Stocks Mechanism and Dynamics - Ex MBA 2009-12 ExMBA

8/8/2019 Stocks Mechanism and Dynamics - Ex MBA 2009-12 ExMBA

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STOCKS, MECHANISM & DYNAMICS

TEAM

1. JYOTSNA SHELKE ROLL NO 592. ABHISHEK CHAUDHARY ROLL NO 393. S KUMAR ROLL NO 12

Financial Stock Markets

07th October 2010Executive MBA

2009 -2012SIMS


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STOCKS Definition

STOCK MARKET - Definition

A stock market or equity market is a public market (a loosenetwork of economic transactions, not a physical facility or discreteentity) for the trading of company stock (shares) and derivatives at anagreed price; these are securities listed on a stock exchange as well asthose only traded privately.

An instrument that signifies an ownership position (called equity) in acorporation, and represents a claim on its proportional share in thecorporation's assets and profits.

Ownership in the company is determined by the number of shares a personowns divided by the total number of shares outstanding.


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STOCK MARKET

The stock market is one of the most important sources for companies toraise money. This allows businesses to be publicly traded, or raise additionalcapital for expansion by selling shares of ownership of the company in a publicmarket.

The liquidity that an exchange provides affords investors the ability to quicklyand easily sell securities. This is an attractive feature of investing in stocks,compared to other less liquid investments such as real estate.

An economy where the stock market is on the rise is considered to be an up-and-coming economy.

In fact, the stock market is often considered the primary indicator of a

country's economic strength and development.


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MAJOR STOCK EXCHANGES IN INDIA

OTHER STOCK EXCHANGES IN INDIA

1. Bombay Stock Exchange - SENSEX2. National Stock Exchange - NIFTY

Ahmedabad Bangalore Bhubaneshwar Kolkata Cochin Coimbatore Delhi Guwahati Hyderabad Jaipur

Ludhiana Madhya Pradesh Chennai Magadh Mangalore Meerut Otc Exchange Of India Pune Saurashtra Kutch Uttar Pradesh Vadodara


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The National Stock Exchange (NSE), located in Bombay, is India's first debtmarket.

It was set up in 1993 to encourage stock exchange reform through systemmodernization and competition. It opened for trading in mid-1994.

The instruments traded are, treasury bills, government security and bonds issuedby public sector companies.

NSE


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Sl NSE Code Company

1 ABB ABB Ltd.2 ACC ACC Ltd.3 AMBUJACEM Ambuja Cements Ltd.4 AXISBANK Axis Bank Ltd.5 BHARTIARTL Bharti Airtel Ltd.6 BHEL Bharat Heavy Electricals Ltd.

7 BPCLBharat Petroleum CorporationLtd.

8 CAIRN Cairn India Ltd.

9 CIPLA Cipla Ltd.10 DLF DLF Ltd.11 GAIL GAIL (India) Ltd.12 GRASIM Grasim Industries Ltd.13 HCLTECH HCL Technologies Ltd.

14 HDFCHousing DevelopmentFinance Corporation Ltd.

15 HDFCBANK HDFC Bank Ltd.16 HEROHONDA Hero Honda Motors Ltd.

17 HINDALCO Hindalco Industries Ltd.18 HINDUNILVR Hindustan Unilever Ltd.19 ICICIBANK ICICI Bank Ltd.20 IDEA Idea Cellular Ltd.

21 IDFCInfrastructure DevelopmentFinance Co. Ltd.

22 INFOSYSTCH Infosys Technologies Ltd.23 ITC I T C Ltd.24 JINDALSTEL Jindal Steel & Power Ltd.

25 JPASSOCIAT Jaiprakash Associates Ltd.26 LT Larsen & Toubro Ltd.27 M&M Mahindra & Mahindra Ltd.

NIFTY 50 COMPANIES

Sl NSE Code Company

28 MARUTI Maruti Suzuki India Ltd.29 NTPC NTPC Ltd.

30 ONGCOil & Natural GasCorporation Ltd.

31 PNB Punjab National Bank

32 POWERGRIDPower Grid Corporation of India Ltd.

33 RANBAXY Ranbaxy Laboratories Ltd.

34 RCOM Reliance Communications Ltd.

35 RELCAPITAL Reliance Capital Ltd.36 RELIANCE Reliance Industries Ltd.

37 RELINFRA Reliance Infrastructure Ltd.

38 RPOWER Reliance Power Ltd.

39 SAIL Steel Authority of India Ltd

40 SBIN State Bank of India41 SIEMENS Siemens Ltd.

42 STER Sterlite Industries (India) Ltd.

43 SUNPHARMASun Pharmaceutical IndustriesLtd.

44 SUZLON Suzlon Energy Ltd.45 TATAMOTORS Tata Motors Ltd.46 TATAPOWER Tata Power Co. Ltd.47 TATASTEEL Tata Steel Ltd.

48 TCS Tata Consultancy Services Ltd.49 UNITECH Unitech Ltd.50 WIPRO Wipro Ltd.


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MUMBAI STOCK EXCHANGE

The Bombay Stock Exchange (BSE) (is the oldest stock exchange in Asiaand largest number of listed companies in the world, with 4990 listed as ofAugust 2010.

It is located at Dalal Street, Mumbai, India. On Aug, 2010, the equity marketcapitalization of the companies listed on the BSE was US$1.39 trillion, making

it the 4th largest stock exchange in Asia and the 11th largest in the world.

With over 4,990 Indian companies listed & over 7700 scrip's on the stockexchange, it has a significant trading volume.

The BSE SENSEX (SENSitive indEX), also called the "BSE 30", is a widelyused market index in India and Asia.

Though many other exchanges exist, BSE and the National Stock Exchange ofIndia account for most of the trading in shares in India.


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Company Industry

ACC ement MajorBharti Airtel elecommunications Service

BHEL Engineering HeavyCipla PharmaceuticalsDLF onstruction & Contracting

- Real EstateHDFC Finance - HousingHDFC Bank Banks - Private SectorHero Honda uto - 2 & 3 WheelersHindalco luminiumHUL Personal CareICICI Bank Banks - Private SectorInfosys omputers - SoftwareITC igarettes

Jaiprakash Asso onstruction & Contracting - CivilJindal Steel Steel - Sponge Iron

Company Industry

Larsen Engineering - HeavyMah and Mah Auto - Cars & Jeeps

Maruti Suzuki Auto - Cars & JeepsNTPC Power - Generation/Distribution

ONGC Oil Drilling And Exploration

Reliance RefineriesReliance Comm Telecommunications - ServiceReliance Infra Power - Generation/Distribution

SBI - Public Sector Bank

Sterlite Ind Metals - Non Ferrous

Tata Motors Auto - LCVs/HCVsTata Power Power - Generation/Distribution

Tata Steel Steel - Large

TCS Computers - SoftwareWipro Computers - Software

SENSEX COMPANIES


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SECTOR INDICATORS

1. Banking Sector

2. Capital Goods Sector

3. Cement Sector

4. Real Estate Sector

5. Infrastructure Sector

6. Power Sector

7. Telecom Sector

8. Automobile Sector

9. Metal Sector

10. Information Technology Sector


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INDEX CALCULATIONSSENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology,wherein, the level of index at any point of time reflects the free-float marketvalue of30 component stocks relative to a base period.

The market capitalization of a company is determined by multiplying the priceof its stock by the number of shares issued by the company.This market capitalization is further multiplied by the free-float factor todetermine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points.This is often indicated by the notation 1978-79=100.

The calculation of SENSEX involves dividing the free-float market capitalizationof30 companies in the Index by a number called the Index Divisor. The Divisoris the only link to the original base period value of the SENSEX.


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SEBI

The Securities and Exchange Board of India (frequentlyabbreviated SEBI) is the regulator for the securities market in India.

It was formed officially by the Government of India in 1992 withSEBI Act 1992 being passed by the Indian Parliament.

Chaired by C B Bhave, SEBI is headquartered in the popularbusiness district of Bandra-Kurla complex in Mumbai, and hasNorthern, Eastern, Southern and Western regional offices in NewDelhi, Kolkata, Chennai and Ahmedabad.


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SEBI ROLES AND REGULATIONS

SEBI has to be responsive to the needs of three groups, which constitute themarket:

The issuers of securitiesThe investorsThe market intermediaries.

SEBI has three functions rolled into one body quasi-legislative, quasi-judicialand quasi-executive.

It drafts regulations in its legislative capacity, it conducts investigation andenforcement action in its executive function and it passes rulings and orders inits judicial capacity.

Though this makes it very powerful, there is an appeals process to createaccountability.

There is a Securities Appellate Tribunal which is a three-member tribunal and ispresently headed by a former Chief Justice of a High court - Mr. Justice NKSodhi.

A second appeal lies directly to the Supreme Court.


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IPO - PROCEDURES

1. IPOs ofsmall companies

Public issue of less than five crores has to be through OTCEI and separateguidelines apply for floating and listing of these issues.

2. Size of the Public Issue

Issue of shares to general public cannot be less than 25% of the total issue,incase of information technology, media and telecommunication sectors thisstipulation is reduced subject to the conditions that:

Offer to the public is not less than 10% of the securities issued.

A minimum number of 20 lakh securities is offered to the public .

Size of the net offer to the public is not less than Rs. 30 crores.


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IPO PROCEDURES3. Promoter Contribution

Promoters should bring in their contribution including premium fully beforethe issue

Minimum Promoters contribution is 20-25% of the public issue.

Minimum Lock in period for promoters contribution is five years

Minimum lock in period for firm allotments is three years.

4. Collection centers for receiving applications

There should be at least 30 mandatory collection centers, which shouldinclude invariably the places where stock exchanges have been established.

For issues not exceeding Rs.10 crores (including premium, if any), thecollection centers shall be situated at:-

o The four metropolitan centers viz. Bombay, Delhi, Calcutta,Madras; and

o At all such centers where stock exchanges are located in theregion in which the registered office of the company is situated.


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IPO PROCEDURES

5. Regarding allotment ofshares

Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on aStock exchange.

It is mandatory for a company to get its shares listed at the regional stock exchange where theregistered office of the issuer is located.

In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole issue by book-building

Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for lessthan 1000 shares.

There should be atleast 5 investors for every 1 lakh of equity offered (not applicable toinfrastructure companies).

Quoting of Permanent Account Number or GIR No. in application for allotment of securities iscompulsory where monetary value of Investment is Rs.50,000/- or above.

Indian development financial institutions and Mutual Fund can be allotted securities upto 75% ofthe Issue Amount.

Allotment to categories of FIIs and NRIs/OCBs is up to a maximum of 24%, which can befurther extended to 30% by an application to the RBI - supported by a resolution passed in theGeneral Meeting.


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IPO PROCEDURES

6. Timeframes for the Issue and Post- Issue formalities

The minimum period for which a public issue has to be kept open is 3 workingdays and the maximum for which it can be kept open is 10 working days.

The minimum period for a rights issue is 15 working days and the maximum is 60working days.

A public issue is effected if the issue is able to procure 90% of the Total issue sizewithin 60 days from the date of earliest closure of the Public Issue.

In case of over-subscription the company may have the right to retain the excessapplication money and allot shares more than the proposed issue, which isreferred to as the green-shoe option.

A rights issue has to procure 90% subscription in 60 days of the opening of theissue.

Allotment has to be made within 30 days of the closure of the Public Issue and 42days in case of a Rights issue.

All the listing formalities for a public Issue has to be completed within 70 daysfrom the date of closure of the subscription list.


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IPO PROCEDURES

7. Dispatch of Refund Orders

Refund orders have to be dispatched within 30 days of the closure of the PublicIssue.

Refunds of excess application money i.e. for un-allotted shares have to be made

within 30 days of the closure of the Public Issue.

8. Other regulations pertaining to IPO

Underwriting is not mandatory but 90% subscription is mandatory for each issueof capital to public unless it is disinvestment in which case it is not applicable.

If the issue is undersubscribed then the collected amount should be returned

back (not valid for disinvestment issues).

There should not be any outstanding warrants or financial instruments of anyother nature, at the time of initial public offer.

Code of advertisement specified by SEBI should be adhered to.

Draft prospectus submitted to SEBI should also be submitted simultaneously to

all stock exchanges where it is proposed to be listed.


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9. Restrictions on other allotments

Firm allotments to mutual funds, FIIs and employees not subject to any lock-inperiod.

Within twelve months of the public/rights issue no bonus issue should be made.

Maximum percentage of shares, which can be distributed to employees cannot bemore than 5% and maximum shares to be allotted to each employee cannot bemore than 200.

10. Relaxations to public issues by infrastructure companies.

These relaxations would be applicable to Infrastructure Companies as definedunder Section 10(23G) of the Income Tax Act, 1961, provided their projects areappraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS.

The projects must also have a participation of at least 5% of the project cost (indebt and/or equity) by the appraising institution.

IPO PROCEDURES


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RED HERRING PROSPECTUS

A red herring prospectus is a document submitted by a company (issuer)who intends on having a public offering of securities (either stocks or bonds) inthe United States.

Most frequently associated with an Initial Public Offering (IPO), this registrationstatement must be filed with the Securities and Exchange Commission(SEC).

"Red-herring prospectus" means a prospectus, which does not have completeparticulars on the price of the securities offered and quantum of securitiesoffered


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"Red-herring prospectus" Means a prospectus, which does not have completeparticulars on the price of the securities offered and quantum of securities offered.

The red herring statementcontains:

Purpose of the issue;

Proposed offering price range;

Disclosure of any option agreement;

Underwriter's commissions and discounts;

Promotion expenses;

Net proceeds to the issuing company (issuer);

Balance sheet; Earnings statements for last 3 years, if available;

Names and address of all officers, directors, underwriters and

stockholders owning 10% or more of the current outstanding stock;

Copy of the underwriting agreement;

Legal opinion on the issue;

Copies of the articles of incorporation of the issuer.

RED HERRING PROSPECTUS


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LEAD MANAGERLead managers are independent financial institutions appointed by thecompany going public to manage the IPO. They are the main bodyresponsible for most of the IPO processing.

Companies planning for IPO (also known as Issuer Company) first approachesor appoint lead managers. Lead managers examine company documentsincluding financial documents, documents relating to litigation like commercial

disputes, patent disputes, disputes with collaborators, etc. and other materials,in connection with the finalization of the draft red herring prospectus for theIPO.

Lead manages are responsible to write the Red Herring Prospectus (RHP)and get it approve by SEBI. SEBI contact lead managers for any irregularitiesor lapses in RHP and ask them to clarify, add or review certain sections of thedocument.

Lead managers certifies to SEBI that all the disclosers made in Draft RedHerring Prospectus are true, correct, adequate and comply with SEBIguidelines to help investors in making a well-informed decision.

Issuer Company with the help of lead manger, appoints underwriters orsyndicate members for the IPO. Lead managers are responsible forexamining the worth of underwriters and there capabilities to buy the sharesand assure the same to SEBI.


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REGISTRAR OF ISSUE

IPO Registrars are independent financial institutions registered with stockexchanges and appointed by the company going public mainly to keeprecord of the issue and ownership of company shares.

Responsibility of a registrar at the time of IPO involves, processing of IPOapplications, allocate shares to applicants based on SEBI guidelines, processrefunds and transfer allocated shares to investors demat accounts.

Investors can contact the Registrar to the Issue in case of any pre-Issue orpost-Issue related problems such as non-receipt of letters of allotment, creditof allotted shares in the respective beneficiary accounts, refund orders etc.


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SYNDICATE MEMBERS

Syndicate members are commercial or investment banks responsible forunderwriting IPO's. Syndicate members are usually registered with SEBI orregistered as brokers with BSE / NSE Stock Exchanges.

They work as intermediaries for Issuer Company and the buyers of theIPO stocks. Investors submit their bids for IPO shares through Syndicate

Members appointed by the Issuer Company. They are also known as 'TheMembers of the Syndicate'.

The Members of the Syndicate circulate copies of the Red Herring Prospectusalong with the bid cum application form to potential investors. They are alsoresponsible for accepting the bids, payments and application forms for thepublic issue.

After receiving the bid for IPO Shares from an investor, Syndicate Memberenters bidding detail into the electronic bidding system and generates aTransaction Registration Slip ("TRS") for each price and demand option andgive the same to the bidder.


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FACTORS

Stock market is something where you can never foretell what is going tohappen in the market.

You might get huge gain or incur losses when the stock market crashes.

There are many factors affecting share prices.

It is very hard to say just one or two factors affect the share prices.

So, let us have a look at the factors that affect share prices.


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FACTORS

.

Financial Market Forecast is basically concerned withforecasting the money as well as the stock market.

Financial market forecasting is based on certain principles,

theories and models to study the financial markets andpredict what their future trend or course will be.

Changes in stock prices are largely dependent on humanopinions and expectations about the future performance ofa stock or share.

In fact, over expectations about the valuation of a securitycan lead to a stock market bubble which is sometimes thepremonition of an imminent stock market crash

.


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FACTORS

Some of the deciding factors regarding Financial Market Forecastare

Interest Rates

Short Interest RatioCorporate ProfitsVolume ofTradingIndex PricesMoney SupplyIndustry Index PricesMutual Fund Flows


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FACTORS

Demand and Supply

This is the first factor that affects share prices. When you get to see thatmore people are buying stocks, then there is an increase in the price of thatparticular stock.

On the other hand price of stock falls when more people are selling theirstocks. So it is very difficult to predict the Indian stock market.

This is the main reason why you need to get in touch with a good stockmarket consultant.

There is consultancy for you which can help you a lot on choosing the right

stocks for you.


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FACTORS

Market cap

It is a very big mistake when you try to guess a companys worth from theprice of a stock.

You should know that the more important is the market capitalization of theparticular company.

This helps to determine the worth of a company. So market cap serves as animportant use to determine share prices.


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FACTORS

Earning per share

Now when it comes to the term, earning per share , it means the profit that aparticular company has made per share and that too on the last quarter.

If you need to know the health of the company then this is the mostimportant factor.

EPS is very important before you wish to invest your hard earned money inthe share market.


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FACTORS

Impact of news

News is another factor that affects the share price.

When there is positive news about a particular stock or company, people try toinvest all their money in that particular stock or market. This leads to increase

in the interest of buying the stock.

But there are many circumstances where news could also bring a negativeeffect where it could ruin the prospect of the particular stock.

So it is very important to know the overall news of a stock or company whereyou can invest your money so that it grows within a very short period of time.


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FACTORS

Irrational behavior

Sometimes the market seems to react irrationally to economic or financialnews, even if that news is likely to have no real effect on the fundamentalvalue of securities itself.

But this may be more apparent than real, since often such news has beenanticipated, and a counter reaction may occur if the news is better (orworse) than expected.

Therefore, the stock market may be swayed in either direction by pressreleases, rumors, euphoria and mass panic; but generally only briefly, asmore experienced investors (especially the hedge funds) quickly rally to takeadvantage of even the slightest, momentary hysteria.


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FACTORS

Over the short-term, stocks and other securities can be battered or buoyed byany number of fast market-changing events, making the stock market behaviordifficult to predict.

Emotions can drive prices up and down, people are generally not as rational asthey think, and the reasons for buying and selling are generally obscure.

Behaviorists argue that investors often behave 'irrationally' when makinginvestment decisions thereby incorrectly pricing securities, which causes marketinefficiencies, which, in turn, are opportunities to make money.

However, the whole notion of EMH is that these non-rational reactions toinformation cancel out, leaving the prices of stocks rationally determined.


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THANK YOU

Documents

Stocks Mechanism and Dynamics - Ex MBA 2009-12 ExMBA