Equity related Terminologies

Any subject matter has its own code words. These code words are actually some sort of abbreviations to convey an accepted meaning to save time. Just like that share market has its own army or terms know them to understand the articles or discussions of the trading Gurus.

  1. Stock exchange:
    After the IPO a stock is listed on some stock exchange. (listing means now you can buy/See) Like name suggests This exchange facilitates trading of shares. There are 2 popular trading platforms in India – Bombay stock exchange (BSE) and National Stock exchange (NSE) you can chose any platform to buy or sell share of a company. Most of the stocks are listed on both exchanges. eg. Click here to check Dmart stock on NSE and Click here to check Dmart stock on BSE. Yes, there can be a marginal price difference but don’t worry about it.


  2. NIFTY and SENSEX and other Indices
    Nifty 
    stands for National Index of fifty – its an Index of 50 chosen companies, While SENSEX is similar index of BSE but BSE has only 30 stocks in its Index.  Both of these indices indicates trend of share market. (Dont be confused about the numbers, follow any one of the index. I follow NSE’s indices)

    Other INDICES:
    The nifty50 and SENSEX are not just two indices we have to track and follow. as they only reflect health of 50 or 30 big stocks they represent partial picture of what is going on in share market. There are more indices depending on where you wish to invest your money. We will see them after we learn about types of stock companies and sectors of economy.


  3. Stock/ share:
    You know what a stock/ share/ equity is – its something that is traded (purchased or sold) on a stock exchange. These stocks are further classified as per size of their market capital. The market capital is calculated by current price of that stock* all of the shares.
    Based on this value the companies or stock of the company is classified as,Large capital – Means its market capital is more than 10,000 crore
    Mid capital – Means its market capital is in range of 2 crore to 10k crore
    Small capital – Means its market capital is less than 2 croreThese Large cap, mid cap or small cap stocks are further classified based on their current status and potential in eyes of market.

    A NOTE OF CAUTION – NEVER LOVE OR HATE A STOCK. Also, DO NOT CHOSE A STOCK BECAUSE YOU LIKE THE BRAND! Don’t mix economy and Emotions, STOCK market reacts to sentiments but they do operate on rational criteria.


  4. Growth stock Vs Value stock and penny stocks.
    A growth stock is one which keeps climbing, these stocks run faster than their indices, they reflect good earning and all types of investors have an eye for these.
    Eg. IGL, Avenue supermart, Titan, Vakrangee Ltd. etc.
    On other hand a Value stock is one which is a great stock but its price is low for some reason. (a stock available at discount) Eg. Right now since 2017, the IT and pharma stocks – Sunpharma, AjantaPharma, TechMahindra etc.Ajantapharma was the best wealth creator stock according to a report of Motilal oswal securities. (a growth stock). Currently it is down due to bearish mood on pharma sector.You need to chose these stock wisely. Because a growth stock can also undergo a bit of correction and if you purchase a stock at pick price – then you can lose money for short duration. Similarly, if you bet on a value stock then you must first make sure that the fundamental health of the company is intact (we will see what that means further) and also have patience for such stock to start performing.

    Much away from these quality stock there are these penny stocks. Penny stock  as name suggest are very cheaply valued (from few Paisa to less than Rs. 30-40) These are doomed stocks and you must be at most cautious while investing in such stocks. The market has lost hopes in such companies and most of them are on verge of collapse. However, They can turn multibaggers (i.e. double, triple digit returns in least time) (eg. reliance communication.) in rare scenario. To be sure you are not wasting your money, you need to check if that stock is trading. This information is  available on the stock exchange websites, i.e. website of BSE or NSE where the stock is listed. A stock is in trading when there are both buyer and seller in the market. For penny stock there are more sellers and least buyers. So even if you buy the stock, you will get stuck with all other sellers and see the money bleeding from your share holding but cannot do anything.

    ONCE YOU CREATE A TRADING ACCOUNT YOU WILL BE BOMBARDED WITH TRADING TIPS. NEVER ACT ON THE TIPS FROM UNKNOWN SOURCES, MOST OF THESES ARE PENNY STOCKS. SEBI IS TAKING ACTION AGAINST SUCH MESSAGES. 


  5. OUTPERFORM and RALLY
    Its a frequently used term in trading. It simply means the stock or index is going to perform better than its competitors/peers. It is also used for a stock that is defying a bearish trend in overall market and stands tall in opposite direction.
    Generally in Indian share market the MIDCAP index outperforms other indices,  and Bank nifty index triggers next breakout in overall share market.Rally is general term for a stock moving upwards and people keep buying it. The investors can rally a particular stock or sector depending on sentiments.


  6. The SECTORS:
    Each of the stock belongs to some sector or another. Its important to know which stock belongs to which sector as many a times due to good/Bad news in one stock the entire sector tend to move in same direction.
    Check out this link to see various sectors and their performance.
    http://www.moneycontrol.com/stocks/marketstats/sector-scan/bse/today.html
    Incase of India, the Pharma sector and Banking finance dominate the share market, so don’t miss on those stocks in your portfolio.


  7. Portfolio
    It is a collection of all stocks that you hold In your Dmat account. You need to have good and diverse combination of stocks in your portfolio as it helps in all weathers. Also you need to have good combination of Large cap, mid cap and small cap stocks to maximize returns with safety. The large cap offers safety as even in falling market they tend to fall less compared to small and mid caps. But then the mid and small caps rise much much faster than large cap.


  8. Other INDICES
    Apart from the NIFTY and SENSEX we have indices like NIFTY junior i.e. next 50 companies after the first NIFTY50,  NIFTY MIDCAP index which includes list of 100 midcap companies. There are also indices of each sector – pharma index, IT index , NIFTY bank index to indicate movement/ trend in those sectors.


  9. Discount and premium
    Depending on current price of the stock we can say if its available at discount or premium. They are frequently used terms in finance. A premium means extra money you are willing to pay. Discount, as name suggests means that the stock is on sale (just like 10-25% off kind of sale on amazon)
    The value stocks are available at discount while the growth stocks are available at a premium. But how to know this – for that you need to know about few ratios, which we will deal in next part.


  10. DIVIDEND

    Ofcourse growth of the share price is the major reason why we invest in share market but there is also one more reason – dividend i.e. share in the profit of company. As a share holders we also get the share of profit of the company, so after the quarterly results the companies depending on their profit offers dividend to its share holder which varies from few paisa to few Rs. as the dividend is against each share so if you are holding 500 shares of some company, and it declares Rs 5 dividend – you get 2500/- tax free! a passive income.
    Some stocks like NMDC, PFC offer good dividend and thus passive income.

    After searching for a share price of a company, you will see Dividend yield in the bottom. This indicates how handsomely a company pays divided to their shareholders. Dividend yield = Dividend per share (in %)/Price per share.

     

  11. Correction :
    When a market rallies for some time and achieves its targets, then due to some reason or another the market falls a bit. This can be as simple as investors taking out profits.
    nifty supports.jpgconsider this example of Nifty 50 index and its corrections. I have pointed 3 small troughs. In 2016 there wasn’t a correction more than 7- 8%. Thus, market fall for some news and then it got quickly bought back and then market moved on to make another high. The stocks also give you such opportunity after making life time highs. Post life time highs, some people book their profits, some big mutual funds sell their shares, and stock falls i.e. corrects. If you are sure about the company and its growth then you can use these corrections to buy. For that you need to know the 50 day and 200 days moving averages, its a part of analysis that we will see in later article.

    The point to remember – Buy/Accumulate the correcting stock in a bull market.


12. Fundamental analysis and Technical analysis.

These are two ways of choosing a stock to invest into. In case of fundamental analysis as an investor we study the fundamentals of the company – what is the working model of the company, what is its business, how much debt it has, ho much profit it is making and how it is rewarding the investors. There are methods to know all of this and we are going to learn about it in following articles.

Technical analysis on other hand is all about patterns. Its like weather forecasting, sure it works some time but sometimes things can also go wrong. Technical analysis studies various graphs and market sentiments to chose and invest into a stock.

To be a good investor you need to know a little bit of both and when you will hear or read about a buy or sell call on a particular stock you need to confirm on what basis that stock is selected. This is important for the time horizon of your investment.

with this much understanding you can sure dive into trading. But to know what exactly you are doing with certainty, its always helpful to know some ratios. These ratios are key factors that helps us in picking right stocks as they let us know if the stock is correctly priced.

So next article is about Ratios and some miscellaneous tips.

Thank you for your interest, keep reading and learning!

Here is a summary of your Journey to trading,

  1. Basics of Shares,
  2. Equity Related terminologies I.e. this article
  3. Some technical stuff that you must know
  4. Some cautions and introduction to trading platform
  5. Some does and don’t of trading.
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