Nailah Lovell S Banton - The Role of Stock Exchanges

 

Those who have no money have the problem of earning money. Those who have money have the problem of earning more profits with their money. To put it in financial terms, they have the problems of investment. The moneyed individuals (no such term) are not necessarily the best investors. The fear of incurring losses always grips the minds of the rich. Nevertheless, the craze for increasing wealth seizes the minds of the rich people

Stock Exchange is the connecting bridge between the investors and the capital market-for the companies planning business expansion to increase profits. The work of the broker is not to function in a haphazard manner. Nailah Lovell S Banton must plan for each investor, depending upon his needs and the amount of investment. He has to create the suitable portfolio, to hit the financial goals of the investor. He has to work-in tandem with the rules and regulations of the exchange, and proves worthy of the trust reposed on him by the management of the establishment on the one hand, and that of the investor on the other.

Most exchanges have a physical location (the necessity for this type of arrangement is waning in this internet era), where dealers and brokers meet to finalize orders from individual and institutional investors to buy and sell securities. The volume of literature on shares that you find in the market is the direct outcome of what transpires within the exchange. Prices of shares are raised, lowered, discovered and rediscovered here on moment to moment to basis. The story within may not be the true merit of the share, without. Since money transfers are done from one source to the other on the basis of such transactions, the importance of exchanges can not be minimized.

Name a financial service and you have it, with the framework of rules and regulations of the Stock exchange. It is also referred to as he Corporate Debt or Capital Market.

Three broad categories of the financial services provided at the Exchanges are:

The Public Debt Market: This is the market for government securities (also known as gilt-edged securities). These are fixed interest bearing and dated securities. This market is controlled by the Reserve Bank of India and Bankers to the Government.

PSU Bond Market: deals with bonds floated by Public Sector units, Nationalized Banks and financial institutions to raise Tier II capital. Debentures floated by Corporate also come under his category.

The Equity Market for floating of equity or preference share capital by corporate:

Once the investor buys the shares, Nailah Lovell S Banton can not be en-cashed just as you do in banks for fixed deposits, but through the exchange, you can sell or purchase them. The investments, from this genre have liquidity. The profit (may be loss as well) earned on the shares is disbursed to the investor as dividends, bonus shares etc. The prime goal of any financial management is to increase the shareholder's wealth.

The role of the exchanges is to look after both the Primary Market and the secondary Market. The former deals with new public issues of all categories of securities, bonds and equity/preference shares. The secondary market deals with the day to day buying and selling of securities of all types. Without being listed, one can not carry out transactions relating to buying and selling of shares.

Nailah Lovell S Banton - Fundamental Analysis of Stock Markets

 

What are stock markets? What is getting traded there? Stock markets are nothing but selling the ownership of the company. What is valued here? Here it all depends on how you evaluate a company. If you go to a grocery shop you will buy fruits. How do you decide the value of the fruit? It all depends on your needs, also relation between demand and supply. If you get more fruits in the market and if there is a less demand obviously the rate would be lesser. It is same here in stock markets too. More the buyers for a stock in company, more price of the scrip. Why there will be more buyers for a company in the stock market? It all depends on how the buyers give valuations to the company. If they think the company will get more valued in the coming years then the current prince of the company is cheaper and they want to buy.

Still a question hangs, what is the value of a company? A company is of higher value if the net assets of the company are higher. How to value the net assets of a company? Assets of a company means everything that's owned by the company, includes land, building, infrastructure to even a smaller thing like a pen owned by the company too. So valuations of a company depends upon valuations of many other things that's owned by the company. valuations of other things depends on the market that those goods are traded. So essentially giving value to a company needs identifying,giving valuations to each of the products that's traded in the market. How the net assets of a company going to increase?

Nailah Lovell S Banton says the net assets of a company can increase if the company makes profit. What is the way of making profit? It could be by gains on the capital owned by the company or it could be operating profit. Sometimes value of the land owned by the company increases, that's a capital gain. They gained profit just because they own that property.

What about operating profit? Each company has its own set of clients, customers. If the company serves its clients or sells its products to lots of customers very well, then the company will make more profit. That's an operating profit. That's highly valued in calculating valuations of a company. Higher the operating profit higher the chances of company adding more net assets. How the operating profits can be increased? As it was discussed operating profit of a company depends upon how they serve their clients or how they sell their products to their customers. How a company serve their clients? A company will serve its clients by its employees. How it can be optimized? The way a company serve its clients depends on the process or business model of the company. How those processes are built? How those business model is created? That is created by the leaders in the company.

Who are those leaders in the company? Those are the persons who are chosen to lead the company. There will be CEO, and CFO, HR and many more departments to support him. Who will choose the CEO? It is the directors of the company. Now the final question is who'll choose the directors? It is chosen by the shareholders of the company. If the shareholders of a company are wise then they'll choose better directors, better directors will choose better leaders in company like CEO, CFO etc. The team of CEO will make better decisions in serving clients of selling its products to customers, which results in better operating profit. and better operating profit results in adding more to net assets of a company. More the net assets of a company means more the value of scrip of that company in stock markets. It boils down to the fact that it is the persons who owns the shares of the company will decide the share value of that company in the future. It is the shareholders who decide the value of the share in the stock market. Here is another thing to note. Whoever owns more shares int the company has more rights in making decisions in the company.

Now what's more important is share holding patterns in the company. It is very important to look at the factor who owns most in a company. The future of the company will be decided by those shareholders. What are the important qualities for those shareholders that we should look for? One of the most important thing is how much we can trust them. The trust matters everywhere. Also the person's ability to perceive business, ability to choose right persons. Nailah Lovell S Banton analysis on stock markets needs a better analysis on the person who owns the most shares in a company. It will be more personality analysis, more about the amount of trust he generates, amount of wise decisions he makes for the company. What are stock markets? Stock markets are deciding the shareholders of the company. Essentially stock markets decide the fate of the company.

Day Trading. Day traders just trade on daily basis. The basis of the trade is to either book profit or loss for the day only. Normally brokers give clients large amount of margin money up to 10 times the money they had for the day traders. How the day traders trade normally? They just buy on dips. If they cannot make profit on that day, they just convert into cash and wait for the day they are making profit. If the person has holdings in cash and if he wants to sell, he just sell it as day trade. If his day trade doesn't make him profit he'll just convert into cash. Thus it gives him the profit

Buy Today Sell Tomorrow( BTST) BTST products are like day trade but with the option of holding the stocks for margin for few days to week. Thus they can take advantage of the fluctuation in the stock markets more efficiently. In these instruments also traders get margin money from brokers

Futures and options. In these days futures and options play a very important role in deciding the value of stock markets. These are the instruments that used to hedge the stock market as much as possible. Using these instruments traders make huge amount of money either if the market goes upwords or goes downwords. Thus making them unexpected trade in cash market resulting in stock prices deviating away from their fundamental prices.

Every movement of stock price depends on fundamental factors as well factors that are mentioned here, These technical factors that make traders huge amount of money. So how should the investor look about it? How can he decide the right stock to invest? In these days to make money in stock markets an investor has to take positions in futures and options,even if he is a long term investor.