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https://www.kotaksecurities.com/share-market/what-is-super-normal-growth-stock/ | Supernormal Growth Stock | Key HighlightsSupernormal growth is characterised by a sustained increase in earnings for at least one year.The long-term sustainability of such heightened growth becomes challenging due to increased competition or market saturation, resulting in a decline in growth rates.Valuing a supernormal growth stock is a complex task, often requiring the utilisation of a pricing model that considers both the period of supernormal growth and the ensuing phase of average development.What is a Supernormal Stock?A supernormal growth stock, as defined, is a stock that undergoes a phase of heightened growth for a specific duration but eventually reverts to average growth levels. Throughout this period of supernormal growth, the security surpasses the overall market performance, making it an attractive option for investors seeking substantial returns. For a stock to be categorized as a supernormal growth stock, its earnings must exhibit an extraordinary rate of growth for more than one year.To illustrate the concept of a supernormal growth stock, consider a startup witnessing tremendous demand for a novel product. Similarly, emerging blue-chip companies may undergo supernormal growth in their initial stages. It's common for many successful companies to experience such extraordinary growth at some point in their development. However, these atypical earnings eventually stabilize, transitioning into a phase of consistent and steady growth over time.Case Study of Supernormal GrowthCase Study - Supernormal Growth Stock (A recent illustration of supernormal growth is the Indian company, InfoTech Innovations. The company experienced a significant surge in its stock prices during the COVID-19 pandemic, attributed to its cloud-based software facilitating video calls, chat tools, and seamless content sharing. The demand for InfoTech Innovations skyrocketed as businesses in India embraced remote work, and the necessity for video conferencing became paramount. Moreover, the adoption of InfoTech Innovations for remote education, telemedicine, and social networking further fueled its exceptional growth.
Before the pandemic, InfoTech Innovations' average share price was ₹670. In April 2020, the company reported an impressive 250 million active participants. By October 2020, the stock price peaked at ₹4,200, accompanied by a proportional increase in earnings.However, as offices resumed operations and in-person meetings became more common, InfoTech Innovations faced a decline in revenue. The market also witnessed the entry of domestic competitors, such as Bharat Meets and TechTeams, intensifying the competition. As of now, the current market price for InfoTech Innovations is ₹980.Similarly, another Indian company, MediaStream, followed a comparable life cycle, experiencing supernormal growth in 2017 and 2018, followed by revenue stabilization from 2019 onwards.Supernormal Growth Stock ValuationValuing a stock with a supernormal growth stock poses a considerable challenge, distinct from the valuation of companies with a consistent growth rate. Unlike stocks exhibiting a stable growth pattern, the process of supernormal growth stock valuation necessitates the utilisation of a pricing model tailored for both average and supernormal growth phases.In the case of stocks characterised by average growth, investors commonly apply the Gordon Growth Model or the Dividend Discount Model for valuation. These models determine intrinsic value by calculating the present value of future dividends. Notably, they need to account for market conditions or variations in dividend growth over time.Contrastingly, when valuing supernormal growth stocks, the intrinsic value is intricately linked to the company's initial high-growth years and its subsequent phase of comparatively lower average earnings. Consequently, a two-stage or multi-stage dividend discount model is deemed more accurate in capturing the actual value of the stock.Dividend Discount Model Incorporating Supernormal GrowthTraditionally, the dividend discount model computes the intrinsic value of a stock by considering the dividend for the next period divided by the required rate of return. For instance, with an expected rate of return of 10% and an anticipated dividend of Rs. 1.50 per share, the intrinsic value of the share is determined to be Rs. 15.However, for companies maintaining a constant dividend, the valuation must incorporate the history of dividend payments, as the economy retains the company's earnings. This involves dividing the expected dividend by the difference between the required rate of return and the dividend payment rate.In contrast, the dividend discount model with supernormal growth introduces a two-stage approach to dividend payments – average and supernormal.1. Supernormal Growth:This stage discounts the higher dividend of the next period to the current period, taking into account a supernormal growth rate.2. Average Growth:This stage signifies the value of a dividend growing at an average rate. The last period of higher growth aids in calculating the price of the remaining dividend. However, the expected return is based on the following year's regular or constant rate dividend.It's important to note that if there is an abrupt transition between the initial abnormal growth stage and the subsequent phase of steady earnings, the model may lack efficiency. In such cases, the calculated value with the model could be more realistic with a smoother transition to the mature phase. As a result, analysts often utilize model variations that commence with high growth and gradually decline linearly from supernormal to regular periods.Factors Contributing To Supernormal Growth In StocksSeveral factors can lead to supernormal growth in stocks:Launching a new product line or adopting innovative technology can significantly boost a company's growth trajectory.It is developing a dynamic business plan or marketing strategy that adds strategic depth to the company's operations.We are enhancing overall service quality and customer experience, leading to increased transaction volumes.I am gaining a first-mover advantage by holding a patent or trademark in a particular market.General catalysts such as temporary dominance in a specific market, macroeconomic influences, or groundbreaking technological advancements can also spur supernormal growth in stocks. For instance, a reduction in fuel prices could positively impact an automobile company's stock performance.ConclusionIn the stock markets, identifying opportune securities and timing is crucial for achieving returns that surpass the ordinary. Investing strategically in stocks experiencing supernormal growth can result in substantial financial gains. It is, therefore, imperative for investors to actively scout for companies exhibiting the potential for supernormal growth opportunities. This proactive approach enhances the likelihood of capturing favourable investment prospects. |
https://www.kotaksecurities.com/share-market/what-is-gordon-growth-model/ | Gordon Growth Model | Key HighlightsThe Gordon Growth Model is a valuation approach used to estimate the intrinsic value of a stock.It primarily focuses on stocks that pay dividends, incorporating expected future dividend payments into the valuation.Developed by economists Myron J. Gordon and Eli Shapiro in the 1950s.Provides investors with a tool to assess whether a stock is undervalued or overvalued based on expected future dividends.Understanding of Gordon Growth ModelWe will understand more about what is gordon growth model by these three parameters:1. Dividend Per Share:The Dividend Per Share is the declared dividend amount for each outstanding equity share, reflecting the anticipated revenue for shareholders on a per-share basis.2. Dividend Growth Rate:The Dividend Growth Rate signifies the projected annual growth rate for the dividend per share. In the context of the single-stage Gordon Growth Model, this growth rate is assumed to remain constant throughout the valuation period.3. Required Rate of Return:The Required Rate of Return establishes the minimum hurdle rate necessary for equity shareholders to consider investing in a company. This rate takes into account the average return anticipated from alternative opportunities presenting similar risks in the stock market.Analysts commonly depend on the Gordon Growth Model when considering companies with consistent and unchanging dividend patterns. It is particularly well-suited for the valuation of mature enterprises operating in well-established markets where the perceived risk is minimal. This model serves as a valuable analytical tool, offering insights into the intrinsic value of stocks, especially in scenarios where dividends play a central role in the overall financial picture.Presumptions of Gordon Growth ModelThe Gordon Growth Model relies on specific assumptions to effectively estimate the value of a stock. These fundamental assumptions encompass several facets:1. Stable Business Model:The model presupposes a stable business environment devoid of significant operational changes within the company.2. Consistent Revenue Growth:It assumes a steady influx of revenue from the business, characterized by a constant growth rate over the evaluation period.3. Balanced Financial Leverage:The company is expected to maintain a balanced level of financial leverage, ensuring a harmonious capital structure.4. Utilization of Cash Flow:The model operates on the premise that the company allocates its cash flow towards regular dividend payments, emphasizing a consistent distribution to shareholders.5. Perpetual Existence:Lastly, the Gordon Growth Model assumes the perpetual existence of the company, projecting an enduring lifespan during which it consistently pays a dividend per share that sees continuous increments.These assumptions collectively underpin the model's applicability and highlight the specific conditions it requires for accurate valuation.Advantages of Gordon Growth ModelThe Gordon Growth Model offers several advantages in the world of stock valuation:1. Easy to UtilizeThe Gordon Growth Model boasts a primary advantage in its simplicity. By using just three variables – expected dividend, required rate of return, and dividend growth rate –the GGM offers a straightforward approach to gauging the intrinsic value of a stock. This uncomplicated nature renders the model accessible to a broad spectrum of investors and finance professionals, catering even to those with limited experience in financial analysis.2. Provides a Sound Estimate of Stock ValueWhen appropriately applied to suitable companies, the Gordon Growth Model can furnish a reasonable estimate of a stock's intrinsic value. By centring its analysis on dividends and their growth, the model underscores the significance of a company's capacity to generate future cash flows.3. Relevant for Companies Exhibiting Stable Growth RatesThe GGM finds particular applicability in valuing companies marked by consistent dividend growth rates. Especially well-suited for mature companies in non-cyclical industries that often manifest steady dividend growth, aligning with the model's assumptions.The Gordon Growth Model's advantages lie in its simplicity, focus on dividends, suitability for long-term projections, incorporation of growth factors, sensitivity analysis capabilities, and applicability to mature companies.Disadvantages of Gordon Growth ModelThe following factors are the disadvantages of the gordon growth model:1. Sensitivity to Assumptions:The accuracy of the Gordon Growth Model depends on the precision of its assumptions, particularly the dividend growth rate and discount rate. Minor alterations in these assumptions can result in significant variations in estimated stock value.2. Neglect of External Factors Affecting Growth Rates:The Gordon Growth Model does not account for external factors that can influence a company's growth rates, such as changes in market conditions, technological advancements, or regulatory shifts. This omission may lead to inaccuracies in valuation estimates.3. Limited Applicability to Non-Dividend Paying Firms:The model's dependence on dividends for valuation renders it less applicable to firms that do not pay dividends. Companies prioritizing alternative forms of shareholder returns, such as stock buybacks or reinvestments, pose a challenge for accurate valuation using this model.While the Gordon Growth Model offers valuable insights into stock valuation, investors must navigate its limitations to complement the Gordon Growth Model in a comprehensive investment strategy.Importance Of Gordon Growth ModelSignificant in investment decision-making, the Gordon Growth Model, despite its drawbacks, proves to be a valuable tool. It elucidates the interplay between growth rates, discount rates, and valuation, establishing a transparent connection between valuation and return.When the intrinsic value derived from the Gordon Growth Model is lower than the prevailing market price, it signals an undervalued share, presenting an advantageous buying prospect for investors. Conversely, if the market price exceeds the intrinsic value calculated by the model, it signifies an overvalued share, prompting caution among investors.Gordon Growth Model FormulaThe equation for the Gordon Growth Model is articulated as follows:
Intrinsic Value = D1 / (k - g)
Herein, 'D1' denotes the anticipated annual dividend per share for the ensuing year, 'k' signifies the required rate of return or the company's capital cost, and 'g' represents the expected perpetual dividend growth rate.Example of Gordon Growth FormulaLet's get into an example to enhance our understanding of gordon growth modelConsider Company A, listed on the NSE, with a prevailing market price of Rs. 40 per share. The company currently disburses a dividend of Rs. 2 per share, and investors anticipate a 4% annual growth. With a minimum required rate of return set at 10%, the intrinsic value of the share is calculated as Rs. 2 / (0.1-0.04) = Rs. 33.33.Comparing this intrinsic value to the market price of Rs. 40 reveals that the security is overvalued. For investors holding the security, this signals an opportune moment to sell, while potential buyers are cautioned by the intrinsic value, serving as a deterrent for acquiring the stock at its current market price.ConclusionThe Gordon Growth Model is a financial valuation tool that estimates the value of a stock by focusing on dividends and their growth rates. It is mainly used to assess mature companies with stable growth rates by making assumptions about constant dividend growth rates, discount rates, and dividend payout ratios. However, the Gordon Growth Model is still a valuable tool in finance, providing a straightforward approach to estimating stock values. By carefully considering its assumptions, investors can make informed decisions and identify potential market opportunities. |
https://www.kotaksecurities.com/share-market/what-is-dividend-growth-rate/ | What is the Dividend Growth Rate? | Key HighlightsThe Dividend Growth Rate is the percentage increase in a company's dividends over a specified period.DGR serves as a critical metric for evaluating a company's long-term financial health, reflecting its ability to increase dividends consistently and indicating confidence in sustained profitability.DGR can be calculated over various time intervals, allowing investors to assess dividend growth over specific periods.Dividend Growth Rate DefinitionIn simple terms, the dividend growth rate refers to the growth rate of a company measured by the percentage it achieves over time within a certain period. Usually, the dividend growth rate is calculated on an annual basis. Nevertheless, it is up to the company to decide whether it wants to calculate on a quarterly or monthly basis. Additionally, companies may decide to increase their dividend payout to shareholders as time passes and profits increase.Furthermore, a company with a history of solid dividend growth may have a good chance of growing dividends in the future. The predictability of future dividends can also be an indicator of long-term profitability and growth. As a result, dividend rates can be a fundamental metric for determining whether or not you are investing in the right company and expecting to profit from it.How does the Dividend Growth Rate Work?A trader or investor needs to understand and learn how the dividend growth rate is calculated because it gives them insight into how to use the dividend discount model. A dividend discount model is a type of security-price model. Based on this model, the company's share price is assumed to be equal to its future dividends of net present value. A dividend discount model can also be used to determine a stock's value.Based on this model, investors or traders need to deduct the excess internal growth rate of the company. It's the maximum growth rate a company can possibly achieve without relying on external money. For an exact price, subtract this internal growth rate from the estimated dividend growth rate. This model says that the price of a stock is undervalued if its current price is less than the calculated price with the help of this model.The dividend growth rate and dividend discount model are calculated using the following mathematical formula:
P0 = D1/r-gHere,P0 is the current stock price of the companyD1 is the dividends of the next yearr and g imply the cost of the company's equity and the dividend growth rate, respectively.Benefits of Assessing Dividend Growth RatesInvestors can benefit from calculating dividend growth rates in stock markets in the following ways:1. Assessment of Earnings from StocksIt can help you determine how much money you can potentially make from a certain company's stock. When the company's dividends grow over time, it could mean similar dividend growth in the future. In turn, this means long-term profitability.2. Determining the Intrinsic Value of StocksWith the dividend discount model of stock valuation, you can easily calculate the intrinsic value of stocks by comparing their current market value to the dividend growth rate.3. DGR can be Calculated for any Time PeriodIn addition to calculating the annual dividend rate growth, you can calculate the growth rate for any interval using mathematical formulas.ConclusionA stock investor should understand this DGR concept to assess earnings from a stock investment. For example, a history of strong dividend growth could indicate future dividend growth, which is a sign of long-term profitability. Furthermore, investors may calculate dividend growth based on any interval. Additionally, this concept is crucial because it forms the basis of the dividend discount model, which is widely used in the determination of security prices.
FAQs on Dividend Growth RateDoes dividend growth occur every year?In most cases, dividends grow every year if the company is doing well. Dividends usually grow every year for well-established companies that pay dividends, but it is not guaranteed.Is dividend growth a good investment?Although dividends will grow slower than capital appreciation, investors can rely on increasing dividend yields to boost returns over time. When dividends are reinvested, compounding can indeed become quite lucrative.What does a high dividend growth rate mean?High dividend growth can indicate long-term profitability for a given company, which can indicate to investors that the company is likely to grow dividends in the future.What type of investors should invest in stocks with the highest dividends?Investors seeking steady income and long-term investments should consider these stocks. Usually, they represent stable companies that have already reached a certain level of saturation. In spite of this, investors should always do their research and be aware of market conditions before investing. |
https://www.kotaksecurities.com/share-market/what-is-dividend-discount-model/ | What is the Dividend Discount Model? | Key HighlightsThe Dividend Discount Model (DDM) is a conservative method for valuing stocks. It determines a stock's worth by considering the present value of its anticipated future dividends.Different types of DDM include Zero Growth DDM, Gordon Growth DDM (constant growth), Two-Stage DDM, and Three-Stage DDM.The model has limitations, such as its reliance on dividend payouts, making it unsuitable for evaluating stocks that don't pay dividends.Dividend Discount Model MeaningThe Dividend Discount Model (DDM) is widely accepted as one of the most conservative methods to value stocks. In the Dividend Discount Model, a stock is worth its price if its present value exceeds the estimated net present value of future dividends.It is based on many assumptions, such as future dividend payments, growth patterns, and interest rate trends. Using DDM, stocks are valued based on their net present value of dividends to come. Stock values are calculated by taking the sum of the future cash flows the firm expects to generate, and discounting them by a risk-adjusted rate. The dividends can be used to determine how much cash is returned to shareholders.Dividend Discount Model FormulaUnder the dividend discount model (DDM), the implied stock price is calculated as follows.Intrinsic Value Per Share = D1 ÷ (ke - g)Where:
D1 = Expected Dividend in Next Year
ke = Cost of Equity
g = Growth Rate of DividendTypes of Dividend Discount ModelHere are the different types of DDM:1. Zero GrowthDividend discount models assume that the dividend growth rate (DGR) remains constant throughout perpetuity, and the share price equals the annualised dividend divided by the discount rate.2. Gordon Growth DDMIt is often called the constant growth DDM. This variation assigns a perpetual DGR with no change throughout the entire period of the forecast.3. Two-Stage DDMDDMs determine the share price of a company based on a two-stage forecast: an initial period of increasing dividend growth, followed by a stable dividend growth period.4. Three-Stage DDMDDM's three-stage variation is an extension of two-stage DDM, with dividend growth rates declining over time.Drawbacks to the Dividend Discount ModelThe Dividend Discount Model has a few drawbacks. Here are they:1. Dividend Payouts NecessityThe first and foremost disadvantage of DDM is that it cannot be used to evaluate stocks that don't pay dividends despite capital gains that would be realised from investing in them. DDMs assume that the only value of a stock lies in its return on investment (ROI) through dividends. When assessing a number of companies, the DDM model is useless because it only works when dividends are expected to rise consistently in the future. Only fairly mature companies with dividend payment histories can be used with it.2. Too Many AssumptionsAs discussed in this article, the Dividend Discount Model makes too many assumptions about dividends. These include assumptions about growth rates, interest rates, and tax rates, all of which are beyond the investor's control. A drawback like this reduces the
DDM model's reliability.3. Buyback IgnoranceIn addition, the DDM does not take stock buybacks into account. The stock valuation of a company changes when the company buys back shares from its shareholders. DDM is too conservative and does not account for stock buybacks, especially in countries with tax structures that make share buybacks more advantageous than dividends.ConclusionBy comparing investments across different sectors, dividend discount models can help investors pick stocks that are overbought or oversold. It is best used for stocks with a long dividend history. However, not for stocks with a short or no dividend history. Furthermore, it is important to evaluate a variety of factors before making a final decision on any investment.
FAQs on the Dividend Discount ModelWhat are the limitations of the dividend discount model?Dividend discount models have a few downsides, including their lack of accuracy. A major limitation of the DDM is that it can only be used with dividend-paying companies. Additionally, the DDM does not consider stock buybacks, which makes it too conservative.What are the benefits of using the DDM for investors?Using the Dividend Discount Model, an investor can evaluate several assumptions about a company's growth and future prospects. The DDM shows that a company's value is determined by its total future cash flows discounted to its present value.What is the purpose of DDM?In the DDM, the fair value of a stock is calculated regardless of current market conditions. If the DDM value is greater than the current stock price, then the stock is undervalued and should be purchased. The opposite is true if the DDM value is lower. |
https://www.kotaksecurities.com/mutual-funds/things-you-need-to-know-about-mutual-fund-nav/ | 13 Things You Need To Know About Mutual Fund NAV | Key HighlightsNAV stands for Net Asset Value in a mutual fund, and it represents the price per unit of the mutual fund.Every working day, NAV is updated. NAV mutual fund update time is 9 p.m.As the price of the underlying securities in the fund portfolio changes daily, the mutual fund NAV fluctuates.Essential Points you Need to Know About Mutual Fund NAVYou should know these 13 things about mutual fund NAV:1. Understanding NAV in Mutual FundsIn a mutual fund, NAV refers to the price of 1 unit. Money is collected from retail investors (you) and invested in various investment vehicles. However, despite having money with them, mutual funds might not always invest it all.A mutual fund is divided into units. Investors receive mutual fund units when they invest in mutual funds. The NAV represents all the assets held by a mutual fund. Additionally, since they invest in stocks, the value of these stocks changes over time.2. Looking Solely at the NAV is not AdvisableConsidering NAV mutual funds is generally not necessary. In India, there is a common misconception that a lower NAV is better, especially with newer mutual funds having lower NAVs than older ones. This misconception has led to instances where investors sell their old mutual fund units to invest in newer ones based on NAV alone.However, when considering mutual fund investments, looking solely at the NAV is not advisable. Instead, it's important to consider various factors such as past performance, the size of Assets Under Management (AUM), alpha, beta, and other relevant details.3. Understanding Why the NAV Might Not Be the Most Important Thing for InvestorsFirstly, not all mutual funds are the same. Before investing, look at different things about the fund, not just the NAV.Assume two mutual funds, Fund A (MF-A) and Fund B (MF-B). Except for one thing: the NAV, Everything else about them is the same: manager, investment style, launch date.MF-A has a NAV of Rs. 20, and MF-B has a NAV of Rs. 50. Both have 20% of their money invested in a company called XYZ. If XYZ's shares go up by 10%, both MF-A and MF-B's NAV will go up by 2%. So, MF-A's NAV becomes Rs.20.4, and MF-B's NAV becomes Rs.51.It may seem like MF-B grew more. However, if you put Rs. 100 in MF-A at the start, you'd get 5 units (Rs.20 each). After the increase, if you sold them, you'd have Rs.102. That's a profit of Rs.2.Now, if you put Rs.100 in MF-B, you'd get only 2 units (Rs.50 each). After the increase, if you sold them, you'd also have Rs.102. The same profit as MF-A.4. Where to Find a Mutual Fund NAV?You can find that information on the respective page of that mutual fund on an online investment platform. For example, you want to know the NAV of the mutual fund ABC Bluechip Fund.Step 1:Visit the online investment platform.Step 2:Log in to your investment account by filling in the necessary details.Step 3:In the search bar at the top, type ‘ABC Bluechip Fund’ and press enter.Step 4:Now, the ABC Bluechip Fund page opens.
The mutual fund NAV can be found under the fund's name.5. What is AUM in Mutual funds?AUM should not be ignored when investing. In mutual funds, AUM stands for Asset Under Management, which is the total amount of assets managed by the fund. This includes all the assets that the mutual fund invests in, as well as its cash reserves.6. What is the NAV of a Mutual Fund if Investors Buy it in the Evening?The same day's NAV is used if the mutual fund is bought before 3 pm. You'll get units of a mutual fund at the NAV value at the end of that day if you order before 3 pm.If you place the order after 3 pm, the NAV at the end of the next day will be the NAV value.
When orders are placed on holidays, they're processed with the next working day's NAV.7. What NAV Value is Taken into Account When Selling Mutual Fund Units in the Evening?It works the same way when you buy units. If you sell units of a mutual fund before 3 pm on a working day, you will sell them at the NAV value of that day. If the order to sell is placed after 3 pm, then the NAV at the end of the next day will be used as the NAV value for the transaction.When a selling order is placed on a holiday, the NAV value at the end of the next working day is considered.8. NAV Mutual Fund Update TimeThe NAV is updated at the end of every working day. SEBI requires mutual funds to update their NAV by 9 pm every day. Mutual fund NAVs aren't updated live due to difficulties tracking the values of the assets they hold constantly.9. Are Investors Required to Consider the High NAV?If other aspects of the mutual fund look good, then investing in it is a good idea, even if it has a high NAV. As explained before, the example showed that the NAV isn't that important if the mutual fund performs well.Unlike stock prices, you don't need to worry about the NAV being too high. It can't be overvalued or undervalued like stock prices because the NAV is determined by the size of the Assets Under Management (AUM), not by market demand. So, if the mutual fund is performing well and fits your investment goals, a high NAV shouldn't be a big concern.10. The Effect of the Sensex and Nifty on the NAV of Mutual FundsWhether the Sensex or Nifty affects the Net Asset Value of a mutual fund depends on the type of mutual fund and the assets it holds.Mutual funds invest in a variety of assets. The impact of Sensex or Nifty on a mutual fund's NAV is determined by the types and quantities of assets within that particular fund.Sensex:It's a stock market index representing 30 large and stable companies listed on the Bombay Stock Exchange (BSE).Nifty:Similar to Sensex, Nifty is an index representing 50 major companies listed on the National Stock Exchange (NSE), covering various industry sectors.Effect on NAV:The influence of Sensex and Nifty on a mutual fund's NAV relies on how much the fund has invested in companies part of these indices. Large-cap mutual funds, which invest in the biggest companies, are significantly affected by changes in Sensex or Nifty.For multi-cap mutual funds that invest in companies of various sizes, the impact depends on the proportion of large-cap assets in their portfolio.It's crucial to note that changes in large-cap funds can also impact the performance of mid-cap and small-cap funds. Therefore, the NAV of small-cap and mid-cap mutual funds may also be influenced by fluctuations in Sensex and Nifty.11. NAV and Stock PriceThe NAV of a mutual fund and the stock price of a company have some similarities. However, there's a key difference.The NAV is like the book value of a mutual fund, representing the exact value of its assets. On the other hand, a stock price is supposed to reflect the book value of a company, considering its assets and profits.However, the stock price can change based on demand. If many people want to buy, the price goes up, and if many people sell, the price goes down. Overvalued and undervalued are terms used to describe these situations.The NAV of mutual funds doesn't change based on demand. Thus, it can't be overvalued or undervalued. This is why, unlike stocks, investors don't typically use NAV as a factor when deciding to buy or sell mutual fund units.12. What is the NAV of SIP?The NAV of SIP is the same as the NAV of a mutual fund. Mutual funds can be invested through SIPs or lump sums.SIP:SIP is a Systematic Investment Plan. You can invest a fixed amount of money every month in a mutual fund of your choice. Every month, the amount is automatically deducted from your account.Lump Sum:You simply invest a large sum of money in a mutual fund at once.The characteristics of mutual funds remain the same regardless of the method you choose. No matter whether you invest in a mutual fund via SIP or lump sum, the NAV remains the same.13. Does a Mutual Fund's NAV Drop like Stocks do?The NAV of a mutual fund can decrease, similar to how stock prices fluctuate. NAV goes up and down, even for well-performing mutual funds.ConclusionBeginners need to understand the above-mentioned points and the most common questions that arise when investing for the first time. Once you are clear on the above points, investing can be easily done with a well-informed decision. However, if you still need assistance while investing, you can consult an expert financial advisor.
FAQs on Mutual Fund NAVWhat is a good NAV for a mutual fund?There is no good NAV for a mutual fund. Depending on the fund's investment goals and individual investors' financial objectives, NAV has varying significance. Rather than focusing solely on its NAV, it's more important to assess the fund's performance, consistency, and alignment with your investment strategy.What causes the NAV to fluctuate in Mutual Funds?As the price of the underlying securities in the fund portfolio changes daily, the mutual fund NAV fluctuates.Is NAV updated regularly?Yes. Every working day, NAV is updated. SEBI mandates that mutual fund NAVs be calculated and updated daily by 9 PM. |
https://www.kotaksecurities.com/mutual-funds/types-and-how-to-calculate-exit-load-in-mutual-fund/ | Exit Load in Mutual Funds - Meaning, Types and Calculation | Key HighlightsWhen units are redeemed or sold by investors before the deadline, an exit fee is paid by the fund's management company.To discourage short-term trading and compensate the fund for the potential costs of early redemption of units, the exit load is to discourage short-term trading.The exit load is determined as a percentage of the units to be redeemed, which will be accounted for in the redemption proceeds.What is Exit Load in Mutual Funds?When an investor wants to withdraw from the fund or recover their units, asset management companies (AMCs) charge them an exit load. The principal aim of exit loads is to prevent investors from selling their investments before the expiration of the lock-in period.Moreover, outflows from mutual fund schemes may be reduced by the exit load fee. However, exit charges are not imposed by all funds on investors. Therefore, when choosing a plan for your investment, you must take into consideration the aspects of exit load.The exit load can be defined as a percentage of the net asset value (NAV) per mutual fund owned by an investor. The net asset value is the net asset of the entity and is calculated as the entity's assets minus its liabilities. In general, the exit charges are deducted from the total net asset value by AMCs, and their balance is recorded in an investor account.Types of Exit Load in Mutual FundThe types of exit load in mutual funds are as follows.1. Equity FundsIn general, equity funds carry higher exit risks compared to debt funds. For this reason, equity funds are designed to have a long-term investment horizon, and exit loads discourage frequent redemptions. Exit fees are charged by most actively managed equity funds, which means that investors must pay a charge when they redeem their securities before their expiration date.2. Debt FundsThe exit load of debt funds is usually lower than that of equity funds. However, some debt funds have no exit load charges, such as overnight and most short-duration Duration Funds. Investors can redeem their assets in these funds without paying exit load fees because they are intended for short-term investment goals. Many schemes within specific types of debt funds, such as banking and public sector funds and Gilt funds, do not charge exit fees, in addition to overnight and ultrashort duration funds.By contrast, debt funds that adopt an accruals-based investment strategy levied exit fees more frequently and include securities in their portfolios until maturity. In these funds, the higher exit amounts are designed to encourage investors to remain invested until securities mature and reduce their risk due to changes in interest rates.3. Hybrid FundsHybrid funds, including arbitrage funds, impose the exit load for late redemptions. The funds are available to investors seeking a balanced approach, including equity and debt instruments. Many investors do not understand that arbitrage funds have no exit fee and are only intended for very short periods compared to overnight funds. However, the reality is that exit fees regarding redemptions carried out within a specific period are usually between 15 to 30 days for most arbitrage funds. Therefore, investors concerned with arbitrage funds should have a minimum investment period of at least one month in order not to incur exit load fees.How to Calculate Exit Load in Mutual Funds?At the time of exit, the exit load will be applied. This is calculated from the total redemption value of the fund.Example of Exit LoadLet's say you have a net asset value of INR 50 to invest in the mutual fund scheme. You're investing 10,000 INR and getting 200 units of the mutual fund. If you redeem your investment within a year of making it, there is a 1% exit load associated with the scheme.If the NAV is INR 55, you are supposed to return 100 units after five months. Since the redemption will take place after one year of investment, you would be required to pay an exit fee on that amount. So, let's figure out how to calculate that exit load.The number of units to be redeemed = 100.NAV on redemption = INR 55Exit load: 1% of NAV = 1% of 55 = INR 0.55The total redemption value that you get is (55 - 0.55) * 100 = INR 5,445Where Does the Exit Load Go?The exit fee is paid to the AMC, which, in turn, invests in the portfolio itself. AMCs must reinvest the exit load into the scheme portfolio as per SEBI. Mutual fund companies will retain a portion of the redemption price, which will be paid as an exit fee, and then pay you net proceeds from your refund. The exit load would be reinvested in the portfolio to allow existing investors to keep their capital invested.ConclusionFor investors, it's essential to know about exit fees. After paying all the costs, it will give you an idea of how much money you will make. Please note that one Mutual Fund scheme may differ from one another by its specific exit load structure. You need to check all the details related to the mutual funds scheme. Know more about mutual funds & other technical aspects from Kotak Securities.
FAQs on Exit Load in Mutual FundsHow can exit load be avoided?Investors could avoid paying an exit charge by holding a mutual fund unit.Who charges exit load?When investors redeem or sell units before a specified time limit, their exit fee is imposed by the mutual fund company.What is the maximum exit load?If units are redeemed within a certain period, typically one year, the exit load for equity funds may range from 1% to 2%.Is the expense ratio and exit load the same?Note that the exit costs are not included in the expense ratio. Investors can decide to withdraw from the system as and when they wish in the case of open-ended funds. In some cases, investors do not remain invested during the defined period for which they entered into an investment agreement with a fund.What is an entry load?Whenever the investor purchases units of mutual funds, an entry load is applied. |
https://www.kotaksecurities.com/mutual-funds/what-is-hybrid-mutual-funds/ | What are Hybrid Mutual Funds? Definition, Types and Benefits | Key HighlightsHybrid mutual funds are a unique type of mutual fund that invests in various asset classes. These include stocks, fixed-income securities, and even real estate or gold.Types of hybrid funds include Multi Asset Allocation Funds, Aggressive Hybrid Funds, Balanced Advantage Funds, Conservative Hybrid Funds, Equity Savings Funds, and Arbitrage Funds.Hybrid mutual funds are suitable for investors who like low-risk investments with higher returns than debt funds. They are also good for individuals who have longer investment horizons.Hybrid funds provide access to different asset classes with a single fund. Active risk management and portfolio diversification are the greatest benefits. So, they are suitable for different risk profiles.What is a Hybrid Mutual Fund?Hybrid mutual funds are a unique type of mutual fund that invests in several asset classes. In other words, they combine many different types of funds. They include stocks and fixed-income securities like bonds, debentures, treasury bills, etc. Hybrid funds are a combination of the three main asset classes – equity, fixed income, and commodities.How do Hybrid Funds Work?Hybrid funds try to generate profits in the short term. In the long term, It focuses on capital appreciation with a balanced portfolio. Based on the fund's investment goal, fund managers distribute your money across equities and debt in different proportions. The fund manager may trade securities in order to profit from changes in the market.Types of Hybrid FundsThe following are the different types of hybrid mutual funds.Multi Asset Allocation Fund:These schemes must invest in at least three different asset classes. Each class should have a minimum investment of 10% investment. These funds offer investors exposure to a wide range of asset classes. The fund manager determines the asset allocation.Aggressive Hybrid Funds:These investment plans have to allocate at least 20-35% to the debt asset class and 65-80% to the equity asset class. Lesser allocation to the debt class offers an opportunity for significant profits at lower risk. They also take advantage of the taxation policy of equity-oriented funds.Balanced Advantage Funds or Dynamic Asset Allocation:Asset allocation in dynamic investment funds can vary from a 100% debt to a 100% equity asset class. The fund's financial model serves as the recommended foundation for determining asset allocation. Investors who wish to automate their asset allocation might consider these funds.Conservative Hybrid Funds:These funds must allocate between 10-25% of their entire assets to stocks and securities linked to stocks. Debt instruments constitute the remaining 75 to 90 percent. These funds seek to increase returns by generating earnings from the debt component and a very small portion of equity. This is a good investment option if you're ready to take a bit more risk.Equity Savings Funds:These funds use debt, equity, and derivatives investments to try to balance risk and return. Derivatives lower volatility and help generate steady returns. In addition, the equity assets offer growth. These funds allocate 0-35% of their investments to debt asset classes and 65-100% to equity assets.Arbitrage Fund:The arbitrage strategy tries to take profits from the difference in prices between two markets. It involves purchasing in the cash market and selling in the futures market. Derivative instruments are used in this strategy. Since there is a simultaneous purchase and sell, it results in consistent returns similar to debt.Who Should Invest in Hybrid Mutual Funds?The following investors can invest in hybrid mutual funds.Hybrid funds are a good option for conservative investors looking for low-risk investment opportunities. They usually give higher returns than debt funds.Some new investors want a significant amount of equity exposure throughout their whole portfolio without assuming significant risk. Hybrid funds are an excellent investment alternative for such investors.Hybrid funds are appropriate for individuals with longer investment horizons since they include a sizable exposure to stocks.Benefits of Hybrid Mutual FundsNow that you know what hybrid mutual funds mean, let’s look at their advantages. They include the following:It allows investors to access different asset classes through a single fund. This eliminates the need for multiple investments.Hybrid mutual funds are fundamentally based on active risk management. They diversify their portfolio by investing in non-related asset classes like debt and equity.One of the most important advantages of hybrid mutual funds is portfolio diversification. They diversify not only among various asset classes but also among their subclasses. For instance, they may invest in different types of stocks, like value or growth stocks, large-cap, mid-cap, or small-cap stocks.Hybrid mutual funds combine elements of both aggressive and moderate investing and appeal to different risk profiles.Things to Consider Before Investing in Hybrid Mutual FundsYou should consider the following factors while investing in hybrid funds.1. Financial Objectives:Investors must have a clear understanding of their financial objectives and how a fund would help to meet them. An investor should only invest in a fund if the expected profits can help fulfil his financial goals.2. Risk Appetite:You should not think of hybrid funds as entirely risk-free. There is risk associated with any financial instrument that invests in equity markets. It might not be as risky as stocks or equity funds. However, you still need to be careful and regularly rebalance your portfolio.3. Investment Horizon:Hybrid funds are a type of fund for investors with a medium or long-term investment horizon. Their historical performance shows they are quite good for long-term investments. If one invests for a long period of time, he will also profit from the power of compounding.4. Expense Ratio of the Fund:The cost an asset management company charges you annually to manage your assets is known as the expense ratio. It is a particular percentage of the profits from your investments. You should pick funds with a low-cost ratio. A high ratio lowers your net asset value (NAV). This decreases your effective payout at the time of redemption.ConclusionHybrid mutual funds invest in different types of asset classes. There are many types of hybrid mutual funds. These include equity funds, multi-asset allocation arbitrage funds, balanced advantage funds, etc. They help with portfolio diversification. In addition, hybrid mutual funds actively manage risk by investing in non-related securities. So, they are a good choice for investors willing to take low or moderate risks. However, investors should carefully consider their investment horizon, financial goals, and risk tolerance before investing in hybrid mutual funds. |
https://www.kotaksecurities.com/mutual-funds/fixed-deposits-vs.-debt-mutual-funds-better/ | Request failed | Request failed: 404 Client Error: Not Found for url: https://www.kotaksecurities.com/mutual-funds/fixed-deposits-vs.-debt-mutual-funds-better/ |
https://www.kotaksecurities.com/mutual-funds/how-to-use-mf-utility-to-invest-online-in-mutual-fund/ | How to Use MF Utility to Invest Online in Mutual Funds? | Key HighlightsMutual Fund Utility (MFU) facilitates access to direct mutual fund plans, avoiding brokerage fees and retaining expense ratios.Direct plans offer reduced expense ratios, enhancing potential profitability by saving on commissions.To use MF Utility, investors need a Common Account Number (CAN) and must register online via MFU's portal.What is Mutual Fund Utility?MF Utility (MFU) is a novel "Shared Services" concept by the Mutual Fund industry that serves as a "Transaction Aggregation Portal" and was introduced by the Association of Mutual Funds in India (AMFI). Customers of mutual funds can trade in various schemes offered by different mutual funds with only one form and one payment. Using a single form of payment, it links Mutual Fund clients with Registrars and Transfer Agents (RTAs), Banks, Payment Gateways (PGs), Asset Management Companies (AMCs), and KYC Registration Agencies (KRAs). It permits the filing of transactions online for a variety of mutual fund schemes. Using MF Utility, you may make simultaneous investments in several fund houses' direct plans for a variety of mutual fund schemes.You may be wondering, nevertheless, how investing in mutual funds is improved by a direct strategy. Knowing that each mutual fund scheme has two different types of plans (direct and regular plans) may be useful. The scheme name will indicate if the fund is direct or regular. The scheme title would contain the terms "direct" or "regular." In a direct plan, you can invest directly with the fund company rather than via a distributor. As a consequence, you save money on commissions that you would have to pay a distributor from your investment in a traditional plan.Direct plans offer a reduced expense ratio (charging 0.5-1.0 percent less) since the commission amount is not integrated into the programme. The annual proportion of assets under management that mutual funds charge is known as their cost ratio. A greater cost ratio implies you pay the mutual fund more fees annually due to the compounding impact, which eventually reduces your profits. The mutual fund's direct strategy somewhat eliminates this.The utility of mutual funds offers you the chance to reduce the expense ratio. Now that we are aware of the advantages, let's learn how to utilise the MF utility platform.How to Use Mutual Fund Utility?To invest in mutual funds through the Mutual Fund Utility (MFU), individuals need a Common Account Number (CAN). MFU provides a distinct CAN identifier, obtainable by completing and submitting a CAN registration form. This form can be submitted to any MF Utility India branch, a distributor affiliated with MFUI, or a participating AMC branch. Additionally, individuals have the option to register for CAN online.You will receive an SMS and an email verifying the CAN assigned to you to your registered email address and mobile phone after completing the CAN Registration form. It could take a week to finish this.After creating your CAN, you can then register for online access using their portal athttps://www.mfuonline.com/. You must establish a User ID and password for the account.Once you have the required login information, visit MFUOnline.com to finish the transactions. You can invest in one transaction or several transactions with only one click. A single payment might cover several MF plans from several AMC fund firms.ConclusionA centralized mutual fund distribution platform called MF Utility would make it possible for investors, distributors, and financial advisors to trade in schemes provided by various fund firms all on one platform. However, be cautious and choose the appropriate MF plans based on their long-term consistency before you start investing with MFU Online. In the long run, the final corpus size for do-it-yourself investors will be greatly influenced by selecting the appropriate plan.Please Note:Please read all scheme-related documentation carefully, as investments in mutual funds are subject to market risks. I-Sec makes no guarantees about the accomplishment of the fund's goal. Kindly take note. Depending on the forces and circumstances influencing the securities markets, the NAV of the schemes may increase or decrease. The information provided here may not be a reliable indicator of future performance or serve as a foundation for comparing it to other assets. If investors are unsure if a product is right for them, they should speak with their financial advisors.Investors should make their own judgements about investments based on their own investment objectives, financial situations, and individual investor requirements; the material supplied is not meant to be the only source of information utilised by investors. The information above should not be interpreted as an offer to trade or as advice to make an investment. Regarding the acceptability, profitability, and fitness of any item or service mentioned here, investors should form their own opinions. I-Sec and its affiliates disclaim all responsibility for any loss or harm resulting from activities made based on this information.
FAQs on MF UtilityDoes MF Utility charge any fees for its services?MFU typically doesn't charge investors for using its platform. However, check for any specific charges or fees associated with transactions.Are there any limitations on the types of mutual funds available through MF Utility?MFU provides access to a wide range of mutual fund schemes offered by various Asset Management Companies (AMCs), covering different categories and types.How secure is MF Utility for online transactions?MFU employs stringent security measures to safeguard investor data and transactions, utilizing encryption and other security protocols.What are the key steps to invest using MF Utility?After obtaining a CAN, register online at MFU's portal, create a User ID/password, and access the platform to invest in multiple schemes effortlessly.How important is choosing the right mutual fund plan when using MFU?Selecting plans with consistent performance is crucial for long-term returns, as the final corpus size is influenced by the chosen schemes' performance. |
https://www.kotaksecurities.com/mutual-funds/what-is-a-good-expense-ratio-for-mutual-funds/ | What is a Good Expense Ratio for Mutual Funds? | Key HighlightsThe yearly fee mutual fund or exchange-traded fund holders pay to fund management is known as the expense ratio.Over the past few years, competition has caused expense ratios to drastically decline.Nowadays, an expenditure ratio greater than 1.5% is usually regarded as excessive. A suitable range for an actively managed portfolio's expense ratio is 0.5% to 0.75%.The percentage for passive or index funds is typically 0.2%, however, it occasionally drops to 0.02% or less.What is the Expense Ratio?The costs mutual fund firms charge to operate a mutual fund are represented by the expense ratio. It is given as a proportion of the total assets that are being managed. The size of the mutual fund under consideration affects the value of an expense ratio. A portion of the limited financial resources available to a fund must go towards efficient administration. This increases the relative value of the expenses compared to the total amount of accessible funds. When it comes to large-cap mutual funds, the amount designated for expenses is a smaller percentage of the total asset value. Consequently, there is an inverse relationship between mutual fund size and expenditure ratios.The expenditure ratio formula, which is derived by dividing total expenses by the total assets of the funds, serves as a representation for this. Assuming unchanged total costs, the ratio decreases with increasing asset base and vice versa.Components of the Expense RatioHere are the components that constitute a mutual fund scheme's expense ratio, computed by dividing the total expenses paid by the AMC by the AUM:Fund Manager's Fee:Compensation paid to the fund manager for managing the fund's portfolio and making investment decisions.Marketing and Distribution Charges:Expenses associated with marketing the mutual fund scheme and distributing it among investors, including commissions to distributors.Legal and Audit Fees:Costs related to legal compliance, regulatory filings, and audit expenses incurred by the mutual fund scheme.Operational Costs:Various administrative expenses, such as administrative staff salaries, office rent, utilities, and other operational overheads involved in managing the fund.Other Miscellaneous Expenses:Additional expenditures that contribute to running the mutual fund scheme, including printing and stationery costs, communication expenses, etc.How Does the Expense Ratio Impact Fund Return?Annual returns are impacted by expense ratios, which are subtracted from the total revenue of a mutual fund. Investors must carefully examine these ratios since greater ratios mean a larger percentage of returns are being subtracted.Expense Ratio ImplicationsThere is a widespread misperception that a mutual fund with a higher cost ratio is better managed and has a higher chance of making money. Low-cost mutual funds can also provide large returns if they are overseen by experienced managers who have accurate market analysis.Conversely, mutual funds with a high cost ratio can be actively managed to provide higher returns or invested in businesses with a greater chance of making a profit. The increased costs incurred will be offset by a larger income earned.Expense Ratio Limit by SEBIThe Securities and Exchange Board of India (SEBI) imposes limitations on asset management firms in India in order to safeguard investor interests and guarantee a significant flow of money to the capital market. For exchange-traded funds and index funds, the regulations are different. A maximum total expenditure ratio of 2% is applied to an initial asset base of Rs. 500 crore, and a ratio of 1.75% is applied to successive asset values of Rs. 250 crore.ConclusionInvestors have to understand the mutual fund expense ratio in order to assess how charges affect their investments. Reduced deductions from investment returns are indicated by a lower expense ratio, which might result in better net returns for investors. Investors may make more informed judgements and ensure transparency by understanding these ratios and their ramifications, which can help maximise possible returns on investment.
FAQs on Mutual Fund Expense RatioWhat is considered a good expense ratio for mutual funds?Generally, expense ratios above 1.5% are considered high. For actively managed funds, a range of 0.5% to 0.75% is acceptable, while index funds often aim for around 0.2%.What factors contribute to a mutual fund's expense ratio?Components include fund manager fees, marketing/distribution expenses, legal/audit fees, operational costs, and various miscellaneous expenses incurred by the fund.Can investors access information about a fund's expense ratio?Yes, investors receive semi-annual statements disclosing the expenses deducted from their accounts, ensuring transparency about the fund's operational costs.Can expense ratios impact different types of funds differently?Yes, expense ratios affect different funds uniquely. For instance, actively managed funds usually have higher expense ratios than passive or index funds.Are expense ratios the only consideration while choosing a mutual fund?No, while important, investors should consider other factors like fund performance, investment strategy, risk, and investment objectives alongside the expense ratio. |
https://www.kotaksecurities.com/mutual-funds/what-are-the-10-tips-to-pick-a-winning-mutual-fund/ | 10 Essential Tips for Selecting the Right Mutual Fund? | Key HighlightsMutual funds pool money from multiple investors into a diverse range of financial instruments.Mutual Funds allow small investors to access professionally managed portfolios, sharing profits or losses proportionally.Diversify across industries and asset classes to construct a resilient portfolio.Tips for Selecting the Right Mutual FundHere are 10 crucial tips to pick a winning mutual fund that can help investors enhance their potential returns by making informed choices when selecting the best mutual funds independently.1. Plan in AdvanceChoosing the right mutual fund is like picking the perfect piece for your financial puzzle. You need to make sure it matches your long-term investment plan. The fund should be great for you in terms of how much returns it can make, how safe it is, how easy it is to get your funds when you need it, and how it affects your taxes. Even if a fund is really good, it won't help you if it doesn't fit with what you want to achieve. That's why choosing a fund is a very personal decision which should be planned in advance.2. Consistency With ReturnsIt's not only about how much returns you earn, but also about getting the same amount regularly. Consistency means getting similar returns each time. For example, a fund that gives 13%, 14%, and 15% returns over three years is more consistent than another fund that gives 5%, -4%, and 47% over the same time. It's clear that the first fund is much more dependable. Funds that are consistent are usually easier to predict.3. Historical SuccessHistorically, mutual fund investments may have performed well. However, when analysing the risks associated with any set of financial investments, experts emphasise that past success doesn't guarantee future performance. Even though, usually, the good investments still do better than others, especially when you look at the big picture over a long time.4. Evaluate the Mutual FundWhen you decide to put a lot of money into a Mutual Fund (MF), it's super important to choose the right one. You can use online tools to check how well the fund has been doing and the returns it has made in the last two years. Also, you can find a lot of info about how the fund is doing on the company's website that manages the fund (Asset Management Company or AMC).5. Select the Best Mutual Fund CategoriesInvestors have numerous choices in the world of mutual funds. It is crucial for investors to prioritise their financial goals over being swayed by the attractive features and benefits of other mutual fund plans. By doing so, they can assess whether a specific investment scheme and its components align with their needs and are beneficial for them.6. Assess Your Risk ToleranceEvery investment comes with some level of risk. So, the first thing to do is figure out how much risk you're okay with. There's a saying in investing that "More Risk Can Mean More Rewards, which means if you take on more risk, you might get more returns. That's why it's really important to know how much risk you're comfortable with before you start.7. Formulate a Growth-Oriented Long-Term StrategyIt's really important to know that mutual funds aren't a quick way to get rich fast. Instead, you need to think about keeping your money invested for a long time to get the most out of it. If you plan to keep your money invested for at least five years, it's a good idea to look at funds that focus on stocks (they're called equity-oriented mutual funds). Stocks can make you earn more returns over a long time, but they can also go up and down a lot in the short term, which might mean you make or lose money.
To make sure you can get some of your money when you need it, it's a good strategy to mix stocks with short-term investments. This way, you can take care of your immediate money needs without giving up the chance to make a lot of returns over a long time.8. Explore Taxation and Related AdvantagesPeople who invest in mutual funds should make sure they know all about the taxes they might have to pay and any special rules that can help them pay less. Knowing this information is really important because it can help reduce the amount of money you might have to give for taxes. It's also important to understand how taxes work when you decide to take out your investment. There are some special programs, like the Equity Linked Savings Scheme, that can give you tax benefits, so it's a good idea to learn about them too. Make sure to know about the three important laws that control how you can buy mutual funds.9. Always Bear in Mind the three key aspects of Mutual Funds.For smart investing, it's not a good idea to only think about the good things you might get. You should also pay attention to
How long you plan to invest your money.
How much money you have.
Checking and thinking about all the things you've invested in. These things are really important to make sure you make a lot of returns with Mutual Funds and reach your goals on time.10. Consistently Assess Your InvestmentsEven though you don't need to keep watching your investment all the time after you invest it, it's a good idea to monitor how well it's doing every now and then. Like, maybe every month, see if it's gaining returns or not. Monitoring it regularly helps you make smart choices about you.ConclusionDespite the numerous investment choices accessible, mutual funds persist as one of the most excellent and pragmatic avenues for deploying your funds. A primary benefit is the professional management provided by fund managers equipped with extensive market research. Additionally, a noteworthy advantage of mutual fund investment lies in the diversification it brings to your portfolio.
FAQs on Tips to Pick a Winning Mutual FundsHow to choose mutual funds?Choose mutual funds based on your financial goals, risk tolerance, and investment time horizon, while considering factors such as fund performance, fees, and fund manager track record.Should I prioritise a fund's return over its risk?Balance is key, consider both return and risk to find a suitable match for your risk tolerance.How often should I review my mutual fund investments?Regularly reassess your portfolio to ensure it aligns with your financial goals and market conditions.Are there tax implications when investing in mutual funds?Yes, be aware of capital gains taxes and consider tax-efficient funds to minimise tax impact.Can economic conditions affect mutual fund performance?Yes, economic factors like interest rates and inflation can influence fund returns.How do I determine my risk tolerance?Assess your financial goals, time horizon, and comfort level with market fluctuations. |
https://www.kotaksecurities.com/share-market/what-is-white-candlestick/ | Rickshaw Man Candlestick Pattern: Definition, Advantages and Drawbacks | Key HighlightsThe rickshaw man is a candlestick pattern that has nearly identical opening and closing prices. The real body is small, with long shadows on both sides.The pattern indicates market indecision. It often forms at the top of an upward trend or the base of a downward trend.The Rickshaw man pattern is easy to identify. So, less experienced traders can also use it.However, it can be challenging to identify the pattern in unclear market conditions. At times, it also may give false signals.What is the Rickshaw Man Candlestick Pattern?The rickshaw man is a unique candlestick pattern that has almost identical starting and closing prices. In addition, it has lengthy shadows on the candlestick with more significant highs and lower lows. Technical analyst Steve Nison identified the rickshaw man candlestick pattern in the year 1991.He described it in his book "Japanese Candlestick Charting Techniques." This reversal pattern forms at the apex of an upward trend or the base of a downward trend. It is quite similar to the Long-Legged Doji. In the long-legged doji pattern, opening and closing prices fall at the centre of the shadows.Rickshaw Man Candlestick Pattern MeaningA candlestick pattern shows four significant price points of stocks. These include the high, low, open, and close prices. The "real body" indicates the opening and closing price range. The lines known as shadows or wicks show the high and low values of the stock.The rickshaw man candles occur when bulls and bears control the market for a stock within the same period. However, the exact point of time will differ. This leads to a long shadow on the candle. The candlestick pattern of the rickshaw man represents a state of indecision in a market. So, you should use it in combination with other technical indicators, price action analysis, or chart patterns. Only then can you properly determine the direction of a trend.Long wicks are produced because there is a significant difference in the high and low prices. A doji is produced when the opening and closing prices are almost identical. So, the chart displays the rickshaw man pattern as a doji body with a long candle. The long-legged doji and the rickshaw man pattern may seem similar. Yet, they are two different patterns traders should identify separately to properly assess the market.Identifying Rickshaw Man Candlestick PatternFinding a rickshaw man pattern takes time. Because it does not always follow the price trend that led to the formation of the pattern, you should keep a close eye on the following things to determine a rickshaw man candlestick pattern.A single candle along with a small Doji-like figure. It will have long shadows on both sides of the real body.A real body centred at the candlestick's midpointA small real body which indicates that the difference between opening and closing price range is very less.Benefits of Rickshaw Man Candlestick PatternAfter the rickshaw man candlestick pattern meaning, let's now look at some of its advantages. The following are some of the major ones.It may indicate the end of an uptrend and the possible beginning of a downturn. So, it can provide an early warning of a possible trend reversal.Traders can pair the rickshaw man pattern with other bearish indicators. This will help them to get a high-probability trade setup.It is quite easy to identify the pattern. So, even traders with less experience can use it.Drawbacks of Rickshaw Man Candlestick PatternThe rickshaw man pattern is a bearish reversal pattern. So, you should not rely only on it while making decisions.Sometimes, there are no clear patterns in the market. In such cases, it may be challenging to identify this pattern.Just like other technical analysis tools, the rickshaw man pattern may provide misleading signals. It can also lead to making the wrong trades.Here’s a table summarising the key benefits and drawbacks of the rickshaw man candlestick pattern.
BenefitsIndicates a possible trend reversalDrawbacksNot a reliable indicatorBenefitsHigh probability trade setupDrawbacksHard to identify in all casesBenefitsEasy to identifyDrawbacksCan provide misleading signalsBenefitsDrawbacksIndicates a possible trend reversalNot a reliable indicatorHigh probability trade setupHard to identify in all casesEasy to identifyCan provide misleading signals
ConclusionThe rickshaw man candlestick pattern is a bearish indicator with identical opening and closing prices. It has three candles. The first candle is long. The second candle is small. It gaps over the first candle. The third one closes below the middle point of first candle.Sometimes bulls and bears fight for control of market prices at various points within the same timeframe. This results in a broad range of prices, forming the rickshaw man pattern. It is easy to identify this pattern and find the trend direction. Yet, sometimes, it can give false signals. Thus, always use this pattern along with other technical indicators and support and resistance levels.
FAQs on Rickshaw Man Candlestick PatternHow is the rickshaw man different from a doji pattern?The rickshaw man candlestick pattern is similar to a doji pattern. However, it has longer upper and lower shadows. This indicates that there is some price movement. Still, the opening and closing prices are quite close.Is the rickshaw man a bullish or bearish pattern?The Rickshaw Man is a neutral pattern. So, it indicates neither a strong bullish nor bearish sentiment. It indicates a reversal or pause in the prevailing trend.Can investors use the rickshaw man pattern for any type of asset?Yes, investors can use the rickshaw man pattern for any type of asset, like stocks, forex, and commodities. It is a very flexible pattern which can spot indecision in various market segments.How can investors confirm trend reversals indicated by the rickshaw man pattern?Investors can check upcoming candlestick patterns or changes in trend directions to confirm the reversal indicated by rickshaw man patterns.Should investors consider the timeframe when using the rickshaw man pattern?Yes, investors should consider the timeframe when using the rickshaw man pattern. The results usually vary for intraday, daily and weekly charts. |
https://www.kotaksecurities.com/articles/what-is-union-budget/ | What is Union Budget? Understanding the Union Budget | As the media buzzes with talk of theIndian Union Budget 2023, it's clear that this financial event is one of the most highly anticipated and closely watched by the general public.But how many of us truly understand the basics of the budget and how it affects our everyday lives?In this blog post, we'll take a closer look at the Indian Union Budget and explain the key concepts and considerations that are relevant to both the common man and the economy as a whole.Let’s start with the basics:Why a Budget?Let’s consider the Khanna family, who earns Rs. 5,00,000 a year.Last year, the Khanna's spent Rs. 5,35,000, which means they borrowed the additional Rs. 35,000.Clearly, the Khanna's spent more than they earned which resulted in a shortfall of Rs. 35,000.To be more mindful about their finances in the coming year, they decided to adopted some cost-cutting measures and also increase their income.They mapped out an estimate of the various expenses and incomes as well as the savings and spending they will be undertaking in the coming year. And this was their Budget for the coming year.Similarly, the government also preparesan estimate of the nation’s budgetwhich is called the Union Budget. It is a financial plan presented by the government of India every year, outlining its revenues and expenditures for the upcoming fiscal year.This budget covers the government'san estimate of the nation’s budgetestimated revenues from taxes and non-tax sources, as well as itsplanned expenditureson various programs and schemes. It also includes a statement of thegovernment's overall financial position,including the level of public debt.So, the Union Budget is important as it lays out the government's plans for the economy and its priorities for the coming year.Union Budget of IndiaAccording to Article 112 of the Indian Constitution, the Union Budget of India is the comprehensive annual financial statement on the government's capital, revenue, and expenditures.The term "budget" is taken from the old French word "Bougette" which means bag or wallet. It is a detailed financial plan for the present and future based on revenue and expenditure estimates for the Central Government.The Blueprint Of The Union BudgetThe Union Budget of India is the government's blueprint for revenue and expenditure for the fiscal year, which runs fromApril 1st to March 31st.The budget is presented by theFinance Minister of Indiain the Parliament, usually on the first working day of February so that it can be implemented before the start of the new financial year.The budget is divided into two parts: TheRevenue Budgetand theCapital Budget.The revenue budget includes government revenue and expenses, while the capital budget covers capital receipts and payments.Here are a few key terms and concepts used in the Budget.Key Budget Terms & ConceptsFiscal Deficit:This is the shortfall between the government's income and expenditure.Direct Taxes:These are the taxes imposed directly on citizens, such as income tax and corporate tax.Indirect Taxes:These are the taxes imposed on suppliers or manufacturers that are passed on to consumers, such as the Goods and Services Tax (GST).Non-Plan Expenditure:Includes expenditure on interest payments, defense, subsidies, police, pensions, and other services.Plan Expenditure:These are the expenditures on the Central Plan and Central Assistance to states and union territories.Budget’s Objective: Balanced GrowthThe primary objective of the Union Budget is to promote rapid and balanced economic growth, social justice, and equality.The budget aims to efficiently allocate resources, reduce unemployment, and address income disparities.By understanding the Union Budget and how it is balanced, we as citizens can better grasp how the government is planning to improve the economic growth.An important aspect of the Union Budget is the concept of fiscal deficit. Fiscal deficit is the amount by which the government's expenditure exceeds its revenue.In other words, it represents the extent to which the government has to borrow in order to finance its operations. The government aims to maintain a balance between its expenditure and revenue, in order to avoid a fiscal deficit. This is why the government may choose to promote economic growth, increase taxes or reduce spending in order to balance its budget.Another important aspect of the Budget is the concept of direct and indirect taxes. Direct taxes are taxes that are imposed directly on citizens, such as income tax and corporate tax. Indirect taxes, on the other hand, are taxes that are imposed on suppliers or manufacturers and are passed on to consumers. The Goods and Services Tax (GST) is an example of an indirect tax. Understanding the difference between these two types of taxes is important for understanding how the government raises revenue and how it impacts citizens.Conclusion:In conclusion, the Union Budget is a crucial financial event that impacts the lives of every citizen. It is the blueprint of the government's revenue and expenditure for a fiscal year and is presented every year in the month of February.By understanding the basics of the budget, such as the fiscal deficit, direct and indirect taxes, and plan and non-plan expenditure, we can better grasp how the government manages its finances and how it plans to drive economic growth and social justice for a particular year.Read More :Union budget 2024
FAQs about the Union Budget of IndiaWhen is the Union Budget 2023 date?The budget is usually presented on the first working day of February every year. The Union Budget 2023 will be announced on 1st February, 2023.What is the Union Budget 2023 presentation time?Finance Minister Nirmala Sitharaman will present the Union Budget 2023-2024 in Parliament on February 1st at 11.00 am.When will the Economic Survey be presented in Parliament?The Economic Survey is presented in Parliament a day before the budget, on January 31st.For what period is the Union Budget of India prepared every year?The Union Budget of India is prepared for the fiscal year, which runs from April 1st to March 31st every year.Who will be presenting the Budget for 2023?The Union Budget 2023 will be presented by the Finance Minister of India Nirmala Sitharaman on 1st February.How will be the Budget for 2023 prepared?The Union Budget preparation includes a process of consultation, planning, and implementation. The budget making activity usually begins in August-September i.e. six months prior to its presentation date.Who prepares the Union Budget of India?The ministry of finance prepared the budget in consultation with Niti Aayog and other concerned ministries.How is the budget passed after its presentation?The Budget needs to be passed by both the houses of Parliament before the start of the financial year i.e. April 1.
Sources:Indiabudget.gov.in |
https://www.kotaksecurities.com/share-market/what-is-daily-chart/ | No title found | Key HighlightsA daily chart provides a visual representation of a stock's price movement within a single trading day.Daily chart offers three main types- bar charts, candlestick charts, and line charts.These charts are customisable to different time frames, including minutes, hours, weeks, or months.Daily Chart MeaningDaily charts serve as essential tools for technical traders aiming to capitalise on both intraday price fluctuations and longer-term trends. A daily chart can either focus on a security's price action within a single day or provide a comprehensive overview of its daily price movements over a specified timeframe.The increasing popularity of candlestick charts among traders is attributed to their simplicity in conveying fundamental information. This includes opening and closing prices, along with the trading range for the chosen time period.However, candlestick formations vary depending on the time frame used for chart creation. Traders have the flexibility to graph price charts by selecting time frames ranging from one minute to one year. The most commonly used intervals are hourly, daily, weekly, and monthly. Many technical analysts opt for a combination of intra-day and longer-term charts for comprehensive trading analysis.Intraday charts depict a security's price movement from market open to close. Analysts can specify candlestick display time frames in these charts through their trading system settings, with common intervals being five or ten minutes per candlestick. The real-time formation of candlestick bars on the chart is based on the specified settings.Types of Daily ChartThe three common types of charts are line, bar and candlestick. Let’s understand them in detail:1. Line chartsLine charts have the stock price or trading volume on the vertical axis (y-axis) and the period on the horizontal axis (x-axis). Line charts are usually created using the closing stock price. Multiple closing prices are combined to represent the entire information in a single line. That is why the chart is known as a line chart.2. Bar chartsBar charts are similar to line charts. A bar chart consists of a vertical line and two horizontal lines protruding from it. At the top of each vertical line is the highest price the stock reached during the day, and at the bottom is the lowest price. The left-hand horizontal line represents the opening price, and the right-hand horizontal line represents the closing price.3. Candlestick ChartsTraders widely prefer candlestick charts for daily analysis as they efficiently convey essential information like opening and closing prices, along with the day's highest and lowest values.A candlestick comprises two key components: the body and the wicks. The upper wick's tip signifies the highest trading price of the day, while the lower wick's tip represents the lowest trading price.The body, or block, reflects the opening and closing prices. At the top is the price that is higher than the opening and closing prices. The lower of the two prices is at the bottom of the body. A green/white candle represents the opening price, while a red/black candle represents the closing price.Uses of Daily ChartDay traders often incorporate daily charts into their trading setups, covering various time frames simultaneously. For instance, day traders might use two monitors to track trades on an hourly basis and review trading activities over the past several days. This approach enables traders to gain a comprehensive understanding of a security's trading behaviour.Daily charts serve as the primary information source for day traders. There is a common practice of combining candlestick formations with technical patterns and alerts in trading systems. Traders can customise their price charts by incorporating channels and a range of signal alerts, allowing them to identify potentially profitable trading opportunities.ConclusionDaily charts show the price movement of stocks on the share market in a visual format. It's represented by the price movement of the stock over time. Line, bar, and candlestick charts are the three types of daily charts. After you learn how to read daily charts, you can play around with various technical indicators to spot trends, buying and selling patterns, etc. You'll be able to make better financial decisions with these insights. If you're new to stock trading, you can learn how to read a daily chart using educational resources provided by reputable financial providers.
FAQs on Daily ChartHow do weekly and daily charts differ?Weekly charts show the high, low, open, and close for the entire week, not day-to-day stock movement.Why is a daily chart important?A daily chart is one of the main tools used by technical traders to profit from intraday movements and longer-term trends. Charts can show daily price movements for individual days, or they can show daily price movements for a specified period of time.Which chart is best for intraday?The line chart is most commonly used by traders in intraday trading. |
https://www.kotaksecurities.com/share-market/advantages-and-disadvantages-of-share-buyback/ | Advantages and Disadvantages of Share Buyback | Key HighlightsIn a share buyback, the companies repurchase their outstanding shares from the shareholders.Share buybacks increase promoter's control and enhance the earnings per share (EPS).The key advantages of share buyback are efficient use of cash reserves, protection against a hostile takeover and provides positive growth prospects.Miscalculation of company valuation and delay in major investment projects are some of the major drawbacks of a share buyback.What is Share Buyback?Share buyback refers to the practice of firms buying back their own shares from current owners, either through an open market transaction or a tender offer. The price of these shares is typically higher than the existing market price.Companies can use the secondary market to repurchase shares if they want to use the open market process. However, those who choose the tender offer can submit a part of their shares within the allotted time. On the other hand, it might be an alternative way to reward current shareholders besides paying dividends.Reasons for BuybackA company may have several reasons to go for a buyback. Here are the prominent ones.Share buyback lowers the capital base. This usually leads to higher earnings per share (EPS).It acts as a defence mechanism when there is a threat of corporate takeovers. Buybacks increase promoters' assets and protect against hostile takeovers.By encouraging companies to lower their equity base, buybacks provide the necessary flexibility.Share buybacks result in a smaller floating stock ratio. This raises the shares' intrinsic value.Repurchases would allow businesses to expand their capital bases without raising more funds through mergers and acquisitions.Different Methods of Share BuybackThere are various methods to buy back the shares. The following are the most common ones.Buying from the Open MarketUsing this strategy, the business purchases its own shares from the market. The company's brokers handle the transaction. The firm has to buy back significant blocks of shares. Thus, this repurchase program lasts relatively longer. It is not mandatory for the business to carry out the buyback program after the announcement. Additionally, it can modify the buyback program in accordance with the requirements and circumstances of the business.TenderingThe firm issues a tender to buy the shares from the existing owners at a fixed price. The buyback price would exceed the share's current market value. Individuals interested in the share repurchase program should indicate how many shares they want to sell. The transaction will proceed if the company's buyback obligation surpasses the required threshold. Preference is given as per the number of shares investors want to sell.Repurchase by Direct NegotiationIn this process, the business only contacts shareholders with a sizable share. They receive payment from the firm that is higher than the existing rate. This strategy is more appropriate since the business can bargain directly with bigger shareholders.Dutch Auction Tender OfferThe origin of the concept lies in the Dutch Tulip Market of the 17th century. In this method, a firm gives the stockholders a price range rather than a fixed price. The minimum price is usually higher than the existing price. Investors place their bids within the specified range.Financing Aspects of BuybackBetter and more efficient finance management is crucial to a company's success. To repurchase several shares, firms need amassivee amount of funds from one or more sources. The companies can arrange the required capital in the following ways.Internal funding by utilising the profitsKeep adequate cash reserves.Selling a short-term investmentIssuing fixed deposits to raise cashIssuing loan bonds and debenturesLoans from commercial banksOverdraft facility offered by banksAdvantages of Share BuybackThe following are some of the key advantages of share buyback.Businesses with substantial cash reserves to buy back shares can efficiently use their money.Share buybacks alter the company's capital structure. Re-issue of shares is mandatory to satisfy existing commitments. So, buybacks are occasionally used as a preventative measure against share re-issues to balance the capital structure. Shares are repurchased for retirement plans, stock options, bonuses, and other re-issue requirements.Share repurchase plans indicate that the management has positive future prospects. The management may have beneficial information that is unknown to the investors. So, it may provide cash to its shareholders, expecting cash flows to rise in the future.Repurchasing shares enables promoters to create a strong defence plan during hostile takeover offers.Share buybacks enhance the promoters' position. They may occasionally acquire all the non-promoter owners' shares. They can also buy enough shares so that the promoter's holdings exceed 90% and delist the company.A firm is limited to one buyback per year. However, it can go for several buyback plans year after year. This also makes it easier for the promoters to swiftly accomplish their goals and raise their stake and control in the businesses.Repurchasing shares and securities lowers the capital base. So, it increases earnings per share (EPS) after the repurchase and significantly raises the price-earnings (P/E) ratio.If a company has enough liquidity, section 77B of the Companies Act permits the buyback of shares and securities. Share buybacks are prohibited for companies which defaulted on deposit repayments, term loans or interests. So, it is a useful tool for monitoring businesses with low liquidity.Following the share repurchase, the firms will benefit from lower capital bases and a higher dividend yield.Disadvantages of Share BuybacksHere are some of the major disadvantages of the buyback of shares.The share repurchase programme can raise the EPS and ROA (return on assets) ratios, among others. The primary reason for the ratio rise is the reduction of outstanding shares. It is not due to an increase in profitability. As a result, the share repurchase may present an inaccurate picture of a company's profitability.Despite having access to all insider information, the firm's management retains the ability to misjudge a company's worth. The entire buyback programme will be pointless if the repurchase was carried out to justify the undervaluation but the corporation miscalculated the prospects.Businesses may work on large projects. Major investment choices would stop if the available cash were distributed to the shareholders through share repurchases. As a result, the company's reputation might be at risk.Repurchasing shares might be an unethical way for a company's promoters to increase their ownership stake.ConclusionShare buyback is the process of repurchasing the shares by a company. A share buyback allows a company's promoters to acquire many shares. A business may repurchase shares in the open market or through a tender offer. Most people think that buyback proposals help the company's shareholders. It boosts return on capital and adds value to shareholdings. However, stockholders should be cautious while accepting the offer. You must consider your financial needs and risk tolerance and decide accordingly.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on Advantages and Disadvantages of Share BuybackDo share buybacks have an impact on earnings per share (EPS)?Yes, share buybacks can affect the earnings per share (EPS) of a company by reducing the quantity of outstanding shares. So, after the buyback, each share represents a higher portion of the company’s total earnings.How do share buybacks raise the shareholder value?Share buybacks raise the shareholder value by increasing the earnings per share (EPS). This leads to a rise in stock prices.Are there any specific rules and regulations regarding share buybacks?Yes, there are rules and regulations for conducting share buybacks to ensure transparency. Companies must strictly follow the guidelines of the market regulator.Does a share buyback affect the stock price of a company?Yes, a share buyback can impact the stock price of a company. This is because share buybacks reduce the quantity of outstanding shares.How do share buybacks affect the financial statements of a company?A Share buyback reduces the outstanding shares, affecting key ratios like earnings per share(EPS), book value per share (BVPS), return on assets (ROE) and return on equity (ROE). |
https://www.kotaksecurities.com/articles/deep-dive-suraj-estate-developers-ipo/ | A Deep Dive into Suraj Estate Developers IPO | About Suraj Estate DevelopersEstablished in 1986, Suraj Estate Developers is a prominent name in Mumbai’s real estate arena. The company has developed over 10 lakh square feet of land in several Mumbai neighborhoods and has designed custom space for prominent financial institutions like the National Stock Exchange of India and Clearing Corporation of India.Suraj Estate Developers have successfully grown their business by delivering distinctive product offerings through their profound comprehension of the real estate market, robust design and execution capabilities, a powerful brand presence, and extensive marketing initiatives.Financial SnapshotWhile the company’s revenue growth has been moderate over the years, the company has recorded a steady rise in profits after tax. This demonstrates the company’s improved profitability over the years. Here are some of its key financial stats for FY 23.
Revenue from OperationsProfit after TaxRs 3057.44 millionRs 320.64 millionRevenue from OperationsReturn on Net WorthRs 3057.44 million58.18%Revenue from OperationsTotal AssetsRs 3057.44 millionRs 9245.80 millionRevenue from OperationsRs 3057.44 millionProfit after TaxRs 320.64 millionReturn on Net Worth58.18%Total AssetsRs 9245.80 million
IPO DetailsThe IPO comprises a fresh issue of up to Rs 400 crore with no offer for sale. The offer made through thebook-buildingprocess will have 50% shares for qualified institutional buyers, 15% for non-institutional bidders, and 35% for retail investors. Here are the other details of the company’s IPO:-
IPO Subscription Starts OnIPO Subscription Ends OnDecember 18December 20IPO Subscription Starts OnIPO Price BandDecember 18Rs 340-360 per equity shareIPO Subscription Starts OnIPO Lot SizeDecember 1841 shares and in multiples thereafterIPO Subscription Starts OnDecember 18IPO Subscription Ends OnDecember 20IPO Price BandRs 340-360 per equity shareIPO Lot Size41 shares and in multiples thereafter
The company aims to use the proceeds from the IPO for:-Acquisition of land development rightsRepayment of the company's outstanding borrowings and its subsidiariesGeneral corporate purposesHow to Apply for Suraj Estate Developers IPO?With Kotak Securities, the application process for this IPO is fairly simple. All you need to do is:-Log in to your Kotak Securities Demat account and choose the current IPO sectionInput the IPO details, specifying the number of lots and the desired application priceAfter entering your UPI ID, click submit to submit your bid to the exchangeYour UPI app will receive a notification to block fundsOnce approved, the exchange will block your fundsSumming it UpPent-up demand and strong consumer sentiment for homeownership post-pandemic have fueled a robust recovery in the residential housing sector, signaling significant market potential. Participating in this IPO can help you be a part of India's growing real estate sector. However, as with any IPO, it's essential to conduct due diligence, particularly with valuations. Consult with a certified financial consultant and conduct thorough research before participating. |
https://www.kotaksecurities.com/articles/forging-success-happy-forgings-ipo/ | Forging Success - Happy Forgings to Come Up With Its IPO | About the CompanyWith over 40+ years of experience, Happy Forgings is India's fourth-largest engineering-driven manufacturer of heavy forged and highly precision-machined components, focusing on complex and safety-critical products. Operating through a vertically integrated approach, the company specializes in engineering, process design, testing, manufacturing, and the supply chain for various components.The company produces a diverse array of heavy forged and machined products, serving various industries. Its product range encompasses crankshafts, front axle beams, steering knuckles, differential cases, transmission parts, pinion shafts, suspension products, and valve bodies. These are supplied to a broad customer base, reflecting the company's commitment to serving various industries.Financial SnapshotHappy Forgings Limited has consistently grown its revenue, profitability, and efficiency. The company has showcased a positive financial trend by improving its return on net worth (RoNW) andearnings per share(EPS) and reducing its debt-to-equity ratio. Here are some of its key financial details for FY 23.
Revenue from OperationsRestated ProfitRs 11,965.30 millionRs 2,087.01 millionRevenue from OperationsReturn on Net WorthRs 11,965.30 million21.12%Revenue from OperationsTotal AssetsRs 11,965.30 millionRs 13,261.68 millionRevenue from OperationsTotal LiabilitiesRs 11,965.30 millionRs 3,378.61 millionRevenue from OperationsRs 11,965.30 millionRestated ProfitRs 2,087.01 millionReturn on Net Worth21.12%Total AssetsRs 13,261.68 millionTotal LiabilitiesRs 3,378.61 million
IPO DetailsThe company plans to raise Rs 1,009 crore from its IPO, which consists of a fresh issue of Rs 400 crore and an offer-for-sale of Rs 0.72 crore. Other details are as follows:
IPO Subscription Opens OnIPO Subscription Ends OnDecember 19December 21IPO Subscription Opens OnPrice BandDecember 19Rs 808-850 per shareIPO Subscription Opens OnLot SizeDecember 1917 shares and multiples of 17 after thatIPO Subscription Opens OnDecember 19IPO Subscription Ends OnDecember 21Price BandRs 808-850 per shareLot Size17 shares and multiples of 17 after that
With the proceeds received, the company plans to:Acquire plant, equipment, and machinery with a total cost of Rs 171.1 croreAllocate Rs 152.76 crore to repay debtUtilize the funds for general corporate purposesHow to Apply for Happy Forgings IPO?Kotak Securities simplifies and streamlines the application process for this highly anticipated IPO, making it easy and convenient. To apply, follow these steps:Log in to your Kotak Securities Demat account and navigate to the current IPO sectionEnter the IPO details, specifying the number of lots and the desired price for your applicationInput your UPI ID and click on submit to place your bid with the exchangeGet a notification on your UPI app for the funds blocking processOnce approved, your funds will be successfully blocked for the IPO applicationSumming it UpIn the forecast period of 2022-2029, the India metal forging market is expected to experience substantial growth, with projections indicating an increase from USD 4.32 billion in 2022 to USD 8.80 billion by 2029, reflecting a CAGR of 10.69%. India’s growing economy is likely to boost the sector, and Happy Forgings is well-positioned to drive growth from it. Investing in its IPO can help you in the long run.That said, it’s essential for you as an investor to do due diligence and go through the company’sDraft Red Herring Prospectus(DHRP) to understand the various risk factors and take a call accordingly. |
https://www.kotaksecurities.com/share-market/what-is-aggressive-strategy/ | What is Aggressive Investment Strategy? | Key HighlightsAggressive investment strategies are high-risk and high-reward strategies. These strategies are suitable for high-risk investors.When considering an aggressive investment strategy, investors should consider risk tolerance, time horizon, diversification and tax implications.An aggressive investment strategy includes growth, value, momentum, and sector-specific investments.Understanding Aggressive Investment StrategyA portfolio's aggressiveness depends on its allocation to high-reward, high-risk asset classes, such as equity and commodities. When investing, risk tolerance refers to an investor's ability to handle market fluctuations, losses, and other risks.Although aggressive investing carries a higher risk of losing money, it can also yield significant gains. Investing aggressively can be an effective strategy for investors with a high tolerance for risk. However, it may be more appropriate to consider other less risky investment options for investors with a low-risk tolerance.Consider an aggressive investment example: A portfolio that is 80/20 would be considered aggressive as opposed to a portfolio that is 60/40, which would be considered conservative. An 80/20 portfolio invests 80% of the wealth in stocks and 20% in bonds. Whereas a 60/40 portfolio invests 60% in stocks and 40% in bonds.Aggressive Investment OptionsAggressive investors can invest in stocks, mutual funds, ETFs, options and futures, real estate, and alternative investments. However, each investment option comes with different risks and rewards.StocksHigh returns make stocks a popular investment choice for aggressive investors. Nevertheless, stocks are also volatile and risky. Stock investors should be aware of the possibility of both significant losses and gains.Mutual FundsA mutual fund is a professionally managed portfolio that invests in stocks, bonds, and other securities. Investing in a mutual fund provides investors with exposure to a wide range of assets. However, they are subject to fees, and investors may not have direct control over them.ETFsAn ETF is a professionally managed portfolio of assets, just like a mutual fund. However, ETFs are traded like stocks on an exchange. This makes it possible for investors to buy and sell them anytime during the day. While ETFs offer diversification and expose investors to a wide range of assets, they are also subject to market volatility and may incur fees.Options and FuturesInvestors can use financial derivatives such as options and futures to speculate on market price changes or to hedge risks. Investing in options or futures is more complex. There is a high level of risk associated with these investments. However, they can offer high returns. Options and future investment strategies must be understood before investing.Real EstateAnother investment option for aggressive investors is real estate. Real estate provides investors with steady rental income and the potential for capital gains. Vacancies, property damage, and unexpected expenses are among the risks associated with real estate.Alternative InvestmentsAlternative investments, such as private equity, hedge funds, and commodities, are also available to aggressive investors. Unlike traditional investments, these investments often require higher minimum investment requirements.Strategies for Aggressive InvestingA number of strategies can be used by investors when engaging in aggressive investing. A few of the most popular investment strategies include growth, value, momentum, and sector-specific investing.Growth InvestingIn growth investing, you invest in companies that are expected to grow significantly in the future. Even though these companies may not have a history of profitability and have a high price-to-earnings ratio, they could still bring high returns if they succeed.Value InvestingThe goal of value investing is to invest in companies that are undervalued by the market. The price-to-earnings ratio of these companies may be lower, or there may be other indications that they are undervalued. In value investing, investors typically seek out companies with solid fundamentals and a profitable history.Momentum InvestingMomentum investing involves investing in companies whose stock price performance has been strong recently. Companies in these industries are often experiencing growth or have recently announced positive news. A momentum investor may also look for companies with high trading volumes and other market indicators.Sector-Specific InvestingA sector-specific investment involves investing in companies that are part of a particular economic sector. The strategy may involve investing in companies that are expected to benefit from industry-specific trends or events.Considerations for Aggressive Investment StrategyInvestors who want to invest aggressively should consider the following factors.1. Time HorizonTime horizon is an important factor in an aggressive investment strategy. Investing aggressively is a long-term approach; thus, investors should be willing to hold the investment for several years or even decades. This will allow for the potential gains over time. However, it also requires patience and willingness to weather market fluctuations.2. DiversificationAnother crucial factor is diversification. Diversification means spreading investment across various assets to reduce the portfolio risk. By diversifying investment, investors can minimise the loss in any one specific asset or industry. As a result, this helps to protect the overall value of the portfolio over time.3. Monitoring InvestmentsAn aggressive investor must maintain a close eye on their investments. Investors must be prepared to adjust their investments as market conditions and industry trends change rapidly. In some cases, investors may consider selling assets that are underperforming or investing in assets that are on the rise.4. Tax ImplicationsWhen investing, it's important to consider the tax implications. There are different tax advantages and disadvantages associated with different investments. When investing, investors should consider these factors. Financial advisors can help you understand tax implications and make informed investment decisions.ConclusionAn aggressive investment strategy involves high risk and hig reward. An understanding of investment options and strategies as well as a considerable tolerance for risk are necessary for this strategy to be successful. It is important to assess your risk tolerance, diversify, closely monitor investments, and consider the tax implications before investing aggressively. These considerations can help investors make well-informed investment decisions.
FAQs on Aggressive Investment StrategyWhat is the most aggressive way to invest?Stocks, real estate, and commodities are the most common ways to invest aggressively.What is the aggressive investment strategy example?An example of an aggressive investment strategy would be a portfolio with 75% equities, 15% fixed income, and 10% commodities. This portfolio is considered relatively aggressive as 85% of its allocation is in equities and commodities.What type of investor is aggressive?Aggressive investor priority is to maximise the growth capital. They are willing to accept significant price fluctuations in exchange for higher potential returns. Also, they have a long-term investment horizon. |
https://www.kotaksecurities.com/share-market/what-is-alternative-investment-fund/ | What is an Alternative Investment Fund? | Key HighlightsIn alternative investment funds, private pooled funds are invested in hedge funds, private equity, venture capital, and other instruments.SEBI categorises AIFs into three categories, each serving distinct investment purposes.AIFs offer benefits such as high return potential, low volatility, and diversification.Types of Alternative Investment Funds in IndiaSEBI has categorised Alternative Investment Funds into the following 3 categories:Category 1Funds under category 1 invest in SMEs (small and medium-sized enterprises), start-ups, and new economically viable businesses with potential for high growth.1. Venture Capital Fund (VCF)Venture capital funds can be approached by new entrepreneurial firms that require significant financing during the initial days. This kind of fund invests in start-ups that have the potential for high growth. HNIs investing in VCF adopt a high risk and high-return strategy while allocating their resources.2. Angel FundsInvestors invest in budding start-ups and are called angel investors. In addition, investors bring early business management experience with them. These funds invest in those start-ups that do not receive funding from venture capital funds. Each angel investor needs to invest a minimum of Rs. 25 lakh.3. Infrastructure FundsThis fund puts money into companies that work on projects like building railways or ports, which are part of infrastructure development. Funds are invested in these projects by investors who believe they will succeed.4. Social Venture FundsThese funds invest in a socially responsible business. They are a kind of philanthropic investment. However, they have a scope of generating decent returns for investors.Category 2These funds do not use leverage other than to cover operational needs and do not fall under categories 1 and 3. Below are the funds under Category 2:1. Debt fundsThese funds invest in debt securities of companies that are unlisted. The fund thinks these companies follow good governance practices and have the potential to grow.2. Funds of fundsThese funds invest in various other Alternative Investment Funds (AIFs). They don't have their own investment portfolio; instead, their primary focus is on investing in different AIFs.3. Private equity fundPrivate equity funds invest in businesses that are unlisted and struggle to raise money through loans or selling shares.Category 3These funds engage in many complex trading techniques. Below are the funds under Category 3:1. Private Investment in Public Equity Fund (PIPE)A PIPE invests in the stocks of companies that are publicly traded. They buy these stocks at a discounted price. Choosing PIPE investments is more convenient than opting for a secondary issue because it involves less paperwork and administrative work.2. Hedge FundsHedge funds pool money from accredited investors and institutions. They invest in both domestic and international debt and equity markets. Hedge funds adopt an aggressive investment strategy to generate returns.Who can Invest in Alternative Investments Funds?Investors looking to broaden their investment portfolio can consider AIFs if they satisfy the following eligibility conditions:Residents of India, NRIs, and foreign nationals are eligible to invest in these funds.The minimum investment amount is Rs. 1 crore for regular investors, while directors, employees, and fund managers have a minimum investment requirement of Rs. 25 lakh.AIFs have a mandatory minimum lock-in period of three years.The number of investors in each scheme is limited to 1000, with the exception of angel funds, where the maximum number of investors is set at 49.Benefits of Investing in Alternative Investment FundAIFs offer the following benefits:1. High Return PotentialAIFs typically offer more potential for returns compared to other investment choices. The substantial pool of funds provides fund managers with ample flexibility to devise strategies aimed at maximising returns.2. Low VolatilityAIFs do not have a direct link to stock markets. Their volatility tends to be lower, especially when compared to conventional equity investments. This makes them a potentially suitable option for investors who are cautious about risks and seek stability.3. DiversificationAIF allows much-needed diversification in an investment portfolio. They act as a cushion at the time of market volatility or financial crisis.ConclusionAIFs offer an attractive choice for investors aiming for substantial returns with a reasonable level of risk. Prior to investing in AIFs, it's crucial for investors to comprehend the fund and its associated risks thoroughly. AIFs have become a noteworthy investment option, particularly for high-net-worth individuals seeking high returns while being cautious about taking on significant risks. Investors have the opportunity to engage in comprehensive market research and select a specific category of AIF that aligns with their financial goals and risk tolerance.
FAQs on Alternative Investment FundWhat is the AIF in India?An Alternative Investment Fund (AIF) is defined as any fund formed or registered in India, functioning as a privately pooled investment vehicle. It gathers funds from investors with the purpose of investing according to a specified investment policy, ultimately benefiting its investors.What is the minimum amount for an Alternative Investment Fund in India?Investors are required to invest a minimum of Rs. 1 crore, while directors, employees, and fund managers have a minimum investment amount of Rs. 25 lakh.Who regulates AIF?The SEBI (Securities and Exchange Board of India) regulates AIF. |
https://www.kotaksecurities.com/share-market/what-is-52-week-high-low/ | What is 52 Week High-Low? | Key HighlightsThe highest and lowest prices at which a security has traded during the specified period that equals one year are considered technical indicators called 52-week high and low.The daily closing price of the security is used to determine a 52-week high or low.The 52-week high is usually the resistance level, followed by the 52-week low as a support level for traders who want to make trading decisions.52-Week High and Low MeaningIn order to predict the current value and future price movement of a stock, traders use 52-week high and low levels as technical indicators. When shares are at the upper or lower end of their 52-week price range, traders usually pay more attention to them. Generally, this range runs from a low of 52 weeks to a high of 52 weeks. These levels are determined by the stock's closing price every day.A stock could go above its 52-week high during the day, but it can close below the previous 52-week high, going undiscovered. This also happens when a share hits an intraday new 52-week low but fails to close below it.There's a very strong chance for significant gains, as shown by the 52-week high. This often encourages investors to buy more of the company's securities. The results can be quite rewarding, as risky as this may seem.How does 52-Week High and Low Work?The 52-week high and low shown above helps determine whether the trend will continue or reverse itself, as described below.1. Trend ContinuationOther traders choose to buy or sell when a new 52-week high or low hits or the stock breaks down from these levels. One should also take into account the number of shares traded when a share price hits its 52-week high or low. As the stock moves past a high or low point, trading volume frequently rises before falling.In particular, the 52-week highs and lows are closely watched by momentum investors. In the short term, they are predicting a continuation of recent winners and losers in the stock market. This is called "relative strength investing."2. ReversalAs the 52-week high is seen as a resistance level, traders expect the price to decline in the future when the stock price approaches and closes around this level. Consequently, many traders book profits and assume that prices will recover from resistance levels.This is also true for a 52-week low when traders expect it to be a support level and rise. The approach of trade reversals could be a source of profit. Traders should also use additional indicators and data relating to volumes. To forecast the reversal patterns, further technical indicators can be used, e.g., descending wedge and rounding bottom.Uses of 52-Week High and LowThe various uses of 52-week high and low are given in the below points.The concept of a 52-week high is used in many ways, such as determining the entry or exit point for each stock, the level of resistance assigned to security, and so on. The opportunity for the investor to make a sound investment decision based on sufficient information, such as where the market is heading and even its stock's position.As a means to lock in gains, stock traders and institutions apply the 52-week highs for placing profit orders.These fluctuations also indicate to the investor that the stock has reached its peak and may not rise further in the near future. This means that the fact that the price reached a 52-week high on the intraday and then closed negative on the same day indicates that the price is unlikely to rise in the near term.ConclusionA 52-week high, as the name suggests, is the highest price a security has traded over 52 weeks, i.e., a year. This is a technical indicator that can be used to assess the current price of securities. In order to predict future movements, the 52-week high is also used. A 52-week high represents bullish sentiment on the market. If you are a momentum investor or not, looking at the stock's 52-week high and low prices can be useful.
FAQs on 52-Week High and LowIs it better to buy at a 52 week high or low?A 52-week high shows that there's an excellent chance of significant gains in the future. This often encourages investors to buy more of the company's securities. The result can be quite rewarding, as risky as it may seem.Is it bad to buy stock at a 52-week high?In order to improve investor trust in company performance and prospects, reaching a 52-week high can be helpful. This means that the company has achieved positive financial performance, meeting or exceeding market expectations. This confidence can bring more interest to buy and may increase stocks' prices even further.Is a 52-week low a good indicator?A significant indicator for many traders is a high or low of 52 weeks. First, it's a reference that can be used to determine what the stock is currently worth. Secondly, traders could use these prices to determine when a break would take place.What do 52 week high and low mean?As a technical indicator, the highest closing price for which a stock has traded in the previous 52 weeks is considered to be the 52-week high. On the other hand, the lowest closing price per share in the last 52 weeks is a stock's 52-week low. |
https://www.kotaksecurities.com/share-market/what-is-preferred-dividend-coverage-ratio/ | What is the Preferred Dividend Coverage Ratio? | Key HighlightsThe preferred dividend coverage ratio evaluates a company's ability to pay dividends to its preferred shareholders based on its net income.A ratio above 1 suggests that the company can pay preferred dividends. However, a ratio below 1 suggests it will default on dividend payments.Investors should also consider other financial ratios like interest coverage and debt service ratios to determine if a company can pay its debt holders.The dividends preferred shareholders are usually predetermined. However, the board of directors decides the amount of dividends for common shareholders.Preferred Dividend Coverage Ratio MeaningThe coverage ratio calculates a company's net income and determines if it is enough to pay the fixed dividends on its outstanding preferred shares. It is also known as the times preferred dividend earned ratio. It serves as a valuable tool for all investors and debt holders in assessing the financial stability of a firm.Banks and other creditors will use this ratio to assess how much debt the business can manage. This coverage ratio should even be known to shareholders of ordinary stock, as it may impact dividends on common shares.A company should have more profits than it needs to pay the dividends. However, this isn't always the case. A coverage ratio of 1 suggests that the business can pay its preferred dividend. When it is less than 1, it suggests the company will default on its dividend payments.Formula of Preferred Dividend Coverage RatioAfter understanding the preferred dividend coverage ratio meaning, let’s look at its formula. The Preferred Dividend Coverage includes two key components. They are as follows.Net Income after Taxes:The amount left after subtracting all the expenses, interest, taxes, depreciation, and amortisation from the company's revenue.Preferred Dividend:The total dividend amount preferred shareholders will receive as per the preferred stock offering.The preferred dividend coverage ratio formula is as follows:PDC = Net Income after Taxes / Preferred DividendExample:Suppose Company ABC recorded Rs, 1,00,000 in net income for a quarter. The company must pay out 7% for every preferred share. A total of 5,000 preferred shares, each worth Rs,160. They have paid out preferred dividends consistently till now. So, currently, there is no outstanding balance.The calculation is as follows:Preferred dividend per share = Preferred share dividend rate * Preferred share price
= 7/100 * Rs. 160 = Rs. 11.20Total annual preferred dividend payment = Preferred dividend per share * Number of preferred shares
= Rs. 11.20/share * 5,000 shares = Rs. 56,000Preferred dividend coverage ratio = Net income / Annual preferred dividend payment
= Rs. 1,00,000 / Rs. 56,000 = 1.7857Therefore, the preferred dividend coverage ratio for Company ABC is 1.7857.Interpreting Preferred Dividend Coverage RatioPreferred dividend payments do not depend on the company's profitability. However, a company with a net loss or low net income may have a low preferred dividend coverage ratio. There is a significant risk of defaulting on the payments. If a firm’s net income and preferred dividend coverage ratio are high for several years, it is considered a safe issuer.Further, a constantly high preferred dividend coverage assures shareholders that dividends will be available in the future. A low ratio may impact the value of common stocks. This is because the firm may not be able to pay dividends to both preferred and common stockholders.Investors should also check coverage at higher levels if a company has low preferred dividend coverage. These include the interest coverage ratio or the debt service ratio. This helps to determine if the business is strong enough to pay its debt holders. This is especially important for the preferred shareholders. It is because they have a lower claim than debt-holders like bondholders and lenders.Difference Between Preferred and Common DividendsA public company may obtain funding from several sources. These include bonds, loans, and preferred or equity shares. Equity shareholders are also referred to as common shareholders. The firm must generate revenue and share profits with its investors. The distribution of the earnings follows a preferential order. Companies must pay as per a fixed or floating rate of return.Debt holders have the highest rank to get a fixed percentage. Still, they get the lowest expected return on investment. The next position belongs to preferred equity shareholders. They get their payments as preferred dividends. They receive more than common shareholders but lower for common shareholders. The common shareholders hold the last position. They earn the highest returns. This is because they take the maximum risk.The dividend distribution for preferred shareholders is predetermined. However, the company's board of directors determines the dividend payout for common shareholders. Preferred dividends are distributed before common dividends. The payout can be a fixed or variable rate. It is based on an interest rate benchmark such as the LIBOR. Generally, it is distributed annually or quarterly.
FeaturePriorityPreferred DividendsPaid before common dividendsCommon DividendsPaid after all other obligations are metFeatureDeterminationPreferred DividendsFixed or floating rateCommon DividendsDetermined by the company's board of directorsFeatureRiskPreferred DividendsLess risky than common dividendsCommon DividendsRiskier than common dividendsFeaturePotential ReturnPreferred DividendsLower than common dividendsCommon DividendsHigher than common dividendsFeaturePreferred DividendsCommon DividendsPriorityPaid before common dividendsPaid after all other obligations are metDeterminationFixed or floating rateDetermined by the company's board of directorsRiskLess risky than common dividendsRiskier than common dividendsPotential ReturnLower than common dividendsHigher than common dividends
ConclusionAnalysing key financial ratios is essential for trading in the share market. The dividend coverage ratio is one of them. It measures a company's net income to determine whether it can pay the preferred dividends. It serves as an indicator of future risk. A high preferred dividend coverage ratio is always preferable. It guarantees that a firm can provide its dividends to its shareholders. A firm may be unable to pay future dividends if the ratio is very low. So, it's crucial to check the dividend coverage ratio before investing in any firm.
FAQs on Preferred Dividend Coverage RatioWhat is a suitable preferred dividend coverage ratio?Each firm has a unique preferred dividend coverage ratio. No one value is suitable for all companies. A ratio above 1 would be preferable. It shows that the business has sufficient cash to pay yearly preferred dividends.Does the value of the preferred dividend coverage ratio change with time?Yes, the preferred dividend coverage ratio can change with time. It will vary if the company's net income, preferred dividend obligations, and other financial factors change.Is there any industry-specific benchmark for the preferred dividend coverage ratio?No, there are no specific benchmarks for preferred dividend coverage ratio. However, you can compare the results with a company's historical performance and other competitors in the industry.Is it possible to have a negative Preferred Dividend Coverage Ratio?Yes, the preferred dividend coverage ratio can be negative. It happens when a company doesn’t have sufficient net income to pay preferred dividends.Can the ratio vary across different industries?Yes, the preferred dividend coverage ratio varies for different industries. This is because of different capital structures and business models. |
https://www.kotaksecurities.com/demat-account/what-is-dp-id-in-demat-account/ | DP ID: What Is DP ID In Demat Account | Individuals involved in the buying and selling of securities should be familiar with their 16-digit demat account number. The first eight digits within this account number represent the DP ID, which serves to identify the Depository Participant. The subsequent digits make up the customer ID. It is crucial for investors to have awareness of both DP ID and customer ID to proficiently utilise their Demat account for engaging in securities trading.Key HighlightsDP ID helps in identifying the specific DP with whom an investor holds their demat account.DP ID plays a crucial role in ensuring smooth and accurate settlement of trades in the securities market.Investors should be aware of their DP ID and other account details to carry out transactions and monitor their holdings effectively.What Is a Depository Participant?In a Demat account, a Depository Participant (DP) is a financial institution that acts as an intermediary, providing dematerialisation services and serving as a reliable connection between a depository and an investor. The Securities and Exchange Board of India (SEBI) oversees, regulates, and supervises all Depository Participants in India to ensure compliance with regulations and protect investors.To cultivate a secure trading environment, the government has phased out paper based share certificates, making demat accounts mandatory for securities trading. Investors can now electronically manage and trade all their investments, such as shares, bonds and more, through a centralised platform.Understanding DP ID In a Demat AccountDid you know that your demat account number contains automatically embedded details with specific significance? The assigned DP account holds a distinctive combination of data, with the demat or DP account consisting of 16 characters. Among these, the initial 8 digits represent the depository participant identity (DP ID), signifying the identity of the demat service provider, while The remaining 8 characters from the beneficiary identity, representing the client. The combination of these two, the DP ID and beneficiary identity, constitutes your unique demat ID, also known as the beneficiary ID.It's worth noting that the demat account numbering system varies between NSDL and CDSL. For NSDL, the demat account is alphanumeric, while for CDSL, it is numerical. In the case of NSDL, the first two characters are alphabetical, followed by the remaining 14 digits as the DP number.Example of DP IDIf your depository is CDSL, all 16 digits in your DP account are the number. This is your DP ID. On the other hand, if your depository is NSDL, the first two digits are alpha (code) while the remaining 14 digits are the DP number.The DP ID can be summed up as:DP ID + Beneficiary ID = Demat IDFor example, consider the CDSL demat account number 1234567891234567.Here, the first eight digits (1234XXXX) are the DP ID. The remaining eight digits (91234567) represent the beneficiary ID or client ID.On the other hand, the NSDL demat account number will look like this: IN34567891234567. The first two letters are the identity of your country, which is India. The country code, along with the next six digits, is the DP ID. Therefore, IN345678 is the DP ID while 91234567 is the client ID or beneficiary ID.DP ID In NSDL and CDSLIn India, there are two primary central depositories, namely NSDL and CDSL. with 10.7 crore demat accounts nationwide, the scale exceeds the handling capacity of these organisations. Consequently, they delegate the responsibility to depository participants (DPs) to manage and open demat accounts on their behalf. It is important for individuals engaging in equity trading to possess a demat account through a registered depository participant, and each DP is assigned a unique DP ID by NSDL/CDSL.To understand the structure of the depository system in India, the depository participant (DP) serves as an intermediary connecting the investor with the central depository (NSDL or CDSL), and all DPs undergo registration with SEBI. Each DP is associated with either NSDL, CDSL, or both. When you establish a demat account, which is necessary for participating in stock market trading, you are assigned with a DP account number under your name..ConclusionThe demat account number is not a random sequence of digits, rather, it is precisely assigned by combining the depository participant's ID and your distinctive client ID for easy identification. NSDL and CDSL utilise the DP as an intermediary, thus, the demat account mirrors the identity of the primary depository as well as that of the depository participant. In essence, the DP ID forms a subset of your unique demat account number.These IDs are specifically allocated to the DP with whom you hold the demat account. Your demat account number serves as your individual and exclusive identifier assigned by the DP. It not only distinguishes your demat account but also indicates the DP to which you are associated, providing a comprehensive overview of the DP's identity.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on What is DP ID in a Demat AccountHow Do I Find My DP ID?To locate your DP ID, check your demat account statement, online account dashboard, or contact your Depository Participant (DP) directly.Is DP ID and Customer ID Same?No, the DP ID and Customer ID are distinct; the DP ID represents the Depository Participant, while the Customer ID is specific to the individual investor in a demat account.What is the Difference Between DP ID and a Demat Account?The DP ID is a specific identification for the Depository Participant, whereas the Demat Account is a broader electronic account that encompasses the DP ID along with additional details for holding and trading securities. |
https://www.kotaksecurities.com/articles/how-can-the-union-budget-affect-your-personal-finance/ | How Can Union Budget 2023-24 Affect Your Personal Finances | The Union Budget is an annual financial statement presented by the Finance Minister of India, outlining the government's financial plans for the upcoming fiscal year. (Head over to this blog to understand more about the Budget)The Union Budget for 2023-24, which will be presented on 1st February 2023, can likely impact your personal finances.Let’s quickly go over the few announcements you should watch out for and how they can likely impact you.Taxes:One of the key areas where the Union Budget may affect your personal finances is in the area of taxes. Any announcement related to changes to tax laws, such as change inincome tax slabsordeductions, has a direct impact on individuals’ income tax liability.For example, if the government increases the tax slab rates for individuals earning above a certain income, it will result in higher taxes for those individuals. On the other hand, any introduction in tax deductions for certain expenses, such as investments in specified savings instruments, SIP, market trading, etc. it will result in a lower tax liability for individuals.Interest Rates:Another area where the Union Budget may impact your personal finances is through changes to interest rates. A change in interest rates on various financial products, such asfixed depositsandhome loans, can directly impact your returns on these products.For example, if the government raises the interest rates on fixed deposits, it will result in higher returns on these deposits for individuals. Whereas any increase in interest rates on home loans can result in higher interest outgo for individuals availing these loans.Changes To Insurance Policies:The government may announce changes to the tax benefits available on various insurance policies, such as health insurance and life insurance. This can affect an individual's decision to purchase and continue with these policies.Subsidies And Welfare Schemes:The Union Budget may also impact your personal finances through changes to subsidies and welfare schemes. Changes in subsidies on various products, such as cooking gas and fertilizers or even any subsidy in stamp duty charges for housing purchases, can directly impact the prices of these products and, in turn, impact the overall cost of living for individuals.Similarly, announcements related to changes in welfare schemes, such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) or the Pradhan Mantri Fasal Bima Yojana (PMFBY), can impact the livelihoods of individuals in rural areas.PF & EPFO Contributions:Any developments to the percentage of basic salary that employees and employers are required to contribute towards Provident Fund (PF) and Employees' Provident Fund Organisation (EPFO) can affect an individual's take-home salary and savings for retirement.Changes To The STT And LTCG:The government may announce changes to the tax on securities transactions such as the Securities Transaction Tax (STT) and long-term capital gains on equity investments i.e. the Long-term Capital Gains Tax (LTCG). This can affect an individual's decision to trade in the markets and the taxes they will have to pay on the gains of market trades.Changes To The FPI Regulations:Changes to the regulations for foreign portfolio investment (FPI) in Indian markets can also affect the stock markets and investments in India. This can affect an individual's decision to invest in Indian markets through foreign portfolio investment, and the returns they can expect to earn.Regulations For AIFs:The government may announce changes to the regulations for Alternative Investment Funds (AIFs), such as Real Estate Investment Trusts.(REITs)and Infrastructure Investment Trusts (InvITs). This can affect an individual's decision to invest in such funds and the returns they can expect to earn from these investment classes.Regulations For The Commodity And Forex Market:Changes to the regulations for the commodity and the forex market, such as the margin requirements, contract expiry, settlement dates, etc. can affect an individual's decision to trade in these markets.Public Sector Bank Interest Rates:The government may announce changes to the interest rates offered by public sector banks (PSBs) on various savings and deposit products. This can affect an individual's decision to invest in these products and the returns they can expect to earn.Capital Gains Tax:The government may announce changes to the tax rules for capital gains, such as the tax rates and holding period for long-term capital gains. This can affect an individual's decision to sell investments and the taxes they will have to pay on the gains.Gold Import Duty:The government may announce changes to the import duty on gold. This can affect an individual's decision to purchase gold and the overall cost of the metal.So those were some of the key points an individual should watch out for in this year’s Union Budget announcements.Overall, the Union Budget for 2023-24 is expected to have an impact on your personal finances. While some of the announcements in the budget may result in higher costs or lower returns, others may result in lower costs or higher returns.It's important to understand how these changes may impact your finances so that you can plan your and manage your investments effectively.Read More :Budget 2024 updates |
https://www.kotaksecurities.com/demat-account/client-id/ | What Is Client ID In Demat Account | Most financial institutions require you to open an account before using their services or products. This is true for the share market too. You have to set up a new account before you can start trading.When you open an accountwith a bank, you can deposit money. Then you are able to keep track of your transactions with the help of your account number. Similarly, a demat account stores details of all your investments in shares and securities. You can access these details easily while trading by using your client ID.When you open a demat account with any of the depository participants or your brokerage agency, you will get an account number. This is the demat account number. It is a unique number that is used to identify a particular client and to keep track of all their assets. But this is not your client ID. What is client ID in a Demat Account then?Read more:What is DP ID in demat account?What Is Client ID In Demat Account?A client ID is a unique eight-digit number generated by the depository participants to easily identify their clients. This number is generated by using the in-house formula of your chosen brokerage house. It is not influenced in any way by the depositories. This client ID number is used to tie up all their services to the specific client. You can use this number to track your investment history.Meaning of DP ID In Demat AccountThere are two depositories working in India that regulate and control how the depository participants operate. The two depositories are the National Securities Depository Limited (NSDL) and the Central Depository Service (India) Limited (CDSL). The depository participants are required to register their services with any one of these depositors. After registration, these depository participants are issued their depository ID or DP ID. A DP ID is an eight-digit number that is unique for each depository participant.The two depositories—NSDL and CDSL—follow two different formats for issuing the DP IDs. CDSL DP IDs are issued in a numeric format while the NSDL DP IDs are issued in an alphanumeric format. For example, a CDSL-issued DP ID could look like this: 12400023. Meanwhile, an NSDL-issued DP ID could look like this: IN005485. This also helps users to know at a glance which depository their depository participants are tied up with.Read more:What is collateral amount in demat account?Difference Between Client ID And DP ID In Demat AccountThe demat account number or demat ID is a 16-digit number. This number actually has two parts to it, being a combination of the DP ID of the broker and the client ID of the user. The first part is the DP ID while the second part is the client ID. This process helps you identify a specific user under a particular brokerage agency.All clients under a particular brokerage agency will have the same first eight numbers in their demat accounts. But their Client IDs will be unique for each of them.As a client, the DP ID is of no importance to you. But your client ID helps you track all your investments and returns.If you have to change your depository participant for any reason, you might have to open a new demat account as well. That will be applicable if the depositories are different and the DP ID will be different for NSDL and CDSL. In such cases, you will have a new client ID for your new account.Read more:Types of demat accountConclusionA demat account helps you process and store information about the shares and securities you have bought. The online storage of information makes the entire process of trading pretty seamless.Earlier, people had to submit extensive paperwork for each trade they engaged in. The number of shares each person could own was also limited. With the introduction of demat accounts, all these issues are now history.It is important that you understand the basics before you start your investment journey. Opening a demat account is easy enough. Once you set up the account, identify the client ID in your demat account number. This will help you as you commence trading and investment in the financial markets.Read more:How to convert physical shares to dematAlso Read:Finding value in mid-cap stocksAll you need to know about stock quotesHow do price movements of raw materials impact a company’s profits?Diwali Muhurat Trading 2023 |
https://www.kotaksecurities.com/ipos/how-to-apply-for-an-ipo/ | No title found | There are two ways of applying for an IPO:Through a trading accountThrough a bank accountLet’s look at both the options in detail.Applying For An IPO Through Trading AccountA trading account is a prerequisite. It enables you to buy and sell securities on the stock market. If you wish to trade in IPO shares—or even in regular stocks—you need to have a trading account. Otherwise, the possibility of applying for IPOs will remain closed to you.The process of getting a trading account is similar to applying for a regular savings bank account. Here is an overview of the main steps:Step 1: Identify Where To Get The Trading AccountStart by shortlisting a few reputed stockbrokers or stockbroking firms. Compare their brokerage rates and check for available discounts. It may be tempting to choose the broker that charges the lowest fee. But you should prioritize service over cost.Pick a broker that will respond to your trading orders in a timely manner. When investing in IPOs, you need to invest quickly. Otherwise, you could miss the IPO boat.Key takeaway: Select a reliable broker that charges reasonable fees and provides timely service.Step 2: Submit Your Trading Account ApplicationContact the broker or brokerage firm. They will provide you with an account opening form and a Know-Your-Customer (KYC) form. Fill in the forms with the correct details and provide proofs of identity and address.Step 3: Complete The VerificationThe broker or brokerage firm will contact you for verification. It may happen in person or via telephone. You may have to provide specific personal details to complete the verification process.Soon after, the broker will hand you the details of your new trading account. You are now ready to make your first IPO investment. Here’s how you can do it:Log in and make a choice:Start by logging into your trading account. You must now choose the IPO that you would like to invest in. Make sure you do your preliminary research first, though. Assess if the IPO is worth investing in.Place your order:Specify the number of shares you want through the trading account. In a fixed-price IPO, the price of each share issued is already decided. In case of a book-building IPO, you will have to select the price from the given price band.
(While the above process is carried out entirely online, some brokers let you order over the phone as well)Verification:The stock exchange will now verify the details of your order. That includes the price of the shares, the availability of a sufficient number of shares, and other relevant information. If everything checks out, the exchange will confirm your order.Allotment:The IPO shares allotted to you will then be deposited in your demat account. If you wish, you can sell the allotted shares too. But this is possible only after the company lists on the stock exchange.Tip:Link your trading and demat accounts for a seamless investment experience.This is how you apply for an IPO through a trading account. The second option to apply for an IPO is through a bank account.Applying For An IPO Through A Bank AccountYou can apply for an IPO through your bank account in two ways: offline and online. Here is a quick look at how it works.The Offline ProcessStep 1:Visit a branch of your bank that offers a facility for making IPO investments. It does not matter if your account is with some other branch. Keep in mind, however, that only select branches offer this facility. So, it is best to call and check with your bank in advance.Step 2:Fill in the Application Supported by Blocked Account (ASBA) application form. You will have to provide your bank account number, PAN number, and demat account details. Submit the duly filled in form to the branch and collect the acknowledgement slip. Use the reference number on the slip to follow up on your ASBA status.Step 3:Make an application to invest in the IPO of your choice. Mention the number of shares you want and quote the price acceptable to you (as per the price band of the IPO). Fill in the details correctly and ensure that you have sufficient funds in your linked bank account. An inability to do this could lead to rejection of your application.Step 4:The bank will block the application amount in your account (as per the ASBA facility). It will then send your IPO application to the specified stock exchanges.The Online ProcedureStep 1:You can apply online by logging into your account through internet banking. It is advisable to complete the one-time registration process in order to link your demat account and PAN, among other details. This will save you the hassle of having to provide the details all over again in subsequent transactions.Step 2:Submit your IPO application request. At this stage, you must select the IPO you wish to invest in. Mention the number of shares you wish to buy and the price you are willing to pay. You may be able to make multiple investment bids in the IPO at a time. Check the limit on the number of bids before you start.Step 3:Keep in mind that ASBA is mandatory for online IPO applications. Ensure there is sufficient balance in your account. Enter your bank account, demat account and other details. It helps to run a check for discrepancies before confirming your order.Step 4:Save the unique transaction number that is generated. Use this for enquiries regarding your IPO investment.Tips:If your bank does not have an online platform, you can fill in the e-ASBA form on the website of the National Stock Exchange. Banks also offer information on new IPOs and recent listings. Check with your bank about how you can access such information, along with the IPO prospectus and offer documents.Is A Demat Account Important For Investing In An IPO?The short answer is: Yes, you can invest in an IPO without a demat account.But the long answer is a bit different.Whether or not you need a demat account to invest in an IPO depends on two factors:Whether you wish to sell the shares you buy in an IPOTheoretically, you do not need a demat account to invest in an IPO, for you could apply for shares in the physical form. But the physical shares that you receive cannot be traded on the stock exchange. You will be tied to the shares until you convert them into the demat form.The issue size of the IPO you plan to invest inIf the issue size is Rs 10 crore or more, it is mandatory for investors to have a demat account.What Is A Demat Account?This is where your digital shares are stored once you buy them. Later, if you end up selling one or more shares, the shares will be debited from your demat account.How To Open A Demat AccountYou can open a demat account with a bank or a brokerage firm. Just check that it is an authorised agent of either of the two main depositories in the country (NSDL and CDSL).Tip: If you go through a bank, you could get a trading account, a demat account, and a savings bank account in one go. Keep in mind that while a demat account allows you to invest in IPOs, you will need a trading account to sell the shares you buy.Now that you know the various ways to invest in an IPO, the next question that may crop in your head is: what happens after you bid on shares via an IPO? The answer is that the company allots shares to bidders, subject to certain conditions. So, let’s look at how the allotment process is done.It Starts With The BiddingIt does not matter whether you are making your first IPO bid or are an experienced IPO investor. You need to make a bid properly. If there are problems with the details in your form, your bid could get rejected.The Problem Of OversubscriptionAt times, the number of IPO applications exceed the number of shares. This means the allotment has been oversubscribed. In such a case, the oversubscribed shares are allotted proportionately to the applicants.Good IPOs are usually oversubscribed. Let us look at the example of BSE IPO to understand this. In this case, the IPO was oversubscribed 51.01 times. It means that the total demand was for 55 crore shares, when only 1.07 crore shares were on offer.If one considers the retail section alone, the oversubscription was 6.48 times the allotted shares. Remember that investors can bid for more than one lot each. Looking at the lots of retail shares, and assuming each investor has applied only for one share, the total demand was 3.98 times.When the total number of applications received for retail section is more that 1x of the lots available, no application is allotted more than one lot. This is to ensure that all investors have an equal chance of being allotted IPO shares, regardless of the number of lots they have bid for. In other words, an investor who bid for just one lot will be treated on par with another investor who bid for 10 lots. This way fairness is ensured in IPO allotment regardless of the buying power of individual investors.In case of BSE IPO, a retail investor had a 1 in 3.98 chance of being allotted 1 lot of shares. In other words, close to 75% of retail investors were allotted no IPO shares and a little over 25% were allotted 1 lot each.Given the IPO allotment process described above, it is no surprise that many investors fail to get shares allotted in an IPO. This is why it is advisable to apply for IPO shares on the last day of bidding. This way, one can have a good estimate on how large the subscription will be - and in case an oversubscription is expected, one should bid for just one lot and not unnecessarily lock up their capital.Quick RecapThere are several ways of being part of an IPO. Bank accounts and trading accounts are two ways of bidding on IPO shares. It is also necessary to have a demat account. Otherwise, you won’t be able to sell the shares at any point of time.Discover the comprehensiveupcoming IPOlisting here. |
https://www.kotaksecurities.com/articles/everything-you-need-to-now-muthoot-microfin-ltd-ipo/ | Everything You Wanted to Know About Muthoot Microfin Ltd IPO | About Muthoot Microfin LtdMuthoot Microfin Ltd specializes in providing micro-loans to women entrepreneurs with a special focus on India's rural regions. The company's microfinance operations are geared to promote inclusive growth to women and give wings to their entrepreneurial dreams. Its mission is to become the number one microfinance firm by 2025 and empower women and communities through digital and financial inclusion.Muthoot Microfin Ltd clocked an AUM of Rs 6,000 crore in the fourth quarter of FY 22, with an active customer base of 2 million.Financial SnapshotThe microfinance institution has recorded impressive revenue growth over time, a reflection of its enhanced operational efficiency. Given below are some of its key financials for FY 23.
Revenue from operationsProfit after taxRs. 14,287.64 millionRs. 1,638.89 millionRevenue from operationsReturn on Net WorthRs. 14,287.64 million10.08%Revenue from operationsDebt-to-equity RatioRs. 14,287.64 million3.29%Revenue from operationsTotal assetsRs. 14,287.64 millionRs. 85,291.99 millionRevenue from operationsTotal liabilitiesRs. 14,287.64 millionRs. 69,033.5 millionRevenue from operationsRs. 14,287.64 millionProfit after taxRs. 1,638.89 millionReturn on Net Worth10.08%Debt-to-equity Ratio3.29%Total assetsRs. 85,291.99 millionTotal liabilitiesRs. 69,033.5 million
IPO DetailsThe company plans to raise Rs 960 crores through its IPO, of which Rs 760 crores comprises fresh issue, while anoffer-for-sale(OFS) is of Rs 200 crores. Other key details of the IPO are as follows:
IPO Subscription Starts OnIPO Subscription Ends On18th December20th DecemberIPO Subscription Starts OnIPO Price18th DecemberRs 277-291 per equity share of face value of Rs 10IPO Subscription Starts OnIPO Lot Size18th December51 shares and in multiples thereafterIPO Subscription Starts On18th DecemberIPO Subscription Ends On20th DecemberIPO PriceRs 277-291 per equity share of face value of Rs 10IPO Lot Size51 shares and in multiples thereafter
How to Apply for Muthoot Microfin Ltd's IPO?Kotak Securities makes it easy and convenient to apply for this much-awaited IPO. All you need to do is:Log into your Kotak Securities Demat account and select current IPO sectionEnter the IPO details, including the number of lots and the price you wish to apply forUpon entering your UPI ID, click on submit to place your bid with the exchangeYour UPI app will get a notification for blocking fundsUpon approval, your funds will be blockedIn ConclusionIndia's microfinance market has tremendous potential and Muthoot Microfin Ltd is playing a critical role in providing funds to the women population in rural areas. Participating in this IPO can help you join India's growing microfinance sector and boost wealth in the long run. That said, read the documents, know the nitty-gritty, view your financial position, and evaluate valuations carefully before taking a leap. |
https://www.kotaksecurities.com/articles/motisons-jewellers-ipo-debut/ | Motisons Jewellers Set to Debut in IPO Market | About Motisons JewellersMotisons Jewellers Ltd, incorporated in October 1997, sells jewellery made of gold, diamonds, and Kundan. Additionally, it sells jewellery products such as pearls, platinum, silver and other precious and semi-precious metals.In terms of product offering and positioning, Motisons Jewellers Ltd actively offers traditional, contemporary, and combination designs across various jewellery lines. The company's product portfolio of over 300,000 designs caters to all age groups and specifically tailors offerings for special occasions and celebrations like weddings and festivals, as well as daily wear jewellery.Financial SnapshotThe company's financials have strengthened over the years, underlying its growth. Given below are some of the key financial metrics of the company for FY 23:-
Net WorthRevenue from OperationsRs 13,739.98 lakhsRs 36,619.61 lakhsNet WorthProfit After TaxRs 13,739.98 lakhsRs 2,219.58 lakhsNet WorthReturn Net on WorthRs 13,739.98 lakhs16.15%Net WorthRs 13,739.98 lakhsRevenue from OperationsRs 36,619.61 lakhsProfit After TaxRs 2,219.58 lakhsReturn Net on Worth16.15%
IPO DetailsThe IPO comprises fresh equity issue of 2.71 crore shares, out of which 50% is reserved for qualified institutional buyers, 35% for retail investors, and the rest 15% for non-institutional investors. Other key details of the IPO are as follows:-
IPO Subscription Starts OnIPO Subscription Ends OnDecember 18December 20IPO Subscription Starts OnIPO Price BandDecember 18Rs 52-55 per equity shareIPO Subscription Starts OnIPO Lot SizeDecember 18250 shares and in multiples thereafterIPO Subscription Starts OnIPO Share AllotmentDecember 18December 21IPO Subscription Starts OnDecember 18IPO Subscription Ends OnDecember 20IPO Price BandRs 52-55 per equity shareIPO Lot Size250 shares and in multiples thereafterIPO Share AllotmentDecember 21
With the funds raised, the company plans to use:Rs 58 crore for debt paymentRs 71 crore for funding working capital requirementThe company plans to use the remaining funds for general corporate purposes.Applying for Motisons Jewellers IPO Through Kotak SecuritiesIf you want to be part of this IPO, you can easily apply for it through Kotak Securities. All you need to do is:Log into your Kotak Securities Demat account with your login credentials and go to current IPO sectionFeed in the IPO details, including the number of lots and the price you wish to apply forUpon entering your UPI ID, click on submit to place your bid with the exchangeYour UPI app will be notified for blocking fundsUpon approval, your funds will be blockedIn ConclusionWith strong leadership and a track record supported by highly accomplished senior management and team, Motisons Jewellers is well-poised for growth in the coming days. With a rich legacy of over two decades, the company has established systems and procedures to mitigate risk and efficiencies in inventory management. As with any IPO, it's essential to go through the draft red herring prospectus to know the potential risks before investing. |
https://www.kotaksecurities.com/intraday-trading/how-to-choose-stocks-for-intraday-trading/ | How to select stocks for intraday trading | To succeed as an intraday trader, you need to identify the right stocks to trade in. Once you have identified a selection of stocks and ETFs, you can then monitor and analyse these further toidentify trends. The entry and exit strategies are dictated by the trends you observe. Let’s explore some rules and key factors to consider while selecting stocks for intraday trading.8 rules for selecting stocks for intraday tradingThere are a number of factors to consider when selecting stocks for intraday trading. Here are 8 rules that traders should follow.1. Choose liquid stocksLiquid stocks are those that are actively traded and have a high volume of shares being bought and sold. This means that you will be able to easily enter and exit your positions without affecting the price of the stock.2. Avoid volatile stocksVolatile stocks are those that are subject to sudden and large price movements. This can make it difficult to trade intraday, as you may not be able to predict their next move.3. Invest in correlated stocksCorrelated stocks are those that tend to move in the same direction. If you buy one stock, you can expect the other stock to move in the same direction, which can help you reduce your risk.4. Follow market trendsIntraday traders should keep an eye on the overall market trend. They have to make prompt buy and sell decisions basis market movements.5. Use charting toolsCharting tools can help you analyse the price movements of stocks and identify potential trading opportunities.6. Look for transparent companiesTransparent companies are those that disclose their financial information regularly. This makes it easier to assess the risk of investing in their stock.7. Choose stocks with a presence in the derivatives segmentStocks that are also traded in the derivatives market are more liquid and have higher trading volumes. This makes them more suitable for intraday trading.8. Trade news-sensitive stocksNews-sensitive stocks are those that are likely to be affected by news events. This can create trading opportunities, but it is important to be careful as these stocks can be more volatile.
Watch and LearnIntraday Trading GuideTune in to this video where Indu Choudhary will explain what intraday trading is in simple language along with examples. We will also take you though five key important rules you must keep in mind as an intraday trader.What Is Intraday Trading | 5 Key Rules You Must KnowKotak Securities•04m 57s
3 factors to consider while selecting stocks for intraday trading1. Does the stock have a narrow tick spread?The sustainability of narrow tick spreads in the stock market is based on several factors and can vary over time and across different stocks. Tick spread refers to the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a particular stock. A narrow tick spread signifies a smaller difference between these prices, which can benefit traders and investors. Highly liquid stocks tend to have narrower tick spreads. Liquidity is driven by the number of market participants and trading volume.Stocks with high liquidity often have tight spreads because there are more buyers and sellers competing, reducing the spread. The price of a stock can influence its tick spread. Generally, higher-priced stocks tend to have narrower spreads because the price difference between the bid and ask is a smaller percentage of the stock's value.2. Does it show clear and decipherable chart patterns?Narrow tick spreads do not directly impact the clarity or decipherability of chart patterns. Chart patterns, such as triangles, head and shoulders, flags, and double tops or bottoms, are formed based on price movements over time and are primarily a function of price action, volume, and investor sentiment. These patterns can occur in stocks with both narrow and wide tick spreads.Stocks with narrow tick spreads tend to be more liquid, meaning they have higher trading volumes and more market participants. This liquidity can result in smoother price movements and more accurate chart patterns. In contrast, stocks with wider tick spreads may have fewer participants and less trading activity, potentially leading to choppier and less reliable chart patterns.3. Is the price sensitive to news?Price sensitivity to news flows, often referred to as news sensitivity, describes how quickly and significantly the price of a financial asset, such as a stock, responds to new information or news releases. It quantifies the extent to which market participants incorporate fresh information into asset prices, reflecting the efficiency of the market in processing news. In highly efficient markets, asset prices tend to be more sensitive to news, as traders and investors quickly incorporate new information into their decisions. In less efficient markets, price adjustments may be slower and less pronounced.The type of news or information can impact sensitivity. Market-moving news, such as earnings reports, economic indicators, or significant geopolitical events, often leads to more pronounced price reactions compared to less impactful news. The composition of market participants matters. Institutional investors and algorithmic trading systems may react more swiftly to news than individual retail investors, potentially leading to rapid price adjustments. Liquidity in the market plays a role.ConclusionSelecting intraday trading stocks is a complex process that involves assessing liquidity, volatility, technical analysis, risk management, and continuous learning. Successful intraday trading relies on a well-thought-out strategy and the ability to adapt to dynamic market conditions. While there are no guarantees in trading, adhering to these principles can significantly improve a trader's chances of achieving success in the fast-paced world of intraday trading.Traders should continuously practise and refine their skills. A trading journal can help track and analyse past trades, allowing traders to identify strengths and weaknesses in their strategies. Additionally, traders must remain disciplined, stick to their trading plans, and avoid emotional decision-making.Disclaimer:This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read thefull disclaimer here.Investments in securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI prescribed Combined Risk Disclosure Document prior to investing. Brokerage will not exceed SEBI prescribed limit.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on stock selection for intradayHow to assess the liquidity of a stock?Before taking a position, the intraday trader must assess whether the stock is liquid enough. If the stock is not traded in large volumes, squaring off the trade by market close could be tough. For example, this issue may arise in small-cap and micro-cap stocks. In contrast, large-caps and upper-range mid-caps tend to be sufficiently liquid for intraday trades. Such stocks generally attract enough buyers and sellers through market hours. However, a stock’s liquidity may vary from one day to another. That’s why it helps to put a number on it.What cues do technical charts offer?Being able to read technical charts is an essential skill for intraday traders. You should also be well-versed with trading indicators highlighting volume, trends, and market volatility. This will help you to assess if a stock is showing clear patterns. Study how the stock has moved historically to find if the same pattern has occurred earlier. With this information, you can trade based on how the stock is likely to move.Are stock prices sensitive to the news?Yes, stock prices are sensitive to the news. As a result, they offer good day trading opportunities. When a stock reacts quickly, the news flow may offer hints about how the stock price could move. You can then place your buy and sell orders accordingly. |
https://www.kotaksecurities.com/currency/how-to-withdraw-money-from-a-forex-trading-account/ | How To Withdraw Money from a Forex Trading Account? | Key HighlightsForex trading popularity is on the rise, leading to queries on how to withdraw money from trading accounts.Trading accounts serve as cash flow indicators, while demat accounts hold securities in India.A step-by-step guide for withdrawing from your Forex account includes logging in, finding the withdrawal section, and verifying your identity.Choose your preferred withdrawal method, review and confirm the request, and monitor the withdrawal process.Function of a Forex Trading AccountIn India, it is advised to combine ademat accountwith a trading account with a brokerage. The demat account holds securities, but the trading account indicates cash flow debits or credits. When buying or selling equities, a request is initiated in the trading account and sent to the stock exchange. Clearing houses return shares to buyers after deducting them from the seller's Demat account. When selling securities, money can be credited to a bank account or the trading account linked to the demat account within two days or more of the sale.How Do I Withdraw Money From Your Forex Trading Account?Here is the step-by-step guide for withdrawing money from your forex account:Step 1: Log into Your Trading AccountUse your account credentials to log in to your broker's or trading platform's website. To protect your personal and financial information, be sure you are connecting to the internet through a reliable and secure connection.Step 2: Locate the Withdrawal SectionNavigate to the account or profile section after logging into your trading account. Select the choice that has to do with withdrawals or money management. The structure and terminology used by different brokers may vary, but the withdrawal section should be clear to see.Step 3: Verify Your IdentityForex brokers often give security and compliance priority. You might need to prove your identification as part of the withdrawal procedure. This check is made to make sure that the money is going to the correct account holder. To finish the verification process, adhere to the directions given by your broker.Step 4: Choose Your Withdrawal MethodBrokers typically provide a variety of withdrawal options, including bank transfers, withdrawals using credit/debit cards, and online payment services like PayPal. Choose the withdrawal option that best matches your needs, and make sure you have the required payment or account information on hand.Step 5: Review and Confirm the Withdrawal RequestTo withdraw money from your trading account, enter the desired amount. Make sure you satisfy any minimum withdrawal requirements that some brokers may have. Note any withdrawal-related fees or costs because they may change based on the withdrawal method you choose or the broker's rules.Step 6: Monitor the Withdrawal ProcessKeep an eye on your trading account after submitting your withdrawal request to see how the withdrawal is going. Some brokers offer notifications or updates on the progress of your withdrawal in real-time. You should immediately contact the broker's customer service for assistance if any problems occur or if you have any inquiries.Step 7: Receive the FundsThe monies will be transferred to the withdrawal method of your choice once your withdrawal request has been processed and accepted. Depending on the broker and the withdrawal method chosen, the time it takes to receive the funds can change. While electronic payment systems can be quicker, bank transfers might take a few working days.ConclusionTransferring money from your forex trading account to your bank account, or vice versa, is simple, quick, and straightforward. Safe and reliable capital market transactions are made possible by Kotak Securities. Consideropening a Demat accounttoday to establish a strong financial foundation and enhance your earning potentialRead More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on Withdrawing Money from a Forex Trading AccountHow to withdraw money from a forex trading account?To withdraw funds, log in to your trading platform, locate the withdrawal option, enter the amount, and select your preferred withdrawal method (e.g., bank transfer e-wallet). Follow the prompts to complete the process.How much can you withdraw from the Forex account?The maximum withdrawal limit varies depending on your broker and their policies. It's advisable to check with your broker for specific details on withdrawal limits.Are there any withdrawal fees associated with Forex trading?Yes, withdrawal fees can apply and vary between brokers. These fees may depend on the withdrawal method chosen (e.g., bank transfer, e-wallet) and can range from a fixed amount to a percentage of the withdrawn sum.How long does it take to transfer money from my Forex trading account to my bank account?The duration of the transfer process depends on factors like your broker's processing time, the chosen withdrawal method, and your bank's policies. Typically, it can range from a few hours to several business days. |
https://www.kotaksecurities.com/share-market/what-is-cross-listing/ | What is Cross Listing? | Key HighlightsCross-listing involves listing a company's ordinary shares on an exchange other than its primary and original stock exchange.Fulfilling the listing criteria of the exchange is a prerequisite for companies seeking cross-listing.Advantages of cross-listing include trading shares in various time zones, enhancing liquidity, and facilitating access to new capital.Cross Listing MeaningA cross-listing of shares takes place when a company's shares are listed on stock exchanges in multiple countries, enabling interchangeability between shares traded on different exchanges. Companies listed on various stock exchanges must adhere to the regulations, mainly accounting policies, of each foreign exchange. These firms have multiple choices and carefully evaluate the advantages and disadvantages of each potential stock exchange. Typically, big multinational companies choose to be listed not only on their home country's stock exchange but also on exchanges in other countries where they have significant operations. Cross-listing platforms offer companies the benefit of having a presence on stock exchanges in various time zones.Benefits of Cross ListingsWhile numerous companies choose to list on the stock exchange within their domestic market exclusively, there are advantages to considering cross-listing on multiple exchanges.1. Market SegmentationMarket segmentation involves dividing a large market into distinct segments with similar needs. Cross-listing facilitates firms in segmenting foreign investor markets for easier access, anticipating the cost of capital reductions as stocks become more available to foreign investors, and overcoming international investment barriers.2. DisclosureCross-listing can reduce the cost of capital by enhancing the company's information environment. It is linked to improved media awareness, elevating the quality of accounting information. Companies listed on markets with stringent disclosure requirements can use cross-listing to signal their quality to foreign investors and provide better information to potential suppliers and customers.3. Increased Market LiquidityIncreased market liquidity results from cross-listing, allowing companies to trade shares in various time zones and currencies, thereby enhancing the issuing company's liquidity and capital-raising capabilities.4. Investor ProtectionAs a linking mechanism, cross-listing is employed by companies incorporated in jurisdictions with lower investor protection, voluntarily committing to higher corporate governance standards. This commitment reassures investors, fostering a sense of security in their investments.Challenges and Obstacles Associated with Cross-ListingSimply cross-listing a company abroad does not guarantee the attraction of foreign shareholders, and the perceived advantages of this practice may be exaggerated. Here are some potential risks and hurdles associated with cross-listing:1. Exposure to RisksThe cross-listed company becomes more vulnerable to risk, particularly in the face of political and economic instability. Success in cross-listing relies on alignment between the foreign country's economic and financial policies and those of the home country.2. Increased Compliance RequirementsCross-listed companies must navigate complex dual sets of rules, encompassing auditing, internal controls, and corporate governance regulations. Fulfilling the listing requirements of the host country is imperative, and foreign nations often mandate adherence to local accounting policies. These additional demands can pose significant challenges to companies and substantially increase their compliance costs.ConclusionCross listing is a strategic financial move that allows companies to expand their investor base and enhance liquidity by listing their shares on multiple stock exchanges. This practice not only provides companies with access to a broader pool of investors but also fosters transparency and regulatory compliance. Cross-listing can strengthen a company's global presence, increase visibility and potentially attract more institutional investors.
FAQs on Cross ListingCan cross-listing affect a company's stock price?Yes, cross-listing can influence stock prices by increasing demand and liquidity, potentially impacting valuation.Are there tax implications for cross-listed companies?Tax implications vary by jurisdiction; cross-listed companies should consider the tax implications in each market.Can any company cross-list its stocks on international exchanges?Generally, companies meeting the regulatory and listing requirements of international exchanges can cross-list their stocks.Do cross-listed companies follow the same reporting standards?Companies may need to adhere to the reporting standards of each stock exchange, which can vary. |
https://www.kotaksecurities.com/share-market/what-are-interlisted-stocks/ | What are Interlisted Stocks? | Key HighlightsInterlisted stocks are listed on multiple stock exchanges, typically in the company's home country and one or more additional countries.Companies choose to interlist to benefit from a lower cost of capital and gain access to a broader pool of international investors.Interlisted stocks drawbacks include the expenses of listing on multiple exchanges and the additional regulatory requirements in the secondary country.Interlisted Stocks MeaningAn interlisting of stocks occurs when a company's stock is listed on more than one exchange. The main reason companies seek to interlist is that they expect to benefit from a lower cost of capital, as international investment barriers prevent them from accessing global investors.The term interlist is most commonly known as cross-listing and dual listing. However, these terms should not be confused with other methods that allow a company to trade stocks on two separate exchanges, such as:Dual-listed companies:Dual-listed companies are essentially two separate entities that operate as one company. Each has its own stocks listed on different stock exchanges, usually due to a merger.Depositary receipts:Depositary receipts represent a company's stock but are issued by a third-party bank, not the company itself. Even though people often use the terms interchangeably, they aren't the same.Admitted for trading:When a foreign share is admitted for trading, it means it's available for trading in a different market through an exchange agreement, even though it's not officially registered in that market.If a company is interlisted, its primary listing is on the stock exchange in the country in which it was incorporated. As for the secondary listing, it is listed on a stock exchange in another country. Typically, interlisted stocks are issued by companies that started in a small market but have quickly expanded into a larger one.Interlisted Stocks ExampleAssume that a Canadian company wishes to interlist its shares. In that case, it can trade on both the Toronto Stock Exchange and the New York Stock Exchange, provided the company meets the requirements of both Canadian and American regulators.A Canadian financial services company, Sun Life Financial, is listed on both the NYSE and TSX, allowing investors to purchase and sell shares on either exchange.Advantages of Interlisted StocksListing on multiple exchanges gives companies access to more investors and increases liquidity. In turn, this reduces financing costs.Assuming the example mentioned above, a Canadian company may wish to increase the number of international investors by listing in the United States, which includes non-US investors who trade on US exchanges. So, these companies are also listed on US exchanges in addition to TSX (Toronto Stock Exchange)Interlisting in a foreign market can reduce the firm's cost of capital by improving its information environment. As a result, the brand awareness of the company may increase. The second listing will enhance its credibility and status, particularly if it is on the top stock exchange. Also, it has been shown that interlisting is associated with increased media attention, better analyst coverage, and higher accounting quality.Disadvantages of Interlisted StocksHowever, interlisted stocks have some drawbacks. These include the cost of listing on multiple exchanges and the additional and tougher regulatory requirements in the second country.Interlisted Stocks and ArbitrageIt is possible for highly experienced traders to profit from fluctuations in the stock prices of interlisted stocks. Traders can make a profit from fluctuations on various stock exchanges or in the currencies of the countries in which they are listed. This is known as arbitrage in the financial world. It is a complex and risky transaction that depends on the convergence of prices.ConclusionAn interlisted stocks is one that is listed on multiple exchanges, both in the company's home country and in one or more additional countries. The question of whether interlisting creates lasting value is an ongoing debate, but it is commonly linked to favourable responses in the company's home market.
FAQs on Interlisted StocksWhat is Interlist?Interlist means to list stock on more than one stock exchange.What happens when a stock is interlisted?When the stock is interlisted, it increases liquidity and provides more avenues to raise capital. In addition, it may allow for more trading time if the exchanges are open at different times.What are the disadvantages of secondary listing?The disadvantage of secondary listing is the expense of listing on different exchanges. These include both the initial listing costs and ongoing expenses. Additionally, the process demands more time and attention from management. |
https://www.kotaksecurities.com/share-market/difference-between-stock-and-share/ | Stock vs share: Key differences, types and investment advice | Stocks’ and ‘shares’ are basic terms that investors must understand before starting their stock market journey. However, the terms are often used interchangeably. But, there is a subtle difference between stock and share.To some extent, it is true that they denote the same thing—an individual’s ownership in a public company. However, while the term ‘stock’ refers to part-ownership in one or more companies, the term ‘share’ has a more specific meaning. ‘Share’ refers to the unit of ownership in a single company.Now, let’s delve further into the fundamentals of the stock vs share discussion.What is a stock?Stocks are financial securities that represent part-ownership in one or more companies. When you buy a company’s stock, you become a shareholder. The stock certificate serves as proof of ownership and mentions the number of stocks you hold. You can buy stocks of a single company or several companies. There is no limit on the number of stocks you can hold in your portfolio.Investors generally aim to buy the stocks of companies that are likely to increase in value. When such appreciation takes place, the stockholder can sell the stocks and earn a profit. Apart from this, due to their part-ownership, stockholders often receive a share of the company’s profits through monthly, quarterly, or annual dividend payments. Buying stocks is thus a lucrative way to make money. Plus, it reduces the impact of market inflation over a period.What is a share?A share is the smallest denomination of a company’s stock. So, each unit of stock is a share, and each share of stock is equal to a piece of the company’s ownership.Suppose a person X owns ‘100 shares of ABC Inc.’ Now if ABC Inc. has one lakh shares, it means X owns 0.1% of the company. Any person or entity with 10% ownership in a company, regardless of how many shares they hold, is termed a principal stockholder.People who buy shares may earn interest on the money invested and dividends. But, that is just part of their motivation to invest in a company. Another reason is that their investment in the company pushes up the company’s value, which in turn increases its share prices. Shareholders can then sell these shares higher than their purchase price to make money on their investment.Stock vs share: Key differencesHere are some important points of difference between stock and share:Definition:‘Stock’ represents the holder’s part-ownership in one or several companies, while ‘share’ refers to a single unit of ownership in a company. For example, if X invests in stocks, it means that X has a portfolio of shares across different companies. But if X invests in shares, the key questions are ‘shares of which company’ or ‘how many shares.’Ownership:When an individual owns shares of several companies, you can say they own stocks. But if someone bought shares of a specific company, they only own shares.Denomination:Individuals who own stocks have the option to choose different stocks of different values. Those who own shares in a specific company can, of course, own multiple shares. But the shares will only be of the same or equal value.Paid-up value:Stocks are always fully paid-up in nature. However, shares could be either partly or fully paid up.Nominal value:This value is assigned to each share when the stock is issued. It is different from the market value, which varies based on demand for and supply of the shares.Kind of investment:Shares can refer to a large group of financial instruments known as securities. They can include mutual funds, exchange-traded funds (ETFs), limited partnerships, real estate investment trusts, etc. But stocks mainly refer to corporate equities and securities traded on a stock exchange.Types of stockThere are mainly two kinds of stocks: common stock and preferred stock.Common stock: Common stock investors can vote at shareholders’ meetings. They also have a more directive stake in the company and receive company dividends regularly.Preferred stock: Preferred stockholders are not given voting rights. However, they receive dividend payments ahead of common stockholders. Investors in this category are given more priority over common stockholders if the company goes bankrupt.Both common and preferred stocks fall under the following categories:Growth stocks: Stocks of this category grow and earn faster than the usual market average. As they rarely offer dividends, capital appreciation is what investors hope for. A start-up tech company may offer this type of stock.Income stocks: These stocks pay dividends consistently and help an investor to generate regular income. An established utility company’s stocks would be an example of income stocks.Value stocks: These usually have a low price-to-earnings (PE) ratio. So, they are much cheaper than those with a higher PE ratio. They could be either growth or income stocks. People buying value stocks expect the stock price to rebound soon.Blue-chip stocks: These are the shares of big, well-known companies with a solid growth history. Such stocks generally pay dividends. Blue-chip stocks are common among investors due to the reliability of the company.
In addition, stocks can further be categorised by their market capitalisation and size. There are large-cap, mid-cap, and small-cap stocks. While shares of small companies are called microcap stocks, low-priced stocks are known as penny stocks.
Benefits and risksFor someone with a long-term goal, investing in stocks is a great way to get capital appreciation. Young investors saving for the long haul can get positive returns by investing in stocks.However, stock prices can plunge as well. Besides, there is no assurance that the company stocks you hold will grow and perform well. That is why it is important to factor in the potential risk before investing. And only invest what you can afford to lose.The stock price of a company may fluctuate multiple times a day. Market fluctuations could be a factor when investing in stocks. In addition, the stock price can take a hit for various reasons including, internal and external factors like global, political or economic issues.If you sell your shares below the price you paid, you will lose money. But if you hold on until the price goes up, you could pocket a nifty profit.Example of stock price fluctuationSuppose you buy 100 shares of XYZ Ltd at ₹85 (100 x 85= ₹8,500) in the past week. The very next day, the stock price declined to ₹75. As a result, the total value of your shares stands at ₹7,500 (100 x 75) against the past value of ₹8,500. If you were to sell the shares, your total loss would be ₹1,000. But a week later, the stock price crosses your purchase price and stands at ₹90. This brings the total value of your shares to ₹9,000 (100 x 90). If you sold the shares now, you would pocket an overall profit of ₹500.How do people make money in stocks?It is well known that stocks are riskier than any other fixed investments. But they also carry the possibility of fetching the maximum returns. If you have already invested in stocks, you can earn in two ways:Selling shares:You will need to sell the shares for more than what you paid. The price difference would be your profit.Dividend earnings:Companies send regular payments to their shareholders in the form of dividends. Though not all stocks offer dividends, those that do usually pay every quarter.Get your stock investment rightYou now know the basics about stocks and shares. So why not dive into the world ofstock market investment?Here are some tips to help you get it right:Safeguard your portfolio through diversification:This helps protect your investment from depreciation. To diversify your portfolio, spread your investment across different asset categories. Then, if one asset performs poorly, you can re-tune your strategy to safeguard against further loss.Plan your investment to prevent losses:Rather than chase after every promising stock, choose eight to 10 scrips to add to your portfolio. Then, go over the fundamental and technical research on these scrips and monitor market movements. This will help you spot patterns and pinpoint when to buy or sell a scrip.Invest online:Buy individual stocks through an online broker. For this, you will need toopen dematand trading accounts. Just fill out an application form and complete the Know Your Customer (KYC) formalities.Summing upThe difference between stock and share is subtle. In most cases, the difference is not really significant. But you must know all sides of the stock vs share argument before taking the plunge into equity investments. Once you have an investment strategy in place, you can buy individual shares and build a portfolio of stocks. Just remember to diversify your portfolio always and monitor your short and long term stock selection. This will safeguard your investments even when the markets are volatile.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs about the difference between a stock and a shareWhat is the simple difference between stocks and shares?While "shares" explicitly refers to the individual ownership units into which the firm's ownership is divided, "stocks" is a more generic term that refers to the ownership units of a corporation. Therefore, if you possess shares, you effectively hold stock or are a stakeholder in the business.Is a share and a stock the same?Yes, in everyday conversation, the terms "share" and "stock" are frequently used interchangeably and, in essence, relate to ownership in a corporation.Which is better, a stock or a share?The terms "stock" and "share" are interchangeable when referring to investments since they mean the same thing. The success and attractiveness of a particular stock or share, however, rely on a number of variables, including the company's financial stability, future growth possibilities and industry developments.What is 100 shares of a stock called?A "round lot" is the term used to describe a block of 100 shares of a stock. A round lot, which refers to a normal trading unit in the context of stock trading, is the typical number of shares generally purchased or sold in a single transaction.What is a share in the stock market?A share is the smallest denomination of a company’s stock. So, each unit of stock is a share, and each share of stock is equal to a piece of the company’s ownership.Is a stock called a share?Stock represents the holder’s part-ownership in one or several companies. On the other hand, a share refers to a single unit of ownership in a company.How many shares are in a stock?If you invest in stocks, you could have many portfolios of shares across different companies.How much does 1 share cost?The price of a share fluctuates as per the market conditions and is determined on a real-time basis by a stock exchange.Can I buy 1 share of a stock?Yes. There's no upper or lower limit to the number of shares you can buy.How do beginners buy stocks?Beginners can start byopening a demat account. A demat account works like a bank account where you hold money to use for trading.For more information, read our guide onhow to trade in stocks for beginners. |
https://www.kotaksecurities.com/articles/38-lakh-marriages-and-the-economic-symphony-of-weddings/ | 38 Lakh Marriages and the Economic Symphony of Weddings | Kotak Insights | Date 15/12/2023It is the fourth largest industry in India.Most of us have participated in it in some or the other way.And it holds a special place in our hearts for it brings people together.We’re talking about theIndian Wedding Industry!The reason we’re talking about it? - The Indian wedding season is in full swing!Data from the Confederation of All Indian Traders (CAIT) shows about a massive expenditure ofRs 4.74 lakh crorein this wedding season which is likely to see almost38 lakh marriagesfrom November 23 to December 15.You read that right! Rs 4.74 lakh crore is a lot of money for 23 days.But that’s howIndian weddingsroll, right?Let us unravel the dynamics of this industry and know how savvy investors can benefit from this trend in the markets.The Grandeur of the Wedding IndustryLet’s start with the industry first.India’s penchant for grand weddings has transformed this industry into a billion-dollar affair.As per data from 2022, Indian spends close to $130 billion annually on weddings. Thanks to this, it makes it the fourth-largest industry in the nation, just behind energy, banking, andinsurance.The wedding industry is huge and it is only bound to grow in the coming years because of India’sdemographic profile.India is home to a fifth of the world’s youth demographic and it is experiencing a demographic window of opportunity, a “youth bulge”.As per MoSPI, around 34% of thecountry’s populationis between the age of 20-39. Close to 10% of the population is between the age of 15-19, which in the next 5 years would move to the marriage-appropriate demographic age.This ensures a sustained and growing interest in weddings for years to come and growth for the wedding industry in coming years.Here’s how the industry is currently evolving:From Sublime to LavishLet’s talk about the recent past.Indian weddings witnessed a paradigm shift post-pandemic.Before the pandemic, people used to have an extensive guest list. However, the pandemic-induced restrictions introduced Indians to intimate weddings and people preferred to have thinner guest lists.The trend also stayed post lockdown. However, Indians are spending more or less the same amount of money with the trimmed guest list.The expenditures related towedding purchasesand procurement of various services by consumers this season are almostRs 1 lakh croremore than the year-ago period.CAIT national president B C Bhartia and secretary general Praveen Khandelwal recently noted that the weddings about to garner the abovementioned Rs 4.74 lakh crore could be divided into five different expenditure categories as following:• Around 6 lakh weddings will have an estimated expenditure of Rs 3 lakh per wedding
• 1 million weddings will have expenditure around Rs 6 lakh per wedding
• 1.2 million weddings are expected to incur expenses of about Rs 10 lakh / wedding
• 600,000 weddings are estimated to cost Rs 25 lakh / wedding
• 50,000 weddings will have a budget of Rs 50 lakh / wedding
• 50,000 weddings will involve expenditures of Rs 1 crore or more per weddingLet’s see, which industries and businesses and benefitting from this splurge.Industries Basking In the Wedding GlowNow, traders across the country have made extensive preparations to cater to the above bustling wedding season.Approximately 20% of the total marriage expenditure is allocated to the bride's and groom's side, while 80% goes to various third-party agencies involved in organising the ceremonies.Businesses like house repairs, jewellery, readymade garments, footwear, groceries and sweets, decoration items, electronics, and gift items are expected to thrive.Banquet halls, hotels, open lawns, public parks, and farmhouses are ready to host these weddings.Additionally, various services, including decorations, catering, travel services, photography, music and lighting, and event management, are expected to see significant demand, contributing to the bustling business activity.Sectors Riding the Wedding WaveHospitality:Weddings emerge not only as a time of celebration but also a crucial revenue stream for thehospitality industry. Hotels equipped with wedding halls or open spaces can orchestrate multiple weddings in a single day, a practice enhanced by hosting both preceding and following customary ceremonies at the same location.The elaborate ceremonies can last for days which can translate into confirmed Food & Beverage (F&B) and room revenues. Over the years, weddings have evolved into a substantial contributor to the total revenues generated by the hotel industry.Take the global hospitality major Hilton in India, for instance. A remarkable 12-40% of the room share stems from weddings. In the case of Marriott, their properties across India witnessed a staggering 5,000 weddings in 2022 alone, with 12% of their revenues attributed to wedding-related events.One of the listed players from this sector is Indian Hotels Company Ltd.Apparels and Other Retail:Another sector that revels in the wedding business is retail, anticipating a surge in demand for Indian ethnic wear and accessories. As the wedding season aligns with festive celebrations, brands in fashion, jewellery, and footwear are poised for growth.According to Bector, brands in fashion, jewellery and footwear are expecting double-digit growth, possibly up to 20% in the third quarter.Some listed players from this space are Titan Company Ltd., Trent, Vedant Fashions Ltd.Jewellery:Indian weddings and festivals remain the most important demand drivers of gold jewellery. Bridal jewellery alone accounts for at least half of the market share in India, the world’s second-largest consumer ofgold jewellery, as per a report by the World Gold Council.Moreover, lab-grown diamonds are emerging as a lucrative alternative, gaining traction due to sustainability and pricing dynamics.Some listed players from this space are Titan, Kalyan Jewellers India, etc.Consumer Electronics:For consumer electronics, the wedding season commands attention. Traditionally kicking off with festivals like Onam and Durga Puja, extending through Diwali, which contributes around one-third of this industry's overall annual sales value, the festive sales momentum continues further into the wedding season, stretching up to March.Electronic items such as air conditioners, televisions, refrigerators, etc., become popular purchases by the bride and groom or as a gift given by family and friends.Two-Wheelers:Motorcycle manufacturing companies eagerly await the wedding season, a significant driver of their sales and annual performance. Notably, over 40% of the two-wheeler market resides in rural and semi-urban areas. It's a common tradition for grooms to either purchase or be gifted commuter bikes, considering it a luxury in these regions.To Conclude…The ongoing wedding season is set to make waves in various Indian sectors. The enthusiasm is expected to resonate into 2024 when the next wedding season commences.Looking at stocks from the sectors like the above can be an exciting bet for some investors and traders. They could offer the potential for quick returns during this celebratory time of the year. It’s athematic play– wherein a theme brings in a rally for certain sector and stocks.However, it's essential to approach wedding stocks with caution. Investors and traders should align their return expectations with business fundamentals, financial health, and valuations.The wedding industry's thematic play can be enticing, but a discerning eye and strategic approach can ensure a harmonious investment experience.Which wedding stock are you tracking? Let us know in the comments section below.Until next time…Stay Tuned!Sources:Kotak Securities, CAIT, PTI, MoSPI, Economic TimesDisclaimer:This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read thefull disclaimer here. |
https://www.kotaksecurities.com/articles/india-shelter-finance-corporation-ipo/ | India Shelter Finance Corporation IPO: 5 Things You Should Know | 1. IPO Details:The IPO of India Shelter Finance Corporation is scheduled to open for subscription onDecember 13and conclude onDecember 15.TheIPO price bandis set atRs 469toRs 493per equity share.The company is planning to raiseRs 1,200 crorethrough fresh issue of equity shares worth Rs 800 crore and anoffer-for-sale (OFS)of Rs 400 crore.The objects of the IPO offer are to utilize the net proceeds from the fresh issue in meeting future capital requirements towards onward lending; and for general corporate purposes.With that out of the way, let’s move on to understanding the industry and the company’s business.2. Industry and Business Overview:The Housing Finance Sector:Thehousing finance sectorof India comprises public sector banks, private sector banks, housing finance companies, non-banking financial companies and other players.The overall size of the affordable housing finance market in India in terms of loan outstanding was around Rs 11.5 trillion as of March 2023, constituting around 37% of the overall housing finance market.The Indian housing finance market recorded a CAGR of approximately 13.5% (growth in loan outstanding) over the financial years 2019-2023 on account of a rise in disposable income, healthy demand, and a greater number of players entering the segment.About the Company:India Shelter Finance Corporation Limited is a retail-focused affordable housing finance company with an extensive distribution network of 203 branches as of September 30, 2023.The company primarily caters to self-employed customers, with an emphasis on first-time home loan applicants within the low and middle-income groups in Tier II and Tier III cities in India.
It also specialises in affordable housing loans, defined as loans with a ticket size below Rs. 2.5 million.The company has an extensive and well-established network of branches spread across 15 states with a significant presence in the states of Rajasthan, Maharashtra, Madhya Pradesh, Karnataka and Gujarat wherein their branch vintage is five year and above, as of September 30, 2023.Between Financial Year 2021 and Financial Year 2023, the company witnessed a two-year compounded annual growth rate (CAGR) growth of 40.8% in terms of assets under management (AUM).On the cost front, the company has been able to reduce its average cost of borrowings to 8.3% as of March 31, 2023 from 8.7% as of March 31, 2021.The company has an integrated customer relationship management and loan management system set up on a cloud-based platform. This provides it with connectivity and access to real time information with a holistic view of the profile of all its customers, throughout the loan lifecycle.During the six months ended September 30, 2023 and September 30, 2022, 92.4% and 92.2%, respectively, of the company’s collections were made through digital modes.So, that was a quick look at the housing finance industry and the company’s business in it.Let us now have a look at some strengths and risk factors of India Shelter Finance Ltd.3. Strengths and Risks:Strengths:One of the Fastest Growing AUM:The company achieved asset under management (AUM) with a growth of 40.8%, among housing finance companies in India, between FY 2021 - 2023. These growth rates reflect its operational model's effectiveness and ability to underwrite and serve customers in the targeted segments in Tier II and Tier III cities in India.Diversified Phygital Distribution Network:With over 13 years of operations, the company’s distribution network has grown to 203 branches across 15 states in India, as of September 30, 2023. Moreover, the “phygital” model of business, which is a blend of physical presence across 15 states through 203 branches and digital interface, assists the company in accessing a wider customer base.Diversified Financing Profile:The company maintains a diversified financing profile, driven by a disciplined approach to asset liability and liquidity management. One of the key aspects of its financing profile is a diversified mix of credit. This approach not only mitigates the risk of relying on a single funding source but also enables them to negotiate favourable borrowing costs.Technology and Analytics-Driven:It is a technology and analytics-driven affordable housing finance company. It has built a scalable operating model that enables it to expand operations and drive growth in revenue.Risk Factors:Any disruption in the company’s sources of financing could have an adverse effect on business.The Indian housing finance industry is extensively regulated and any changes in laws and regulations applicable to housing finance companies could have an adverse effect on the business.The company requires substantial capital for the business and operations.The risk of non-payment or default by customers may adversely affect the business.4. Competitive Analysis:The housing finance industry in India is highly competitive and the company faces competition from other housing finance companies (HFCs), non-banking financial companies (NBFCs), small finance banks, as well as scheduled commercial banks.
The company’s primary competitors includeAadhar Housing Finance Limited, Aavas Financiers Limited, Home First Finance Company India Limited and Aptus Value Housing Finance India Limited.India Shelter Finance Corp. generally competes on the range of product offerings, interest rates, fees and customer service, as well as for skilled employees, with its competitors.Furthermore, the demand for housing finance has increased as a result of reduced interest rates, higher income levels, and enhanced financial incentives for customers. Technological advancements and internet-based lending platforms have further improved accessibility to housing finance products and services, leading to increased competition.Given the relatively low barriers to entry in the housing finance sector, competition is anticipated to further intensify due to regulatory changes and liberalization.5. A Quick Look at the Numbers:Here are the key financials for India Shelter Finance Corporation Limited:
Particulars (in Rs. Millions)Total IncomeAs at 31st March, 20236,062.31As at 31st March, 20224,598.06As at 31st March, 20213,227.99Particulars (in Rs. Millions)Profit/(loss) before taxAs at 31st March, 20232,019.52As at 31st March, 20221,669.01As at 31st March, 20211,129.57Particulars (in Rs. Millions)Net profit/(loss)As at 31st March, 20231,553.42As at 31st March, 20221,284.47As at 31st March, 2021873.89Particulars (in Rs. Millions)EPS%As at 31st March, 202317.75As at 31st March, 202214.80As at 31st March, 202110.19Particulars (in Rs. Millions)As at 31st March, 2023As at 31st March, 2022As at 31st March, 2021Total Income6,062.314,598.063,227.99Profit/(loss) before tax2,019.521,669.011,129.57Net profit/(loss)1,553.421,284.47873.89EPS%17.7514.8010.19
In ConclusionThe Indianfinancierindustry presents a huge opportunity for growth.
As of March 31, 2023, rural areas, which accounted for 47% of GDP, received just 8% of the overall banking credit, which shows the vast market opportunity for banks and NBFCs to lend in these areas. With increasing focus of government towards financial inclusion, rising financial awareness, increasing smartphone and internet penetration, the delivery of credit services in rural area is to increase.Moreover, theshortage of housingin India has been a perpetual problem, deterring the economic growth of the country. The shortage of overall house is much higher at 62.5 million (as per twelfth five-year plan 2012-17) due to changing social and demographic pattern in India such as nuclearization of families and rapid growth of urbanisation.As per the report of RBI-appointed Committee on the Development of housing finance securitisation market (September 2019), the total value of units to fulfil the entire shortage is estimated at ₹149 trillion, out of which ₹58 trillion is estimated to be the aggregate loan demand for housing.Over the past two financial years,housing financesegment has seen favourable affordability on account of stable property rates and improved annual income of individual borrowers. Going ahead, housing finance is expected to log a CAGR of 13-15% in the long term between Financial Year 2023-2026.All of these points give India Shelter Finance Corporation a good opportunity to grow its financing and penetrate to new geographies in the coming years.Going forward,the company is looking to grow and diversify their distribution network to achieve deeper penetration in key states and drive sustainable growth.It also plans to leverage its technology stack and also diversify its borrowing profile and optimise borrowing costs.Overall, the time for India Shelter Finance Corporation couldn’t have been better.However, as we have highlighted in the past, one should have a close look at thevaluationsbefore making a decision to subscribe to any offering.Investors and traders should subscribe to them after evaluating the risks and rewards and the individual investing profile.It will be interesting to see how the above IPO performs on the listing day on the bourses.We will keep you updated on all the developments from this space.
Stay Tuned!
Watch and LearnAll you need to know about India Shelter Finance IPOTune in to know more about the company, IPO issue details, future strategies, important financial details, its presence and reach, product/service portfolio, and much more with Kinjal Parekh!India Shelter Finance IPO Review | Issue Details, Future Strategies And MoreKotak Securities•03m 36s
India Shelter Finance Corporation Limited FAQsWhat is the India Shelter Finance Corporation Limited IPO?The India Shelter Finance Corporation Limited IPO has an issue size of Rs. 1,200 crores. The IPO opens for subscription on 13th December 2023 and closes on 15th December 2023.What is the Price Band of India Shelter Finance Corporation Limited IPO?The price band for India Shelter Finance Corporation Limited IPO is set at Rs 469 to Rs 493 per equity share.What is the Bid Lot of India Shelter Finance Corporation Limited IPO?The bid lot for India Shelter Finance Corporation Limited IPO is 30 equity shares and in multiples of 30 equity shares thereafter.Who is the Registrar for India Shelter Finance Corporation Limited IPO?KFin Technologies Limited is the registrar for this IPO.Who is the Issue Size for India Shelter Finance Corporation Limited IPO?The company is planning to raise Rs 1,200 crore through fresh issue of equity shares worth Rs 800 crore and an offer-for-sale (OFS) of Rs 400 crore.Where can I read more about India Shelter Finance Corporation Limited’s business?You may read more about India Shelter Finance Corporation Limited and its IPO from the company’s red herring prospectus (RHP)here: |
https://www.kotaksecurities.com/share-market/what-is-sustainable-growth-rate/ | What is the Sustainable Growth Rate (SGR) | Key HighlightsSustainable growth rate (SGR) is the growth rate a company can achieve without taking additional debt.A company can compete, only if its growth rate is strong enough.However, a company may face potential issues if its growth rate is very high. It is essential to consider the potential drawbacks of such rapid expansion.Combining debt and equity capital can build a balanced approach for long-term growth.Definition of Sustainable Growth RateA sustainable growth rate (SGR) is the growth rate that a business can achieve without taking more debt or equity capital. So, it denotes the pace at which a company may expand by using its existing assets. The term "sustainable growth rate" describes a firm's life cycle. It provides a clear view of the key areas for achieving the desired growth.SGR works on the basis of certain presumptions. They include the following.The company never modifies its single dividend ratio.The capital structure of the firm remains steady.It is working hard to increase sales.The company focuses on products with better profit margins.The business is working hard enough to manage its inventory, accounts payable, and accounts receivable.##Calculating the Sustainable Growth Rate##Let’s now look at the Sustainable Growth Rate (SGR) formula. However, to understand the SGR formula you need to first know about a few terms. They are as follows.Dividend payout ratio:The percentage of earnings that shareholders receive as dividends per share is the dividend payout ratio. Its formula is dividends per share/earnings per share (EPS).Retention rate (1 - dividend payout ratio):This is the portion of earnings that a business still needs to distribute dividends. In simpler terms, it is the income that the company keeps for itself.ROE:Return on Equity (ROE) measures how much an investor earns based on the company's profits. Its formula is Net income / Total shareholder equity.The company's financial statement often includes ROE and dividend ratios.SGR Formula:So, the formula of SGR is;Sustainable Growth Rate = Retention Ratio * Return on EquityExample:The net income of Company Alpha is Rs. 50,000. Shareholder equity is Rs. 2,00,000, and the dividend payout rate is 15%. Here is how to calculate the company's SGR.Retention ratio = ( 1 - 0.15) = 0.85
Return on equity = (50,000/2,00,000)= 0.25
So, the SGR = 0.85*0.25 = 0.21Hence, Company Alpha can achieve a maximum growth rate of 21% without any additional equity or debt financing.Benefits of SGRThe sustainable growth rate can help a business with the following things.Long-term growth planning and cash flow projectionsBorrowing additional fundsGrow by issuing equity and compensating the equity investorsAudit its expenditure and profitMake strategies for better efficiencyManage day-to-day operations like early bill paymentEnsure financial efficiency and manage receivable and payable accountsPlan the financial future by setting goals that won't put them in financial stressHelp determine the amount of capital for steady growth.The Drawback of using SGRUsing the SGR to calculate the growth rate is helpful. Yet, it is still not perfect.The averages of a particular sector are the basis for the sustainable growth rate formula. Thus, it might only be valid for some businesses in a specific industry.Three different elements are the basis of the SGR formula. They are retention ratio, dividend payout, and ROE. However, they may or may not correctly reflect the current state of a company's affairs.Difference Between SGR and PEG RatioA measure of a company's potential for growth is the price-to-earnings-growth ratio (PEG) ratio. Here are the key differences between the SGR and PEG
FeatureDefinitionSGRA measure of the company's growth in relation to its existing capital structure.PEGA measure of the company's growth in relation to its stock price.FeaturePurposeSGRTo determine whether a company's stock is overvalued or undervalued.PEGTo determine whether a stock is undervalued or overvalued.FeatureFormulaSGR(Sales growth + Operating profit margin growth + Equity growth) / 100PEG(Price-to-earnings ratio) / (Earnings per share growth rate)FeatureInterpretationSGRA higher SGR indicates faster growth. Still, it does not necessarily mean the stock is overvalued or undervalued.PEGA PEG ratio of less than 1 indicates that the stock may be undervalued, while a PEG ratio of more than 1 indicates that the stock may be overvalued.FeatureLimitationsSGRThe SGR does not take into account the company's debt levels or the quality of its earnings.PEGThe PEG ratio assumes that the company's earnings per share growth rate will remain constant. This may not be the case always.FeatureSGRPEGDefinitionA measure of the company's growth in relation to its existing capital structure.A measure of the company's growth in relation to its stock price.PurposeTo determine whether a company's stock is overvalued or undervalued.To determine whether a stock is undervalued or overvalued.Formula(Sales growth + Operating profit margin growth + Equity growth) / 100(Price-to-earnings ratio) / (Earnings per share growth rate)InterpretationA higher SGR indicates faster growth. Still, it does not necessarily mean the stock is overvalued or undervalued.A PEG ratio of less than 1 indicates that the stock may be undervalued, while a PEG ratio of more than 1 indicates that the stock may be overvalued.LimitationsThe SGR does not take into account the company's debt levels or the quality of its earnings.The PEG ratio assumes that the company's earnings per share growth rate will remain constant. This may not be the case always.
ConclusionOne should consider the sustainable growth rate (SGR) while investing in a stock. The SGR represents the expected future growth rate of a company without taking debt. It indicates a company's capacity to expand over time without negative effects on its stakeholders, customers, and employees. A higher SGR indicates that the business is using its earnings to provide high returns on equity. Thus, SGR is a beneficial tool for investors, creditors, rating agencies, and the finance team.
FAQs on Sustainable Growth RateWhat distinguishes a terminal growth rate from a sustainable growth rate?The sustainable growth rate (SGR) is the growth rate a company can grow without external funding. On the other hand, the terminal growth rate is the projected growth rate used to estimate free cash flows.How can investors interpret the SGR?A high SGR indicates that the business can fully finance its rapid expansion using its revenue. It does not need external investments. A low SGR indicates that the company will need external funding to expand its operations.Why dividend payout ratio is used while calculating SGR?The dividend payout ratio is the proportion of earnings distributed as dividends. It shows a company's ability to maintain its growth through retained earnings in the long term.Can companies increase their SGR?Yes, companies can increase their SGR by improving the Return on Equity (ROE), and profits. They also have to retain a higher portion of their earnings for reinvestment.Can companies use external funding to exceed the SGR?Yes, companies can exceed their sustainable growth rate by using external funds. They may issue fresh equity or take on more debt. |
https://www.kotaksecurities.com/share-market/what-is-trailing-earnings-per-share/ | Understanding Trailing Earnings Per Share (EPS) | Key HighlightsTrailing Earnings Per Share (EPS) is a critical metric used by investors to assess the profitability and expansion of a firm.Making educated selections is aided by this historical statistic, which is based on prior earnings.An important draw for investors is its ability to show annual and quarterly growth trends; a drop could warrant concern.The statistic helps investors make wise investment decisions for a profitable portfolio by enabling them to assess a company's financial health and future prospects.A key indicator of a company's historical performance, trailing EPS is essential for investment research.What Is Trailing Earnings Per ShareThe term "trailing" indicates that the EPS is based on historical data rather than future estimates. Trailing EPS may be calculated for any time period. However, it is most commonly reported for the previous 12 months or four quarters. This is known as trailing 12-month (TTM) or trailing four-quarter (TFQ) earnings per share. The benefit of adopting trailing EPS is that it uses real figures rather than estimates or assumptions. The majority of price-to-earnings (P/E) ratios are based on trailing EPS since it represents what has already occurred rather than what could occur in the future. However, trailing EPS might be out of date since it does not account for market or business operational changes. As a result, many investors consider current and predicted future EPS, which are based on analyst projections and are referred to as earnings estimates.Analysts can also study trends and patterns in a company's earnings using trailing EPS. Analysts can analyse trailing EPS from different periods to understand how a company's profitability has evolved over time. They can also concentrate on certain quarters that are critical to a company's operations. For merchants, for example, the fourth quarter is typically particularly important since it encompasses the Christmas and holiday seasons.Analysts might compare a company's fourth-quarter trailing EPS from prior years to see how well it did during this peak time. They may also examine the trailing 12-month EPS for these years to observe how the fourth quarter affects the company's total earnings.Importance of Price to EarningsThe Price-to-earnings (PE) ratio reveals how much investors are willing to pay for one rupee of the company's earnings per share (EPS). This helps determine if a firm is overpriced or undervalued. A PE ratio of 20 reflects how long it takes for accumulated earnings to level the investment's price.A high PE ratio indicates that the stock's price exceeds its earnings per share. This might imply that a company's stock is overpriced and may decline in the future.The Trailing Price to Earnings (PE) ratio represents the connection between a company's stock price and its trailing earnings per share. This statistic compares the stock market value of a firm to its trailing earnings per share (EPS).The trailing price-to-earnings ratio accuracy is more critical since it delivers a more realistic result because it incorporates correct parametric statistics.Example of Trailing Earnings Per Share (EPS)For example, a company's quarterly financial statements for fiscal year 2021-22 (FY22) disclose earnings per share asINR 3.78 in the first quarter,INR 4.01 in the second quarter,INR 3.32 in the third quarter,INR 3.09 in the fourth quarterfor a total trailing profit per share of INR 14.2 at the end of FY22.If the results for Quarter I FY23 are INR 3.95, the new trailing EPS at the end of Quarter I FY23 will be INR 15.06. As soon as the latest statistics are revealed, Quarter I of FY 22 is removed from the computation.Growth or Decline in Trailing Earnings Per ShareGrowth-oriented investors like to direct their capital towards businesses that consistently raise their profitability year over year and from quarter to quarter. When evaluating the company's trajectory, their study frequently focuses on trailing EPS or yearly EPS.It's critical for growth-oriented investors that quarterly earnings beat the same time last year. They also aim for fiscal year results that are higher than the previous fiscal year. Investors can assess trailing EPS even in the absence of fiscal year data by contrasting it with the prior fiscal year and hoping to see an upward trend.A subset of growth investors also scrutinize earnings estimates, hoping to see an increase in predicted earnings for the next quarters.A decline in the rate of percentage increase between quarters or years indicates slowing growth, signaling that the company's expansion is moderating compared to its earlier pace. Such deceleration can be a cautionary signal for certain growth investors, encouraging them to consider reducing their exposure to long-term positions.Conversely, when quarterly, yearly, or trailing EPS exhibits a decline relative to preceding figures, it indicates a lack of growth and a contraction within the company. Such stagnation runs counter to the preferences of growth investors, as they seek vibrant, upward momentum.ConclusionTrailing earnings per share (EPS) is a crucial tool for investors to evaluate a company's profitability and growth. It aids in decision-making by examining a company's historical earnings. Gains in earnings both annually and quarterly are attractive to investors. Should the growth decrease, they may exercise caution in their decision-making. Investors can gain insight into a company's financial health and growth prospects by examining its trailing earnings per share (EPS). They may use this to make wise investing choices.
FAQs on Trailing Earnings Per ShareCan Trailing EPS predict future performance?Trailing EPS is historical and doesn't guarantee future success, but it offers insights into a company's past profitability trends.How does Trailing EPS differ from Forward EPS?Trailing EPS reflects past earnings, while Forward EPS estimates future earnings, usually based on analyst forecasts.Is a higher Trailing EPS always favorable?Generally, a higher Trailing EPS is preferable, indicating sustained profitability, but it's crucial to consider growth consistency.What does a decline in Trailing EPS suggest?A decrease in Trailing EPS may indicate a slowdown in a company's growth compared to previous periods.How does Trailing EPS aid in investment decisions?Trailing EPS provides insight into a company's financial health and potential, enabling informed investment choices for investors. |
https://www.kotaksecurities.com/share-market/what-is-capital-appreciation/ | No title found | Key HighlightsCapital appreciation is the increase in the market value of an asset or investment over time.It is calculated as the difference between the current value and the purchase price of the asset.Factors contributing to capital appreciation include a strong economy, low-interest rates, asset outperformance, and external developments (e.g., real estate benefiting from nearby developments).Understanding Capital AppreciationA capital appreciation occurs when the market value of an asset increases due to economic growth or growth in the asset's sector. It is the goal of investors to increase the value of the assets they invest. The assets could be shares, bonds, mutual funds, real estate, etc. By using a capital appreciation calculator, the investor can see the positive performance of an asset based on its current market value against its purchase price.The duration of appreciation can vary greatly depending on the asset class. For example, when it comes to assets like stocks, the value can increase quickly. Whereas when it comes to real estate, it usually takes a longer period of time to increase significantly. Prior to investing in any asset class, an investor must consider their time frame and risk appetite.How to Calculate Capital AppreciationYou can use the following capital appreciation formula to calculate:Capital Appreciation = Current Value - Purchase PriceIn this case, the current value refers to the asset's current market value. At the same price, the asset can be sold in the current market. Purchase prices, also called acquisition prices, are the costs incurred in the purchase of an asset. The value of an asset can be calculated by subtracting its current price from its purchase price.Causes of Capital AppreciationNow, let's analyse the causes and reasons for capital appreciation:A strong economy can also lead to an appreciation of assets such as stocks.The low interest rate results in an infusion of money into the market, creating the possibility of appreciation.Appreciation may occur for assets such as stocks since they outperform their competitors.Real estate may benefit from nearby arena developments, resulting in capital appreciation.Capital gain v/s Capital appreciationA capital gain occurs when an investment is transferred (sold, exchanged, etc.) and a profit is realised. A capital gain is the result of capital appreciation when realised.Gains on capital investments are taxed depending on the length of time the stock has been held. Capital appreciation is not taxed until it is realised. The capital appreciation of shares simply shows what an investor might earn if he sold them at the right time.Investing for Capital AppreciationAn investment's appreciation occurs when the invested principal amount grows. Long-term growth is the ultimate goal of investors. Capital appreciation investments are suitable for risk-tolerant investors. There is a higher risk associated with these investments as opposed to those selected for capital preservation or income generation, such as government bonds or dividend-paying stocks.The mutual fund industry often invests in capital appreciation funds as part of its 'growth funds'. They invest in young stocks that can grow big and rise in value as their fundamental metrics improve. It is common for these companies to grow rapidly, leading to an increase in their value.ConclusionA capital appreciation is how much an investment has gained since you purchased it. Subtract the asset's current value from the price you paid for it to calculate its value. Almost any investment asset can experience appreciation, including stocks, bonds, real estate, and more. However, the term appreciation does not apply to any form of value other than increases in market value, so income such as interest payments and dividends is not included.
FAQs on Capital AppreciationWhat is the difference between capital preservation and capital appreciation?There may be less risk associated with investments that are chosen for capital preservation or income production, such as government bonds, municipal bonds, or dividend-paying stocks. Consequently, capital appreciation funds are thought to be the most accurate for investors who can tolerate some risk.What is a capital appreciation fund?Capital appreciation fund refers to an investment fund that invests in assets such as high-growth and value stocks that are expected to appreciate aggressively in the future. Despite higher risks, it usually provides higher returns than average.Is capital appreciation taxable?Profits from capital appreciation are taxable as income. A capital appreciation gain occurs either through the sale of investment properties or through the sale of real estate. Depending on the duration, capital gains can be short-term or long-term. |
https://www.kotaksecurities.com/share-market/what-is-a-stock-loan-rebate/ | Stock Loan Rebate: Defining Meaning, Considerations and Practical Examples | Key TakeawaysA stock loan rebate is a compensation given to brokerage clients lending their stocks.This compensation is derived from the interest payments and loan fees paid by those who borrow on margin.It can be challenging for individual traders or retail investors to qualify for a significant rebate, as it necessitates holding substantial quantities of shares in their trading accounts.Stock loan rebates may be extended to specific key clients as an incentive to attract and retain their business.Understanding Stock Loan RebatesWhen a short seller borrows shares for delivery to the buyer, a rebate fee must be paid. The amount of this fee is contingent on the sale's dollar value and the availability of shares in the market. If the shares are scarce or costly to borrow, the rebate fee will be elevated.
In certain cases, the brokerage may compel the short seller to purchase the securities in the market before the settlement date, a practice known as a forced buy-in. This action is taken by the brokerage if there is a belief that the shares will not be accessible on the settlement date.In simple terms, a stock loan rebate is a payment that larger investors might receive from a broker, essentially serving as the counterbalance to the interest imposed when borrowing on margin. For investors who don't engage in purchasing stocks on margin, this concept may seem unfamiliar. Traders familiar with buying stocks on margin or engaging in short selling are typically aware that their broker charges interest for the funds used to acquire those shares. If the trade is held only for a short duration, the cost can be minimal and easily overlooked, often resembling an annual rate comparable to that of a lower-interest credit card.Special ConsiderationsA retail trader or investor with a relatively modest account is unlikely to receive a rebate when initiating a short trade. However, a more substantial institutional customer may be enticed with such a rebate to attract their substantial accounts or order volume. The rebate's magnitude is established by the Securities Lending Agreement negotiated between the borrower and lender, and it commonly serves to partially or fully offset the lender's stock loan fee. The stock loan rebate serves as an incentive within securities lending, a crucial component of short selling, where an investor borrows securities to sell immediately, anticipating a profit from buying them back at a lower price later. The lender receives compensation through fees, bolstering returns on the securities, and regains possession of the securities at the end of transaction.Typically, this arrangement is not accessible to small individual investors. Stock loan rebates are usually reserved for larger clients with substantial available funds, such as professional traders, institutional investors, and other broker/dealers.Furthermore, borrowers utilising non-cash collateral do not qualify for stock loan rebates. Even if the collateral takes the form of securities closely resembling cash, such as Treasury bonds or bills, these borrowers are typically still responsible for the lender's fee.Example of Stock Loan RebateSuppose Investor X wants to short sell shares of a company listed on the Indian stock market and needs to borrow 1,000 shares from Investor Y. The agreed-upon stock loan rebate is 5% annually. If the current market price of each share is ₹100, the total value of the borrowed shares is ₹100,000 (1,000 shares * ₹100).In this scenario, Investor X would pay a stock loan rebate to Investor Y. The annual rebate would be 5% of ₹100,000, which is ₹5,000. This ₹5,000 serves as compensation to Investor Y for lending the shares and not being able to utilise them for other investment opportunities during the loan period.If the stock loan agreement is for a shorter period, say six months, the semi-annual rebate would be ₹2,500. This rebate is an essential component of the stock lending transaction, ensuring that the lender is appropriately compensated for the temporary transfer of ownership.ConclusionStock loan rebates play a crucial role in incentivizing securities lending activities, contributing to market liquidity and supporting various trading strategies, including short selling, in the Indian stock markets. Investors engaging in short selling or other trading strategies benefit from the availability of borrowed shares, while lenders are appropriately compensated for the temporary relinquishment of their assets. Ultimately, stock loan rebates contribute to the efficiency and dynamism of the stock market.
FAQs on What Is Stock Loan RebateIs the stock loan rebate a one-time payment?No, it is often an annual or periodic payment for the duration of the loan.Can stock loan rebates vary?Yes, the rebate percentage can vary based on market conditions and agreements between parties.Do stock loan rebates apply to all types of investors?Yes, both institutional and individual investors may engage in stock lending with associated rebates.What happens if a borrower fails to pay the stock loan rebate?It's usually a contractual obligation, and failure to pay may result in penalties or legal action.Do all stock lending transactions involve rebates?No, but many lending agreements include rebates as a standard practice. |
https://www.kotaksecurities.com/share-market/what-is-senior-security/ | What is Senior Security in the Stock Market? | Key HighlightsSenior security is a financial instrument that has the highest repayment priority in case of liquidation.Senior debt generally offers lower interest rates compared to junior debt.Bondholders are considered creditors. They have a higher priority over common shareholders in receiving payments during bankruptcy.Examples of senior securities include secured debt, guaranteed bonds, and preference shares.Senior Security MeaningSenior security is a financial instrument issued by a company that gets priority payment status if the company liquidates. Most publicly traded firms have a combination of debt and equity instruments in their capital structure. A typical system might consist of preferred stock in addition to common stock. It also comprises multiple bonds with varying maturities or maturity dates. Most securities have a priority status in an ascending order of seniority. This order is as follows: debt securities, preferred stock, and common stock.Bondholders are a firm’s creditors. However, common shareholders own a stake in the company. The bond's principal must be returned when the bond matures. So, a corporate bond is designated as a senior security. The firm must pay the bondholders yearly interest. In case of bankruptcy, preferred and common shareholders receive payment only after the bondholders.Numerous companies issue different classes of senior securities. They are arranged in order of the preference granted to them in case of liquidation. A company's physical assets may serve as security for some of the bonds the firm issues. A company's debentures, or bonds, may also be categorised as unsubordinated or subordinated.Subordinated bonds are regarded as senior securities with respect to the claims of preferred and common stockholders. Still, they are junior or subordinate to the interests of the holders of a company's unsubordinated debt instruments.Ranking of Senior SecurityNow that you understand the senior security meaning, let's look at the ranking. Secured or mortgage-backed bonds rank highest in terms of principal payments. They provide lower yields since collateral assets back the secured bonds. Senior bondholders have the right to get the repayment only after the secured bond.Senior and secured bonds come first in the ranking of junior bonds. Compared to the top-ranked bonds, they give a slightly better return. Guaranteed or insured bonds come first, followed by junior bonds. These bonds have an agreement with a third party to assume repayment obligations when the issuer defaults.Convertible bonds are ranked next. They provide the bondholder the option to convert the bond into stock at a later date. On the other hand, this method is ineffective if the issuer defaults. They are paid out prior to the preference and equity holders. However, they are ranked after all the bonds mentioned above.Preference shareholders are in the highest rank when all debt securities have been paid.The least senior to receive repayments are equity shares. They have the highest profit potential. Common shareholders receive their payout only after all debts and preferred shareholders have been paid.Examples of Senior SecuritiesThe following are some common examples of senior securities.Secured Debt:Secured debt is more senior compared to unsecured debt. Any security in which the issuer pledges an asset or other valuable object as security for the lender is a secured debt. If the issuer defaults, the title of “collateralised asset” would be given to lenders in order to make up for their losses.Guaranteed bond:Guaranteed bonds have a guarantor who assures repayment if the issuer goes bankrupt. A bank, an insurance provider, a subsidiary, etc., can all serve as guarantors. They are backed not just by the issuer but also by a third party. So, they offer a considerable amount of safety to the investors.Preference shares:The preference shares are senior to common shares. Preference shareholders are entitled to payment ahead of equity owners. However, they don’t have the right to vote. Preference shares give more returns than debt instruments.ConclusionA firm must pay back its obligations when it files for bankruptcy or is shut down. Seniority is the order in which they are repaid. The firm issues all instruments, including bonds and shares. It assigns a certain seniority to each one of them. Senior obligations must be paid off before junior debts. Bonds and debts are often the instruments that must be paid back first in case a company is liquidated. Preference shares come next, and equity shares at the end. As an investor, you must know the seniority of each asset to in
FAQs on Senior SecurityHow can investors invest in senior securities?Instead of buying equity, you can invest in senior securities by buying preferred stock. During bankruptcy, preference owners get priority over common stockholders. You can also invest in senior debt securities. They have priority over common stockholders, preference shareholders, and junior debt holders.How senior securities work?Top priority is given to senior security in terms of repayment. Compared to lower-ranked securities, senior security is more secure. However, it provides investors with less returns.Can investors lose money if they invest in senior securities?Senior securities are considered less risky. However, in certain extreme situations, such as company failure, investors may not receive full repayment.How senior securities affect the capital expenditures of a company?Senior securities may lower the capital expenditures of a company. This is because senior securities have lower interest rates or dividends.Can companies issue both senior preferred stock and senior debt?Yes, companies can issue both senior preferred stock and senior debt. Each of these instruments represents a different type of senior security. Debt has a higher claim than preferred stock. |
https://www.kotaksecurities.com/share-market/what-is-value-averaging/ | What is Value Averaging (VA)? | Key HighlightsIn value averaging, investments are adjusted based on market value and a predetermined growth path.This strategy aims to maintain consistent portfolio growth by acquiring more shares at low prices and fewer at high prices.Value averaging investment plan in India may offer potential long-term returns, including disciplined investing.Understanding Value Averaging Investment PlanIn value averaging, you invest an amount in accordance with your investment objectives. Instead of investing a fixed amount every month, you invest based on how close you are to your goal.When using an averaging strategy, investors first determine which value path they need to follow based on their target investment goal. A value path indicates how much growth you need to achieve over a period of time in order to reach your larger investment objective.According to your preferences, you can break this down monthly, quarterly, or annually. The value path can be defined in terms of the amount or percentage of growth. So, for example, depending on your goal, you might need to grow your portfolio by 6% or INR 100,000 every year. As your value path progresses, you adjust your monthly investment contributions.Value Averaging ExampleFor a better understanding of VA meaning, let's take a hypothetical example. An investor has decided to invest in XYZ stock for an extended period of time in order to build wealth. This year, he has 1200 rupees to invest. So, rather than investing 100 rupees every month, he waits for a stock decline and then invests heavily.Advantages of Value AveragingIn this section, let’s explore the potential benefits of VA:1. Systematic Investment ApproachInvesting in averaging allows investors to achieve their financial goals in a disciplined manner. In this approach, investors regularly invest the amount of money to achieve their portfolio value. Investing in this systematic manner allows investors to avoid impulsive decisions that might lead to losses.2. Lower Portfolio VolatilityAn averaging strategy can reduce portfolio volatility. In a low-priced market, investors buy more shares and buy fewer shares in a high-priced market, so the overall cost per share is lower than the average. In this way, an investor's portfolio is less likely to be adversely affected by market fluctuations.3. Enhanced Long-Term PerformanceInvesting in value averaging over time can maximise returns over the long term. Since the strategy encourages investors to buy more shares when prices are low, the portfolio will benefit from any potential market upswing. This can lead to enhanced long-term performance and higher returns over time.Disadvantages of Value AveragingWhile Averaging may have some benefits, it also has some drawbacks.1. Complexity in ImplementationRegularly monitoring the market and adjusting investments are essential to averaging. In addition to being time-consuming, it may require an understanding of investment principles.To implement this strategy effectively, investors may also need specialised software or a financial advisor.2. Potential for Larger Cash OutlaysIt is also possible for value averaging to require large cash outlays during periods when asset prices are declining. When prices are low, investors may need to invest more money to maintain the target growth rate.For investors with limited cash reserves or who are uncomfortable with the added risk, this increased investment during market downturns can be challenging.3. Inflexible Investment ScheduleValue averaging requires investors to invest a fixed amount of money on a regular basis, which can be inflexible. Some investors may not be able to commit to a regular investment schedule due to fluctuating income.In addition, this strategy may not be suitable for investors who need liquidity on a short-term basis or need quick access to their assets.Dollar-Cost Averaging vs Value AveragingThere is often confusion between dollar-cost averaging and value averaging. To understand the VA concept better, here is a comparison of Dollar-Cost Averaging vs Value Averaging.Dollar-cost averaging and value averaging both aim to promote consistent investing habits, but they work differently. A value averaging strategy guides your monthly contributions based on your portfolio's value and investment goals. In contrast, dollar-cost averaging involves investing a fixed amount each month, regardless of the value of your portfolio.In order to navigate market fluctuations, dollar-cost averaging is used. Investing when the market is down allows you to buy more for less, while investing when the market is up allows you to purchase fewer shares as the price rises. Dollar-cost averaging is easier for those who prefer a hands-off approach. A fixed amount can be set up for automatic monthly investments in your account.When it comes to returns, factors such as consistency, investment choices, time frame, and market performance all play a role. Each strategy can be beneficial, depending on your circumstances.ConclusionAs a disciplined investment strategy, value averaging can offer a range of advantages, including greater long-term returns and a systematic approach. However, this method does have some drawbacks, such as its complexity and the possibility of higher cash outlays during market downturns. To determine whether value averaging is suitable for investors, they need to analyse investment goals, risks, potential benefits, and downsides of investment.
FAQs on Value AveragingWho is value averaging suitable for?A value-averaging strategy is suitable for long-term investors who are willing to monitor and adjust their investments on a regular basis.How does dollar-cost averaging differ from value averaging?In both strategies, a fixed amount of money is invested regularly. However, value averaging adjusts the amount based on market performance.How does value averaging benefit investors?Averaging can help investors buy more shares when prices are low and fewer shares when prices are high, which could lead to higher long-term returns. |
https://www.kotaksecurities.com/share-market/what-is-graham-number/ | What is Graham Number? | Key HighlightsA Graham number is a measure of the maximum price that an investor should be willing to pay for one stock.It was developed by one of the most famous value investors, Benjamin Graham.The value is estimated by accounting for the company's earnings and book value per share.What is the Graham Number in the Stock Market?A helpful tool for defensive investors is the Graham number. A person who's willing to invest in the stock market is a defensive investor. In discussing the use of this method, any company, regardless of its size or industry, is effectively provided with a maximum stock price. This method will allow investors to find some of the best stocks at low prices. It's because Graham's number reveals the undervaluation of stocks. In addition, this valuation allows for purchasing undervalued stocks at a lower price.Graham Number FormulaTo calculate the fundamental stock value, use the given formula.22.5× (Earnings Per Share) × (Book Value Per Share)Earnings Per Share (EPS) = Net Income / Shares OutstandingBook Value Per Share (BVPS) = Shareholder’s Equity / Shares OutstandingFor the application of the Graham Number, there are a number of mandatory conditions: The EPS multiple, 15, used in the formula, represents the price-to-earnings ratio that cannot be higher than 15 in any case. This formula is not applicable if the company's P&E ratio is more than 15 %.Meanwhile, the BVPS multiple of 1.5 is a price-to-book ratio. The ratio between the P and B should be less than 1.5. This stock valuation tool cannot be used to calculate the company's stocks if they are above the P&B ratio limit.Example of Graham NumberMs A wants to buy the shares of ABC Co. Ltd. She is too busy to examine the company's finances in detail. She decides that, as a defensive investor, she will use the Graham number in order to judge whether ABC Co. Ltd's stock is worth buying. The company made an income of INR 40,00,000 for the year. The shareholders' equity stands at INR 600,000, and there are 500,000 shares outstanding. That's how ABC Company Ltd.'s Graham number is calculated by Miss A.Earnings Per Share = Net income ÷ No. Of outstanding sharesEarnings Per Share = 40,00,000 ÷ 5,00,000The profit per share is INR 8.Book Value Per Share = Shareholder's equity ÷ No. Of shares outstandingBook Value Per Share = 6,00,000 ÷ 5,00,000The book value per share is INR 1.2.Graham Number = sqrtGraham Number = 14.6969Ms. A should buy this stock if it trades below INR 14.6969. However, stock trading above INR 14.6969 is considered to be overvalued and should not be carried out.Advantages of Graham NumberThe benefits of the graham number are as follows.1. A quick and easy methodIt is a swift and simple way to understand stock valuation by looking at Graham's number. Use the calculator or a spreadsheet to determine it quickly.2. Identify bargain stocksUsing Graham's number, you can identify companies that are likely to be trading at bargain prices.Disadvantages of Graham NumberThe drawbacks and limitations of the graham number are as follows.1. Conservative approachThe Graham number calculation determines whether or not a company's current market value is essentially at or below its intrinsic value. Therefore, it may be challenging to identify those companies that have a good deal on the basis of this formula. It only works for the positive.EPS and BVPS
Many businesses suffer from negative EPS and BVPS figures because they are not profitable. The Graham Number calculation will not cover these firms.Simplification and reliance on one number.
For investors not wanting to go through the steps of using all of Graham's recommendations, The Graham Number simplifies most of his investment advice into an individual number. The idea of looking at just one measure before deciding to invest is never a good idea.ConclusionOver the past 50 years, it's been widely used. It's helping investors find the best stocks to invest in. But it's less important nowadays, as the recent companies are more reliant on technology. This has led to a decrease in the reliance on assets. However, asset base companies continue to use this method. The importance of the process will be maintained, as technology will not replace all businesses.
FAQs on Graham NumberWhat is the good Graham number for a stock?Based on Graham's theory that an undervalued stock should have a price-to-book ratio (PB ratio) of no more than 1.5 and a price-to-earnings ratio (PE ratio) of no more than 15, 22.5 is recommended. Thus, the PB ratio × PE ratio equals 22.5 = (15 × 1.5).What is the meaning of Graham's number?Graham's number can be used to determine the price range in which a defensive investor is allowed to invest in stocks. Under this theory, any stock price falling below the Graham number is deemed unreasonably valued and, therefore, a good investment. |
https://www.kotaksecurities.com/share-market/what-is-market-momentum/ | What is Market Momentum? | Key HighlightsMarket momentum maintains a broad and sustained market price trend into the future.Market momentum can stay in an upward or downward trend, supported by changes in trading volume and the use of several technical indicators.Momentum trading occurs when the market is rising and falling after it has reached a peak.Market Momentum MeaningThe pace of change in the security price is referred to as momentum. Market momentum is a means of accelerating the rate at which prices in the whole market are moving. The momentum has a positive correlation with the volume traded. As a result, significant trading volumes in the market occur at any given time, which is an essential factor of market momentum. This shows that the market can maintain this trend over a specific period.The market's momentum demonstrates the psychology of traders. Participants in the Momentum trading system expect this trend (up or down trend) to continue for an extended period. It follows that if a security has more traded volume and constantly rises in price, it will attract additional investors. More investors are attracted to markets when more stocks have a price rise, which can increase momentum.Investors and traders can use the market's momentum to build a trading or investment strategy. In addition, momentum indicates the potential for price movements. Generally speaking, technical traders use ten days to measure the market's momentum.How is Market Momentum Useful?Momentum refers to the strength of the trend, the weakness of the trend, and the direction of the trend. The strength and direction of the overall market are shown by market momentum. An increasing trend and improved security or market conditions are reflected in positive momentum. In particular, positive momentum could result from increased sales and income or debt reduction. Negative momentum, which can be a result of market or security inferiority, is an indication of a downside trend. Market momentum reflects the market's behaviour. It helps traders make decisions about what to buy and sell. Momentum traders believe the trend is strong, and they stick to it. Momentum traders think buying when prices rise and selling even higher is better than buying low and trading higher. But momentum is a technical valuable indicator for the short term.Market Momentum IndicatorsThe tools for measuring the acceleration rate are momentum indicators. They give us a better idea of how the market is going. The indicators are as follows.1. Market momentum indexesTwo companies, MSCI and FTSE Russell, have introduced market momentum indexes. To monitor momentum scores, traders can access the MSCI US Momentum Index, the MSCI World Index, the Russell 1000 SMM index, the SPDR Russel 1000 FOCUS ETF, etc.2. Moving Average Convergence DivergenceMACD is also a helpful oscillator. It shows a correlation between two moving average values of the price of securities. To calculate the MACD, subtract an exponential moving average of 26 periods from a 12-period exponential moving average. This calculation results in the MACD line. Next, the signal line, the nine-day EMA of the MACD, is plotted on the MACD line. This is a signal used by traders to indicate a buy or sell.3. Relative Strength IndexA popular oscillator for signals of upward and downward price trends is the RSI. The maximum and minimum values for the RSI are 100 and 0, respectively. An overbought area is indicated by the RSI above 70, while an oversold area is indicated by the RSI below 30. It tells the traders how strong the trend is and gives indications of possible reversals.4. Average Directional IndicatorADX is another trend follower indicator, which guides the trader in his choice to stay longer or short. Two accompanying indicators, namely a negative directional indicator -DI and a positive directional indicator +DI, are used in the ADX to reflect an upward or downward trend. As a result, ADX is guiding traders on trend direction and strength.How to Calculate Market Momentum?The formula to calculate market momentum is as follows.M = V – VxHere,M represents the momentum of the marketV = Current / latest security/index priceVx = the closing price before the number of daysUsing this equation, a trendline with various periods in the charts can be used to understand momentum better.ConclusionTo conclude, one of the most essential elements of technical analyses is market momentum, which indicates how quickly the overall market moves. A high level of trade and rising prices are behind the market's momentum. Traders, believing that a trend is strong, trade on the stock market, growing and selling it even higher price.
FAQs on Market MomentumHow do you catch market momentum?You must first identify an asset trend that you are analysing to be able to execute momentum trading. Use indicators such as moving averages or Fibonacci retracement levels, like placing support and resistance values on your chart platform.Which is the best momentum indicator?MACD, often considered the best momentum indicator, is a trend-following indicator. This relationship is between two moving averages for the price of a financial instrument. The MACD is moving back and forth between the moving averages, indicating momentum. |
https://www.kotaksecurities.com/articles/inox-india-analysis-for-investors/ | Inox India IPO: A Complete Analysis for Indian Investors | Inox India’s Key IPO DetailsScheduled to kick off its IPO subscription onDecember 14and conclude onDecember 18, Inox India is not just another participant in this IPO wave but a strategic player in the cryogenic equipment sector.
The company is planning to raiseRs 1,459 croresolely through anoffer-for-sale (OFS).
TheIPO price bandfor Inox India is set atRs 627to **Rs 660 **per equity share.
The Gujarat-based company has cultivated a robust global presence, emerging as a preeminent leader in the domain of vacuum-insulated cryogenic equipment. Here’s more about the company’s business…Business HighlightsInox India Limitedis thelargest supplier of cryogenic equipmentin India by revenue in Fiscal 2023. (Source: CRISIL Report, November 2023).
The company has over30 years of experienceoffering solutions across design, engineering, manufacturing and installation of equipment and systems for cryogenic conditions.
Its offering includes standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment and solutions as well as large turnkey projects which are used in diverse industries such as industrial gases, liquified natural gas (LNG), green hydrogen, energy, steel, healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction.In addition, the company manufactures a range of cryogenic equipment utilised in global scientific research projects.The company’s businesscomprises of three divisions:Industrial Gas:This division manufactures, supplies and installs cryogenic tanks and systems for storage, transportation and distribution of industrial gases like such as green hydrogen, oxygen, nitrogen, argon, carbon dioxide (CO2), hydrogen and provides after-sales services.LNG:This division manufactures, supplies and installs standard and engineered equipment for LNG storage, distribution and transportation as well as small-scale LNG infrastructure solutions suitable for industrial, marine and automotive applications; andCryo Scientific:This division provides equipment for technology intensive applications and turnkey solutions for scientific and industrial research involving cryogenic distribution.Cryogenic Industry OverviewIndustrial gases are used in industrial processes for manufacturing products in a wide range of industries. Nitrogen, oxygen and natural gas are the major gases which would account for almost 80% of the cryogenic equipment demand. Other gases would include argon, helium, nitrous oxide, ethylene, and carbon dioxide.
Nitrogen, oxygen and argon are atmospheric gas. The major sources of industrial or cryogenic gases are atmospheric air, which separated into its constituents (such as nitrogen, oxygen, argon, etc.) by air separation units (ASUs).
There are four major groups in the cryogenic industry:Raw material manufacturers:They include metal and metal part manufacturers that produce large quantities of steel and steel products, which are the major raw materials for cryogenic equipment.Cryogenic equipment manufacturers:They manufacture equipment such as tanks, valves and vaporisers, which enable storage and handling of cryogenic gases.Gas suppliers:They include industrial gas manufacturers operating air separation units, or oil and gas companies producing LNG.End-users:They are industries where such gases are used, e.g., steel, glass, semiconductor and hospitals.The equipment used to store, transport and handle the cryogenic gases in liquid form is collectively referred to as cryogenic equipment.Air Separation Unitsaccounts for approximately 58-62% of the demand for total global cryogenic equipment consumption in calendar year 2021. And the major cryogenic equipment includes tanks, valves, vaporisers and pumps.
So, that gives us the idea of what the cryogenic industry is about and the industry segments Inox India caters to.
Let us now go over some key numbers for Inox India Limited.A Look at the NumbersCustomer Base:Inox India has a diversified customer base across industry sectors and geographies. In the six months ended September 30, 2023 and in Fiscal 2023, Fiscal 2022 and Fiscal 2021, it provided equipment and systems to 1,255 domestic customers and 254 international customers across its three divisions.
The table below provides the company’s revenue from operations from top customers: |
In FY23 the company witnessed a 17% increase in its net profit, totalling Rs 152.71 crore, as opposed to Rs 130.5 crore recorded in FY22. | Revenues demonstrated a growth of 23%, reaching Rs 984.1 crore in FY23, compared to the Rs 803.7 crore reported in FY22.In ConclusionThe Indian cryogenic equipment market size is estimated to be$353 billionin calendaryear 2022. The demand for cryogenic equipment in India grew at a steady compounded annual growth rate (CAGR) of6.8%between calendar year 2017 and calendar year 2019.Going forward, demand for cryogenic equipment in India is expected to grow at aCAGR of 7.2%between calendar year 2023 and calendar year 2028, according to the CRISIL Report.Thisgrowthis expected to be driven by increase in industrial output, increase ininvestments in electronicsand space sectors and shift towards cleaner fuel sources such as LNG and hydrogen in the industrial and transport sector.Inox India has been able to quickly take advantage of the market opportunity since it has invested in increasing its installed capacity of cryogenic tanks and related items to 3,100 Equivalent Tank Units and 2.4 million disposable cylinders in Fiscal 2023 and Fiscal 2022, from 2,200 Equivalent Tank Units and 1.4 million disposable cylinders in Fiscal 2021.For the six months ended September 30, 2023, it had installed capacity of cryogenic tanks and related items of 1,550 Equivalent Tank Units and disposable cylinders of 1.2 million units.The company also has a healthybalance sheetand it has been funding all its capex internally, including working capital requirements.The company also stated that the primary reason of doing this IPO is to gain visibility. And since exports is a core component of the company’s strategy, going forward to being a publicly listed company certainly will help it as the company tries and gain market share in the global economy in cryogenics.Going forward, the company is looking to capitalise on opportunities in LNG and hydrogen as part of the global clean energy transition. Moreover, it is also strategizing to expand their large turnkey project business.Overall, the time for Inox India’s IPO couldn’t have been better.The INOX India IPO has reserved 50% of the shares in the public issue for qualified institutional buyers (QIB), 15% for non-institutional investors (NII), and 35% of the offer is reserved for retail investors.Nevertheless, as we have highlighted in the past, the inherent risk in any IPO lies in itsvaluationsand one should look out for it before making a decision to subscribe to any offering.This is because the IPO serves as just an initial entry point for investment. And investors and traders should subscribe to them after evaluating the risks and rewards and the individual investing profile.It will be exciting to see how the Inox India IPO performs on the listing day on the bourses.We will keep you updated on all the developments from this space. | Inox India Limited FAQsWhat is the Inox India Limited IPO?The Inox India Limited IPO has an issue size of Rs. 1,459.32 crores. The IPO opens for subscription on 14th December 2023 and closes on 18th December 2023.What is the Price Band of Inox India Limited IPO?The price band for Inox India Limited IPO is set at Rs 627 to Rs 660 per equity share.What is the Bid Lot of Inox India Limited IPO?The bid lot for Inox India Limited IPO is 22 equity shares and in multiples of 22 equity shares thereafter.Who is the Registrar for Inox India Limited IPO?KFin Technologies Limited is the registrar for this IPO.Who is the Issue Size for Inox India Limited IPO?The issue size of Inox India comprises of an offer for sale of 2,21,10,955 equity shares aggregating to Rs. 1,459.32 crores at the upper price band. |
https://www.kotaksecurities.com/share-market/what-is-high-close/ | What is High Close? | Key HighlightsUsing the high close strategy for market manipulation might pose legal risks if it is misused.The high close strategy involves buying stocks at an elevated price in the final minutes before the market closes, artificially inflating the closing price.The high close strategy is frequently applied to stocks with low values, limited trading activity, and uneven information, especially around the end of quarters or months.Understanding High CloseA high close in stock market is observed at the end of a financial market's trading session, representing the price of the last trade before the session concludes. These closing prices serve as the basis for traditional line stock charts and are essential in calculating moving averages. The majority of manipulative activities associated with high closing tend to occur towards the end of a month or quarter.Given the widespread attention given to closing prices, traders may manipulate them to create the illusion of a stock rally. This manipulation, referred to as a high close in stock market,it is particularly common in micro-cap stocks with limited liquidity. Additionally, closing prices can artificially inflate the values of stock derivatives associated with them. This practice extends to mutual fund net asset values, which are also determined using closing prices.How Does High Close Work?Stock manipulation involves the artificial inflation or deflation of a security's price, and the high close in stock market is one such strategy employed in this illegal trading activity for personal gain. Despite being illicit, these manipulative actions are challenging for regulators to identify. Manipulators typically target stocks of smaller companies, as manipulating their share prices is comparatively easier. Penny stocks are more frequent targets compared to medium and large-cap firms, which undergo closer scrutiny from analysts.Apart from the high close, other manipulation techniques include the pump and dump technique. It is also the most commonly used method that artificially raises a micro-cap stock's value and then sells off, leaving subsequent investors with losses. Another manipulation strategy is the poop and scoop, the opposite of the pump and dump, which might be less common due to the greater difficulty in tarnishing the reputation of a reputable company compared to inflating the reputation of an unknown company.Example of High CloseImagine company ABC's stock commencing the trading day at ₹0.30. Over the past ten weeks, its closing price consistently stood at ₹0.32. Trader XYZ enters the scene, taking a position in ABC and speculating that its value will surge to ₹1 in the coming weeks. Capitalising on the limited liquidity of ABC, XYZ strategically acquires substantial amounts of the company's stock in the final minutes before the stock market closes.This move results in pushing ABC's price to ₹0.60. With a remarkable 100 percent increase, ABC's stock price captures the attention of other micro-cap stock traders, leading them to join in after witnessing the notable price surge. The following day, XYZ sells ABC in the market, only to repurchase it at the end of the day. This high close strategy is repeated for two consecutive days, attracting more traders to invest in ABC. After this two-day period, the price of ABC effortlessly surpasses the ₹1 mark.Avoiding Losses During Market ManipulationInvestors should stay vigilant to prevent losses from market manipulation by employing the following strategies.1. Fundamental AnalysisBefore investing, it's crucial to conduct a thorough technical and fundamental analysis of a security. Some economists argue that relying on fundamentals can mitigate the impact of high close manipulation.2. Candlestick ChartsWhen analysing micro and small-cap securities, investors should exercise caution with closing prices. Instead of solely relying on closing prices, consider using candlestick charts and other indicators in combination.In India, the Securities and Exchange Board of India (SEBI) closely monitors and regulates market manipulation activities. Entities or individuals found guilty of such practices may face fines or be barred from trading in the market.ConclusionThe high close strategy in the stock market is a subtle technique that is not easily detected. Adequate monitoring and regulation are crucial to prevent such manipulation. Investors are advised to exercise ample caution when making investments. As investors venture into the dynamic realm of the stock market, a comprehensive understanding of High Close and its implications is key to making informed and correct investment decisions.
FAQs on What is High Close?Can the high close strategy impact stock prices significantly?Yes, the high close strategy can artificially inflate closing prices, leading to a temporary but notable impact on stock prices.Is the high close strategy considered an ethical trading practice?No, the high close strategy is generally viewed as unethical because it involves manipulating stock prices for personal gain.Are there specific warning signs of potential high close manipulation?Unusual price movements in the last minutes of trading, especially in low-liquidity stocks, can be a warning sign of potential high close manipulation.How quickly can regulatory bodies detect and address high close manipulation?Regulatory bodies aim to detect and address market manipulation swiftly, leveraging surveillance tools and industry cooperation to maintain market integrity. |
https://www.kotaksecurities.com/share-market/what-is-poop-and-scoop/ | What is Poop and Scoop? | Key HighlightsPoop and scoop is an illegal technique when a few well-informed individuals try to manipulate the price of a stock by circulating false information about it.Such schemes are made possible by the proliferation of internet communities, platforms, and finance discussion groups that make it easy to implement them without requiring significant investment.Participants of "poop and scoop" may face legal action.Understanding Poop and ScoopPoop and scoop is a systematic trading technique used by certain market players to affect stock values. Poop and scoop is an illegal transaction in which a group of market players attempts to manipulate the stock price by circulating false information. After that, they purchase the shares at discounted prices, profiting from the false information that eventually reaches the public.Market manipulators profit from the panic-selling tendencies of traders and investors by employing the "poop and scoop" technique. Though it misleads investors and goes against their interests in the financial market, poop and scoop offers market manipulators an attractive chance.In contrast to the pump and dump approach, there is the poop and scoop. The pump-and-dump strategy spreads positive, misleading statements about a specific company to increase the share price. Market manipulators, on the other hand, benefit from a high market value for their holdings in pump and dump. Poop and scoop are thought to have less potential than the pump and dump method.Securities fraud and market manipulation are defined by the Securities Exchange Act of 1934 as including poop and scoop activities. The Securities Exchange Commission strictly prohibits and punishes such conduct.\Example of Poop and ScoopRahul, Raj, and Aryan are aware of the company ABC Ltd. They know the company will be merged with a giant in the industry, XYZ Ltd. As soon as the merger is announced to the public, this news will likely affect an increase in the share price.Rahul, Raj, and Aryan are trying to make bad news public to convince shareholders that the company is doing badly. The stock price is decreasing further, so they should sell their shares. By misleading investors, they were planning to buy the stock at a lower price. Some shareholders believed those claims and started to sell their shares, pushing the price down.As expected, all three manipulators were buying the stock for a reduced price. The company, ABC Ltd., announced its merger with the XYZ Company some time ago. The stock price began to rise and reached an all-time high on the news. Hence, Rahul, Raj, and Aryan exited their shares with big profits.How Do Poop and Scoop Work?It starts with a reasonably informed group of market participants who want to reduce the price of one specific stock and buy it at a discount. They circulate false rumours and wrong information, confusing the general public with particular stocks. This is called ‘poop’ in this reference. If such an attempt traps uninformed investors, they will begin to sell their shares. This results in a significant decrease in the price.Then, a group of market manipulators buys the stock at a discount. This is called the Scoop. Once the general population has realised that such rumours and news are false, demand for their stocks increases again. The price of the stock reflects the original level or exceeds it. As a result of the increase in prices, manipulators may gain an increased market value for their holdings.Poop and Scoop and the InternetThe poop and scoop approach has a much more significant potential impact since the internet is so widely used. A negative word or idea about the company can be widely distributed quickly to traders with as little voice as possible. The spread of false rumours about a company can lead to catastrophic declines in the value of its shares for traders or unhappy former employees.ConclusionIn conclusion, one of the unlawful methods of manipulating the stock price is poop and scoop. Market manipulators attempt to drive down the price of stocks in poop and scoop by trying to buy them at a discount and sell them at a premium. Investors and traders must avoid such manipulation of the market.
FAQs on Poop and ScoopWhat are other forms of market manipulation?"Waterwash trading" also poses a threat to the market. It's a way of convincing others it's hot and worth their money to buy or sell security multiple times. "Bear raid" is when a prospective investor believes prices are decreasing and sells stock to lower its cost.Why is market manipulation dangerous to society as a whole?Researchers showed that manipulating the market to influence prices can be used to gain profit and is an effective tool for manipulators. However, reducing the effectiveness of arbitrage in finding accurate valuation of securities has a detrimental effect on society. The allocation of economic production resources results in reduced market efficiency.Why is poop and scoop used?Poop and scoop is an illegal technique or strategy to reduce the stock price. The goal is to buy the stock at a lower price and sell it for an increased price.Is poop and scoop illegal?Absolutely, the poop and scoop is against the law since it misleads investors and goes against their interests in the financial sector. |
https://www.kotaksecurities.com/margin-trading/margin-trading-definition/ | Margin Trading Facility: Definition, Benefits, and Risks | What is Margin Trading?Margin trading is a method of buying stocks or other financial assets where you pay a part of the purchase price while the rest is funded by the broker. Simply put, it's like getting a loan from your broker to buy more assets than you could with just your own money.Let's understand it with an example. Suppose you want to buy 200 shares of a company that's currently trading at Rs 50 per share. However, you have only Rs 5,000 in your account. You use this money to buy half, i.e., 100 shares, while the remaining Rs 5,000 is funded by your broker.Who are Margin Traders?Before getting into the nitty-gritty of margin trading, let’s understand a bit about margin traders who indulge in this form of trading. Margin traders are individuals who seek to make quick profits from price movement of security by leveraging funds beyond their current financial capacity. They don’t want to avoid missing trading opportunities due to limited funds and use margin trading as leverage to increase their trade size.Generally, margin traders have a higher risk tolerance and a deep understanding of financial markets. They analyze market trends, study price movements, and stay informed about various indicators to make informed trading decisions.Benefits of Margin Trading FacilityNow that you know what margin trading is, let’s look at some of the benefits it brings to the table. Margin trading offers you the following advantages:Enhanced Buying PowerThis is the most apparent benefit of margin trading. It enhances your buying power by several notches with extra funds available in your account. With it, you can expand your investments by acquiring more shares or other financial instruments than your available capital alone would permit. This boosted buying power can significantly enhance your profits.For instance,margin trading facilityfrom Kotak Securities gives you 4X buying power and allows you 4 times the leverage on 1000+ stocks andexchange-traded funds(ETFs). With margin trading facility, you can effectively amplify your investment opportunities. It frees you from the shackles of limited funds and allows you to tap into a broader array of financial assets, thus increasing your profit potential.Diversification OpportunitiesDiversification is one of the fundamental investing principles. It helps in effective risk mitigation. With margin trading, you can invest in various stocks across industry verticals. Also, you can add other financial assets in your investment portfolio. All of these go a long way in helping you diversify your portfolio and bringing down risks.Liquidity and Quick-decision MakingWith margin trading, you get enhanced liquidity. This empowers you to grab market opportunities and benefit from short-term price fluctuations. This can be a game-changer if you are looking to capitalize on rapidly changing market conditions and execute timely buy or sell orders.Risks Associated With Margin TradingWhile margin trading has its share of advantages, it has its own risks. Some of the common risks associated with it are as follows:-Amplify LossesWhile margin trading can boost your profits, it can also amplify your losses. If your investments fail to perform and plummet, you might make huge losses. Note that you need to pay interest on the margin money. If you suffer losses, your principal amount can get eroded, and the interest you pay on margin money can further pinch you hard.Risk of LiquidationThis is another potential risk of margin trading. Note that you need to maintain a minimum balance in your trading account. If your balance drops below the minimum, your broker will ask you to maintain balance. If you fail to do so, you might need to sell some or all assets to meet the minimum balance requirement.That’s not all. Brokers can initiate action against you if you fail to honor the terms and conditions of the margin trade agreement. In that case, your broker can liquidate your assets to recover the money lent.Summing it UpAs evident, if done right, margin trading can potentially boost profits. That said, it’s equally essential to be aware of its risks. A thorough understanding of its working and prudent usage of the funds acquired from your broker can help you make the most out of this facility. Happy investing!
FAQs on Margin Trading FacilityWhat is the Benefit of Margin Trading Facility?With margin trading facility, you can get more funds to trade than available in your account. It allows you to potentially amplify profits on your trading.Is Margin Good for Trading?Margin trade, if done with prudence, can prove to be beneficial. It has the potential to offer higher profits than traditional modes of trading.What are the Best Practices for Margin Trading?Borrowing less than the allowed limit and wise investment are some of the best practices for trading with margin. |
https://www.kotaksecurities.com/share-market/what-is-circuit-breaker/ | What is Circuit Breaker? | Key HighlightsCircuit breakers are temporary measures that interrupt trading to reduce panic selling on the stock exchanges.Circuit breakers will be triggered for each security if the price moves upwards or downwards.Based on feedback from past crises, the existing circuit breaker system has been amended several times.Understanding Circuit Breaker in the Share MarketA circuit breaker is a regulatory measure that suspends operations on the exchange for an extended period. A circuit breaker is a defined percentage value that determines the uncontrolled movement of a security or index in either direction. These values are compared to past closing levels of an index or security.The establishment and monitoring of the circuit breakers mechanism shall be entrusted to the Securities and Exchange Board of India. In July 2001, marketwide circuit limits based on the index were established. In September 2013, some changes took place.If the index or any individual security breaches the circuit limits, circuit breakers will be triggered. If the circuit limit for that index is exceeded, all stock and equity derivative transactions will be suspended. SEBI prescribes the duration of a halt, which is different for each type of circuit breaker. It's between an hour and a full trading day. After 15 minutes from the end of the pause, the markets shall reopen with a pre-open call auction.Types of Circuit BreakerThe types of circuit breaker stock market in India are as follows.1. The trigger limit is 10%The market will be suspended for 45 minutes and resumed with a pre-open call auction of 15 minutes if the trigger time is before 1 p.m. The market halt will be for 15 minutes and restarted with a pre-open call auction of 15 minutes if the trigger time is after 1 p.m. and before 2:30 p.m. The procedure continues if the trigger time occurs after 2:30 p.m.2. The trigger limit is 15%If the trigger time is before 1 p.m., the market will be suspended for 1 hour and 45 minutes and resumed with a pre-open call auction of 15 minutes. The market halt will be for 45 minutes and will be renewed with a pre-open call auction of 15 minutes if the trigger time is after 1 p.m. and before 2 p.m. Trading is interrupted for the rest of the day if your trigger date falls after 2 p.m.3. The trigger limit is 20%The volatility will be interrupted for the remainder of the trading day, irrespective of trigger timing.Why is a Circuit Breaker Required?Regarding positive or negative news, stock markets are driven by sentiment and tend to fluctuate. The stock price may fall out of a level that could trigger fear for investors if there is bad news. The whole sell-off of shares could cause the market to fall. A circuit breaker share market mechanism is put in place to prevent excessive price movements and avoid manipulation of prices.The circuit breakers allow market participants to think objectively and thus avoid panic situations. The suspension of trading enables market participants to follow announcements and news, facilitating informed decision-making.How Does a Circuit Breaker Work?According to SEBI, three stages of index movements trigger a circuit in the stock market, i.e., 10%, 15%, and 20%. These percentage ratios are adjusted regularly following the level of security or index over time. For example, a circuit breaker may be placed on 20% of the stock for specific periods. If the exchange considers that it is appropriate, it may modify this to 10% at a later date.
An exchange may even lower the ceiling to 5% and 2% as it sees fit in the case of illiquid stock securities or as a price management mechanism. On the other hand, securities that offer derivative products are subject to dynamic circuit filters.Circuit levels are breached, and trading is instantly stopped. The increase or fall and the stopping time determine how long the suspension lasts. Following the conclusion of the halt period, trading resumes, and business as usual is carried out.Advantages and Disadvantages of Circuit BreakerThe benefits and drawbacks of circuit breakers are as follows.
AdvantagesA circuit breaker provides an essential benefit to investors, regulators, and stock exchanges by suspending the trading of a single security or index so that investment decisions can be made more quickly.Disadvantages1. As investors are prevented from selling shares, the circuit breaker can cause panic. Before breaching the circuit limit and suspending trading, nervous investors may sell their shares on a sliding market.AdvantagesSecond, circuit breakers on stock exchanges help protect investors from high losses because they limit panic selling that could take place in the market.Disadvantages2. Secondly, circuit breakers are designed to prevent real-time price fluctuations and thus cause the market to be artificially volatile. It reduces liquidity and simultaneously increases the number of orders at a limited level. Market experts believe markets would be more stable if their movement had no restrictions.AdvantagesIn addition, the implementation of an upper circuit breaker prevents stock accumulation.Disadvantages3. As circuit breakers temporarily reduce market volatility, stock markets cannot be prevented from falling.AdvantagesDisadvantagesA circuit breaker provides an essential benefit to investors, regulators, and stock exchanges by suspending the trading of a single security or index so that investment decisions can be made more quickly.1. As investors are prevented from selling shares, the circuit breaker can cause panic. Before breaching the circuit limit and suspending trading, nervous investors may sell their shares on a sliding market.Second, circuit breakers on stock exchanges help protect investors from high losses because they limit panic selling that could take place in the market.2. Secondly, circuit breakers are designed to prevent real-time price fluctuations and thus cause the market to be artificially volatile. It reduces liquidity and simultaneously increases the number of orders at a limited level. Market experts believe markets would be more stable if their movement had no restrictions.In addition, the implementation of an upper circuit breaker prevents stock accumulation.3. As circuit breakers temporarily reduce market volatility, stock markets cannot be prevented from falling.
ConclusionCircuit breakers are helpful to reduce market volatility and ensure a smooth and safe trading environment. It allows traders and investors sufficient time to recover from their losses and take corrective action while avoiding a complete market crash.
FAQs on Circuit BreakerWhat is a circuit breaker in Sebi?In June 2001, the Securities and Exchange Board of India (SEBI) introduced index-based market-wide circuit breakers. Due to panic sales of stocks, circuit breakers are triggered so that the markets don't crash.How do circuit breakers work?A circuit breaker functions like an automatic switch with a base current value and switches off the circuits where it has been installed every time this value is exceeded.What is a circuit breaker in the stock market?A circuit breaker is a type of regulatory action that stops an exchange's trade temporarily. Circuit breakers are defined percentages of movements within a security or index in any direction, ensuring no uncontrolled movement.What are the circuit breaker rules for NSE?A circuit breaker will be triggered if India's index rises by 10%, 15%, or 20%. Trading will continue if the index moves by 10% after 2:30 p.m. because the end of the trading day is usually more volatile. However, trading will be suspended for fifteen minutes when movements occur between 1 and 2:30 p.m.Do F&O stocks have a circuit filter?There are no set daily circuit restrictions for stocks with Futures & Options (F&O) contracts. But there's a fixed price band of 10 %. |
https://www.kotaksecurities.com/share-market/what-is-trading-hault/ | What is Trading Halt? | Key HighlightsThe definition of a trading halt is the temporary suspension of equities trading as per certain guidelines of the market regulators.News, order imbalances, or price fluctuations outside defined zones can be the reasons for a trading halt.Trading can be stopped for specific stocks or the entire market.Trading halts can occur for small durations, like five minutes for a single security or fifteen minutes for market-wide circuit breakers. However, they might also last the whole day.Understanding a Trading HaltA trading halt is the temporary suspension of equities trading. A single stock exchange or a collection of exchanges may experience a standstill. Any significant news about a company, whether positive or negative, could cause a brief halt to trading in the company's stock. The news may affect the stock trading in two ways. First, there can be a significant imbalance between buy and sell orders for the stock. Second, it can lead to a drastic change in the stock price.Trading halts can occur anytime throughout the day. However, they are often implemented at the start of trading. It is mainly done on the particular exchange where the stock has its primary listing. Trading halts usually last for one hour. Yet, there might be many halts for a stock in a single trading day. If a halt occurs at the start of trading, it generally last for five or ten minutes.How does a Trading Halt work?Stock exchanges declare a trading halt to prevent investors from incurring huge losses in unfavorable circumstances. During the pause, the stock exchange bans trading of a specific stock. No investor can buy or sell shares during this period. In rare instances, the whole exchange may be stopped from making transactions.The listed firm informs the stock exchange of significant changes that might impact the stock price. The stock exchange halts trading a particular stock before disclosing it to the public. The aim is to guarantee fair trading opportunities. Trading resumes after a predetermined time. The restarting of the trade of a halted stock is called trade resumption.Types of Trading HaltsNow that you know what is a trading halt, let’s look at its types. Generally, there are two kinds of trading halts. They include the following.1. Regulatory trading halt:The most popular is a "regulatory" trading halt. It can be imposed for several reasons. A press release or other announcement is the key one among them. All businesses must give investors timely and accurate information about their business and financial situation. The regulatory bodies closely monitor this information. They suspend trade whenever they believe such information might affect the value of concerned securities. Here, the goal is to provide equal access to information for all investors.Regulatory bodies sometimes doubt a company's financial data, assets under management (AUM), or overall financial stability. So, they may call for a trading halt for the stock. In this situation, the company has to explain the errors adequately. In this case, the halt may last much longer than normal.Moreover, there may be several drops in the market. This can result in significant losses. Hence, the whole exchange may implement a trading halt. This is known as a “trading curb”. It applies to all the securities listed on the particular exchange. You may have seen headlines like ‘NSE Trading Halt Today’. It happens due to trading curbs.2. Non-regulatory halt:It is the second type of trading halt. They are used if there is a significant difference between buyers and sellers in a particular stock or group. However, they are unusual nowadays. In this case, trading can only resume after the regulator has identified and established the proper price range for the stock.Impact of Trading HaltsTrading halts can significantly impact the securities market. They generally have the following effects.Price Volatility:Large price swings may occur based on information or market sentiment when trading resumes. The trading halt allows investors to process the information. It may help them to make more careful and appropriate trading decisions.Market Confidence:Trading halts are implemented to ensure fair and orderly trade, which boosts market confidence. They also lower the possibility of market manipulation.Investor Protection:Trading is halted during critical periods to prevent investors from making impulsive decisions. This promotes a transparent trading environment.Trade and Market Stability:Halts are necessary to maintain market stability during periods of extreme volatility. Allowing time for risk assessment and informed decision-making helps in minimising panic buying or selling.ConclusionTrade halts are expected in stock markets. It is a crucial tool to maintain market stability and safeguard the interests of traders and investors. A trading halt is implemented for a specific duration. Trading resumes when the conditions improve. If the market falls significantly, the entire stock exchange is put under a trading halt. It helps in reducing price volatility and enhances investors’ confidence. However, they can also disrupt regular market operations and confuse. They can also reduce the efficiency and liquidity in a market. Therefore, they should be used only when it is necessary.
FAQs on Trading HaltsHow long can a specific trading halt last?Trading Halts often last up to an hour. However, it can last for more than an hour.Why does the stock exchange implement trading halts for companies?Stocks can be halted for various reasons. These include unbalanced orders, regulations, technical issues, and anticipation of some significant news.Do exchanges provide any information during a trading halt?Yes, exchanges provide information about the reason for the trading halt. They also mention the expected duration and other relevant details.How can trading halts affect the traders or investors?Trading halts temporarily prevent traders or investors from buying or selling securities. Individuals should adjust their trading strategies accordingly.Are there any alternatives to trading halts?Yes, there are some alternatives to trading halts, like price limits. They may also be used to manage market disruptions. |
https://www.kotaksecurities.com/share-market/what-is-toehold-purchase/ | What is Toehold Purchase? | Key HighlightsInstitutional or retail investors make a toehold purchase when they buy less than 5% of the target company's outstanding shares.A firm or investor may secretly take a toehold position on a target company's stock without notifying the target company or the market regulator.A toehold purchase might be the first step to purchasing the target company.Using toehold purchases, some investors pressure companies to fulfil demands. These include making specific changes to increase shareholder value.Definition of a Toehold PurchaseA toehold purchase is an investment where investors target a particular firm but purchase less than 5% of the company's shares. They may put enough pressure on the firm with this "toehold" position. Their goal is to purchase it or only to increase performance and returns. Filing the transaction with the market regulators is optional. This is because of the small ownership percentage.Example of a Toehold PurchaseLet's take a look at an example to understand better how toehold purchases work.Suppose Company XYZ wants to purchase Company Alpha. However, Company XYZ is still not prepared to announce that it plans to buy Company Alpha. To begin implementing its purchase plan, Company XYZ begins buying outstanding shares of Company Alpha on the open market. It makes sure that its stake stays within 5%.Company XYZ does not need to submit any paperwork with the market regulator for buying shares in Company XYZ below a 5% threshold. Usually, Company XYZ will buy more shares. It will finally submit the required filings after it is well-prepared to move forward with the acquisition.The acquiring company has two options for gaining majority control of Company Alpha. Either it can immediately make a tender offer to the company's shareholders or propose an offer to the board for approval. Company XYZ's acquisition plan is effective if it can purchase the majority of shares in Company Alpha.Objectives of Toehold PurchasesThe following are the objectives of toehold purchases.1. Acquiring the target firm:Usually, toehold purchases are done to acquire the target companies. The investor may begin buying outstanding shares after a toehold purchase. The number of shares acquired later is typically fewer. So, it isn’t noticed. Sometimes it may be noticed. Yet, it is generally regarded as harmless.2. Specific Objectives:Toehold purchases may also be done for particular goals. These include increasing the company's market value, energising operations, and maximising return on investment. The main purpose of a toehold purchase is to influence the management's actions by putting pressure on them. The aim is to control the company's management to make choices that benefit the shareholders.Real-Life Instances of a Toehold PurchaseNow that you know what a toehold purchase let's look at a real-life instance. In 2016, renowned activist investor Paul Singer revealed his 4% ownership in Cognizant Technology Solutions. He also offered his suggestions for enhancing returns and profitability. He also demanded a change in the board of directors. The firm and its investors both benefited from the quick and favourable outcomes.How Does a Toehold Purchase Work?A toehold purchase/position is essentially a minor but noteworthy stock stake in a business. To avoid the need to notify the market regulator, the stake taken is at most 5% of the company's outstanding shares. The buyer should submit a notice to the regulator outlining the plans for purchases that exceed the 5% level. Buyers must mention if they want to buy more shares and the reason for it. It helps in understanding any possible attempt at a takeover.After acquiring the toehold position, the investor or investment firm will likely proceed to purchase more of the outstanding shares of the target business. Typically, the investor proceeds quietly, buying shares in a small percentage. The target company is likely to overlook these small transactions. It may also consider them harmless if it notices them.An alternative strategy to purchase would be to utilise a toehold position to put pressure on the business. The goal is to influence the company's board of directors to take particular steps. The buyer hopes this will raise the company’s market value and return on investment.ConclusionToehold purchase means acquiring less than 5% of a publicly listed company's stock. It is only necessary to inform the purchase to the market regulator once one reaches the 5% level. This makes it possible to start the process of a potential hostile takeover quietly. Yet, one would have to finally reveal the plans going forward. Investors usually gain as they are buying the shares at a premium. However, a takeover does not necessarily benefit the business or its investors. Therefore, investors need to be cautious when making decisions.
FAQs on Toehold PurchaseHow is a toehold purchase different from a complete acquisition of a company?A toehold purchase is a smaller investment. It may or may not result in a complete acquisition of a company. Conversely, a complete acquisition involves acquiring the majority or all the shares.How are toehold purchases funded?Toehold purchases are generally funded using the acquiring firm's capital. It may also purchase some shares in cash and the remaining through debt.Are toehold purchases common in the share market?Yes, toehold purchases are common in the share market. They often take place in industries where there is intense competition.Can a toehold purchase be part of a broader merger and acquisition strategy?Yes, a toehold purchase can be a part of merger and acquisition (M&A) strategies. Toehold purchases allow investors to analyse the target company before making further plans.Can investors reverse their toehold position?Yes, the acquiring firm can reverse its toehold position if it doesn’t want to make more investments in the target firm. This decision is generally influenced by market conditions or a change in investment plans. |
https://www.kotaksecurities.com/share-market/what-are-piggyback-registration-rights/ | What Are Piggyback Registration Rights? | Key HighlightsA form of registration rights enabling investors to register their unregistered shares in a public offering is the Piggyback Registration Rights.While piggyback registration rights are easily added to shares since subscribing to shares with these rights is comparatively less expensive, an underwriter may choose to exclude them from a public offering.Since this group of rights holders is unable to initiate the registration procedure, Piggyback Rights are seen as inferior to demand registrations.Piggyback Registration Rights MeaningWhen another investor or a company applies for registration, the Piggyback Rights allow investors to register their shares. Given that rights holders or investors are unable to initiate a registration process on their own, the kind of registration rights granted by Piggyback Registration is regarded as not being sufficiently high compared with demand registrations.The piggyback registration rights may not be included in a public offering with a specific undertaking. Still, it is simpler and easier to have them since the cost of adding shares with piggyback registration rights is relatively low. In comparison to demand registration rights, the reason for the exclusion of piggyback registration rights from the public offering may be due to their inferiority. This is particularly the case where the underwriter considers that the market is not capable of handling all of the shares included in the registration.The company is usually the one who bears the costs of piggyback registration rights, not the investors. In comparison with the investors requiring registration rights, piggyback holders also enjoy the additional benefit of participating in unrestricted registrations.How Does Piggyback Registration Work?The holder of the piggyback registration rights may not initiate the registration process for unregistered shares. Therefore, in order to register their shares when the company starts a registration process, holders of piggyback registration rights must "piggyback" on investors who have demanded registration rights. The following items are typically associated with piggyback registration rights.The possibility of underwriters reducing the number of investor shares in an offering.The priority of investor shares to be included in the offering.Whether there is also a right to piggyback on registration rights for founders and management.Demand Registrations Vs Piggyback RegistrationDemand registration allows shareholders to demand an initial public offering, whereas investors relying on piggyback registration do not share that right to demand an initial public offering. They are forced to "piggyback" on other investors' demand for registration rights by waiting for other investors to seek the IPO.With regard to the timing of registration, piggyback rights holders could have a substantial impact on company governance as they are much less expensive than demand registrations. Thus, this also occurs far more frequently.ConclusionWhen it comes to the timing of a company's registration, piggyback rights holders also have considerable influence over its management. The use of piggyback rights is also much more frequent than demand registration rights as the addition of shares related to piggyback registrations, which are relatively cheaper compared with those relating to an ongoing registration process, constitutes a significantly lower marginal cost.
FAQs on Piggyback Registration RightsWhat is the difference between piggyback registration and demand registration?Demand registration allows shareholders to demand an initial public offering, whereas investors relying on piggyback registration do not share that right to demand an initial public offering.What are the different types of registration rights?The right to register is divided into two categories, i.e., demand and piggyback. The stockholder may require the issuer to register all or part of its shares through demand registration rights.What are redemption rights in stocks?Redemption rights provide preferred shareholders with the right to demand that a company buy back their shares within a fixed period. In cases where a company goes public at a lower price than expected, this clause exists to protect investors. |
https://www.kotaksecurities.com/share-market/what-is-an-accredited-investor/ | What is an Accredited Investor? | Key HighlightsAn accredited investor is an individual or business entity that is permitted to trade securities not available to the general public.SEBI establishes net worth and income benchmarks for investors in order to accredit them.SEBI's objective of protecting investor interests and promoting investment is aligned with the accreditation of investors.Accredited Investor MeaningInvestors who are accredited with the Securities and Exchange Board of India may trade in securities that have not been registered with the financial authorities. Accredited investors have a greater level of flexibility and privilege due to certain factors such as asset size, net worth, governance status, and trading experience. These investors trade securities that aren't available to the general public, commonly known as retail investors.In India, almost all securities are registered with the Securities and Exchange Board. A retail investor who does not invest a lot of money at one time can only invest in registered securities. However, accredited investors are legally permitted to trade securities not registered with SEBI.Due to the fact that most of these investors are high-net-worth individuals or financial entities investing large sums, some companies offer their securities directly to them. It saves the companies time and money by allowing them to raise capital without having to register securities with SEBI. This process is called a private placement when securities are offered directly to accredited investors.However, SEBI does not regulate the securities offered in private placements, which poses a significant risk to investors. Due to the fact that accredited investors deal directly with the company, it is up to them to analyse the securities and decide whether they wish to invest. Consequently, authorities ensure investors are financially stable and experienced enough to take on such risks.The role of regulatory authorities such as SEBI in offering securities directly to such investors is to provide guidelines for determining who qualifies to be called accredited investors. SEBI only allows entities to trade securities using private placement if they meet the benchmarks. In addition to funding startups, these investors have access to hedge funds, venture capital, and angel investors.Requirement for Accredited InvestorsSEBI describes an institution or business entity trading securities through private placement as an accredited investor if their net worth is Rs 25 crore. Individuals who wish to qualify as accredited investors must have a liquid worth of Rs 5 crore and a total annual income of Rs 50 lakh.The SEBI insists that accredited investors must meet certain requirements. It is imperative that an investor is financially stable in order to bear the risk of losing capital on unregistered investments. Additionally, these investors must have a successful portfolio and at least some years of experience.Purpose of Accredited InvestorIt is the responsibility of SEBI to protect investor interests and investments while promoting investments in order to help companies raise the funds they need. To carry both, companies should register their securities with SEBI. However, it increases SEBI's workload since it has to supervise the listing process and regulate securities.On the other hand, accredited investors trade securities not registered with SEBI because they get them at a lower price than they would if they were listed. In addition, they are willing to take on the high risk and deal directly with the company. Because these investors are responsible for analysing securities and are required to keep depositories and exchanges informed of the deal, SEBI allows them to do so.Accredited investors fulfil SEBI's main purpose of promoting investments and enabling companies to raise funds. As a result, SEBI sees no harm in the process because companies can sell securities cheaply to accredited investors.How to Become an Accredited Investor in India?As an accredited investor, you may be granted certain trading privileges with the utmost flexibility. The following are the requirements for becoming the one:Step 1: Open Demat and Trading AccountDemat and trading accounts are mandatory for all entities that wish to trade in the Indian stock market. With a Demat account, you can hold your bought securities in dematerialised form and use a trading account for transactions.Step 2: Apply for AccreditationThe next step after opening a Demat and trading account is to apply for accreditation as a licensed investor. The application must be sent to the depositories or stock exchanges. You will receive a licence to be an accredited investor for three years once the stock exchange or depository determines your eligibility to be one.Step 3: Adhere to SEBI Rules and RegulationsSecurities and Exchange Board of India rules and regulations regarding accredited investors must be followed strictly. A depository or stock exchange under SEBI is fully authorized to cancel your accreditation if you fail to adhere to the set guidelines.Step 4: Ensure Financial StabilityIt is important that the depository or stock exchange ensures that you are financially stable enough not to be negatively affected by incurring losses in the process of registering. Therefore, maintaining the required cash and net worth throughout is essential to avoid the cancellation of your license.ConclusionAccredited investors have the authority and flexibility to trade securities not available to retail investors. Retail investors invest a small amount of money compared to large financial institutions and high-net-worth individuals. An accredited investor is someone who knows how to analyse securities and manage the risks associated with them.However, the process of becoming such an investor is lengthy and requires comprehensive research by the depositories and stock exchanges. As an accredited investor, an investor has access to unmatched benefits and privileges.
FAQs on Accredited InvestorDo accredited investors get higher returns?Compared to retail investors, accredited investors have access to more investment opportunities and can potentially generate higher returns.What are the benefits of becoming an accredited investor?Accredited investors have access to private securities offerings, reduced regulatory requirements, and higher returns.Can I invest without being an accredited investor?Yes. It does not mean that non-accredited investors cannot invest; however, the opportunities are different. Non-accredited investors can invest in bonds, real estate, equities, and other securities. |
https://www.kotaksecurities.com/share-market/what-is-a-subscription-agreement/ | What is a Subscription Agreement? | Key HighlightsSubscription agreement meaning refers to formal agreements between companies and investors to buy shares of a company for a set price.The document contains all the details of an agreement, including outstanding shares, share ownership, and payouts.An agreement ensures that the company receives adequate funds while private investors can realise profits on the invested capital.Share Subscription Agreement MeaningCompanies that aren't listed on the stock exchanges are privately owned by the current partners. This type of company may be registered as a limited partnership firm, a startup, or a small business. These companies go to private investors to raise capital without listing on the stock exchanges.As limited partners, these private investors use the subscription agreement to present their applications. As part of the agreement, the general partner of the company brings in limited partners (private investors). When a private investor is approved to be a limited partner, the company receives a certain amount of capital, and the investor becomes a silent partner.Silent partners invest a one-time amount and are not involved in the business operations. Due to their non-involvement in company decision making, they are less exposed to risk than general partners. In addition, private investors' liability is limited to their investment capital amount.There is usually a guaranteed return rate associated with share subscription agreements for private investors. However, some subscription agreements reward investors with a percentage of profits. Moreover, silent patterns have the right to hold the stocks and sell them at the IPO.Advantages of Subscription AgreementSubscription agreements allow general partners to ensure that the company receives adequate funds, while private investors can profit from their investments. An agreement has the following advantages:Limited Liability:Private investors who become silent partners have limited liability under the subscription agreement. In the event that the company goes bankrupt, the limited partners are not liable to repay the lenders or any other entity with their wealth. They are only responsible for the amount they invested.One-time Investment:The silent partners are required to invest a predefined amount as a one-time payment and not make payments over time. With this agreement, it is a great way for investors to invest a lump sum and get returns.Investment Growth:This agreement allows investors to invest in companies during their early growth stages. The amount invested by private investors can multiply by a huge margin as businesses grow to be worth billions. Thus, allowing investors to get high returns from their investments.Easier Funding:Some companies do not want to list on a stock exchange in order to raise funds because it may be unsuccessful based on the condition of the company. Thus, general partners of the company raise funds by using subscription agreements instead of offering shares to the general public.Disadvantages of Subscription AgreementA subscription agreement has many advantages for both general and silent partners, but it also has some disadvantages. Here are the disadvantages:Lack of Rights:Silent partners do not receive internal rights such as voting rights and are not allowed to participate in day-to-day activities or the company's decision-making process. As a result, the silent partners are prevented from participating and can lose their investment.Huge Amount:A subscription agreement requires private partners to invest a large lump-sum amount without the option to spread the investment over several securities. Due to this, some investors prefer to buy equities on the secondary market.No Liquidity:Through the subscription agreement, the private investor becomes a silent partner in the company and holds the funds. However, it can be very difficult for the silent partners to realise cash for their shares unless someone else buys them out.Lack of regulation:As the subscription agreement is not regulated by a governing body like SEBI, it may result in a lack of transparency.ConclusionA share subscription agreement is a legal document that a company which is not looking to list on the stock exchange can utilise. The company uses this legal document to raise funds and add silent partners to its company structure. In addition, private investors, also known as silent partners, can use this agreement to invest in the company before anyone else and see their investment grow over time. While there are advantages to this type of investment, there are a few downsides, such as a lack of rights and regulation, no liquidity and a huge amount. Therefore, it is wise to do your research and invest as per your risk appetite and financial goals.
FAQs on Share Subscription AgreementIs a subscription agreement a shareholder agreement?The subscription agreement refers to the shareholders' agreement. Usually, they are signed at the same time. Also, sometimes, these documents may be merged into one big document (investment agreement). However, for clarity, these agreements are usually separated.Why is a share subscription agreement required?The subscription agreement is required to keep track of outstanding shares and share ownership. In addition, it mitigates any potential legal disputes in the future regarding share payout.When is a share subscription agreement necessary?Share subscription is necessary when a company wants to raise capital and seek investors without listing on a stock exchange. |
https://www.kotaksecurities.com/share-market/how-much-money-is-needed-to-start-stock-trading-in-india/ | How Much Money Do You Need To Start Stock Trading In India? | The amount of money needed to get started in the stock market depends on the individual's investment goals and risk tolerance. One can start with as little as a few hundred rupees using low-cost investment options like ETFs or mutual funds, while direct stock investing may require a larger amount. Read the article to know more.There is no minimum limit to start investing in the Indian share market. You simply need to have sufficient capital to cover the price of a stock. You do not need a huge amount of money to start investing in India. It is possible to buy stocks for even less than ₹10!Key HighlightsThere is no minimum requirement to invest in the Indian share market. One can start with even a low amount.The amount needed to start trading varies for different individuals based on their investment goals and risk tolerance.Investors should mostly focus on having sufficient capital required to buy a particular asset.There are some strategies to determine the minimum investment amount. These include the 100-current age strategy, X/3 strategy, and the 75 percent profit plan.It is essential to consider the amount you are willing to invest in the share market. This amount will vary depending on your trading goal & strategy. Other things you need to know are:There is no minimum amount that you need to trade in the stock market. India has two main stock exchanges—the Bombay Stock Exchange and the National Stock Exchange. Stock prices range between ₹1 to ₹75,000. You can buy any stock in any quantity. It all depends on the amount of money you have.Apart from the brokerage fee, you will have to bear some other charges. These are added to your overall investment. Say you have ₹100 to invest. Then, you might only be able to buy stocks for ₹80, as you may need the remaining amount to clear the fees. Or you could open an account with Kotak Securities, where you pay zero brokerage charges and minimal fees.
Strategies to figure out the right allocation of funds in share marketYou can also go through some of the trading strategies that can help you to streamline your investment in the stock market.100 minus age ruleThis is a common strategy. It is based on the belief that an investor should decrease his risks with age. The strategy insists on holding stocks according to your age. The percentage of stocks you hold in your portfolio should equal 100 minus your present age.Let’s understand this with an example. Suppose you are 35 years old. So, your portfolio must have a 65% equity exposure (100-35). If you have ₹5000, you should invest 65% of the funds. 65% of ₹5000 is ₹3250. Thus, you must invest ₹3250.X/3 StrategyThis is a popular approach. Systematic investment plans (SIPs) in mutual funds and stocks are an example of this method. It states that as a novice investor, you should only invest x/3 of your funds. Here, your surplus funds are equal to the total of X. For instance, suppose you have ₹30,000. So you should only invest one-third of ₹30,000. This is equal to ₹10,000.You spread out the remaining two parts over a period of time to obtain the best possible deal. The x/3 is a very good strategy for risk reduction. Most of the investors often employ this strategy without being aware of it. It spreads the investment over a time period and takes advantage of rupee cost averaging to obtain a lower price. So, it is also known as a phased strategy.75% profit strategyAccording to the 75% profit approach, you should keep investing if 75% of the assets in your portfolio are doing well. If 75% of the stocks you hold perform well, the strategy is working well. In this case, you can also consider raising your investment. Stock market investments are usually volatile. So, it is very rare that all of your assets would perform well.Using these strategies, you can invest a suitable amount in the share market as per your requirements. Moreover, remember that discipline is a crucial pillar for successful stock market investing. It is not advisable to invest a large amount in a single instance for huge profits. Instead, have a disciplined approach and follow a long-term approach.ConclusionThe share market is quite flexible and accessible to most people. There is no set minimum amount required to begin investing. Individuals can start investing even with a small amount. Moreover, there are some strategies that you can follow to find the right investment amount. The X/3, 100 minus current age and 75% profit strategies are popular. In addition, investors should learn the basics of investing and stock analysis methods. Moreover, you should always start with safer stocks to maximise the profit potential.Also Read:Allied Blenders and Distillers IpoVraj Iron and Steel IpoThe discipline of investingThe value of midcap stocks: why they may be for youSave on tax with tax-free bondsWhat monopoly can teach you about investment
Faqs about the minimum amount required to invest in the stock marketCan you start investing in India ₹1,000?Yes, of course. You can start investing in India with ₹1,000. It is sufficient to buy any stock whose share price is below ₹1,000.Are there any additional costs involved in share market investing?Yes, there are some additional costs involved in share market investing. These include transactions, annual maintenance fees, delivery charges, etc.What is the specific amount recommended for beginners to start investing?The recommended amount for beginners depends on various factors. These mainly include financial objectives and risk tolerance.What are the essential requirements to start investing in India?To begin investing in India, one will need a demat and trading account. The trading account is used to place the orders, and the demat account holds the securities purchased. |
https://www.kotaksecurities.com/ipos/4-different-types-ipo-investors/ | 4 Types of IPO Investors | What is an IPO?An Initial Public Offering, or IPO, marks a company's transition from a privately held entity to a publicly traded one. When a company files for an IPO, it is all set to make a share market debut. Its shares will be made available to the general public for the first time. Companies do so to raise capital by selling their new shares to the general public.
What are the different types of IPO investors?Under Securities and Exchange Board of India (SEBI) guidelines, four types of investors can bid for shares during anIPOprocess. These are:Qualified Institutional Investors (QIIs)Commercial banks, public financial institutions, mutual fund houses, and Foreign Portfolio Investors registered with SEBI fall into this category. Underwriters try to sell large chunks of IPO shares to them at a lucrative price before the start of the IPO. Selling shares to QIIs go a long way in helping underwriters meet the targeted capital. SEBI mandates that institutional investors sign a lock–up contract for at least 90 days to ensure minimal volatility during the IPO process. If QIIs buy more shares, fewer shares would be available to the general public. This would result in higher share prices. This scenario is ideal for a company because they want to raise as much capital as possible. However, SEBI has laid down rules to ensure companies do not distort the IPO valuations. The regulatory body prohibits companies from allocating more than 50% of shares to QIIs.Anchor InvestorsAny QII who makes an application of over ₹10 crore, is an anchor investor. Such investors typically bring in other investors as well. Up to 60% of the shares meant for qualified institutional investors can be sold to anchor investors.Retail InvestorsThe minimum allocation under the retail quota is 35%. SEBI has decreed that if the issue is oversubscribed, subject to availability, all retail investors be allotted at least one lot of shares. If the one-lot-to-each-investor is not possible, a lottery system is used to allocate IPO shares to the public.High Net-worth Individuals (HNIs)/Non-institutional Investors (NII)Individuals looking to invest more than ₹2 lakh are categorised as HNIs. Similarly, institutions that want to subscribe for more than ₹2 lakh are called non-institutional investors. The difference between a QII and an NII is that the latter does not have to register with SEBI. The allotment of shares to HNIs/NIIs is on a proportionate basis, i.e., if one applies for 10,000 shares and the issue is oversubscribed 10 times, they would be allotted 1,000 shares (10,000/10). This means they are always allotted shares, regardless of whether the issue is oversubscribed or not. Typically, 1-2% of shares are earmarked for the employees as a way of awarding them for the risk they took in associating with a new company.The Final WordWe have now covered the various points in understanding the flesh and bones of the IPO world, from understanding the importance of an IPO to learning how to bid for one.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on IPOsWho invests in IPOs?Retail investors, high net-worth individuals (HNIs), and qualified institutional investors (QIIs) like banks, mutual fund houses, foreign portfolio investors (FPI), etc. invest in IPOs.Can individual investors participate in IPOs?Yes, individual investors can participate in IPOs. Usually, every company launching its IPO allocates a certain amount of shares to the IPO for individual investors. |
https://www.kotaksecurities.com/intraday-trading/intraday-trading-guide-for-beginners/ | Intraday Trading Guide For Beginners | Intraday trading, also called day trading, is the buying and selling of stocks within the same day. In other words, intraday trading means all positions are squared off before the market closes, and there is no change in ownership of shares as a result of the trades.Until recently, people perceived day trading to be the domain of financial firms and professional traders. But this has changed today, thanks to the popularity of electronic trading and margin trading. Today, it’s very easy to start day trading. Let us explain how it works to help you get started.How does intraday trading work?In intraday trading, traders try to capitalise on short-term price fluctuations and generate profits based on market volatility. Intraday traders closely monitor price movements, utilise technical analysis tools, and employ strategies like scalping or momentum trading to execute quick trades and take advantage of intraday price swings. It requires careful risk management, market knowledge, and the ability to make swift decisions in a fast-paced trading environment.Benefits of intraday tradingIntraday trading offers several benefits for traders:1. Quick profits: Intraday trading allows traders to capitalise on short-term price movements, potentially generating quick profits within a single trading day.2. Increased liquidity: Intraday trading provides numerous trading opportunities as financial markets tend to be more liquid during trading hours, allowing traders to easily enter and exit positions.3. Flexibility: Intraday trading offers flexibility in terms of strategy and trading style. Traders can choose from a variety of techniques, such as scalping, momentum trading, or technical analysis-based approaches.4. Lower overnight risks: By closing all positions before the market closes, intraday traders can mitigate the risks associated with overnight market events, such as company announcements or global news that could impact prices.5. Learning opportunities: Intraday trading allows traders to gain practical experience and learn about market dynamics, technical analysis, and risk management strategies through real-time trading activities.Advantages & disadvantages of intraday tradingBefore you understand how to do intraday trading, it is important to understand its advantages and disadvantages.Advantages:Intraday trading offers the potential for quick profits as traders can take advantage of short-term price movements. It provides numerous trading opportunities within a single day, allowing for increased liquidity and flexibility. Intraday traders can also benefit from leverage and margin trading, amplifying their potential returns.Disadvantages:Intraday trading carries inherent risks. The fast-paced nature of intraday trading can lead to emotional decision-making and impulsive trades, increasing the likelihood of losses. Traders need to closely monitor the market throughout the day, requiring significant time and attention. Intraday trading also requires a deep understanding of technical analysis and market dynamics, which may pose a challenge for novice traders. Additionally, transaction costs, such as brokerage fees and taxes, can erode profits, particularly for frequent traders.How is intraday trading different from regular trading?There's only one difference between a regular trade and an intraday trade. It lies in taking the delivery of the stocks. In intraday trading, you square off your positions on the same day. So, your sell order offsets your buy order. This way, there is no transfer of ownership of shares. A regular trade gets settled over a span of days, if not longer. So, you get delivery of the shares you bought while the shares you sold move out of yourDemat account.Basic rules for intraday tradingTrading of any kind has its own set of rules. Here are the basic rules that every intraday trader needs to keep in mind.Do Your Research:Do a thorough research and analysis about the current market situation, learn the fundamentals of the companies being traded, and gain knowledge of macroeconomic details, such as the country’s debt status or currency movements.Invest An Amount You're Not Afraid To Lose:Intraday trading is high-risk. It is advisable you only invest what you can afford to lose.Understanding Entry, Exit And Stop Price Settings:Selecting the right value for entry and exit is crucial. This helps in setting an escape value for a crisis situation.Do Not Overtrade:The share market does not necessarily trend in a predictable manner. The optimal way to go about intraday trading is to trade only a handful of scrips at a time.Evaluate Your Performance:Intraday trading is dynamic. Keeping a track of your performance will help you understand what went right and what didn't. Evaluation of past performances will help you make better trading decisions in the future.Who should participate in intraday trading? |
Intraday trading promises high returns and thus may sound very attractive. But it also carries a higher risk compared to the delivery segment. So, if you have a day job that requires your full attention for most of the trading hours, you may want to avoid intraday trading. For one, you have to watch the market and time your trades to perfection. Secondly, you need a good understanding of and time to performtechnical analysison daily charts to make the right decisions. | WATCH AND LEARNIntraday Trading GuideTune in to this video where Indu Choudhary will explain what intraday trading is in simple language along with examples. We will also take you though five key important rules you must keep in mind as an intraday trader.What Is Intraday Trading | 5 Key Rules You Must KnowKotak Securities•04m 57s | What kind of stocks do you choose for intraday trading?In intraday trades, you need to square off your position before the market closes. So, it is essential that you choose stocks that have enough liquidity for executing such trades. This is why many recommend high-liquid stocks like large-cap stocks. This can also minimise the chances of your trades impacting the share price of the selected stock. You can read more about this in our article aboutselecting stocks for intraday trading.When to execute intraday trades?Timing the market is crucial for intraday traders. Taking a position at the wrong time can be the difference between profits and losses. Many experts suggest that it may be better to avoid taking a position within the first hour of trading. This is because the market tends to be volatile during this period.Why should you participate in intraday trading?Some of the advantages of intraday trading are:Higher margins available to traders compared to investorsHigh return potentialLower brokerage chargesShort-to-medium horizon for strategies to pay off.That said, do analyse if you are ready to witness high risk and are willing to put extra effort into analysing market behaviour daily.How to get started with intraday trading?You can start by opening atrading and demat account. If you have been investing in the stock market, you may want to open a separate account for intraday trading.You can then sign up for the right tools that help with intraday trading. It can also help manage your taxes, as intraday trades are treated differently per the Income Tax Act.Once you have the requisite tools and accounts, you can begin by looking at daily charts to identify trends in price movement. For this, you may need the support of various technical analysis tools. You can get access to these tools on trading terminalsTradeSmartWhat are intraday trading indicators?Intraday trading indicators are tools used by traders to analyse price movements and identify potential trading opportunities within a single trading day. Traders often use a combination of trading indicators alongside other technical analysis tools to make informed trading decisions. Understanding how these indicators work and practising using them in conjunction with proper risk management techniques is essential.What is 'value area' and why does it matter?As an intraday trader, you want to pick the market direction early. The simplest way to do this is by identifying the 'value area' for the stocks you target to trade in. This can help you make a trade decision. Experts call this 'The 80% rule'. Value area is the range of price where at least 70% of the previous day’s trade took place. Once you have identified this area, observe where the price opens for the day. The rule states that if the price starts below the range and stays there for the first hour, there is an 80% chance that it will rise into the area.On the other hand, if it starts above the value area and stays there for the first hour, there is an equal chance that the price will fall into the area. This gives us the most basic intraday trading strategy; if the stock starts above and stays there, you may want to take a short position near the top of the value area.Similarly, if the stock starts below the value area and stays there for an hour, you can take a long position near the bottom of the value area.Remember, these are thumb rules and not recommendations.With this, you are ready to start your journey as a day trader.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
Frequently Asked QuestionsCan I hold intraday shares?Yes, you can hold intraday shares. However, the intraday position will be automatically converted to delivery based trades.Which is the best time frame for intraday trading?Shorter time frames such as 1-minute, 5-minute, or 15-minute are preferable for intraday trading. These time frames track the price movements closely throughout the trading day.Which is the best chart for intraday trading?You can use Candlestick, Renko, and Range Bar charts for intraday trading. They provide information about the open, high, and low prices for specific time frames. They also help in identifying trends.How much can a beginner earn in intraday trading?There are no limits in intraday trading, whether it is capital or earnings.Which is the best strategy for intraday trading?The possibility of profit depends on the liquidity of the stocks. So, it's optimal to trade in shares that have high volumes.How can I earn ₹1000 a day from intraday?Your best chance at earning at least ₹1000 a day is by gaining small profits from multiple trades.Is intraday profitable?Like any form of trading, intraday trading has excellent scope for making profits. The most common reason for failed trades is the lack of knowledge about trading. Hence, it is crucial to learn and adapt to market trends.What is the difference between day trading & intraday trading?Day trading refers to buying and selling financial instruments within the same trading day, while intraday trading refers to any trading activity that occurs within the market hours of a single trading day.Is there any restriction for intraday trading?Yes, there are certain limits for intraday trading imposed by regulatory authorities, such as margin requirements and restrictions on the number of trades or positions a trader can hold.What are the requirements of intraday trading?The requirements for intraday trading typically include a trading account with a registered broker, sufficient capital or margin to meet initial and maintenance requirements, access to real-time market data, and a trading platform. |
https://www.kotaksecurities.com/margin-trading/what-is-the-rate-of-interest-charged-on/ | What is the Rate of Interest Charged on Margin Trading Facility? | What is Interest on Margin Trading?MTF Interest Rate, often called the ‘Interest onMarginTrading’, is the interest that your broker charges from you for the funds offered. When you trade on margin, you essentially take money to purchase more securities than you could with your available capital. This money entails an interest you must pay your broker. The interest rate isn’t fixed and differs across brokers.Factors Affecting Rate of Interest Charged on Margin Trading FacilitySeveral factors influence the rate of interest charged on margin trading. Some of them are as follows:Brokerage PoliciesWhile almost all brokerage houses offer margin trading facilities to clients, their policies differ. They set their own MTF interest rates as per their policy. No two brokerage houses have the same rates. Hence, choosing a broker offering the most competitive interest rates is essential. Kotak Securities offers one of the most competitive interest rates onMTFwith charges as low as 0.028% per day.Economic IndicatorsThe condition of a nation's economy plays a vital role in determining interest on margin trading. When the economy is doing well, investors are more optimistic about markets. They are more willing to take risks. In this scenario, margin interest rates tend to be generally lower. On the contrary, during economic uncertainty or highmarket volatility, brokers may increase their rates as investors turn risk-averse.Base Interest RateWhen base interest rates are lower, the interest rate on margin trading facilities also tends to decrease. This is because investors are willing to take on more risks and invest in the market. On the other hand, if interest rates are higher, you may need to pay a higher interest rate for availing funds under the margin trading facility.Broker’s Cost of FundsThe cost at which the broker can access funds to lend to traders also influences the MTF interest rate. Brokers that have lower fund costs can offer more competitive rates to their clients.Calculating Interest on MarginCalculating interest on margin is fairly simple. All you need to know is:Margin amount funded by your brokerThe rate of interest charged on margin tradingThe number of days for which the margin is held (Divide it by 365 to get daily rates)For example, if you take Rs 1 lakh from your broker at a margin trading interest rate of 12% per annum and hold the margin for 30 days, the interest you pay on your margin is calculated as per the following formula:-Interest on margin= (Margin used x Margin interest rate X Number of days for which the margin is held) / 365Using this formula, it comes to Rs 986.30. It means you paid an interest of Rs 986.30 to hold on to your margin position for 30 days.Summing it UpChoose a reliable broker with competitive MTF interest rates to minimize margin interest rate costs. At the same time, manage your risks effectively. Understanding this cost will help you make more informed decisions and potentially improve your trading success.
FAQs on Rate of Interest Charged on Margin Trading FacilityHow Does Interest Work on Margin Trading?When you purchase securities on margin, you must repay both the borrowed money and the applicable interest. The interest rate varies based on the brokerage firms and depends on several factors, including economic indicators, brokerage policy, etc.What is the Interest on Margin Trading Facility?The interest rate isn’t fixed and differs across brokers. That said, opting for a broker offering you the most competitive rates is essential. |
https://www.kotaksecurities.com/ipos/why-invest-ipo-and-its-benefits/ | No title found | Key HighlightsIPO Offers access to early-stage companies for long-term wealth creation.IPOs provide transparent pricing and affordable entry points, which may be beneficial for small investors.Smart investors should track upcoming IPOs for wealth-building opportunities.Why Should You Consider Investing in an IPO?In an Initial Public Offering (IPO), investors have the opportunity to purchase shares of the issuing company, making them shareholders through their financial investment. Shareholders, based on their stake, receive entitlements such as dividends and bonus shares, determined by the company's earnings and management declarations. Traditionally, equities have demonstrated superior returns compared to other asset classes.Consequently, it is advisable for investors to include a proportion of equities in their portfolio. Nevertheless, equities come with inherent risks, as share prices can be volatile due to various economic and non-economic factors, often without clear triggers. Over the long term, however, engaging in the stock market allows for wealth creation by investing in valuable stocks from reputable companies with strong business models and financial performance.Benefits of Investing In IPOInvesting in Initial Public Offerings (IPOs) presents investors with a range of potential advantages. Various benefits of investing in an IPO are explained as follows.1. Gains from ListingPotential advantages of investing in an IPO include the prospect of obtaining listing gains if the company debuts at a price surpassing the offer price. If an investor, having applied for shares at the offer price, receives them and the company opens at a higher price, significant profits can be realised.2. Enhanced LiquidityUpon a company's public debut, investors gain the ability to trade their shares in the open market. Publicly traded stocks offer investors the flexibility to buy or sell shares at any time, thereby ensuring liquidity.3. Fair Opportunities for Retail InvestorsSEBI has implemented relaxed norms to ensure that small retail investors have a fair chance in IPO share allocations. In cases of oversubscription, SEBI mandates that subject to availability, all retail investors receive at least one lot of shares. If individual lot allocation is unfeasible, a lottery system is employed for equitable IPO share distribution.4. Stringent IPO RegulationsTo safeguard retail investors, SEBI has established rigorous IPO regulations. The company's prospectus, encompassing vital information such as performance, financials, growth, risks, and plans, empowers investors to make informed decisions.5. Cost-Effective PurchaseWhen companies go public, they often offer shares at discounted rates. This enables investors to acquire shares at a lower price, potentially leading to long-term wealth creation if the company experiences significant growth.6. Shareholder AuthorityAllotment of shares during an IPO confers shareholder status, providing investors with voting rights in the company's annual general meetings and a sense of ownership.IPO Success StoriesHere are some of the IPO success stories in India:ICICI Lombard: Insurance GiantICICI Lombard, a well-known general insurance company, made waves in the pre-IPO market in 2009. Trading commenced at ₹70, and after an eight-year wait, it entered the stock exchange in 2017 at ₹680 per share, resulting in a remarkable nine-fold return.BSE LimitedEstablished in 1875, BSE Limited entered the pre-IPO share market in 2010 at ₹120. Seven years later, it was listed on the National Stock Exchange at ₹1069 per share, yielding an impressive eight times return.Lux IndustriesLux Industries, renowned for its innerwear range, entered the pre-IPO market in 2014 at ₹75. Within a year, it was listed at ₹735 per share, delivering a remarkable nine-fold return to its investors.ICICI PrudentialICICI Prudential offered its shares in the pre-IPO market in 2011 at ₹70. After a five-year wait, it went public in 2016 at ₹350 per share, resulting in a substantial four-fold return.Tata Technologies IPO (2023)Book built issue of Rs.3,042.51 crores. Bidding: Nov 22 - Nov 24, 2023. Listed on Nov 30, 2023, with a price band of ₹475 to ₹500 per share.ConclusionParticipating in an IPO allows investors to engage with a company during its initial phases, offering the potential for substantial returns down the line. Given India's swiftly advancing economy and the surge in IPO activity, the country stands as an attractive investment prospect for both local and global investors.Nevertheless, a prudent strategy involves thorough research, risk evaluation, and seeking expert guidance before committing to any investment decisions. Adopting a careful approach, investing in Indian IPOs can serve as a valuable diversification within one's investment portfolio.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on IPOsIs it advisable to invest in an IPO?You may invest in an IPO if the company launching it has solid fundamentals and good future prospects. It is essential to properly research about the company before investing in its IPO.Does every IPO give profit?No. Every IPO may not give profits. Investors may face significant losses if the stock price decreases after the IPO. It always invests in the IPOs of companies with good performance. Also, analyse its future business prospects before investing.Is investing in an IPO risky?IPO investing may or may not be risky. You can profit if you properly research and invest in a company with solid fundamentals. However, you may face losses if you invest in companies with poor performance. |
https://www.kotaksecurities.com/trading-account/buy-today-and-sell-tomorrow-trading-strategy/ | Buy Today and Sell Tomorrow (BTST) Trading Strategy | Understanding BTST TradingLet's start with btst meaning. In BTST trading, individuals sell assets the next day after buying them. In a conventional trade, it takes t+2 days for stock market purchases to appear in your demat account. So, you cannot profit if the price increases the next day. However, if your broker provides a BTST trading service, you might benefit from an increase in price without getting stock delivery. After acquiring the stocks, traders have two days to complete a BTST transaction. BTST is somewhere between intraday and cash market trading. Before the trading day is over, intraday traders must close out all of their positions.Trading in cash is only possible once the shares get credited to the Demat. It typically takes two days. A lot may occur in the stock market in just two days. BTST trading was introduced as a workaround for the t+2 delivery format's delay. The aim was to give traders a middle ground. You can sell the stocks for a profit in cash and use a trading method if the stock price increases during the next day's trading.Do not confuse BTST trading with intraday trading. BTST trading entails buying stocks today and selling them tomorrow. In contrast, intraday trading involves buying and selling shares on the same day.Example of BTST tradingLet’s look at an example to understand BTST trading better.Let's say a customer has Rs. 10,000 in his demat account.Through his online trading account, he purchased five shares of HCL on Monday for Rs. 2000 each.The same 5 HCL shares were sold for a price of Rs. 2100 per share on Tuesday.On Monday, Rs.10,000 gets automatically blocked in the demat account for the purchase of HCL shares (Buy Value = Rs.10,000; Sell Value = Rs.10,500). The settlement for this transaction takes place with the exchange on Tuesday (T+1 day).The customer sells the shares scheduled for delivery on Wednesday or Tuesday. The delivery of HCL shares is anticipated on Tuesday. So, the customer is permitted to sell the shares. Once the stockbroker receives the shares on Tuesday, it adds them to the client's upcoming obligation to deliver the shares. The sale gets finalised on Wednesday.Benefits Of BTST TradingThe following are some of the key advantages of the buy today, sell tomorrow strategy.It enables you to profit from the short-term volatility or rise/fall in stock prices.Since shares do not get credited to your demat account, BTST trades are exempt from Demat Debit Transaction Fees. The best trading account of reputed financial houses like Kotak Securities follow this practice in letter and spirit. So, traders need not to worry about hefty charges.If you discover intraday trading to be unprofitable, BTST will offer your transactions an additional two days to perform better.Disadvantages Of BTST TradingHere are a few downsides of BTST trading:Unlike intraday trading, The majority of stock brokers do not provide margin to the BTST service with their trading account. The orders are cash & carry. Therefore, the individual must pay the entire cost of a trade.Short delivery is another danger associated with BTST. Assume that you buy 200 shares of BTST today and sell them the next day. What if the trader who sold you the shares
failed to deliver them? He will undoubtedly suffer from the transaction. The shares will be put up for auction by the exchange, and a penalty of up to 20% of the share price will be assessed. Your shares will be credited the next day, or T+3.The price increase at the very end of a trading session may be the consequence of the market's automatic response and may not continue into the following session.SEBI modified the BTST regulation in 2020. Before initiating a BTST deal, traders must pay a 40% margin.Difference Between BTST and IntradayStocks in BTST calls are bought either based on a fundamental or technical analysis, or on the basis of the investor's confidence. Furthermore, it is important to distinguish between BTST and intraday trading. In intraday trading, the purchase and sale of assets take place on the same day. While in BTST, you buy the stock today and sell it the next day. Here's a snapshot of the differences between BTST and intraday trading.
FeatureDefinitionBTST TradingBuying shares today and selling them the next day.Intraday TradingBuying and selling shares on the same day.FeatureHolding periodBTST TradingShares are held overnight.Intraday TradingShares are not held overnight.FeatureRiskBTST TradingComparatively lower riskIntraday TradingHigher risk due to volatile market conditions.FeatureMarginBTST TradingRequired, but the amount is less than intraday tradingIntraday TradingMargin is requiredFeatureSettlementBTST TradingSettled in T+1Intraday TradingSettled in T+2 days.FeatureBTST TradingIntraday TradingDefinitionBuying shares today and selling them the next day.Buying and selling shares on the same day.Holding periodShares are held overnight.Shares are not held overnight.RiskComparatively lower riskHigher risk due to volatile market conditions.MarginRequired, but the amount is less than intraday tradingMargin is requiredSettlementSettled in T+1Settled in T+2 days.
Picking BTST stocksThe finest BTST stocks are those that are just about to make an upward breakout. For instance, the probability of a price breakthrough is indicated if XYZ's stocks were trading at Rs 110 at 3 p.m. and then shot up to Rs 115 at 3:15 pm. In this situation, traders may want to use the BTST trading method for the following day's trading session when the price rises.Common BTST Trading StrategiesIn addition to choosing the stocks for their BTST transaction, individuals should be familiar with technical trading and monitoring market news to predict price movements. The following are some of the best BTST trading strategies you should implement.1. Price Breakouts in Candlestick ChartsThe 15-minute candlestick trading chart is a good resource for identifying BTST stocks. It displays the share's highs, lows, closing and opening prices. After 2 pm, when intraday traders start closing down their positions, the concluding leg of the trading session sees the highest price movement. Between 3:00 and 3:15 pm, if a stock price rises over the resistance level, it signals an upward trend for the next trading day. The equities may be kept for BTST trading.2. Have a Stop Loss in PlaceAlthough the BTST technique might provide appealing profits, traders should exercise caution when using it. It is recommended to have a stop loss in place. You should establish a limit at which you will sell the share in order to prevent further losses in the event that the price of your stock drops the following day.3. Investing Before a Major EventOne of the ideal times to apply the BTST approach is just before an anticipated occurrence that can generate stock market volatility. This can include events like company performance reports, RBI Policy releases, election results, important corporate announcements, etc. In such instances, shares of firms surge in the near term. This makes it appropriate for the BTST trading strategy.4. Trade In Selected Highly Liquid StocksThe BTST technique requires meticulous stock price monitoring. In order to effectively follow stock prices, it is advised that traders restrict their trading to no more than two to three equities at once. Additionally, it is advised to choose highly liquid equities, such as large-cap companies, index-based stocks, etc., which are traded in significant quantities every day. This is because the trader must square off the position the next day.5. Book Profits Upon Achieving Your TargetsThe main opponent of the stock market investment is the greed and fear. Setting an entry price and a target level before trading is recommended. In order to avoid losing all of their winnings due to a market reversal, traders should book their profits once they reach their target price and control their greed. Small gains are preferable to no gains. A trader should monitor the stock carefully and adjust the stop loss if they believe the share prices may increase further. Once you reach your desired profit zone, it's a good idea to utilise a trailing stop loss.ConclusionA key component of the BTST trading method is the idea of capitalising on overnight price changes of securities. It comes with risks and difficulties despite the possibility of quick gains and the way it uses the settlement cycle to the trader's benefit. Before engaging in BTST trading, traders must carefully evaluate market volatility, liquidity, brokerage fees, and regulatory concerns. As with any trading strategy, BTST trading necessitates an in-depth knowledge of market dynamics, a systematic approach, and an acceptance of the dangers involved. Also, you will need a good online trading account. Before starting BTST trading, traders should evaluate their risk tolerance, create a solid trading plan, and keep up with market developments.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on BTST TradingWhat are the brokerage fees for BTST on the Same Day?Same-day BTST trades are considered intraday trades. In this situation, intraday trading brokerage fees will be applied.What are the risks of BTST trading?The major risk of BTST is that there is a possibility of a short delivery. It only occurs when the shareholder from whom you purchased the shares fails to deliver the stock to you before the end of the next day.What are the BTST auction penalty fees?The auction penalty fees in BTST can range from 0.5 to 1%. It's applicable when you fail to deliver stock on time.Is the BTST approach applicable to all stock types?BTST trading is not permissible for stocks that are not subject to Graded Surveillance Measures (GSM) and Additional Surveillance Measures (ASM).What time of day is best for purchasing BTST stocks?As per the experts' advice, waiting until 30 minutes to 1 hour before the stock market closes it would be beneficial if you sold them as soon as possible the next day. |
https://www.kotaksecurities.com/demat-account/convert-physical-shares-to-demat-account/ | How to convert physical shares into demat form | To convert physical shares into demat form, you'll need to undergo a process known as dematerialisation. This involves converting your paper share certificates into electronic form for storage in a Demat account. The Securities and Exchange Board of India (SEBI) has long insisted that all physical shares be converted to the digital format. This initiative aims to expedite and streamline the settlement process, eliminate fraud committed by share transfer agents, and pose challenges for shell companies dealing with the electronic mode.Now, SEBI has cracked the whip. SEBI argues that electronic bookkeeping will bring transparency to the capital markets. The tax authorities will find it easier to track shareholders and identify the real beneficiaries. Keep in mind that the lack of transparency has been bothering the government for quite some time. If you still have physical share certificates, it is time to convert physical shares to demat now. This can be done easily in a matter of two to three weeks.Key HighlightsConverting physical shares into demat involves depositories, issuers, beneficial owners, and depository participants.Demat form offers convenience, security, cost-effectiveness, and flexibility.It contrasts with re-materialisation, which converts digital securities back to physical form.It requires investors to open a demat account and undergo verification.What is dematerialisation?Dematerialisation is the process of converting paper shares and securities into digital ones, making it easier and cheaper to buy, sell, transfer, and track investments. Digital securities are stored at Central Depository Services India Limited (CDSL) and National Securities Depository Limited (NSDL), registered with the Securities and Exchange Board of India (SEBI). To dematerialise physical shares, users must open a Demat account, which functions as a digital wallet for investments.A middleman, a Depository Participant (DP), handles the conversion process. The depository then checks and cancels the physical certificates, putting the digital shares into the Demat account. Users must provide documents to prove their identity, residence, and financial status, and fill out forms to ensure their physical certificates are in good condition. Dematerialisation simplifies investor life by eliminating the hassle of dealing with paper certificates and making investment management more secure and efficient.Process of DematerialisationSEBI has mandated demat accounts for investors converting physical share certificates into digital form, reducing risk, convenience, and administrative costs. Dematerialisation starts with opening a demat account. This process involves four individuals, which are listed below.Choosing a Depository Participant (DP)Depository Participants act as intermediaries between you and the depository, assessing reputation, service quality, and fees. Financial institutions like banks and brokerage firms often provide demat account services.Filling out an account opening formThe form requires personal information such as name, address, contact number, email, financial status, and occupation, and can be accessed online or at the DP's office.Providing documents for verificationIncome proof which includes salary slips, tax returns, or bank statements.Identity proof includes passports, Aadhar card, PAN card, or driver license.Address proof includes utility bills, ration cards, or rental agreements.Proof of an active bank account is a bank statement or a cancelled cheque.A gazetted officer, bank manager, or notary public must attest all documents.Signing an agreement with the DPThe agreement outlines the terms and conditions of the demat account service, including brokerage, account maintenance, and transaction fees, and is advisable to read and understand before signing.Document verificationThe DP staff will verify all submitted documents and account opening forms to ensure the authenticity and accuracy of the provided information.Getting your demat account number and IDUpon verification of documents, the demat department will assign a unique demat account number and ID, which are crucial for online transactions like buying, selling, and transferring securities.By following the above steps, you can successfully open a demat account.Advantages of converting physical shares into demat formDematerialisation, or demat, is a secure storage method for shares, replacing physical certificates that can be lost, stolen, or damaged. It offers numerous advantages, which are listed below.Easy and convenient transactionsA demat account lets you manage transactions electronically, eliminating the need to physically visit your broker. It allows you to convert your physical holdings into electronic format.Effortless fund transferYou can link your demat account to your bank account. This helps facilitate seamless electronic fund transfers, eliminating the need for manual cheques or cheque writing.Nomination facilityDemat accounts can be operated by a nominee in your absence, ensuring transactions can be carried out even when you are unable to do so yourself.Paperless convenienceDemat accounts are eco-friendly and efficient, as shares and securities are held electronically, eliminating the need for paper documentation, reducing administrative hassles and environmental benefits.Access to loan facilityDematerialised holdings can be used as collateral for loans, as banks accept securities in demat accounts, providing financial flexibility.Easily trackable portfoliosA demat account simplifies portfolio monitoring, allowing you to monitor investments from anywhere, promoting better decision-making by keeping you engaged and informed about your investments, whether at home, in the office, or on the go.Simplified corporate benefitsDemat accounts simplify corporate benefits like dividends, interest, and refunds by directly crediting them into the account, eliminating the need for manual processing. Other corporate actions like stock splits, bonus shares, and rights shares are also seamlessly updated in your demat account.Versatility for multiple purposesDemat accounts offer a versatile solution for managing various investments, including shares, debt instruments, mutual fund units, government bonds, and ETFs, making them a convenient and efficient way to manage various types of investments.Dematerialisation enhances security, convenience, efficiency, and versatility in handling securities compared to physical certificates. Looking at the benefits allows the investors to navigate the difficulties of the stock market more effectively in the digital age.Difference between dematerialisation and re-materialisationThe table below presents the difference between the dematerialisation and rematerialisation.
AspectConversion ProcessDematerialisationConversion of physical securities into digital format.RematerialisationConversion of digitally held securities into physical format.AspectCost and FeesDematerialisationDemat accounts may involve annual maintenance charges and transaction fees determined by the broker.RematerialisationPhysical securities do not entail maintenance charges.AspectSecurity RiskDematerialisationSecurities in digital form mitigate risks of misplacement.RematerialisationPhysical form poses risks of fraud, theft, misplacement, and forgery.AspectIdentification NumberDematerialisationDemat accounts do not assign distinct identification numbers to securities.RematerialisationPhysical securities come with unique identification numbers issued by the RTA.AspectTransaction MethodDematerialisationAll transactions are conducted electronically.RematerialisationTransactions are conducted physically.AspectMaintenance ResponsibilityDematerialisationDepository participants such as NSDL or CDSL maintain the Demat account.RematerialisationThe company of the security aids in maintaining the account.AspectProcess ComplexityDematerialisationDematerialisation involves straightforward steps and is obligatory for share trading.RematerialisationRematerialisation can be intricate, requiring expert guidance and significant time.AspectDematerialisationRematerialisationConversion ProcessConversion of physical securities into digital format.Conversion of digitally held securities into physical format.Cost and FeesDemat accounts may involve annual maintenance charges and transaction fees determined by the broker.Physical securities do not entail maintenance charges.Security RiskSecurities in digital form mitigate risks of misplacement.Physical form poses risks of fraud, theft, misplacement, and forgery.Identification NumberDemat accounts do not assign distinct identification numbers to securities.Physical securities come with unique identification numbers issued by the RTA.Transaction MethodAll transactions are conducted electronically.Transactions are conducted physically.Maintenance ResponsibilityDepository participants such as NSDL or CDSL maintain the Demat account.The company of the security aids in maintaining the account.Process ComplexityDematerialisation involves straightforward steps and is obligatory for share trading.Rematerialisation can be intricate, requiring expert guidance and significant time.
Each process has its unique identification and mode of transaction. Dematerialisation is generally easier to execute compared to rematerialisation.How to convert physical shares into dematHere is a step-by-step guide on how to convert physical shares into demat.1. Open a beneficiary account with a Depository Participant (DP):The first step is toopen a demat accountwith a DP. A DP is an intermediary between you and the depositor. The DP is necessarily registered with SEBI. You could open a demat account even with your bank, which can also function as a DP. Ensure that the names in the demat account and the physical share certificates match.2. Fill out the request form:Fill out a dematerialisation request form once your demat account is opened. Take your physical shares with you and surrender them to your DP while filling out the form. Do not forget to write ‘Surrendered for dematerialisation’ on every share certificate.3. Submit documents:Once you submit all the documents, your DP will send an email or SMS to the Registrar and Transfer (R&T) agent. The R&T agents have been entrusted with the job of maintaining your records.4. Dematerialisation registration:A dematerialisation registration number will be generated. This will be fed into your dematerialisation request form and sent to the T&R agent with your original share certificates.5. Validity check:The T&R agent will check the authenticity of the documents you have submitted.6. Name change:The process to replace your name with your DP’s name begins now. Also, the number of shares getting dematerialised will be recorded in the Register of Members’ account. The Register of Members is the repository that stores the details of the shareholders.7. Acknowledgement:Once this process is completed, an acknowledgement is generated from the Register of Members saying the requisite changes have been made. The number will be forwarded to your DP.8. Shares credited:Your dematerialised shares will get credited into your demat account.ConclusionThe market watchdog believes that electronic bookkeeping is far easier and reduces the risk of forgery. Moreover, it will boost investor confidence and bring much-needed transparency into the securities market. So, this is the right time to open your demat account. Many people believe that converting physical shares into demat is a cumbersome process. But that is not true. The process is fairly simple and can be completed within two to three weeks. Once the shares are dematerialised, it would result in more convenience for the investors. The buying and selling of shares could then be done in seconds. The demat form also guards against any physical damage to the shares.Disclaimer:This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read thefull disclaimer here.Investments in securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI prescribed Combined Risk Disclosure Document prior to investing. Brokerage will not exceed SEBI prescribed limit.Read More:Tips to survive a stock market crashHow to evaluate a buyback offerHow does the share market work?Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on convert physical shares into demat accountIs it compulsory to demat physical shares?India's Securities and Exchange Board (SEBI) has mandated the dematerialisation of physical shares for trading purposes which aims to streamline the trading processes and improve market transparency.What are physical form shares?Physical form shares are paper-based certificates issued by companies to shareholders, indicating ownership of a specific number of shares. Traditionally, investors held these certificates as proof of ownership. However technology advances and regulatory changes are shifting towards electronic or demat form shares.Can I dematerialise my share certificates?Dematerialisation converts physical share certificates into electronic or demat form, requiring opening a demat account with a Depository Participant. Submitting physical certificates and required documentation, electronic shares are credited to the demat account, allowing electronic trading. |
https://www.kotaksecurities.com/demat-account/transfer-shares-from-one-demat-account-to-another/ | How to transfer shares from one demat account to another | Key highlightsIt is easy to transfer shares between demat accounts.You can transfer shares online or offline.Ownership of shares does not change when you transfer them to your other demat account. Hence, there are no applicable taxes.If an investor transfers shares to a demat account of another individual, capital gains tax will be applicable. The amount of tax depends on the holding period.The broker may charge a fee for handling the transfer request, but if the previous account is closed, no fee will be charged.What is transfer of shares?Transfer of shares is the process of transferring the ownership of existing shares from the present holder to another individual. An owner of shares can sell them at any time to obtain cash or change the composition of his investment portfolio. Share transfers popularly happen either through selling or gifting.Here are some reasons why you may want to transfer your shares:You have multiple demat accounts, and you want to consolidate all the shares in a single account.You want to separate the shares into different accounts. This is good for long-term plans like retirement, children’s education or marriage.You want to change your existing broker for some reason.You want to go for a full-service broker, like Kotak Securities, to get more comprehensive services like analysis reports and trading tips.
Beat the brokerage bluesSwitch to zero-brokerage trading in 4 easy steps!Open Demat Account
The process to transfer shares from one demat to anotherYour shares can be transferred from one demat account to another using the guide given below.Step 1:Get the Delivery Instruction Slip (DIS) from your current broker. If your current broker is Kotak Securities, you can get it on the Kotak Neo App. Just follow this path:
Go to Profile - Additional Services - Services & Support - Raise a Service Request - Raise a DIS requestStep 2:Fill out the Delivery Instruction Slip (DIS) and submit it to your current broker. To fill the DIS with Kotak Securities, follow this guide:Select appropriate box for Market Trade OR Off-Market Trades OR Inter Depository Transfer (i.e. NSDL to CDSL or vice versa).Accordingly fill target account details. CM BP ID, CM Name, Market Type and Settlement Number for Market Trades.For Off-Market trades, fill out Target DP ID, Target Client ID, Target DP name and provide appropriate reason code and reason/ purpose and consideration (if applicable).For Inter Depository Transfer, in addition to Target DP ID, Target Client ID and Target DP name, please provide Off-Market details i.e. Reason code, reason/purpose and consideration (if applicable) OR settlement details.Specify the ISIN of security to be transferred. Confirm this with your transaction statement. A maximum of 4 ISINs can be transferred per DIS. Use multiple DIS if you wish to transfer more than 4 ISINs.Specify the name of the security to be transferred, its quantity in figures and in words.The account holder’s signature has to be affixed as per the signature recorded in the Kotak Securities demat account.Once, you have filled the DIS, you’ll need to submit it at a Kotak Securities branch. Scanned copies of DIS will not be executed. We will fill the instruction reference number and execution date once the DIS is executed.Step 2:The broker will forward the DIS form to the Depository.Step 3:The Depository will transfer your current shares to the demat account.Step 4:Once the transfer is completed, your transferred shares will appear in your new Demat account.Who is involved in the transfer of shares from one demat account to another?Numerous parties are involved transferring shares from one demat account to another to guarantee a seamless and safe process. They are:Depository Participant (DP)Transferor (Seller) and Transferee (Buyer)DepositoryRegistrar and Transfer Agent (RTA)Stock ExchangeTypes of share transfersThere can be two types of share transfers. They are as follows.1. Intra-depository transfer:If the transfer is within a depository, it is called an intra-depository transfer.2. Inter-depository transfer:An inter-depository transfer involves transferring shares from one depository to another.The Manual ProcedureFor the manual procedure, you will have to get the Delivery Instruction Slip (DIS) from your broker. You will have to fill out some mandatory fields in the DIS. These include:1. Beneficiary owner ID (BO ID):It is the 16-digit ID of the broker. You will have to mention the ID of both the brokers involved.2. International securities identification number (ISIN):It is a unique identification number for identifying the shares in a demat account. You must mention this number to specify the shares that need to be transferred.3. Mode of transfer:If it is an intra-depository, you must choose the ‘off market transfer’ option. Otherwise, it’ll be an inter-depository transfer. Once you fill out the form, you must sign it. The signature needs to match the one saved in the DP database. After this, you need to submit the DIS slip to the current broker. Your broker may levy some charges for the transfer. This amount may vary from one broker to another. However, the broker cannot charge any fee if you close the demat account.The Online ProcedureThere are two ways to transfer shares online from one demat account to another. One is via Central Depository Services Limited (CDSL) and another is through National Securities Depository Limited (NSDL). CDSL has a feature is called ‘EASIEST’ while NSDL has a ‘Speed-e’ facility to help you transfer shares from one demat account to another online. You need to register yourself on these websites to use these. The process for this is as follows:Visit the website.Register for EASIEST or Speed-e facility.Fill in the details and submit the form.Take a printout and give it to the DP.The DP will forward the transfer request to CDSL, which will verify your details. You will get the login credentials in your email within a couple of days.Login with the credentials and transfer your shares.The time required to transfer sharesYour current stockbroker will usually take 3 to 5 working days to transfer shares from your existing demat account to the new one. However, this may vary from one broker to another. Generally, online transfer of shares takes place faster than manual transfers.In addition, if there are weekend holidays, it may take a few more days. The depositories are closed on national holidays. Some brokers may not work on those days. So, your transfer request gets processed when the depositories reopen on the next working day.Tax implications when transferring sharesShares can be transferred to different Demat accounts of the same individual or other persons. In case of transfer of shares to the same person, there will be no added tax liability. However, note that the capital gains tax will be calculated for the period from the initial date of purchase of the stock. The transfer date will not affect it.If you transfer shares to another individual, you will have to mention the reason for the transfer. There will be no extra tax liability if you gift the shares. However, it should not exceed the specified limit. Here, taxes are calculated from the original purchase date.Capital gains tax is applicable if you transfer the shares you have received initially via a transfer.Things to keep in mind while transferring sharesThe present broker may levy a charge for transferring the shares. These charges usually differ from one broker to another.If the investor wants to close the demat account, he must return any unused DIS to the broker.Read more:How to convert physical shares to dematAllied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs about transferring shares from one demat account to anotherWhat are the rules for the transfer of shares?Transferring shares requires proper paperwork, verifying signatures, and following company-specific limitations. You may have to pay stamp duty in some instances.What are the documents required for share transfer?A Demat Instruction Slip (DIS), a share transfer deed and the relevant Know Your Customer (KYC) paperwork are the necessary documents for share transfers.How do you transfer shares from one demat account to another online?To transfer shares from one demat account to another online, use the 'EASIEST' facility of CDSL or the ‘Speed-e’ facility of NSDL on their website. Fill in the required details and send a copy to your DP. After verification, the shares will be transferred in a few days.Can I transfer all shares from one demat account to another?You can transfer all the shares from one demat account to another. For this, you can initiate a full account transfer. It entails completing the relevant papers and providing the details of both demat accounts.Are there any charges to transfer shares from one demat account to another?Yes, the broker may apply some charges for transferring shares from one demat account to another. This amount may vary from one broker to another.Can you consolidate different demat accounts?Yes, you may consolidate more than one demat account by transferring all your holdings into one account. However, you can use multiple demat accounts without having to close any of the existing demat accounts.How do you legally transfer shares?Shares can be legally transferred by completing a stock transfer form. You must sign it in the presence of witnesses and submit it to the company's registrar or through a Depository Participant (DP).How can I transfer shares in NSDL online?You can use the Speed-e facility of NSDL to transfer shares online. Register on the platform and provide the necessary details. The shares will be transferred in a few days after due verification. |
https://www.kotaksecurities.com/share-market/share-market-basics/ | No title found | The share market is really important for a country's economy. It's where companies, big and small, offer parts of their business to people who want to invest. It's not just about the famous Bombay Stock Exchange; anyone can get involved. In this article, we'll break down the complications of the Indian share market to confidently explore the world of investing.What is a share market?A stock market, which is also sometimes called a share market, is like a big money place where people trade different things, like stocks, bonds, mutual funds, and more. The main difference between them is what you can trade. In a stock market, you can trade lots of different financial stuff, making it a big hub for investments. It's a place where regular people and big organisations can buy and sell parts of companies, government bonds, and other money-related things to help with investing and moving money around in the economy.But when we talk about a share market, we're talking about a smaller part of the stock market. In a share market, it's all about buying and selling parts of companies, which we call shares or stocks. These shares represent a piece of a company, and people can buy or sell them to have a share in that company's money and profits. So, while we sometimes use the words "stock market" and "share market" the real difference is that a stock market has more things to trade, while a share market is all about trading pieces of companies.How does a share market work?The share market is a network of exchanges, clearing companies, and brokerage firms. The share market works in two main parts. They are as follows:Primary Market:It is the marketplace where the companies issue their shares for the first time. This process is called as the IPO (Initial public offering). The companies enter the share market when they launch the IPO and list themselves on the stock exchanges.Secondary Market:It is the marketplace where investors buy and sell shares of the companies listed on stock exchanges via IPOs. Stock exchanges are platforms that facilitate the buying and selling of financial securities.The working process of the share market involves the following process.First, the companies issue the shares in the primary market. The interested investors can apply for the IPO and buy the shares. The company receives the funds generated from the sale of shares. After the IPO, these shares are listed on the stock exchanges.The listed shares are now available in the secondary market, where trading takes place. The investors who purchased the shares in the IPO can sell the shares in the secondary market.Brokerage firms are financial institutions that facilitate the buying and selling of shares. They work with the stock exchanges to offer these services. The broker receives the buy or sell order placed by an individual. Then he will find a suitable match for the order.Once the right match is available, the broker executes the transaction. The broker provides the necessary information regarding the transaction to the stock exchange, buyer, and the seller. Nowadays, the entire process is carried out electronically.The stock exchange authorises and completes the transaction. The buyer shall receive the shares of the stock he purchased. The seller receives due funds equal to the present market value of the shares.In this way, the process continues in the share market. The share market keeps working to facilitate the trading of shares.
Why invest in the share market?We buy shares in companies to help our money grow over time. Some people worry that investing in shares is risky, but lots of research has proved that if you pick the right shares and hang on to them for a while, like five to ten years, they can make your money grow even faster than things like houses or gold, and they can beat the rising cost of living (inflation). So, investing in the right shares for the long run can be a smart way to make your money grow.Stockbrokers used to congregate around Banyan trees to make stock dealings. They had no choice but to move from one location to another as the number of brokers grew. Finally, in 1854, they moved to Dalal Street, which is now home to Asia's oldest stock market, the Bombay Stock Exchange (BSE). It is India's first stock exchange and has played a significant role in the Indian financial markets since then. Even today, the BSE Sensex is one of the benchmarks used to assess the strength of the Indian economy and financial system.The National Stock Exchange, or NSE, was founded in 1993. Trading on both exchanges - NSE and BSE - evolved from an open outcry system to an automated trading environment within a few years.This demonstrates that Indian stock markets have a long and illustrious history. Yet, on the surface, especially when considering investing in the stock market, it might appear to be a maze. However, once you get started, you'll see that the investment principles aren't that difficult. One of the basics of investment fundamentals is financial planning.Read more about the
importance of financial planning.Important stock market terms
TermSensexDefinitionSensex includes the top 30 listed stocks on the BSE in terms of market capitalisation.TermDemat AccountDefinitionA Demat account is an online repository of shares and other securities.TermSEBIDefinitionSecurities and Exchange Board of India (SEBI) is the market regulator. It is responsible for monitoring all the transactions and other activities of the all market participants.TermTradingDefinitionIt refers to the process of buying and selling stocks.TermStock ExchangeDefinitionIt is a platform where the buying and selling of securities takes place.TermIndexDefinitionA stock index is a collection of selected stocks. It is used to track the performance of the whole market or a particular market segment.TermPortfolioDefinitionA collection of various assets of an investor. It includes various assets like gold, equities, funds, derivatives, real estate, cash equivalents, bonds, etc.TermBull MarketDefinitionA bull market is the condition of a share market in which prices keep rising.TermBear MarketDefinitionA bear market is a long andng, continuous period where asset prices fall sharply.TermNifty50DefinitionIt is a collection of the top 50 firms listed on the National Stock Exchange (NSE).TermStock Market BrokerDefinitionA SEBI-registered individual or firm that handles transactions, including buying and selling stocks, on behalf of their customers.TermBid PriceDefinitionThe bid price is the maximum amount a buyer will pay to purchase a specific number of shares.TermAsk PriceDefinitionThe lowest price at which a seller wants to sell his shares is the ask price.TermIPODefinitionInitial public offering, or IPO, refers to selling securities to the public for the first time.TermEquityDefinitionEquity is the amount a shareholder would get when a company is liquidated.TermDividendDefinitionA dividend is a cash or another benefit that a company gives its shareholders. It can be distributed in a number of ways, like cash, stocks, or another kind of payment.TermBSEDefinitionBombay Stock Exchange (BSE) is India's largest and oldest stock exchange. It was founded in 1875.TermNSEDefinitionThe National Stock Exchange is the fourth largest stock exchange globally in terms of trading volume. It introduced electronic trading in India.TermCall Put OptionDefinitionAn investor may acquire the underlying securities by using a call option. They may sell shares of the underlying security by using a put option.TermTypes of Stock MarketDefinitionThere are 2 types of stock markets: Primary Market: It is the place where companies issue their shares and other securities for the first time. Secondary Market: Here, investors trade securities among themselves. The companies issuing the shares are not involved in the process.TermAsk and CloseDefinitionAsk price is the minimum price a seller would accept for the stock. The closing price refers to the final price at which a stock trades in a trading session.TermMoving AverageDefinitionIt is a stock indicator frequently used in technical analysis to provide an average price that is updated continuously. A rising moving average suggests an uptrend. A descending moving average suggests a downward trend.TermDefinitionSensexSensex includes the top 30 listed stocks on the BSE in terms of market capitalisation.Demat AccountA Demat account is an online repository of shares and other securities.SEBISecurities and Exchange Board of India (SEBI) is the market regulator. It is responsible for monitoring all the transactions and other activities of the all market participants.TradingIt refers to the process of buying and selling stocks.Stock ExchangeIt is a platform where the buying and selling of securities takes place.IndexA stock index is a collection of selected stocks. It is used to track the performance of the whole market or a particular market segment.PortfolioA collection of various assets of an investor. It includes various assets like gold, equities, funds, derivatives, real estate, cash equivalents, bonds, etc.Bull MarketA bull market is the condition of a share market in which prices keep rising.Bear MarketA bear market is a long andng, continuous period where asset prices fall sharply.Nifty50It is a collection of the top 50 firms listed on the National Stock Exchange (NSE).Stock Market BrokerA SEBI-registered individual or firm that handles transactions, including buying and selling stocks, on behalf of their customers.Bid PriceThe bid price is the maximum amount a buyer will pay to purchase a specific number of shares.Ask PriceThe lowest price at which a seller wants to sell his shares is the ask price.IPOInitial public offering, or IPO, refers to selling securities to the public for the first time.EquityEquity is the amount a shareholder would get when a company is liquidated.DividendA dividend is a cash or another benefit that a company gives its shareholders. It can be distributed in a number of ways, like cash, stocks, or another kind of payment.BSEBombay Stock Exchange (BSE) is India's largest and oldest stock exchange. It was founded in 1875.NSEThe National Stock Exchange is the fourth largest stock exchange globally in terms of trading volume. It introduced electronic trading in India.Call Put OptionAn investor may acquire the underlying securities by using a call option. They may sell shares of the underlying security by using a put option.Types of Stock MarketThere are 2 types of stock markets: Primary Market: It is the place where companies issue their shares and other securities for the first time. Secondary Market: Here, investors trade securities among themselves. The companies issuing the shares are not involved in the process.Ask and CloseAsk price is the minimum price a seller would accept for the stock. The closing price refers to the final price at which a stock trades in a trading session.Moving AverageIt is a stock indicator frequently used in technical analysis to provide an average price that is updated continuously. A rising moving average suggests an uptrend. A descending moving average suggests a downward trend.
ConclusionUnderstanding the basics of stock market investment may seem daunting at first, but it will empower you to make informed choices. Additionally, stock exchanges like the BSE and NSE have played critical roles in global finance throughout history. Over the long term, stocks can provide inflation-beating returns, making them a more attractive investment than real estate or gold.However, determining the size and type of investments requires taking into account factors such as financial goals, age, and risk tolerance. Moreover, you can invest effectively in the stock market by conducting thorough research, staying current on market trends, and avoiding short-term thinking. Also, by leveraging the expertise and services of Kotak Securities, you can navigate the stock market with confidence and work towards securing your financial future.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on stock market basicsWhat is stock market trading?Stock market trading refers to the buying and selling of securities in the stock market.How can I learn about the share market?Understanding the share market takes time and effort. It’s always a good idea to do ample research and understand the risks involved before investing money. Here are some ways that will help you understand the share market better:Online resources: Refer to free online courses and tutorials about the share market.Books: There are plenty of beginner’s guides available in the form of published books, if you are a bookworm.Professional advice: Consult a financial broker or advisor for guidance.What is Sensex and Nifty?The S&P BSE SENSEX (also known as the BSE 30 or simply the SENSEX) is a stock market index that comprises of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE) in India. It is considered as a barometer of the Indian economy and is the most widely tracked equity index in India.Nifty 50 is an index of 50 companies listed on the National Stock Exchange (NSE) of India. It is a market capitalisation weighted index, which means that the weight of each company in the index is proportional to its market capitalisation. The Nifty 50 index is considered as a benchmark index for the Indian stock market and is widely used to measure the performance of the Indian stock market.What are the 4 types of share markets?The 4 types of share markets in India are primary share market, secondary market, equity market, and derivative market.How many shares of stocks should I buy?You need to consider certain factors while deciding how many shares of stocks you should buy. These include the availability of capital, diversification and analysing whether you need more shares or not.Which share is the best for beginners?Beginners must buy shares of blue-chip companies that are dominant players in their segment.What is the difference between stocks and shares?Essentially, they are the same. Both represent your ownership of a company. However, ‘stock’ refers to part-ownership in one or more companies and ‘share’ refers to the unit of ownership in a single company.How would you choose a stock for your portfolio?Choose stock basis profitability, risk, valuation, etc. You can find these analytics on a trading website.What instruments are traded in stock markets?Equity shares of listed companies are traded in stock markets and other instruments like index futures, stock futures, VIX futures, etc.What is the bear and bull market?When stock prices rise, and there is an uptrend, it is called a bull market. Conversely, if stock prices fall and there is a downtrend, it is called a bear market. |
https://www.kotaksecurities.com/articles/sensex-crosses-69k-mark-decoding-the-rally-and-what-lies-beyond/ | Sensex Crosses 69K Mark: Decoding the Rally and What Lies Beyond | Kotak Insights | Date 08/12/2023Indian stock markets are in the headlines for all the right reasons in recent days.The market benchmark indices touched their lifetime highs this week, with theSensexending above the69,000 mark.This is a milestone, especially among momentum investors enjoying the market’s stellar performance this year.(Now you can invest in high momentum and top 20 benchmark stocks.Click here to know more.)For investors and traders, this rally brings up a question,"Is this the right time to enter into the market, or will there be a potential correction from these highs?"Let us answer this by taking a closer look at this rally and the reasons behind it.The Rally UnveiledFirst things first, let us understand what this rally is about.For the first time, the Sensex crossed the 69,000 mark this week on Tuesday, following a gain of 431 points. It is currently trading past the 69,400 mark.More than half of the sectoral indices on the BSE hit new highs and the combinedmarket capitalisationof BSE-listed companies increased by Rs 3 trillion to Rs 346 trillion.Furthermore, the Nifty50 index rose and closed at the 20,900 mark.This outperformance came on the back of the rally seen in Adani Enterprises and Adani Ports & SEZ, which rose over 15%.However, the markets have been witnessing buying interest for consecutive days this week.Here are a few factors pumping this rally…The Election FactorFirstly, we have the elections.Indian stock market participants are seemingly buoyed by the results of the recently concluded state elections.TheBharatiya Janata Party's (BJP)triumphant victories in three out of five states have elevated expectations for sustained political stability at the Centre and ongoing economic reforms.The outcome has exceeded market expectations, as the elections were anticipated to be a closely contested affair in Madhya Pradesh, Chhattisgarh, and Rajasthan.In fact, the results of this election has also set a canvas for a pre-election rally, wherein another major market upswing can’t be ruled out in the run-up to the general elections.GDP TriumphSecond up we have the recently announcedGDP numbersfor the second quarter (Q2) – covering months of July, August, and September – of the current financial year (FY24).The Ministry of Statistics and Programme Implementation (MoSPI) showed that India’sGross Domestic Product (GDP), which is the measure of a country’s economic output, had grown by 7.6% in Q2.The growth surpassed the Reserve Bank of India’s (RBI) estimate of a 6.5% expansion, and the growth is higher than the 6.2% growth seen in the year-ago period.This makes India the fastest growing major economy.With this, India remains on the growth path despite multiple global headwinds arising from economic and geo-political uncertainties.Noticeably, while the share of private consumption in the GDP declined, there was an increase seen in the share of investments. This suggests that investments are gaining momentum.In all, the optimism surrounded by this growth has given the Indian markets a boost.FPI’s Return to the ArenaLastly, we have theforeign portfolio investors(FPIs) betting on India.After turning net sellers in the past two months, FPIs made a comeback in the Indian stock markets in November.They pumped inRs 9,000 crorein Indian equities last month amid a fall in U.S. treasury bond yields and the resilience of the domestic market.The inflows can also be attributed to the remarkable listings of twoinitial public offerings(IPOs) – IREDA IPO andTata Technologies IPO– potentially indicating a positive trend for foreign investors.Not only this, but FPI also made a net investment of Rs 14,860 crore in the debt market last month, the highest in six years.Invest or Wait?So, the question looms - should you enter the markets now or wait and watch from the sidelines?Remember, the market is a tempting playground, and missing out on the action can be disheartening. However, it is also essential to tread carefully.Thesecond-quarter results(Q2FY24) of top companies are giving investors a reality check, suggesting that the rally still has plenty of legs.Additionally, theIPO marketis currently buzzing with excitement. This optimism is contagious, and if retail investors andFIIs keep pouring in money, another market high might not be a distant dream.However, there are always contradictory narratives.Some market participants caution that Indian markets are looking expensive and that foreign funds might find better deals in other emerging markets as theFedstops raising interest rate and eventually pivots lower.Many wonder whether they should follow a wait-and-watch approach as markets trade above their long-term valuation multiples.So, as traders and investors, it's crucial to keep the expectations in check.The Right Approach?Within the dynamic and tempting market landscape, patience and discipline emerge as guiding principles.Embrace what's working well at the moment, but don't let the fear of missing out drive your decisions.The ideal approach would be to havean effective trading strategythat can weather both bull runs and bear markets and has enough risk management measures.Cautiously optimistic is the word of the game.So, buckle up, and let's see where the Sensex is headed in 2024!For a more thorough market outlook, tune into our latestStocks and Strategy – December 2023 Webinarwhere our research team discusses the stocks and sectors that could perform well in this market.Until then - Happy Learning!Sources:Kotak Securities, BSE, NSE, Economic Times, MoSPI, RBIDisclaimer:This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimerhere. |
https://www.kotaksecurities.com/articles/doms-industries-joins-the-indian-ipo-bandwagon/ | DOMS Industries Joins the Indian IPO Bandwagon | About DOMS IndustriesDOMS Industries is one of India’s leading stationery and art product manufacturers, selling a wide range of stationary kits, office and art supplies in over 40 countries. The company has a multi-channel PAN India presence with 100+ stockists, and their core products, such as pencils and mathematical instrument boxes enjoy a healthy market share of nearly 29% and 30% by value, respectively, in FY 23.With its lineage tracing back over 4 decades, the company has 11+ manufacturing facilities in India with over 3770+ SKUs.Financial SnapshotDOMS Industries has strengthened its financials with time, exhibiting robust growth. Given below are some of its key financials for FY 23:
RevenueExpensesRs. 12,118.90 millionRs. 10,777.61 millionRevenueProfit / Loss Before TaxRs. 12,118.90 millionRs. 1,387.63 millionRevenueEarnings Per ShareRs. 12,118.90 millionRs. 18.29RevenueTotal AssetsRs. 12,118.90 million6,397.83 millionRevenueRs. 12,118.90 millionExpensesRs. 10,777.61 millionProfit / Loss Before TaxRs. 1,387.63 millionEarnings Per ShareRs. 18.29Total Assets6,397.83 million
DOMS Industries IPO DetailsDOMS Industries plans to raise Rs 1200 crore from its IPO, of which Rs 350 crore comprises fresh equity and the rest Rs 850 crore comprisesoffer of sale(OFS). The offer made through the book-building process has 75% reserved for qualified institutional buyers, 10% for retail investors, and 15% for non-institutional investors.Given below are the details of theDOMS Industries IPOas per itsDraft Red Herring Prospectus(DHRP):
IPO Subscription Starts OnIPO Subscription Ends On13th December15th DecemberIPO Subscription Starts OnIPO Price13th DecemberRs 750 - 790 per equity shareIPO Subscription Starts OnIPO Lot Size13th December18 sharesIPO Subscription Starts On13th DecemberIPO Subscription Ends On15th DecemberIPO PriceRs 750 - 790 per equity shareIPO Lot Size18 shares
With the funds raised, the company plans to:Set up a new manufacturing facilityFulfill general corporate purpose, including implementation of strategic initiatives and expanding branches, among othersHow to Apply for DOMS Industries IPO?With Kotak Securities, you can easily apply for this IPO. All you need to do is:Log into your Kotak Securities Demat account and select current IPO sectionSpecify the IPO details, enter the number of lots and the price you wish to apply forEnter your UPI ID, click on submit to place your bid with the exchangeYour UPI app will receive a notification for blocking fundsUpon approval, your funds will get blockedSumming it UpApplying for a DOMS Industry IPO allows you to participate in India's rapidly growing stationary and art market, which is pegged to grow at a CAGR of 9.7% from 2023 to 2029. With its strong presence in the market, DOMS Industries is well poised to cater to the increasing needs of students and offices, and applying for its IPO can help you create wealth.That said, it's essential for you to conduct due diligence and carefully watch the valuation before subscribing. |
https://www.kotaksecurities.com/articles/usdinr-treads-water-while-jpy-traders-brace-for-impact/ | Currency 8th December: USDINR Treads Water While JPY Traders Brace for Impact | In the dynamic realm of foreign exchange, the USDINR pair appears to be dancing within a range, exhibiting a sense of stability. However, the real spectacle is unfolding on another stage as the Japanese Yen (JPY) traders brace themselves for potential market fireworks. The reason behind this anticipation lies in the subtle hints dropped by the central bank, suggesting an early exit from the current monetary easing measures.For USDINR, the recent trend indicates a certain level of equilibrium. The pairing seems to have found a comfortable range, with neither bulls nor bears gaining a decisive upper hand. This stability might be reassuring for some, providing a predictable environment for traders. However, the question that looms is whether this calm is the precursor to a storm, or if the pair will continue its lateral movement in the near future.On the flip side of the forex spectrum, JPY traders are in for an adrenaline-pumping ride. The central bank's signals of an early exit from monetary easing have injected a sense of uncertainty and excitement into the market. Traders are now left to decipher the nuanced language of policymakers, attempting to gauge the potential impact on the Japanese Yen.As speculation brews, market participants are closely monitoring any official statements and economic indicators that could offer clues about the central bank's intentions. The anticipation among JPY traders underscores the interconnectedness of global economies and the ripple effects that a shift in monetary policy in one corner of the world can have on currency markets.In conclusion, while USDINR may currently be treading water, the real intrigue lies in the unfolding narrative of the Japanese Yen. As the central bank drops hints, traders must navigate the uncertainty with precision, ready for potential market turbulence in the days to come. The forex stage is set, and all eyes are on the central bank's next move. |
https://www.kotaksecurities.com/share-market/what-is-september-effect/ | What is the September Effect? | Key HighlightsSeptember Effect refers to a market anomaly where the September stock market performs relatively poorly.According to some, investors' consumption of cash at the end of the season may be the reason for the September Effect.Some statistical evidence may exist for the September Effect, but it depends on what period you examine.According to most economists and market professionals, the September Effect does not exist.Understanding September EffectWhen it comes to the September Effect, there is no cause-and-effect relationship, and it is not limited to any particular nation's markets. However, there are few logical explanations as to why the September stock market occurs.From 1928 to 2021, the S&P 500 index has averaged declines during September. While September isn't the worst month of stock-market trading every year, it is an average observed over nearly a century. However, for some years, September has delivered the best results.Though the September Effect violates the assumption of efficiency in the market, it is not overwhelming and is not predictive in any useful sense. This is because the time period under consideration matters greatly.For example, an individual who bet against September over the last 100 years would have made a profit. In contrast, if the investor had made that bet only since 2014, he would have lost money.Reasons for the September EffectHere are the possible reasons for the September Effect:The general belief is that investors are ready to lock in gains and tax losses by September after they have returned from summer vacation.It is also believed that investors liquidate stocks to cover schooling costs for their children in September.Since investors expect the September Effect to occur, market psychology takes hold, and sentiment turns negative as a result.It is also possible that institutional investors will sell towards the end of September as the third trading quarter comes to a close. As the year comes to an end, they can lock in some profits.Many significant mutual funds cash in their holdings to harvest tax losses at the end of the quarter, which could be another reason.Although economists dismiss the September Effect as irrelevant, they also acknowledge that if it ever existed, traders who were aware of it would now act in such a way that it would disappear. In addition, large declines in September have not been as frequent as they were before 1990. A potential explanation is that investors have reacted by prepositioning, i.e. selling stock more in August.The October Effect vs. September EffectIn the same way that the September Effect has no precedent nor cause-effect reasoning, the October Effect also has no cause-effect reasoning or precedent. As opposed to the September effect, the October effect often sees positive market returns and performance.While the September Effect has negative performance over 100 years, the October Effect has shown positive performance, even in times of economic turmoil and unforeseen, usually market-devastating events. Even though experts have seen the October Effect decline in recent years, it still seems to have a positive impact on the market, with only anecdotal evidence explaining this.The September Effect is also a market anomaly rather than an event with a causal relationship like the October Effect. This also suggests that October can be a negative month for the stock market. However, October's 100-year history is generally positive, even though it was the month of the 1907 panic, 1929's Black Tuesday, Thursday, and Monday in 1929, and Black Monday in 1987.However, September has seen an equal amount of disruption. During this month, the first Black Friday occurred in 1869, and two major dips occurred in the DJIA after 9/11 and during the subprime crisis in 2008. October Effects are also dependent on the period under consideration, much like the September Effect. The October Effect is also discounted by economists and analysts, and if it once existed, it seems to have disappeared as well.Is the September Effect Real?September Effects may or may not exist, depending on the time periods under consideration.
The September stock market has historically been the worst-performing month for stocks over the last century. Additionally, it has been the most frequent month of decline over the same period. However, most economists attribute the effect to chance (one month must be the worst, after all).Researchers took even longer time horizons (using U.K. data since 1693) and found no evidence at all for the Effect. For 3 out of 6 sub-periods of 50 years, September returns are higher than the other months, although the difference isn't statistically significant.ConclusionThe September Effect is an unusual occurrence in which stocks turn negative in September. Despite September's worst performance and most negative performance over the past century, the time period under consideration matters greatly. There is no definitive science or rationale for why September has historically been the worst month for stocks. However, the sample size is large enough to suggest that investors should be prepared for the September stock market decline.
FAQs on the September EffectIs September a good month for the stock market?In general, September is not considered a suitable month for the stock market. For more than a century, September has been considered the worst month for the stock market. However, the September effect is an anomaly in the market.What happens in September in the stock market?It is said that stocks take a turn for the worse in September, an anomaly in the market. It is true that September has historically been one of the worst-performing and most often negative months, but the time period under consideration is very important.Which month has been the worst for stocks?According to historical data, September was the worst-performing month for stocks, losing on average around 1% over the past century. However, the stock market is unpredictable. Therefore, an investor should do their research prior to investing. |
https://www.kotaksecurities.com/share-market/what-is-black-monday/ | What is Black Monday? | Key TakeawaysThe black Monday crash was not triggered by a single news event but resulted from a combination of factors,Protective measures like trading curbs and circuit breakers have been implemented since Black Monday.A well-devised, long-term investment strategy provides the confidence for investors to remain steadfast amid market volatility.Causes of Black MondayThe significant drop in the stock market didn't happen because of one big news story. No major news came out the weekend before the crash. But a bunch of things came together, making investors really panicky.1. A Strong Bull Market that needed a CorrectionOne of the main reasons behind the Black Monday crash was a robust bull market that hadn't seen a significant price correction since 1982. During this time, stock prices had tripled in value.2. Impact of Program TradingThe 1987 stock market crash highlighted the role of financial and technological innovation in heightened market volatility. In automatic trading, also known as program trading, human decision-making is removed, and buy or sell orders are automatically generated based on the price levels of benchmark indexes or specific stocks. Before the crash, the models in use tended to create vital positive feedback, resulting in more buy orders during rising prices and more sell orders when prices started to fall.3. Portfolio InsurancePortfolio insurance, a program trading tactic, appears to be a major player in the events of Black Monday. This strategy aims to protect a stock portfolio from market risk by engaging in short-selling stock index futures. By doing so, it restricts potential losses if stock prices drop, all without the need to sell off the actual stocks. As computer programs initiated the liquidation of stocks upon reaching specific loss thresholds, it resulted in a downward push on prices. This initiated a chain reaction as declining markets triggered more stop-loss orders, and bidding activities ceased.4. Triple WitchingOn October 16, the Friday preceding the crash, witnessed the occurrence of triple witching, a phenomenon involving the simultaneous expiration of stock options, stock index futures, and stock index options contracts. This led to exceptionally high volatility during the final hour of Friday trading, marked by significant sell-offs in the after-hours markets.5. Mass PanicCrises, like the tense situation between Kuwait and Iran that posed a risk to oil supplies, heightened investor anxiety. The media has been criticised for amplifying these events. Although various theories attempt to explain the crash, there is a general consensus that widespread panic played a crucial role in exacerbating the crash.Can It Happen Again?Following Black Monday, various protective measures, such as trading curbs and circuit breakers, have been implemented in the market to prevent panic-driven selling. Despite these safeguards, the use of high-frequency trading (HFT) algorithms, powered by supercomputers capable of executing massive volumes in mere milliseconds, has contributed to increased volatility.The 2010 Flash Crash stands as an example of HFT malfunction, causing a rapid 10% decline in the stock market within minutes. In response, tighter price bands were implemented, yet the stock market has still encountered moments of significant volatility since 2010.During the global crisis in 2020, markets experienced similar losses in March, coinciding with unemployment rates reaching levels not seen since the Great Depression. However, the markets rebounded during the summer of that year.Lessons to Learn from Black Monday and Other Stock Market CrashesA market crash, regardless of its duration, is a temporary event. Some of the most significant market upswings have taken place promptly after a sudden crash. The sharp market downturns in August 2015 and January 2016, both amounting to approximately 10% declines, saw a complete recovery, with the market rallying to new or nearly new highs in the subsequent months.1. Stick to Your PlanA well-devised, long-term investment strategy aligned with personal investment goals should instill confidence for investors to remain resolute when others are succumbing to panic. Investors without a strategy tend to be guided by their emotions in decision-making.2. Seize Buying OpportunitiesRecognizing that market crashes are temporary, these moments should be viewed as a chance to acquire stocks or funds. Market crashes are unavoidable, and astute investors have a list ready for stocks or funds that become more appealing at lower prices, making purchases when others are selling.3. Ignore the NoiseIn the grand scheme, market crashes like Black Monday are minor blips in the performance of a well-organized portfolio. Short-term market events are unpredictable and soon fade from memory. Long-term investors benefit more by disregarding the media and herd noise, focusing instead on their enduring objectives.ConclusionThe critical lesson from Black Monday is that improbable events can occur frequently. Incidents like terrorist attacks, wars, earthquakes, tsunamis, pandemics, infestations of murder hornets, ships getting stuck in canals, and unexpected stock market crashes are part of the regular occurrence. While each event may seem improbable individually, the frequency of such unexpected happenings suggests that they are likely to happen.
FAQs on Black MondayWas Black Monday the only major stock market crash in history?No, history has seen other major stock market crashes, but Black Monday is particularly notable due to its severity.How long did it take for the market to recover after Black Monday?The market recovered relatively quickly, with a substantial rebound in the months following Black Monday.Did Black Monday impact specific sectors more than others?The crash affected a broad range of sectors, reflecting widespread market turmoil.Did Black Monday lead to changes in financial regulations?Yes, Black Monday prompted regulators to reassess and implement changes to improve market stability.Were there any positive outcomes from Black Monday?One positive outcome was the implementation of safeguards and mechanisms to prevent future crashes. |
https://www.kotaksecurities.com/share-market/what-is-consolidated-tape/ | What is Consolidated Tape? | Key HighlightsThe Consolidated Tape is a technological system that gathers real-time data from the stock exchange, including information on prices and trading volumes.Each company listed on the stock exchange is recognized by its unique ticker symbol.The trading volume signifies the total number of shares traded.Real-time market assessment involves comparing current stock prices with the previous day's closing prices.Understanding of Consolidated TapeConsolidated tapes are electronic systems designed for the real-time transmission of current prices and volume activity across all stocks listed on various exchanges. Functioning through online access, the system follows the traditional ticker tape approach employed by many stock exchanges. Given its widespread accessibility, investors often utilize the internet to stay informed about their investments through the consolidated tape feed.This resource is commonly employed for reporting on trading conditions, with cable networks providing stock activity updates relying on the consolidated tape as a primary source of information. Similarly, websites offering tips and advice for investors frequently use the consolidated tape to provide up-to-the-minute stock reports. This approach allows investors to keep track of trading volume through various portals that access the information carried by a consolidated tape.
Consolidated tapes continuously report the activity of securities listed on the New York Stock Exchange and regional stock exchanges participating in the exchange. A similar setup is employed by the American Stock Exchange (AMEX), reporting securities traded on AMEX proper and other participating markets and exchanges. This combined detail proves beneficial for investors with diverse investments. The data on a consolidated tape can originate from various sources, including securities exchanges, market centers, electronic communications networks, and third-market brokers or dealers. The comprehensive level of detail encompasses a wide range of securities and investment types.In terms of format, the structure of information reported on a consolidated tape is no more challenging to understand than reading performance ratings in the financial section of a daily newspaper. The key distinction lies in the consolidated tape's provision of the most current information available, with ongoing updates released throughout the trading day.How Consolidated Tape Works?The Consolidated Tape operates through a structured process managed by critical entities. The New York Stock Exchange (NYSE) oversees Network A, while Network B is under the management of the American Stock Exchange. Registered market centers and exchanges adhere to the Securities and Exchange Commission (SEC) regulations in this well-organised system. They meticulously submit their quotes and trade data to a central consolidator, ensuring a streamlined and unified compilation of stock market information. This centralization enhances transparency and accessibility for investors, providing a comprehensive snapshot of stock prices and transactions across different exchanges.This central consolidator is a hub, receiving data from various market centers and exchanges. The data is then channeled into the Consolidated Tape System (CTS) and the Consolidated Quotation System (CQS). These systems process the data streams, ensuring a standardized format and validating the information against the database. Subsequently, the data undergoes cross-verification with input from other market centers before being disseminated to recipients globally.Every trading activity involving securities listed on diverse stock exchanges is meticulously recorded within the electronic system. This comprehensive record allows recipients to access real-time or post-trading-hour information. The Consolidated Tape System maintains a master database that undergoes regular updates with each concluded trade in the stock market, ensuring the availability of accurate and up-to-date information for market participants.History of Consolidated tapeThe term "ticker tape" lays the historical groundwork for the modern consolidated tape. Originally, ticker tape referred to the paper strips with stock quotes produced by mechanical machines. These machines earned their name from the ticking sound they made. In the 1960s, electronic ticker tapes replaced their mechanical counterparts, setting the stage for the consolidated tape's introduction in 1976.The telegraphic ticker tape, created by Edward Calahan in 1867, marked the beginning of this evolution. Thomas Edison, a pioneering American inventor, further enhanced and patented Calahan's design in 1869. During the late 19th century, brokers at the New York Stock Exchange (NYSE) strategically positioned their offices nearby to ensure swift access to the tape, delivered by messengers or "pad shovers." These messengers ran circuits between the trading floor and brokers' offices, with proximity dictating the timeliness of stock quotes—closer offices received more up-to-date information.The transition from mechanical to electronic ticker tapes in the 1960s marked a significant technological leap, enabling faster and more efficient dissemination of stock quotes. This shift paved the way for the consolidated tape's debut in 1976, revolutionizing the accessibility and consolidation of real-time stock market data.ConclusionInvestors rely on market data to inform their investment choices, considering factors like price movements, trading volume, and market sentiment. While this information is accessible individually, the challenge lies in consolidating data from various sources efficiently. Gathering such data independently demands significant time and effort, hindering prompt decision-making.The consolidated tape emerges as a solution, streamlining the process by providing investors with a centralized source for comprehending overall market trends. By leveraging the consolidated tape, investors can make informed decisions, ensuring their investments align with the broader market trajectory.
FAQs on Consolidated tapeWhat is the purpose of a stock consolidation?Stock consolidation, also known as a reverse stock split, is typically undertaken by companies to reduce the number of outstanding shares. This can increase the stock's price per share.Why is tape essential?The tape, or consolidated tape, is crucial in financial markets as it provides a centralized and real-time stream of trade and quote data from various exchanges.What were the advantages of consolidation?Consolidation in the context of businesses can lead to various advantages, including cost efficiencies, streamlined operations, increased market share, and enhanced competitiveness.What is a consolidation strategy?A consolidation strategy involves a company merging with or acquiring other businesses to achieve specific objectives, such as expanding market presence, gaining synergies, or diversifying product offerings.Why do markets consolidate?Markets consolidate for several reasons, including increased efficiency, regulatory changes, and the desire for a more organized and transparent trading environment. |
https://www.kotaksecurities.com/share-market/what-is-runoff/ | What is Runoff? | Key HighlightsIn the historical context, runoff involved the daily process of summarizing and documenting the closing prices of stocks using paper ticker tape.Ticker tape from the daily runoff was repurposed for festive ticker tape parades, creating a celebratory atmosphere when thrown from apartment and office windows.This process of reporting runoff trades the next day adds a layer of transparency and ensures accurate recording of late-session transactions.The evolution of the term reflects changes in technology and practices within the financial markets over time.Understanding Run Off in Share MarketIn the past, the stock market used ticker tapes to digitally record and display the closing prices of stocks at the end of each trading day. This process, known as runoff, served as a crucial tool for investors and traders to assess the market's performance as it approached closure. By reviewing the ticker tapes, individuals could gain insights into the last trades of the day, helping them make informed decisions based on the closing prices. This data not only reflected the state of the market at the end of the session but also set the stage for the opening prices on the following day.Ticker tapes were an integral part of conveying trade information in this historical context. The runoff process, utilizing these tapes, provided a snapshot of the final stock prices on the exchange, offering valuable information about the fluctuations in trade prices. In today's financial landscape, while ticker tapes may no longer be in use, the term "runoff" has evolved. It now refers to trades that occur at the close of a trading session and are reported at the beginning of the next day, adding a layer of transparency to late-session transactions in the modern stock market.History of Run OffRunoff in the stock market has its roots in the days when stock prices were primarily recorded and reported on paper ticker tapes. Runoff, within this historical context, was the act of compiling and recording the closing prices of stocks at the conclusion of each trading day. A key component of this process was ticker tapes, which functioned similarly to digital recordings on paper.The last trades and closing prices were shown on the ticker tapes at the end of the trading day, resulting in a physical record of the market's activity. It's interesting to note that these ticker tapes became a cause for celebration in addition to being useful. He gathered tapes for ticker tape parades, in which people would throw them like confetti out of windows in their apartments and offices to commemorate special occasions.Though digital systems eventually replaced paper ticker tapes due to technological advancements, the idea of runoff remained. Runoff, as used in modern finance, describes trades that are completed at the close of a trading session and whose reporting is postponed until the start of the following day. This evolution is a reflection of how financial procedures and technologies are constantly being adjusted to the dynamic share market environment.ConclusionAfter understanding the concept of what is runoff in share market. It represents a journey through the evolution of financial mechanisms. From its roots in the particular recording of closing stock prices on paper ticker tapes, runoff has adapted to the digital age, where it now contains the reporting of end-of-day trades in modern markets. The historical significance of ticker tapes, once both a functional tool and a source of celebration, highlights the dynamic nature of financial practices. The story of runoff in the share market serves as a testament to the industry's continual quest for transparency, efficiency, and relevance in an ever-changing financial landscape.
FAQs on Runoff in share marketWhy is runoff important in the share market?Runoff is important as it provides a snapshot of the market's performance at the close, influencing opening prices the next day.How does runoff contribute to market transparency?Runoff contributes to transparency by providing a comprehensive record of end-of-day trades. This information assists investors in making informed decisions and ensures an accuracy of the market activity.Is it possible to run out of stock?Stockouts are what happens when you run out of inventory of a particular item. An out-of-stock can happen anywhere in the supply chain, but it impacts retailers shelves and profits when it occurs as a customer is about to purchase.Can runoff be automated with modern technology?Yes, modern technology allows for the automation of runoff processes. Digital systems streamline the reporting of end-of-day trades, reducing manual effort and enhancing the accuracy and speed of information dissemination.Does runoff apply to all types of financial instruments?While commonly associated with stocks, runoff can apply to various financial instruments such as bonds and commodities. The process helps conclude trades and determine closing prices for diverse assets. |
https://www.kotaksecurities.com/share-market/what-is-painting-the-tape/ | What is Painting the Tape? | Key HighlightsMarket manipulation, like "painting the tape," exploits grey areas despite robust rules.This tactic involves influencing security prices at the expense of unsuspecting investors.The goal is to increase volume, attracting investors who unknowingly contribute to price hikes.Manipulators then sell their holdings at the artificially inflated price.Understanding of Painting the TapeTo comprehend the concept of 'painting the tape,' it's essential first to grasp the meaning of the tape itself. The tape is a service that records and communicates transaction prices and volumes on the stock exchange, historically done through a device known as the 'Ticker tape.' Initially, ticker tape was utilized to provide financial details of trades, but today, an electronic version is prevalent.'Painting the tape' is an illicit trading strategy employed by sure market participants to manipulate stock prices. This deceptive tactic involves artificially inflating the trading volume of a stock to attract investors, creating a false appearance of heightened trading activity. A group of market players executes this strategy to give the illusion of substantial trading volume and drive up the stock price. As the price increases, these manipulators capitalize on the situation by selling their holdings at the elevated market value.Distinguishing 'painting the tape' from 'wash trades' is crucial. Wash trades involve buying and selling the same security to fabricate trading activity, while painting the tape focuses on manipulating the market by trading a large volume of stocks. Additionally, breaking down a sizable order into frequent smaller ones to showcase increased trading volume is also considered a form of painting the tape.Example of Painting the TapeFour daily traders, identified as A, B, C, and D, currently hold shares of company PQR, which is presently valued at Rs. 85. Having originally acquired these stocks at a price exceeding Rs. 100, the prospect of incurring losses upon selling prompts them to devise a strategy: tape painting.
These traders engage in reciprocal buying and selling activities in a coordinated effort, artificially inflating the trading volume. The ticker reflects this manipulation, creating an illusion of heightened market activity. Unknown to others, the increased volume attracts attention and causes the PQR stock price to surge to an inflated Rs. 250. Seizing the opportunity, traders A, B, C, and D exit their positions at Rs. 200.
However, as they unload their stocks, the market dynamics swiftly shift, resulting in a sharp decline in price to Rs. 80. This sudden downturn leaves those traders who entered during the manipulated surge facing significant financial losses.ConclusionUnderstanding painting the tape's meaning in the stock market. It serves as a clear warning about the risks involved in the stock market. As the market strives for transparency and integrity, combating activities like painting the tape becomes crucial to upholding investor confidence and maintaining the credibility of financial systems. Investors and controllers must remain alert, continuously adapting to evolving market dynamics to safeguard against illegal schemes and promote an environment that supports fair and equitable trading.
FAQs on Painting the TapeHow does tape reading work in stock trading?Tape reading involves studying the time and selling data, or "tape," to understand the buying and selling activity.Can painting tape be a metaphor for stock market manipulation?No, "painting the tape" typically refers to unlawful activities of artificially inflating a stock's trading volume or price to create a false impression of market activity. It is illegal and goes against fair trading practices.Is it risky to only use tape reading?Yes, it's risky. Just using tape reading gives a partial picture of the market. Combining it with other methods helps make better decisions for successful trading.How can traders identify potential painting tape schemes?Traders should be vigilant for unusual spikes in trading activity or prices without substantial news. Monitoring for consistent patterns and conducting due diligence helps detect potential market manipulation.What are the legal consequences of engaging in painting tape activities?Engaging in painting tape activities is considered market manipulation, leading to severe legal consequences. Offenders may face fines, imprisonment, and a stained reputation within the financial industry. |
https://www.kotaksecurities.com/share-market/what-is-capping/ | What is Capping? | Key HighlightsIn order to keep it below the option's strike price, capping means actively selling the underlying security of a derivative.If the sale of the underlying is intended to be manipulative, capping is considered to be a violation of securities law. It is lawful to sell legitimately prior to the expiry of an option.Capping in Share Market DefinitionAccording to the Capping share market definition, selling the asset once the options expire in order to prevent the underlying price from rising is known as capping in the stock market. By keeping the price of the underlying asset or commodity below the strike price, the seller hopes that it will render the options contract void and worthless. This also allows the options writers to take advantage of a premium. Pegging is the opposite of capping in the share market. Here, in order to avoid price drops, a buyer buys large volumes of commodities ahead of the expiry of an option contract.According to the FINA, any kind of trade manipulation is considered unethical by the self-regulating authority responsible for managing securities markets and exchanges. The capping and piracy practices, where false buying and selling transactions fool investors, are illegal. Moreover, upgrading technology will help regulators detect irregularities in the share market.Capping Manipulating and IntentWhen a trader deceives another by making false statements, they are acts of manipulation. With regard to the aspects of securities and licenses, any such misleading acts are prohibited in nature. For instance, Series 9/10 is an entrance test that will enable a person to become the supervisor responsible for the sales of securities.FINRA is managing this entrance exam, and you will be responsible for all the activities, including corporate securities sales, MMFs, mutual funds, etc., once you have passed it. The practice of capping and pegging is described as illegal. In addition, it is also considered to be illegal to engage in ramp and preplanned options transactions.The seller and the buyer shall be referred to as call option writers or put option writers. Both practices seek to circumvent the transfer of the commodity to the respective buyer or seller and to obtain the premium paid. The aim is, therefore, to keep the underlying asset price in line with the option strike price.As far as the buyer option writer is concerned, only if the underlying asset's price is higher than the strike price is the deal worthy. In such cases, the option contract will not have any use, and there will be a loss of premium if the transaction does not meet the criteria. On the other hand, this is precisely what call option writers watch out for to take advantage of the chance to obtain a disadvantage over price manipulations.ConclusionThe above article delivers all the significant and primary information on capping in the share market. According to the FINRA, all types of illegal activity on the stock exchange are considered securities law violations. Among the less complex trading techniques, capping in the share market is the ideal technique.
FAQs on CappingWhat does capped mean in trading?Capping is to actively sell the underlying security of the derivative in order to keep it below the strike price of the option. If the selling of the underlying is intended to be manipulative, capping is considered to be a breach of securities law. It is lawful to sell legally before an option expires.What is the cap price value?In order to take advantage of the rise in the stock price, the cap price is the value of the asset to be sold before the expiry of the option.Why is option selling costly?The seller will lose the difference in spot market price and strike price if the stock price is greater than the strike price of the call option. Most option dealers pay high costs in order to compensate for possible losses. |
https://www.kotaksecurities.com/share-market/what-is-manipulation/ | What is Manipulation in the Stock Market? | Key HighlightsMarket manipulation is the intentional and artificial manipulation of supply and demand to influence a stock's price.Manipulators benefit when other investors buy or sell securities whose price has been manipulated.Rumours and fake transactions are used to manipulate the price of securities.A number of scams can deceive regular investors. So, they frequently don’t get their money back.Definition of Stock Market ManipulationStock market manipulation is the attempt to mislead investors by manipulating the supply and demand of an asset to raise or lower its price artificially. Those who manipulate prices to benefit from the change in prices. Manipulation in the stock market isn't always easy to detect.Identifying market manipulation is challenging for authorities like the Securities and Exchange Board of India (SEBI). There is a gap in the ability to identify market manipulation since too many other elements influence the price of the assets. This makes it hard to measure them. However, if SEBI finds evidence of market manipulation, the involved parties may be penalised. There can be a ban from the securities market, jail, or hefty fines.How does Market Manipulation Work?The stock market may be manipulated in a number of ways. One can place a number of tiny orders at a price less than the market price. This can deflate the price of the asset. Investors interpret it as an indication of a problem with the stock. When investors sell their stocks due to an unfavourable outlook, the stock price falls even more.Others can place an equal number of simultaneous buy and sell orders for the same asset through various brokers to raise the price of a security. As a result, the orders shall cancel out each other. An investor may think of it as a genuine interest in the asset due to the high amount of completed orders. They purchase that security as they believe there may be future price growth. This leads to an increase in the stock price.Examples of Market ManipulationLet’s look at some real-life examples of manipulation in the stock market.The Satyam Computer Services scam:An Indian IT firm called Satyam Computer Services overstated its profits by ₹7,800 crore (about US$1 billion) in 2009. A new chairman was hired after the company's founder - Ramalinga Raju. He confessed to the crime.The Unitech scam:A primary Indian real estate developer named Unitech Group was accused in 2015 of transferring money to shell companies. Ultimately, the promoters of Unitech were barred by SEBI from the securities market for a decade.Methods of Market ManipulationThe following are some popular ways of stock manipulation.1. Spoofing:It refers to the practice of placing fake orders and then cancelling them before they are carried out. Investors look at the pending buy and sell orders to determine if the market is bullish or bearish on a stock. Therefore, spoofing might give these investors the impression that there is a lot of interest in the market. However, in reality, there isn't. The fake orders convince actual buyers or sellers to act in a particular way. Thus, the spoofer profits.2. Wash Trades:They are offset transactions done to deceive the market rather than to goal buy or sell shares. The same trader may engage in two separate broker wash trades. Further, a trader and broker may work together to make a wash trade. Offsetting deals in the derivatives markets may also be a part of it. It is intended for fake trades to imply activity on one side of a market. However, there is no real activity.3. Pump and Dumps:In this case, the manipulator builds up a position in the company's shares. Then, he makes positive remarks about it to attract investors who will raise the price even more. To make profits, the manipulator then sells the stock. Pump and dump methods are generally used for small-cap or microcap stocks, where there is more potential for manipulating the stock price. False news is used to attract retail investors, who are more vulnerable.4. Painting the Tape:The phrase "painting the tape" refers to the time when ticker tape was used to print stock trades. It attempts to give the impression that there is a lot of activity on one side of the market. The manipulator has a partner who makes the countertrades somewhere else. When it happens at the close of a trading day, it is also known as "marking the close."5. Bear Raids:A "bear raid" occurs when a manipulator initiates a short position in a company and then makes critical remarks about it. It is also known as a "short attack" or "stock bashing". This strategy aims to make investors sell their shares in a panic, which lowers the stock's price. Even if the manipulator gave false information, the goal is still to close their short positions at cheaper prices and make a profit.ConclusionMarket manipulation occurs when someone tampers with the standard stock trading process for personal benefit. There are many ways to do it. Spoofing, stock bashing, pump and dump are some popular methods. Planned manipulation of stock prices is prohibited. However, it exists in the markets and may take various forms. Manipulative strategies often have a short lifespan. They aim to benefit from the impatience of investors. You should understand the ways of manipulation. Be aware of its signs to protect yourself as an investor.
FAQs on Market ManipulationHow can investors or authorities detect manipulation in the stock market?Investors and authorities can detect market manipulation by analysing trading data, patterns, and unusual activities. Market regulators and stock exchanges often use advanced technologies to identify abnormal market activity.Do regulatory bodies have a role in preventing market manipulation?Market regulators like the Securities and Exchange Board of India (SEBI) make rules and regulations to prevent market manipulation. They investigate and take appropriate legal action against individuals or firms manipulating stock prices.How are investors affected by manipulation in the stock market?Stock market manipulation can mislead investments to make poor investment decisions. It can reduce their trust in the working of financial markets.How can technology help in detecting market manipulation?Advanced algorithms and data analytics can help detect market manipulation. Sophisticated surveillance softwares can identify unusual trading activity in real time.Is market manipulation specific to certain types of markets or securities?No. Market manipulation is possible in any market or asset class. However, it is prevalent in less regulated markets. It also occurs often in markets which can be easily manipulated. |
https://www.kotaksecurities.com/commodities/how-can-i-check-my-sovereign-gold-bonds/ | How Can I Check Sovereign Gold Bonds | Gold investment has long been considered a safe haven for those looking to safeguard their wealth and diversify their investment portfolio. Sovereign Gold Bonds (SGBs) offer a unique opportunity to invest in gold without the need for physical possession. These government-backed securities provide investors with the benefits of gold and fixed-income investments. Here's the process of checking SGBs and staying updated on their performance.What are Sovereign Gold Bonds?The Government of India issuesSovereign Gold Bondsthrough the Reserve Bank of India (RBI). They are denominated in grams of gold and represent a secure and cost-effective way to invest in gold. SGBs come with a fixed tenure and pay an annual interest rate of up to 2.5% on the initial investment amount.How to check Sovereign Gold Bond Status?The method to check the status of your SGBs varies depending on whether you have purchased them online or offline.Online Purchase:The process is relatively straightforward if you have purchased SGBs online using a Demat account. After the issuance, they will reflect in your Demat account portfolio. However, it may take approximately 1 to 2 weeks for the SGBs to appear in your portfolio. During this time, the relevant authorities will carry out the necessary administrative and processing procedures.
Upon successful allotment, you can log in to your account and navigate to the portfolio section. Here, you should be able to see the details of your SGB holdings, including the quantity, series, issue date, maturity date, and other relevant information.Offline Purchase:For those who have purchased SGBs offline, the process involves collecting a physical certificate of holding. You can obtain this certificate from various authorised sources, including the issuing bank, Stock Holding Corporation of India Ltd (SHCIL) offices, designated stock exchanges, or agents.After receiving the certificate of holding, you will also get a digital copy of the certificate via email. This digital copy is a convenient way to access and track your SGB investment details electronically. To check the status of your SGBs in the offline scenario, you can refer to the physical certificate of holding. It contains crucial information such as the series, quantity, and other relevant details regarding your SGB investment.Additionally, it is advisable to keep a track of any communication or notifications from the RBI regarding your SGBs. The RBI periodically updates investors regarding interest payments, maturity dates, redemption processes, and other important information related to SGBs.
Track your SGB performanceApart from checking the current price, it is crucial to monitor the performance of your Sovereign Gold Bonds over time. Here are a few ways to stay updated:RBI notifications:The RBI issues periodic notifications regarding SGBs. These notifications include important details such as interest payments, maturity dates, and redemption processes. Stay informed by regularly checking the RBI website or subscribing to their email updates.Financial news platforms:Financial news platforms and websites dedicated to gold investments often provide analysis, insights, and market trends related to SGBs. Regularly read articles and follow expert opinions to remain abreast with the latest news on these platforms.Consult with financial advisors:Seeking guidance from financial advisors or investment professionals can provide valuable insights into the performance of your SGBs. They can help you interpret market data, monitor performance, and make informed decisions.ConclusionChecking the price and monitoring the performance of Sovereign Gold Bonds is essential for investors looking to stay informed about their investments. By following the steps mentioned above and leveraging official sources such as the RBI's website, financial news platforms, and professional advice, you can effectively track the price and performance of your SGB investments.Stay updated with market trends, understand the series you hold, and make informed decisions based on accurate and timely information.
FAQs about Sovereign Gold BondsWhat are Sovereign Gold Bonds?The RBI issues Sovereign Gold Bonds on the government's behalf. These bonds allow individuals to invest in gold without physically owning it.What is the advantage of investing in SGBs?Investing in SGBs offers several advantages. They provide a secure and cost-effective way to invest in gold, eliminate storage and security concerns, offer a fixed interest rate, and provide potential capital appreciation based on the prevailing gold prices.Are SGBs tradable in the secondary market?SGBs are issued with a maturity period of 8 years but investors can redeem or encash them only after the fifth year. SGBs can be sold in the secondary market if they are listed from the date specified by the RBI.How is the interest calculated on Sovereign Gold Bonds?SGBs carry a fixed annual interest rate, which is payable semi-annually. The interest is calculated on the initial investment amount at the specified interest rate and credited directly to the investor's registered bank account.Can I take a loan against my Sovereign Gold Bonds?Yes, investors can avail loans against their SGB holdings. The loan-to-value (LTV) ratio for SGBs is determined by the RBI and can vary from time to time. |
https://www.kotaksecurities.com/share-market/what-is-stock-market/ | What is October Stock Market? | Key HighlightsThis October effect is referred to in the October stock market.Stock markets are being affected by investor sentiment, which has been conditioned over the years due to numerous events affecting financial markets.The October stock market has been a recognised irregularity in the financial calendar since it implies that stocks will fall from time to time this month.Understanding the October Stock MarketThe effect of the October factor is described in the October stock market. The impact of the multiple developments that have been affecting financial markets, and hence on stock markets, has had an impact on investor sentiment, which is conditioned over a number of years. The October stock market is recognised as an anomaly, which indicates that stocks are expected to fall in this month's Financial Calendar.Although the idea of the October stock market is considered to be more of an expectation than a natural phenomenon, according to many statistics, October's unique reputation for market and stock losses is due to a series of events over the decades. These include the years of Panic in 1907, Black Tuesday 1929, Black Thursday 1929, Black Monday 1929 and 1987.One of the worst single-day drops in stock market history took place on October 19, 1987, infamously referred to as Black Monday. In a single day, the Dow dropped 22.6% and caused massive panic that has left investors feeling wrong about October.Market research and statistics have also found that October was most likely to face the rage of financing disruption in September. The catalyst events in September or several months prior to this were the 1929 and 1907 crashes, which are known to have triggered panic among investors in October. In either case, domino effects led to the ultimate market crash in October.Comparably, the September 2001 attacks and the September 2008 subprime mortgage crisis both had more significant single-point drops in the Index than Monday 1987. The decline of 2008 caused the U.S. economy to fall into recession in less than 24 hours, and that wiped out more than a trillion dollars' worth of investments worldwide.ConclusionIt is concluded that the negative reputation of the financial calendar has a more significant psychological impact on investors, mainly due to the high number of black days in October. In addition to the effects of investor psychology, which continues to dominate investor sentiment, statistical evidence does not support the idea that stocks are trading poorly in October, other than the fact that the idea of the October stock market, known as the October effect, continues to dominate investor sentiment.Although there are many benefits to limiting the financial crisis and investor panic to just one month of the year, October should no longer be regarded as the month of investor sentiment and fear of the stock market, as opposed to the rest of the year.
FAQs on the October Stock MarketWhy is October bad for stocks?The idea that equities often decline in October is known as the "October effect." In view of the numerous market panics that have happened during this period, e.g. 1987's Black Monday, it has been used as an example of a presumed market anomaly.What is the fall in the stock market?The sudden and surprising decline in the values of stocks is a stock market collapse. The collapse of the stock market can occur as a result of significant disasters, economic crises and long-term speculative bubbles.How long do stocks fall?The average duration of the bear market is 289 days or approximately 9.6 months. That is far less than the average duration of a bull market, which has been 965 days or 2.6 years. Every 3.5 years: This is the long-term average frequency between bear markets.What is the worst month for the stock market?On average, September was the worst month for the stock market in more than a century.Can a stock fall to zero?The price of stocks can fall to zero at any time. This means that the stock's value is lost, and the profits of the shareholders are usually worthless. This would mean that the investor loses what they have invested. |
https://www.kotaksecurities.com/demat-account/demat-account-opening-charges/ | No title found | If you are planning to invest in the stock markets, you will first need toopen a demat account. The termdemat accountis the shortened form of ‘dematerialised account’. Here, all your transactions get stored in a paperless or digital format. The demat account allows you to buy and sell shares in the electronic form. There are none of the hassles of using the physical format. Apart from shares, you can also buy and sell bonds, government securities, mutual funds, and exchange-traded funds (ETFs).Points To Consider Before Opening Demat AccountWhile choosing your brokerage, remember to compare the demat account opening charges based on the following parameters.1. Brokerage Charges:Whenever you buy or sell stocks, you have to pay a fee. The charge can be a fixed amount or a percentage.2. Annual Fee:This is charged once a year and typically varies from Rs 500 to Rs 2,000.3. Demat Charges:In case you hold shares in the physical format, the brokerage charges a fee to convert them into the electronic form.4. Technology Platform:The platform is extremely important for trading. It should be robust and should never let you down.Benefits Of Opening A Demat AccountPhysical certificates can be easily forged. They can also get lost or damaged. However, with a demat account, you will eliminate such risks as the entire operation is paperless.
You can save a lot of time and energy when you opt for a demat account. All the transactions are done in the electronic mode. So, there is no need to hand over the physical documents to the buyer or seller directly. You can do this from the comfort of your home without any paperwork, which saves time. Moreover, you get a fair idea beforehand about the costs involved in the transactions as these are disclosed by the brokerage.Before choosing a brokerage to open your demat account, compare the fees levied by them for the following:Demat Account Opening Charges:Usually this is a free service. Brokerages with such charges may offer other benefits.Demat Account Annual Maintenance Charges:This fee is usually below Rs 500 annually. Many brokerages do not charge this fee.Equity Intraday Trading/Brokerage Charges:The intra-day trading charges range from 0.03–0.015%. For equity delivery trading, the brokerage charges may range from zero to 0.25%.Trading Account Annual Maintenance Charges:This usually is limited to below Rs 1,000.Read more:Types of demat accountWhy Kotak Securities Should Be Your ChoiceOnce you choose Kotak Securities after running a comparison with other brokerages, you are entitled to several benefits.1. 3 Accounts In 1:A demat account with Kotak Securities offers you a complementary trading account and a bank account with Kotak Mahindra Bank. Therefore, you get three accounts at the cost of one. You can opt for this by filling up one application form. But you might feel more comfortable doing the transactions from your existing bank account. In that case, you can choose to open only the demat and trading account.2. Intra-day Trade:The demat account gives you access to intra-day trading where you can buy and sell shares during the day. The charges are negligible at 1 paisa per trade.3. Margin Trading:It often happens that stocks appear lucrative but there isn’t enough money to grab them before they are gone. This will not be the case if you have a demat account with Kotak Securities. You can make use of the margin facility where you can borrow money from the brokerage to buy the shares of your choice.4. Easy-To-Use App:These days, there is a mobile application for almost everything. Kotak Securities offers you an app that is extremely convenient and helps you remain in the thick of things on the go. With the app, you can remain updated with the latest stock market news, check your portfolio, and see the movement of the stock prices besides doing fund transfers.5. Expert Analysis And Tips:Kotak Securities offers you a comprehensive analysis of the stock markets on a daily basis with insightful research reports compiled by a team of experts. You also get recommendations of stock picks that are trustworthy.Read more:Uses of a demat accountConclusionOpening ademat accountis mandatory to carry out trading on the stock exchanges. It is a convenient way of holding the shares in an electronic format. Several brokerages offer demat account services to clients. There are a few charges involved with such an account. One should carefully choose the brokerage by running a comparison of the charges.Clickhereto open a demat account.Read More:Invest in stocks the Mahi wayDealing with market flip-flopsUse the Call & Trade facility through your phoneHow to start an SIP investment
FAQs on Demat Account Opening ChargesAre there any hidden charges in a Demat account?There may be some hidden charges on a Demat account. However, it usually depends on the broker. Some brokers also inform their customers of all the applicable charges. Thus, it is advisable to go with brokers that have a transparent pricing structure.What is the minimum balance for a Demat account?There is no fixed or standard minimum balance for a Demat account. It usually varies from one broker to the other.What happens if I don't pay AMC for a Demat account?If you don’t pay the annual maintenance charges (AMC) you will receive repeated reminders from your stockbroker. Still, if you don’t make the payment the broker can terminate the Demat services. Your Demat account will become inactive or dormant. The AMC is an essential part of a broker’s revenue. So, it is generally mandatory to pay AMC.How much does it cost to open a Demat account?Opening a Demat online account requires nominal opening charges to be charged by the Depository Participant. Some depositary participants offer you the possibility to open a Demat account free for one year and then be charged again in subsequent years.What is brokerage on demat accounts?A financial account that enables an investor to make investments and purchases of financial products such as stock, mutual funds, bonds, exchange-traded funds, or any other securities is a brokerage account or Demat account. This account will operate as a bank account, where you can deposit and invest in any financial asset.What are minimum brokerage charges for demat accounts?The brokerage fee is typically 0,1% to 0.5% of the total value of transactions in India. For instance, if a share is valued at Rs. 10,000 and the brokerage fee is 0.1% of that amount, the total sum due would be Rs. 10.Is there any zero brokerage?While discount brokerage charges a set price (often Rs. 20 per trade), zero brokerage charges no brokerage for all items. Zero brokerage is a component of the discount brokerage trading strategy. |
https://www.kotaksecurities.com/articles/the-chemical-story-of-india/ | The Chemical Story of India | Kotak Insights | Date 06/12/2023Picture a world where every aspect of your day, from the screen you're reading this on to the food you eat, is a result of a grand chemical symphony. Think of the chemical sector as the unseen architect, blending elements to create the products we use daily.Over the years, this sector has gone from mixing basic elements to innovate complex compounds for various use cases.So, let's explore the chemical sector’s journey and what the future might hold for it.Starting Small to Growing Up and DiversifyingBack in the day, the chemical sector was like a chemistry lab—small and experimental.Companies likeRelianceandTata Chemicalswere the pioneers, transforming from simpleindustriesinto big players in the chemical game.As time went on, the chemical sector grew up. Companies got smarter, focusing on specific types of chemicals.Aarti IndustriesandSRF Ltd, for example, started making special chemicals that are like the VIPs of the chemical world—valuable and in demand globally.Simplifying Chemical LochaFast forward to today, the sector includes diverse segments catering to various needs.To understand chemicals, look at it like a relay race where different players pass the baton, each adding value to the final product. This chain begins with the production ofbasic chemicals, the raw materials of the industry.These basic chemicals then move to the manufacturing ofintermediate chemicals, which are more complex compounds.Specialty chemicals, the stars of the show, come next, offering unique properties for specific applications.Finally,end-use products, such as pharmaceuticals,plastics, and agrochemicals, complete the chain.Today's Scene: Riding the Global WaveNow, India is like the cool kid in school everyone wants to be friends with. Companies like Deepak Nitrite, PI Industries among others are making chemicals that the world needs. It's like being the go-to person in class for notes.Especially, specialty chemicals are like the superheroes, creating unique solutions for specific needs. Over the past decade, the specialty chemicals market has witnessed robust growth fueled by increasing demand from sectors likepharmaceuticals, agriculture, and electronics.Looking Ahead: Challenges and TriumphsThe future looks exciting! Imagine the chemical sector as a chef trying out new recipes. Companies likeUPL Ltdare working on chemicals that help crops grow better, and that's like ensuring we have good, healthy food on our plates.The sector is also becoming moreeco-friendly. The rise of specialty chemicals brought triumphs in niche markets. Besides, companies with huge capex plans and within specific segments like PCBL, Galaxy Surfactants, SRF, could do well compared to commodity bulk chemical companies.As the chemical sector grew, so did thechallengesit faced. Regulatory complexities became hurdles, and the need for continuous innovation added layers of complexity.Enter the dragon—China. The global chemical chessboard witnessed China emerging as a formidable player. Indian companies had to strategize, finding their moves in this intricate game. Some focused on specialized chemicals, carving a niche away from the dragon's fiery breath.Meanwhile, the pandemic, like an unexpected gust of wind, disrupted global supply chains. The sector had to adapt as the macroeconomic breeze continues to blow even today.Speaking of overall sector, India’s chemical trade ticked up slightly in October 2023 sequentially, suggesting a demand bottom may be near, but the timing of a recovery is unclear amid economic softness and oversupply.In a NutshellThe Indian chemicals sector has attained the status of being the6th-largestchemical producer, with a market size of$178 billionin 2021. The sector is poised to reach a value of $290-310 billion by 2027. It is forecasted that the industry had a rapid capex program in the last 5 years by expanding its capacity by more than 3 times. Along with this, innovations, and a focus on niche markets, this segment is poised to play an even more pivotal role.Overall, the chemical sector's story is a bit like a journey from a small lab to a global kitchen.Keep an eye on the sector. As the chemical story continues, who knows, there might be more exciting chapters to come.It's like investing in a story that's still being written—one chemical reaction at a time.Until next time…Stay Tuned!Sources:Kotak Securities, McKinsey & Company, Livemint, Kotak Institutional EquitiesDisclaimer:This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read thefull disclaimer here. |
https://www.kotaksecurities.com/share-market/what-is-control-stock/ | What is Control Stock? | Key HighlightsThe control shares are equity shares owned by major shareholders of a publicly traded company.If significant and essential decisions are taken, control stock will give ownership to the holder.The control stock is considered shares with more voting power or a higher weighting of votes.Understanding Control Stock MeaningThe definition of control stock implies that these are common shares held by the major shareholders of a listed company. The control shares are regulated and controlled by a significant company shareholder. These shareholders will have the vast majority of the shares. In addition, a substantial portion of the company's stock may be sufficiently large to give them control over its decisions. Many companies exclusively issue a single type of common stock. However, shares with more voting rights or weightage are considered control stock when a company gives more than one type of share.How does Control Stock Work?In principle, shareholders with a majority interest in the company can exercise sufficient voting rights to make decisions for and on behalf of the company. Therefore, their shares are treated as control stock. Parties can attain this status if their shareholdings are relatively significant compared to voting stock. The owners of undertakings are generally allowed to retain up to 51 % of their business. They are going to sell 49% or less of the company. In doing so, they will hold a majority, making the final decisions.Even if they might not always possess precisely 51% of the shares, they will almost certainly make sure to be the biggest shareholder with the power to make decisions. The majority owner, making the final decisions, is the one who controls 50.1%, even if they possess 49.9%. More than 80% of shares can be bought by shareholders, who then become major shareholders and retain decision-making power.Benefits of Control StockThe advantages of control stock are as follows.1. OwnershipSeveral investors would like the opportunity to make significant decisions on behalf of a company. The ownership of control shares is one way to achieve this. Moreover, the availability of resources is naturally necessary to buy such control stocks.2. A higher price means improved performanceReceiving payment is a clear benefit of owning control stock. The owners of the Control Stock can make important decisions that contribute to its growth and increased profitability. Higher stock prices will be achieved in the end due to improved performance. This way, the shareholders can profit from the value of their assets, i.e., shares in them.3. Paying dividendsThe possibility to pay dividends on the company's stock is another advantage. An investor's income can be significantly enhanced by holding substantial holdings in stocks that pay high dividends. The owners may use these dividends at their discretion.Difference Between Control Stock and Inventory StockThe control stock refers to the minimum inventory level that a business wishes to retain to avoid running out of stock. To continue production or sales without interruption, a company must have sufficient quantities of goods or materials. Management generally establishes control stocks due to lead time, demand variations, and safety stock.In contrast, inventory control refers to the processes and systems in place by a company for managing and tracking its levels of inventories, including monitoring stocks. Controlling inventories involves handling the entire inventory system, from determining levels to monitoring stock movements and ensuring that they are available when necessary.ConclusionHowever, control stock is equity shares held by major shareholders of a publicly traded company. These shareholders have a more significant role to play in the company. Once you have learned the meaning of your control shares, open an account with Demat and accumulate your share market investments.
FAQs on Control StockWho owns control stock?The control shares are held by a corporate associate who is an employee of the company. An associate is any officer, director, or 10% shareholder. One is deemed an insider (affiliate) if they hold a significant amount of the issuer's stock or are an executive for them.What is the difference between control stock and restricted stock?There are two types of restricted shares, one giving the holder voting rights immediately and the other holding them back based on a vesting schedule. On the other hand, control stock is owned by a business associate, not necessarily an employee.What does it mean to control shares?If the owner of more than 50 % of voting shares has a firm, they have control over its business and exert decisive influence on company policies at shareholder meetings.What controls stock value?Supply and demand are the primary determining factors for stock prices. Prices often increase in response to strong demand and decrease in response to strong supply.Does a 50% shareholder have control?The number of shares you have depends on your rights as a shareholder. If you have more than 50 %, you have a control interest and can influence the company's direction. You can take advantage of some rights as a shareholder, regardless of how many shares you own. |
https://www.kotaksecurities.com/share-market/what-are-dual-class-stocks/ | What are Dual Class Stocks? | Key HighlightsA company offering at least two classes of shares is known as a dual-class stock. Dual-class stock structures are popular among IT firms.Company leaders and founders receive a class of stock with substantially higher voting power. However, the general public gets a type of stock with limited voting power.Some markets do not list firms that use dual-class stocks.Dual-class structures are a bit controversial because a small group of people hold most of the company's voting rights.What is a Dual-Class Stock?When a company issues two classes of shares, it is known as a dual-class stock. For instance, Class A and Class B shares can be part of a dual-class stock structure. The dividend distribution schedule and voting rights of these shares may vary. The founders, executives, and their families often receive one class of shares, while the general public gets the other class.The classes having voting rights are provided to founders and executives. On the other hand, classes offered to the general public have few or no voting rights. The purpose of these shares is to allow the founders, previous investors, and employees to keep a majority stake in the business.Owners might benefit from stock classes with unequal voting rights. They can raise funds through public equity markets without losing control. These shares are often not listed on a public exchange. Moreover, there isn't a standard term for different shared classes. Class A shares are usually considered superior to Class B shares. On the other hand, this might not always be the case. Because of this, before investing, investors should research the specifics of a company's stock class.Examples of Dual-Class StocksLet’s take a glance at some examples of dual-class stocks.FordFord has two classes of shares: Class A and Class B. Despite owning only 5.0% of the company's total equity, the family holds 40% of the voting power through their ownership of class B shares.FacebookFacebook has a dual-class structure for common shares. Class B shares have ten votes each, and Mark Zuckerberg and his close executives own them. With 75% of the class B shares, Zuckerberg has 58% of the voting power in Facebook.History of Dual-Class StocksDual-class stock structures are becoming more and more common, especially in the technology industry. But they're not exactly a new idea. They operated without any notable incidents up to the car business Dodge Brothers' first public offering (IPO). It only offered shares with non-voting powers. So, the dual-class stock structure was banned.However, in the 1980s, the exchanges faced intense competition from other exchanges. This forced them to revert their decision and allow firms with dual-class structures. Earlier, only some Asian markets allowed Dual-class structured companies to list themselves. However, the competition among global stock exchanges is continuously increasing. So, the other exchanges are slowly allowing dual-class businesses.On the other hand, stock index firms like Standard & Poor's, don’t usually accept multiple stock structures. As a result, they do not include businesses with a dual-class structure.Advantages of Dual-class StocksDual-class stocks offer the following benefits.The company's founders and senior management may be able to make important policy choices with the additional voting power.Company owners remain free from criticism or interference from other shareholders. This may enable the business to be profitable in the long run.Dual shares offer preferential voting rights (PVRs). So, entrepreneurs may retain ownership of their businesses without concern for a hostile takeover.Startups can benefit from dual-class stocks because they enable the owners to raise capital without giving up control.Disadvantages of Dual-class SharesThe following are some drawbacks of dual-class shares.Many people dislike the dual-class stock structure with PVRs because it gives selected people with more voting rights.Most shareholders have fewer voting rights, even though they provide the majority of the capital. This leads to an unequal distribution of risk, which benefits the founders and senior executives.It may lead to the misuse of authority by founders and senior executives.Public shareholders cannot monitor the company's board and management because of their restricted power.ConclusionDual-class stocks always provide maximum voting power to the executives of a company. These stocks benefit the firm as well as the executives. They protect the business to remain sustainable for the long term. However, Dual-class stocks come with certain drawbacks. Many investors feel that issuing such stocks ignores the shareholders. Even if the firm generates high revenue, investors have no assurance of receiving dividends. In addition, they lack voting rights. Investors should thus be aware of the advantages and drawbacks of dual-class voting shares before investing in them.
FAQs on Dual-Class StocksWhy do businesses offer shares with two classes?Businesses offer shares with two classes as they do not want common shareholders to possess a majority of the voting rights.When are dual-class structures issued?Dual-class structures are issued during an initial public offering (IPO) or while issuing additional shares.Do institutional investors support the idea of dual-class structures?Institutional investors may or may not support dual-class structures. Their opinion may vary for different stocks.Are there regulations regarding dual-class stocks?Stock exchanges and regulatory bodies may have specific rules and regulations for dual-class stocks. They aim to protect the interests of minority shareholders.Is it possible to change the dual-class share structure of a stock?Yes, it is possible to change the dual-class share structure if they have a provision of sunset clause. Thus it reduces the difference in voting rights after a specific period. However, the majority of shareholders must approve these changes. |
https://www.kotaksecurities.com/share-market/what-is-non-controlling-interest/ | What is Non Controlling Interest? | Key HighlightsNon controlling interest shareholders lack independent control over corporate decisions or the ability to cast votes individually.In the case of a direct non-controlling interest, the shareholder is entitled to a proportional share of all recorded equity of a subsidiary, covering both pre- and post-acquisition amounts.An indirect non-controlling interest only receives a proportionate allocation of a subsidiary's post-acquisition amounts.A controlling interest grants a shareholder voting rights to influence corporate decisions.Non Controlling Interest ExampleSuppose a parent corporation acquires 80% of XYZ company, with a non-controlling interest entity acquiring the remaining 20% of the newly acquired subsidiary, XYZ. The assets and liabilities of the subsidiary reflected on the balance sheet undergo adjustments to fair market value, and these adjusted values are utilised in preparing the consolidated financial statements. In instances where both the parent and non-controlling interest pay an amount exceeding the fair value of the net assets, the surplus is recorded in a goodwill account within the consolidated financial statements.Goodwill represents an additional cost incurred when acquiring a company at a price surpassing its fair market value. This goodwill is subject to amortisation over time, following an impairment test, and is allocated to an expense account.Criteria for Non Controlling interestNon-controlling interest commonly arises when a company possesses more than 50% but less than 100% ownership of another entity. The dominant voting power of the first company grants it effective control over the second company. However, it's important to note that the ownership threshold of 50% is a general guideline. In some instances, a company might consolidate the finances of another entity even with ownership below 50%. This situation may arise when the consolidating company exerts influence over the subsidiary's board of directors, enabling it to guide the subsidiary's business decisions.Valuation of Non Controlling InterestAssessing the worth of a company involves examining its financial statements to predict forthcoming trends related to earnings and cash flows more accurately. Nevertheless, when dealing with companies that have non-controlling interests, they typically present consolidated financial statements and often provide insufficient details for a thorough valuation of the non-controlling interest.1. Constant GrowthThe continuous expansion approach is rarely employed due to the presumption that there is minimal fluctuation in the subsidiary company's performance, either in terms of decline or growth.2. Historical GrowthIn the approach of historical growth, an examination of past financial data is conducted to identify prevailing patterns. The model anticipates the expansion of a subsidiary by projecting a growth rate derived from historical trends. This technique is not suitable for companies undergoing rapid growth or significant decline.3. Modelling Subsidiaries IndividuallyAnalysing each subsidiary independently is the approach taken in this modelling technique. It assesses each subsidiary individually and aggregates their respective interests to derive a consolidated value. While this method offers increased flexibility and theoretically more precise results, its execution is challenging, primarily due to insufficient disclosures from the parent company. Furthermore, the complexity of valuing numerous subsidiaries may render the process time-consuming and impractical.Financial Statements and Non-Controlling InterestConsolidation refers to the amalgamation of financial statements that integrate the accounting records of multiple entities into a unified set of financials. These entities typically comprise a parent company, acting as the primary shareholder, a subsidiary or an acquired firm, and a company with a non-controlling interest. Through consolidated financials, investors, creditors, and company managers can examine the three distinct entities as if they constitute a single company.The process of consolidation also assumes that both the parent and the non-controlling interest company jointly acquired the equity of a subsidiary company. Any transactions occurring between the parent and the subsidiary, or between the parent and the non-controlling interest entity are excluded before the creation of the consolidated financial statements.ConclusionOwnership alone does not empower a shareholder to influence the decision-making within a company. Given the existence of various share classes in companies, an investment might involve a non-controlling interest devoid of voting rights or the capacity to impact the company. Therefore, understanding the complexities of non-controlling interests is essential, as they can significantly influence shareholders' investments. This is particularly relevant for shareholders who are not actively engaged in the company and hold less than a 5% 10% stake, as they may find themselves dealing with issues related to non-controlling interests.
FAQs on Non Controlling InterestHow to Forecast Non Controlling Interest?Forecasting non-controlling interest involves assessing the expected share of profits or losses attributable to minority shareholders in a subsidiary.Can noncontrolling interest be negative?No, noncontrolling interest cannot be negative as it represents the ownership stake in a subsidiary, and ownership shares cannot be less than zero.Is non controlling interest added to net income?Yes, non-controlling interest is added to net income in the consolidated financial statements to reflect the share of profits or losses attributable to minority shareholders in a subsidiary.Do dividends reduce NCI?No, dividends do not directly reduce non-controlling interest (NCI).Where is a non controlling interest shown?Non controlling interest is typically shown in the equity section of a company's consolidated balance sheet. |
https://www.kotaksecurities.com/share-market/what-is-dead-head-provision/ | What is Dead Hand Provision? | Key HighlightsA dead-hand provision is a strategy for blocking takeovers by giving new shares to everyone except the hostile bidder who wants to buy the company.The value of shares that the acquirer already owns is diluted, and its percentage of ownership is reduced, making it more expensive to take over.Management cannot prohibit dead hand provisions because they can only be revoked by the approved board.Understanding Dead Hand Provision MeaningA dead-hand provision is a method businesses employ to respond to another that has started acquiring the former in a hostile manner. A dead hand provision and a requirement for new shares to be issued on the market is also a deadly poison pill. When a company knows that an unwanted acquirer has acquired enough of its shares from the secondary market, it issues new shares in a high volume, which dilutes the shares acquired by the unwanted acquirer. As a result of dilution, its holding in the unwanted acquirer will decrease below the specified amount so that it cannot obtain the company.A dead-hand provision would make a takeover bid prohibitively expensive for the interested parties. This prevents potential acquirers from submitting an offer directly to shareholders or a newly elected board of directors. This would require the shareholders to retain their current management since it is they who can regain a poison pill.Example of Dead Hand ProvisionUsing the hostile takeover procedure, a company called XYZ is trying to acquire a company called PQR. It's buying 1,00,000 shares at the current price of Rs. 500, which is 10% of the company. PQR has no intention of having XYZ acquire it but cannot prohibit its secondary market shares from being acquired. Therefore, it knew that XYZ had a 10% holding in the company and could exercise its voting rights and have an effect on the board's decisions.PQR issues 1,000,000 new shares, bringing the company's total outstanding shares to 1,000,000 in an attempt to prevent a hostile acquisition. This is done by using the dead-hand provision approach. As the supply increases and demand remains the same, the share price falls. Now, if XYZ wants to get back to 10%, it's going to have to buy another 1,00,000 shares, which is going to be expensive. The hostile takeover plan fails, allowing PQR to avoid the hostile takeover because XYZ will not spend more to maintain the same ownership.Effects of Dead Hand ProvisionMost firms with poison pills tend to avoid hostile takeover bids, helping them maintain their independence. Below are some of the effects of Dead Hand Poison pills on enterprises.1. Use as bargaining instrumentsThe dead hand poison pill is occasionally used to negotiate to obtain the best conditions from bidders. The management's negotiating position is strengthened, and freshly elected directors cannot override them, mainly due to the inclusion of a pill that grants the current directors the ability to redeem it. The shareholders could elect a new board of directors, approving any deal that increases the shareholder value, if no poison pill were available. In a business environment where opportunistic acquirers initiate hostile takeover bids against failing or undercapitalised companies, management may also use dead hands to manage the company's future.2. The shareholders' approval before the poison pill can be activatedIn most cases, directors abuse the poison pill by using it in order to extend their terms even when a majority of shareholders do not like them. The provision constitutes coercion because it requires shareholders to keep the existing board members despite their wishes that a new board be set up that would have all its statutory powers and act in the best interest of those shareholders.Activist shareholders are attempting to prevent this abuse of power by submitting proposals requiring shareholder approval before the board is able to put a new poison pill into the company's charter. This proposal would ensure that the company remains independent and avoid a decline in productivity and inefficiencies caused by poor management if implemented.ConclusionThe provision of dead hands, which ensures that an unwanted entity does not acquire a company, is considered to be the crown jewel of the business world. It guarantees that the acquisition is carried out in accordance with ideal and agreed-upon terms, giving maximum control to the company. In addition, shareholders are protected from the Board of Directors, which may abuse its powers for their benefit. In essence, the dead-hand provision is a controversial and ideal business strategy that enables companies to remain in control under worst-case scenarios.
FAQs on Dead Hand ProvisionWhat is the poison pill provision?The poison pills are conditions that companies include in the listing of their securities that prevent an individual from acquiring a majority interest. They usually have a share ownership threshold that can trigger the issue of additional shares to shareholders at discounts or for free.What is a poison pill strategy in India?A poison pill is a defensive technique used by the target company to prevent or discourage an acquiring undertaking from taking risks related to hostile takeovers. Prospective targets employ this approach to diminish their attraction to the possible acquirer.Is poison pill legal in India?This is the only substantial obligation of the purchaser to make a takeover offer. According to paragraph 26c of the Code, the target company cannot issue any securities conferring voting rights to the holder, thus eliminating any "poison pill" strategy.Are poison pills good for shareholders?Yes, when investors acquire new shares at a discount, they can profit immediately through poison pill strategies. The poison pill has the effect of diluting stock values, meaning that if a shareholder wishes to maintain an equal ownership interest in his company, then will need to acquire more shares.Do poison pills work?A poison pill may be very effective in dissuading an acquisition, but it is seldom the only line of defence. This is because the strategy cannot be fully guaranteed to succeed since poison pills are not necessarily unable to stop a company from being acquired when an acquirer persists. |
https://www.kotaksecurities.com/ipos/what-is-pre-ipo-investing-and-its-importance/ | Pre-IPO: What it is, How it Works, and Why you Should Invest | Key HighlightsA Pre-IPO stock is a stock of a company that has not yet gone public.Pre-IPO companies have a solid business model.Many Pre-IPO companies have been around for at least a year and are profitable.Often, Pre-IPO companies have more information available than their post-IPO counterparts.What are Pre-IPO Stocks?Pre-IPO stocks are stocks of companies that are yet to go public. You will be one of the company's important shareholders and a part of its growth as a Pre-IPO investor. It is also possible to earn a huge profit when the company goes public.You might not get an allotment if an IPO is oversubscribed. This is one reason why some investors choose to invest in pre-IPO companies. Before going public, many companies opt for Pre-IPOs to reach out to investors and gather capital.How Does Pre-IPO Investing Work?Interested investors can invest in the company's growth before it goes public. However, a lack of awareness makes Pre-IPOs less accessible to everyone. Previously, Pre-IPO shares were only available to banks, hedge funds, private equity firms, and a few other entities.You can now invest in Pre-IPOs if you have a bank account and a Demat account. Additionally, a company can now dematerialise its shares, allowing everyone to invest in them and conveniently transfer them between accounts.Share brokers handle the majority of Pre-IPOs. Investing in a Pre-IPO requires the help of a broker. Pre-IPO companies and their details, such as brokerage fees and share prices, are disclosed by your broker.If you wish to invest in the Pre-IPO, you must send the investment amount to the broker, who will transfer the amount to the company's account. Shares will be delivered to your Demat account by T+0 evening or T+1 morning. The transaction is complete once you see the ISIN number of the shares in your Demat account.Fund houses are another way to invest in Pre-IPOs. AMCs often offer limited-subscription Pre-IPO mutual funds. In this way, investors can invest in companies at the end of their development stages.Why to Invest in Pre-IPO Companies?Investors can benefit from investing in Pre-IPO companies for a variety of reasons. Some of them are:Pre-IPO is launched by top playerOn paper, a startup may look good, but it's more likely to succeed if an experienced entrepreneur leads it. These leaders have already mastered the art of running a business and have a good sense of what works and what doesn't. Investing in Pre-IPO companies allows investors to get in early with someone who has done it before.Investors who put| money into Pre-IPO companies are betting on both the team behind them and their reputations. Your investment will likely yield better returns if you invest in an established company with an experienced founder than if you invest in an upstart without knowing their success factors.Business models of Pre-IPO companies are ProfitableOften, Pre-IPO companies have been around for at least a year and have shown they are profitable. In other words, it means their business model is working. A company's valuation skyrockets when it goes public, and it has to compete with much larger companies.These challenges don't exist in Pre-IPO companies - yet - which is why you can purchase solid companies at a low price. If you invest in Pre-IPO companies, you get first dibs on profit. You can cash out as soon as the stock begins trading when you're first to invest (and profit).One of the benefits of investing in Pre-IPO companies is being able to do so early enough to gain when they go public. When you invest in Pre-IPO companies, you can benefit from big upsides without having to wait for an IPO. Moreover, compared to IPOs, Pre-IPO investments are subject to less regulation.Pre-IPO companies have detailed plansPre-IPO companies often have more information available than their post-IPO counterparts. Since these startups do not need to raise additional capital, they have more time to develop detailed business plans for investors.Getting involved with a Pre-IPO company now remains advantageous, even if you do not intend to buy equity right away. The relationship you establish will be important when shares are offered to other investors and sold on the public market. It is better to invest now than to wait later if you want to build a relationship.In Pre-IPO businesses, failure is taken very seriously. Comparatively, private companies have less incentive to do anything but prioritize success over failure than publicly traded companies with quarterly earnings reports. This means even higher standards and better products from startup founders who haven't thought about liquidity yet.Pre-IPO opportunities can be a great way to increase your risk/reward ratio. It is a networking opportunity to invest in a Pre-IPO company. Thus, making connections with Pre-IPO startups is an effective way to build those networks now rather than later.From the very beginning, you will be able to play an active role. Rather than playing an active role as a trusted advisor or consultant, you'll play a passive role as an investor until shares are sold on public markets or offered as equity stakes in another funding round.Pre-IPO stocks offer better value for moneyWith Pre-IPO stocks, you can invest in a company at a fraction of its market value, resulting in higher returns. As compared to IPOs, they're more accessible due to the low prices. However, only if the investment makes it through the initial hurdles.Even though some companies quote low IPO price values to woo investors, most stock markets correct post-IPO, resulting in greater losses than investing in Pre-IPO companies. Many financial experts recommend buying shares on the primary market rather than the secondary market, as post-IPO corrections are common.Investing in private funds early also allows you to spot valuable trends ahead of time and set yourself up with valuable investments before others. In the primary market, there are no 'corrections' because the markets do not shift once stocks are listed on secondary platforms. As a result, you have more control over your holdings and can decide which companies succeed or fail.A high-net-worth individual (HNI) generally invests a huge amount in a single deal when investing in these types of stocks. They also tend to know about companies long before they launch publically, allowing them to act first rather than react later, again giving them greater control over which startups succeed and which fail. Because of their low market value, Pre-IPO stocks offer you a wider selection of stocks and safer returns. It is possible to diversify your investment portfolio by purchasing Pre-IPO stock if you are looking for ways to do so.Pre-IPO stocks are less risky investmentsInvesting in companies before they go public can seem like a safer bet because these companies are usually not making much money yet or maybe not making any at all. So, there's less risk because there aren't a lot of people buying and selling their shares like in the stock market.But remember, there's always some risk because businesses can fail, just like how some new ideas can suddenly become super successful. Whether a company does well or not also depends on whether more people invest in it. So, it's important to see how much money is being put into certain types of businesses.It would be helpful to clarify that Pre-IPO investments are subject to risks but can offer high returns. For example: While there are risks associated with investing in Pre-IPO companies, it's important to note that these investments offer a good chance of earning high returns. As many investors actively seek Pre-IPO stock opportunities, there's little chance that such opportunities will go unnoticed for long.ConclusionDue to the fact that they are not listed yet, Pre-IPO investments offer substantial return potential at low investment costs. It might be helpful to mention that investors should conduct thorough due diligence and consider seeking advice from financial experts or professionals before investing in pre-IPO companies.The experts at Kotak Securities can help you with your investments. When a company is still in its early stages of growth, you can make a lot of money investing in its stock.Read More :Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on Pre-IPO InvestingWhy to invest in Pre-IPO companies?Pre-IPO investments can give investors early access to high-growth companies before they become publicly traded. If the company performs well after the IPO, it could result in significant returns.What are the benefits of investing in Pre-IPO companies?Pre-IPO companies can help diversify your portfolio and expose you to innovative industries. These companies can improve portfolio performance when they hit the growth path post-IPO.What are the advantages of investing in Pre-IPO companies compared to traditional stocks?The attractive valuations of Pre-IPO companies result in substantial gains for investors. These shares are available at a low price. Furthermore, it allows investors to invest in startups and innovative technologies that are not publicly available.Do Pre-IPO investments make good long-term investments?Yes, you can grow your capital investment through Pre-IPO investments. Even though these investments are highly risky, they can generate the highest returns in the long run. When the company goes public, you can earn multiple times more if the company does well.What are the risks of Pre-IPO?Higher fees, limited transparency, and the possibility of financial loss are the risks of Pre-IPO. |
https://www.kotaksecurities.com/ipos/what-is-ipo/ | No title found | As many as 163 companies launched an IPO in 2017 alone! Companies as big and diverse as Reliance, Coal India and ICICI have taken the IPO route in the past.##Basics Of IPO InvestingWhat is an IPO?So, let’s first understand what an IPO is. Just to initiate you, it is an abbreviation of initial public offering.When you read that a company is launching an IPO, it means that a private business has decided to issue shares to the general public for the very first time.
Basically, this is the time when a private business decides to go public and get listed in the stock exchanges.But, what is the need for an IPO?You need money to meet your various needs. It’s no different for a business. Just like us, businesses need money to meet various needs. An initial public offering (IPO) is one of the avenues available to them to raise capital.The bottom-line is this: Money is the bloodline of any business.Consider these two instances:Scenario 1: A 75-year-old garment manufacturing company operating in Tirupur, Tamil Nadu, needs to get into the branded apparel business. The company has years of expertise behind it but needs to build a brand. Extensive marketing and promotions have to be taken up urgently.Scenario 2: A newsprint company in Indore, Madhya Pradesh, is desperate to shed its line of business and get into logistics. The prospects are good, especially in the booming e-commerce space.So, how can these companies get more money?These companies can borrow from banks. But what if they have borrowed a lot already? Will the banks still extend them loans?Businesses can also take the IPO route. The IPO recourse can be even more attractive when the markets are on a high.When do companies need an IPO?They may need an IPO to meet working capital needs. Working capital is needed to run the business. Companies also make use of IPOs by getting into new ventures, expanding operations and buying new equipment.Advantages of IPOsNo repayment period is needed, unlike for loans offered by banks and financial institutions.There is no need to pay interest on the capital raised.The funds raised can be used to pay off old debts.Awareness about a company increases when it goes for an IPO. Since the shares are publicly traded, its products and services are also discussed in detail. This often leads to successful brand building and a better market share for its products.IPOs give investors an exit route. Several venture capitalists have exited a company after selling off their stake in the firm. Once the shares are publicly listed following an IPO, the prices often shoot up. So, the promoters and investors could become rich when they decide to sell off their stake.Whenever a company becomes publicly listed, it is bound by a regulatory framework. This framework helps prevent fraud. It is enforced by the market regulator Securities and Exchange Board of India (SEBI). The accounting practices of a company may become much more transparent following these practices. This transparency may benefit the company in the long run.Where do companies launch their IPOs?The transactions take place in a specific part of the capital market: that part is the primary market. This is also where you get to invest in the IPO.Since private businesses issue new securities to sell to investors, the primary market is also called the new issue market.How do businesses raise funds in the primary market?There are four common ways:They can sell securities to the public through a public issue.They can offer new securities to existing shareholders through a rights issue.They can approach institutional investors through private placement.They can sell securities to select investors through preferential allotment. (In this case, the price of the security may or may not match its market value.)In all these scenarios, the transaction is between:The business entity and
The investor.
On receiving the sale proceeds, the entity will issue security certificates to the buyers.Keep in mind that many businesses approach large institutional investors during IPOs. In such a case, small investors may not be able to buy securities through the primary market. However, once the securities have been sold, they can be traded freely on the secondary market.What is a secondary market?Here, the trade in securities occurs via a stock exchange. Instead of the issuer, the current holder of the security sells the security to a new buyer. The seller typically aims to sell the security at a price that is higher than his purchase price.The secondary market can be of two types:Anauction marketis a physical location where buyers and sellers gather. They state the rate at which they are willing to buy or sell the securities. All the information is public. As an investor, you can take a call accordingly.
In adealer market, the trade happens electronically (e.g. through fax or telephone). Here, a dealer serves as the middleman and carries a security inventory. He aims to make a profit on the transaction. So, you may need to shop around to get the best prices.
That’s not all. How you invest in both the markets also differs. Let’s read that next.How does IPO differ from regular stock market investing?1. The playersThe seller:On making a successful bid in an IPO, you buy the allotted securities directly from the company that issues those securities. In regular stock investing, you buy shares from existing shareholders. Should you wish to sell shares that you already own, you can do so as well.The go-between:While there is no middleman in an IPO, the regular trade in stocks happens through an intermediary agent (such as a stockbroker).Tip: Check that your intermediary agent is registered with the Securities and Exchange Board of India (SEBI) or recognised stock exchanges. This will help you safeguard your investments.2. The locationAn IPO takes place on the primary market. It marks the first time that a company makes its shares available to the public for investment.Regular stock investments happen on the secondary market. The shares belong to a company that is already traded on the stock exchange.3. The costsWhen you invest in an IPO, the price (or a price range) is fixed. The amount is clearly mentioned in the company’s prospectus.But the values of non-IPO stocks vary with the supply of and demand for those stocks. Current trends, inflation, the company’s growth prospects, and many other factors play a role.4. The assessmentTo select an IPO, you should go through its prospectus and read third-party reports about the company. Then make your own informed assessment. Since the company has not been publicly listed yet, it may not have the detailed statements that are maintained by public companies. This lack of information can be a problem. But it can also prove a blessing.Public companies maintain detailed paperwork to comply with SEBI’s strict guidelines. Working through this glut of information can be confusing for someone who is new to stock market investing.5. Role of an underwriterUnderwriters play a very crucial role in the process of IPO listing. Underwriters are representatives of investment banks which are involved with the IPO. They perform due diligence, filings with SEBI, pricing, marketing, roadshows even eliminate any risk to the company or rather guarantee a certain amount of fund raised (if the agreement with the underwriter is bought deal).In case of a bought deal the underwriter buys the entire lot of share at a highly discounted price, and resells the shares to its clients, public. Such an agreement will eliminate any risk for the company, however, the underwriter will take risk only in case the underwriter is sure to make a good spread in the deal.Who can invest in an IPO?There are different types of investors:Institutional investorsThe underwriter will try and sell large chunk of these share to a handful of its institutional clients like insurance companies, mutual funds etc. at a lucrative price before the IPO. A lock – up contract with such institutional investors varying from 90-180 days ensures minimal volatility on the day of IPO.
As a general rule, 50% of allocation of share is to these institutional investors and is completely discretionary.High net worth individuals (HNIs)Individual investors looking to invest more a value of more than INR 200,000 are categorized as HNIs. The allotment of shares to HNIs is proportionate and falls under 10 – 15%.Retail investorsThe class of investors subscribing in an IPO for a value of INR 200,000 or less fall under this category. The probability of getting an allotment is higher under the retail quota as SEBI has designed the allotment method in a way that maximum retail investors are included. Allocation under the retail quota is nearly 35%.
Basically, any adult competent enough to enter a legal contract can invest in an IPO. Essentially, one must have a Permanent Account number (PAN) issued by the Income Tax department and a valid demat account.Trading account is a mandatory requirement, in case one intends to sell the stock on listing. It is therefore advisable to have a demat cum trading account, Kotak securities offers one such account, making investing in an IPO hassle free.A Quick RecapAn IPO, or initial public offering, takes place when private businesses decide to issue shares in the primary market for the first time. The reasons for taking the IPO route are manifold. Some of the common reasons are: money needed to expand operations, repay debt, initial investors looking to sell their shares and getting into new ventures.
There are several benefits of issuing an IPO. Not paying interest on the capital raised and not having a deadline to repay a bank loan are some of the strong reasons why businesses choose the IPO option.
There are basic differences while investing in an IPO and putting money in existing company stocks. The costs involved and the assessment required are some of the factors that differentiate the two types of investing.
FAQs on What is an IPO?What do you mean by IPO?IPO stands for Initial Public Offering. It refers to the process where companies sell their shares to the public for the first time. After an IPO, a company goes public and gets listed on a stock exchange.How does an IPO work?A company hires an underwriter who decides the offer price and completes all the necessary steps. After the regulatory approval, the company can launch the IPO. Investors can buy the shares on the IPO date. Then, the company will allocate shares in proportion to the shares an investor subscribes to.Is IPO profitable?Investing in an IPO may or may not be profitable. If the share price increases after the IPO launch, investors will make profits. However, if the share price decreases, investors will incur losses. So, it is essential to properly analyse a company's fundamentals before investing in an IPO.How to sell IPO shares?You will need a trading to sell the IPO shares. Place a sell order from your trading account. When an investor buys the shares you hold, the shares will be debited from your demat account. You will receive the due amount in your trading account.Is an IPO a good investment?IPO may be a good investment. However, it depends on the performance of the company going for the IPO. If it’s share price increases, you will get profits. Conversely, if share prices fall, you will suffer losses. So, it is vital to analyse a company’s fundamentals before investing in an IPO. |
https://www.kotaksecurities.com/ipos/what-is-full-form-of-ipo/ | What is the full form of IPO? | An Initial Public Offering (IPO) marks a pivotal moment in a private company's trajectory as it ventures into the realm of the general public by offering its shares. This transformative event enables the company to transition from privately held to publicly traded. Once a company goes public through an IPO, it can experience a significant surge in visibility, financial strength, and market presence.Key HighlightsIPO full form is an Initial Public Offering.An initial public offering is a process of making new shares available to the corporate world.This will permit the company to generate revenues from public investors.IPO Full FormThe term IPO in thestock marketrefers to an Initial Public Offering. Launching an IPO is a significant milestone for any company as it provides an opportunity to raise substantial capital. This infusion of funds empowers the company to pursue ambitious business goals that might have otherwise been challenging to achieve in the near term, such as rapid expansion.Additionally, going public increases transparency and credibility through share listing, which can positively impact the company's ability to secure favorable terms when seeking borrowed funds.When considering whether to go public, a company must not solely focus on its financing needs. Instead, it should assess various factors, including its stage of development and readiness to meet the regulatory requirements set forth by governing bodies like SEBI.Furthermore, the company should feel confident in its ability to fulfill its responsibilities to public shareholders as it transitions from a private entity to a publicly traded one. This involves maintaining financial transparency, adhering to reporting obligations, and effectively managing shareholder interests.In essence, the decision to launch an IPO is a strategic one that goes beyond the immediate financial needs of the company. It represents a commitment to growth and accountability as the company enters the public market and embarks on a new chapter in its corporate journey.Examples of IPOThe examples of IPO are as follows.Reliance Power IPO:Reliance ADA group is India's biggest commercial conglomerate, with operations in telecommunications, finance, entertainment and media, infrastructure facilities, power plants and other sectors. The Initial Public Offering, which has a value of INR 11,700 crores, was immensely successful between 15-18 January 2008.GIC IPO:GIC offers property, power, marine, engineering, miscellaneous, aviation, liabilities, aircraft, hull, spare parts, etc. The IPO was issued between 11-13 October 2017 with an IPO value of INR 11,256. 83 Cr.ONGC IPO:Oil and Natural Gas Corporation (ONGC) is the government's main agency for exploring and exploiting India's petroleum resources. The overall value of the IPO was INR 10,534 Cr issued from 5 to 13 March 2004.IPO Working MechanismAfter making the critical decision to go public, a company embarks on a series of crucial steps to ensure a successful IPO. The foremost and pivotal step involves appointing a merchant banker, also known as Book Running Lead Managers (BRLM) or Lead Managers (LM).The merchant banker is vital in guiding the company through various aspects of theIPO process, ensuring a seamless transition into the public domain. The responsibilities of the merchant banker encompass the following:Conducting Due Diligence:Thorough due diligence is performed on the company seeking to go public. This ensures compliance with legal regulations and results in issuing a due diligence certificate, validating the company's readiness for the IPO.Preparing Listing Documents:Working closely with the company, the merchant banker assists in preparing essential listing documents, with the most prominent being theDraft Red Herring Prospectus(DRHP). These documents provide critical information to potential investors.Underwriting Shares:The merchant banker takes on the role of underwriting the IPO shares. Essentially, they commit to purchasing all or a portion of the shares being offered and resell them to the public.Determining the Price Band:Collaborating with the company, the merchant banker helps arrive at the price band for the IPO. This price band sets the lower and upper limits within which the company's shares will be offered to the public.Assisting with Roadshows:The merchant banker plays a vital role in organizing and conducting roadshows. These events serve as promotional and marketing activities for the company's IPO, generating interest among potential investors.Apart from appointing the merchant banker, the company also engages other intermediaries, including registrars, bankers, and advertising agencies. These entities collaborate with the lead managers to develop effective marketing strategies for the IPO.Once the company forms a partnership with the merchant banker, the concerted efforts of both parties are focused on taking the company public. The IPO journey is marked by careful planning, meticulous execution, and effective communication to ensure the offering garners investor confidence. It sets the stage for the company's growth and success in the public market.IPO AdvantagesAccess to Capital:IPOs offer companies a chance to raise substantial funds to fuel their growth and strategic initiatives, which might have been limited in the private domain.Enhanced Visibility:Going public brings heightened visibility and brand recognition, potentially attracting more customers and business partners.Currency for Acquisitions:Publicly traded shares can be used as currency for acquisitions, facilitating growth through mergers and acquisitions.Liquidity for Founders and Early Investors:IPOs provide an exit strategy for early investors and founders, allowing them to liquidate their stakes partially or entirely.Growth Potential:IPOs present investors with an opportunity to invest in promising companies early, with the potential for substantial capital appreciation as the company grows.Diversification:Investing in IPOs can benefit an investor's portfolio by adding exposure to new industries or sectors.Liquidity:Being listed on a stock exchange, IPO shares provide liquidity, allowing investors to buy and sell shares easily.IPO DisadvantagesCost and Complexity:The process of going public is expensive and time-consuming. Companies have to bear significant costs related to legal, accounting, underwriting, and marketing fees. Additionally, the IPO process involves extensive regulatory compliance and reporting requirements, which can be complex and demanding for the company's management team.Loss of Control:A company's ownership is dispersed among many shareholders by going public. This could result in losing majority control by the founding team or existing shareholders, leading to potential conflicts of interest or a diluted decision-making process.Increased Scrutiny:Public companies face greater scrutiny from shareholders, analysts, and the media. They must meet quarterly reporting obligations and provide more transparency about their financial performance, business operations, and future plans. This level of scrutiny can put additional pressure on management.Lack of Historical Data:IPOs often involve relatively new companies with limited historical financial data. This makes it challenging for investors to accurately assess the company's performance and potential, increasing investment risks.Limited Information:Before an IPO, companies provide a prospectus that contains relevant information for potential investors. However, this document may only disclose some relevant details about the company, and investors may have limited insights into the company's future prospects and risks.Lock-Up Periods:Key insiders and early investors are usually subject to lock-up agreements that prevent them from selling their shares for a specified period after the IPO. This can create supply-demand imbalances, affecting the stock price.How to Participate in IPOs?You can participate in IPOs either with a -Trading accountBank accountHere’s the entire process onhow to apply for IPOsthrough both these methods. Kotak Securities makes it easy to apply for IPOs on its trading app. To learn how to apply for an IPO using UPI ID on the Kotak Securities trading app, clickhere.In ConclusionIPOs play a crucial role in the financial ecosystem by connecting companies seeking capital with investors seeking growth opportunities. They represent an exciting milestone for companies, transforming them into publicly traded entities, while providing investors with an opportunity to participate in their growth story.However, investing in IPOs also carries risks, as newly listed companies may face volatility and uncertainty in their early days as publicly traded entities. As with any investment decision, conducting thorough research and seeking professional advice is essential to make informed choices in the dynamic world of IPOs and the share market.
FAQsWhat is Full Form of IPO?IPO’s full form is initial public offering. It is an event when a company offers its shares for the first time to the public.How is IPO priced?A merchant banker decides the price range of an IPO offer. The firm takes into account different factors like company performance, demand for the IPO among investors, and growth prospects. This process is known as book building.Is IPO a good investment?An IPO may be a good investment if you invest in a company which has decent growth prospects. If the share price increases after the IPO you may make profits. However if it falls, you will suffer losses. So, it is critical to research about the company before investing in an IPO.Can anybody invest in IPO?Yes, any individual who has a PAN number, demat, and bank account can invest in an IPO.How Many Days Will an IPO Remain Open for the Public?Typically, subscription lists for public issues are open for a duration ranging from 3 days to 10 working days. During this period, investors have the opportunity to subscribe to the offered shares before the issue closes.Can I Sell an IPO Anytime?Typically, investors often choose to sell their IPO shares on the listing day due to the higher prices observed compared to the year-end. However, determining the ideal time to sell IPO shares is a subjective matter, as it varies for each investor based on their individual financial objectives.On What Basis IPO is Allotted?The allotment follows the rules laid down by SEBI. |
https://www.kotaksecurities.com/share-market/what-is-nil-paid/ | What is Nil-paid Rights | Key HighlightsA nil-paid share means the company hasn't received any payment for the nominal value or any premium during issuance. So, it is a security for which the owner paid no money.In order to attract new shareholders, the rights are typically sold at a discount to what they would cost on the market.After the rights issues are resolved, the shareholders have the option to exercise their rights and purchase them at the offered price. In this case, the rights are known as fully-paid rights.Shareholders may choose to swap their shares on the market or let them expire if they choose not to purchase the shares.Definition of Nil-paidThe term "nil-paid" suggests that investors didn’t pay for the shares. This typically happens when the firm issues shares as a rights issue. This gives shareholders an option to purchase additional shares at a lower price. The shareholder will still be responsible for any future dividends payable on the shares.Renounceable cum rights, issued to original owners at no cost, are a typical example.
However, shareholders may sell the rights after separating it from the stock. Therefore, even if a nil-paid has value, it didn't cost the original owner. It, therefore, yields 100% profit when sold.To accept the offer, a holder of nil-paid rights must pay for the extra shares as per the conditions of the rights issue. The rights are called fully paid shares till these shears are allotted as “fully-paid”. A holder of nil-paid rights has two options if they choose not to subscribe for the shares. In this case, an investor is referred to as a lazy shareholder. or else they can sell the nil-paid rights.How ‘Nil-Paid’ Rights Works?Now that you know what nil-paid rights are, let’s explore how they work. The term "nil-paid" may imply that nil-paid rights grant investors the ability to get new shares at no expense. However, this is not entirely true. They are just the right to purchase additional shares at the present price or a discount. The company that grants its shareholders ownership does not get any funds for these shares. However, if shareholders use the rights, they will have to pay for the securities.Rights are mostly tradable. They are known as "renounceable rights." On the other hand, non-renounceable rights are different. Non-renounceable refers to the inability of shareholders to transfer their rights to another party. They invite existing shareholders to buy more shares of the firm at a predetermined price. The price range is typically less than the current market price. Businesses usually use non-renounceable rights to raise money quickly without diluting the holdings of their existing shareholders.Why do Companies offer Nil-Paid Rights?Firms generally issue nil-paid rights offering to raise more funds to fulfil their existing financial requirements. Businesses going through financial difficulties need to obtain funds. However, they may not get new loans quickly. So, they issue nil-paid rights.However, financially sound companies may also issue nil-paid rights. Trusted businesses may use the additional funds for company growth. It may include establishing more factories, opening retail outlets, or making acquisitions. Here, the purpose of the nil-paid rights sale is expansion rather than debt repayment. So, the potential profits in the future might outweigh the existing risk from the dilution of outstanding shares.Determining the Nil-Paid ValueYou must estimate the value of the non-paid rights in advance to calculate the profit from selling the rights to shares held in a position. Yet, it is difficult to find an exact figure. However, you may get an approximate value by subtracting the rights issue price from the ex-rights price.For instance, for every five existing shares, a company may offer one new share at Rs.10. This is referred to as a "one for five" issue. Assume that the share price is Rs.25 at this time. Therefore, you would anticipate that the firm's shares will trade for about Rs.22 once the new share has been issued. So, 5 x Rs.22 = Rs.110. Further, Rs. (110 + Rs.10)/6 = Rs. 20. This is the ex-rights price.In case a shareholder decides not to exercise his rights, he can transfer it. The difference between the issue price and the anticipated ex-rights price is known as the "nil-paid" price. In this case, Rs. 20 - Rs. 10= Rs. 10. An investor who was not invited to participate in the first rights sale might be willing to purchase nil-paid rights in its place.ConclusionThe term "nil-paid" indicates that the amount for purchasing new shares is unpaid. This strategy allows companies to raise capital for debt repayment and business expansion. The rights issue would probably fail if the open market share price drops below the offer price. At that point, the nil-paid rights would lose all of their value. Moreover, they can be traded in the market. So, nil-paid rights can be quite helpful for investors in the world of the stock market.
FAQs on Nil-paid RightsHow are Nil-paid calculated?The nil-paid rights calculation is the difference between the investor's subscription fee and the theoretical ex-rights price.When are Nil-paid rights referred to as fully-paid rights?Completely paid rights are defined as nil-paid rights when the shareholders decide to exercise the rights and purchase them at the requested price.Are unpaid shares refundable?Yes, unpaid shares are refundable. You may cancel shares you hold but haven't paid for. It's referred to as "rescission."Are nil-paid shares liquid?Nil-paid shares are liquid because investors can trade them in the open market. However, they are not as liquid as fully paid shares.Are nil-paid shares recorded in the financial statements of a company?Yes, nil-paid shares are recorded in the financial statements of a company. The companies have to mention the number of shares issued but not yet fully paid for. |
https://www.kotaksecurities.com/share-market/what-are-voting-shares/ | What are Voting Shares? Definition, Example and Benefits | Key HighlightsVoting shares grant shareholders the right to participate in the decisions and policies of a company. One share gives one vote to shareholders.Investors can vote in the election of the directors and other important matters of the company.The voting process involves an Annual General Meeting (AGM), where shareholders cast votes on resolutions.Definition of Voting SharesVoting shares are a kind of shares that allow shareholders to express their opinions on company matters. This includes the election of board members and other corporate issues. Common shares that a firm issues are typically referred to as voting shares. Each share has a value of one vote. Investors who hold voting shares get an ownership interest in the business.How do Voting Shares Work?After learning the voting shares definition, let’s see how they function. Stockholders possess equity ownership in a listed company when they buy its shares. There are basically two types of shares. These include voting shares and preferred shares.Voting shares are also referred to as common shares. They provide preemptive rights. So, shareholders can retain ownership by buying more shares in future issuances. This suggests that shareholders have the option to purchase more shares of the firm before they are offered to the public or new investors.Preferred shareholders have the first right to receive funds from the sale of assets when a company goes bankrupt. This sets them apart from voting shareholders. There are no rights for common shareholders to claim settlements in case of bankruptcy. In addition, common shares may not provide dividends. Or they may get lower dividends than preferred shareholders.Example of Voting SharesAssume that XYZ company issues 10,000 preference shares and 5,000 equity shares with voting rights. Let’s say you own 1,000 preference shares and 500 equity shares.The company arranges the Annual General Meeting (AGM) and presents a list of resolutions for approval. It includes raising the company's total authorized share capital and appointing a director.You own about 500 equity shares. So, according to the one-share-one-vote principle, you have 500 votes. You may use them to cast your vote at the AGM. However, your 1,000 preference shares do not grant you the right to cast a vote on any matter.The resolutions will pass if the majority of shareholders vote in favour of them. This requires a vote of 51% or more shareholders. Otherwise, the proposed solutions shall be rejected.Benefits of Voting SharesCompanies structure their share classes to include various types of shares. The aim is to ensure that a small minority of shareholders have the majority of the voting rights. This allows firms to grant voting rights to shareholders who are interested in the organization's long-term success.Voting shares are a vital component of a company's share capital structure. They provide ownership, specific rights and advantages to their holders. They offer the following benefits, helping in the smooth operation of a company.Voting shares give shareholders the power to influence decisions. It guarantees that the company takes care of their interests.They give shareholders the authority to seek accountability from a firm.Offer minority shareholders the authority to prevent more prominent shareholders from suppressing their interests.Allow shareholders to provide suggestions that will ultimately benefit the firm.Granting voting rights to a small group of shareholders prevents hostile takeover from shareholders who are not the company founders. It also ensures that no other firm purchases their shares at a premium.Many shareholders lack the necessary industry or domain knowledge to influence corporate decisions. They may only stay invested in the company for a short time. Restricting voting rights gives decision-making power to stakeholders who prioritize company interests over short-term profits.Disadvantages of Voting SharesThe following are some of the drawbacks of voting shares.Owners of voting shares are the last to get paid in case of bankruptcy. This is because preferred shareholders receive the compensation first.They do not offer guaranteed dividends since preferred shareholders must receive payments on a regular basis.It is a high-risk investment for shareholders who may lose their investments if the firm underperforms or files for bankruptcy.Unlike preferred shares, voting shares are restricted and not issued in large quantities. This makes it difficult for the general public to get them.A large-scale issuance of voting shares will dilute the ownership of existing shareholders. This results in less control and a potential decrease in the share price.ConclusionVoting shares offer shareholders the right to vote on crucial matters of the company. Investors have the authority to decide a company's management. They can vote for the appointment of the board of directors. They also get the power to approve or disapprove essential decisions such as acquisitions, mergers, and buybacks. However, there is also a significant risk because the investors may lose money if the firm goes bankrupt. So, investors must understand how voting shares function before buying them.
FAQs on Voting SharesHow is the voting power determined for the shareholders?Voting power is decided by the number of voting shares a shareholder owns. The higher voting shares you own, the greater your influence will be.Can voting shares have different levels of rights?Yes, voting shares may have different levels of rights with different classes of shares. Some classes can have more vote value for each share than others.Can voting shares give dividends to the shareholders?Voting shares may or may not give dividends to the shareholders.Are investors allowed to trade voting shares in the open market?Yes, inventors can trade voting shares in the open market.Do investors holding voting shares have the choice to vote during mergers and acquisitions?Yes, investors holding voting shares can vote during mergers and acquisitions. |
https://www.kotaksecurities.com/demat-account/demat-account-lowest-brokerage-charges/ | No title found | What is brokerage?Brokerage is a fee levied by brokers for managing investment transactions in your demat and trading account and rendering related services. Brokerage charges vary across different brokers. SEBI has set norms for the maximum brokerage a broker can charge. It is limited to 0.25% for intraday trades and 2.5% for equity delivery of the entire trade amount.There are two ways in which brokerage is calculated. One is where you will be charged a flat fee on every trade, irrespective of your traded value. The other is where you will be charged a percentage of the total traded value. A percentage-based charge is more suitable for smaller trades.There are online calculators on different brokerage platforms that make the calculations quite simple. Anonline brokerage calculatordisplays the brokerage fee and other charges levied on your transaction.Some of the additional charges include:Transaction fee
This fee is charged on the total transaction value and varies across segments and exchanges. For equity delivery, equity intraday, equity futures, index futures and currency futures segments, the transaction fee is applied on the traded value. For equity options, index options and currency options trading segments, this fee is applied on the premium value.Stamp duty
Stamp duty is levied as per the state government on the buy side. It is different for different segments and varies from state to state.Securities transaction tax (STT)
This is charged every time you buy and sell securities on the exchanges. It is levied on both sides for Equity Delivery. For Equity Intraday, Futures and Options, it is levied on the sell side.Goods and Services Tax (GST)
The Goods and Services Tax (GST) is levied on brokerage, transaction charges and SEBI fees at 18%.
ConclusionThe brokerage fees today are considerably lower than they used to be in the past. It is cheaper to be an investor today with brokerage sometimes being zero for intraday trades with some brokers. So, if you are a budding investor, it makes sense to do your bit of research and find a suitable broker with lowest brokerage charge for trading.Read more:Both investors and traders can benefit from this characteristicHow much should you invest to become a crorepati?Benefits of opening an equity trading accountA general guide to the share market
FAQs on Lowest Brokerage Charges For TradingWhat is the maximum brokerage a broker can charge?The Securities and Exchange Board of India (SEBI) has established norms regarding the highest amount of brokerage that a broker may charge. Hence, a broker cannot levy brokerage fees for intraday trades of more than 0.25% and equity delivery of more than 2.5% of the entire trade amount.What is the minimum brokerage a broker can charge?The lowest percentage-based brokerage fee is 0.01%. The fee charged by brokers may vary and depend on different factors such as the type of trade or the value of the transaction.What are the brokerage charges for intraday?The brokerage charges for intraday trading would vary with different brokers. A broker may levy a fixed cost per trade or charge a percentage on each trade. The range of percentage-based brokerage fees is 0.01% to 0.05% of the entire value involved in a transaction. However, flat costs for each trade vary from ?10 to ?20.What are the brokerage charges for options?Percentage-based brokerage fees for trading options can vary from 0.1% to 0.05% of the total contract value. For example, if the investor has bought a contract value of ?2,00,000, and the brokerage charge is 0.05%, the investor will have to pay the broker ?100. For every trade, the brokerage charges might range from ?10 to ?100 if they are based on a flat price. But just as with any other sort of trading, the brokerage charge may vary depending on the type of trading account an investor manages and the volume of trades they make.What are the brokerage charges for delivery?Delivery brokerage costs include both fixed fees for each trade and fees based on a percentage. The percentage fees might be anything from 0.10% and 0.50% of the total amount of the transaction. For delivery, the lowest brokerage fees are 0.10%. As a result, if an investor buys shares for ?2,00,000, the brokerage charge is 0.30%, and the investor needs to pay ?600 for the transaction. However, the flat cost varies from ?10 to ?25 for each trade. Before you trade, take into account the broker’s fee structure.What are the brokerage charges for futures?The broker and his fee structure determine the intraday brokerage costs. Brokerage fees for futures are often assessed as a percentage-based fee or as a fixed cost per trade. When it comes to percentage-based fees, the range of possible costs is 0.01% to 0.05% of the overall contract value. 0.01% is the lowest brokerage fee. In contrast, brokers that offer flat-fee brokerage charge a fixed cost for each trade that can range from ?10 to ?100.
It's also important to remember that brokerage fees might differ with brokers depending on the type of trading account and volume. |
https://www.kotaksecurities.com/derivatives/what-is-options-trading/ | What is Options Trading? | Key TakeawaysWith options trading, you can buy or sell stocks, ETFs, etc., at a specific price within a specific time frame. Additionally, this type of trading gives buyers the option not to buy the security at a specified price or date.Option trading strategies include long call options, short call options, long put options, short put options, long straddle options, and short straddle options.The three main options trading scenarios are In-the-Money, At-the-Money, and Out-of-the-Money.The advantages of options trading include leverage, cost-effectiveness, flexibility, Options Strategies, and hedging.In the stock market, there are two types of options: call and put. The term "call option" refers to an option to buy a stock, and the term "put option" refers to an option to sell a stock.Understanding Options Trading MeaningOptions trading is a form of investment that involves the buying and selling of financial contracts called options. Options give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific timeframe.Call options give the holder the right to buy the underlying asset, while put options give the holder the right to sell the underlying asset. Traders can profit from options trading by speculating on the direction of the underlying asset's price movement or by using options as a risk management tool to hedge their existing positions.Options trading involves various factors such as strike price, expiration date, and option premium, which is the cost of the option contract. It requires an understanding of market dynamics, risk management, and the use of different options trading strategies to maximize potential returns. The right to buy a security is known as ‘Call’, while the right to sell is called ‘Put’.They can be used as:Leverage: Options trading helps you profit from changes in share prices without putting down the full price of the share. You get control over the shares without buying them outright.Hedging: They can also be used to protect you from fluctuations in the price of a share and let you buy or sell the shares at a predetermined price for a specified period of time. One of the integral parts of hedging yourself against market fluctuations is to do financial planning.Here’s what Financial planning is and why it is important.Though they have their advantages, options trading is more complex than trading in regular shares. It calls for a good understanding of trading and investment practices as well as constant monitoring of market fluctuations to protect against losses.Advantages Of Options TradingOptions trading offers several advantages, including:Leverage:One of the main advantages of trading options is leverage. Trades in options only require a premium payment, not the entire transaction value. As a result, traders can take on high-value positions with a low capital requirement.Cost Effectiveness:Options allow traders to use less capital and earn a profit. There is a much higher return on investment than in other investment avenues. Due to the modest premium amount, options have a high-cost efficiency.Risk Involved:The risk associated with options is relatively lower than that of futures or cash markets. Options carry a risk of loss equal to the premium paid. However, writing or selling options may carry more risk than purchasing an underlying asset.Options Strategies:Options trading also offers the possibility of profiting in both rising and falling markets. There may be times when you are unsure about the direction in which the price will move, but you expect a significant shift in price. It is common for quarterly results, budgets, and changes in top management to cause uncertainty. By combining options, a trader can create a strategy that generates gains regardless of the direction of the underlying asset's price.Flexible Tool:Options offer more investment options and are flexible tools. Aside from the price movement, investors can also gain from time and volatility movements.Hedging:Using options reduces the risk associated with current holdings and acts as a hedging tool. Traders can virtually eliminate any risk associated with trade by combining options.How Does Options Trading Work?Options trading involves buying and selling financial contracts called options. Call options give the holder the right to buy the underlying asset at a predetermined price, whileput optiongive the holder the right to sell the underlying asset at a predetermined price. Traders can profit from options trading based on the movement of the underlying asset, and the profitability depends on factors such as the strike price and market volatility.Strategies In Option TradingThe following are the strategies in options trading:Long Call Options Trading StrategyA long call options strategy involves buying call options on a stock or asset. This gives the right but not an obligation to buy an asset at a predetermined price.Short Call Options Trading StrategyIn a short call option strategy, an investor sells call options on something they don't own. If the buyer exercises the contract, they are obligated to sell the asset at the strike price.Long Put Options Trading StrategyLong put options involve purchasing a put option on a particular asset. The investor uses this strategy when the asset price drops significantly.Short Put Options Trading StrategyA short put options strategy involves selling put options on an asset you don't own. The investor uses this strategy when they think the asset's price will stay the same or rise.Long Straddle Options Trading StrategyIt involves simultaneously buying a call option and a put option with the same strike price and expiration date on the same asset. This strategy is used when an investor expects significant price movement.Short Straddle Options Trading StrategyShort straddle options trading strategy involves selling both calls and put options with the same strike price and expiration date on the same asset.Participants in OptionsThe following are the key participants in the options market.Option Buyer:The trader who purchases the right to exercise his option on the seller/writer by paying the premium.Option Writer/Seller:The trader who gets the option premium. So, in case the buyer exercises the option the seller must sell or purchase the asset.Call Option:A call option gives its holder the choice, but not the obligation to purchase an asset before a specific date at a predetermined price.Select Option:A put option gives its holder the choice, but not the obligation to sell the asset at a predetermined price before a specific date.Options Related TermsWhen you are trading in the derivatives segment, you will come across many terms that may seem alien. Here are some Options-related jargons you should know about.To know about the jargons related to Futures,click here.Premium:Option premium is the amount that an option buyer must pay the option seller.Date of Expiration:The expiry date is the particular date specified in an option contract. It is also called the exercise date.Strike Price:The strike price is the amount at which the contract is entered. It is often referred to as the exercise price.Stocks Options:The underlying asset of these options is a stock. The holder of the contract is entitled to purchase or sell the underlying shares at the predetermined price. In India the American method of settlement is authorised for these options.Index Options:These are the options when the underlying asset is an index. In India European-style settlement is allowed. Bank Nifty options and Nifty options are a few popular examples.Strike Price Intervals:These are the different strike prices at which an options contract can be traded. These are determined by the exchange on which the assets are traded.There are typically at least 11 strike prices declared for every type of option in a given month - 5 prices above the spot price, 5 prices below the spot price and one price equivalent to the spot price.Following strike parameter is currently applicable for options contracts on all individual securities in NSE Derivative segment:The option strike price interval would be:Profitability Scenario in OptionsProfitability scenarios in options trading include:
Underlying Closing PriceLess than or equal to Rs.50Strike Price Interval2.5No. of Strikes Provided In the money- At the money- Out of the money5-1-5No. of additional strikes which may be enabled intraday in either direction5Underlying Closing Price> Rs.50 to = Rs.100Strike Price Interval5No. of Strikes Provided In the money- At the money- Out of the money5-1-5No. of additional strikes which may be enabled intraday in either direction5Underlying Closing Price> Rs.100 to = Rs.250Strike Price Interval10No. of Strikes Provided In the money- At the money- Out of the money5-1-5No. of additional strikes which may be enabled intraday in either direction5Underlying Closing Price> Rs.250 to = Rs.500Strike Price Interval20No. of Strikes Provided In the money- At the money- Out of the money5-1-5No. of additional strikes which may be enabled intraday in either direction5Underlying Closing Price> Rs.500 to = Rs.1000Strike Price Interval20No. of Strikes Provided In the money- At the money- Out of the money10-1-10No. of additional strikes which may be enabled intraday in either direction10Underlying Closing Price> Rs.1000Strike Price Interval50No. of Strikes Provided In the money- At the money- Out of the money10-1-10No. of additional strikes which may be enabled intraday in either direction10Underlying Closing PriceStrike Price IntervalNo. of Strikes Provided In the money- At the money- Out of the moneyNo. of additional strikes which may be enabled intraday in either directionLess than or equal to Rs.502.55-1-55> Rs.50 to = Rs.10055-1-55> Rs.100 to = Rs.250105-1-55> Rs.250 to = Rs.500205-1-55> Rs.500 to = Rs.10002010-1-1010> Rs.10005010-1-1010
Options Strike Price Intervals For Nifty IndexThe number of contracts provided in options on index is based on the range in previous day’s closing value of the underlying index and applicable as per the following table:
Index Levelupto 2000Strike Interval50Scheme of Strike to be introduced4-1-4Index Level>2001 upto 4000Strike Interval100Scheme of Strike to be introduced6-1-6Index Level>4001 upto 6000Strike Interval100Scheme of Strike to be introduced6-1-6Index Level>6000Strike Interval100Scheme of Strike to be introduced7-1-7Index LevelStrike IntervalScheme of Strike to be introducedupto 2000504-1-4>2001 upto 40001006-1-6>4001 upto 60001006-1-6>60001007-1-7
Expiration Date:A future date on or before which the options contract can be executed. Options contracts have three different durations you can pick from:Near month (1 month)Middle Month (2 months)Far Month (3 months)Please note that long terms options are available for Nifty index.Futures & Optionscontracts typically expire on the last Thursday of the respective months, post which they are considered void.The American Option:American options can be exercised at any time up to its expiry date.The European Choice:You can exercise the European options only on its expiry date.Lot Size:Lot size refers to a fixed number of units of the underlying asset that form part of a single F&O contract. The standard lot size is different for each stock and is decided by the exchange on which the stock is traded. E.g. options contracts for Reliance Industries have a lot size of 250 shares per contract.Open Interest:Open Interest refers to the total number of outstanding positions on a particular options contract across all participants in the market at any given point of time. Open Interest becomes nil past the expiration date for a particular contract.Let us understand with an example: If trader A buys 100 Nifty options from trader B where both traders A and B are entering the market for the first time, the open interest would be 100 futures or two contract.The next day, Trader A sells her contract to Trader C. This does not change the open interest, as a reduction in A’s open position is offset by an increase in C’s open position for this particular asset. Now, if trader A buys 100 more Nifty Futures from another trader D, the open interest in the Nifty Futures contract would become 200 futures or 4 contractsProfitability Scenario in OptionsProfitability scenarios in options trading include:In-the-Money OptionITM options lead to positive cash flows for the holder if they are exercised immediately.In the case of a call option on the index, if the current index value is greater than the strike price (spot price > strike price), the option is said to be in-the-money.At-the-Money OptionAn ATM option is one that provides zero cash flow (no profit/no loss) if it is exercised immediately.As an example, if the current index value equals the strike price (spot price = strike price), then the option is ATM.Out-of-the-Money OptionWhen a contract is out of the money (OTM), it would result in a negative cash flow if exercised immediately.It is called an out-of-the-money option if the index value is lower than the strike price (spot price <strike price).ConclusionOptions are flexible financial instruments. So, options trading offers traders plenty of opportunities in all kinds of markets. Even though options are risky, traders can choose low-risk basic strategies. Investors avoiding risk can also use options to boost overall profits from their investments. However, before making an investment, it is crucial to assess the risk. Traders should be patient and have a thorough understanding of the share market and various securities. In addition, always make an appropriate strategy before investing in options.Read More :Budget 2024 updates
FAQs on What is Option Trading?What are calls and puts in trading?An option to buy a stock is called a call option, and an option to sell a stock is called a put option.What are the types of options in the stock market?Call and Put are the two types of options in the stock market.When did options trading start in India?In India, options trading was started on June 4, 2001.What are the requirements for options trading?The prerequisites for trading options in India include having a Demat and Trading account with a registered brokerage, completing the KYC process, and being at least 18 years of age and financially eligible. Having sufficient margins, understanding risk, and obtaining approval for options trading is essential. To stay on top of market trends, it is recommended that you seek professional advice.Can beginners trade Options?An Option gives you the right but not the obligation to buy or sell stocks, ETFs, etc. at a specific price within a specific date.Is options trading really profitable?Options strategies not only help you gain extra profits but also help in covering losses (in proportional or absolute terms)Is options trading better than stocks?While it is a little more complex than stock trading, options trading can help you make relatively larger profits if the price of the security goes up.How to do Options Trading with Kotak Securities?Open an online trading account with Kotak Securities. Place an order with your broker, specifying the details of the contract, expiry month, contract size, and so on. Hand over the margin money to the broker, who will then get in touch with the exchange. The exchange will find you a seller (if you are a buyer) or a buyer (if you are a seller).Is options trading better than stocks?The suitability of options trading versus stocks depends on individual preferences and risk tolerance. Options trading offers different strategies and the potential for higher returns but also carries higher risks compared to traditional stock trading. |
https://www.kotaksecurities.com/intraday-trading/difference-between-intraday-and-delivery/ | No title found | Buying and selling shares on the same day isintraday trading. When you don’t sell your shares on the same day, your trade becomes a delivery trade. So, in an intraday trade, both the legs of a transaction, i.e., buying and selling, are executed on the same day. Hence, the net holding position will be zero. In a delivery trade, only one side of the transaction, i.e., buying or selling, is executed in one day. Strategies differ for intraday and delivery-based trading. However, it is not rocket science. When you learn about these one at a time and compare them, they are fairly easy to understand.What are intraday trades?Intraday trades, also known as day trading, involve buying and selling a stock within a trading session, i.e., on the same day. If you do not square off your position by the end of the day, your stock can be sold automatically at the day’s closing price under certain brokerage plans. Most traders initiate an intraday trade by setting a target price for a stock and buying it if it is trading below the target price. They then sell the stock if it reaches the target price or if they feel the stock won’t reach the target before the market closes for the day. The motive behind intraday trading is to make quick profits within a day.What does intraday trading look like?Let’s take a simple example – The share of XYZ Ltd was trading at ₹500/share at 10:15 AM. By 02:15 PM, the stock price had risen to ₹550/share. Mr. Raj is an intraday trader. He bought 1,000 shares of XYZ Ltd. for ₹500 in the morning. When the stock price went up to ₹550, he sold his shares and squared off his position. By doing this, he made a profit of ₹50 per share, i.e. ₹50,000 profit within a few hours. That’s intraday trading at play. Since day traders constantly buy and sell shares, they tend to incur hugebrokerage charges. Generally, to execute an intraday trade, the intraday trader has to pay a brokerage, which includes Securities Transaction Tax (STT), SEBI Regulatory Fee, Transaction Charges, Stamp Duty, and GST on brokerage. And these charges might eat up a certain percentage of your intraday profit.What are delivery trades?In delivery trades, the stocks you buy are added to yourdemat account. They remain in your possession until you decide to sell them, which can be in days, weeks, months or years. You enjoy complete ownership of your stocks.What is the importance of trading margins?A key difference between intraday and delivery-based trading lies in trading margins.
You can enhance your intraday trading earnings by using margins. These are trading loans that brokers provide their clients at a small interest. A 10x margin means that if you invest ₹10,000 in an intraday trade, you can borrow ₹90,000 from your broker and invest a sum of ₹1,00,000. Meaning you pay 10% of the amount as a margin. Margins also help increase the potential return on investment (ROI). For example, if your stock goes up by 5% in the earlier example, you will make a profit of ₹5,000 before paying the interest. This means you earn a return of 50% (₹10,000/ ₹5,000) on your actual capital. But remember, margin trading can amplify losses too in a similar way. Just as profits, losses are a possible and can erode your capital quickly. In intraday trading, you can get more margin amounts from the broker. This can be lower than the margin available in delivery-based trades. This is because, with intraday, there’s an assurance of the trade getting settled on the same day.How can your approach for intraday be different than for delivery trades?Different investors wear different hats and follow different strategies. An investor’s approach toward markets will be different than a trader’s. And that’s why it pays to know which approach can suit you.Trading volumes:This is the number of times a company’s shares were bought and sold during a day. Stocks of larger and better-known companies generally have higher volumes because many people regularly buy and sell them. Experts recommend sticking to such stocks for intraday trades. This is because you will be betting on prices changing materially in a short space of time. Therefore, you need enough liquidity and volume so that you can easily sell your shares during the day when need be. If a stock has low volume, it generally becomes difficult to sell at an attractive price because there may not be enough sellers on the other side. In contrast, long-term trades can bear the weight of low volume and liquidity because you can defer selling a stock until it reaches your target price.Price levels:An ideal practice is to set price targets and stop losses for both types of trades. But they are more important for intraday trades. Since these trades are more time-sensitive, opportunities to lower losses and exit at high prices can be few. Setting price targets and stop losses help make the most of such opportunities. With longer trades, you can extend your investment period if you miss your target price. Many delivery traders may even revise their target upwards and hold the stock longer. This isn’t possible in an intraday trade. You may not get another opportunity once you miss the price level in an intraday trade. Similarly, when delivery traders are losing money, they can wait for the price to rebound in the case of a long trade. But this tends to be harder in an intraday trade.Investment analysis:Intraday trades are usually based ontechnical indicators. These indicate a stock’s expected short-term price movements based on its historical price chart. Intraday trades can also be event-driven. For example, if a company wins a major contract, a trader may want to invest in its stock, hoping it would appreciate on the day. But neither of these approaches tells you whether a company is destined for long-term success. With delivery-based trading and investing, experts suggest investing in companies that have strong long-term prospects. This requires an in-depth analysis of the company’s business environment and internal operations. You will also need to do a lot of number crunching to understand the company’s financial situation. This is calledfundamental analysis.Bottom lineTo each his own. Intraday trading is suitable for traders with the stomach for higher risks and losses and for the timely monitoring of market happenings. If not, it would be better to opt for delivery-based trades. The good news is you can easily convert an intraday trade into a delivery-based trade after placing the order.Read More :Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on Difference Between Intraday & DeliveryIs there any margin difference between intraday and delivery trading?Yes, there is a difference between intraday delivery trading. You can get more margin for intraday trading because the trader has to square off their position before the day ends. So, there is while delivery trading does not have this requirement.Out of intraday and delivery trading, which trading is more profitable?The profits from intraday and delivery trading depend on the efficiency of the strategies used. Both the trading approaches can give considerable returns if you research properly and invest in the right stocks. In addition, risk management also affects the overall returns.Is delivery trading safer than intraday trading?Yes, delivery trading is usually safer than intraday trading. In intraday trading, you have to sell the security before the end of a trading day. If the security’s price declines at the time of selling, you may incur losses. However, delivery trading allows you to sell your assets at any time. You can hold your assets for as long as you want. |
https://www.kotaksecurities.com/demat-account/what-is-demat-account/ | What is Demat Account? | Key HighlightsA Demat account is an electronic repository for holding securities in dematerialised form.It allows investors to hold securities such as stocks, mutual funds, bonds, in digital format. So, it facilitates easy and secure trading.Features of the Demat account include easy share transfer, collateral for loans, temporary freeze, corporate action benefits, and convenient asset holding.Demat accounts offer secure storage of various securities and enable efficient trading and settlement. You can access your investments from anywhere online and track them conveniently.Here is why you REALLY need a demat account!You cannot buy or sell stocks without a demat accountYou cannot invest in equity directly without itMandated by SEBI for transactions of listed company securitiesDemat Account MeaningA Demat account—short for dematerialised account—is an account that allows you to hold company shares and securities electronically.
You can hold dematerialised securities such as stocks, mutual funds, bonds, exchange-traded funds (ETFs), etc. in a demat account.
So when you place an order to buy a stock, the shares get credited to your demat account. Similarly, when you choose to sell your shares, they get debited from your demat account.You can choose toopen demat accountor a 3-in-1 account that links your trading and bank accounts too.This enables you to trade without the need to move physical share certificates. Not only is it a storehouse for your investments, but it also speeds up transactions and reduces costs. Of course, there are more benefits of demat accounts too.
UNDERSTANDING THE BASICSWhat is Demat AccountThe days of holding a real share certificate after purchasing firm shares are long gone. This is why a demat account is your best option for holding shares and assets quickly, safely, and without having to worry about paperwork. Tune in to find out what various benefits can a demat account bring to investors.What is Demat Account? Benefits of Demat AccountKotak Securities•3m 03s
What is Dematerialisation (Demat)?Dematerialisation, often referred to as "demat," is the process of converting physical share certificates and other securities into electronic or digital form. It involves the transformation of physical documents representing ownership of securities into electronic records. Dematerialisation allows investors to hold and transact securities in a paperless format. This process has streamlined and simplified the trading and settlement of securities, eliminating the risks and inefficiencies associated with physical certificates.Features of Demat AccountThe Demat account offers the following features.Easy Share transfer:All you have to do is move your shares and give your depository participant a signed Delivery Instruction Slip (DIS).Collateral for loans:You may use your assets in a Demat account as collateral if you want a loan from a financial institution.Temporary freeze:You can put your Demat account on temporary hold for a certain amount of time. But usually, you can only use this option if you have some shares in your account.Corporate action benefits:Benefits like dividends, bonus shares, stock splits, interest, and refunds may be transferred quickly with the best Demat accounts.Speed e-facility:With NSDL, you can electronically transmit instruction slips to your depository participant.Convenient asset holding:Holding physical certificates is risky and time-consuming. By digitising the certificates and opening a Demat account, you may retain them more easily and securely.Multiple Access Points:Demat accounts are entirely digital. So, they may be accessed by any digital device, including smartphones, PCs, and other smart devices, from any location.What Are The Benefits Of A Demat Account?One of the biggest benefits of demat account for investors is that it is digital. Having said that, there are many otheradvantagesof demat accounts that can be listed as follows.Security Of Shares:The most crucial benefit of a Demat account is that it is safer than holding physical shares which can get lost, damaged, or stolen.No Forgery Or Theft:Since the Demat account is electronic in nature, the risk of documents getting stolen, damaged, or lost does not exist.Efficient Trading and Settlement:Demat accounts streamline the process of buying and selling securities by enabling electronic trading and seamless settlement. It eliminates paperwork and physical delivery. This reduces transaction time, making trading more efficient.Lower Cost:Physical share certificates attract paperwork and stamp duty, which increases costs. With a demat account, all this is eradicated and you can get a demat account in no time.Multiple Access Points:A demat account is operated electronically, which essentially means that users can access the account from multiple touch points—mobile, tablet, PC, laptop, etc.Easy and Secure Holding:With a Demat account, investors can hold their securities in electronic form, eliminating the need for physical share certificates. This makes it convenient to hold financial assets.Online Access and Monitoring:Demat accounts can be accessed online, allowing investors to monitor their holdings, track portfolio performance, view transaction history, and generate statements. It provides real-time information and easy tracking of investments.Quick and Convenient Transfers:Transferring securities from one Demat account to another is hassle-free, ensuring smooth ownership transfers. It simplifies estate planning, gifting, and transferring securities to heirs.Loan and Margin Facilities:Demat accounts allow investors to pledge their securities as collateral for loans or margin trading. It provides opportunities to avail funds against securities without liquidating the holdings.Overall, Demat accounts enhance the efficiency, convenience, and security of holding and transacting securities in the modern digital era. Here’s another benefit of Demat account—one that you can get only with Kotak Securities.With a 3-in-1 account, your trades can get more seamless since your bank and trading accounts are linked with the demat account!Know more hereHow does a Demat Account work?The are many benefits of a Demat account. However, it’s crucial to understand how it works. A Demat account functions as a digital repository for holding and trading securities. It allows investors to convert physical certificates into electronic form, facilitating seamless transactions and eliminating the need for paper-based processes. Investors can access and manage their holdings online, making them convenient and secure.Types of Demat accountThere are primarily two types of Demat accounts:Regular Demat Account:This type of Demat account is suitable for individual investors who want to hold and transact securities for personal investments. It is typically opened by retail investors and provides access to a wide range of securities, including stocks, bonds, mutual funds, and government securities.Repatriable (NRI) Demat Account:This type of Demat account is designed for Non-Resident Indians (NRIs) who wish to invest in the Indian securities market. It allows NRIs to hold and manage their investments in India, including stocks, mutual funds, and other permissible securities. Repatriable Demat accounts facilitate the easy repatriation of funds back to the NRI's foreign bank account.The choice of Demat account type depends on the investor's residency status and investment objectives. Other specialized types of Demat accounts may also be available to cater to specific investor categories, such as corporate entities, institutional investors, or foreign portfolio investors (FPIs).Documents Required for Demat Account OpeningThe documents required for Demat account opening are an account opening form, identity and address proofs, and a passport-sized photograph.Proof of identity (Aadhaar Card/Passport/Driver’s License)Proof of address (Ration card/Passport / Rent Agreement / Recent Electricity or Telephone Bills)Income proof (Income Tax Return/Salary Slip)PAN CardPhotographsYou’ll get thefull list of documents accepted for account opening here.How To Open A Demat Account?Opening a Demat account can be very simple and requires minimal paperwork. Here’s how you canopen a Demat account. To open a Demat account, follow the simple steps below:Step 1: Fill the account opening formStep 2: Submit documentsStep 3: Finish the in-person verification (IPV)Step 4: Get an account number/IDYou could also opt for a digital demat account where the entire application process is online. The steps are similar: Fill in the application form, upload scanned copies of your documents, and complete the IPV. The only difference is that it all happens through digital channels!Things to Remember While Opening a Demat AccountWhen opening a Demat account, there are a few important points to keep in mind:Choose a Reliable Depository Participant (DP):Select a reputable DP, such as a well-established bank or trusted brokerage firm, to ensure the safety and reliability of your Demat account.Understand the fees:Familiarise yourself with the account opening charges, annual maintenance fees, transaction fees, and other charges associated with the Demat account. Compare these charges among different providers to make an informed decision.Check the Services and Offerings:Assess the range of services provided by the DP, such as online access, customer support, research reports, and additional features. Ensure that the DP meets your requirements and provides the necessary tools and resources for managing your investments effectively.Review the Terms and Conditions:Carefully read and understand the terms and conditions, rights, and obligations associated with the Demat account. Pay attention to clauses related to account closure, account freezing, or any restrictions that may affect your investment activities.Complete Documentation:Ensure that you provide accurate and complete documentation required for opening the Demat account. This typically includes identity proof, address proof, PAN card, and other relevant documents as specified by the DP.Keep Account Credentials Secure:Once you receive your Demat account details and login credentials, safeguard them securely. Treat the account credentials with the same level of security as your banking login details to protect your investments.By keeping these factors in mind, you can make an informed decision while opening a Demat account and ensure a smooth and secure experience managing your securities electronically.Read More:How to transfer shares from one demat account to another? Want to switch demat accounts? Readhow you can transfer shares between them.Is a demat account required to invest in mutual funds? Readhow you can invest in Mutual Funds through other modes.All you need to know about demat accounts:Hereis your cheat-sheet for demat account benefits, advantages, features and procedures.Brokerage charges for demat account: Readhow you can get the lowest brokerage charges.Collateral amount for demat account: Out of funds to trade? Read aboutpledging your securities as margin.How to use a demat account: Learn about all thedifferent uses of a demat account.
FAQs on What is Demat AccountWhat is a Demat account used for?A Demat account is used for electronically holding and transacting securities such as stocks and bonds, eliminating the need for physical share certificates.Is Demat account free?Demat accounts may have associated fees depending on the service provider, but some offer free or low-cost options.What is an example of a Demat account?An example of a Demat account is provided by financial institutions like banks or brokerage firms, where investors can open accounts to manage their securities in electronic form.What are the types of Demat account?There are two main types of Demat accounts: Regular Demat Account for residents and Non-Resident Demat Account for non-residents.Can we buy shares without a Demat account?No, you generally cannot buy shares without a Demat account, as it serves as the electronic repository for holding and trading securities in the modern financial system.How does Demat work?Demat, short for dematerialization, is the process of converting physical share certificates into electronic form. A Demat account holds these electronic securities and facilitates the buying, selling, and transfer of shares securely and conveniently.Who needs a Demat account?Any individual or entity wishing to trade or invest in securities such as stocks, bonds, mutual funds, or other financial instruments in electronic form needs a Demat account.Who is eligible to open a Demat account?Any Indian resident, NRI (Non-Resident Indian), foreign individual, or entity such as partnership firms, companies, trusts, or institutions can be eligible to open a Demat account.What is a Demat account and its benefits?A Demat account is an electronic account that holds securities in dematerialized form. It eliminates the need for physical share certificates, offers easy and quick transfer of securities, reduces the risk of loss or theft, enables electronic trading, and provides convenient access to investment holdings and statements.What do you mean by dematerialization?Dematerialization refers to the process of converting physical securities, such as share certificates, into electronic or dematerialized forms. This allows investors to hold and trade securities in a paperless manner. |
https://www.kotaksecurities.com/derivatives/what-is-the-difference-between-call-and-put-option/ | Difference Between Call and Put Option | Key TakeawaysCall options provide the right to buy an asset. Traders buy call options when they anticipate a rise in the asset price.Put options offer the right to sell an asset, Traders buy them when they anticipate a decline in asset price.Call options are suitable for the bullish markets. However, put options are preferred in bearish markets.Profits from call options may be unlimited. However, you will get limited profits with put options.When call options are in-the-money the strike price is lower than the spot price. However, the strike price is higher than its spot price when the call option is out-of-money. This is the opposite for the put options.What is Call Option?With acall option, you get the right (but no obligation) to purchase a stock at a pre-specific price (strike price), before a specified expiration date. Traders usually buy call options when they expect the price of the underlying asset to increase. When the asset price goes above the strike, the holder can buy the asset at a low price. Thus he gets the asset at a lower price than the existing market price.What is Put Option?With aput optionyou have the right, without any obligation, to sell a particular asset, frequently a stock, at a predetermined strike price before a specified expiration date. Essentially, put options provide investors with a strategic advantage, enabling them to profit from a potential decline in the stock's market price. When the market price goes below the strike price, the holder can sell the asset at the higher strike price, thus reaping a gain.Difference Between Call and Put OptionHere are the differences between call and put options on various aspects:
AspectProfit DirectionCall OptionExpects the underlying asset's price to rise.Put OptionExpects the underlying asset's price to fall.AspectRight to buy/sellCall OptionThe right to buy the asset at the strike price.Put OptionThe right to sell the asset at the strike price.AspectObligation to ExerciseCall OptionNo obligation to buy the asset.Put OptionNo obligation to sell the asset.AspectRisk and RewardCall OptionLimited risk (premium paid) with unlimited reward potential.Put OptionLimited risk (premium paid) with limited reward potential.AspectMarket OutlookCall OptionPreferred in bullish markets.Put OptionPreferred in bearish markets.AspectMarket BehaviorCall OptionValue increases as the underlying asset's price rises.Put OptionValue increases as the underlying asset's price falls.AspectProfit TimingCall OptionProfits realised when the asset's price exceeds the strike price.Put OptionProfits realised when the asset's price falls below the strike price.AspectIn-the-moneyCall OptionStrike price less than Spot pricePut OptionStrike price higher than Spot priceAspectOut-of-the-moneyCall OptionStrike price higher than Spot pricePut OptionStrike price less than Spot priceAspectSeller break-evenCall OptionStrike price + premium receivedPut OptionStrike price - premium receivedAspectCall OptionPut OptionProfit DirectionExpects the underlying asset's price to rise.Expects the underlying asset's price to fall.Right to buy/sellThe right to buy the asset at the strike price.The right to sell the asset at the strike price.Obligation to ExerciseNo obligation to buy the asset.No obligation to sell the asset.Risk and RewardLimited risk (premium paid) with unlimited reward potential.Limited risk (premium paid) with limited reward potential.Market OutlookPreferred in bullish markets.Preferred in bearish markets.Market BehaviorValue increases as the underlying asset's price rises.Value increases as the underlying asset's price falls.Profit TimingProfits realised when the asset's price exceeds the strike price.Profits realised when the asset's price falls below the strike price.In-the-moneyStrike price less than Spot priceStrike price higher than Spot priceOut-of-the-moneyStrike price higher than Spot priceStrike price less than Spot priceSeller break-evenStrike price + premium receivedStrike price - premium received
ConclusionCall option and put option hold a place of significance in the investor's toolkit, allowing for a nuanced approach to market dynamics. Mastering these essential derivatives equips individuals with the flexibility to adapt to changing circumstances, ensuring they can navigate the financial landscape with confidence and agility.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on difference between call and put optionWhat is the Basic Difference Between Call and Put?A call option grants the holder the privilege to purchase an underlying asset or contract at a predetermined price in the future, with the price being determined today. Conversely, a put option bestows the holder with the right to sell anunderlying assetor contract at a fixed price in the future, with this price being established today.Are Put Options Always Better Than Call Options?Regarding profitability, call options offer unlimited profit potential since there is no upper limit on a stock's price. In contrast, put options have restricted profit potential as the price of a stock cannot fall below zero.What Happens When Calls are More than Puts?If there is a greater demand for put options compared to call options, it suggests a looming bearish market sentiment. Conversely, when call options are in higher demand than put options, it hints at a potential bullish market outlook in the near future.Which is better, call or put option?Choosing between call and put option depends on your trading strategy. Investors can use a call option if they expect the asset’s price to rise. Call options may offer unlimited profits as there is no upper limit on the asset’s price. Conversely, investors can use a put option if they expect the asset’s price to fall. Put options offer limited profits as the price of an asset cannot fall beyond a certain level.How do I decide to buy calls or put options?You should evaluate the market conditions and consider the volatility of assets while buying put or call options. Also, keep in mind your risk appetite. |
https://www.kotaksecurities.com/share-market/what-is-an-anti-dillution-provision/ | What is an Anti-Dilution Provision? | Key HighlightsAnti-dilution provisions provide for the right of investors to maintain their ownership percentages in the event of the issue of new shares.The dilution refers to a decrease in the holder's shareholding due to the issuance of new shares.The anti-dilution provisions are divided into full ratchet and weighted average.Anti-Dilution Provision MeaningAnti-dilution provision measures are introduced to protect investors' and stakeholders' interests, most of which have been associated with the company from an early stage. Provisions ensure that when a company issues new shares on the market, investors retain their right to maintain an original shareholding of more than 50%. Rights to protect the interests of preferred shareholders are most closely related to anti-dilution provisions.The issue of new shares by the company may reduce the value of the ownership percentage of existing investors and stakeholders. When more shares are in flow than when the stock option holders or stakeholders holding other optionable securities exercise their options, investors and early-stakeholders risk losing out on the value of their current claim to ownership of the company. There is, therefore, a need for dilution protection, which is geared towards the interests of early investors.Anti-Dilution Provision at WorkIn particular, for preferred shareholders in venture capital deals whose shareholdings can be reduced if subsequent issues of the same stock are listed at lower prices, dilution is a complicated problem to solve. Anti-dilution provisions could prevent this by modifying the conversion rates between convertible securities, such as company bonds or preferred shares and common stock. An anti-dilution clause can preserve the investor's original shareholding percentage.Types of Anti-Dilution ProvisionFull ratchet and weighted average are the two types of anti dilution provisions.1. Full RatchetA complete ratchet provision would protect investors in options and convertible securities. This provision enables investors to convert at the lowest sales price offered. As a result, they are protected if the new offer price is lower than the conversion price of an investor's shares.2. Weighted AverageA formula is applied to calculate the new conversion price in the weighted average method. The new conversion price will be O x (A + B) / (A+C). Where:O: The old conversion price.A: Shares that are still outstanding before the new issue.B: Consideration of the new issue has been received.C: New shares have been issued.The owners of preferred shares will continue to benefit from the full ratchet method since it allows them to convert at a lower price than is available. A weighted average process will protect some of the value of their preference shares. Conversely, the conversion price will always be higher than a complete ratcheting mechanism.When are Anti-Dilution Provision Used?Most companies that issue convertible securities use anti dilution provisions. The provisions are significant in the venture capital area because a number of funding rounds have already taken place. As they allow convertible securities to remain at a higher cost, they are also used to encourage companies to maintain their financial targets.How will the Anti-Dilution Provision Affect your Business?It's important to note that the anti-dilution provision does not apply to everyone. The parties would not negotiate for the inclusion of an anti-dilution clause in some situations. This means that the guarantee provided by anti-dilution clauses can come at the cost of additional investors. This is a significant issue given that the vulnerable shareholder also serves as the founder or key employee of the company.This is why they may lose motivation to contribute to the company's success when their shares are diluted too much. Investors with knowledge won't wish to reduce the entrepreneurs' drive to grow their businesses. However, when several investors are involved and multiple funding rounds are launched, anti-dilution clauses can significantly impact a company's business process.ConclusionThe antidilution provisions provide a buffer for investors to protect their shareholdings against the dilution or loss of value. This can be the case where, due to an increase in the total number of shares outstanding, the percentage of the owner's shareholding in a company decreases.
FAQs on Anti-Dilution ProvisionWhy is anti-dilution important?Anti-dilution clauses are essential as they help to protect the value of an investor's shareholding in a company. Dilution occurs when a company issues additional shares through an equity fund raising round or other means, such as employee stock options.What are anti dilution provisions in the term sheet?The number of common shares to be converted into preferred shares in the event of a down round or other dilution will be adjusted in the term sheet by the anti dilution provisions. The purpose of such provisions is to safeguard a shareholders' shareholding percentage in the company.What is the anti-dilution clause in India?Full ratchet anti-dilution protection provides the original investors' rights to that number of shares as long as they have paid a lower price than the current issue in this round.What triggers anti-dilution?A down round reduces the company's valuation during subsequent financing rounds. To prevent investors from suffering significant losses in the value of their investment, down rounds trigger anti-dilution provisions.Why are companies allowed to dilute shares?The dilution of shares is a decrease in the value of each share issued due to the introduction of new shares. Stock dilution can occur if the company raises capital by offering new shares. This can happen when a company needs additional funding for growth, paying off debt or simply running its business. |
https://www.kotaksecurities.com/share-market/what-are-authorized-stocks/ | What are Authorized Stocks? | Key HighlightsAuthorized stock is the maximum number of shares a publicly traded company is permitted to issue, as detailed in its articles of incorporation or charter.Outstanding shares represent the portion of authorized stock already issued to the public. Investors actively hold these shares.The company's treasury stock refers to the authorized shares that the company keeps. It helps to clarify the difference between authorized and outstanding shares.Issued shares encompass both outstanding shares held by investors and the shares the company has in its treasury.Understanding of Authorized StocksThe share market is influenced by various factors, including the number of authorized stocks a company can issue, a key determinant of its potential equity impact on the market.
Authorized shares represent the maximum number of a company can legally issue shares to investors, a limit set by its legal formation documents, typically known as the articles of incorporation. These documents, sometimes referred to as authorized stock or authorized capital stock, impose no restrictions on the total number of shares for larger corporations. However, smaller companies, especially those with predetermined shareholders or no plans for expansion, have a designated limit on their authorized shares.The actual tradable shares in the market are known as the float, while there are also restricted shares set aside for employee compensation and incentives. These restricted shares contribute to the overall count of a company's authorized shares. The total outstanding shares, as reflected on the balance sheet, combine both the float and restricted shares.Understanding authorized shares is crucial for investors as it provides insights into a company's growth strategy and potential. Companies with a high number of authorized shares might have plans for future expansions or mergers, while those with limited authorized shares may be indicating a more conservative approach. Investors also assess the interplay between authorized shares, float, and restricted shares to gauge the company's flexibility and commitment to employee incentives, contributing to an evaluation of the company's financial health and strategic direction.What are Outstanding Shares?Outstanding shares are the shares that a company has issued or sold to investors from its authorized shares. The initial determination of the number of outstanding shares is typically made during a company's Initial Public Offering (IPO) by the investment bank. However, this number can change due to factors such as secondary stock market offerings or the exercise of employee stock options (ESOs). Conversely, a company's repurchase of its own stock results in a decrease in outstanding shares. It's important to note that the total number of outstanding shares cannot exceed the total number of authorized shares outlined in a company's articles of incorporation.For investors, distinguishing between authorized and outstanding shares is crucial for accurate financial calculations. For example, using outstanding shares to calculate earnings per share (EPS) might lead to inflated gains, while relying on authorized shares could significantly offset a realized loss. A solid understanding of these distinctions is essential for investors to make accurate assessments of a company's financial stability and performance.Investors benefit from this understanding as it allows them to navigate financial ratios with precision. The careful consideration of outstanding shares provides a more nuanced view of a company's financial health, enabling investors to make informed decisions based on accurate calculations.Authorized Stock Vs Issued StockAuthorized stock denotes the maximum number of shares a company is legally allowed to issue, a limit specified in its corporate charter or articles of incorporation. In contrast, issued stock refers to the tangible shares the company has allocated or sold to stakeholders, including employees, shareholders, and investors. While authorized stock serves as a regulatory boundary, determining the upper cap of potential shares, the company retains control over issued stock, deciding when and to whom these shares are distributed. This strategic approach enables the company to manage its equity structure deliberately. Importantly, not all authorized shares need to be immediately issued, allowing flexibility for future allocations and reflecting the company's foresight in navigating its ownership dynamics.Example of Authorized SharesSuppose you are a founder of Company XYZ aiming to enhance manufacturing operations through the establishment of a new factory plant. After thorough research, you and your fellow founders conclude that setting up a new plant is the optimal choice, requiring a capital infusion of Rs. 10 crores.Upon assessment, you realize that out of the total authorized shares amounting to 100,000, each priced at Rs. 10,000, only 60,000 shares have been issued. To raise the additional Rs. 10 crores, you decide to issue an additional 10,000 shares. Following a unanimous vote with the directors, you opt to sell 10,000 of the remaining 40,000 shares. Consequently, your authorized shares remain unchanged at 100,000, but the number of issued shares has increased by 10,000 to 70,000, generating an additional Rs. 10 crores for the planned business expansion.Factors to Consider for Selecting Authorized StocksHere are some of the factors you can check for selecting authorized stocks:Limiting Issued Shares:The total number of authorized shares is a cap on the potential issuance of shares.Issued shares are always less than or equal to the authorized shares, ensuring control over the company's ownership structure.Future Financing Capability:Companies intentionally keep unissued authorized shares to have the flexibility to raise capital in the future.This strategic reserve allows them to issue new shares when needed, supporting financial growth and stability.Defense Against Takeovers:Unissued authorized shares act as a defense mechanism against hostile takeover attempts.By holding back on issuing all authorized shares, companies maintain control and prevent dilution of ownership.Reserved Shares for Strategic Planning:Unissued authorized shares are often designated as reserved shares for various purposes.These reserves can be incorporated into future stock option plans, providing flexibility for employee incentives.Stock Option Plans and Reserved Shares:Companies may reserve shares for stock option plans to attract and retain talent.The issuance of these reserved shares is typically tied to the implementation of stock option plans.Strategic Issuance through Warrants:Unissued authorized shares can be strategically issued through stock warrants.It provides companies with a tactical avenue to engage with third parties and facilitates controlled equity distribution.Understanding the intricacies of authorized shares is essential for investors to comprehend a company's financial strategy and potential future developments.ConclusionAuthorized stocks are like a limit set for a company on how many shares it can give out. This limit is written in legal papers, and it guides the company's important decisions. The company decides when and to whom it gives these shares. This control not only helps in planning for the future but also protects the company from being taken over by others who might not have its best interests in mind. By managing the balance between the allowed and given-out shares, companies show that they understand what they need now and have a plan for growing in the future.
FAQS on Authorized StockDoes all authorized stock have to be issued?No, not all authorized stock needs to be issued. A company can choose to issue only a portion, retaining the flexibility to offer more shares in the future.Does authorized shares refer to the number of shares?Yes, authorized shares define the maximum number a company can legally issue, as specified in its corporate documents.Do authorized shares have rights?Authorized shares represent potential ownership but do not inherently possess rights. Rights are associated with issued shares, which are distributed to stakeholders.Who decides authorized shares?The decision on authorized shares is typically made by a company's founders and is outlined in its legal documents, such as the articles of incorporation.Can we reduce authorized capital?Yes, authorized capital can be reduced through legal processes like amending the articles of incorporation, subject to regulatory approvals and compliance with relevant laws and regulations. |
https://www.kotaksecurities.com/share-market/what-are-pink-sheet-stocks/ | What are Pink Sheet Stocks? | Key HighlightsA pink sheet stock is traded over the counter, and the term originates from early OTC markets where pink sheets were used.There are advantages to investing in pink sheets, including the ability to raise money and lower transaction costs, but there are also disadvantages, such as a lack of financial disclosure and a higher risk of fraud.There are similarities between pink sheets and penny stocks in terms of low prices and risk; however, penny stocks can be listed on stock exchanges, unlike pink sheets.Pink Sheet Stocks MeaningPink sheets are stocks that can't trade on exchanges like BSE, NSE, or NYSE/NASDAQ for various reasons. They might lack sufficient capital to go public, or it may not make sense for them to do so over a small amount of money they intend to raise. Some companies may also take a strategic decision not to go public due to the scrutiny that regulatory boards bring.Pink sheet stocks, also called OTC stocks, are traded directly and compiled electronically. Since they are thinly traded, they can have higher trading costs, low liquidity, and longer waiting periods for buyers.These businesses aren't required to make their financial position or information transparent to brokers and dealers who may market their securities.Pros and Cons of Trading Pink StocksInvesting in the pink market / OTC market has few benefits and risks for both investors and listed companies.
ProsPink sheet stocks allow small businesses to raise money by selling shares to the public. Because small businesses usually have low trading costs, it is easier for investors to become stakeholders while earning substantial returns on their investments.ConsThe lack of legal requirements for disclosure of financial information makes pink sheet stocks exceptionally vulnerable to price manipulation and fraud. As a result, pink sheet entries may end up being shell corporations. A lack of transparency can also make it difficult for investors to conduct the necessary due diligence before investing, making these investments risky.ProsA major exchange may eventually trade the associated company stock, so investors can profit from its upward trend. Unlike major exchanges, pink sheet transactions typically have lower transaction costs because they don't have to pay high listing fees.ConsDue to their infrequent and illiquid nature, it can be difficult to locate buyers or sellers in the market. A few pink sheet stocks have been identified as fraudulent shell corporations, and some are on the verge of bankruptcy.ProsConsPink sheet stocks allow small businesses to raise money by selling shares to the public. Because small businesses usually have low trading costs, it is easier for investors to become stakeholders while earning substantial returns on their investments.The lack of legal requirements for disclosure of financial information makes pink sheet stocks exceptionally vulnerable to price manipulation and fraud. As a result, pink sheet entries may end up being shell corporations. A lack of transparency can also make it difficult for investors to conduct the necessary due diligence before investing, making these investments risky.A major exchange may eventually trade the associated company stock, so investors can profit from its upward trend. Unlike major exchanges, pink sheet transactions typically have lower transaction costs because they don't have to pay high listing fees.Due to their infrequent and illiquid nature, it can be difficult to locate buyers or sellers in the market. A few pink sheet stocks have been identified as fraudulent shell corporations, and some are on the verge of bankruptcy.
Pink Sheet Market in India"Pink sheet stock" and "pink sheet market" in India are outdated terms. A pink sheet stock is part of the OTC market, but not all securities in the OTC market are pink sheets.The OTC market consists of forward and futures contracts that are not listed on the pink sheets. The Ministry of Finance supervises transactions in the OTC market.It is not possible for traders and investors to transact directly on the OTC market. Traders must create demat accounts and trade through brokers and dealers who specialise in OTC transactions. Pink stocks listed on the OTC market can also be bought and sold through brokers.Pink Sheet vs. Penny StocksStocks with low prices and market capitalisation are penny stocks. Stocks trading below $1 in Western countries and less than Rs. 10 in India are considered penny stocks.In terms of liquidity and risk, they are similar to pink sheet stocks. The main difference between the two is that penny stocks can be listed on stock exchanges, unlike pink sheet stocks.
A penny stock listed directly on the OTC market also falls under the pink sheet category.ConclusionThose stocks that don't meet the exchange's listing requirements are listed on pink sheets. It's legal to trade pink sheets, but there are a lot of risks involved. The pink market's stocks are traded through brokers, and there are plenty of them. Before entering the pink market, traders should analyse their goals carefully and do research.
FAQs on Pink Sheet StocksWhat are pink sheet stock companies?The term "pink sheets" refers to stocks traded over-the-counter (OTC) rather than on a major stock exchange. Companies like these cannot or do not wish to meet the requirements for listing on a major stock exchange.Is it safe to buy pink sheet stocks?Usually, these stocks are from small and financially questionable companies, feature wide bid-ask spreads, and are less regulated than large exchanges. Therefore, prior to trading pink sheet stocks, investors should exercise caution and conduct their own due diligence.How do you identify pink sheet stocks?Pink sheet stocks are identified by their stock tickers ending in 'PK.' The pink sheets allow you to find companies whose stocks you might want to trade long or short. |
https://www.kotaksecurities.com/commodities/what-are-the-timings-for-commodity-market-trading/ | No title found | Learn about the standard trading hours, pre-opening, regular and post-closing sessions. Get to know the specific timings for various commodity exchanges in India, such as MCX and NCDEX. Discover the importance of staying updated on market holidays and any variations in trading hours.The commodity market is a vital component of the global financial landscape, providing a platform for the buying and selling of various raw materials and primary products. With its immense significance, you must know the timings for commodity market trading. This article sheds light on the trading hours of the commodity market, enabling you to make informed decisions.Commodity trading timings in IndiaCommodity market time depends on theMulti Commodity Exchange of India(MCX). MCX is a commodity derivatives exchange that serves as a digital platform for trading commodity derivatives transactions. Its primary function entails facilitating price discovery and risk management for market participants.Established in November 2003, this Exchange operates as per the regulatory framework outlined by the Securities and Exchange Board of India (SEBI). MCX's regular session is from 9:00 am to 11:30 pm, Monday to Friday. However, on account of daylight savings that typically happens between November and March of the following year, the end session is at 11:55 pm.Commodity market time is divided into two sessions - morning and evening. The morning session starts at 9:00 am and lasts till 5:00 pm. The evening session is from 5:00 pm to 11:30/11:55 pm.Note that agri-commodities are available for futures trading up to 5:00 pm. On the other hand, other commodities such as metals, bullions and energy products can be traded up to 11:30/11:55 pm. Trading remains suspended on Saturdays and Sundays and certain holidays. You can get the list of holidays on MCX's website.Factors influencing commodity market timeVarious factors shape the trading hours and schedules. Some factors influencingcommodity tradingtime include:Global supply and demandA commodity's global supply and demand dynamics significantly impact its trading timings. Increased demand or sudden disruptions in the supply chain can lead to extended trading hours to accommodate heightened market activity. For example, geopolitical events affecting crude oil production can result in extended trading hours to meet the increased demand for this vital commodity.Market regulationsMarket regulators are crucial in setting trading hours and schedules for commodity markets. These regulations ensure fair and transparent trading practices while providing equal market access to all participants. Regulatory bodies establish guidelines and oversee the functioning of commodity exchanges, ensuring compliance with trading hours to maintain market integrity.Time zone differencesCommodity markets operate globally, meaning time zone differences play a vital role in determining trading hours. Different countries and regions have their working hours, leading to variations in commodity market trading sessions. Traders must consider these time zone differences to plan their trading activities effectively and align with the respective market hours.Economic and political eventsEconomic and political events significantly impact commodity market timings. Changes in government policies, economic indicators or natural disasters in major commodity-producing regions can create volatility in the market. As a result, trading hours may be extended to allow market participants to react to and capitalise on these events. Such extended trading hours enable traders to adjust their positions and manage risks based on evolving market conditions.Best time for commodity tradingDuring the opening hourFavourable trading conditions are observed during the initial trading hours of the commodity market, which are generally the first few hours after the market opens. This period is characterised by high liquidity and substantial trading volumes, making it a suitable time for traders to execute trades.During the overlapping trading sessionAn opportune time to engage in commodity market trading on MCX is when the trading hours of multiple markets overlap. This occurs when two or more markets are open simultaneously, creating increased trading activity and potential opportunities. For instance, the overlap between the Asian and European markets can lead to heightened trading activity in commodities like gold and crude oil. You can use this period to capitalise on market movements and make informed trading decisions.During volatile periodsMarket volatilitypresents both challenges and opportunities for traders. While it can pose difficulties, it also creates favourable conditions for trading. Heightened market volatility often increases price fluctuations, offering you greater opportunities to profit from significant price movements.To sum upUnderstanding the timings for commodity market trading is essential for traders and investors to participate. Market participants can seize opportunities, manage risks and make intelligent decisions by being aware of the regular trading hours and the availability of extended trading sessions.It is crucial to remember that the trading hours mentioned are subject to change and may vary depending on specific exchanges and regional holidays. Aspiring commodity market participants should always refer to the official websites of the respective exchanges for the most accurate and up-to-date information on trading timings.Read More:Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
Faqs on commodity market tradingWhat are commodity trading timings in India?Commodity trading timings in India are from Monday to Friday. It happens from 9 am to 11:30/11:55 pm. Trading doesn't happen on Saturdays and Sundays and on certain holidays, the details of which you can get on MCX's website.Do trading timings differ for different commodities?Yes, trading timing differs for different commodities.How can I know about the trading hours for a specific exchange?You can know the trading hours for a specific exchange on their websites.What is the best time to trade in the commodity market?The best time to trade in the commodity market is early trading hours. They usually have the most favourable conditions. High liquidity and trading volumes make it ideal for traders to execute trades. It is suitable for both taking on new positions and closing the existing ones.How do commodity market timings vary around the world?The commodity market timings around the world depend on the commodity type and exchanges. Different commodities may have different trading times. The commodity exchanges work in different time zones. So, their trading hours are different. Thus, commodity market timings vary greatly across the globe. |
https://www.kotaksecurities.com/futures-and-options/difference-between-futures-and-options/ | No title found | Understanding what arefutures and options, particularly the points of difference between the two, will help you to use these trading tools in the best possible way. However, if you’re looking for difference between Covered and Naked options contracts,click here.Key HighlightsFutures trade needs to be exercised on or before the expiration date.Regarding options, the Buyer gets rights, not compulsion to exercise the contract before expiration.Futures and options contact value based on the underlying assets.Understanding FuturesFutures represent a derivative contract with an agreement to purchase or sell an underlying commodity, or financial assets at a predetermined future date for an agreed-upon price. These contracts, commonly referred to as "futures," are actively traded on futures exchanges such as the CME Group and necessitate using a brokerage account with approval for futures trading.A futures contract involves both a buyer and a seller, mirroring the structure of an options contract. Unlike options, which may lose their value upon expiration, the conclusion of a futures contract obligates the buyer to acquire and take possession of the underlying asset. At the same time, the seller is compelled to provide and deliver the underlying asset.Understanding OptionsThe term option denotes a financial tool linked to the value of underlying securities like stocks, indexes, and exchange-traded funds (ETFs). Individuals holding an options contract can buy or sell the underlying asset, depending on the contract type, without an obligation to do so, distinguishing it from futures.Options contracts have a defined expiration date by which the holder must decide whether to exercise their option. The specified price in an option is referred to as the strike price. Transactions involving options commonly take place through online or retail brokers.Options vs Futures - Which is Better?The table below provides a thorough comparison of options and futures.
ParticularsGain or LossFuturesIt might experience countless gains and losses.OptionsAlthough it lessens the likelihood of suffering a possible loss, it might still bring you endless profit and loss.ParticularsRiskFuturesThey are exposed to greater risks.OptionsThe limited risk applies to them.ParticularsObligationFuturesThe buyer is required to purchase the item on the specified future date.OptionsIn this, neither the buyer nor the contract's execution is required.ParticularsPayment in AdvanceFuturesThere is no entry fee when entering a futures contract. However, the buyer is eventually obligated to pay the agreed-upon price for the item.OptionsIn an options contract, the buyer is expected to pay a premium. The premium payment gives the option buyer the choice to decide not to acquire the asset at a later time if it starts to lose its appeal. It should be noted that the premium paid is the amount the options contract holder intends to lose if he decides not to purchase the asset.ParticularsExecution of a ContractFuturesA futures contract is implemented on a predetermined date. The buyer purchases the underlying asset on this specific day.OptionsThe buyer of an option may exercise it at any time before the expiration date. As a result, a person is willing to purchase the asset anytime the circumstances look favourable.ParticularsFuturesOptionsGain or LossIt might experience countless gains and losses.Although it lessens the likelihood of suffering a possible loss, it might still bring you endless profit and loss.RiskThey are exposed to greater risks.The limited risk applies to them.ObligationThe buyer is required to purchase the item on the specified future date.In this, neither the buyer nor the contract's execution is required.Payment in AdvanceThere is no entry fee when entering a futures contract. However, the buyer is eventually obligated to pay the agreed-upon price for the item.In an options contract, the buyer is expected to pay a premium. The premium payment gives the option buyer the choice to decide not to acquire the asset at a later time if it starts to lose its appeal. It should be noted that the premium paid is the amount the options contract holder intends to lose if he decides not to purchase the asset.Execution of a ContractA futures contract is implemented on a predetermined date. The buyer purchases the underlying asset on this specific day.The buyer of an option may exercise it at any time before the expiration date. As a result, a person is willing to purchase the asset anytime the circumstances look favourable.
Which one should you choose: Futures or Options?Futures provide direct exposure with higher risk, while options offer strategic flexibility and limited risk. A diversified approach may incorporate both instruments based on specific investment goals and market conditions. Futures involve higher risk due to the obligation to buy or sell. Options, with their non-binding nature, offer limited risk. Confidence in market direction may favour futures, while uncertain or range-bound markets might be better suited for options. The choice between futures and options hinges on the investor's risk appetite, market sentiment, and desired strategies. A diversified approach may incorporate both instruments based on specific investment goals and market conditions.ConclusionEach contract plays a vital role in the share market. Executing a futures contract is probably a feature or drawback options lack. Nonetheless, you can secure a contract in options by paying a premium. Depending on the price movement towards the conclusion of the following contract, the contract may be executed or allowed to expire without value.
FAQs on the Difference Between Futures and OptionsWhat are futures and options?In the stock market, futures and options (F&O) are derivative instruments. Because they derive their value from an underlying asset, such shares or commodities, they are known as derivatives. In a derivative contract, two parties agree to purchase or sell the underlying asset at a predetermined price and on a certain date.Which is better futures vs options?Futures are appropriate for people looking for direct exposure and higher risk because they give more obligation and leverage. Options benefit strategic hedging and fluctuating market circumstances since they offer flexibility and low risk.Are futures and call options the same?Unlike call options, which allow buying at a predefined price within a specified time period but are not contractually obligated to do so, futures are contracts that require trading at a specific price and date.What is the main difference between forward futures and options?Options give the right but not the duty to purchase or sell an asset at a specified price within a certain term, whereas forward contracts are customisable agreements between two parties to buy or sell an asset at a given price on a future date.Are futures cheaper than options?Due to margin restrictions, futures frequently have lower upfront prices, but options provide little risk for the cost of the premium. The cost comparison is based on the requirements for risk management and trading strategy.Are futures riskier than options?Compared to options, which provide less risk in exchange for the premium paid, futures might contain more risk because of their obligation and possibility for significant losses. The evaluation of risk is based on each trader's objectives and methods.What are the advantages and disadvantages of using an options contract rather than a futures contract?Options provide the following benefits: Flexibility, low risk for the premium paid. Costlier premiums and maybe more complicated techniques are drawbacks.Is future and option trading safe?Due to leverage and possible losses, futures and options trading can be dangerous, but with the right knowledge, risk management, and methods, they can be utilized securely to meet certain financial objectives.Which has more leverage options and futures?Options often have larger leverage since they demand less money up front than futures contracts do, which increases both potential gains and losses.Which is more profitable, futures or options?The profits from futures and options depend on market conditions and risk tolerance of investors. Futures may offer higher returns. However, they are more risky. Investors can use options according to their trading strategy. They can use call options in bullish markets and put options in bearish markets. |
https://www.kotaksecurities.com/futures-and-options/what-is-futures-and-options/ | No title found | F&O contracts, signed by two parties, facilitate trading assets at predetermined prices on specified future dates. These contracts aim to hedge the risks associated with stock market trading by locking in prices in advance. Today, let’s learn about them in detail.Key TakeawaysFutures and options (F&O)are derivative contracts whose value is based on their underlying assets. Futures are agreements to buy or sell at a predetermined price and date, while options grant the right but not the obligation to buy or sell within a specified timeframe.Types of futures include commodity, currency, interest rate, and stock futures. Calls and puts are the two types of options.F&O trading aids in risk management and facilitates leveraged trading for potential higher returns. Moreover, F&O markets are pretty transparent and liquid.F&O trading may lead to losses due to changes in market conditions. Leverage can also increase the potential losses. In addition, there is counterparty risk, where parties fail to fulfil the contract.Participants in the F&O market are hedgers and speculators. Hedgers aim to reduce volatility by locking in prices, and speculators try to profit from future price swings.What are Futures?Futures are agreements to sell or buy an asset, such as stocks,commodities, or currencies, at a specific price (known as the "futures price") and date in the future. The futures contract's buyer agrees to purchase the underlying asset, while the seller agrees to deliver it. Futures contracts are standardised and traded on organised exchanges, ensuring transparency and liquidity.Key features of futures include -Standardised:Futures have standardised specifications regarding the underlying asset's quantity, quality, and delivery terms.Expiry Dates:Futures have a specified expiry date, indicating when the contract needs to be settled.Margin Requirements:Participants must deposit an initial margin as a performance bond to trade futures. This margin ensures that both parties fulfil their obligations.Leverage:Futures allow traders to control a sizeable underlying asset value with a comparatively minor investment.Mark-to-Market:Futures positions are marked-to-market daily, with profits or losses settled daily.Types of FuturesThe following are the different types of futures.Commodity Futures:The underlying assets of these futures contracts are commodities. Physical things that investors can purchase and sell are commodities. The most common commodities investors buy futures contracts for are food, grains, metals, oil, and natural gas. The security for these kinds of agreements comes from the assets themselves.Futures on commodities are significant for controlling price risk, especially for farmers. A futures contract could be signed by a farmer or producer of important crops to sell the produce at a given price on a specified date in the future. In this manner, he is fully aware of the amount he will receive. He won't have to worry about losing money, even if the price declines in the future.Currency Futures:Contracts based on currency exchange rates are currency futures. The two parties agree upon an exchange rate for the future exchange of two currencies. These contracts may remove the potential currency rate risk associated with international trade. To fulfil their requirements, the parties usually close these contracts before expiration.Interest Rate Futures:Interest rate futures consist of underlying assets which offer regular interests. Investing in them is a way to protect yourself from the possibility of future fluctuations in the interest rates of a financial instrument. Usually, money market or bond market instruments like government bonds, bills, and the underlying securities. These assets are the basis of these futures contracts.Stock Futures:Stock futures are contracts that make purchasing or selling a stock at a specific price on a given future date mandatory. Investors who own a sizable position in one or a few stocks benefit from them. If the stock price drops, they want to safeguard their risk position.Investors use futures on individual stocks and stock market indexes to speculate, trade, and manage risk. They represent the sentiments and levels of confidence of investors. Futures on a single stock hedge against the stock's potential price. However, index futures for the stock market follow an index's movement.What are Options?Optionsgive the holder the right (but no obligation), to sell or buy any asset at the strike price within a specified period. Unlike futures contracts, options contracts do not require holders to fulfil the transaction if they choose not to.Key features of options include:Flexibility:Options offer the flexibility to choose whether or not to exercise the right to buy or sell the underlying asset.Premium:The buyer of an option pays a premium to the seller for the rights conveyed by the contract.Limited Risk:The risk in options trading is limited to the premium paid, providing a defined risk-reward profile.Expiration Date:Options contracts have an expiration date, after which they become invalid.Types of OptionsThere are two types of options:Call Options:With a call option a holder gets the right to purchase the underlying asset at the strike price before expiration. However, there is no obligation to exercise the contract. As a result, value of a call option will rise if the price of the underlying securities. A long call has limitless upside potential and the maximum loss is equal to the option's premium. So, it may be used to bet on the underlying's price rising.Put Options:With a put option the holder can sell the asset at its strike price before the expiration date. Here also, there is no obligation to fulfill the contract. The option gains value when the price of the underlying asset declines. So, a long put is essentially a short position in the underlying security. Investors can purchase protective puts as a kind of insurance. This provides them with a price floor to hedge their positions.Who Should Invest in Futures and OptionsThe traders in the F&O market can be categorized into two types. They are as follows.Hedgers:Hedgers engage in futures and options trading to reduce the volatility of their investments due to price fluctuations. Individuals may achieve profits if the price swings negatively in relation to a trading position. They can lock in a price for a transaction that will occur at a later date. However, those who enter a futures contract may suffer large losses if prices rise. In this case, an options contract is useful. It reduces the risk by allowing an investor to back out of a transaction.Hedgers also try to hedge their future income or expenses. In the commodities market, they look to agree on a certain price of a commodity to make a profit. Use an example of futures and options trading to better understand it. A farmer may sell 50 kg of potatoes for Rs. 20 per kg three months from now by entering into a futures contract with a distributor. The farmer has effectively hedged his position to reduce the overall risk of future trade. There will be no significant losses, even if the price of potatoes falls below that amount on the day of maturity.Yet, a farmer may lose his earnings when potato prices increase. Here, a put option contract can be used to offset such losses. It shall grant the farmer the right but not the responsibility to fulfil contract terms. He can execute the options contract to guarantee minimal losses in the event that the market price level drops. In contrast, a price increase facilitates the farmer to back out of the agreement and sell the goods at market value.Hedgers typically go for physical trading, in which the asset is traded when the contract matures. It is especially well-liked in the commodities market, where manufacturers and businesses engage in physical trading to maintain stable raw material costs. It makes sure an economy's pricing levels remain stable.Speculators:Speculators opt to take an opposing position to profit from future price swings. They forecast the direction of price movement in a market based on an asset’s intrinsic value and prevailing economic conditions. Using futures and options as an example, an investor can take a short position in the derivatives market if they believe the price will rise in the future.Those who anticipate that prices will decline in the future based on their understanding of the market, take a long position. Through these contracts, investors intend to purchase stocks at a discount in the future in order to profit proportionately.The majority of traders who engage in derivatives trading choose cash settlement. It does not involve the actual physical transfer of an asset. Conversely, the problems associated with this type of trade are avoided when a difference between the spot price, or current market price, and the price specified for the derivative are paid between two parties.ConclusionFutures and options are derivative contracts whose value is based on the underlying assets they hold. Hedgers and speculators are the two kinds of traders who participate in the F&O market. While hedgers look to mitigate the risk from price fluctuations, speculators try to profit from price swings. They are powerful financial tools to manage risk, speculate on price movements, and diversify one’s portfolio. However, price fluctuations of assets and changes in market conditions may lead to losses. Sometimes, the parties may not fulfil the agreements of a contract. So, understanding the basics of futures and options is crucial for anyone seeking to engage in share market trading.
FAQs on Whats are Futures and Options?What are Futures and Options?Futures and options are financial instruments through which traders can speculate on or hedge against the price movements of assets, such as commodities, stocks, or currencies. Futures involve an obligation to buy or sell the asset in the future, while options provide the right, but not the obligation, to do so.How Futures and Options are Connected?A future contract represents a legally binding agreement wherein the buyer and seller agree to trade an underlying stock at a price decided earlier on a certain date. Conversely, an options contract provides investors with the choice (but not the obligation), to sell or buy assets at a predetermined price on or before a specific date, commonly referred to as the expiration date.Can We Hold Futures and Options?A strategy that combines options and futures enables traders to participate in markets with uncertain directional movements. This approach allows for potential gains in both volatile and stagnant market conditions, providing flexibility and adaptability to different market scenarios.How Does Future Affect Options?When the price of futures decreases, the sale price becomes more valuable to a buyer, increasing the value of a put option. Conversely, if the cost of futures increases, the value of a put option decreases.What is the Expiry of Futures and Options?The F&O contracts expire on the final Thursday of every month.How to calculate F&O turnovers?To calculate the future turnover, multiply the number of contracts with the contract size and futures price. So,Futures Turnover = Number of Contracts × Contract Size × Futures PriceTo find the options turnover, multiply the number of contracts with contract size and premium. So,Options Turnover = Number of Contracts × Contract Size ×PremiumWhat are the advantages of F&O?The F&O contracts are very useful to hedge against price fluctuations. Investors can also use them to speculate on the prices of assets. So, they can profit in both bullish and bearish markets.Which has more leverage, options or futures?Futures have more leverage than options. This is because you can take a large position even with a small amount of capital.How do I buy futures and options?To buy futures and options, you must enter into a contract with another investor. The contract will specify the price and future date you can purchase the underlying asset.Are futures and options the same?No, futures and options are not the same. Futures are agreements to buy or sell an asset on a future date at a predetermined price. However, options give the right but not the obligation to buy or sell assets in a specified time period. |
https://www.kotaksecurities.com/futures-and-options/what-is-futures-trading/ | Futures Trading in Share Market | Futures trading is a fascinating and dynamic aspect of the financial world. It involves the buying and selling of contracts, known as futures contracts, that are based on an underlying asset. This form of trading has existed for centuries, providing participants with opportunities to hedge risk, speculate on price movements, and capitalize on market trends. Read on to learn the intricacies of futures trading, explore its key features, and how it operates within the financial markets.Futures Trading MeaningTo understand the concept of futures trading, you must have a solid understanding of derivatives trading. Derivatives are financial contracts that obtain their value from the price movements of other financial assets. Essentially, a derivative's price is linked to the cost of another underlying asset.One specific type of derivative is the futures contract, which involves an agreement or contract between a buyer (holding the long position) and a seller (holding the short position). In this contract, the buyer commits to purchasing a derivative or an index for a predetermined price at a specified future date.As time progresses, the price of the futures contract fluctuates in relation to the fixed price at which the trade was initially executed. These fluctuations in price result in either profits or losses for the trader. It is worth noting that the relevant stock exchanges closely monitor the trade and settlement of each futures contract.Working of Futures TradingThe futures market attracts a diverse range of financial participants, including investors, speculators, and companies seeking to either physically accept or supply the commodity as per the terms of the futures contract. Hedgers utilize futures contracts to establish fixed buy or sell prices for the underlying commodity on a specific future date.To better understand the mechanics of futures trading, let's take the example of a jar of beans. If the price of beans were to increase, a large food processor reliant on beans for their business would have to pay more to the farmer or dealer. To protect against this sudden price rise, the processor may choose to "hedge" their risk by purchasing beanfutures contractsto offset the potential price fluctuations. Such a strategy would prove advantageous for the buyer of the futures contract if the price of beans were to rise.Similarly, individuals can hedge against stock price changes in thestock marketthrough stock futures. You can acquire these contracts for individual stocks or broader market indexes. Notably, the buyer of a futures contract does not need to pay the full contract value upfront but instead only requires to provide an initial margin payment.Types of Future TradersIn the world of futures trading, two distinct types of traders exist: hedgers and speculators. Each group has different objectives and approaches to the market.Hedgers:Hedgers are investors who utilize derivative instruments to protect their capital from potential losses. They enter into futures contracts to hedge against adverse price movements in the underlying asset.For example, a wheat farmer may use futures contracts to secure a favorable price for their crop, thereby safeguarding themselves against potential price decreases. By hedging, they aim to minimize their exposure to price volatility and maintain stability in their financial positions.Speculators:On the other hand, speculators participate in futures trading to generate profits from price fluctuations inderivativecontracts. They take positions infutures and optionscontracts based on their assessment of market conditions and the demand-supply dynamics of the underlying asset.Speculators analyze various factors such as economic indicators, market trends, and news events to anticipate price movements and make speculative trades accordingly. Their profit potential lies in accurately predicting the direction of price changes and timing their buying and selling activities effectively.How to Start Futures Trading?To engage in futures trading, the first step is to establish a trading account with a broker registered with SEBI. This account is essential as it enables participation in the F&O market and allows for trading futures contracts. While not mandatory for trading futures, it is advisable to open aDemat accountas well, considering that futures are often intended for delivery, and most brokers will recommend its activation alongside your trading account.Once the necessary procedures for opening the account, including signing the trading agreement and completing the KYC process, are completed, your trading account will be activated. Once done, you will be ready to trade futures. It is also vital to ensure the activation of online trading, which empowers you to have complete control over your orders throughout the trading process.Kotak Securities is your one-stop destination for futures trading needs. With us, you get cutting-edge trading experience at an affordable price. Clickhereto know more.In ConclusionFutures trading offers a unique avenue for market participants to manage risks, speculate on price movements, and capitalize on market trends. With its standardized contracts, leverage, and active markets, futures trading has become integral to the global financial system. However, it is important to approach futures trading with caution, as it involves significant risks. Educating oneself about the intricacies of futures markets, developing effective risk management can help you get the most out of futures trading.
FAQs on What is Futures Trading?What is Futures Trading?Futures trading is a type of contract between a buyer and a seller made for the future with an expiration date.What are Futures Contracts?Futures contracts are legally binding agreements between two parties where they buy or sell an asset at a pre-agreed price in the future date. These contracts are standardized in terms of quality, quantity, delivery date, and location.What is the Purpose of Futures Trading?Futures trading serves multiple purposes. It allows participants to hedge against price risks associated with the underlying asset, speculate on price movements to generate profits, and provide liquidity to the market potentially.How Does Leverage Work in Futures Trading?Leverage in futures trading allows traders to control a larger position with a fraction of the contract's total value. It enables traders to amplify potential profits but also magnifies potential losses. Exchanges set margin requirements to regulate leverage usage.Can I Trade Futures Without Owning the Underlying Asset?Yes, futures trading allows you to trade contracts without owning the underlying asset. This is known as speculating or taking a position based on price movements rather than physical ownership.How Can I Manage Risk in Futures Trading?Risk management is crucial in futures trading. Traders can implement various strategies such as setting stop-loss orders to limit losses, diversifying their portfolios, using hedging techniques to offset risks, and staying informed about market trends and news.Is futures trading profitable?Futures trading may be profitable depending on several factors. These include market conditions, trading strategy and risk management. You must choose a suitable strategy based on your risk tolerance. It is also essential to use tools like stop-loss to mitigate risks.What style of trading is the safest?For safe trading, you should diversify your portfolio across several assets. Always follow a long-term strategy. In addition, employ risk management techniques like stop-loss orders and dynamic position sizing.Is the future better than stocks?Futures may or may not be better than stocks. It depends on your investment objectives and risk tolerance. However, futures are usually considered more risky than stocks. So, an individual's trading skills and experience determine whether futures are better than stocks.What is the tax implication on futures trading?In India, Section 43(5) of the Income Tax Act states that futures trading are non-speculative transactions. The profits earned from futures trading are considered as business income. So, they are taxed according to the income tax slab applicable to an individual. |
https://www.kotaksecurities.com/share-market/difference-between-large-small-mid-cap-in-share-market/ | No title found | It is essential for stock market newbies to understand what is large cap, mid cap and small cap in stocks. They differ from each other in terms of growth potential and risk. Small-caps have growth potential, mid-caps balance stability and expansion, and large-caps are dependable, well-established businesses. Let’s dig deeper into the article to better understand these stocks and help with informed investing.When beginners enter the stock market, they often have questions about which stocks to invest in. Such questions can overwhelm even a seasoned investor. Stock market investors must have sufficient knowledge to determine which stocks are the right choice for their investment strategy. If you have no clue about which stocks you should put money in, you could face losses. The share market has inherent risk, and this risk varies from one stock to another.Stocks in the stock market are often classified based on their market capitalisation or market cap as large-cap, mid-cap and small-cap. This article will help you understand the difference between them and assist you in making better-informed investment choices. Let us first learn about the meaning of market capitalisation and its categories in detail.Market capitalisation: Meaning and categoriesMarket capitalisation refers to the total number of outstanding shares of a company in the market multiplied by the current price of each share. It is a measure of the estimated valuation of a company.To help you understand this better, let us look at the meaning of market capitalisation with the help of an example. Suppose ‘ABC’ Company has 20,000 outstanding shares in the market and each share is priced at ₹20. Then, the market capitalisation of ‘ABC’ Company will be calculated as follows:Outstanding shares x price per share20,000 x 20 = ₹4,00,000Therefore, the market capitalisation of ‘ABC’ Company is ₹4,00,000.The stock of companies traded on the stock exchanges can be categorised into three broad categories: large-cap, mid-cap and small-cap. Let us learn about each of them in detail.What are large-cap stocks?Large-cap companies are well-established businesses with a significant market share, like market caps of ₹20,000 crore or more. These companies dominate the industry and are very stable. They hold themselves well in times of recession or during any other adverse event. Besides, they usually have been functioning for decades and have a good reputation. Large-cap stocks are a good option if you want to invest in a company’s stocks by taking less risk. These stocks are less volatile than mid-cap and small-cap stocks, and lower volatility makes them less risky.
However, since they come with low risk, the returns here can be relatively lower than mid and small-cap stocks.
Examples of large cap stocksReliance Industries and Infosys are examples of some large-cap market companies listed on India's stock exchanges. Their strong foothold in the market and consistent good performance make them good choices for long-term investors.What are mid-cap stocks?Mid-cap companies have market caps above ₹5,000 crore but less than ₹20,000 crore. Investing in these companies can be riskier than investing in large-cap market companies, because mid-caps tend to be more volatile. On the other hand, mid-cap companies also can turn into large-cap companies in the long run. These companies can offer a higher growth potential than large-cap stocks; hence, more investors are attracted to investing here.Examples of mid-cap stocksMetropolis Healthcare, Castrol India, and LIC Housing Finance are examples of mid-cap companies listed on India's stock exchanges.What are small-cap stocks?Small-cap companies have a market capitalisation of less than ₹5,000 crores. These companies are relatively smaller in size and have a significant growth potential. What makes them risky is the low probability that they will be successful over time. This makes the stocks of such companies volatile in nature. Small-cap companies have a long history of underperformance but when an economy emerges from a recession, small-cap stocks often prove to be outperformers.Examples of small-cap stocksBajaj Consumer Care, Shobha Ltd, and VST Industries are some examples of small-cap market companies listed on India's stock exchanges.
Difference between large-cap, medium-cap and small-cap companiesHere’s a table outlining a quick comparison between the small-cap, mid-cap, and large-cap companies based on various important factors.
AspectCompany Type and StatureLarge-Cap CompaniesWell-established and stableMid-Cap CompaniesCompact, growth potentialSmall-Cap CompaniesSmaller, significant growthAspectMarket CapitalizationLarge-Cap CompaniesRs 20,000 crore or moreMid-Cap Companies5,000 crore to 20,000 crore rupeesSmall-Cap CompaniesLess than Rs 5,000 croreAspectVolatilityLarge-Cap CompaniesLow volatilityMid-Cap CompaniesModerate volatilitySmall-Cap CompaniesHigh volatilityAspectGrowth PotentialLarge-Cap CompaniesLower growth potentialMid-Cap CompaniesModerate growth potentialSmall-Cap CompaniesHigher growth potentialAspectLiquidityLarge-Cap CompaniesHigh liquidityMid-Cap CompaniesLower liquiditySmall-Cap CompaniesLeast liquidityAspectLarge-Cap CompaniesMid-Cap CompaniesSmall-Cap CompaniesCompany Type and StatureWell-established and stableCompact, growth potentialSmaller, significant growthMarket CapitalizationRs 20,000 crore or more5,000 crore to 20,000 crore rupeesLess than Rs 5,000 croreVolatilityLow volatilityModerate volatilityHigh volatilityGrowth PotentialLower growth potentialModerate growth potentialHigher growth potentialLiquidityHigh liquidityLower liquidityLeast liquidity
Keep in mind that different stock exchanges and market situations may alter how companies are classified. When evaluating investment opportunities, it is critical to consider a range of factors and market trends.Mutual funds and market capitalisationMutual funds are an integral part of the Indian financial system. Mutual fund schemes are categorised into large-cap, mid-cap or small-cap funds based on their investment allocation. For example, a large-cap mutual fund scheme will mainly invest in large-cap stocks, while mid-cap and small-cap schemes will invest in mid-cap and small-cap stocks.The bottom lineJust make sure to factor in your financial goals, appetite for risk and investment horizon before investing. Also, remember that investing in the share market or in mutual funds requires research and analysis. If you're starting your investing journey or need support, it may help toopen an accountwith a large broker like Kotak Securities. This will give you access to market research and analysis and a wide range of educational resources.Read More :Allied Blenders and Distillers IpoVraj Iron and Steel Ipo
FAQs on Difference Between Large Cap, Mid Cap and Small Cap FundsWhich is better large-cap vs mid-cap vs small-cap?Large-cap funds offer higher stability but lower returns. Whereas, mid-cap and small-cap funds may offer slightly higher returns. Returns from small-cap funds may exceed mid-cap funds too. However, both these categories of funds are more risky as they invest in small companies which are still growing. They are not established companies like the ones in large-cap funds. So, you should invest according to you investment objective and risk appetite.Which is risky large-cap or mid-cap?Mid-cap companies are more risky as they invest in growing companies. However, large-cap companies invest in big companies that are well established.How do you know if a stock is large-cap or mid-cap?Calculate the market capitalisation to find out if a stock is a large cap or mid-cap. For this multiply the number of total shares of a company to the existing market price of each share. If the market capitalisation is above $10 billion it will be a large-cap company. |
https://www.kotaksecurities.com/share-market/how-to-trade-in-stock-for-beginners/ | How To Trade Stocks: A Beginner's Guide | Mastering the position of a stock trader and learning how to trade stocks can be an exciting and challenging experience. Understanding the basics is essential for novices to navigate the market's intricacies. As a trader or investor, you will experience highs and lows along the way, as well as periods of success and loss. Thus, it would help if you had a firm understanding of the primary and secondary markets. In this course, we will lead you through the fundamentals to help you learn how to trade stocks and get started on this financial journey.Learning the basics of how to trade stocksPrimary marketA primary market is where companies issue new securities and offer them to the public. So, the transaction happens between issuers and buyers.Secondary marketIn the secondary market, you can buy and sell shares issued in the primary market. The transaction takes place between the seller and buyer. The stock exchange or broker acts as an intermediary in the secondary market.If you buy and sell a share on the same day, the transaction is called anintraday trading. At the end of the day, the trader books either a profit or a loss.The process of stock trading for beginnersThe following tips will help you begin your journey instock trading.1. Open a demat accountTo enter the share market as a trader or an investor, you must open a demat or a brokerage account. Without a demat account, you cannottrade in the stock market. A demat account works like a bank account where you hold money for trading. The securities you buy are maintained electronically in the demat account.2. Understand stock quotesStock prices move as per demand and supply, economic reports, fundamental factors like company profitability and trader sentiment. By gaining knowledge about these aspects, you can enhance your understanding of stocks and stock markets. This will help you determine the right price to enter or exit a trade.3. Bids and asksA bid price is the maximum price you are willing to pay to buy a stock. The ask price is just the opposite. It represents the minimum price at which the seller is willing to sell the stock. To ensure a profitable trade, it is important to decide on the correct bid and ask price.4. Fundamental and technical knowledge of stockStudy the fundamental and technical analysis of the stock to plan your trading. Fundamental analysis evaluates security by measuring itsintrinsic value. It considers various dynamics, including earnings, expenses, assets and liabilities. Technical analysis evaluates the stock based on its past price and volume chart to predict future potential.5. Learn to stop the lossVolatility is an implicit characteristic of theshare market. So, a beginner needs to understand how to prevent a heavy loss. While executing a trade, you must set a stop loss price to minimise the loss. Failure to put a stop to loss may heavily affect your capital.6. Ask an expertThe share market is unpredictable. Nobody can predict a stock price accurately. However, taking advice from an expert helps beginners make the right trading decision. It guides you to make the right choice.
7. Start with safer stocksA big capital loss in the beginning may bring your confidence down. A wise choice is to start with the less volatile stocks. This may give you a slow start, but these stocks are more likely to sustain a good performance even in adverse conditions.Share market investments can be tricky. You can start byopening a demat account. Next, work on developing adequate knowledge of the stock market. This will help you to work against the odds and beat stock market volatility.ConclusionIn conclusion, investing in the stock market in India can be a lucrative opportunity for investors with a long-term outlook and a diversified portfolio. While there are risks associated with any investment, India's growing economy and stable economic environment make it an attractive destination for investors looking to expand their portfolio. By conducting thorough research and seeking advice from financial experts, investors can make informed decisions and take advantage of the potential benefits of investing in India's stock market.Read more:Allied Blenders and Distillers IpoVraj Iron and Steel IpoDifference between stock market and share market
FAQs on Learn to Trade Stocks (FAQs)Is it possible to invest Rs. 500 in the share market?Yes, you can. All you need to do is to have a Demat and Trading account.To invest in the stock market, can I purchase stocks without a broker?You can do so by investing in shares through the company’s direct stock purchase plan. However, in most cases, you will need the services of a broker.Which is the best place to learn stock trading in India for a beginner?You can learn about stock trading by enrolling in courses offered by brokerage firms. These courses can help you grasp the concepts and understand the finer details of stock trading. Ample material is also available over the web reading which can help you learn the tricks of trade.Is it safe to trade online?Yes, it is safe to trade online. Every single process, from the moment you buy a stock to the moment you receive your shares in your demat account, is automated and monitored. As a result, there is no place for fraudulent practices.Are stocks a good investment for beginners?Stocks are good investments for beginners if they can leave their money invested for at least five years.How can I trade online?Here's how you can trade onlineGet in touch with a stockbroker.Open demat and trading account.Login to your demat and trading account and add funds.Check out the details of the stock and begin trading.What are the benefits of online trading?The benefits of online trading are numerous. Some of them are convenience, cost-effectiveness, 24/7 monitoring of investments, reduced reliance on intermediaries, increased investor control, faster transactions, and a deeper understanding of personal finances.Should I be experienced to start trading online?No, you don't need the experience to start trading stocks in India. However, it's more important to know and understand the markets and the risks before investing.What's the minimum amount I need to start trading stocks in India?Investing or trading in the Indian stock market has no minimum limit. You just need enough money to buy the stock based on its share price. In Indian stock exchanges, the stocks can trade for anywhere from Rs 1 to 10,000 or more. |