An Introduction to the Indian Stock Market
4 stars based on
If I were to ask you to give me a real time summary on the traffic situation, how would you possibly do it? The wiser thing for you to do would be to quickly check, a few important roads and junctions across the four directions of the city and observe how the traffic is moving. If you trading stock market indices in india chaotic conditions across these roads then you would simply summarize the traffic situation as chaotic, else traffic can be considered normal.
The few important roads and junctions that you tracked to summarize the traffic situation served as a barometer for the traffic situation for the entire city! Drawing parallels, if I were to ask you how the stock market is moving today, how would you answer my question? There are approximately 5, listed companies in the Bombay Stock Exchange and about 2, listed companies in the National Stock Exchange.
It would be clumsy to check each and every company, figure out if they are up or down for the day and then give a detailed answer. Instead you would just check few important companies across key industrial sectors.
If majority of trading stock market indices in india companies are moving up you would say markets are up, if the majority is down, you would say markets trading stock market indices in india down, trading stock market indices in india if there is a mixed trend, you would say markets are sideways! So essentially identify a few companies to represent the broader trading stock market indices in india. So every time someone asks you how the markets are doing, you would just check the general trend of these selected stocks and then give an answer.
These companies that you have identified collectively make up the stock market index! Luckily you need not actually track these selected trading stock market indices in india individually to get a sense of how the markets are doing. The important companies are pre packaged, and continuously monitored to give you this information. There are two main market indices in India. An ideal index gives us minute by minute reading about how the market participants perceive the future.
The movements in the Index reflect the changing expectations of the market participants. When the index goes up, it is because the market participants think the future will be better. The index drops if the market participants perceive the future pessimistically.
Information — The index reflects the general market trend for a period of time. A stock market index that is up indicates people are optimistic about the future. Likewise when the stock market index is down it indicates that people are pessimistic about the future. For example the Nifty value on 1 st of January was and the value as of 24 th June was This represents a change of points in the index of This simply means that during the time period under consideration, the markets have gone up quite significantly indicating a strong optimistic economic future.
The time frame for calculating the index can be for any length of time. For example, the Index at 9: A drop of 18 points during this period indicates that the market participants are not too enthusiastic. Benchmarking — For all the trading or investing activity that one does, a yardstick to measure the performance is required.
Assume over the last 1 year you invested Rs. How do you think you performed? Well suddenly it may seem to you, that you have underperformed the market! You need the index to benchmark the performance of a trader or investor. Usually the objective of market participants is to outperform the Index. Trading — Trading on the index is probably one of most popular uses of the index. Majority of the traders in the market trade the index. They take a broader call on the economy or general state of affairs, and translate that into a trade.
For example imagine this situation. An hour before the announcement Nifty index is at 6, points. What do you think will happen to the index? Naturally the index will move up. So in order to trade your point of view, you may want to buy the index at 6, After all, the index is the representation of the broader economy. So as per your expectation the budget is good and the index moves to 6, You can now book your profits, and exit the trade at a points profit!
We are probably a bit early to explore derivatives, but for now do remember that index trading is possible through the derivative markets. Portfolio Hedgin g — Investors usually build a portfolio of securities.
A typical portfolio contains 10 — 12 stocks which they would have bought from a long term perspective. While the stocks are held from a long term perspective they could foresee a prolonged adverse movement in the market which could potentially erode the capital in the portfolio.
In such a situation, investors can use the index to hedge the portfolio. We will explore this topic in the risk management module. As we discussed, the Index is a composition of many stocks from different sectors which collectively represents the state of the economy.
To include a stock in the index it should qualify certain criteria. Once qualified as an index stock, it should continue to qualify on the stated criteria. If it fails to maintain the criteria, the stock gets replaced by another stock which qualifies the prerequisites. Based on the selection procedure the list of stocks is populated.
Each stock in the trading stock market indices in india should be assigned a certain weightage. Weightage in simpler terms define how much importance a certain stock in the index gets compared to the others. For example if ITC Limited has 7.
There are many ways to assign weights but the Trading stock market indices in india stock exchange follows a method called free float market capitalization. The weights are assigned based on the free float market capitalization of the company, larger the market capitalization, higher the weight. Free float market capitalization is the product of total number of shares outstanding in the market, and the price of the stock. At the time of writing this chapter, the following are the 50 stocks in Nifty as per their weightage….
As you can see, ITC Ltd has the highest weightage. While the Sensex and Nifty represent the broader markets there are certain indices that represents specific sectors. These are called the sectoral indices. The construction and maintenance of these indices is similar to the other major indices. Hi sir, very excellent initiative by zerodha. Sorry you did not get the gist of my question. The inclusion in the Index is at the discretion of the index owner exchanges.
However all 30 stocks in Sensex are included in Nifty 50 or just Nifty. Nope, there are separate entities which maintain indices. For example Nifty is maintained by — http: Well, trading stock market indices in india because your question is not relevant to the trading opportunities for market participants.
And how can we know? Alternatively keep a watch here — http: A summary of the due diligence required before applying for an IPO is discussed here — http: Download the 2nd excel sheet from here http: Check this — http: Why is it like that?
What if I dont buyback the stock before 3: Sorry for that above posting. Is there any way I can delete my previous posting? Anant query, why it necessary to buy back the stocks? We will discuss in one of the future modules. I want to know how do we buy and sell nifty?
Are any tutorial already available in z-connect? If yes, where its trading stock market indices in india If the stock is listed in only 1 exchange you cant sell it in the other.
Must focus on discount stocks am currently holding Educomp bought 18 RS Q with 5 Year time frame. Must be a different company who focus on discount stocks rather than one at premium. Sir, Great Initiative by you, helps a lot for people from non-commercial backgrounds.
Is there any eligibility criteria to get listed in BSE? What if more that 30 companies are eligible how will the BSE decide which one to choose? You must be referring to BSE Sensex index. The exchange has a set of rules based on market cap and free float…if a company qualifies these conditions then the exchange adds it to the index. I wanted to know about the free float market capitalization technique.
What is meant by the outstanding shares in the market? Does it mean the shares which are still not owned by anyone and is available in the market?