Detailed Information about All companies listed
in Nse/Bse .
Stock market basics
Financial markets provide their participants with most
favorable conditions for purchase/sale of financial instruments they have
inside. Their major functions are: guaranteeing liquidity, forming assets prices
within establishing proposition and demand and decreasing of operational
expenses, incurred by participants of market.
Financial market comprises variety of instruments, hence its functioning totally
depends on instruments held. Usually it can be classified according to type of
financial instruments and according to the terms of instruments’ paying-off.
From point of different types of instruments held market can be divided into one
of promissory notes and one of security [stock markets]. The first one contains
promissory instruments with right for its owners to get some fixed amount of
money in future and is called market of promissory notes, while latter binds
issuer to pay certain amount of money according to return received after
paying-off all promissory notes and is called share market. There are also types
of security referring to both category as, e.g., preference shares and converted
bonds. They are also called instruments with fixed return.
Another classification is due to paying-off terms of instruments. These are:
market of assets with high liquidity [money markets] and market of capital. The
first one refers to market of short-term promissory notes with assets age up to
I2 months. The second one refers to market of long-term promissory notes with
instruments age surpasses I2 months. This classification can be referred to bond
market only as its instruments have fixed expiry date, while share market’s not.
Now we're turning to stock market.
As it was mentioned before, ordinary shares’ purchasers typically invest their
funds into company-issuer and become its owners. Their weight in process of
making decisions in Comp. depends on No. of shares he/she possesses. Due to
financial experience of company, its part in market and future potential shares
can be divided into several groups.
I. Blue Chips
Shares of large company with long record of profit growth, annual return over $4
billion, large capitalization and constancy in paying-off dividends are referred
to as blue chips.
2. Growth Stocks
Shares of such company grow faster; its managers typically pursue policy of
reinvestment of revenue into further development and modernization of the
company. These Comp. rarely pay dividends and in case they do the dividends are
minimal as compared with other companies.
3. Income Stocks
Income shares are the shares of Comp. with high and stable earnings that pay
high dividends to shareholders. The shares of such Comp. usually use mutual
funds in plans for middle-aged and elderly people.
4. Defensive Stocks
These are stocks whose prices stay stable when market declines, do well during
recessions and are able to minimize risks. They perform perfect when market
turns sour and are in requisition during economic boom.
These category are widely spread in mutual funds, thus for better understanding
investment process it's useful to keep in mind this division.
Shares can be issued both within country and abroad. In case Comp. wants to
issue its shares abroad it can use American Depositary Receipts [ADRss]. ADRs
are usually issued by American banks and point at shareholders’ right to possess
shares of foreign Comp. under asset management of bank. Each ADR signals of one
or more shares possession.
When operating with shares, aside of purchase/sale ratio profits, u can also
quarterly receive dividends. They depend on: type of share, financial state of
company, shares category etc.
Ordinary shares do not guarantee paying-off dividends. Dividends of company
depend on its profitability and spare cash. Dividends differ from each other as
they're to be paid in different period of time, with possibility of being higher
as well as lower. There are periods when Comp. don't pay dividends at all,
mostly when Comp. is in a financial distress or in case executives decide to
reinvest income into development of business. While calculating acceptable stock
price, dividends are key factor.
Price of ordinary share is determined by three main factors: annual dividends
rate, dividends growth rate and discount rate. The latter is also called
required income rate. The Comp. with high risks level is expected to have high
required income rate. The higher cash flow higher stock prices and versus. This
interdependence determines assets value. Below we will touch upon division of
stock prices estimating in three possible cases with regard to dividends.
While purchasing shares, aside of risks and dividends analysis, it's absolutely
Imp. to examine Comp. carefully as for its profit/loss Acc. , balance, cash
flows, distribution of profits Bet. its shareholders, managers’ and executives’
wages etc. Only when u are sure of all ins and outs of company, u can easily buy
or sell shares. If u aren't confident of information, it's more advisable not to
hold shares for long time [especially before financial Acc. published].