Presented by,

S. Goutham Chand
Equity market
There are two segments in the equity
market

Primary market

Secondary market
Primary market
Through the primary market issues, governments and
companies raise funds for fresh investments and
repayment of previous loans taken from the public

An issue can be a public issue or private placement

An issue where allotment is made to less than 50

persons is a private placement.
 P r im a r y m a r k e t m o b iliz a t io n ( Rs . c r .)

250000

200000

1 50000

1 00000
C o rp o rates
50000
G o vernment
0
1 9 9 0 -1 9 9 1 - 1 9 9 2 -1 9 9 3 -1 9 9 4 - 1 9 9 5 -1 9 9 6 - 1 9 9 7 -1 9 9 8 -1 9 9 9 - 2 0 0 0 -2 0 0 1 -
T o tal
91 92 93 94 95 96 97 98 99 00 01 02
How to apply for a public
issue?
Get an application form from a share broker

Fill up the form and submit it with the amount to

the collecting centre.
You can receive the shares either in your demat
account or you can receive shares in the physical
form.
If the application form is incomplete, it will be
rejected.
What factors to look for while
applying for a public issue?
Promoters track record in terms of experience,
performance, reputation
Risk factors in the offer document

Financial forecasts for the business/project

Issue price in relation to the face value

Listing details

The registrar, lead manager, bankers to the issue

Issue price and face
value
Face value is the value printed on the

share/debenture certificate
Different shares/debentures may have
different face values
Investors should remember this when they

compare prices of one share with another

Public issue pricing
Till 1992, the price was fixed by the Controller of
Capital Issues. There was opportunity to make
handsome profits when the share was listed.
After SEBI was established in 1992, we have
moved to free pricing. The price is decided by the
company now with advice from the merchant
bankers.
Free pricing of a
public issue
Fixed-price: The issuer fixes the price well

before the actual issue. To ensure full

subscription, they fix slightly lower prices.
Book-building: The price is decided through

the book-building process. The prices are

slightly higher than the fixed-price method.
Book building
The company appoints a merchant banker as a book
runner
The company issues a prospectus that has information
about issue size, business, promoters, etc. but not the
price. The price range is indicated.
Period for bidding is indicated
Bids are collected and the book is closed.
On the basis of bids received, issue price is decided.
Types of companies
coming for public issues
Unlisted companies (Initial public offering, IPO)
When the company comes to the market for the first time

the issue is called Initial Public Offering (IPO)

Listed companies
Companies that have tapped the market earlier can tap

the market again

Secondary market for
equity
Secondary market is where a person can buy and
sell securities previously issued by companies
Stock exchange is the secondary market
There are 23 stock exchanges in India
NSE and BSE are the two largest
A share has to be listed on the stock exchange for
it to be traded there
Beside equity, debt and derivatives are also
traded on a few exchanges
Market Capitalization
Market capitalization for a company is obtained by multiplying
the share price with the total number of equity shares issued by
the company. The leading companies in terms of market
capitalization are:
Oil & Natural Gas Corporation Ltd.
Reliance Industries Ltd.
Hindustan Lever Ltd.
Indian Oil Corporation Ltd.
Wipro Ltd.
Infosys Technologies Ltd.
State Bank of India
EPS (Earnings per
share)
PAT is the profit after tax for a company in

any year
EPS is PAT divided by the number of shares

If a company made a profit of Rs. 50 cr. and if

there are 10 cr. shares, then EPS is

(50/10=Rs.5)
P/E (price to earnings
ratio)
Let the market price of a share be Rs. 120
Let the EPS be Rs. 5
P/E ratio is (120/5=24)
In other words, if we know the EPS and the P/E
multiple, we can guess the price of the share
High P/E usually means growth share. But
investors need to develop some experience
before interpreting P/E
Index
An index represents the market or a sector in the market.
Movements in the index indicates movements in the
market.

NIFTY and BSE Sensitive Index represent the largest shares

S&P CNX 500 and BSE500 represent the broader market

CNX Midcap 200 represents the medium sized companies

Transacting in the
secondary market
First open a demat account

Approach a broker with SEBI registration and track

record
Ensure you are investing in companies that are not
delisted and not in Z group
Keep a diversified portfolio

Review the investments regularly

Equity investment needs patience

In the short run equity investment can be risky

For small investors
Try to invest small amounts regularly

Try Systematic Investment Plan (SIP)

This is called “Rupee Cost Averaging” method

This method is superior as it gives you lower

average purchase cost
Do not try to trade too actively in the market
unless you have high risk bearing capacity
Try to work only in the demat segment
Opening a demat
account
Opening a depository account is as simple as opening a bank
account.

You can open a depository account with any depository

participant –DP- convenient to you.

Obtain the account opening form from the DP and fill it up.

Sign the DP-client agreement. It defines the rights and duties

of the DP and the person wishing to open the account.
Opening a demat
account…
Receive client account number (client ID).

This client id (along with your DP id) gives a unique

identification in the depository system.

There is no restriction on the number of depository

accounts you can open.

If your existing physical shares are in joint names, open

the depository account in the same order of names.
 Answer this
 Do you think gold prices will go up further?

 Are you sure that crude oil prices are going to

fall?
 Have you heard that the soya crop this year is

bad
 If and
you will result
believe in soya
that these prices going
predictions haveup?
a
good chance of coming true and are willing to
bet some money on them, you could try your
hand at playing the commodity futures market.
 What is a commodity?
 A commodity is a material that is traded in big quantities and
whose quality standards and price are objective and universally
applicable.

 For example, gold is a commodity because quality standards and

price of gold are objective and universal, but gold jewellery is not
a commodity.

 Other examples of commodities are: agricultural produce such as

foodgrains, pulses, cotton, etc; metals such as nickel, zinc,
aluminium, etc.
 Commodity Exchanges -
Evolution
 Concept originated in the mid 19th century in US when
businessmen organised market forums to make buying and
selling commodities easier.

 In 1933, during the Great Depression, the Commodity

Exchange Inc. was established in NY.

 Major commodity markets – UK and USA.

 In India there are 25 recognised future exchanges, of which

there are three national level multi-commodity exchanges.
 Transformation
 The commodity markets have changed a lot from the poky, little hole-in-
the-wall trading offices in narrow streets next to crowded markets where
traditional dhoti-clad merchants used to trade.

 Brand new commodities exchanges---the main one are NCDEX and MCX---

have been set up and these are fully computerised.

 More and more stock brokers are setting up commodity brokerages as

well, and trading volumes in commodity futures rival the volume of
derivative transactions (futures and options) on the stock exchanges.

 What's more, you can also trade online.

National Multi-Commodity
Exchange of India Limited
(NMCEIL) 
 It is the first de-mutualized, Electronic Multi-

Commodity Exchange in India.

 Operationalised from November 26, 2002.
 National Commodity &
Derivatives Exchange Limited
(NCDEX)
 Located in Mumbai, it commenced its operations on

December 15, 2003.

 Only commodity exchange in the country promoted

by national level institutions.

 It is promoted by ICICI Bank Limited, Life Insurance

Corporation of India (LIC), National Bank for

Agriculture and Rural Development (NABARD) and
National Stock Exchange of India Limited (NSE).
 Multi Commodity
Exchange of India Limited
(MCX)
 Headquartered in Mumbai, it is an independent

exchange with a permanent recognition from GOI.

 MCX started offering trade in November 2003.

 MCX facilitates online trading, clearing and

settlement operations for commodity futures
markets across the country.
 METAL
Aluminium, Copper, Lead, Nickel,
Sponge Iron, Steel Long
(Bhavnagar), Steel Long
(Govindgarh), Steel Flat, Tin, Zinc
BULLION
Gold, Gold HNI, Gold M, i-gold,
Silver, Silver HNI, Silver M

FIBER ENERGY
Cotton L Staple, Cotton M Staple, Brent Crude Oil, Crude Oil, Furnace
Cotton S Staple, Cotton Yarn, Kapas Oil, Natural Gas, M. E. Sour Crude
Oil, ATF, Electricity, Carbon Credit

SPICES PLANTATIONS
Cardamom, Jeera, Pepper, Red Chilli Arecanut, Cashew Kernel, Coffee
(Robusta), Rubber
 PULSES PETROCHEMICALS
Chana, Masur, Yellow Peas HDPE, Polypropylene(PP), PVC
OIL & OIL SEEDS

Castor Oil, Castor Seeds, Coconut Cake, Coconut Oil, Cotton Seed, Crude
Palm Oil, Groundnut Oil, Kapasia Khalli, Mustard Oil, Mustard Seed
(Jaipur), Mustard Seed (Sirsa), RBD Palmolein, Refined Soy Oil, Refined
Sunflower Oil, Rice Bran DOC, Rice Bran Refined Oil, Sesame Seed,
Soymeal, Soy Bean, Soy Seeds

CEREALS OTHERS

Maize Guargum, Guar Seed, Gurchaku,

Mentha Oil, Potato (Agra), Potato
(Tarkeshwar), Sugar M-30, Sugar S-
30
 Derivatives
 A bet that the value derived from the underlying asset will
increase or decrease by a certain amount within a certain
fixed period of time. 

 Two commodity traded types of derivatives - ‘Futures’ and

‘options’. An ‘options’ contract gives the owner the right
to buy or sell an asset at a set price on or before a given
date. The owner of a ‘futures’ contract is obligated to buy
or sell the asset.
 Why commodities
trading?
 Well, let's suppose you want to buy gold because you
believe that the price of gold will rise.
 You could then buy gold ingots, store them, wait for them
to go up in price, and then sell them at a profit.
 But, you have to be sure that the gold you buy is pure, you
have to find a place to store it, you have to provide the
security, transport it to vault and other such hassles.
 A far better way to invest in gold would be to buy gold
futures from the commodities exchange.
 How do you trade?
When you buy a Gold Futures contract, you

undertake to do three things:

Buy the amount of gold specified in the contract.

Buy it at the price specified in the contract.

Buy it on the expiry of the contract. This could be after

one month, two months, three months and so on. Of
course, if you sell the Gold Futures contract before it
expires, then you don't have to worry about actually
buying the gold.
 Contd…
 Let's say you buy the Gold Future contract at say Rs 7,200 per
10gm
 Your hunch comes true and the gold prices rally to Rs 8,000
per 10gm
 You can sell the Gold Futures any time before expiry of the
contract.
 Gold and other commodity futures prices are quoted on the
commodity exchanges in exactly the same way in which stock
prices or stock futures prices are quoted on a daily basis in
the stock markets.
 Margin
 When you buy a Futures, you don't have to pay the entire
amount, just a fixed percentage of the cost. This is known as the
margin.

 Let's say you are buying a Gold Futures contract. The minimum
contract size for a gold future is 100 gms. 100 gms of gold may
be worth Rs 72,000.

 The margin for gold set by MCX is 3.5%. So you only end up
paying Rs 2,520.

 The low margin means that you can buy futures representing a
large amount of gold by paying only a fraction of the price.
 Contd…
 So you bought the Gold Futures contract when it was
Rs.72,000 per 100 gms.
 The next day, the price of gold rose to Rs 73,000 per
100 gms.

Rs 1,000 (Rs 73,000 – Rs 72,000) will be credited to

your account.
 The following day, the price dips to Rs 72,500.
Rs 500 will get debited from your account (Rs 73,000 -
Rs 72,500).
 What you need to know
 Compared to stocks, trading in commodities is much cheaper,
because margins are much lower than in stock futures.  
 Brokerage is low for commodity futures. It ranges from 0.05%
to 0.12%. Because of this, commodity futures are a
speculator's paradise.
 The advantages in this line is that there are no balance sheets,
no complicated financial statements----all you have to do is
follow the supply and demand position of the commodities you
trade in very closely.
Sources of investment
information
Read a reputed financial daily to understand the
economy and the market
Watch the business news on television

Subscribe to the publications of investor

associations
Attend the investors meetings of the investor
associations regularly
Browse the websites of SEBI, NSE and BSE