Shares & Stock Markets
SIX HEADERS- A, B, T, S, TS and Z
Hi there ,
Do you know that he BSE classifies stocks under six headers?
The Bombay Stock Exchange classifies stocks under six grades — A, B, T, S, TS and Z — that scores stocks on the basis of their size, liquidity and exchange compliance and, in some cases, also the speculative interest in them. You can look up any stock’s grade in the ‘Stock Reach’ page in the BSE Web site, under the head ‘Group’. Alternately, you can also follow the link below:
A GROUP – HIGHLY LIQUID
- These are the most liquid counters among the whole lot of stocks listed in the BSE.
- These are companies which are rated excellent in all aspects.
- Volumes are high and trades are settled under the normal rolling settlement (i.e. to say intraday buy-sell deals are netted out).
- These are best fit for a novice investor’s portfolio considering that information about them is extensively available. For instance, all the 30 stocks in Sensex are ‘A’ grade stocks.
T GROUP – TRADE TO TRADE
- The stocks that fall under the trade-to-trade settlement system of the exchange come under this category.
- Each trade here is seen as a separate transaction and there’s no netting-out of trades as in the normal rolling system.
- The trader needs to pay to take delivery for his/her buys and deliver shares for his/her sells, both on the second day following the trade day (T+2). For example, assume you bought 100 shares of‘T’ grade scrip and sold another 100 of it on the same day. Then, for the shares you have bought, you would have to pay the exchange in two days. As for the other bunch that you sold, you should deliver the shares by T+2 days, for the exchange to deliver it to the one who bought it.
- Failure to produce delivery shares against the sale made would be considered as short sales. The exchange will, in that case, on the T+3rd day, debit an amount that is 20 per cent higher than the scrip’s closing price that day. This means unless the scrip’s price falls more than 20 per cent from the price of your sale transaction, you would have to pay a penalty for the short sale so made.
- Even so, there will be no credit made to you in the case of substantial fall in the share price. The exchange will, instead, credit the gain to its investor fund.
- Stocks are regularly moved in and out of trade-to-trade settlement depending on the speculative interest that governs them.
S GROUP – SMALL AND MEDIUM
- These are shares that fall under the BSE’s Indonext segment.
- The BSE Indonext comprises small and medium companies that are listed in the regional stock exchanges (RSE).
- S’ grade companies are small and typically ones with turnover of Rs 5 Crore and tangible assets of Rs 3 Crore. Some also have low free-float capital with the promoter holding as high as 75 per cent.
- Besides their smaller size, the other risk that comes with investing in them is low liquidity. Owing to lower volumes, these stocks may also see frenzied price movements.
TS GROUP – A MIX OF T AND S GROUPS
- Stocks under this category are but the ‘S’ grade stocks that are settled on a trade-to-trade basis owing to surveillance requirements.
- This essentially means that these counters may not come with an easy exit option, as liquidity will be low and intraday netting of buy-sell trades isn’t allowed either.
Z GROUP – CAUTION
- ‘Z’ grade stocks are companies that have not complied with the exchange’s listing requirements or ones that have failed to redress investor complaints.
- This grade also includes stocks of companies that have dematerialisation arrangement with only one of the two depositories, CDSL and NSDL.
- These stocks may perhaps be the riskiest in terms of various grades accorded. For one, not much information would be available in the public domain on these companies, making it tough to track them. Second, the low media coverage that keeps them relatively hidden from public scrutiny also makes them more vulnerable to insider trading. Third, these companies already have a poor score in redressing investor complaints.
B GROUP – LEFT BEHIND
- This category comprises stocks that don’t fall in any of the other groups.
- These counters see normal volumes and are settled under the rolling system. In all respects these stocks resemble their counterparts in ‘A’ but for their size. Typically, stocks of mid- and small market capitalisation come under this grade.
Securities Exchange Board of India, in 2007, has announced the introduction of Securities Lending & Borrowing Scheme (SLBS). Securities Lending & Borrowing provides a platform for borrowing of securities to enable settlement of securities sold short. There are 207 companies in the SLB list. Investors can sell a stock which he/she does not own at the time of trade. All classes of investors, viz., retail and institutional investors, are permitted to short sell.
- The “F” Group represents the Fixed Income Securities.
- Trading in Government Securities by the retail investors is done under the “G” group.
That’s about stock classifications in BSE.
When you invest, be aware of the category in which the stock falls.
have a nice day !!
The stock index function as an indicator of the general economic scenario of a country / region / sector. If the stock market indices are growing, it indicates that the overall general economy of the country is stable and that the investors have faith in the growth story of the economy. If, however, there is a plunge in the stock market index over a period of time , it indicates that the economy of the country is in troubled waters. It’a also an indication of what the corporates in that country are facing.
A stock index is created by selecting a group of high performing stocks . For example – The FTSE 100 ( the stock index of London stock exchange) is constructed from the top 100 companies trading in the London stock exchange. If the FTSE 100 records a jump over a period of time, it indicates that most of the top 100 companies in England are doing well at that point of time and that the investors are positive about putting their money in England.
TYPES OF INDICES
There are different types of indices and FTSE 100 was just an example. Stock indices can be constructed -
- For the entire world ( global indices)
- For an entire continent ( regional indices – for example S&P Latin america 40)
- For an entire country ( national indices – for example Sensex & Nifty for India )
- For a particular sector in a country – ( sectoral indices – for example BSE BANKEX which tracks top banking companies in India)
- For any other theme / group of economy / companies you want to track. ( example Dow Jones Islamic world market index)
The MSCI global and the S & P Global 100 are examples of world stock indices which tracks the largest companies in the world irrespective of their country of origin . The MSCI global id an index with over 6000 stocks included from different parts of the developed world. It specifically excludes companies from emerging economies.
When stock indices are constructed to track the performance of the economy of a country ( like Sensex in India), it called a national index.
Irrespective of the type of index, the purpose of any index is the same. It provides to the public, a quick view of how the economy ( based on which the index is constructed) is functioning. A sudden slide in indices denotes that the investors have lost faith . There could be several reasons for that like poor economic reforms , high inflation, high borrowing costs, amendments in laws that not well received by the business community, downgrades by world credit rating agencies, scams , corruption .. the list is end less.
These indices also serve as benchmarks for measuring performance of fund managers or for measuring the performance of an individual’s stock portfolio.
CONSTRUCTION OF STOCK INDEX
A stock index can be calculated in two ways -
- By considering the price of the component stocks alone. This method is called the price-weighted method.
- By considering the market value or size of the company – called the capitalization weighted method.
To conclude, stock indices are barometers to measure general economic performance of an particular country / sector. It’s updated every second throughout on every trading so as to reflect the exact picture of the economy. It’s also a permanent record of the history of markets – it’s highs and lows, booms and crashes.
THE HISTORY OF BOMBAY STOCK EXCHANGE
The Bombay stock exchange traces it’s history back to the 1850s, when 4 Gujarati and 1 Parsi stock broker would gather under a banyan tree in front of mumbai’s Town hall.The location of these meetings changed many times, as the number of brokers constantly increased.The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as “The Native Share stock Brokers association.”
THE PRESENT SCENARIO
There are 19 recognized stock exchanges in India. The Bombay stock exchange (popularly known as The BSE ) and The National stock exchange (popularly known as The NSE ) are the most prominent in terms of volume and popularity.
The Bombay Stock Exchange Popularly called “The BSE” is the oldest stock exchange in Asia and has the third largest number of listed companies in the world, with 4900 listed as of Feb 2010. It is located at Dalal Street , Mumbai , India . National Stock Exchange comes second to BSE in terms of popularity.
Over the decades, the stock market in the country has passed through good and bad periods. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. BSE, in 1986, came out with a Stock Index-SENSEX- (SENSitive indEX) that subsequently became the barometer of the Indian stock market.
WHAT IS A STOCK MARKET INDEX?
Stock market indexes provide a consolidated view of how the market is performing. Stock indexes are updated constantly throughout the trading day to provide instant information.
The SENSEX and other indexes
The BSE SENSEX (SENSitive indEX)is a basket of 30 stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely followed by investors who are interested in Indian stock markets. During market hours, prices of the index scrip, at which trades are executed, are automatically used by the trading computer to calculate the SENSEX every 15 seconds and continuously updated on all trading workstations connected to the BSE trading computer in real time
30 stocks that represent SENSEX.(Updated on 7/7/2010)
|ACC Ltd.||Bharat Heavy Electricals Ltd.|
|Bharti Airtel Ltd.||Cipla Ltd.|
|DLF Ltd.||Jindal Steel & Power Ltd.|
|HDFC||HDFC Bank Ltd.|
|Hero Honda Motors Ltd.||Hindalco Industries Ltd.|
|Hindustan Unilever Ltd.||ICICI Bank Ltd.|
|Infosys Technologies Ltd.||ITC Ltd.|
|Jaiprakash Associates Ltd.||Larsen & Toubro Limited|
|Mahindra & Mahindra Ltd.||Maruti Suzuki India Ltd.|
|NTPC Ltd.||ONGC Ltd.|
|Reliance Communications Limited||Reliance Industries Ltd.|
|Reliance Infrastructure Ltd.||State Bank of India|
|Sterlite Industries (India) Ltd.||Tata Consultancy Services Limited|
|Tata Motors Ltd.||Tata Power Company Ltd.|
|Tata Steel Ltd.||Wipro Ltd.|
The BSE Sensex is not the only stock market index in India. The NSE has The NSE S&P CNX Nifty 50 index – a well diversified 50 stock index accounting for 24 sectors of the economy. While both SENSEX and NIFTY would give you an overall direction of the stock market there are other indices which track a particular sector.
For example – The NSE CNX IT Sector Index tracks companies that have more than 50% of their turnover (or revenues) from IT related activities like software development, hardware manufacture, vending, support and maintenance. So for those who are tracking the performance of IT Sector this index would become a benchmark for investing. Yet another example is the BSE BANKEX index which tracks the banking sector shares.
WHAT’S GOOD ABOUT INDEXES
Indexes provide useful information including:
- Trends and changes in investing patterns.
- Snapshots, even if they are out of focus.
- Yardstick for comparison.
- A stock market index is a statistical indicator which gives an idea about how the stock market is performing. In India the main indexes to be tracked are – The BSE SENSEX and The NSE NIFTY.
- The SENSEX comprises of 30 companies representing different sectors and the broader NIFTY comprises of 50 companies from 24 sectors. There are many other indexes that track particular sectors of the economy. These indexes would give you an idea about how that particular sector is performing.
- World over, there are a number of indexes as there are stock markets. DOW JONES INDUSTRIAL AVERAGE and NASDAQ COMPOSITE INDEX – both track US stock markets. NIKKEI 225 is the stock market index of Japan, HANG SENG index for Hong Kong, FTSE 100 For UK, KOSPI for Korea, SHANGHAI for China etc. All these indexes serve the same purpose. It gives an idea about where the financial growth of a country is headed to.
Next time you watch CNBC or NDTV Profit, watch these indexes flashing on the corner of your screen.
What are the benefits if you own shares? There are many other benefits as we have explained in the following paragraphs:
Dividends are nothing but a part of company’s profits distributed to its share holders. The company’s management may declare dividends either in between a financial year (called interim dividends) or at the end of the financial year (called final dividends).However, it is not mandatory for the companies to pay dividends. It can use the profits for alternative uses like expansion. The decision to pay or not to pay dividends is taken at the annual meeting by the majority voting of the shareholders. Blue-chip companies (large companies) generally are consistent dividend payers.
As the company expands and grows, it acquires more assets and makes more profit. As a result, the value of its business increases. This, in turn, drives up the value of the stock. So when you sell, you will receive a premium over what you paid. This is known as capital gain and this is the main reason why people invest in stocks. They aim capital appreciation.
RECEIVE BONUS SHARES
For the time being, let us understand that bonus shares are – Free shares are given to you .Later on we will discuss about bonus shares in detail.
A company may require more funds to expand it’s business and for that, it may need more funds. I such cases, the company can issue further shares to the public. However, before approaching the public, the existing shareholders will be given a chance to subscribe to more shares if they want. That’s called a rights issue. This is done in order to ensure that the existing shareholders maintain the same degree of control in the company. Thus you can maintain the participation in the company profits.
SHARES CAN BE PLEDGED
Shares are considered as assets and hence, banks accept shares as security for raising loans. Should there be an an emergency, shares can quickly pledged to raise funds. Apart from that, Brokerage firms allow you to borrow money from their account based on the current share holding you have in your demat account maintained with them. If you want to utilize a sudden surprise opportunity in markets, but if you don’t have the cash right now, you can adopt this route.
Shares are highly liquid. It can be converted into cash in no time. With online trading, all it takes is the click of button to sell you holdings. You can receive your cash in two days.
CAPITAL APPRECIATION OR DIVIDENDS?
The above mentioned income sources may not be present in every company you buy. For example- if you’re buying company that has a huge potential to grow, it may not pay it’s surplus as dividends. Instead, it will be used for further growth. In such cases, huge capital appreciation may happen. So depending upon your investment strategy, you’ll have to choose what you want. It’s always wise to go for capital appreciation rather than dividends.
- Point Blank
- Financial Discipline for all.
- Investing Basics
- Shares & Stock Markets
- Introduction to Financial Statements
- Financial ratios.
- Stock investing strategies
- Technical Analysis I
- Technical analysis II
- Before Picking up stocks..
- Choosing a Broker and opening Demat Accounts
- Make your debut !!
- More ... from stock markets.
- Valuation of shares
- Futures and Options - The basics.
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