First Step In Stock Market (English Medium)

RAVINDRA BHARTI EDUCATION INSTITUTE PVT. LTD. WE BELIEVE IN EXCELLENCE ISO 9001:2015 CERTIFIED INSTITUTE REVISED EDITION : 07 REVISION DATE : 31ST MAR 2023

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Table of Contents Chapter 01: What is a share? Understanding Primary Market.............................................................3 Chapter 02: Secondary Market...........................................................................................................10 Chapter 03: Fundamental Analysis.....................................................................................................14 Chapter 04: Derivatives Market.........................................................................................................17 Chapter 05: Technical Analysis Introduction to Technical Analysis:.................................................20 Chapter 06: Investment Vs Trading Investment:................................................................................23 Chapter 07: PMS & Financial Planning.............................................................................................26

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Chapter 01: What is a share? Understanding Primary Market A share is an ownership right of a company. This means that if you buy shares of a company, you become the owner of that company to the extent of % of your holding in that company. When the company makes a profit, the company distributes that profit to its share holders according to the shares they have. It is called Dividend. Now we have started the study of stock market, so one thing we always have to remember is that money from stock market should not be our main income source or our family, our basic needs should not be completely dependent on money from stock market. Money from share market should be your secondary income source. Many people think that if I quit my job, close my business and start working in the stock market, I will make a lot of money and become rich. In share market we can work in two ways. One is Trading and the other is Investment. I have seen many people making huge profits through investment in long term. But there are many people who make money from trading. Now that you have started learning the stock market, we want to explain a few things to you first. First of all you should decide whether you want to be a Trader or an Investor? Why not both? But I would suggest you to start with Investment. If you study the fundamentals of a company and take delivery of shares of a good company, even if the share price falls, you have nothing to fear. Because you have bought delivery of shares by paying full payment. There is no limit to sell those shares. You can hold these shares till you get a good 3

return. But traders get angry or nervous when we talk about investment & focus now a days is on earning fast money through trading. But generally they don’t understand that this fast money is generally short lived & investments only are going to help to create wealth for future. However, we would advise you to make an initial investment. Because I have experienced this for the past 12 years. Despite this, if one wants to trade, he must trade according to the Golden Rule of 80:20. The Golden Rule of 80:20 is to use 80 percent of your money for Investment and 20 percent for Trading, this is called the Golden Rule of 80:20. By doing this we can balance our portfolio. Let us assume that even if you lose 20% in trading in one year, you can easily get 20 to 25% annual profit from investment. At least your loss in trading will get covered from the return of investment. For example – you have a portfolio of 5 lakhs and you have invested 80% i.e. 4 lakhs. At the same time we are using 20% i.e. 1 lakh rupees for trading. In such a situation, if you get profit from that trading, it is a good thing. You can continue trading in the same way. If you are losing in trading then don't put money in trading again and again and don't take loss. In trading we need to follow discipline and rules. You can continue trading only if you are disciplined and follow certain rules given. But if you can't follow the discipline and given rules you will lose. You should not trade in this situation. Primary Market

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Primary Market When a company needs to raise funds for business expansion, the company offers to buy some of its shares (shares) to the public. It is called IPO or Initial Public Offering. Through IPO investment, people buy shares directly from the company. Hence it is called primary market. What is an IPO? If any company comes to the stock market for the first time, it is called an IPO. We also call it public issue. That is, the company openly declares that I am selling my shares in the market, whoever wants to buy the shares can buy them. This offer is directly open to all. If we feel that the business of the company is good, the company will grow a lot in the future, then only we will consider investing in that company and or else we should avoid. Share Price, Face Value & Premium Share Price – Face Value & Premium After the IPO, the company is listed on the stock market. The price of shares of any company is called CMP (Current Market Price). This CMP includes Face Value (Principal amount) and Premium (costs incurred by the company on marketing, branding, goodwill etc.) Market Price = Face Value + Premium Face Value: Face Value (FV) is the original price of the share from that company. It is usually Rs 1, 2, 3, 5, 10. It can be so much and it is fixed. It changes only during Stock Split. Premium: As per the calculation of the company, the basic price of the 5

share (Face Value) is generally 1 to 10 rupees. Then why do we have to buy shares of the same company at 200-250 rupees? So the company says that till now the company has increased its business, it has expanded and at the same time the money required by the company for its Goodwill, Reputation, Brand Value is invested in the price of the company share, so we get that share for 200-250 rupees. That extra money is called Premium. E.g. SBIN – State Bank Of India Market Price = 520 Rs = Face value + premium If Face Value = 1, Then Premium = 520 – 1 = 519 Thus the change in daily market price is due to change in premium value of share. Types Of IPO – Types Of IPO There are also two types of IPO – 1. Fix Price IPO – A single price is given to apply for a Fix Price IPO, which is Fixed. That is why this IPO is called Fix Price IPO. 2. Book Building IPO – Price Range is given to apply for Book Building IPO. The lowest price is called Floor Price and the highest price is called Cut Off Price. Generally retailer category has to apply the Book Building IPO at Cut off price. Examples: Dmart: Price Range: 295 – 299, Book Building type IPO (Year 2017) The listing price was @ Rs 603, more than double the price. Page 6 of 27

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And now i.e. 30th March 2023 its LTP ie Last Traded Price was Rs. 3326. CDSL: Price Range: 145 – 149 (Year 2017) After listing, its price was Rs. 250. And now i.e. 30th March 2023 its LTP ie Last Traded Price was Rs. 891.10. When an IPO hits the market, you are given the following information. Price Band: 295 – 299, Face Value – 10, Tick Size – 1, Market Lot – 50 Maximum Subscription amount for retail investor: INR 2,00,000/Price Range means which price we can apply for. Face Value means the basic price of that share. IPO Application Procedure  Enter the website https://trade.angelone.in/ in the address bar  After that enter mobile no., provide OTP & then provide login PIN  Go to home & select IPO, now you will find all the open IPOs available for apply.  Select the IPO you want to apply, select lot size, provide the UPI mandate & submit.  You will receive the notification on mobile for the UPI payment, please go to particular UPI payment option & complete the payment process. You will receive the SMS & mail post payment confirmation. Once the confirmation is received, now you have to wait till the allotment date to know whether you are getting shares allotment or not of that IPO.

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 Demat Account What is Demat Account? How are the transactions in Demat account? First of all, let us understand the structure of Demat account. Your Demat account is opened by a broker. We can earn money by trading & investment. For investment you need a Demat account so that your shares can be stored safely in electronic form. That's why we need to understand what a Demat account is. Actually when we go to a broker to open account, he allows us to open both Trading & Demat account. In total 3 accounts are required e.g. -1. Bank Account – for transferring funds to your trading account & vice versa. 2. Trading Account – for buying shares in intra day or delivery 3. Demat account – for electronically storing your shares Stock Broker 1. A stockbroker is a licensed agent who has to pass certain qualification tests in order to register with the regulators so that he can give you investment advice. 2. A broker provides you with certain services such as – 3. Which share to buy when and how? 4. How long should we hold these shares and when can we sell them? 5. On your behalf, broker can buy or sell shares with your permission. 6. To do all this broker charges a commission, which we call brokerage. 7. Approximate Standard Brokerage -Intraday – 0.05% of sell value + GST or flat Rs20/order (for example) + GST

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Delivery – 0.50% of buy & sell value + GST or flat Rs20/order + GST Future – 0.05% of contract value + GST or flat Rs50/order (for example) +GST Option – Rs50 per Lot + GST (brokerage plan can depend on your margin amount)

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Chapter 02: Secondary Market A company is listed on a stock exchange in the secondary market through an IPO. In secondary market any person with a trading and Demat account can trade or invest. People who get shares in IPO can sell their shares in secondary market whenever they want. After listing in the secondary market the company has no direct relation with it. Market Timing Equity market timing is divided into 3 parts. 1. Pre-Open Session 1. Order Entry & Modification Open: 09:00 Hrs. 2. Order Entry & Modification Close: 09:08 Hrs.* 2. Regular Trading Session Regular Trading Session: 1. Normal / Limited Physical Market Open: 09:15 Hrs. 2. Normal / Limited Physical Market Close: 15:30 Hrs. 3. The Closing Session – 15.40 Hrs. to 16.00 Hrs. Block Deals: There are also some block deals. In which equity shares are bought or sold in bulk. Its timing is as follows. Block Deal Session Timings: 1. Morning Timing of Block Deal Session Morning Block Deal Window: This window runs from 8:45 am to 9 am. 2. Afternoon Block Deal Window: This window runs between 02:05 PM to 2:20 PM.

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Stock Exchange and Market Regulatory: Now we understand about stock exchanges. Where goods are traded is called exchange. For example, if you want to buy vegetables, you go to the vegetable market where vegetables are bought & sold. Similarly where the shares are bought & sold are known as stock market or exchanges. There are 23 stock exchanges across India, in which we can trade or invest on 3 types of stock exchanges. Among them NSE and BSE are the main 2 stock exchanges. Now first let's know about NSE. National Stock Exchange of India (NSE) National Stock Exchange is the largest and technologically leading stock exchange in India. Therefore, the highest turnover in India is in NSE – National Stock Exchange. This stock exchange was established in 1992. Website of NSE - https://www.nseindia.com/ • Nifty: NSE's index is Nifty 50 which was launched in 1995. • About 2000+ companies are listed in NSE. In which you can trade or invest. Bombay Stock Exchange Of India (BSE) Bombay Stock Exchange is the oldest stock exchange in India and Asia. It was established in 1875. The Bombay Stock Exchange is one of the two major exchanges of the Indian stock market. Website of BSE – https://www.bseindia.com/ Sensex:- BSE's Sensex is an index that indicates the performance of the country's economy and financial markets. This is the benchmark equity index. Sensex was launched in 1986. About 4500+ companies are listed in BSE. In which we can trade or invest. 11

Stock Market Regulatory – SEBI: SEBI stands for Securities Exchange Board of India. SEBI is a regulatory authority of the Government of India. Whatever deal or trading and investment takes place in India. All this was under the supervision of SEBI. SEBI is responsible for controlling all transactions. The Securities and Exchange Board of India was established on 12 April 1992 (SEBI was actually established in 1988). All the powers under the SEBI Act, 1991 are vested in SEBI. Since then SEBI has been controlling the stock market. Indices: The main function of index is to indicate the events about the country. The index fully reflects the state of the stock market. And a good index shows not only the events but also the condition of the entire market, which is the same for all company shares in the country. Nifty – 50 NSE – NIFTY, is a price-weighted index of the national stock market. In 1995, National Stock Exchange created Nifty-50. Nifty-50 includes 50 companies. Like BSE these companies are included in 'NIFTY-50' based on market capitalisation. When the Nifty-50 was launched on November 3, 1995, a group of 50 companies were assigned a value of 1000 points. If we look at the current value of Nifty-50 till March 2023, it has increased by 16,000. If you try to calculate, you will understand that in 28 years from 1995 to 2023 Nifty-50 has increased almost 17 times i.e. Nifty-50 has given increased by @ 10-11% every year i.e. CAGR. SENSEX BSE: Sensex – or Bombay Stock Market Movement Index is a value-weighted index of India. Bombay Stock Market created Sensex in 1986. Like Nifty, Sensex includes 30 companies. Page 12 of 27

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These companies are added to the Sensex on the basis of market capitalization-weight. The base year of Sensex is 1978-79. When the Sensex was launched, a group of 30 companies were assigned a value of 100 points. If we look at it till March 2023, the current value of Sensex is around 60,000. Thus if you look at the calculation, you will understand that till 2023, Sensex has increased almost 600 times in 45 years, that is, Sensex has increased 10 times per year or it has Grown at a CAGR of @ 14-15%. Categorization Of Stock By Sector: Sector – Many times you have heard the word sector on TV or in newspapers, headlines. Today there is a good turnover in the banking sector or there is tension in the IT sector. There was no movement in the energy sector today. etc. Automotive Sector – This includes all types of car, bike manufacturing companies. E.g. Tata Motors, Ashok Leyland etc. Private Bank – All the banks which are privately owned come under the private banking sector. E.g. - HDFC Bank, RBL Bank, ICICI Bank etc. PSU Bank – Government has the largest holding in banks in this sector. E.g. SBIN, Bank of India etc. Finance – Companies in this sector provide finance, such as Bajaj Finserv, HDFC etc. Cement & Construction Cement & Construction – This sector includes companies related to building construction and cement, such as ACC, Ambuja Cement etc.

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Chapter 03: Fundamental Analysis 1. Fundamental analysis is a method of stock evaluation. In which the price movement in the share is estimated by studying the financial and economic data / information. 2. In fundamental analysis, fundamental reports of the company, growth of the company, product of the company, demand of the product, sector of that company, policies of the government, along with the economy of our country are studied in detail. 3. The output from the fundamental analysis is called the intrinsic value or price target of the stock. 4. In fundamental analysis investors say that the price of a share tends to be close to or close to its intrinsic value. 5. In fundamental analysis, the experience of the people on the company's management body, their passion for the business, their performance history, the company's growth potential, the company's production costing, and the company's brand value are closely observed. 6. Thus in fundamental analysis different things are studied in depth. 1) Steps Involved in Fundamental Analysis: In fundamental analysis different things are studied step by step. Among these are 1. Macroeconomic Analysis 2. Industry Analysis 3. Microeconomics / Company Analysis, steps like these are involved. 1. Macroeconomic Analysis: Macroeconomic analysis means full study of economics, study of the economy of the entire world as well as the

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economy of our country. Macroeconomic analysis mainly studies the following – 1. National Output / GDP 2. Unemployment 3. Inflation 4. Interest Rates 5. Government Policy 6. The Infrastructure 7. Monsoons 2. Industry Cycle/Industry Stages: 1. Every industry basically goes through four stages given below 2. Startup Stage 3. Expansion or Growth Stage 4. Maturity stage 5. Decline or Sunset Stage 3. Microeconomic / Company Analysis: Company analysis is the last stage of fundamental analysis. It looks at how the company is performing compared to the other industries in which we are going to invest and how it is performing in the past few years as well as currently & what is the future outlook. 1. Company Analysis studies the following factors – 1. The Management 2. The Company 3. The Annual Report 4. Ratios 5. Cash flow 2. Ratios and Values 1. ROE (Return on Equity): 1. ROE stands for Return on Equity. 2. ROE shows how much return we got against the equity capital 3. ROE is calculated in percentage

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Example: Tata Capital's profit for 2012-13 was 400.4 crores and the company's equity capital was 254.8 crores. ROE = Net Profit X 100 / Equity Capital Tata Capital ROE = 400.4×100 / 254.8 = 157.14 % This means that Tata Capitals made a profit of Rs 157.14 per Rs 100 of equity capital.

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Chapter 04: Derivatives Market 1. The word derivatives means something created or derived from some other thing. 2. We all know that milk is a basic food. There are many products that are made from milk. Curd, buttermilk, butter, ghee, cheese etc. ie curd, buttermilk, ghee, butter, cheese are its derivatives which are made from milk. 3. Similarly there are some products which are created from equity market and they are equity market instruments. These are futures market and option market. 4. Derivative market is an advanced version of equity market. 5. There is no buying / selling of shares in derivative market. In this there is buying / selling of contract of shares/securities/underlying asset. 6. The turnover of derivatives market is 10 to 12 times higher than equity market. Future Market: A contract in the futures market is certified by the exchange and is between both the buyer and the seller. The rules of contracts in the futures market are the same for both buyers and sellers. Lot size, margin and expiry date are predefined in the contract. In this transaction we need lot size and share price so where we will be buying and where we will be selling. These are the things you need to know. There are 3 different types of contracts available for trading in the futures market.

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The last Thursday of the contract month is the contract expiry date for that month. Trading in futures market does not require full payment. You only need to have 10-20% margin in your trading account. Contract value = CMP x Lot size E.g. SBIN CMP = 520 Lot size = 1500 Contract Value = 520x 1500 = 7,80,000/20% Margin = 156,000/If we buy SBIN @ 520 and Sell SBIN @ 530 then Profit per share = Rs 10 Lot size = 1500 Total Profit = 15,000/Option Market: 1. Option contracts are an advanced version of the futures market. 2. Options have the same lot size and expiry as futures. 3. In option we have to pay premium instead of margin. 4. Premium – The premium is your price in an option contract. We buy and sell options based on price premium. 5. Strike price in option contract is a price which helps us to choose different types of option contract. 6. Premium is different for each strike price. 7. Let us take an example of ice cream for our understanding – as ice cream has different flavours available. E.g. Mango, vanilla and pistachio. The price of that ice cream varies according to the flavours. So like that your flavours are your strike price. As the strike price changes, so does the premium. Page 18 of 27

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A) Types of Option: a) Call Option b) Put Option Strike Price of Call Option Market ATM If strike price = Equity Price OTM if strike price > Equity Price ITM If strike price < Equity Price Strike Price of Put Option Market ATM If strike price = Equity Price OTM if strike price < Equity Price ITM If strike price > Equity Price

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Chapter 05: Technical Analysis Introduction to Technical Analysis: Technical analysis is the study of past prices to predict future prices. This means that it gives us information about how a share's price may rise or fall in the future. So the reason can be fundamental or technical. Technical analysis gives us some signals before the market is likely to move in upward or downward directions. A) There are 3 types of charts, commonly used by chartists – 1. Line Chart – In this chart, the closing price is plotted on top portion of the graph and the prices are connected by a line.

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2. Bar Chart – Bars are used in this chart. They are used to show the Open / High / Low / Close of the price of the underlying asset/security.

3. Candlestick Chart – Candles are used in this. In the candle formation, we get Open / High / Low and Close.

B) Trend: 1. Understanding market trend using technical analysis is very important while trading in stock market. 21

2. Trend means market tendency. Learning to identify the direction the market is heading is to identify market trends. 3. There are three types of trends – i. Up Trend ii. Down Trend iii. Sideways Trend C) Volume: 1. Volume is the total number of shares traded i.e. bought & sold in a particular period or time frame. That total number of shares are called as total volume. 2. Volume means the total number of trades made in a particular period. 3. The shares of a company whose shares have high volume are considered active and liquid stocks. 4. Understanding volume is very important in technical analysis. D) Support and Resistance: Support and resistance are two very important terminologies in technical analysis – Support: Support is a point in the market at which the demand in the market has declined. From there, the market cannot go any lower. Resistance: The market does not rise above a certain point as the supply in the market falls short of demand. The uptrend of the market is slowly disappearing. That point is called resistance point in the market.

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Chapter 06: Investment Vs Trading Investment: Considering the long term, we are buying shares in delivery by paying full amount. Shares bought or sold in delivery have no validity. 1. Settlement process of delivery is T + 2. 2. Demat A/c & Trading A/c are different. A Demat account has three linked accounts – Demat account, saving account and trading account. 3. A stock broker is an exchange agent who provides a platform for you to buy or sell shares from the market. 4. Since the shares taken in delivery are one of our assets, we can also apply loan on them. Corporate Action: Corporate Action is an event which is carried out by the company. In that the company takes some decisions, it affects the price of the shares. Corporate actions are for the benefit of shareholders. Corporate actions are of different types – 1. Dividend Dividend 2. Bonus Bonus 3. Stock Split Stock Split 4. Right Issue Right Issues 5. Buy Back There are two types of trading – 1. Intraday Trading 2. Positional Trading Now first of all let us understand intra day trading 23

1. Intraday Trading: Intraday trading means that if you buy a share, you have to sell that share today itself. E.g. If you have taken a trade and close it today, this is called intra day trading. In this, whether we make a profit or a loss in a day, it is essential to complete the transaction today. You don't need to pay anything in full while doing intra day trading. In this you can work for less money. In this we can trade on 10-15 % margin payment. E.g. The price of one share is Rs 1000 and you want to buy 100 shares. If we want to buy the same shares on delivery, we have a total of 1 lakh Rs. Must be in trading account. But for intra day trading only on 10% margin payment of Rs 1 lakh i.e. we can easily do that trade in just Rs 10 thousand. 2. Positional Trading: i) In positional trading we can trade in derivatives segment. Like futures and options trading are two trading base products. ii) In positional trading you need 10 – 20% margin payment. We can earn good profit by working on 10 – 20% percentage payment. iii) In positional trading we can get unlimited profit with minimal risk. iv) You can work in the market in two ways. a) Long Position b) Short Position Apart from these two positions there is no other position in the market. Now let us understand what is long position & short position. a) Long Position : Long position is taken when one predicts market price is going to go up in near future. If you think Page 24 of 27

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SBIN stock is going to go up today, its current price is Rs. 250 & if you are predicting that its price is going to go from Rs.250 to Rs.260, then you can buy SBIN. Now suppose you have bought 100 shares of SBIN at Rs 250 and sold when the shares were at Rs 260. So you will get a profit of Rs. 10 per share. b) Short Position: If we think that the market is bearish & likely to go down then we can take short position. Now suppose you think Tata Motors shares which is now trading at a price of Rs. 450 & If you think that this stock can come down to around 435-440, then you can short sell Tata Motors shares. Now suppose you have short sell 100 shares of Tata Motors at Rs. 450 and buy them again when they reach Rs. 440, in this you will get 10 Rs. profit per share. Documents Required for Demat Account Opening 1. PAN Card Copies 2. Aadhaar Card copies 3. Cancelled check 4. Margin Check 5. Photographs 6. 6 month bank statement Everyone should open his / her Demat account.

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Chapter 07: PMS & Financial Planning Financial Planning: i) Financial planning means, on the one hand, your total assets, your regular income, your regular savings and on the other hand your total liabilities, your loans, monthly expenses, instalments etc. Financial planning is the financial planning done by studying all these in detail to fulfil your future dreams and financial goals. ii) One objective behind financial planning is to build stable and secured long-term wealth. iii) A wealth that after being built, 10 – 20 years in the future you should not need to work for money. iv) Then that wealth itself, that money itself, will work for us, and make us money. It will fulfil your dreams, all your financial wishes. B) Financial Goals: i) Every person should make a list of his own financial goals, his own dreams in his life. ii) And by when those things should be completed, the date and how much money that thing will require. All these things should be written down and made a list. iii) In today's fast paced life, people have forgotten their dreams, their goals. iv) He goes round and round all day and comes home at night. But he doesn't know anything about your own financial goals. v) Some people set goals, but they are not proper. vi) Example: We easily say to our friends that I want to buy a car next year, when that friend meets us next year, we say the same to him again, next year we meet him again, then again we say the same that I want to buy a car next year. By doing this, the last year comes but the next year does not

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come. And we die as well. But taking your own car does not happen. vii) We tell our children that I had these dreams. But I couldn't finish it, at least you finish it. viii) And even when we die, we leave this burden on our child's shoulders. And our son also goes ahead and does the same thing. ix) Why did all this happen? So there is only one reason for this. That means we have not become financially literate. x) We have never made financial goals in our life and we have never done any planning. xi) So now we are also going to make our financial goals, and we are also going to do financial planning in a proper way to perfect those goals. xii) So financial goals means that I will need 50 thousand rupees on 25 Jan 2021 for the goals of buying a laptop. If we know all these three things in this way, then we can call it a proper financial goal. C) Pyramid of Human Life Costs: i) It is said that human life is a kind of expenditure. ii) From the first breath to the last after coming into life, a person is expended in different ways. _________________ nothing below this line _____________

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