1 Introduction To Capital Market

Capital Markets
Introduction
What is capital market
Market institutions
Basic terminology
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Beginners finance
Capital market
Primary market
Secondary market
Stock trading
Macroeconomics
Fundamental research
Introduction
Qualitative & quantitative factors
Financial statement analysis
Ratio analysis
Valuation
Case studies
Derivatives
Introduction
Futures & forward
Option
Option premium
Option strategies
Option greeks
Open interest
Technical research
Introduction
Charts
Dow theory
Trends
Indicators
Patterns
Commodity
Introduction
Market participants
Agri commodities
Metal commodities
Energy commodities
Tracking price movements
Inter asset relationships
Currency
Introduction
Economic significance
Currency future
Macroeconomics
Discussion of INR
What do we mean by Capital Market?
What is this?
10
Or this?
11
What is a market?
A market is any structure that

allows buyers and sellers to
exchange any type of goods,
services and information
In simple terms market is a

platform which enables buyers
and sellers to interact
12
What is a capital market?
Capital market consists of primary

market and secondary market
Newly formed (issued) securities are

bought or sold in primary market
Secondary markets allow investors to

sell securities that they hold or buy
existing securities
The transaction in primary market

exists
between
investors
and
companies while in secondary market it
is between investors
13
Who are the buyers of capital?
14
Who are the sellers of capital?
15
The intermediaries
16
Overall structure of capital market

Buyers
Intermediaries
- Entrepreneur through
financial institutions like
banks in the form of loan
- Banks and other financial

institutions to channelize
savings
- Entrepreneur in the form of

equity from stock market
- Exchanges to facilitate
equity sale
- Entrepreneur in the form

loan from debt market
- Brokers to facilitate
transaction in stock
exchanges
- Government in the form of

loan from debt market
Sellers
- Retail investors directly
- Mutual funds as a collective
investment scheme
- Banks
- Investment Managers
- Investment bankers/
merchant bankers to
facilitate the complete
process
17
What is a financial market?
A financial market is a mechanism that

allows people to buy and sell (trade)
financial securities (such as stocks and
bonds), commodities (such as precious
metals or agricultural goods)
Financial markets facilitate The raising of capital (in the capital

markets)
The transfer of risk (in the derivatives
markets)
The transfer of liquidity (in the money
markets)
International trade (in the currency
markets)
And are used to match those
who want capital to those who have it
18
Types of financial markets

Capital market
Equity (Stocks)
Debt (Bonds)
Commodities market
Currency market
19
A quick question
Which of the following is the

largest market of all?
Stocks
Bonds
Commodities
Currency (Forex)
20
Phases in market
Bull market
Prices are generally rising

and generally there is
increasing economic activity
Bear market
Prices
are
continuously
falling with a shrinkage of
economic activity
Sideways markets
Price movement in the

markets are uncertain and
there is no established trend
to arrive at a conclusion
21
Phases in market
22
Animals in the capital market
Bulls
Bears
Market participants who have no qualms

in buying securities above the prevailing
stock prices. Supposed to be aggressive
and jack up the prices when the trend is
in their favour
Market participants who wish that the
prices would decline for them to buy. Are
typically aggressive in battering down
prices when the trend supports them
Herd
Market participants who lap up a trend

with very little regard to the fundamental
reason of the trend
23
Market is a jungle
24
Who is the bigger fool?
25
Market capitalization
Market capitalization (often market cap) is a measurement of value of a business enterprise

which is equal to the share price times the number of shares outstanding (shares that have
been authorized, issued, and purchased by investors)
So today if you want to purchase a company like Reliance Industries Ltd, what you have to
do is to BUY ALL the shares of the company and PAY the market price for each share
If Reliance has 100 shares and price per share is Rs.1000, then you will have to shed
Rs.1,00,000 to BUY the company
We use market capitalization to classify the companies in order of their market value:
Large Cap (having market capitalization of more than Rs.10,000 crores)
Mid Cap (having market capitalization of more than 1,000 but less than 10,000 crores)
Small Cap (having market capitalization less than 1,000 crores)
The rupees amounts used for the classifications "large cap", mid cap", or "small cap" are only
approximations that change over time. Among market participants, their exact definitions can
vary
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Large cap
27
Mid cap
28
Small cap
29
Free float market cap
Free-float market capitalization takes

into
consideration only those shares issued by the
company that are readily available for trading in the
market
It
generally
excludes
promoters'
holding,
government holding, strategic holding and other
locked-in shares that will not come to the market for
trading in the normal course
Thus, if someone wants to buy the Reliance

Industry she can buy only those shares which are
freely traded in market and not the ones which
Mukesh Ambani holds
30
Index
A Index is simply the barometer of the overall

stock market performance
It is the report card of all the stock listed on the

index which shows the performance of all the
stocks
31
Index computation
Let us assume the day Nifty

was started it had only 3
companies with their market
price/share, total number of
shares and the market cap
being
Company
No. of Shares
Price / Share
Market Cap.
Reliance
200
1000
Infosys
100
300
ICICI
250
500
Market Capitalization of Nifty
Now assume that a day later

based on the market forces the
share prices of all the three
companies changes and the
new ones are:
Company
No. of Shares
1800
Price / Share
Market Cap.
Reliance
200
1200
Infosys
100
4.5
450
ICICI
250
550
Market Capitalization of Nifty
32
2200
Index
Indexing simply means Anchoring or Fixing
So what we assume here further is that 1800 is index or fixed or assumed to be 1000
This 1800, the value of Index the day it started, is also known as the Base Market
Capitalization
And so when the market cap of the Index changes to 2200, we get a new Index Value
(earlier one being 1000):
1800 is equivalent to : 1000
1 is equivalent to : 1000/1800
2200 is equivalent to : 1000/1800 * 2275 = 1222
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Free float market cap weighted index
Free Float methodology means that the index will be computed on the market cap
represented by openly held market shares of the company only
The index will be computed on by reducing promoters share from overall market cap of the
company. We do it by multiplying market cap with the free float factor for the company
A company might have a higher market cap but with low public holding, it would have a lesser
weight in indices e.g. ONGC and NTPC
In case of companies with zero promoters holding/strategic holding, market cap and free float
market cap would be the same e.g. ICICI Bank
Company
Price
No. of Shares
Mkt cap
(Rs/crore)
Free float
(%)
Free cap
(Rs/crore)
Index weight
(%)
Reliance
954.10
3,273,334,144
312,308.81
0.55
171,769.85
11.67
Infosys
2,861.50
574,151,559
164,293.47
0.85
139,649.45
9.49
ICICI Bank
1,046.00
1,151,830,933
120,481.52
1.00
120,481.52
8.1
Total
2,777,723.94
34
1,471,741.69
What is circuit breaker
In order to control the speculations that is causing the stock or index to enter in a circuit, SEBI
has formed rules (different for index and stocks) which help in controlling the situation
Exchanges implement on a quarterly basis the index based market wide circuit breaker
system i.e., the percentages are calculated on the closing index value of the quarter
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
35
Circuit breaker contd.
The exchange has fixed circuit filters for the Sensex
If the index moves by 10% up/down:
Before 1 PM , trading would be halted for one hour
Between 1-2:30 PM, trading to be halted for half an hour
After 2:30 PM, no halt in trading
If in case index moves by 15% up/down:
Before 1 pm, trading to be halted for 2 hours
Between 1-2 PM, trading to be halted for one hour
After 2 PM, trading to be halted for rest of the day
In the case of 20% up/down movement in the index, trading to be halted for the rest of the
day
36
Circuit breaker
37
Circuit for individual stocks
Generally, the reason behind such a move is heavy speculation either about the economy
or about a particular stock
There are two directions of movement (up and down), therefore there are two types of circuits
possible upper circuit and lower circuit
If in any day the stock prices get increased/decreased by 5 - 20% (% defined by SEBI for
each share) of the previous day price, than the stock is said to be in upper/lower circuit
A price band is essentially the price range within which a stock is permitted to trade during a
day
Usually a daily price band of 2%, 5%, 10% , 20% (either way) are applicable on securities
No price bands are applicable on: F&O stocks
A price bands of 20% (either way) on products other than stocks including debentures,
preference shares, warrants, etc
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Circuit view
With circuit
Without circuit
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Summary
Capital
market
Maarket
participants
Market
phases
Market
capitalization
Indices
Free
float
Circuits
40
Thank You
41

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Capital Markets

What is capital market

Kredent EduEdge Kredent Academy

Kredent EduEdge Kredent Academy

Qualitative & quantitative factors

Financial statement analysis

Kredent EduEdge Kredent Academy

Futures & forward

Kredent EduEdge Kredent Academy

Kredent EduEdge Kredent Academy

Tracking price movements

Inter asset relationships

Kredent EduEdge Kredent Academy

Kredent EduEdge Kredent Academy

What do we mean by Capital Market?

Kredent EduEdge Kredent Academy

Kredent EduEdge Kredent Academy

Kredent EduEdge Kredent Academy

A market is any structure that

In simple terms market is a

and sellers to interact

Kredent EduEdge Kredent Academy

What is a capital market?

Capital market consists of primary

Newly formed (issued) securities are

Secondary markets allow investors to

The transaction in primary market

Kredent EduEdge Kredent Academy

Who are the buyers of capital?

Kredent EduEdge Kredent Academy

Who are the sellers of capital?

Kredent EduEdge Kredent Academy

Kredent EduEdge Kredent Academy

Overall structure of capital market

- Banks and other financial

- Entrepreneur in the form of

- Entrepreneur in the form

- Government in the form of

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What is a financial market?

A financial market is a mechanism that

Financial markets facilitate The raising of capital (in the capital

Kredent EduEdge Kredent Academy

Types of financial markets

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Which of the following is the

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Prices are generally rising

Price movement in the

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Kredent EduEdge Kredent Academy

Animals in the capital market

Market participants who have no qualms

Market participants who lap up a trend

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Who is the bigger fool?

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Market capitalization (often market cap) is a measurement of value of a business enterprise

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