Equity Market – Module

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Equity Market

2
 Investment Alternatives
Product Returns

Government Securities 7.3%

Guaranteed Returns

Fixed Deposits 6.50% - 7.00%

Bonds (PSU/ Pvt. Sector) 8.00% - 9.50% Where

Savings Account 3.50% - 5.00%
should I
Invest? What
Provident Fund 8.65% is the Risk/
Reward?
Post Office/ NSCs 7.50%

Insurance Policies 5.00% - 6.00%

National Pension Scheme 9.00% - 14.00%

Gold Bonds 2.75% + 10%*

Non-Guaranteed

Gold 10.00%*
Returns

Real Estate 7.00% - 16.00%*

Mutual Funds 14.00-21.00%*

Shares 11.00%* (Nifty) * 10 year CAGR

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 Financial Markets

Financial System

Financial Financial Financial Financial Financial

Markets Instruments Participants Regulator Services

Capital Money Forex Commodity

Markets Markets Markets Markets

Primary Secondary Treasury Certificate Commercial

Call Money
Markets Markets Bills of Deposits Paper

Equity Debt

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 Equity Markets
SEBI Broker
The Securities and A stockbroker is a
Exchange Board of
regulated professional
India (SEBI) is the regulator
individual, associated with a
for the securities market in
brokerage firm or broker-
India.
Established in 1988, it got dealer, who buys and sells
statutory powers on 30 stocks and other securities for
January 1992 through both retail & institutional
the SEBI Act, 1992. clients through a stock
Its basic function is to exchange or over the counter
protect the interests of SEBI Brokers in return for a fee.
investors in securities and to A broker is regulated by
promote the development of, both SEBI & the respective
and to regulate the securities
Exchange (NSE, BSE)
market

Investors
Exchanges & Traders

Exchanges Investors & Traders

India has two major equity stock Investors & Traders in stock markets are
exchanges - National Stock Exchange of end buyers & sellers of securities and
India (NSE) and Bombay Stock can be classified under Retail &
Exchange of India (BSE). Most of the Institutional category. Retail is hugely
share trading in the Indian equity market underdeveloped in India with equity
takes place on these two stock ownership under 6% of the household
exchanges. financial wealth (45% in US) 5
Primary Market

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 What Are Equity Shares?

A Company can issue two types of shares - Equity Shares and Preference Shares

An equity share, commonly referred to as ordinary share also

represents the form of fractional or part ownership in which a
Equity
Share shareholder, as a fractional owner, undertakes the maximum
entrepreneurial risk associated with a business venture. The holders
of such shares are members of the company and have voting rights

Preference shareholders enjoy the benefit of receiving their dividend

distribution first. Preference shares have the right to receive dividend
Preference
Share at a fixed rate before any dividend is paid on the equity shares.
Further, when the company is wound up, they have a right to return
of the capital before that of equity shares.
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 Preference Vs Common Shares

Basis of Distinction Preferential Shares Common Shares

May or may not. Depends on

Rate of Dividend Paid at fixed rate
profits & management.

Gets accumulated for Cumulative

Arrears of Dividend No accumulation
Preference share

Preferential Rights Before Equity shares No preferential rights

Have a right to return of capital Only paid when preference share

Winding Up before equity shares capital is paid fully

Voting Rights No voting rights Have voting rights

Right to participate in No Rights Do have rights

Management

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Primary Market - Initial Public Offerings (IPOs)

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 Initial Public Offerings (IPOs)

An IPO stands for Initial Public Offering, wherein a company issues

its shares to the public for the first time. Investors can place
Initial Public
requests to buy these shares and once done, the share gets listed
Offering (IPO) in a registered stock exchange and the company uses the share
issue proceeds for its development/growth.

Entry Norms For Companies wishing to bring IPO

Entry Norm 1 Entry Norm 2 Entry Norm 3

1. Net Tangible assets of atleast Rs.3Cr 1. Issue shall be only through the 1. The “Project” is appraised and
participated to the extent of 15% by
for 3 full years book building route with atleast
FI’s/Scheduled Commercial Banks of
2. Distributable profits in atleast 3yrs 50% allotted mandatorily to
which atleast 10% comes from the
3. Net worth of atleast Rs1Cr in 3 years Qualified Institutional Buyers appraiser(s).
4. If there was a change in name, atleast (QIBs) 2. The minimum post issue face value
50% of the revenue in the preceeding 2. The minimum post issue face capital shall be Rs. 10 crores or there
shall be a compulsory market-making for
year should be from the new activity value capital shall be Rs. 10
atleast 2 years
5. The issue size should not exceed 5 crores or there shall be a
3. In addition to the above mentioned 2
times the pre-issue networth of the compulsory market-making for points, the company shall also satisfy the
company atleast 2 years criteria of having atleast 1000 prospective
allottees in future. 10
 Initial Public Offerings (IPOs)
Listing Process

Preparation of
Company decides Selection of an
Registration
to generate funds Investment bank /
statement to be
through an IPO Underwriters
submitted to SEBI
1 2 3

Getting the ‘Red Road Show in

SEBI Queries,
Herring’ Prospectus major hubs to
Resolution, Listing & refund
ready (Financial, promote IPO with
Approval & Go
Business, key private
Ahead
Company, etc.) investors
6 10
4 5

Decide on Price Making it Available Issue Price

Band & Number of for Public to determination &
Shares Purchase share allotment

7 8 9
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Primary Market - Initial Public Offerings (IPOs)

Three types of IPO Pricing Process

Book building is a systematic process of generating, capturing

and recording investor demand for shares during an initial public
Book Building
offering (IPO), or other securities during their issuance process
in order to support efficient price discovery.

Under fixed price, the company going public determines a fixed

price at which its shares are offered to investors. The investors
Fixed Price
know the share price before the company goes public. Demand
from the markets is only known once the issue is closed

Reverse book building is the process by which a company that

wants to delist from the bourses, decides on the price that needs
Reverse Book Building to be paid to public shareholders to buyback shares, following a
detailed regulatory process, which ensures that promoters don’t
hop on/off the stock exchange platform at whim
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IPO Application - Online Process (ASBA)
ASBA is a process developed by the India's Stock Market Regulator
Application Supported SEBI for applying to IPO. In ASBA, an IPO applicant's account doesn't get
by Blocked Amount debited until shares are allotted to them. ASBA is an application containing
(ASBA) an authorization to block the application money in the bank account, for
subscribing to an issue

Investor needs to Click on the link Select one of the

open Demat named "IPO IPOs he want to
Login into Net
Account with an Application" under apply for and
banking Account
institution & Net Request on the left mention up to 3
banking with a bank side menu bids

Y Share Allotted

Enter his depository Place and confirm

details his Order
N
Money Refund

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 Initial Public Offerings (IPOs)

Exchange

Book Running Institutional

Lead Managers Investors

Company
Looking
Syndicate for Retail Individual
Members Finance Investors
through
IPO

High Net-worth
Registrar
Individuals

Regulator

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 Initial Public Offerings (IPOs)
Galaxy Surfactants Limited

*All investors shall mandatorily use only Application Supported by Blocked

Amount (ASBA) facility for making payments.
Symbol GALAXYIPO
Issue Period 29-Jan-2018 to 31-Jan-2018
Post issue Modification Period 01-Feb-2018 (10.00 A.M. to 1.00 P.M.)
Initial Public offer of Upto 6,331,674 Equity Shares (including anchor portion
Issue Size of 18,99,500 Equity Shares)
Issue Type 100% Book Building
Price Range Rs 1470 to Rs 1480
Face Value Rs 10
Tick Size Re 1
Bid Lot 10 Equity Shares and in multiples thereof
Minimum Order Quantity 10 Equity Shares
Maximum Subscription Amount for
Retail Investor Rs. 2,00,000
Maximum Bid Quantity 4,432,170 Equity Shares
IPO Market Timings 10.00 a.m. to 5.00 p.m.
ICICI Securities Limited, Edelweiss Financial Services Limited and JM
Book Running Lead Managers Financial Limited
Syndicate Members Edelweiss Securities Limited and JM Financial Services Limited
Categories FI, IC, MF, FII, OTH, CO, IND and NOH
Name of the Registrar Link Intime India Private Limited
Address of the Registrar C-101, 247 Park, Lal Bahadur Shastri Marg, Vikhroli West, Mumbai 400 083
Contact person name number and Email 15
id Ms Shanti Gopalakrishnan, +91 22 4918 6200, [email protected]
 Initial Public Offerings (IPOs)

GALAXY SURFACTANTS LIMITED

No.of shares No. of shares bid No. of times of total

Sr.No. Category offered/reserved for meant for the category
Qualified Institutional
1 Buyers (QIBs) 1,266,336 68,725,080 54.27
Foreign Institutional
1(a) Investors(FIIs) 17,164,790

Domestic Financial
Institutions(Banks/
Financial Institutions(FIs)/
1(b) Insurance Companies) 21,149,630
1(c) Mutual funds 9,078,620
1(d) Others 21,332,040

2 Non Institutional Investors 949,752 6,610,610 6.96

2(a) Corporates 2,125,970
Individuals(Other than
2(b) RIIs) 4,390,760
2(c) Others 93,880
Retail Individual
3 Investors(RIIs) 2,216,086 13,312,860 6.01
3(a)Cut Off 11,316,510
3(b)Price bids 1,996,350
Total 4,432,174 88,648,550 20.00
Updated as on 31st Jan 2018 at 2130 hrs16
IPO market are vibrant again after a brief lull

Amount Raised (in Rs. Cr)

80,000
71,939

70,000

60,000

50,000

40,000 36,362
33,946

30,000 26,372

18,340 19,307
20,000
11,362

10,000 6,044 6,770

1,284 1,201

-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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 How do you decide to invest in IPO

• Offer document - Not to invest without reading

it
• Sustainable business model
• Merchant Banker for the issue and their track
record
• Book value / premium to be paid and whether
worth investing
• who are the type of investors – particularly
institutional investors
• Not to go by the market rumours

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 Pricing Method in IPO

Issue Type Offer Price Demand Payment Reservations

50 % of the shares
Price at which the
Demand for the 100 % advance payment offered are reserved for
securities are offered
securities offered is is required to be made applications below Rs. 1
Fixed Price Issues and would be allotted is
known only after the by the investors at the lakh and the balance for
made known in advance
closure of the issue time of application. higher amount
to the investors
applications.

A 20 % price band is 10 % advance payment

Demand for the
offered by the issuer is required to be made
securities offered , and 50 % of shares offered
within which investors by the QIBs along with
at various prices, is are reserved for QIBS,
are allowed to bid and the application, while
Book Building Issues available on a real time 35 % for small investors
the final price is other categories of
basis on the BSE and the balance for all
determined by the investors have to pay
website during the other investors.
issuer only after closure 100 % advance along
bidding period..
of the bidding. with the application.

4 January 2023 www.isfm.co.in 19 18

IPO & Hits + Flops

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Most & Least Subscribed

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PSU IPO Status

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IPOs - Information Resources

www.sebi.gov.in

nseindia.com

www.bseindia.com

www.economictimes.indiatimes.com

www.moneycontrol.com

www.chittorgarh.com

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Secondary Markets

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 Secondary Market

 The secondary market, also called the aftermarket and follow on

public offering is the financial market in which previously issued
financial instruments such as stock, bonds, options, and futures are
Secondary
Market bought and sold on an exchange.
 There are two major exchanges in India – NSE & BSE with 21
other small regional exchanges.
 Trading on the equities segment takes place on all days (M –F)

Capital
Markets

Mutual
Equity Debentures
Funds

Equity Preference Partly Fully Non-

Warrants Bonds
Shares Shares Convertible Convertible Convertible
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 Types of Trading

• Intra Day Trading • Delivery Base Trading

• You have to square off on
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• Not mandatory
the same day • Transaction charges is
• Low transaction charges high
• High Exposure for Trading • Less Exposure for Trading
• High risk due to less time
• Low risk
• Low tax applicable • High tax applicable : STT
• You are not owner of the • You are owner of the
securities securities

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 Secondary Market

Investment Trading

 Generally Long Term (1yr & more)  Generally Short Term – few minutes to few
 An Investor uses Fundamental Analysis days
(Study of B/S, Cash Flow, P&L, Industry &  A trader generally uses Technical Analysis
Company analysis to identify stocks for long (study of price charts, patterns trends
term investment). technical indicators, wave patterns.
 No Leverage  A trader generally gets a leverage of 4-5
 Cant do short selling times on intraday trades (Margin Trading)
 Uses Averaging instead of stop losses  Can do short selling (Selling shares before
 Buys stock which have low retail owning them, and then repurchase, mostly
penetration. during the day).
 Use of Stop Loss
 Trades in stocks which have high liquidity
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Secondary Market – Trading Platform

NSE operates on the 'National Exchange for Automated Trading'

(NEAT) system, a fully automated screen based trading system,
NEAT
(National which adopts the principle of an order driven market. NSE
Exchange for consciously opted in favor of an order driven system as opposed to
Automated a quote driven system. This has helped reduce jobbing spreads not
Trading)
only on NSE but in other exchanges as well, thus reducing
transaction costs.

Brokers use some privately build software which work as well with NEAT
platform. Some of the these software's are NEST, ODIN Diet, NOW, Keat Pro etc
which are more user friendly for both brokers & traders

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 Secondary Market - Timing
Stock Market operates in 3 time phases – Pre-Open, Normal Market & Post Close

Order entry & modification Open : 09:00 hrs

Pre- Open Order entry & modification Close : 09:08 hrs*
(9:00am – 9:15) *with random closure in last one minute. Pre-open order matching
starts immediately after close of pre-open order entry.

Normal Market Normal / Limited Physical Market Open : 09:15 hrs

(9:15 – 3:30) Normal / Limited Physical Market Close : 15:30 hrs

Timings will be 15.40 to 16.00 hrs. Closing Session is available only

in Normal Market Segment.

Post Close Only market price orders are allowed, Trading will take place at
(3:40– 4:00 pm) single price i.e. close price of a security.
Special Terms, Stop Loss and DQ orders are not allowed. Trades will
be considered as Normal Market trades.
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Secondary Market – Transaction Cycle

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Secondary Market – Short Keys (ODIN)

F1 Buy Order Entry

F2 Sell Order Entry

F3 Order Book

F5 Best Five /Snap Quote

F8 Trade Book

ALT+F6 Net Position

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 Secondary Market – Short Keys

Buy Order Window

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 Secondary Market – Short Keys

Sell Order

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 Secondary Market – Short Keys

Best Five Snap Quote – F5

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 Secondary Market – Short Keys

Order Book

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 Secondary Market – Short Keys

Trade Book

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 Secondary Market – Net Position

Net Position

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 Secondary Market – Order Type

RL (Regular An order that allows the price to be specified while entering the order

Lot) into the system.

An order which gets activated only when the market price of the
Stop loss
relevant security reaches or crosses a threshold price (Trigger Price),
Order
until then the order does not enter the market

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Secondary Market – Product Type

Order Condition Trades Valid for Margin Short Selling

Allowed on
Compulsorily Intraday 4- 10 times
INTRADAY limited
square-off margin
securities

90 days to Square off

MARGIN 4 times margin No short selling
trades

DELIVERY Only Delivery Trades No margin No short selling

PTST
(Purchase Today One day 4times margin No short selling
Sell Tomorrow)

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 Secondary Market – Order Validity

A Day order, is valid for the day on which it is entered. If the order is not
Day matched during the day the order gets cancelled automatically at the end
of the trading day.

An Immediate or Cancel (IOC) order allows a Trading Member to buy or

IOC
sell a security as soon as the order is released into the market failing which
(Immediate or
the order will be removed from the market. Partial match is possible for the
Cancel)
order, and the unmatched portion of the order is cancelled immediately

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 Secondary Market – Order Validity

A Good Till Cancelled (GTC) order is an order that remains in the system
GTC (Good until it is cancelled by the Trading Member. It will therefore be able to span
Till Cancelled) trading days if it does not get matched. The maximum number of days a
GTC order can remain in the system is notified by the Exchange (BSE)

A Good Till Days/Date (GTD) order allows user to specify the days/date up
GTD (Good to which the order should stay in the system. At the end of this period the
Till Days) order will get flushed from the system. Each day/date counted is a
calendar day and inclusive of holidays.

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 Secondary Market – Taxes & Charges

Charges on Buying Charges on Selling

Intraday Trade Charges Brokerage - You need to pay
Rates Value (in Rs) Rates Value (in Rs)
Buy/ Sell Value (Cipla 100 brokerage charges on both
shares @ 695/700) 69,500 70,000
Brokerage@ 0.03% (On sides.
Transaction Value) 0.03% 20.85 0.03% 21.00
Service Tax (On Brokerage Goods & Service Tax – Only
Only) 18% 3.13 18% 3.15
on Brokerage @18%
STT (On Selling only) 0% - 0.025% 17.50

Total Charges 23.98 41.65 STT (Securities Transaction

Tax) – Only on Selling
Turnover Charges Rates Value (in Rs)
@0.025% of sales value.
Stamp Duty (on Days Turnover) 0.002% 2.79
SEBI Turnover Tax (On Days Stamp Duty (@0.002%) &
Turnover) 0.0002% 0.28
SEBI Turnover Tax
Total Turnover Charges 3.07
(@0.0002%) – On Total
Turnover
Total Brokerage & Charges 68.70

Profit/ Loss after accountong

for brokerage, taxes & other
charges 431.30 42
 Secondary Market – Margin Trading

Margin Trading
Trade with
(Margin)
Buying on margin is borrowing
Trade with
Leveraged
money from a broker to purchase
Own Money
stock. It is like a interest free loan Money
from brokerage (generally for a
day).
Margin trading allows to buy
more stock than one would be
able to normally.
To trade on margin, one needs Small Profit/
Loss
a margin account, different from a Larger Profit/
regular cash account, in which Loss
you trade using the money in the
account
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 Secondary Market – Short Selling

Short Selling Broker

1 3
Short selling is the sale of Short Seller buys
Short Seller
borrows stock back the stock from
a security that is not owned market
from Broker
by the seller or that the
seller has borrowed.
Short Seller
Short selling is motivated
2 4
by the belief that a Short Seller returns
Short Seller sells
the borrowed stock
security's price will decline, the stock in
to broker
market
enabling it to be bought
back at a lower price to
Market
make a profit.

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 Secondary Market –
Risk Management System

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Secondary Market – Daily Price Bands

Daily price bands are applicable on securities as below:

Daily price bands of 2% (either way)

Daily price bands of 5% (either way)
Daily price bands of 10% (either way)
No price bands are applicable on scrips on which derivative products
are available*
Price bands of 20% (either way) on all remaining scrips (including
debentures, preference shares etc).
Scrips on which no derivatives products are available but which are
part of Index Derivatives, are also subjected to price bands
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Secondary Market – Market Wide Circuit Limits

Applicable on Nifty

Pre-open call
Trigger limit Trigger time Market halt duration auction session
post market halt

Before 1:00 pm. 45 Minutes 15 Minutes

At or after 1:00 pm upto

10% 15 Minutes 15 Minutes
2.30 pm

At or after 2.30 pm No halt Not applicable

Before 1 pm 1 hour 45 minutes 15 Minutes

At or after 1:00 pm
15% 45 Minutes 15 Minutes
before 2:00 pm

On or after 2:00 pm Remainder of the day Not applicable

Any time during market

20% Remainder of the day Not applicable
hours
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Secondary Market – Clearing & Settlement

Clearing &
Settlement
Process

Step 1: Trade details from exchange to NSCCL Step 6: Pay-in of securities

(clearing house of NSE) Step 7: Pay-in of funds
Step 2: NSCCL notifies the trade details to Step 8: Pay-out of securities
Clearing members/ Custodians Step 9: Pay-out of funds
Step 3: Download of obligation/ pay-in advice of
Step 10: Depository informs custodians/
funds/ securities
Step 4: Instructions to clearing banks to arrange Clearing members through DP
funds by pay-in time Step 11: Clearing banks inform custodians/
Step 5: Instruction to depositories for same Clearing members 48
Corporate Actions – Dividend, Bonus, Splits,
Rights, M&A

49
Corporate Actions – Dividends, Bonus, Splits,
Rights

Dividends are paid by the company to its shareholders. Dividends are paid
Dividends to distribute the profits made by the company during the year. Dividends
are paid on a per share basis

A bonus issue is a stock dividend, allotted by the company to reward the

shareholders. The bonus shares are issued out of the reserves of the
Bonus
company. These are free shares that the shareholders receive against
shares that they currently hold in a fixed ratio such as, 1:1, 2:1, 3:1 etc.

When a stock split is declared by the company the number of shares held
Splits increases but the investment value/market capitalization remains the same
similar to bonus issue. The stock is split with reference to the face value.

50
Corporate Actions – Dividends, Bonus, Splits,
Rights

A rights issue is an invitation to existing shareholders to purchase

additional new shares in the company. More specifically, this type of issue
gives existing shareholders securities called "rights," which, well, give the
Rights
shareholders the right to purchase new shares at a discount to the market
price on a stated future date. The company is giving shareholders a
chance to increase their exposure to the stock at a discount price.

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 Corporate Actions – Dividends, Bonus, Splits,
Rights
Long term returns on Balkrishna Industries after Corporate Adjustments
Total Shares Dividend Per Total Yearly
S.No. Split Bonus
after Corp Action Share Dividend
1990-91 100
1991-92 1:1 200 - -
1994-95 1:1 400 - -
1995-96 400 - -
Initial Investment for 100
1996-97 400 - - 130
1997-98 400 - -
shares @ Rs1.30/ share
1998-99 400 - - Current Market Price
1999-2000 400 - - 1200
/Share
2000-01 400 -
2001-02 400 3.50 1,400 Total Value of Investment 14,400,000
2002-03 400 9.50 3,800
2003-04 1:1 800 4.50 3,600
2004-05 800 7.50 6,000
2005-06 1:2 1200 7.00 8,400 Total Value of
2006-07 1200 14.50 17,400 Investment after 14,693,800
2007-08 1200 10.50 12,600 Dividend at CMP
2008-09 1200 6.00 7,200
2009-10 1200 13.00 15,600
2010-11 10:2 6000 1.50 9,000
2011-12 6000 1.40 8,400
2012-13 6000 1.50 9,000
2013-14 6000 1.50 9,000
2014-15 6000 2.00 12,000
2015-16 6000 7.90 47,400
2016-17 6000 5.50 33,000
2017-18 1:1 12000 7.50 90,000
Total 293,800
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Secondary Market - Taxation

53
 Secondary Market - Taxation

Income head Applicable Taxes

LTCG with
LTCG on
Indexation on
Investment Equity STT
Debt MF (3yr
(1yr +)
& more)

STCG on
Investment Short term (
Equity
More than 1 day but less STT
(Less than
than 365 days
1yr)

Advance tax
Tax as per
Non – Speculative on Business
the Income
Business Income (F&O) Income on
Slab
accrued profit

Tax as per Advance tax

Speculative Business
the Income on Business
Income (Intraday Trade)
Slab Income
54
 Secondary Market - Taxation

Capital Gain Tax Tax on Equity Tax on Debt Mutual

Tax on Equity
Category Mutual Fund Fund

Long Term Capital 10% (More than 10% (More than 20% on Capital gains after
Gain (LTCG) Tax 1yr) above Rs1L 1yr) above Rs1L Indexation* (3yr & More)

Short Term Capital 15% on Capital 15% on Capital On Capital Gains as per
Gains (Less than Gains (Less than the Investors tax slab
Gain (STCG) Tax
1yr) 1yr) (Less than 3year)

Income Tax Slab for

Tax Rate
FY 2017- 2018

Income upto Rs 2,50,000* No Tax

Income from Rs 2,50,001 –

5% Rs40,000 Standard Deduction
Rs5,00,000
for Salaried Employees
Income from Rs 5,00,001 –
20%
Rs10,00,000

Income more than Rs10,00,001 30% 55

 Secondary Market - Taxation

Indexation Cost
Financial Inflation
Sl. No. Year Index
Indexation is a technique used to adjust the purchase price of 1 2001-02 100

certain types of investments for inflation, using Cost Inflation 2 2002-03 105
3 2003-04 109
Index (published by the Government every year).
4 2004-05 113
5 2005-06 117
Example: 6 2006-07 122
If you invest Rs. 1 lakh in a debt fund in April 2010 at a NAV of Rs. 10. 7 2007-08 129
And redeem all of it in July 2017 when the NAV is Rs. 25. 8 2008-09 137
9 2009-10 148
You made a Capital Gain of Rs1.5Lakh (Rs2.5L- Rs1.0L)
10 2010-11 167
Without Indexation benefit, you have to pay a Long Term Capital Gain Tax
11 2011-12 184
of 20% or Rs30000 (20% x 150000 = 30000) 12 2012-13 200
With Indexation, the cost of Acquisition is Rs100000 x 272/167 = 13 2013-14 220

Rs1.6287L 14 2014-15 240

15 2015-16 254
The Capital Gain = Rs(250000 – 162870) = Rs 87130
16 2016-17 264
Capital gain Tax (after Indexation) = 87130*20% = Rs17426
17 2017-18 272
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Source – Incometaxindia.gov.in
Market Data, Dos & Don'ts, Portfolio Building,
Investor Complaint Redressal

57
Global stock markets are operational round the
clock

WORLD STOCK MARKET TIME (IST)

Tokyo stock exchange - Opens at 5.50 Am

South Korea – Opens at 5.50 Am
Shanghai stock exchange – Opens at 7.30 Am
Hong Kong stock exchange - Opens at 7.55 Am
BOVESPA , Brazil – Opens at 7 Pm
Bogota, Columbia – Opens at 7 Pm
Dow Jones – Opens at 7.30 Pm
NYSE, New York – Opens at 8.30 Pm
NASDAQ – Opens at 8.30 Pm

58
 Key Market Data

Domestic Market International Market

GDP Data
Employment Data
Import Export Data Retail Sales
Fiscal Deficit Fiscal Deficit
Inflation Dollar Index
IIP Data Gold Future
PMI Crude Inventory Data
Employment Data Industrial Production
FII Vs DII Purchase data for Equity & PMI – Manufacturing & Services

Debt markets Housing data

US Federal Reserve meets & other
RBI Quarterly Reviews
Central Bank announcements

Market Resources –
Websites - SEBI, Ministry of Company Affairs (mca21), NSE , BSE, MCX, Moneycontrol, Investing
Business News channels – ETNow, NDTV Profit, CNBC, ZeeBusiness, Bloomberg
News Papers - Economic Times, Business Standard, Financial Express 59
Secondary Market – Shares Pledging

60
 Building a Portfolio

Multiple Your portfolio should be spread among many different investment vehicles
Investment such as cash stocks, bonds, mutual funds, and perhaps even some real
Vehicles estate

Your securities should vary in risk. You're not restricted to picking only blue
Securities of chip stocks. In fact, the opposite is true. Picking different investments with
Varying Risks different rates of return will ensure that large gains offset losses in other
areas.

Minimizing Your securities should vary by industry, minimizing unsystematic risk to small
Unsystematic groups of companies.
Risk

61
 Building a Portfolio

What is Portfolio Management

62
 What is a Portfolio
• A Portfolio is a combination of different investment assets mixed and matched for the
purpose of achieving an investor's goal(s). Items that are considered a part of your portfolio
can include any asset you own-from
• shares, debentures, bonds, mutual fund units to items such as gold, art and even real estate
etc. However, for most investors a portfolio has come to signify an investment in financial
instruments like shares, debentures, fixed deposits, mutual fund units.
• What is Diversification?
• It is a risk management technique that mixes a wide variety of investments within a
portfolio. It is designed to minimize the impact of any one Securities on overall portfolio
performance. Diversification is possibly the best way to reduce the risk in a portfolio.
• What are the advantages of having a diversified portfolio?
• A good investment portfolio is a mix of a wide range of asset class. Different securities
perform differently at any point in time, so with a mix of asset types, your entire portfolio
does not suffer the impact of a decline of any one Securities. When your stocks go down,
you may still have the stability of the bonds in your portfolio. There have been all sorts of
academic studies and formulas that demonstrate why diversification is important, but it's
really just the simple practice of "not putting all your eggs in one basket." If you spread your
investments across various types of assets and markets, you'll reduce the risk of your entire
portfolio getting affected by the adverse returns of any single asset class.

63
10 Golden Rules for Portfolio Management

• 1. Always use 100 – Age formula for investment.

• 2. Portfolio should not contain more than 15 -20 stocks.
• 3. One sector size should not be more than 20% of total portfolio size.
• 4. Portfolio should be diversify but escape from broad diversify.
• 5. Choose one market leader and one growing company from one sector.
• 6. Focus only two things what going to change in next 10 years and what
not.
• 7. Never buy 100 % share of any company at a single time, use 40 -60
ratio.
• 8. Must maintain liquidity in a/c to encase the opportunities.
• 9. Never do average of loss making stocks.
• 10. Always use stop loss during trading or investment.

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How to Build Portfolio
• What is Portfolio : - Portfolio means
combinations of securities. It might
be Equity, Commodity, Mutual
Funds, Real Estate, Gold etc.
• A Good Portfolio must be diversify
but not be broad diversify.
• How Many stock you should own in
portfolio.
• How may sectors you should own in
portfolio.
• How to choose sectors and stock
weightage in portfolio.
• Which is best approach to make
portfolio.

65
 Portfolio Making Approach
• Concentrated Approach : -
• A concentrated portfolio has around 10–15 high-quality companies and
produces above-average long-term returns. This happens because you
place relatively larger investments in a smaller number of stocks. The
success of even a handful is thus magnified, giving your portfolio
oversized gains.
• Some of the world’s most successful investors, including Warren Buffett,
Charlie Munger and Philip Fisher, have followed the concentrated
investing strategy.
• Diversified Approach : -
• Build a diversified portfolio. By increasing the number of companies you
own, you spread your risk so that few companies don’t account for a large
share of your portfolio. Some of the successful practitioners of this
approach include Benjamin Graham, Walter Schloss and Peter Lynch.

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 Investment Approach
• Investing for Growth
• Investing for Dividends
• Investing for Value
• Investing for Cyclical and Turnarounds

• What you should do : -

• Your purpose, skillset, time horizon and risk tolerance will
define what you should do. In general, seek reasonable
growth and add value whenever possible. Dabble into
turnarounds/cyclical only if you understand the risk and are
experienced enough to spot them.

67
 What is The Right Market Cap Mix ?
• Large Cap Stocks
• Mid Cap Stocks
• Small Cap Stocks
• Micro Cap Stocks
• Penny Stocks

• What you should do : -

• A balanced allocation of (say) 40–50 per cent large caps, 30–
40 per cent mid caps and the remaining in small and micro
caps should bode well for most investors. Get into
small/micro caps only if you have nerves of steel and can do
extensive research.

68
 How to Research Stocks for Investment
• Top Down Investing : -
• This requires you to examine various macroeconomic factors and/or sectoral
factors to understand some cycles or trends that would benefit some sector(s)
and, in turn, a few companies. These factors include, but are not limited to,
interest rates, inflation, commodity prices, gross domestic product,
excess/shortage of supply, etc. Successful investors like Jim Rogers, Ray Dalio and
George Soros have followed this approach.
• Bottom Up Investing : -
• Unlike top-down investing, here you need to simply look at companies instead of
the industry or the ector as a whole. You are only interested in a particular
company and its business economics. Understanding the company and its
economics is far simpler than understanding and forecasting many
macroeconomic variables.
• Nuanced Approach : -
• While bottom-up investing would be ideal for you, adding some aspects of top-
down won’t hurt. Think about the time when the Russia-Ukraine conflict started.
Prices of all sorts of commodities went haywire. Companies saw their input costs
soaring. If you had some knowledge about the commodities dominating that
region, you can earn easily. 69
 What Kind of Companies You Have

• Old – Economy Companies : -

• Technically, the old economy means companies founded during the Industrial
Revolution. While such companies still exist and use, more or less, similar production
processes (with better technology), they also make use of information technology.
• These companies have developed their operations steadily to build a sustainable
business. Profitability and cash flows are decision drivers. Scale is not thought of as
something to die for but rather something to achieve profitably.
• New Age Companies : -
• The new economy denotes the shift from a manufacturing-based economy to a
service-based economy. Thus, the term denotes the likes of Zomato, PayTM, Nykaa,
etc. These companies are service- oriented and most work as a platform connecting
buyers and sellers.
• Moat / Unique Companies : -
• These are unique in the sense they don’t have comparable peers in the listed universe.
It is not that they are the only players in the game. A few examples are Tarsons
Products (a plastic-labware manufacturer), SJS Enterprises (a manufacturer of
decorative aesthetics for the automotive industry) and CDSL (a depository-service
provider).
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 How to Churn Your Portfolio

• Rebalancing Approach
• Churning Approach
• Adding What You already have
• Adding a New Company

71
 What Factors You Must Consider

• Trouble is Temporary or Repeating in Nature

• Entry Barrier in Sectors
• Soft Business or Capital Intensive Business
• Profit Margin in Business Segment
• Promoter Share / FII / DII Holdings
• Regulator Policies for Sectors
• Overall Debt of Company
• Professional Manage or Family Owned Business
• Revenue Model of Company

72
Attractive Large Cap Stocks

73
Attractive Mid Cap

74
Attractive Small Cap

75
 Investor Grievance Redressal

Exchanges takes Complaints against Exchange Members & Listed Companies & have
developed a grievance redressal mechanism

IGRC calls for the N Exchange

N parties and acts as a Arbitration
nodal point to resolve
Exchange refers to the grievances. N
Investor Grievance
N Redressal Committee

Investor to
complaint against
N Entity to Exchange Y Legal
Y Recourse
Y
Y
Investor to lodge
complaint to the
Entity
Complaint
Y Resolved, No
Further Action
Required 76
What are Securities Fraud

77
 SECURITIES FRAUD

•
• Fraud includes any act, expression, omission or concealment
committed whether in a deceitful manner or not by a person or by
any other person with his connivance or by his agent while dealing
in securities in order to induce another person or his agent to deal
in securities, whether or not there is any wrongful gain or
avoidance of any loss

• Securities Fraud leads to market manipulation.

•
• Market manipulation is a deliberate attempt to interfere with
the free/fair operation of the market and create artificial, false or
misleading appearances with respect to the price of the market or
Securities.

78
 Why Securities Market Frauds ?

• Human Greed

• Human ingenuity looking for loopholes in the

system
•

• Declining social & moral values

79
 Securities Market Frauds

Synchronized/
Structured Trading
Circular/Reversal/ Self
Trades
Insider Trading
IPO related manipulation:
Front Running
Order Book Manipulation
Dabba Trading
False Corporate
Misleading Stock
Announcements
Recommendations
OTHERS

4 January 2023 www.isfm.co.in 80 79

 Synchronized Trade

• A synchronized trade is a transaction

wherein the buy and sell order
quantities are identical, and are put
through at exactly the same time on
the trading platform.
• Circular trades in particular scrip
happen when a closely knit set of
market entities, mainly brokers, buy
and sell shares frequently among
themselves to push up the stock price
or just inflate volume.
• Since there are no genuine intentions
to trade in the case of circular trades,
the trading volumes thus generated
are referred to as artificial volumes.
•

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 Insider Trading

• Insider trading refers to trading by insiders while in

possession of unpublished price sensitive information
which is not in public domain, to gain unfair advantage
from the information so obtained.

• Who is an insider?
• who is or was connected with the company or is deemed
to have been connected with the company and is
reasonably expected to have access, by virtue of
such connection, to unpublished price sensitive
information in respect of securities of the company (or)
• who has received or has had access to such unpublished
price sensitive information
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 Insider Trading – Landmark Cases

• Hindustan Lever Ltd (HLL) Vs. SEBI (Appellate Authority Central Government, 1998)
• Case Summary: HLL and Brooke Bond Lipton India Ltd (BB) were both subsidiaries of the common parent company, Unilever
(U). A core team consisting of common directors of HLL and BB had been set up to consider modalities of amalgamation
of both the companies. HLL purchased 8 lakh shares of BB from UTI. This transaction took place on March 25, 1996,
before the merger of HLL-BB was announced on April 19, 1996.

• Findings / Conclusion: No violation. Reasoning - HLL is a deemed insider by virtue of its connection with BB. However, the
information (even though was price sensitive) was generally known in public even before the public announcement.

• Rajiv B. Gandhi Vs. SEBI (SAT, 2008)

• Case Summary: Rajiv Gandhi (RG) was the CFO and Company Secretary of Wockhardt Limited. Sandhay Gandhi (SG) and
Amishi Gandhi (AG) were the spouse and sister of RG. SG & AG traded in the shares of Wockhardt Limited. Having regard
to date and time of trades, their close relationship with one another, it was alleged that they were insiders and that their
trades were executed on the basis of the UPSI.
• Findings / Conclusion: No violation. Reasoning – Appellants failed to rebut the presumption on which the allegation was
made and not even attempted to offer an explanation as to the basis which prompted them to trade.

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 Front Running

• Front running is an activity in which a trader takes a

position of unfair advantage in advance of a large buy or
sell order that the trader knows will move the price of that
activity in a predictable fashion
• - SEBI Order passed by WTM (GA) – 1/10/2007

• The FSA handbook defines front running as ‘a transaction

for a persons’ own benefit, on the basis of and ahead of an
order which he is to carry out with or for another (in
respect of which information concerning the order is inside
information ) which takes advantage of the anticipated
impact of the order on the market price.
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Passport India Investment (Mauritius) Ltd
(period Jan 2007 to Mar 2009)

• Modus Operandi – A client KB Patel dealing thru brokers has put orders ahead of
orders placed by Passport India Investment (Mauritius) Ltd sub-account of
Passport Capital LLC- FII
• Findings – KB Patel was found to have placed and executed orders before the
orders of Passport India and subsequently squared off positions when the orders
of Passport India were placed in the market
• Dipak Patel(portfolio manager) point of contact
• Analysis of phone records / bank account statements linked the connection

• SEBI Action: SEBI passed order dated May 28, 2009

• - Dipak Patel, K B Patel, A B Patel, Bhoomi Industries directed not to buy, sell or
deal in securities etc
• - KB Patel and AB Patel to deposit undue profits made (Rs. 1,12,68,659.35)

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 Difference between Inside and Front Running

85
• Inside Trading • Front Running
No insider either on his own behalf or of any  Based on information about a proposed
other person deal in securities of a company action by a client and crime against client
when in possession of any unpublished price  Person taking position is client, broker,
sensitive information dealer etc
 Crime against investors trading without  Easier to detect but proving nexus is
same level of information difficult
 Person taking position is insider / tippee  Order is price sensitive
 Difficult to prove  Difficult to prove for liquid stocks (BILT was
 Information is price sensitive in nature illiquid stock)
 Intermediary buying / selling in advance of
a substantial client order

www.isfm.co.in 4 January 2023

86
 Dabba Trading & It’s Implications

WHAT IS DABBA TRADING?

It’s an illegal trading in which prices of securities on recognized stock exchanges are used as benchmarks and the investor’s trades do
not get executed on the stock exchange system but in the dabba operator’s books only.

A dabba operator acts as a principal to all the trades and not as an agent of the client. He is a counter party to the trades, whereas, he

should be the Clearing Corporation who guarantees trades on the BOLT/NEAT system. This kind of operation, where trade is kept
within the books of the operator is called “dabba”

A Dabba operator flouts rules and regulations relating to Client A Dabba operator allows the client to carry forward the trade, be it
Protection, which includes registrations, margins, transaction, in cash or in derivative segment for a period, not necessarily
execution and settlements. Not only he evades the Income tax prescribed by the stock exchange. The cash trade is not settled on
regulations, which prohibit dealing in cash, but also service tax rolling basis and the derivative trade may not have a month-end
rules and many other mandatory requirements. In fact, the dabba settlement cycle. Unlike on exchanges, participants may not be
trader gets a small fee from both the buyer and the seller. asked to put up margin to trade and the contracts will be settled on
a weekly basis.

Since the trade Money that has

does not take place escaped the tax
on a recognized net is used in
stock exchange, illegal trading
The counter party depriving the
risk is not exchequer of
mitigated. revenues

www.isfm.co.in 87
 Others Types of Fraud

• IPO related manipulation: Cornering of shares:

• Illegally obtaining IPO shares reserved for retail
investors, through benaami (held in fictitious names)
demat accounts.
• Shares transferred to financiers, who (or through front
entities) sold on the first day of listing, reaping windfall
gains from the difference between the IPO price and
the listing price.
• Order Book Manipulation:
• Repeatedly placing orders with large quantities and
subsequently deleting the orders.

88
False Corporate Announcements
– Company/promoters puts false and/or misleading press releases
– Generates an artificial excitement/ temporary price rise
– Sells the shares before the price goes down

Misleading Stock Recommendation

Investment advisers recommend stock to public but take opposite

position.

4 January 2023 www.isfm.co.in 89 88

Corporate Misconduct Fake / forged /
viz. Enron, Satyam. duplicate share
certificates

Unauthorized fund
raising and Ponzi
schemes.

Falsifying contract notes – Brokers

False market rumours. generating false contract notes for
trades which do not take place.

4 January 2023 www.isfm.co.in 90 89

How to Complaint

91
 SECURITIES AND EXCHANGE BOARD OF INDIA

Protects the interests of investors in securities,

promotes the development of
and regulates the securities market
91

4 January 2023 www.isfm.co.in 92

 SEBI HAS THE POWER TO ACT

AGAINST MANIPULATORS & FRAUDSTERS

92

4 January 2023 www.isfm.co.in 93

 Search and Seizure Operations

Civil Arrest

Attachment of Properties
And Bank Accounts

4 January 2023 www.isfm.co.in 94 93

 Cease & Desist Order

Suspension/ Cancellation of
Registration of Intermediaries

4 January 2023 www.isfm.co.in 95 94

Debarment from Capital Market

Disgorgement of Unfair Gains

4 January 2023 www.isfm.co.in 96 95

Adjudication leading to
penalty up to Rs 25 crores
or 3 times the profits

Prosecution which
may lead to imprisonment
extending upto 10 yrs

4 January 2023 www.isfm.co.in 97 96

 Grievance Redressal Mechanism

Contact the intermediary / company you

have dealt with
1
Investor Services Cell of the stock exchanges - Brokers and
listed companies Depositories - Depository participants
2
SEBI Complaint Redress System (
http://scores.gov.in)

4 January 2023 www.isfm.co.in 98 97

How to lodge a complaint on SCORES ?

99
 In case of any further information

• Visit
• any of SEBI local offices –
• Lucknow / Chandigarh / Jaipur / Guwuhati / Dehradun/ Raipur /
Bhubaneswar/ Hyderabad / Kochi/ Bengaluru / Panjim
• Regional offices - New Delhi / Kolkata/ Ahmedabad /Chennai
• Head office –Mumbai at SEBI
• Investor website http://investor.sebi.gov.in
• SEBI Toll Free Helpline
• 1800 266 7575 / 1800 22 7575
• Call us for conducting dedicated programs on advanced topics
• 022 26449177/ 88/ 99

100
Thank you & Happy Trading!

101
 Master the Art of Trading

Reg. Office: Stock Trading Academy, SCO - 36, First Floor, Sector- 10-A Market, Near OM Sweets
Gurgaon – 122001, Contact : +91 8882945435, +91 9540008689
WWW.stocktradingacademy.co.in

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