Click on link below to get Stock Sites
http://www.rediff.com : Stock (Sensex, BSE, NSE etc.)
Ludhiana Stock Exchange website
The Sensex
is an "index". What is an index? An index is basically an indicator. It gives
you a general idea about whether most of the stocks have gone up or most of the
stocks have gone down.
The Sensex is an indicator of all the major companies of the BSE.
The Nifty is an indicator of all the major companies of the NSE.
If the Sensex goes up, it means that the prices of the stocks of most of the
major companies on the BSE have gone up. If the Sensex goes down, this tells you
that the stock price of most of the major stocks on the BSE have gone down.
Just like the Sensex represents the top stocks of the BSE, the Nifty represents
the top stocks of the NSE.
Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE
is the National Stock Exchange. The BSE is situated at Bombay and the NSE is
situated at Delhi. These are the major stock exchanges in the country. There are
other stock exchanges like the Calcutta Stock Exchange etc. but they are not as
popular as the BSE and the NSE.Most of the stock trading in the country is done
though the BSE & the NSE.
Besides Sensex and the Nifty there are many other indexes. There is an index
that gives you an idea about whether the mid-cap stocks go up and down. This is
called the “BSE Mid-cap Index”. There are many other types of indexes.
There is an index for the metal stocks. There is an index for the FMCG stocks.
There is an index for the automobile stocks etc. If you are interested in
knowing how the SENSEX is actually calculated...you must check-out our "How
to calculate BSE SENSEX?" article!
But, before we go ahead and
try to understand "How
to make money in the stock market?" you MUST read the next page....
This article explains how the
value of the “BSE Sensex” or “sensitive index” is calculated. If you are not
sure what we mean by the Sensex or what the Sensex is all about, you can find
this out by reading our “How
to make money in the stock market?” article.
The Sensex has a very important function. The Sensex is supposed to be an
indicator of the stocks in the BSE. It is supposed to show whether the stocks
are generally going up, or generally going down.
To show this accurately, the Sensex is calculated taking into consideration
stock prices of 30 different BSE listed companies. It is calculated using the
“free-float market capitalization” method. This is a world wide accepted method
as one of the best methods for calculating a stock market index.
Please note: The method used for calculating the Sensex and the 30 companies
that are taken into consideration are changed from time to time. This is done to
make the Sensex an accurate index and so that it represents the BSE stocks
properly.
To really understand how the Sensex is calculated, you simply need to understand
what the term “free-float market capitalization” means. (As we said earlier, the
Sensex is calculated on basis of the “free-float market capitalization” method)
But, before we understand what “free-float market capitalization” means, you
first need to understand what “market capitalization” means
You probably think that you
have never heard of the term “market capitalization” before. You have! When you
are talking about “mid-cap”, “small-cap” and “large-cap” stocks, you are talking
about market capitalization!
Market cap or market capitalization is simply the worth of a company in terms of
it’s shares! To put it in a simple way, if you were to buy all the shares of a
particular company, what is the amount you would have to pay? That amount is
called the “market capitalization”!
To calculate the market cap of a particular company, simply multiply the
“current share price” by the “number of shares issued by the company”! Just to
give you an idea, ONGC, has a market cap of “Rs.170,705.21 Cr” (when this
article was written)
Depending on the value of the market cap, the company will either be a “mid-cap”
or “large-cap” or “small-cap” company! Now the question is, how do YOU calculate
the market cap of a particular company? You don’t! Just go to a website like
MoneyControl.com and look up the company whose market cap you are interested
in finding out! The figure in front of “Mkt. Cap” will be the market cap value.
Having seen what market cap is and how to find out the market cap of a
particular company, let us try to understand the concept of “free-float market
cap”
Many different types of
investors hold the shares of a company! The Govt. may hold some of the shares.
Some of the shares may be held by the “founders” or “directors” of the company.
Some of the shares may be held by the FDI’s etc. etc!
Now, only the “open market” shares that are free for trading by anyone, are
called the “free-float” shares. When we are calculating the Sensex, we are
interested in these “free-float” shares!
A particular company, may have certain shares in the open market and certain
shares that are not available for trading in the open market.
According the BSE, any shares that DO NOT fall under the following criteria, can
be considered to be open market shares:
A company has to submit a complete report about “who has how many of the company’s shares” to the BSE. On the basis of this, the BSE will decide the “free-float factor” of the company. The “free-float factor” is a very valuable number! If you multiply the "free-float factor" with the “market cap” of that company, you will get the “free-float market cap” which is the value of the shares of the company in the open market!
A simple way to understand the
“free-float market cap” would be, the total cost of buying all the shares in the
open market!
So, having understood what the “free float market cap” is, now what? How do you
find out the value of the Sensex at a particular point? Well, it’s pretty
simple….
First:
Find out the “free-float market cap” of all the 30 companies that make up the
Sensex!
Second: Add all the “free-float market cap’s” of all the 30 companies!
Third: Make all this relative to the Sensex base. The value you get is
the Sensex value!
The “third” step probably confused you. To understand it, you will need to
understand “ratios and proportions” from 5th standard mathematics. Think of it
this way:
Suppose, for a “free-float market cap” of Rs.100,000 Cr... the Sensex value is
4000…
Then, for a “free-float market cap” of Rs.150,000 Cr... the Sensex value will be..
So, the Sensex value will be
6000 if the “free-float market cap” comes to Rs.150,000 Cr!
Please Note: Every time one of the 30 companies has a “stock split” or a "bonus"
etc. appropriate changes are made in the “market cap” calculations.
Now, there is only one question left to be answered, which 30 companies, why
those 30 companies, why no other companies?
The 30 companies that make up the Sensex are selected and reviewed from time to
time by an “index committee”. This “index committee” is made up of academicians,
mutual fund managers, finance journalists, independent governing board members
and other participants in the financial markets.
Market capitalization: The
company should have a market capitalization in the Top 100 market
capitalization’s of the BSE. Also the market capitalization of each company
should be more than 0.5% of the total market capitalization of the Index.
Trading frequency: The company to be included should have been traded on each
and every trading day for the last one year. Exceptions can be made for extreme
reasons like share suspension etc.
Number of trades: The scrip should be among the top 150 companies listed by
average number of trades per day for the last one year.
Industry representation: The companies should be leaders in their industry
group.
Listed history: The companies should have a listing history of at least one year
on BSE.
Track record: In the opinion of the index committee, the company should have an
acceptable track record.
Having understood all this, you now know how the Sensex is calculated.
You need to KNOW some
“unforgettable basics” before you enter the world of investing in stocks. The
stock market is a field dominated by savvy investors who know the ins-and-outs
of the market. For people who are not “on the inside”, the stock market can be a
VERY dangerous place. :
Don't even consider "tips" that tell you about "hot stocks". Consider the
source: There are many people in the market who put in all their time and
effort in promoting certain stocks. They do this because they have their money
invested in those stocks. If they can get enough people to buy the stock and
they can get the stock price to rise, they will sell the stock for a huge price,
the stock price will crash and they will walk off to promote another stock.
Always use your own brain: It's extremely important. You must always use
your own brain. Relying on the advice of others, no matter how well intentioned
it may be, is almost always a complete disaster. Make sure you dig in and really
examine the "facts about the companies" before you invest. Ignore press releases
which have very little substance, and rely on "hype" to tell the company's
story.
And finally the most important tip!!!
Only invest money you can afford to lose!! Sure this is a basic point, but many
many people miss it. You should only invest money that you can honestly afford
to lose!! Everyone enters into investments with the idea of earning big profits,
but in many cases, this never works. (Especially if you are new to investing in
the stock market!)
Please understand that the above tips are tips for beginners. Once you really
get into the stock market you do not need to follow these rules anymore. But if
you are a new investor, you MUST follow these rules. They are for your own
safety.
But then again, nothing comes free. Everything has a price. You will have to
loose some money, make some bad decisions and then only will you really
understand the market. You cannot understand the market by just looking at it
from far. By following these rules, you will basically not loose too much!
Having understood all the
basics of the stock market and the risk involved, now we will go into stock
picking and how to pick the right stock. Before picking the right stock you need
to do some analysis.
There are two major types of analysis:
1. Fundamental Analysis
2. Technical Analysis
Fundamental analysis is the analysis of a stock on the basis of core financial
and economic analysis to predict the movement of stocks price.
On the other hand, technical analysis is the study of prices and volume, for
forecasting of future stock price or financial price movements.
Simply put, fundamental analysis looks at the actual company and tries to figure
out what the company price is going to be like in the future. On the other hand
technical analysis look at the stocks chart, peoples buying behavior etc. to try
and figure out what the stock price is going to be like in the future.
In this article we will go into the basics of “fundamental analysis”. Technical
analysis is a little more complicated. It is much more of an "art" than a
science. It depends more on experience and involves some statistics and
mathematics, so explaining technical analysis is out of the scope of this
article.
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FPO
Follow on public offer is FPO.
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Follow-On Offering |
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IPO
Initial public offering (IPO) is a company’s first sale of stock to the public. Once an IPO is made a company ceases to be privately held and becomes publicly held.
Initial public offering (IPO) is a company’s first sale of stock to the public. Once an IPO is made a company ceases to be privately held and becomes publicly held. When doing an initial public offering a company offers its newly issued shares to the general public. This is done with the help of an underwriter, i.e. a stockbroker firm which handles the distribution of shares to the public. Effectively, the underwriter subscribes (underwrites) for the shares and then sells them to his clients (investors). After the initial public offering, the shares will then be traded on a stock exchange. Entrepreneurs and Venture capitalists sometimes call it “cashing in”. Up until a company is public, it is private and operates away from the public eye. When a company plans to go public apart from getting its shares underwritten it files the IPO with the Securities and Exchange Commission. The SEC maintains a publicly available, searchable database on IPO and other corporate information that is required to be filed with the SEC. The database is called EDGAR (for: Electronic Data Gathering, Analysis and Retrieval). Once the proper forms are filed and proper requirements are met, the private company agrees to offer a percentage of its company to the public in the form of stock, and sets an initial sale price for those stocks.
At this point it would be good to define stock. Stock is an instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation’s assets and profits. The goal of an IPO is to raise a specific amount of money, through the issue of these stocks, to meet the business objective, get the initial stockholders wealth and take the business to the next level. However, “going public”, places stringent reporting requirements on the company.
In United States, an IPO (initial public offering) is a first and one- time only sale of publicly tradable stock in a company that has been privately owned previously. The IPO procedure is specified by the US Securities and Exchange Commission (SEC). As stated earlier the initial public offerings are generally managed by professionals (underwriters) who specialize in handling IPOs and have experience in determining what the likely IPO offering price should be. When all the shares of an IPO have been sold, then the stock is tradable through stock exchanges or specialist that trade in the stock and the stock prices may go up or down.
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IPO can further be divided into a traditional IPO and auction based IPO. Traditional IPOs are those where the initial shares are first offered to the large institutional investors, including the institutional banking firms and investment houses that are offered a certain block of stocks, who then offer these to their high rated investors. An important aspect of these traditional IPOs which are offered through the investment houses is that there are set limits to the amount of stocks offered and most of these “A” stocks are tough to get hold of unless someone is a regular player in the market.
An auction based IPO on the other hand is the one, which is offered directly to the public from the company. However, in this case the stocks are not as regulated for proper growth and valuation formula as the traditional one as there are no professional managers of the stocks. Here, it is the buyer who determines the stock/company’s value and not the market as monitored by its peers and community oversight boards such as the Banking community as a whole. Thus, by opening up the auction, the prices of the stock can soar astronomically, making it difficult for the average buyer to participate in the IPO.
Initial Public Offering or IPO as it is commonly called is an area which the inexperienced investor should explore with caution. It is advisable to have a long talk with the investment advisor before getting into the IPO.
