Tag: #NSE

Stock market highlights. Will it crash?

Benchmark equity indices BSE Sensex and NSE Nifty extended their losses for the second straight session on 27th January amid heavy selling in index heavyweights including Reliance Industries, Adani Enterprises and Adani Ports among others. The 30-share index Sensex traded over 1,800 points down at 59,108  against the 60,978.75 mark on January 24, 2023. Likewise, the 50-share NSE Nifty index retreated more than 550 points to 17,566 from 18,118 during the same period.

Selloff in Adani Group companies’ stocks, that was triggered by the Hindenburg Research report, which disclosed that the company was short on Adani Group companies could be factor behind the market crash. Sentiments came under pressure after the United Nations on 25th January cut down India’s growth forecast by 20 basis points to 5.8 per cent for the ongoing calendar year due to higher interest rates and risks of recession in the developed world weighing on investment and exports.

If you wish to learn more about stock market, then explore wiki-360.com

What is options trading?

Photo by Ivan Babydov on Pexels.com

An investor’s portfolio consists of various financial instruments like stocks, exchange traded funds (ETFs), mutual funds and bonds. However, the Options are altogether different. Options are used in different ways depending upon investors’ goals and how they plan to use them. Investors often use options to reduce the risk associated with the stock they have in their portfolio. Similarly, others may use options to earn additional income. Most importantly, options provide an opportunity to traders or investors to benefit from the price movement without paying the full price of a security or taking delivery.

In India, the National Stock Exchange (NSE) launched index options on 4 June 2001, and stock options were launched on 4 July 2001. In the year 2020, NSE also surpassed America’s Chicago Mercantile Exchange to become the world’s largest derivatives market exchange by volume.

What are options?

Options are defined as derivatives instruments that enable the buyer (holder or owner) of the instrument to buy or sell the underlying asset. The right to buy or sell is without any obligation. The seller of the option is, however, obligated to buy or sell, should the buyer exercise his or her right. 

Simply put, option trading includes: 

  • A right to buy or sell, but not an obligation
  • Buy or sell at predetermined price
  • Buy or sell on or before predetermined date

Types of options

There are two types of options: Call and Put. A call option gives the buyer the right to “buy” the underlying security but not the obligation to do so at a predetermined price and date. A put option gives the buyer the right to “sell” the underlying security but not the obligation to do so at a predetermined price and date.

How does options trading work?

Before we come to the options trading guide, a beginner must understand the two essential derivativesconcepts — long and short. When a trader goes long on an index or a stock, it means he or she believes that the price of the underlying will increase. On the contrary, if the trader goes short on any index or a stock, it means he or she believes that the price of the underlying will fall.

Stock market highlights. Will it crash?

Benchmark equity indices BSE Sensex and NSE Nifty extended their losses for the second straight session on 27th January amid heavy selling in index heavyweights including Reliance Industries, Adani Enterprises and Adani Ports among others. The 30-share index Sensex traded over 1,800 points down at 59,108  against the 60,978.75 mark on January 24, 2023. Likewise, the 50-share NSE Nifty index retreated more than 550 points to 17,566 from 18,118 during the same period.

Selloff in Adani Group companies’ stocks, that was triggered by the Hindenburg Research report, which disclosed that the company was short on Adani Group companies could be factor behind the market crash. Sentiments came under pressure after the United Nations on 25th January cut down India’s growth forecast by 20 basis points to 5.8 per cent for the ongoing calendar year due to higher interest rates and risks of recession in the developed world weighing on investment and exports.

If you wish to learn more about stock market, then explore wiki-360.com

What is options trading?

Photo by Ivan Babydov on Pexels.com

An investor’s portfolio consists of various financial instruments like stocks, exchange traded funds (ETFs), mutual funds and bonds. However, the Options are altogether different. Options are used in different ways depending upon investors’ goals and how they plan to use them. Investors often use options to reduce the risk associated with the stock they have in their portfolio. Similarly, others may use options to earn additional income. Most importantly, options provide an opportunity to traders or investors to benefit from the price movement without paying the full price of a security or taking delivery.

In India, the National Stock Exchange (NSE) launched index options on 4 June 2001, and stock options were launched on 4 July 2001. In the year 2020, NSE also surpassed America’s Chicago Mercantile Exchange to become the world’s largest derivatives market exchange by volume.

What are options?

Options are defined as derivatives instruments that enable the buyer (holder or owner) of the instrument to buy or sell the underlying asset. The right to buy or sell is without any obligation. The seller of the option is, however, obligated to buy or sell, should the buyer exercise his or her right. 

Simply put, option trading includes: 

  • A right to buy or sell, but not an obligation
  • Buy or sell at predetermined price
  • Buy or sell on or before predetermined date

Types of options

There are two types of options: Call and Put. A call option gives the buyer the right to “buy” the underlying security but not the obligation to do so at a predetermined price and date. A put option gives the buyer the right to “sell” the underlying security but not the obligation to do so at a predetermined price and date.

How does options trading work?

Before we come to the options trading guide, a beginner must understand the two essential derivativesconcepts — long and short. When a trader goes long on an index or a stock, it means he or she believes that the price of the underlying will increase. On the contrary, if the trader goes short on any index or a stock, it means he or she believes that the price of the underlying will fall.

Stock Market

Shares –

A share is the division of the total capital of the company in certain number of units. The owners of these shares are the owners of the company. The person having shares in a particular company are termed as the shareholders of that company. The amount required by the company to start the business is acquired by these shareholders. The denominated value of a share is called its face value. The total of the face value of issued shares represent the capital of a company, which may not reflect the market value of those shares. The income received from the ownership of shares is a dividend.  The shares are collectively known as “stock”.

Stocks –

Stock is all of the shares into which ownership of the corporation is divided. A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company’s earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

Stock Market –

A stock market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses. These may include securities listed on a public stock exchange, as well as stock that is only traded privately by stock holder, such as shares of private companies which are sold to investors through equity crowd-funding platforms. Investment in the stock market is most often done via stockbrokerages and electronic trading platforms. Investment is usually made with an investment strategy in mind. Stocks can be categorized by the country where the company is domiciled.

A stock exchange is an exchange where stockbrokers and traders can buy and sell shares (equity stock), bonds, and other securities. Many large companies have their stocks listed on a stock exchange. This makes the stock more liquid and thus more attractive to many investors. The exchange may also act as a guarantor of settlement. These and other stocks may also be traded “over the counter” (OTC), that is, through a dealer. Some large companies will have their stock listed on more than one exchange in different countries, so as to attract international investors.

Stock exchanges may also cover other types of securities, such as fixed-interest securities (bonds) or (less frequently) derivatives, which are more likely to be traded OTC. Trade in stock markets means the transfer (in exchange for money) of a stock or security from a seller to a buyer. This requires these two parties to agree on a price.  Equities (stocks or shares) confer an ownership interest in a particular company.

Participants in the stock market range from small individual stock investors to larger investors, who can be based anywhere in the world, and may include banks, insurance companies, pension funds and hedge funds. Their buy or sell orders may be executed on their behalf by a stock exchange trader.

Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This method is used in some stock exchanges and commodities exchanges, and involves traders shouting bid and offer prices. The other type of stock exchange has a network of computers where trades are made electronically. A potential buyer bids a specific price for a stock, and a potential seller asks a specific price for the same stock. Buying or selling at the market means you will accept any ask price or bid price for the stock. When the bid and ask prices match, a sale takes place, on a first-come, first-served basis if there are multiple bidders at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace. The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

NSE –

National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in Mumbai, Maharashtra. NSE was established in 1992 as the first dematerialized electronic exchange in the country. NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered easy trading facilities to investors spread across the length and breadth of the country. Vikram Limaye is Managing Director and Chief Executive Officer of NSE.

National Stock Exchange has a total market capitalization of more than US$2.27 trillion, making it the world’s 11th-largest stock exchange as of April 2018.  NSE’s flagship index, the NIFTY 50, a 50 stock index is used extensively by investors in India and around the world as a barometer of the Indian capital market. The NIFTY 50 index was launched in 1996 by NSE.  However, Vaidyanathan (2016) estimates that only about 4% of the Indian economy / GDP is actually derived from the stock exchanges in India.

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of index futures on 12 June 2000. The futures and options segment of NSE has made a global mark. In the Futures and Options segment, trading in NIFTY 50 Index, NIFTY IT index, NIFTY Bank Index, NIFTY Next 50 index and single stock futures are available. Trading in Mini Nifty Futures & Options and Long term Options on NIFTY 50 are also available.  The average daily turnover in the F&O Segment of the Exchange during the financial year April 2013 to March 2014 stood at ₹1.52236 trillion (US$21 billion).

On 29 August 2011, National Stock Exchange launched derivative contracts on the world’s most-followed equity indices, the S&P 500 and the Dow Jones Industrial Average. NSE is the first Indian exchange to launch global indices. This is also the first time in the world that futures contracts on the S&P 500 index were introduced and listed on an exchange outside of their home country, USA. The new contracts include futures on both the DJIA and the S&P 500 and options on the S&P 500.

On 3 May 2012, the National Stock exchange launched derivative contracts (futures and options) on FTSE 100, the widely tracked index of the UK equity stock market. This was the first of its kind of an index of the UK equity stock market launched in India. FTSE 100 includes 100 largest UK listed blue chip companies and has given returns of 17.8 per cent on investment over three years. The index constitutes 85.6 per cent of UK’s equity market cap.

On 10 January 2013, the National Stock Exchange signed a letter of intent with the Japan Exchange Group, Inc. (JPX) on preparing for the launch of NIFTY 50 Index futures, a representative stock price index of India, on the Osaka Securities Exchange Co., Ltd. (OSE), a subsidiary of JPX.

Moving forward, both parties will make preparations for the listing of yen-denominated NIFTY 50 Index futures by March 2014, the integration date of the derivatives markets of OSE and Tokyo Stock Exchange, Inc. (TSE), a subsidiary of JPX. This is the first time that retail and institutional investors in Japan will be able to take a view on the Indian markets, in addition to current ETFs, in their own currency and in their own time zone. Investors will therefore not face any currency risk, because they will not have to invest in dollar denominated or rupee denominated contracts.

In August 2008, currency derivatives were introduced in India with the launch of Currency Futures in USD–INR by NSE. It also added currency futures in Euros, Pounds, and Yen. The average daily turnover in the F&O Segment of the Exchange on 20 June 2013 stood at ₹419.2616 billion (US$5.9 billion) in futures and ₹273.977 billion (US$3.8 billion) in options, respectively.

INVESTMENT IN THE STOCK MARKET FOR BEGINNERS

The stock market refers to public markets that exist for issuing, buying, and selling stocks that trade on a stock exchange or over-the-counter.  In simple terms, if A wants to sell shares of Reliance Industries, the stock market will help him to meet the seller who is willing to buy Reliance Industries.  A person can trade in the stock market only through a registered intermediary known as a stock broker. The buying and selling of shares take place through electronic medium.

There are two main stock exchanges in India where majority of the trades take place – Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Apart from these two exchanges, there are some other regional stock exchanges like Bangalore Stock Exchange, Madras Stock Exchange etc but these exchanges do not play a meaningful role anymore.

NSE is the leading stock exchange in India where one can buy or sell shares of publicly listed companies. It was established in the year 1992 and is located in Mumbai. NSE has a flagship index named as NIFTY50. The index comprises of the top 50 companies based on its trading volume and market capitalisation.  BSE is Asia’s first as well as the oldest stock exchange in India. It was established in 1875 and is located in Mumbai. BSE Sensex is the flagship index of BSE.

Securities Exchange Board of India (SEBI) is the regulatory body of the Indian Stock Markets. The main objective of SEBI is to safeguard the interest of retail investors, promote the development of stock exchanges, and regulate the activities of financial intermediaries and investors in the market. A stock broker also known as a dealer is a professional individual who buys/sells shares on behalf of its clients. In the stock market, stock broker is registered as a trading member with the stock exchange and holds a stock broking license. They operate under the guidelines prescribed by SEBI.

 ADVANTAGES OF INVESTING IN STOCK MARKET:

  •  the stock market can make great money in a short time of period.
  •  Unlike other investments, such as real estate and CDs, investors can easily access money in the stock market.
  • Investing in the stock market can help in our entire financial portfolio.

DISADVANTAGES IN INVESTING IN STOCK MARKET:

  • Investors can expect daily volatility in the stock market, but large failures in the system are less common.
  • In the stock market, there are winners and losers. Winners can make much money, but those who lose can see all of their investment disappear.
  • Every time an investor decides to buy or sell shares, he or she will have to shell out a certain proportion as brokerage fees to the broker.

Understanding NIFTY

S&P CNX NIFTY is an Index computed from performance of top stocks from different sectors listed on NSE (National stock exchange). NIFTY consists of 50 companies from 24 different sectors. NIFTY stands for National Stock Exchange’s Fifty. The companies which form index of NIFTY may vary from time to time based on many factors considered by NSE.  NIFTY is for NSE similarly SENSEX is for BSE. Some mutual funds use NIFTY index as a benchmark meaning the mutual funds’ performance is compared against the performance of NIFTY. On NSE there are futures and options available for trading with NIFTY as underlying index. India Index Services and Products Ltd. (IISL) owns NIFTY.  

IISL is a joint venture of NSE and CRISIL. CRISIL is a subsidiary of Standard and Poor (S&P). And so NIFTY is also called as S&P CNX NIFTY. CNX ensures common branding of indices, to reflect the identities of both the promoters, i.e. NSE and CRISIL. Thus, ‘C’ stands for CRISIL, ‘N’ stands for NSE and X stands for Exchange or Index. The S&P prefix belongs to the US-based Standard & Poor’s Financial Information Services. Nifty stocks represent about 63 percent of the Free Float Market Capitalization. Impact cost of the S&P CNX Nifty for a portfolio size of Rs.50 laks is 0.06%. Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the costs faced when actually trading an index. For a stock to qualify for possible inclusion into the S&P CNX Nifty, it has to reliably have market impact cost of below 0.75 percent when doing S&P CNX Nifty trades of Rs. 50 Lakhs. S&P CNX Nifty is professionally maintained and is ideal for derivatives trading.  

S&P CNX Nifty always uses the best stocks possible for its index. The weakest stocks are removed from inside the S&P CNX Nifty and the new stock into it. The world changes, so the index should change. Yet, the change should not be sudden – for that would disrupt the character of the index. S&P CNX Nifty uses clear, researched and publicly documented rules for index revision. These rules are applied regularly, to obtain changes to the index set. Index reviews are carried out every six months to ensure that each security in the index fulfills all the laid down criteria. IDBI was once not listed; SBI was once illiquid; Infosys was once an obscure software startup. The world changes, and one by one, these stocks have come into the S&P CNX Nifty. Each change in the S&P CNX Nifty is small, so the continuity of the index is maintained. Yet, at all times, S&P CNX Nifty represents the 50 most important liquid stocks in the country, the best stocks to build an index out of.  

NSE has the best surveillance procedures in India, so the extent of market manipulation is minimum. In NSE, since, the professional staff of the surveillance department has no positions on the market, this elimination of conflicts of interest and generates a more honest focus upon eliminating market manipulation. On a day to day basis millions of shares get traded on the NSE generating huge order flows. Due to the liquidity and order flow from numerous market players manipulation of the closing price becomes very hard. NSE is the most liquid exchange in India. Hence, the prices observed there are the most reliable. NSE has the highest trading intensity and their bid-ask spreads are the tightest.    

Sister indexes of NIFTY

S&P CNX Defty  

S&P CNX Defty is S&P CNX Nifty, measured in dollars. If the S&P CNX Nifty rises by 2percent it means that the Indian stock market rose by 2percent, measured in rupees. If the S&P CNX Defty rises by 2percent, it means that the Indian stock market rose by 2percent, measured in dollars.

S&P CNX 500  

S&P CNX 500 is India’s first broadbased benchmark of the Indian capital market. The S&P CNX 500 represents about 86percent of total market capitalisation and about 78percent of the total turnover on the NSE. The S&P CNX 500 companies are disaggregated into 72 industries, each of which has an index called S&P CNX Industry Index. Industry weightages in the index dynamically reflect the industry weightages in the market. So for e.g. if the banking sector has a 5percent weightage among the universe of stocks on the NSE, banking stocks in the index would have an approximate representation of 5percent in the index. The S&P CNX 500 is a market capitalisation weighted index. The base date for the index is the calendar year 1994 with the base index value being 1000. Companies in the index are selected based on their market capitalisation, industry representation, trading interest and financial performance. The index is calculated and disseminated real-time.  

CNX Nifty Junior  

S&P CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX Nifty Junior is an index built out of the next 50 large, liquid stocks in India. It is not as liquid as the S&P CNX Nifty, which implies that the information in the S&P CNX Nifty Junior is not as noise-free as that of the S&P CNX Nifty. S&P CNX Nifty and the CNX Nifty Junior taken together constitute 100 most liquid stocks in India. S&P CNX Nifty is the front line blue-chips, large and highly liquid stocks. The CNX Nifty Junior is the second rung of growth stocks, which are not as established as those in the S&P CNX Nifty. A stock like Satyam Computers, which recently graduated into the S&P CNX Nifty, was in the CNX Nifty Junior for a long time prior to this. CNX Nifty Junior can be viewed as an incubator where young growth stocks are found.   

As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are the most liquid of the stocks excluded from the S&P CNX Nifty. Buying and selling the entire CNX Nifty Junior as a portfolio is feasible. The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronised so that the two indices will always be disjoint sets; i.e. a stock will never appear in both indices at the same time. Hence it is always meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock index or portfolio.

CNX MidCap

The medium capitalised segment of the stock market is being increasingly perceived as an attractive investment segment with high growth potential. The primary objective of the CNX MidCap Index is to capture the movement and be a benchmark of the midcap segment of the market. The CNX MidCap Index is a market capitalisation weighted index with its base period of the index being the calendar year 2003 and base value as 1000.The distribution of industries in the CNX MidCap Index represents the industry distribution in the MidCap segment of the market. All companies are evaluated for trading interest and financial performance.  

CNX MNC Index  

The CNX MNC Index comprises 15 listed companies in which the foreign shareholding is over 50percent and/or the management control is vested in the foreign company. The index is a market capitalisation weighted index with base period being the month of December, 1994 indexed to a value 1,000. Companies in the index should be MNCs and are selected based on their market capitalisation, industry representation, trading value and financial performance.  

CNX PSE Index  

As part of its agenda to reform the Public Sector Enterprises (PSE), the Government has selectively been divesting its holdings in public sector enterprises since 1991. With a view to provide regulators, investors and market intermediaries with an appropriate benchmark that captures the performance of this segment of the market, as well as to make available an appropriate basis for pricing forthcoming issues of PSEs, IISL has developed the CNX PSE Index, comprising of 20 PSE stocks.  

CNX IT Sector Index  

With the Information Technology (IT) sector in India growing at a fast rate, there is a need to provide investors, market intermediaries and regulators an appropriate benchmark that captures performance of this sector. Companies in this index should have more than 50percent of their turnover from IT related activities like software development, hardware manufacture, vending, support and maintenance. The index is a market capitalisation weighted index with its base period being December 1995 with base value 1,000. NSE being the leading stock exchange in India, the NIFTY index is not only a prime index for the exchange itself but also it is an indicator of the booming Indian economy. Despite of the recent slowdown in the global economic scene the NIFTY index has sustained a regular growth after overcoming the sudden impact. The index for so many reasons has attracted investors not only from the domestic market but also from foreign countries.