Primarily there are 3 types of Investors in Equity market:
The Indian stock market is regulated as per the guidelines laid down by the Securities and Exchange Board of India (SEBI).
A stock market index is a group of company stocks (also known as company shares) selected to represent a particular market or sector, and is used as a benchmark. It represents the overall performance of the stock market on a daily basis. The two major indices in India which are widely followed:
The performance of Sensex is one of the best across major global indices in developing and developed countries. As on June 30, 2014, it has given CAGR returns of:
There are various types of instruments in the stock market. Few of them are:
You may invest through many modes in the stock market. The various channels available are:
Two types of returns can be earned from investing in equity markets:
The market price of a stock is dependent on
Macro Factors (these may have an immediate or long term affect on the company or industry)
Micro Factors (these show the company's present and future outlook)
Apart from this, stock's price also depends on its demand and supply.
In a bull market, prices are rising or expected to rise. They are characterized by optimism, investor confidence and expectations that strong results will continue (price pattern known as 'Higher Highs and Higher Lows').
In a bear market, prices are falling and widespread pessimism causes the negative sentiment to be self-sustaining (price pattern known as 'Lower Highs and Lower Lows').
Fundamental analysis of a company involves understanding:
Such an analysis provides knowledge about the company's comparative advantages, competitors and its market environment.
A company or a promoter may decide to raise capital. It may do so either by borrowing an amount or by issuing shares to the general public. Such issuance of stocks to general public for the first time is called an Initial Public Offering. This is also referred to as - issuance of shares in primary market. SEBI has strict guidelines on IPO. The company can further issue stocks in the future, which is called a Follow on Public Offering (FPO).
Technical Analysis is a method for forecasting the trend of prices through the study of past market data, primarily price and volume. It is based on these fundamental assumptions:
Dividend is the amount that a company distributes to its shareholders, when it has surplus profit. Shareholders are the owners of the company and hence deserve a share in its profits.
Note: Distribution of dividend is at the sole discretion of the company management.
Few of the valuation parameters used to determine a stock price are:
Price to Earnings ratio (P/E ratio) is the most widely used parameter. It is often used as an indicator of whether a stock is overpriced, underpriced, or at par.
P = Stock or Share Price
E = Earnings (the profits of a company) per Share