Dallas Data Systems P Ltd Chennai - 35

Presents You A Training Program in Stock Market

Modules

Module 1 - Investments in Stocks.

Module 2 - Introduction Stock Markets. Module 3 - Stock Trading and Investing

Module 4 - Stock Analysis Introduction

Module 5 - Useful Stock Tips

Module 1- Investing In Stocks

Why do we Invest In Stocks?

One of the best form of investments is investing in stock Markets ( Equity ) to add additional revenue to the family.

Investing in Stocks is taking calculated risk to get the best returns and rewards.
It is a method of buying Shares of a company in order to gain profit. There are no limits in investing in Stock Markets it purely depends on individuals economical status, risk appetite etc

Benefits of stock Trading .

Equities: Stocks can be bought / sold from the exchanges (secondary market) or via IPOs Initial Public Offerings (primary market). Stocks are the best long-term investment options The market volatility and the resultant risk of losses, if given enough time will recover and move upwards based on the economy. There are two streams of revenue generation from this form of investment.

They are Two Forms of Investment

1. Dividend:
Based on the profits earned by a company a % is declared as Dividend Income - payments made out of the company's profits to all its share holders.

2. Appreciation :
The price of a stock appreciation depends on the growth posted by the company and its performance resulting in appreciation. On an average, investments in equities in India has a return of 25%. Good portfolio management, precise timing may ensure a return of 40% or more.

Picking the right stock at the right time would guarantee that your capital appreciates and the market value of your stock increases.

Module 2-Introduction Stock Markets

Indian Stock Markets BSE & NSE

The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India.
The NSE and BSE are equal in size in terms of daily traded volumes. NSE has around 1500 shares listed with a total market capitalization of more than Rs 9,00,000 Crores. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. .

Indian Stock Markets BSE & NSE

The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9,50,000 Crores. The primary index of BSE is BSE Sensex comprising 30 stocks

Most key stocks are traded on both the exchanges and hence the investor could buy them anywhere.
Both exchanges have a different settlement cycle, which allows investors to operate between two exchanges and shift their positions short term.

Stock Groupings

1.

The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd. The 'A' group shares represent those, which are in the carry forward system (Badla).

2.

3.
4. 5.

The 'Z' group Stocks are the blacklisted companies.

The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The 'F' group represents the debt market (fixed income securities) segment.

Rolling Settlement Cycle :

In a rolling settlement, each trading day is considered as a trading period

Trades executed during the day are settled based on the net of payments / receivables for the day.
At NSE and BSE, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day (intervening holidays are not counted). Trades taking place on Monday are settled on Wednesday, Tuesday's trades are settled on Thursday and so on.

What Is Dematerialization (DEMAT ) ?

DEMAT is the process by which an investor can get physical certificates converted into electronic form maintained in an account with the Depository Participant. Recent times all stocks are in Electronic Format ( DEMAT) The investors can dematerialize only those share certificates that are already registered in their name and belong to the list of securities admitted for dematerialization at the depositories.

Depository :

The organization responsible to maintain investor's securities in the electronic form is called the depository or a "Bank" for securities. In India there are two such organizations viz. NSDL and CDSL. The depository concept is similar to the Banking system with the exception that banks handle funds whereas a depository handles Stocks / Securities of the investors. An investor wishing to utilize the services offered by a depository has to open an account with the depository through a Depository Participant ( DP ) .

Depository Participant :
The market intermediary through whom the depository services can be availed by the investors is called a Depository Participant (DP).

As per SEBI regulations, DP could be organizations involved in the business of providing financial services like banks, brokers, custodians and financial institutions and they have to adhere to strict service standards. Advantages of a depository services :
Trading in Demat segment completely eliminates the risk of bad deliveries.

Dematerialized shares Receive bonuses and rights into the depository account as a direct credit, thus eliminating the risk of loss in transit.

Procedure for opening a DEMAT Account:

Opening a depository account is like opening a bank account. You can open a Depository account with any DP convenient to you by following these steps:

Fill up the account opening form and submit to the DP

Sign the DP-client agreement, which defines the rights and duties of the DP and the person wishing to open the account. Receive your client account number (client ID).

This client id along with your DP id gives you a unique identification in the depository system.
There is no restriction on the number of depository accounts you can open.

However, if your existing physical shares are in joint names, be sure to open the account in the same order of names before you submit your share certificates for DEMAT

How Do I Buy and Sell in Stock Market ?

A person desirous of buying / selling shares in the Stock market has to open a DEMAT account with a Broker ( India Info line ). Those who has a PC at home with Internet connections India Infoline will install the Software and they can directly place orders sitting at home. Place an order with the broker and they route the order through their on-line terminal to the exchange.

The order stays in the queue of the Stock Exchanges systems and gets executed when the order matches the buy / sell limit that has been specified.
The shares purchased will be sent to the purchaser by the Demat format in their account. The broker will charge a % as commission for buying / selling shares through them

Caution on Insider trading .. :

Insider trading is illegal in India. When sensitive information, which influences the stock price is used from sources other than the normal course of information for personal profits, it is called as Insider trading.

Insider trading refers to transactions executed by a company insider ( senior officers , their relatives etc ) who knows financial information about the company before it becomes public. All companies in India are expected to announce any happenings in their company to NSE / BSE thru public announcements.
Examples .. procuring a new big order , expansion plans , issuing Bonus shares , dividend, Board Meetings etc SEBI has strict rules on insider trading - Transactions that do not conform to these rules are prosecutable offenses under the law

Module 3- Stock Trading, Buying good stocks

10 Golden rules before you buy a stock These are few benchmarks that can help you to decide to buy good stocks 1. Revenues / Sales growth. Revenues are how much the company has sold over a given period of time ( Quarterly / annual ).

Sales Revenues are the direct performance indicators for companies.

The rate of growth of sales over the previous years indicates forward momentum - Which will have positive impact on the stock's valuation.

2. Profitability and growth

The growth in Net profit ( Profit After Tax ) indicates the attractiveness of the stock.

The expected growth rate might differ from industry to industry

The IT sector's profit could be as high as 65-70% from the previous years, whereas a manufacturing companies range could be 10 - 15%.

3. ROI - Return on Investment

ROI in layman terms is the return on capital invested in business i.e. If you invest Rs 1 crore in sources , machines, land and material to generate 25 lakhs of net profit, then the ROI is 25%. Again the expected ROI by market analysts could differ form industry to industry. In a software industry it could be as high as 35-40%, whereas for a capital intensive industry it could be just 10-15%.

4. Volume

Many investors look at the volume of shares traded on a day in comparison with the average daily volume. The investor gets an insight of how active the stock was on a certain day as compared with previous days. When major news are announced, a stock can trade tens of times its average daily volume. Volume is also an indicator of the liquidity in a stock. Highly liquid stocks can be traded in large batches with low transaction costs.

4. Volume
Volume is a key way to measure supply and demand.
It is often the primary indicator of a new price trend. When a stock moves up in price on unusually high volumes it could indicate that big institutional investors are accumulating the stock. When a stock moves down in price on unusually heavy volume, major selling could be the reason.

5.Market Capitalization.
This is the current market value of the company's shares. Market Cap = Total number of shares X Current price of each share. This would indicate the size of the company, it's liquidity etc.

6. Company management
The quality of the top Management is the most important key factor for companys success ( MD and his Team ). An investor has to make a careful assessment of the competence of the company management , dynamism and vision. If the company's board includes certain directors who are well known for their efficiency, honesty and integrity.

Their expertise in other companies of proven excellence, an investor can consider it as a good stock.
It is essential to know whether the MD is a person of proven competence.

7. PSR (Price-to-Sales Ratio)

This is the number you want below 3, and preferably below 1. This measures a company's stock price against the sales per share. Studies have shown that a PSR above 3 almost guarantees a loss , while those below 1 give you a much better chance of success.

8. Debt-to-Equity Ratio
This measures how much debt a company has compared to the equity.

The debt-to-equity ratio = Total debt / the equity capital.

Between 0.5 and 1 is good ratio. More than 2 is very risky. It means that the company has a high interest burden, which will eventually affect the profitability and increase the service costs on Interest Rates. Exceptions are Capital intensive industries which may build on a higher Debt / Equity ratios to start with.

9.Price Earnings Ratio ( P/E ) Ratio

The P/E Ratio = Stock Price / annual earning ( last four quarters)

If xyz ltd is currently trading at Rs. 30 a share with Rs. 6 of earnings per share (EPS), it would have a P/E of 5.
Increase in earnings is an important factor for share value appreciation.

When a stock's P-E ratio is high, the investors consider it as overvalued.

Stocks with low P-E's are typically considered a good value. One must admit that we must pay a higher price for a good company stocks with excellent management and attractive earnings potential.

 10. Earnings Per Share (EPS)

This ratio determines what the company is earning for every share. EPS = Earnings (Net Profit) / Total number of equity shares. Thus, if xyz ltd has 2 crore shares and has earned Rs 4 crore in the past 12 months, it has an EPS of Rs 2. Take the last two quarters of EPS increase and compare with two years earnings growth rate to ascertain consistency. Rating factors the long-term and short-term earnings growth of a company as compared with other firms in the segment. Also compare with the peer group.

Module 4-Stock Analysis Introduction.

The Company Analysis Consider both the financial and non-financial aspects of a company like .

1. History of the company and line of business.

2. Product portfolio's strength. 3. Market Share.

4. Top Management.
5. Intrinsic Values like Patents and trademarks held. 6. Foreign Collaboration, its need and availability for future. 7. Quality of competition in the market, present and future.

The Company Analysis..

8. 9.

Future business plans and projects Tags - Like Blue Chips, Market Cap - low, medium and big caps

10. Level of trading of the company's listed scripts 11. EPS, its growth and rating vis--vis other companies in the industry. 12. P/E ratio 13. Growth in sales, dividend and bottom line

Fundamental Analysis

Fundamental Analysis is necessary make a decision to buy a stock. It depends on The Economy , The Industry segment etc.. The Economy Analysis -In the table the next slide are some economic indicators and their possible impact on the stock market are given in a nut shell.

Fundamental Analysis.
1. 2. 3. Economic Indicators GNP Growth Decline Price Condition Stable Inflation Economy Boom Recession Stock may go up Stock may come down Stock may go up Stock may come down Stock may go up Stock may come down Impact On stock Market

Fundamental Analysis.
4. Housing construction activity Increasing in activity Decrease in activity Stock may go up Stock may come down

5.

Employment Increase Decrease Stock may go up Stock may come down

6.

Accumulation Of inventories

Fundamental Analysis.
7. Personal disposable income Increase Decrease Stock may go up

Stock may come down

8. Personal Saving

Stock may go up

Stock may come down

9. Interest rates Low High

Stock may go up

Stock may come down

Fundamental Analysis.
10. Balance of Trade Positive Negative Stock may go up Stock may come down

11. Strength of the Rupee in forex Market Strong Weak

Stock may go up Stock may come down

12. Corporate Taxation (direct and indirect) Low high

Stock may go up
Stock may come down

The Industry Analysis

Every industry has to go through a life cycle with four distinct phases i) ii) iii) iv) Start -up Stage Expansion (growth) Stage Stagnation (mature) Stage Decline Stage

These phases are dynamic for each industry.

You as an investor is advised to invest in an industry that is either in a Start-up stage or in its expansion (growth) stage.
Its advisable to quickly get out of industries which are in the stagnation stage prior to its lapse into the decline stage. The assessment can be determined in terms of sales, profitability and their growth rates amongst other factors.

Value, Growth and Income

Growth, Value, Income and GARP are one of the most rational ways of stock analysis.

Growth Stocks
The task here is to buy stock in companies whose potential for growth in sales and earnings is excellent. Companies growing faster than the rest of the stocks in the market or faster than other stocks in the same industry are the target i.e the Growth Stocks. These companies usually pay little or no dividends, since they prefer to reinvest their profits in their business. Individuals who invest in growth stocks should make long term returns. Companies like HLL, Nestle, Infosys, Wipro have demonstrated great growth over the years. Most investment companies looks at growth stocks too.

Value Stocks Look for stocks that has "hidden value." These companies stocks may sell at very low price due to some performance issues.

They may have assets , buildings, real estate, inventories, subsidiaries, and so on.
Many of these assets may have high hidden value , you can invest to buy undervalued stocks , and then hold those stocks until the rest of the market realizes the real value of the company's potential and assets. The value investors tend to purchase a company's stock usually based on P/E ratio being below a certain limit and dividend yields above a certain limits. Templeton Mutual funds are one of the major practitioners this strategy. of

Income. Stocks are widely purchased by people who expect the shares to increase in value There are still many people who buy stocks primarily because of the stream of dividends they generate.

Trading BSE Stocks using Trend lines

Technical analysis is built on the assumption that stock prices trend. Trend Lines are an important tool in technical analysis for both trend identification and confirmation. A trend line is a straight line that connects two or more price points. It extends the future to act as a line of support or resistance.

How to draw a trend line.

The first consideration when looking at any market is the direction of the long term trend. Trend lines illustrate the direction of the market movement. It provides a primary consideration in any analysis. Keeping in mind that the market can move in more than one direction.

Up trends consist of a series of successively higher highs and lows.

Drawing trend lines during an up trending market:

The trend lines displayed in the previous slide have been drawn by connecting as many successive lows as possible (along the bottom of the price range). An up trending trend line represents major support for prices as long as it is not violated.

 Downtrends consist of a series of successively lower highs and lows

Drawing trend lines in a down trending market:

Down trending trend lines are drawn by connecting as many successive highs as possible. The previous slide shows us (along the top of the price range). A down trending trend line represents major resistance for prices as long as it is not violated.

Support and Resistance

An important concept in the use of trend lines as mentioned previous is the support and resistance. A continued trend is based on underlying support for prices in the market, for whatever reason. Similarly, there is resistance to higher prices built into the market. The trend line is one way to capture and illustrate these zones of support and resistance. As long as the market stays within these zones of support and resistance, as shown by a trend line, the trend is sustained.

Support and Resistance..

Any penetration through a trend line warns of a possible change in trend. We may not know the reason behind such a change, but we do know that for some reason the support or resistance for a market is changing. The general idea behind trading trend lines is to look for a break of the trend in the opposite direction. A perfect set up would be for the market to break through an established trendline A-B as illustrated below. You could add Bollinger Bands and wait for price to also break through the middle line of the Bollinger Band at Point C before placing your trade..

Below is a 4 hour chart of the BSE Sensex:

Advanced

A more advanced method is to use the break of the trend line A-B as confirmation of the overall trend change. Then wait for price to hit point C (Purple Arrow). And then use the Commodity Channel Index (CCI) indicator to reaffirm the trade.

 Daily chart of the BSE Sensex with the Commodity Channel Index indicator (CCI) set at 34:

Trading rules:

Wait for price to break the trend line A-B.

Place your trade when price hits the middle Bollinger Band line at Point C (Purple Arrow),
But only if the CCI shows a cross above 100 as at Point E illustrated in the previous slide Exit the trade when price hits the upper Bollinger Band line at Point D (Yellow Arrow). Your stop is the first close of a candle below the lower Bollinger Band line.

Conclusion

Trend lines can offer great insight. But if used improperly, they can also produce false signals. Other items - such as horizontal support and resistance levels or peak-and-trough analysis - should be employed to validate trend line breaks. Trend lines have become a very popular aspect of technical analysis. They are merely one tool for establishing, analyzing, and confirming a trend.

Conclusion

Trend lines should not be the final arbiter. They should serve merely as a warning that a change in trend may be imminent. By using trend line breaks for warnings, investors and traders can pay closer attention to other confirming signals for a potential change in trend.

Go for quality stocks and not quantity

New investors often want to make quick money and some may get if they are lucky. But the real big money comes out from good company stocks. Do your research thoroughly. Build a portfolio of stocks, one stock at a time, even with Rs 10000. Diversify and spread to several industries over time. And only buy the best. Then be patient, keep up with the news on the stock, and let the stock grow. That's the way the big money is made.How many stocks should you own?

Guide line to buy stocks based on your investment capabilities :

Less than Rs. 30,000

Rs. 30,000 to Rs. 60,000 Rs. 60,000 to Rs. 2,00,000

1 to 3 stocks
3 to 5 stocks 5 to7stocks

Rs. 2,00,000 to Rs. 5,00,000

Rs. 5,00,000 or more

7 to 9 stocks
9 to 12 stocks

Is the Market Turning Upwards?

After a prolonged fall, the market will try to bounce back and try to rally from the low levels. you don't buy on the first or second day of a rally. You can afford to wait for a second confirmation that the market has really turned and a new uptrend or bull market has begun.

A follow-through will occur if the market rallies for the second time, showing overwhelming strength by closing higher by one per cent with the volume higher than the day's volume. A strong rebound usually occurs between the fourth and seventh session of an attempted rally. Sometimes, it can be as late as the 10th or 15th day, but this usually shows the turn is not as powerful.

Is the Market Turning Upwards?.............

Some rallies will fail even after a follow-through day. Confirmed rallies have a high success rate, but those that fail usually do so within a few days of the follow-through. Usually, the market turns lower on increasing volume within a few days.

When the market begins a new rally, stocks from all sectors don't go up drastically at the same time.
Investors should be wary of stocks that are far beyond their initial base consolidated point/stage. After the market has corrected and then turns around, stocks will begin shooting out of bases.

Is the Market Turning Upwards?.................

Count that as a first-stage of a breakout. Most investors are wary of jumping back into the market after a correction. Plus, the stock hasn't done much lately; so many investors won't even notice the breakout. But the fund managers would take buy positions at this stage. After a stock has run up 25 per cent or more from its pivot point, it may begin to consolidate and form a second-stage base. A four-week or other brief pause doesn't count. A stock should form a healthy base, usually at least seven weeks before it qualifies. Also, when a stock consolidates after rising around 10 per cent, it's forming a base on top of a base. Don't count that it as a second stage. When the stock breaks out of the second-stage base, a few more investors see this as a powerful move.

Is the Market Turning Upwards?....................

But the average investor doesn't spot it. By the time the stock breaks out of the third-stage base, a lot of people see what's going on and start jumping in. When a stock looks obvious to the investment community, it's usually a bad sign. The stock market tends to disappoint most investors.

About 50-60% of third-stage bases fail.

But some stocks keep going and eventually form a fourth-stage base. At this point, everybody and their sisters know about this stock.

The company's beaming CEO shows up on the cover of business publications.

But while thousands of small investors rush into this "sure thing," the top mutual funds may quietly trim or liquidate their holdings.

Is the Market Turning Upwards?............ Most fourth-stage breakouts fail, though not necessarily right way. Some will rise 10% or so before reversing. Fourth-stage failures usually undercut the lows of their old bases. But a stock can be reborn and begin a new four-base life cycle all over again. All it takes is a sizable correction.

How Do You Define A Bear Market? Typically, market averages falling 15% to 20% or more.

Module 5.

Useful Stock tips before you buy a Stock.

1. New products, services or leadership. If a company has a dynamic new product or service, or is capitalizing on new conditions in the economy, this can have a dramatic impact on the price of a stock.

2. Leading stock in a leading industry group.

Nearly 50% of a stock's price action is a result of its industry group's performance.
Focus on the top industry groups, and within those groups select stocks with the best price performance.

3. High institutional Buys

Better performing mutual funds owning the stock. They're the ones who will drive the stock up on a sustained basis.

4. New Highs. Stocks that make new highs on increased volume tend to move higher. Outstanding stocks usually form a price consolidation pattern, and then go on to make their biggest gains

when their price breaks above the pattern on unusually high volume.
5. Positive market.

You can buy the best stocks out there, but if the general market is weak, most likely your stocks will be weak also.
6. You should not buy on dips. This is a strategy that doesn't give you a strong probability of making a profit. Remember a stock that has dipped 25% needs to rise 33% to recover the loss and a stock that has dipped 50% needs to double to get back to its old high.

 Buying Volatile Stocks. Buying at the right moment is the best defense against a volatile market. When the stock of a top-class company rises out of a sound price base on heavy volume, don't chase it more than five per cent past its buy point. Great stocks can rise 20-25% in a few days or weeks. If you purchase at those extended levels, what may turn out to be a normal pullback could raise the risk.

Caution Signals from the Market!!!

If everyone's bullish, that means they've already bought their stock and are hoping more people will follow their enthusiasm. Most individual investors are fully invested. And as long as large inflows are still going into equity mutual funds, everything's fine. Watch out when the flows turn into trickles. There won't be buying power to keep boosting stocks. Second, fear of the Economy / Political scenario. This is an initial indicator, which would pull of sporadic selling that could eventually mount into an outright bear market.

Caution Signals from the Market!!!.............

Second, fear of the Economy / Political scenario. This is an initial indicator. This would pull of sporadic selling that could eventually mount into an outright bear market.

Third, new records for the SEBI week after week.

Thats exuberance and won't continue. The technology sector is leading this market.

And there's plenty of growth ahead for the group.

 Caution Signals from the Market!!!...................

But the pricing for many of the tech stocks is way ahead of the earnings. Most of the tech stocks are priced to perfection,

Which means that if they don't report earnings above the analysts' expectations, they'll be in for a bashing. Too much good is already priced into many of these stocks.

 Caution Signals from the Market!!!..............

Fourth, a record season for IPOs. While there's always been a push to get financing done when the market is upbeat. This last penultimate (second last) season had been one for the records. Records never last. That's not how the market works.

Modules 6 General Tips

1. Based on your investment capabilities choose stocks setting a limit of not more than Rs. 200 / 300 per share ( good mid-cap stocks )

2. Choose Company stocks that pays dividend year-on-year ( at least last 3 years)
3. look at the face value of the stock whether it is Rs.10 or below. A stock with Rs. 2 as face value even if they declare 20% dividend you will get only 4% yield. 4. Another example is that if you buy a stock for Rs. 43 per share for a face value of Rs. 2 then the stock price is Rs 215 per share

5. Browse Internet and look at their Balance sheet. If they have huge Reserves and surplus then the company is more likely to issue Bonus shares

Modules 6 General Tips

6. Never buy a stock where the company performances are declining year on year every organization has to inform SEBI their quarterly results.

If the P & L is declining quarter on quarter - stay away from those stocks. Not applicable for start-ups
7. Look at the Board meeting / AGM schedules of various organizations month wise and identify the purpose of the meeting which they have to inform the SEBI. If the Agenda is Dividend Declaration (interim or final ) those stock will show very good momentum for few weeks. If the companys performance is extremely good then their stock price will break out to new higher levels.

Modules 6 - General Tips

8. Invariably after dividend payouts - within one month after AGM they have to pay dividend to all share holders. The stocks are likely to go down for few weeks and that is the right time to buy for long term investments for the next cycle 9. Using the internet get information on which FII or DII or Mutual funds are buying or holding the shares they certainly do the analysis of fundamentals and technicals and wisely invest on companies stocks
As warren Buffet says ( one of the worlds richest man who made a fortune in stock Market in New York ) When Everyone is greedy, I am very timid When Everyone is timid, I am very Greedy When Every One Buys, you SELL , When Everyone Sells, you BUY

Dallas Data Systems P Ltd Chennai - 35