Blue chip stocks

What are Blue Chip stocks?

Blue-chip stocks are stocks of well-established large-sized companies that have strong financials and have been operational for many years. These belong to companies with market capitalization running in billions, often market leaders, or at least are one of the top three companies in their respective sector. 

Here, we will learn more about blue-chip stocks and explore various aspects surrounding this investment option.

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Stock analysis

How to analyse a stock to invest better?

Stock analysis
Home » Stock Markets

How to analyse a stock to invest better?

While considering investments, investing in direct equities on the stock market seems to be a  very attractive investment option. For investors seeking to earn high returns and also have a good risk appetite, investment in stocks has the potential to provide good returns as well as increase the capital investment of the investor in the long run. But for this, the investor needs to understand how to analyse a stock to ensure maximum profitability of their investors.

The most common way to analyse the stock is fundamental analysis and technical analysis. This requires a detailed understanding of these concepts. Investors can also take the help of professional financial analysts for the same. 

What are the common ways to analyse a stock?

The most common ways to analyse a stock are broadly categorized under two categories. The measures of stock analysis adopted under these categories can be used by expert analysts as well as novice investors who wish to handle their own investment portfolios. Given below are the details of the same.

Technical Analysis

Technical analysis, as the name suggests, involves the measurement of the company’s or stock’s profitability through various parameters like the volume or price of the stocks. This type of analysis is usually done by experts with the help of charts or oscillators which can indicate the future price trends. Historical trading data is the basis of such analysis to ascertain the future trends of the stock movements or the industry movements.

There are a few basic assumptions for such technical analysis which are mentioned below.

  • Repetitive price movement patterns

One of the main assumptions in technical analysis is that the price movements are repetitive and that the history of such price movements will be repeated. Prices of the stocks are influenced by the market psychology which eventually leads to such repetition. Investors can therefore refer to the historical charts of the stocks to make sound technical analysis

  • Market relevance

Another assumption of technical analysis is that the market price of the stocks is inclusive of all the factors that can have any influence on such prices. All the factors that can affect the prices of the stock have been incorporated to arrive at the final price. 

  • Trend analysis

Trend analysis is given huge impotence in technical analysis. It is assumed that the future prices of a stock will follow the market trend once it is clearly established.

Fundamental analysis

Fundamental analysis involves analyzing the financial health of the company to determine the current as well as the future value of its stocks. This measure uses many key financial ratios to ascertain the correct position of the company which in turn can tell the investors if the value of the stock in the market reflects its true picture.

Some of such key financial ratios and their interpretation are mentioned below.

  • Price to Earnings Ratio

Price to earnings ratio or P/E Ratio is among the most common measures used by investors to value a stock. P/E ratio is derived by dividing the market value per share by the earnings per share. The investors can then compare the PE ratio of the competitors to decide on a stock to invest in. The stock of the company performing better in PE terms as compared to its competitors or industry, in general, is to be selected for investment. 

  • Earnings Per Share

The simplest explanation of earnings per share is the value that can be earned by each shareholder for each share held by them. It is a measure of the profitability of the company. As a thumb rule, if the EPS of the company is better than its competitors or the industry average, the shares of the company can be considered to be of value. Investors will see the company as a growing company and can be assured of good returns on their investment.  

  • Return on Equity  

Return on equity (ROE) is the measure of the returns that can be earned by the shareholder on the equity or the rate of profitability that shows the optimum utilization of the assets of the company. A company providing consistently higher ROE is considered to be a good investment by experts.

  • Price to Earnings to Growth Ratio

Price to Earnings to Growth Ratio (PEG Ratio) is a refined or enhanced measure as compared to a PE ratio to measure the value of the company or its stocks. It considers the growth of the company along with the PE ratio to measure profitability. PEG ratio is calculated by dividing the PR ratio by the yearly growth rate of the company. If the PEG is lower than 1 then the stocks are considered to be of value.

  • Dividend Payout ratio

The dividend payout ratio is a percentage of the earnings of the company that are paid out to its shareholders. The balance earnings are known as retained earnings which can be used by the company to settle its debts, reinvest in the company, buy back shares, etc.

  • Price to Book ratio

The price to book ratio is the measure of the market value of the shares divided by the book value of the shares. This ratio is mainly used to flush out companies with high growth potential that are undervalued. The book value of shares, in this case, is arrived by deducting the book value of liabilities from the book value of assets. A company with a low P/B ratio will indicate that the stock is potentially undervalued.

What is the importance of stock analysis?

Stock analysis is the starting point for an investment in the stock market. An investor has to ensure a thorough analysis of stock to make sound investment decisions. An investor has to look at the past performance of the stock as well as the historical data of the company to make suitable assumptions about trends that the stock may follow.

A correct analysis of the stocks and the market will tell the investor if the stock is overpriced or underpriced. The intrinsic value or the real value of the stock (which is determined through fundamental analysis) is a good measure of the value of the stock. An overpriced stock is when the market value of the stocks is higher than the intrinsic value of the stock. Whereas, an undervalued stock is when the market price of the stock is lower than its intrinsic value.

Ideally, when the market value of the stock is lower than its intrinsic value, it is the best time to invest in such stocks.

Factors to keep in mind while doing stock analysis

Apart from the above-mentioned measures of analysing a stock, there are certain other considerations that have to be adhered to by the investor while making an investment decision.  Some of such factors are discussed below. It’s always better to invest in a good business rather than going for a cheap stock based on tips received from unverified channels. Some of the pointers you must consider are

  • Must have a strong competitive advantage

A company having a strong competitive advantage in the industry is often viewed as a pioneer in the industry. Such companies have better growth potential and value if their stocks usually follow the upward trend. Investors are assured of higher or consistent returns in such cases.

  • The company has good management

Management of the company is equally important as much as the product of the company. If the product of the company is profitable but the company is not equipped with good personnel at the top management, the survival of the company can also be under question in the long run. Hence, this is another parameter that has to be considered by investors. 

  • Focus on industry trends

Industry trends have to be carefully monitored as well to make prompt and effective investment decisions. For example, a company spearheading innovation and technology in the IT industry will have an edge over its competition and will see growth in the long run.

  • Focus on general economic conditions 

Stock markets move in sync with the general economic conditions in the country and across the globe. For example: With the ongoing Covid 19 crisis, equity markets are in a slump, but certain sectors like pharma, etc are doing well. So, you should be able to read into the economic conditions and how they could affect your investments.

Conclusion

The stock or equity analysis is a powerful method of increasing the possibility of getting a higher return on investment. A mix of fundamental and technical analysis is ideal for the investors to get maximum information which will help them in analysing a stock better. This will eventually assist the investor in making a profitable investment portfolio.


Frequently Asked Questions

What is the formula for EPS?
EPS is derived by dividing the net income of the company with the number of outstanding shares as on any particular date.The formula for EPS is,

EPS = Net Income/ Number of outstanding shares of the company.

How can a person invest in stocks?
Any individual can invest in stocks by opening a Demat account and then investing in shares through a broker or by themselves.

What are the two market trends that influence the pieces of the stocks?
The market trends that influence the prices of the stocks are the bullish trend and bearish trend. A bullish trend leads to increase in prices of stocks whereas a bearish trend leads to decrease in stock prices.

How is Return On Equity calculated?
ROE is calculated through the following formula,

ROE = Net Income/ total shareholder equity


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Bombay Stock Exchange

What is Sensex and how is it calculated?

Sensex /Bombay Stock exchange
Home » Stock Markets

What is Sensex and how is it calculated?

Many of us come across the term Sensex whenever we turn into a news channel or even through friends who invest regularly in stocks. Phrases like the market has crashed, Sensex went up today by 100 points, etc are commonly heard. So, what do market and Sensex mean? What do Sensex points indicate? 

Here, we will unravel the mysteries of Sensex for new investors and explain in simple terms how Sensex is calculated. 

What is Sensex?

For novice investors, the term Sensex stands for Stock Exchange Sensitive Index. It is the combined value of stocks of 30 selected companies that are listed on the Bombay stock exchange (BSE). These stocks are the most actively traded stocks, along with representing some of the largest corporations. BSE can revise this list of 30 stocks over time. 

If Sensex is said to be going up, investors prefer buying stocks as it is a sign that the economy is growing. On the other hand, if Sensex is falling, people hold off their investment in the economy due to a lack of confidence in the economic future. Market research analysts mostly track the Sensex movements to understand the overall growth, industry-specific development, nation’s stock market trend, etc.

How are the 30 stocks of Sensex selected?

Some primary criteria used in selecting the 30 stocks that comprise Sensex are:

  • Should be listed on BSE
  • The stock has to be large or mega-cap. Large cap includes companies with market capitalisation between Rs. 7000-20,000 crores. Mega cap includes companies with a market capitalisation above Rs. 20,000 crores.
  • Relatively liquid stocks are selected
  • Revenue of the company should come from its core activities
  • The company should have a diversified and well-balanced sector focus in parallel to the Indian equity market

List of 30 stocks comprising the BSE Sensex:

Company Name Weight in Sensex
1 Reliance Industries Ltd. 11.99%
2 HDFC Bank 11.84%
3 Infosys Ltd. 9.06%
4 HDFC 8.30%
5 ICICI BANK 7.37%
6 TCS 5.76%
7 KOTAK BANK 4.88%
8 HINDUNILVR 3.75%
9 ITC 3.49%
10 AXISBANK 3.35%
11 L&T 3.13%
12 BAJFINANCE 2.63%
13 SBIN 2.59%
14 BHARTIARTL 2.31%
15 ASIAN PAINTS 1.97%
16 HCLTECH 1.89%
17 MARUTI 1.72%
18 M&M 1.48%
19 ULTRACEMCO 1.40%
20 SUNPHARMA 1.16%
21 TECHM 1.11%
22 TITAN 1.11%
23 NESTLEIND 1.07%
24 BAJAJFINSV 1.04%
25 INDUSINDBK 1.03%
26 POWERGRID 1.03%
27 TATASTEEL 1.01%
28 NTPC 0.94%
29 BAJAJ AUTO 0.86%
30 ONGC 0.73%

What is BSE?

The above details bring us to the question, what is BSE? BSE is short for the ‘Bombay Stock Exchange and is one of the popular stock exchanges in India.  It was founded back in 1875 and was the first large-scale securities market in India. 

BSE facilitates trading in equity, derivatives, debt instruments, mutual funds, and also currencies. It also offers other services including investor education, risk management, clearing, and settlement, etc.

BSE has been at the forefront in shaping and developing the Indian capital markets. This is primarily done by establishing a platform for raising capital. The terms BSE and Sensex are often used together and refer to the benchmark index of S&P BSE Sensex. 

How is Sensex calculated?

Earlier, the Sensex was calculated using the weighted market capitalization method. However, since September 1st, 2003, the BSE Sensex value is calculated using the Free Float Market Capitalization method. Here are the key steps involved in its calculation:

  • As a first step of the free-float market capitalization method, a selection is made of 30 companies that form the index. The formula for the same is:
    • FreeFloat Market Capitalization = Market Capitalization * FreeFloat Factor.
  • In this calculation, the market capitalization stands for the market value of the company. It is calculated as:
    • Market capitalization = Share price per share * number of shares issued by the company
  • The free Float factor is the percentage representing total shares issued by a company and that is readily available to trade for the common public. This is also a representation of the total outstanding shares of a company. Shares that are issued to the promoters, the government, etc. which are not available for public trading on the market are not included in this factor. 
  • After determining the free-float market capitalization, the value of BSE Sensex is calculated using the below formula:
    • Value of Sensex = (Total free float market capitalization/ Base market capitalization) * Base period index value.
    • The base period (year) used here is 1978-79 and the base value is 100 index points.

How to trade on BSE Sensex?

For investors who wish to trade (buy or sell securities) on BSE Sensex, it is important to have a Demat and a trading account. A Demat account holds the shares in dematerialized or electronic form. It is similar to a bank account, in that the securities get debited or credited depending on the transaction. 

A trading account facilitates the sale and purchase transactions of securities online. Investors must register with a registered broker or brokerage platform, as direct purchase/sale of securities from the stock exchange is not permitted. Brokers act as financial intermediaries who connect the stock exchange and the traders.

Apart from a trading and Demat account, an investor must also have a bank account and PAN card for trading on BSE Sensex. 

Conclusion

With multiple listed companies in India, it can be very difficult for investors to track every available stock before investing. This is when a market index plays an important role in representing the entire market. Every investor must know the basics of Sensex since it is a key indicator of market behavior. 


Frequently Asked Questions

What is Sensex in simple words?
Sensex is the total value of 30 stocks of companies that are listed on the Bombay stock exchange (BSE). These stocks belong to the largest corporations in India and, therefore, represent the Indian economy’s performance.

How can I invest in the stock market?
To invest in the stock market, you must know some basics of Sensex, trading, stock investments, etc. Stock trading also requires a Demat and trading account with a registered broker.

What is the difference between Sensex and Nifty?
Nifty stands for ‘National Fifty’ and Sensex is a short form of ‘Sensitive Index’. Nifty comprises 50 selected stocks from the top 50 companies, whereas Sensex comprises 30 selected stocks from the top 30 companies.

How is the Sensex calculated?
The formula for Sensex calculation is – (total free-float market capitalization/ Base market capitalization) * Base index value. The base year used is 1978-79 and the base value is 100. 

What should new investors invest in?
New investors can explore safer investment avenues such as mutual funds, index funds, etc before starting with individual stock investment through Sensex. This is because the latter requires some amount of expertise and knowledge of stock markets.


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What is Nifty and how is it calculated?

Home » Stock Markets

What is Nifty and how is it calculated?

Investment in the stock market is viewed as a gamble by the majority of people. This is mainly due to a lack of investor awareness and also lack of knowledge of the investment products that offer good returns at a relatively lower risk. Informed investors and traders, however, can gain huge returns by careful research and analysis of the two national indices in India namely, Nifty and Sensex. 

What is Nifty?

Nifty 50 is the market index of the National Stock Exchange and is owned by India Index Services and Products (IISL). This index is formed of the top 50 equity stocks of those companies that are listed in the country in terms of liquidity and market capitalization. These companies are from various sectors in India like pharmaceuticals, consumer goods, financial services, energy, telecommunications, cement, information technology, automobiles, and more. Nifty 50 is used for various purposes like benchmarking fund portfolios, index-based derivatives, and index funds.

Eligibility for listing in Nifty

Investors have the benefit of choosing top stocks for investment and trading to maximize their returns. Securities listed on Nifty are among the top-rated companies hence, there are strict eligibility criteria for the companies to be listed on Nifty. The latest performance of these companies is reviewed for the period of the last 6 months to be eliminated or added to the list of companies traded on Nifty. The specific eligibility criteria required by the companies to be listed on Nifty are discussed below.

  • The first and foremost condition is that the company has to be an Indian Company and registered on the National Stock exchange
  • The stock of such a company should be highly liquid. To measure the liquidity of the stock of any company, the average impact cost is considered. This impact cost refers to the trading price of single security in relation to the index’s weight to the company’s market capitalization.

The eligibility criterion in this regard requires the company’s impact cost to be less than or equal to 0.50% for six months while 90% of the observations made on a portfolio of Rs.10 crores.

  • The trading frequency of the company is also considered and such frequency has to be 100%
  • Another important factor is the free-floating average market capitalization. It has to be 1.5 times higher than the smallest company on the index.
  • Nifty 50 can also include shares of the company that has Differential Voting Rights (DVR) as eligible companies on the index.

Any changes in the structure of the listed companies (mergers, demergers, mandatory delisting, suspensions, etc.) also prompt a revision in the Nifty 50. Nifty carries a thorough quarterly review of the companies listed on the index to ensure that they comply with all the regulations set by SEBI and other mandatory norms required in this regard.

How is Nifty Calculated?

The calculation of Nifty 50 indices is based on the float-adjusted and market capitalization method. The level index represents the aggregate market value of the stocks that are present in the index for a specific duration. The base duration for the Nifty Index is 3rd November 1995. The base value of stocks is 1000. The base capital is Rs. 2.06 trillion.

The formula for calculating the index value is 

Market capitalization = Price * Equity Capital

Free Float Market Capitalization = Price * Equity Capital * Investable Weight Factor

Index value = Current market value / (1000 * Base market capital)

In the above-mentioned formula, the IWF (Investible Weight Factor) is a factor that is used to determine the number of shares that are available for trading in the market. The value of stocks changes daily and hence, the calculation of the index is done in real-time.

The above formula also incorporates the changes in the corporate world. These changes can be stock splits, rights issues, etc. Nifty conducts regular checks to maintain the index to ensure its stability and efficient workings.

Major milestones of Nifty

Period Milestones 
1996-2000
  • Start of trading in dematerialized securities on NSE exchange
  • Launch of index futures based on the index of NIFTY 50
  • Index futures were listed on the Singapore Exchange
  • Start of internet trading
2001-2010
  • Introduction of Index options (based on the NIFTY stock market index)
  • Introduction of single stock F&Os or futures and options on the index of listed securities
  • Introduction of ETF listings
  • Introduction of NIFTY Bank index derivative
2010-2020
  • Start of index futures and options trading on global indices, i.e. Dow and Jones Industrial Average and S&P 500
  • Start of index F&O contracts on the index of FTSE 100
  • Start of NIFTY 50 trading on the Osaka Exchange
  • Introduction of trading of NIFTY 50 index futures on TAIFEX

What are the companies in Nifty 50?

Given below is the list of companies listed on Nifty as of January 2021.

Reliance Industries Ltd. State Bank of India Shree Cement Ltd.
HDFC Bank Ltd. Nestle India Ltd. Eicher Motors Ltd.
Infosys Ltd. Mahindra & Mahindra Ltd. Oil & Natural Gas Corporation Ltd.
HDFC Ltd. Sun Pharmaceutical Industries Ltd. Coal India Ltd.
Tata Consultancy Services Ltd. Dr. Reddy’s Laboratories Ltd. Tata Steel Ltd.
ICICI Bank Ltd. UltraTech Cement Ltd. UPL Ltd.
Kotak Mahindra Bank Ltd. Power Grid Corporation of India Ltd. Grasim Industries Ltd.
Hindustan Unilever Ltd. HDFC Life Hindalco Industries Ltd.
ITC Ltd. Britannia Industries Ltd. Adani Port and Special Economic Zone
Bharti Airtel Ltd. Titan Company Ltd. JSW Steel Ltd.
Larsen & Toubro Ltd. Tech Mahindra Ltd. Indian Oil Corporation Ltd.
AXIS Bank Ltd. NTPC Ltd. Tata Motors Ltd.
Bajaj Finance Ltd. Wipro Ltd. GAIL (India) Ltd.
Maruti Suzuki India Ltd. Bajaj Auto Ltd. Bharti Infratel Ltd.
Asian Paints Ltd. Bajaj Finserv Ltd. Zee Entertainment Enterprises Ltd.
HCL Technologies Ltd. Cipla Ltd. Hero MotoCorp Ltd.
Bharat Petroleum Corp. Ltd. IndusInd Bank Ltd

Benefits of investing in Nifty 50

Investment in Nifty can be done through Nifty index funds, ETFs, Nifty futures. Investment in these products has many benefits that the investors can enjoy. Some of such benefits are mentioned below.

  • Lower risk

Investment in index funds or ETFs has lower risk as compared to other investment products like individual stocks or mutual funds. These funds simply track the performance of Nifty and replicate it as closely as possible. Hence, the risk factor is quite low.

  • Better returns on long term

While investing in the market is subject to huge volatility, Nifty will eventually always grow in the long run. Hence, investment in Nifty would to provide the investor with better returns in the long term.

  • Reduced expense ratio

Nifty index funds or ETFs are passively managed funds. Hence, the role of fund managers is not as active as in the case of mutual funds. This results in a lower expense ratio for the investors.

  • Free from fund manager bias

Index funds or ETFs, as mentioned above, simply track the underlying index and try to match its performance with minimal tracking errors. Hence, being passively managed funds, the fund managers have no bias in picking securities for the fund.

  • Diversified portfolio

Index funds and ETFs provide a diversified portfolio to the investors in every unit of the fund. Investors can access bit only different stocks but also different sectors through investment in index funds and ETFs.

Conclusion

Nifty is one of the two benchmark indexes in India where investors can gain better returns in long term through lower costs. It is considered to be a safer and productive investment option for novice investors as well as seasoned investors.


Frequently Asked Questions

Can investment in Nifty be considered to be safe?
Yes. Investment in Nifty through Index funds or ETFs is considered to be a safer investment choice as compared to many other investment products like mutual funds.

How much is the free-float market capitalization of stocks represented on Nifty?
Nifty represents 65% of the free-float market capitalization of stocks listed on NSE.

What is the base period for Nifty?
The base period for Nifty is 3rd November 1992.

What is the base capital for Nifty?
The base capital for Nifty is Rs.2.06 Trillion.

What is the trading frequency required by a company to be listed on NIfty?
The companies to have a trading frequency of 100% in the past 6 months to be listed on NIfty.


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How to calculate closing stock price?

Home » Stock Markets

Title of this page

Investment in stocks requires careful analysis and a lot of research for the investment to be profitable. This requires the investors to keep track of the prices of the stocks to ensure that they are traded at optimum prices. For average investors, the closing price of the stock is not different from the last traded price of such stock. However, these are quite different concepts. 

While the last traded price is the price at which the stock was last traded, the closing price of the stock is calculated to be the weighted average of all the prices at which the stock is traded in the last half hour. 

Let us consider the following example of stock A for a better understanding of closing prices. We will consider the trading volume (quantity of shares) and the trading price of such volume to calculate the closing price of the share.

Trading Volume Trading Price Trading Time Product
5 50 3.03 pm 250
10 55 3.06 pm 550
4 45 3.12 pm 180
15 52 3.16 pm 780
2 56 3.23 pm 112
36     1872

The closing price of stock A in the above example is not Rs. 56 as per the last trade. In this case, the closing price will be calculated by dividing the total product (1872) by the total quantity traded. This will result in a closing price of Rs. 52 (1872/36)

Closing price vs Adjusted closing price

The closing price as mentioned above is calculated based on the weighted average price of all the trades in the last half hour of trading i.e. between 3 pm to 3.30 pm. The closing price is further different than the adjusted closing price. 

The adjusted closing price is the price that is reflected when the stock is split. This action is done to boost the liquidity of the stocks in the market. A stock split is when the stock is divided into multiple shares in a fixed ratio. The most common split ratio is usually 2:1 or 3:1 i.e, a single share is split into 2 parts or three parts. In such a case, the last closing price will be split to accommodate the adjusted closing price. If the stock is split in the ratio of 2:1, then the adjusted closing price will be the last closing price split in half.  

Pitfalls of the closing price

Closing prices are the pieces of the strokes at the end of the trading day. One of the main drawbacks of the closing price is that it does not accommodate any changes that have occurred after the close of trading hours that have the potential to impact the prices of the company’s stocks dramatically. Such events may be news relating to declaring dividends, mergers or acquisitions, stock split or reverse stock split, etc. Such news is usually declared after the closing of trading hours so the investors have time to reflect on them and analyze them carefully. 

Such news usually impacts the prices of the company’s stocks greatly in after-hours trading. However, the volume of such trade is significantly lower than trading in the open market hence the investors have to be careful of such price deviations in after-hours trading.

Importance of volume-weighted average price

Volume weighted average price is a key indicator to get information on the average price of a particular stock. VWAP is a common tool used by traders and analysts to calculate the price of stocks based on all the orders during trading hours. It is also considered as a baseline for many traders and analysts to know the correct price or level at which the stock is traded through the trading day. It also helps the traders to take positions relating to such stock whether long or short to get the maximum advantage or profits through trading.

Conclusion

An average investor sees investing in stocks for long-term purposes and in premium stocks that have proved to be quality and high-performing stocks over the years. For such investors, the daily closing price may not hold as high importance as for an average trader. For traders and analysts, the information on the closing price of stocks is essential to make sure that they make sound trading decisions and maximize returns on their portfolios.


Frequently Asked Questions

Is the volume of stock traded an essential factor in calculating the closing price of any stock?
Yes. The volume of stocks traded is an essential factor for calculating the closing price of any stock as it is calculated based on the weighted average price of that stock.

Can the last price of the stock be treated as the closing price of that stock?
The last price of a stock can be treated as the closing price of that stock if there is only one trade of such stock in the last half hour of trading.

What is the last price of the stock?
The last price is the price at which the stock is last traded during market hours.

What is the duration considered for the calculation of closing price?
The duration considered for calculation of closing price is the last half hour of market hours i.e. from 3 pm to 3.30 pm.


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What is Nifty BeES? – Everything that you should know about it

Home » Stock Markets

What is Nifty BeES? Everything that you should know about it

ETFs  or Exchange Traded Funds have now gained huge popularity in the Indian market. This is attributed to increasing investor knowledge about various investment products, strategies, etc. However, there is still a long way to go as there are only a fraction of investors that actively trade in the market and have knowledge of the various investment products and their features. 

ETFs are among the many investment products available in the Indian market that are ideal for every portfolio especially for beginners and allow them to make relatively risk-free trading. 

Nifty BeES (Benchmark Exchange Traded Scheme) is the first ETF in India. It is a portfolio of individual securities or stocks that tracks the underlying benchmark S&P CNX Nifty. Like any other ETF, Nifty BeES can be sold in the open market like any other stocks and securities. Investors need to hold a  Demat account and trading account for such trading in Nifty BeES. Each unit of Nifty BeES represents 1/10th value of S&P CNX Nifty. 

Features and advantages of Nifty BeES

Nifty BeES has many attractive features that make it a good investment option for investors to gain higher returns at a lower value. Some of such features are discussed below.

  • Simplicity of fund

This fund is very simple like any typical ETF fund where the investors can invest easily and trade through the Demat account and trading account. The fund tracks its underlying Index to match its performance with minimum possible tracking errors. 

  • Ease of trading

Investors can trade the fund in real time during market hours. Investors can trade by providing details of the transaction to be made to their broker through a call or by directly placing the orders themselves through their trading account. Investors also get the benefit of placing limit orders to minimize losses. 

  • Lower expenses

ETFs generally have a lower expense ratio as compared to many other investment products (like mutual funds). This fund also does not have any exit load as found in the case of many mutual funds. The expense ratio for Nifty BeES is tabled below. 

Particulars Expense ratio
Daily Average Net Assets  of the fund less than or equal to Rs.500 0.80% of Daily Average Net Assets
Daily Average Net Assets of the fund more than or equal to Rs.500 0.65% of Daily Average Net Assets
  • Diversification

ETF is a pool of many individual securities. This reduces the risk involved in investment unlike investment in individual stocks. Investors get exposure to 50 shares through a single unit of Nifty BeES.

  • Higher liquidity

Being able to be traded like any individual stock, this fund gives the investors the benefit of high liquidity. Investors can get liquidity through many sources like arbitrage through index futures, arbitrage through authorized participants with the underlying shares.

  • Elimination of Fund manager bias

This fund like any other ETF is a passively managed fund and tracks its underlying index (in this case, S&P CNX Nifty) with minimum possible tracking errors. There is no question of selecting the investments based on fund manager bias and trying to outmatch the performance of the fund.

  • Transparency

Investment in Nifty BeES can be very transparent as compared to other types of investments. Investors can get information about the exact position or exact investment in every security of the fund at any point in time.

How to invest in Nifty BeES?

The investment process in Nifty BeES is very simple and can be done through online or offline trading, The details of the same are provided below.

  • Online trading

Trading through the online portal provided by the broker is known as online trading of investments. Investors can take a call regarding their investments immediately on a real time basis through such a portal on their own without having to be dependent on the broker for executing the order.

  • Offline trading

Offline trading is when the investor informs the broker about a specific trade to be made through a phone call. There is no access or knowledge of the functioning of any online portal available in this case for the investor to execute the trade on their own.

Conclusion

Investment in Nifty BeES is one of the easiest approaches to build a good portfolio that is relatively risk-free but will also give good returns. There are many examples of Nifty BeES for the investors to choose from like Nippon India ETF Nifty BeES, Reliance ETF Nifty BeES, etc.


Frequently Asked Questions

Is investment in Nifty BeES good for beginners?
Yes. Nifty BeES track its underlying index without any pressure or need to outperform the same. This makes it a relatively risk free option for beginners or risk-averse investors.

Can Nifty BeES be traded in the open market?
Yes. Nifty BeES be traded in an open market like any other ETFs.

Can a person get a dividend on investment in Nifty BeES?
Yes. The fund will provide dividends as and when they are announced by companies in the portfolio. Investors have the option to reinvest the dividend in the fund or take the credit of dividends.

What is the value of every unit of Nifty BeES?
The value of every unit of Nifty BeES is equal to 1/10th of the value of S&P CNX Nifty.


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How to avoid losses in stock market?

Avoid losses in stock market
Home » Stock Markets

How to avoid losses in the stock market?

Stock market investing is synonymous with attractive and quick gains and capital appreciation. However, the returns offered by the stock market come with risks attached. You cannot get good returns without undertaking the volatility risks associated with stock price movements.

Stock prices are subject to fluctuations, and these are a part and parcel of the stock market. While the price might increase attractively in a bullish market, the same may plummet the next day. So, while you are earning returns one moment, you might incur losses in the next moment as the value of your stockholding falls. So, what should you do? Should you not invest in the stock market altogether?

Though the stock market is a risky avenue, there are ways in which you can avoid losses. You don’t have to abstain from stock trading or stock investing. You just need to be a little wise when it comes to investing in the stock market. Here are some tips which, when followed, would allow you to avoid making considerable losses in the stock market.

Tips to avoid losses in the stock market

  • Learn about the market – Knowledge is power 

One of the many reasons why many investors suffer losses in the stock market is because they start their investments with limited or no knowledge. The stock market is a trading marketplace, and unless you know the ins and outs of the domain, you will incur losses. A little knowledge is a dangerous thing, isn’t it?

Equip yourself with the knowledge of how the market works. Learn the pricing techniques of stocks so that you can anticipate which stock would make a profit and which might suffer a loss. Also, the stock market and the economy of the country are interlinked. If one moves up, the other will follow. Even if the stock market falls, if the economy is strong, the market would rise so that you can remain invested.

When you approach stock investing with complete knowledge, you can avoid making rookie mistakes that incur losses. Learn about the stock market and then jump on the investor bandwagon.

  • Research the stock you pick

Do you follow the herd mentality when investing? If you do, it’s time you give up the habit. Don’t pick stocks only because they are popular with other investors. Research the stock before investing in it. Find out the company’s financial position, fundamentals, projected cash flows, market capitalisation, market sentiments around the stock, and prospects.

If the company is poised to grow and has strong fundamentals, its stock would not give you losses. 

When investing, either pick already established companies to avoid a possible downturn or those you have researched into. You can take the help of your broker to do your research but always make an informed choice.

  • Have a long term perspective

While it is true that stock investing has the potential of quick returns, you should invest with a long-term perspective. There is no quick-fix formula for returns in stock investing. You can ride on the market wave and make quick bucks when the market is rising but always think long-term for stable returns. Long-term investing reduces the risk associated with stock trading. 

Moreover, even after a crash, the stock market always rebounds and gives positive growth. You just need to give it time. For example, the S & P BSE Sensex opened at 15,534.67 in 2012, and in 2021, the market opened at 47,785.28.  A growth of more than 300% within nine years only.

This is why long term investment is the keyword to avoid losses in stock investing. Even if your stock’s value falls, you can remain invested and wait for the value to bounce back and grow so that you can earn positive returns. If you have a myopic vision, losses would be impossible to avoid.

  • Past performance does not guarantee future profits

Another common mistake that many investors make is to rely on stocks’ past performance when selecting them for investment. Past performances can never give you the projected future return. 

For example, the stock of Jet Airways or Videocon had a good track record for many years before the company went bankrupt. Had you invested in these stocks based on their performance, your investments would have been useless after these companies faced bankruptcy. Historical performance does not guarantee future profits. You should assess the financial fundamentals and have a good understanding of the market the company operates in before investing in it. 

Study the company’s price-earnings ratio, which would help you understand whether the stock is undervalued or overvalued. Investing in undervalued stocks would yield profits while overvalued ones may not have great potential for profits. Moreover, a company with a strong history of profitability would be financially healthy compared to companies that have not yet generated revenues. So, stock assessment on financial aspects is essential. 

This assessment would help you understand whether the company is under stress or not, and then you can make the right choice of investment. 

  • Stop-loss can work wonders

When it comes to profits from stock investing, the sky’s the limit. On the other hand, the losses can run into the ground. One way to minimise your losses is to use the stop-loss tactic. Under this tactic, you instruct the broker to sell the stock when it reaches a particular price level, called the stop-loss level. This is significant when the stock prices are falling. By selling off at the stop-loss point, you can prevent further degradation of returns if the prices fall further. 

For example, say the stock price is at Rs.1500, and then it starts falling. You expect a further fall in the stock price, and you put a stop-loss order at Rs.1350. Now, if the stock price reaches Rs.1350, the broker would sell off the stock so that you can avoid losses in case of further devaluation. On the contrary, if the stock price starts rising, you don’t have to worry because stop-loss doesn’t limit your profits, only your losses. 

Use the stop-loss strategy when prices are falling. Estimate the minimum price at which you can sell the stock and still make a profit. Set this price as the stop-loss price so that you can avoid losses when the price falls further.

  • Leave your emotions at home when you set out to trade in stocks

How many times have you let your emotions dominate your investing strategy? 

When it comes to stock investing, practicality matters, not emotions. If you let your emotions dictate your trading activities, you would eventually face a loss. So, when you are buying and selling stock, be practical and keep a cool head. 

Remember, upturns and downturns don’t last lifelong. If the market is bullish, it will enter the bear phase after some time, and if the market is bearish, it would rise and become bullish. The stock market is a roller-coaster ride, with both profits and losses. To avoid losses, you need to be clear-headed about your investments. If the market is rallying, rein in your emotions of investing all your wealth. Go slow. 

Similarly, when the market falls or enters a downward phase, don’t get emotional and sell off your stock immediately. Be calm and take your time. When the market is rising, invest slowly and carefully. Similarly, when the market is falling, don’t liquidate your investments. Hold on to them as the market would recover. 

Emotions might let you make the wrong decisions about buying and selling stock. But when you are practical, you can carefully weigh the pros and cons of the market dynamics and then invest with caution.

  • Diversification is the name of the game

Have you ever heard the saying – ‘Don’t put all your eggs in one basket’? If you have, do you understand its meaning? When you put your eggs in different baskets, if one basket gets damaged or if one egg is bad, you still have other baskets to fall back on. The same holds for stock investing. Diversification should be the mantra for successful investing. Choosing a variety of stocks is vital in preventing losses. If one stock suffers a loss, the other might not thereby decrease the risk of losses.

 For example, say you buy two stocks A and B worth Rs.100 each. Now, if the price of A moves down to Rs.95 and the price of B rises to Rs.105, your losses are nil. Even though you have invested in stock A, the profit from stock B has nullified your loss.

Though stock trading is not as simple, diversification plays the same role. You should pick stocks of companies belonging to different sectors. This way, if one industry underperforms, your losses would be minimised due to the growth in other sectors.

The latest example of diversification one can see in the COVID pandemic. When the pandemic struck, the stock market started sliding due to lockdowns and uncertainty that affected the industry. Stocks of manufacturing companies started falling, but stocks of FMCGs and pharmaceuticals were on the rise. So, investors with investments in different sectors managed to earn profits despite the falling markets because they had exposure in the pharma and FMCG sectors, giving them the best effect of diversification.

So, aim for a diversified portfolio of stocks. Invest in different sectors for maximising profits and minimising losses. 

Also, don’t overdo diversification. Excess of everything is terrible, and the same is true for diversification. A highly diluted portfolio would fail to give you significant returns from a performing sector. There might even be higher chances of loss. So, diversify, but with reason. 

  • Hedge against losses

Hedging is also a useful tool that can help you prevent losses from stock investing. Hedging means cutting down losses from one investment by investing in another. Hedging in the stock market can be done through futures and options contracts or call or put actions. Similarly, when the market is falling, you can hedge your investments by investing in alternative avenues, like gold. Gold tends to rise when the markets are unstable. This was observed both at the time of demonetisation and the COVID pandemic when the markets were in turmoil, but gold prices rose. So, you can use gold or other investment avenues or trade in futures and options to hedge against equity investments.

  • Keep learning

Learning is a never-ending process, and when it comes to the stock market, new rules and regulations are always being updated. Therefore, you should update yourself with the latest changes in the market and the companies comprising the market. Also, master the art of stock investing for an in-depth understanding of the market and how it works. Take online courses, read books on stock trading, understand the strategies of successful investors and expand your knowledge base. Also, keep track of current affairs that can help you understand which company is poised to grow to invest in it and grow your investments. 

  • Track your investments regularly

Neglect is another reason why investors suffer losses. Stock trading is a dynamic activity. It is not a fixed deposit scheme where you invest and forget. To gain maximum returns, you need to be proactive with your investments. Be updated with market movements and rebalance with changing market sentiments. Invest when the prices are low and sell when prices rise to make maximum profits. 

Check which stocks are giving you good returns and which can be sold off to cut your losses. Track your investments regularly so that they are relevant to the changing dynamics of the market.

EndNote

Profit and loss go hand-in-hand with stock market investments. You can use the tips mentioned above and minimise your losses, but there is no guarantee of avoiding them altogether. Given the volatility of the market, losses are inevitable. Still, if you are careful with your investments, you can steer clear of them or suffer minor losses that do not deteriorate your portfolio. A wise investor is a profitable investor. Be both!


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How does a stock market work?

Stock market
Home » Stock Markets

How does a stock market work?

Investing in stocks is one of the means to create wealth as the stock market has the potential to yield attractive returns. When investors invest in the stock of a company, they not only become a part-owner of the company but also participate in the profits earned by the company. Stock investing could give them regular returns in the form of dividends, as well as the benefit of capital appreciation when the value of their investment rises. Investing in the stock market is, therefore, quite beneficial.

That being said, one cannot ignore the market risks associated with stock trading. While investors can make profits in a rising market, they can also suffer losses when the markets fall. Stock trading is, therefore, risky. Investors need to understand how the stock market works so that they can use stock market investments to their benefit. So, let’s understand the concept of the stock market and how it works.

What is the stock market?

A stock market is a platform where stocks and other securities like bonds, currencies, commodities, and derivatives are bought or sold. The stock market gives the companies a platform to list their stocks for sale to raise capital. It also gives investors the platform to trade in listed stocks to generate returns.

What is a stock?

Stock is a type of instrument that is offered by companies as a means to raise capital. Stock, which is also called share, denotes per unit ownership in a company. If a company issues 10,000 units of stocks, and an investor invests in 1000 such units, the investor is said to have become a 10% owner of the company. Stocks give investors the right to earn dividends on their investments. Moreover, investors could make a profit, if their investment in the share rises. 

A stock market is, therefore, a marketplace where stocks of listed companies are bought and sold. 

Participants of the stock market

The stock market is composed of different participants. Each participant plays a different role in the stock market. Here’s a look at the different participants of the stock market –

  • The regulator

The role of the regulator is to frame rules and regulations that determine the working of the stock market. The regulator governs the stock market, ensures that the participants adhere to trading laws, and also regulates the market on the whole. The Securities and Exchange Board of India (SEBI) is the regulator that regulates the stock markets in India. 

  • Companies

Companies participating in the stock market offer their stocks for sale. Companies need to list themselves on the stock market to offer their stock for trade.

  • Stock exchange

The stock exchange is where the stocks are listed. These listed stocks, bonds, and derivatives are then traded by investors. In India, there are two primary stock exchanges – the National Stock Exchange (NSE) & the Bombay Stock Exchange.  Nifty is the benchmark market index of 50 most traded companies on NSE and  Sensex is the benchmark index of 30 most traded companies on BSE.

  • Intermediaries or stockbrokers

Intermediaries or stockbrokers are middlemen, either individuals or firms, through which trading in stock and other instruments can be done. As per SEBI norms, investors can buy and sell shares only through authorized stock brokers. Brokers or intermediaries charge a fee or brokerage on the transactions done through them.

  • Investors and traders

Investors are those who invest in the securities on the stock market, and traders are those who buy and sell stocks and other securities on the stock market. Investors and traders can be domestic retail investors, institutional investors, Asset Management Companies, foreign institutional investors, Non-Resident Indians, and OCIs. 

  • Depository and Depository Participants

Trading in stock requires investors to have a Demat account. This Demat account is offered by Depositories. National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are two depositories in India. Depositories, however, do not offer Demat account facilities directly to investors. Investors have to open the Demat account through a Depository Participant (DP) that acts as an agent of the depository. 

  •  Clearing Corporation 

Clearing corporations settle stock trading between traders. When a stock is traded between investors, one investor sells the stock while another buys it. Clearing corporations locate the buyer and seller of a particular stock and settle the trade between them. They debit the buyer’s account and credit the amount to the seller’s account. In India, there are different clearing corporations, like India International Clearing Corporation (IFSC) Limited, Indian Clearing Corporation Limited, etc.

Types of stock markets

There are two main types of stock markets. They are as follows –

  • Primary market

The primary market is the main market, where companies list their stocks for sale for the first time. This listing is done through an Initial Public Offering (IPO). IPO is, therefore, the first public offering of stock by a company. IPOs allow companies to list their stock on the market to raise funds. This listing is fresh, and it is open for a specified time.

Investors can bid for the stocks and then buy the stock at the issue price as specified by the company issuing the stock. After the end of the subscription period, the shares are allotted to bidders who bid at the highest prices. Companies that issue their stock through IPOs have to pay a fee to the stock exchange for listing their stock. Moreover, they are required to disclose their financial statements and give details of their future projects and growth.

  • Secondary market

Once the stock is offered to the public through an IPO in the primary market, it can be traded in the secondary market. The secondary market is the place where listed stock and other securities are bought and sold by traders continuously. Trading happens between investors and traders. The company whose stock is being traded is not involved in such trading.

How does the stock market work?

The working of the stock market can be defined through chronological steps. Here is a look into the steps that show how the stock market works-

  • Step 1 – Stock listing through IPO

Firstly, companies offer their fresh stock to the public for sale through an Initial Public Offering (IPO). This IPO is done per the rules and regulations laid down by the regulator and after being approved.

  • Step 2 – IPO subscription

Investors subscribe to the IPOs through their brokers.

  • Step 3 – Allocation of stock

After the IPO closes, the stock is sold to successful bidders at an issue price fixed by the company.

  • Step 4- Stock listing on the secondary market and trading

After the IPO, the stock gets listed on the secondary market. Such stocks can then be bought and sold among investors looking to make profits or cut losses.

How can you trade in the stock market?

If you are looking to trade on the stock market, you need the following –

  • A Demat account
  • A trading account
  • A bank account
  • A broker

You will have to open a Demat & Trading account with any  SEBI authorised brokers. Thereafter, you can pick a stock to buy. You will have to communicate your desire to buy a particular stock to the broker. The broker places your purchase request on the stock exchange and the exchange searches for a seller. Once a seller is found, the price for the transaction is fixed. The exchange also authenticates the identities of the buyer and the seller to ensure that no fraudulent trade takes place and that the parties don’t default on their intentions to buy and sell.

Once the price is fixed, the trade is settled between the buyer and the seller. The seller’s Demat account is debited by the number of shares sold, and the buyer’s Demat account is credited with such shares. Moreover, the seller’s bank account is credited with the transaction amount, and the buyer’s bank account is debited. Settlement of the shares bought and sold is done within T+2 days, i.e., within 2 days from the transaction date.

Buyers also pay brokerage on the cost of the shares, while for sellers, the sale price is reduced by the brokerage cost.

Pricing of shares in the stock market

The price of a stock is the perceived worth of the company in the eyes of the investors in absolute terms. The price shows the amount buyers are willing to pay to buy one unit of the stock at current market dynamics. When an IPO is launched, the company fixes the issue price of the stock that it offers for sale. However, once the stock is listed in the secondary markets, its price can move up and down. The pricing of shares depends on the law of supply and demand. 

Here’s how the law applies to share pricing –

For every trade, a buyer and a seller are needed. Thus, there is a need for demand and supply. If there are more buyers than sellers, the demand for the stock increases. It makes the stock attractive to the buyers. This pushes the price of the stock upwards. However, if there are more sellers than buyers, the supply increases, which reduces the perceived value of the stock. As such, the prices are pushed down. 

There is also a concept of the bid-offer spread. This is the difference between the bid price and the ask price. The bid price is the maximum amount that a buyer is willing to pay for the stock, while the offer price is the lowest price at which the seller is selling the stock. If the buyer accepts the ask price, or if the seller accepts the bid price, the stock is traded. 

If buyers are more than sellers, the bid prices will increase, and sellers would also increase their ask price. This, therefore, increases the price of the stock. On the other hand, when sellers are more than buyers, buyers would reduce their bid price, and sellers might also reduce their ask price. This would, therefore, reduce the price of the stock.

High-quality stocks of established companies have low bid-offer spread and are liquid.

Bull and bear market

The terms ‘bull’ and ‘bear’ are used to describe the sentiments of the stock market. When the economy is strong, and prices of securities listed on the market rise consistently for some time, it is called a bull market. During this time, the value of stocks increase, and investors earn attractive returns. Investors can also book their profits by selling their stockholding if their goal of investing is achieved. 

On the contrary, if the stock prices start declining consistently over a sustained time, it can be called a bear market, the market sentiments are low and stock prices decline. This could be a good time to pick up some stocks which have good fundamentals. 

Difference between stock market correction and stock market crash

Other common terms associated with the stock market are ‘correction’ and ‘crash’. These terms are different from one another. A stock market correction is said to happen if the prices in the stock market decline by 10% or less. A stock market crash, on the other hand, occurs when the stock prices fall by 10% or more in one single day. 

Stock market investing tips

Investors looking to invest in the stock market should keep the following tips in mind –

  • Understand the working of the stock market to understand how your investment would work.
  • Choose a suitable broker to trade in the stock market.
  • Pick the right stocks for your portfolio and aim to diversify your stockholding. Consult your broker/investment advisor for expert advice on the right stocks to pick.
  • The stock market is volatile. Do not panic if the value of your stock falls. Assess the profitability of the company. If the company fundamentals are strong, the value of your stock will increase when market sentiments become positive.
  • Have a long-term horizon. The stock market has been proven to offer good returns to investors who had the patience and a long-term investment perspective.

The stock market is a roller-coaster ride that is prone to its ups and downs. Understand how the market works, and then invest. Start small and then you can increase your investments gradually as you learn the ropes of stock market investing. 


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Bombay Stock Exchange

How many stock exchanges are in India?

Sensex /Bombay Stock exchange
Home » Stock Markets

How many stock exchanges are in India?

How many stock exchanges are in India?

A stock exchange is a marketplace where buying and selling of securities take place. Whenever we talk about the stock exchanges of India, the most popular ones are the National Stock Exchange and Bombay Stock Exchange of India. But this is not the reality; there are many more exchanges in India. Here are the details regarding some of the major stock exchanges of India:

Major Stock Exchanges in India

National Stock Exchange of India

The National Stock Exchange came into existence in 1992 and is the youngest one among the stock exchanges of India. NSE is registered under the Securities Contract Regulation Act. It was launched with a vision of being a market leader, creating a global presence, and facilitating financial wellbeing. It works on advanced electronic trading systems and has removed the concept of paper-based working. NIFTY 50 has become the most famous benchmark in the stock market of India. It lists out the top 50 companies that trade using the NSE platform.

Bombay Stock Exchange

BSE has created a beautiful history. It was established in 1875 and one of the oldest stock exchanges operative in the whole of Asia. It is located at Dalal Street, Mumbai, and was founded by Premchand Roychand. 

BSE is known for launching the concept of Sensex which is often used as a synonym for the overall performance of the stock market of India. In 1995, BSE moved away from paper-based trading to the electronic trading system. 

Apart from Sensex, some other indices are BSE 200, BSE 100, BSE MIDCAP, BSE SMALLCAP, BSE PSU, BSE Auto, BSE FMCG, BSE Metal, BSE Pharma, etc are tracked regularly. 

Calcutta Stock Exchange

It falls under the category of regional stock change of India. It is the second-largest stock exchange established all over South Asia. It came into existence in 1908. In 1980, CSE got permission from the Government of India to be registered under the Securities Contracts (Regulation) Act, 1956. BSE has a 5% stake in CSE. 

The index of CSE is known as CSE-40, which is similar to Sensex and Nifty. But at present, trading no longer takes place on CSE despite being a permanent stock exchange in India. SEBI has asked CSE to exit from the stock exchange market, but the matter is currently in court.

Metropolitan  Stock Exchange

Currently, there are three stock exchanges in India, where trading of individual stocks takes place, and Metropolitan is one of them. The rest two are NSE and BSE. The company was established in November 2008 and became operative in 2009. The MSEI is a full-time service provider in the stock exchange market for buying and selling equity derivatives, currency derivatives. It is a high-tech, transparent, and electronic platform for trading in the capital market.

India International Market

This is also a part of the stock exchange market of India, established in January 2017. It is the subsidiary of Bombay Stock Exchange of India, located at the GIFT city in Gujarat. It is the world’s best-advanced technology platform having a turnaround time of 4 microseconds works almost 22 hours a day and 6 days a week. The two main sessions of trading in the India International market start at 4.30 am to 5.00 Pm and 5.01 Pm TO 2.30 Am. It becomes one of the most International primary markets after being launched in the stock market at the global level. With its operations, it has connected global investors with Indian investors.

NSC IFSC limited

The NSC IFSC came into existence on 29th November 2016. It is a subsidiary of the National Stock Exchange of India located in GIFT city in Gujarat. Trading in equity, currency, commodity derivatives in addition to Depository Receipts are carried on at NSC IFSC.  16 hours of trading are conducted on the exchange that is divided between two trading sessions. The first session starts between 8 am and 5 Pm, and another one will take place between 5.30 pm and 11.30 Pm.

Major Commodities & Derivatives Exchange in India

National Commodity and Derivatives Exchange

The National commodities derivatives exchange came into existence in 2003, located in Mumbai. It has a client base of more than 30 Lakhs. It is the leading agricultural commodity exchange where the trading of derivatives like refined oils, wheat, channa, soya bean, and other forms of seeds takes place. Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural Development (NABARD), National Stock Exchange of India Limited (NSE), Canara Bank, Punjab National Bank (PNB), CRISIL Limited, Indian Farmers Fertiliser Cooperative Limited (IFFCO) are some of the major shareholders of NCDEX. 

Multi Commodity exchange of India

It is one of the largest commodities derivatives exchanges in India, headquartered in Mumbai. MCX is involved in the trading of commodities like silver, gold, natural gas, crude oil. Apart from that, trading of agricultural items like rubber, cotton, crude palm oil, and cardamom is also carried on. MCX is also a listed company. To maintain a digital record of all commodities, derivatives has launched a web-based application known as Commodities receipt information system.

Indian Commodities Stock Exchange

It is a commodity exchange where the trading of commodity derivatives takes place. The trading became operative in July 2017. They were the first launch to the ‘Diamond Future’ contract in August 2017. After one year, they launched a ‘steel contract.’ It is one of the most active stock exchanges in India.

Bottom Line

The stock exchange is one of the most important parts of the Indian capital market. It is one of the most convenient places to do the trading of securities. The stock market has well-defined rules and structures. One can keep a record of all major changes that take place in the share market. It is the pulse of the Indian economy and a major contributor to rising economic growth.


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Fund in Focus:

Motilal Oswal S&P 500 Index Fund
(NFO Period: 15th Apr’20 – 23rd Apr’20 | Min. Amount INR 500 | Exit Load: 1% if redeemed in 3 months)

Suitability:

Long-term investing (indicatively 5+ years of holding period); hedge against domestic currency depreciation and/or global inflation; Efficient economy diversification

Descriptive Highlights

Efficient Market

S&P 500 is the world’s largest index which is tracked and benchmarked globally. With a long track-record of over 63 years, it has developed a respectable vintage among global indices.

Very Low Correlation

Very low correlation between Indian Indices & S&P 500 offers an opportunity to benefit from true diversification – a combination on assets which don’t move in the same direction (low correlation) offers optimal risk-adjusted  returns

correlation

Global Exposure

Historically, a large component of sales of S&P 500 constituent companies were contributed by regions & economies beyond U.S. This mix of true-blue multinational corporations offer the benefit and/hedge of global diversity thus ensuring limited dependency on the state of a single economy or nation to drive business growth. The index is an efficient mode to achieve global diversity.

Global exposure

Dollar Hedge

Allocating a percentage of overall portfolio to S&P 500 also offers cushion to the overall portfolio in the form of a  Dollar hedge. By far the USD is considered a strong currency and exposure to S&P 500 adds incremental value during stressful times when INR depreciates against USD.

Dollar hedge