discussing the matter with my friends and parents I finally decided that taking the
delivery of those stocks and retaining them for 3-6 months was the best option. I may
be able to cover the losses, I thought if the markets recover in another couple of
months.
10 stocks to make young investors crorepatis
I had to count on my trusted friends and well-wishers, who helped arrange the funds in
a notice of just four hours. Thanks guys, I owe you all big time!
Having said all that, I want to say something to traders like me, who can neither time
the market nor have trusted contacts in the market to guide them.
Always keep your portfolio diversified in terms of sectors/companies
Don't let any stock to make up more than 15-20 percent of your portfolio
Don't get into margin trading, if you cannot predict the market behaviour. It's a
very lucrative opportunity. But it is a very dangerous game. No one can predict
when it will rip you off your holdings.
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The funds you invest in markets should be a part of the residual amount of your
income after you meet all your expenses. So that you can hold on patiently at
times like this when the market conditions are not good.
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2. Chirag Gupta
Imagine investing about Rs 11,250 in the stock market and getting a return of Rs 6.08
lakh in a span of five minutes.
But when the broker sends you the contract note, the securities transaction tax (STT)
for the trade is over Rs 24 lakh -- almost four times the profit -- and it's not a printing
mistake.
It happened with 27-year-old management student Chirag Gupta.
When about five minutes were left for the markets to close, Gupta saw that he could
buy Nifty call options at 5 paise per unit and make a profit of around Rs 2.75 a unit.
He bought options that Nifty will close above 8,600 and it closed at 8,602.75.
Gupta bought all the Nifty lots (3,000) he could in the short span of time.
One Nifty lot has 75 units.
Later, he realised that his broker had deducted over Rs 24 lakh from his trading
account for STT.
Gupta's mistake: He let the option expire.
The calculation of STT is different if a trader squares off the position before expiry and
if he lets the contract expire.
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BIBLIOGRAPHY:
First steps to investing A Beginner’s Guide publish by Government of India Ministry of
Corporate Affairs (Under the aegis of Investor Education and Protection Fund)
The Intelligent Investor by Benjamin Graham
Security Analysis (Sixth Edition) by Seth A. Klarman, James Grant, Bruse Greenwald &
others.
Common stocks & Uncommon Profits by Philips A. Fisher
Various Investopedia websites
Economic Times of “Times of India” (online webpages).
Journals, Government reports, Reports collected by institutions, Newspapers,
Reference books, Magazines, etc.
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