What can one do

with money?
1. Deposit it in banks
2. Invest it in debt securities
like bonds
3. Invest it in the stock market
4. Invest it in commodities or
real estate
5. Store it as cash
Basic Economics

Wall Street Club, BITS Goa

1. What is an
Asset?
In simple words, an asset is anything
physical (tangible) or abstract
(intangible) that has a value of its own or
is expected to possess some value in
the future.

What determines its value?

➔ Price
Let’s proceed to understand how the
price of an asset is determined.
Two words:
Supply -
Demand
● Eg. Maruti Suzuki Ertiga cars:

○ Supply: Number of cars Maruti Suzuki is willing and able to produce and sell

○ Demand: Number of cars consumers like you and me are willing and able to buy
Supply- Demand
Effects on price
● If supply increases, demand
stays constant, price
decreases.
● If supply decreases, demand
stays constant, price increases.
● If demand increases, supply
stays constant, price
increases.
● If demand decreases, supply
stays constant, price
decreases.
Stock Markets

Wall Street Club, BITS Goa

 Debt:
● Get paid interest
● Fixed term and company is obliged to pay you

Difference ●
back
Slightly safer

between debt
● No voting rights

Equity:
and equity ● Get portion of company’s profits or losses
● No fixed term
● Riskier than debt
● Get voting rights in company matters
● Company is not obliged to pay you anything

A company can choose to issue equity or debt

depending on its needs
Equities / Stocks /
Shares
What are they?
● They are portions of a company which are given out to
investors by the company for a particular price. For example, if
you buy 1 share of asian paints, you own 1 billionth of asian
paints.
● You can purchase stocks of a company form the stock market
through a broker like Zerodha, Upstox etc. (More on this later)
What goes on behind
before a company
becomes a stonk?
The stock market.
What?
● The stock market is where everyone who wants to transact in shares goes
to. You can access the stock market via a registered intermediary called the
stockbroker.
● There are two main stock exchanges in India that make up the stock
markets. They are the Bombay Stock Exchange (BSE) and the National
Stock Exchange (NSE).
The Participants?
● Domestic Retail Participants: You and me
● NRIs and OCI: People of Indian origin but based outside India
● Domestic Institutions: Large corporate Indian entities. Eg. LIC of India
● Domestic Asset Management Companies: Mostly mutual funds companies
● Foreign Institutional Investors: Non Indian Corporate Entites.
 The stock market.
The Regulator?
In India the stock market regulator is called The Securities and Exchange Board of
India often referred to as SEBI. The objective of SEBI is to promote the development
of stock exchanges, protect the interest of retail investors, regulate the activities of
market participants and financial intermediaries. In general, SEBI ensures:

● The stock exchanges (BSE and NSE) conducts its business fairly
● Stockbrokers and sub-brokers conduct their business fairly
● Participants don’t get involved in unfair practices
● Corporate’s don’t use the markets to unduly benefit themselves (Example –
Satyam Computers)
● Small retail investors interests are protected
● Large investors with huge cash pile should not manipulate the markets
● An overall development of markets
How does a company
get listed on the stock
market?
The process through which a
company goes public i.e. gets
listed on the stock market is
called an Initial Public
Offering so that they generate
funds through equity instead
of debt (generally speaking).
Eg. The IPO of IRCTC last
year.

Now that a company is

public, it will have a
stock chart.
What makes the price
of this stock move
now? How do you lose
or make money?
Simple Answer:
Information
What exactly is this information?
Positive?
● Suppose INFOSYS has a problem with their CEO who has been taking very irrational
decisions and the company is making losses. Now the board of the company
decides to fire the CEO and appoint a new CEO, who everyone confides in.
● A positive sentiment among most people. More people want to get in on the
deal and thus demand for stock increases while quantity is fixed and thus
price increases. Simple.
● However there will be people who will also see this in a negative light so it is the
interpretation of information by majority of shareholders and participants which
determines the movement.
Negative?
● Suppose there is a mid air explosion of airplanes of JETAIRWAYS. Very very bad
news. People start panicking and selling off all their positions at the current price
and start undercutting each other and thus the price falls.
Some more examples
Positive or Negative?
● Government gives a green signal to open a new plant. Then it is good for the
company so more people want to buy the stock. Demand increases, supply is
the same ---> Price rises since quantity of stocks are constant.
● A bank has reported a large amount bad debts(debts that cannot be
recovered in any way). People lose confidence in the bank and start selling of
their shares. Suppose the share is currently selling at Rs. 100 and this report
comes out. Now everyone panics and starts selling of their stock. However
none of the buyers are willing to pay above Rs. 90 so they have reduce the
bid-ask spread so that bid = ask.(Here bid is 90 and ask is 100. More on
jargons follows.). Hence price of the stock falls.
HOW DOES THE STOCK GET
TRADED?

You have decided to buy 200 shares of

Infosys at 3030, and hold on to it for 1 year.
With your decision to buy Infy, you need to
login to your account(provided by your stock
broker) and place an order to buy Infosys.
Once you place an order, an order ticket
gets generated with the following details:
● Details of trading account
through which you intend to A screenshot of Zerodha’s
buy shares
login for their demat
● The price at which you intend to
buy Infosys
● The number of shares you want
to buy
WHAT HAPPENS AFTER YOU OWN
A STOCK?

After you buy the shares, the shares will now reside in
your DEMAT account. You are now a part owner of the
company, to the extent of your shareholding.
Screenshot of a demat account holding
Demat accounts
For retail investors like you and me, we need demat accounts to hold our shares
and trade stocks. There are various brokerages and banks which offer this facility
in India, like:

○ ICICI Direct
○ Zerodha
○ Angel Broking
○ KOTAK Securities
○ Upstox
○ SHAREKHAN
○ 5Paisa
○ Any nationalized bank
Stock Market Jargons

Wall Street Club, BITS Goa

So far, we have
learnt:
1. How do companies go public?

2. Who participates in the stock

market?

3. Who regulates the stock

market?

4. What moves the stock price?

Now, let’s try to understand a few

more Whys and Whats
Agenda
● Why- do companies go public?
● Why- do people buy shares?
● How- to buy/sell/short a stock?
Why do companies go public?
Expansion

● A company is doing good business and plans on expanding into new markets or products. For
this, it needs a lot of money, and might not want to burden itself with more interest payment
by taking loans. What is the way out? Selling a tiny part of the company to lots of people.

Increased public awareness

● IPOs generate publicity for a company and this can introduce its products to a new set of
customers, thus boosting sales.

Employee benefits:

● After an IPO, a company can offer stock options to motivate or keep employees loyal, for no
added cost.
Why do people buy shares?
As pointed out in previous slides, by owning a stock, you become entitled to receive the profits
earned by the company either through dividends or capital gains. Historically, stock investments
have given a much higher rate of return as compared to debt investments because of the following.

○ Dividends: A small percentage of profits that a company makes is paid back to

shareholders as a reward for investing in that company, and also to keep them loyal to
that company. Strong, consistent dividends also ensure that that particular company’s
stock remains highly demanded in the market.
○ Capital gains: The stock market is highly liquid and accessible for retail investors. You
can start out by as little as Rs. 1000 and if you make consistent profits over a long time,
get phenomenal returns. People also get attracted to the unpredictable, exciting nature
of trading in the market.
Some important terms
● LTP = Last Traded Price: The price at which a stock was last traded in the market.
● Stop loss = maximum loss you’re willing to take on a particular trade
○ Eg. If I bought a stock at Rs.100 and set SL at Rs.90, it means I am willing to
take a maximum loss of Rs.10 per stock, and if the price goes below 90 I
want to sell the stock.
○ It is important to always set a stop loss when you trade, as it limits the
maximum loss you can suffer because of that trade.
● Target = The maximum profit you expect to earn per trade.
○ Eg. If I bought a stock at Rs.100 and set target at Rs.120, it means I am
expecting to make a maximum profit of Rs.20 per stock, and if the price goes
above Rs.120 I want to sell the stock (and gain the profit).
○ It is important to always set a target when you trade, as it ensures that you
book profits in that trade and not lose them to market fluctuations.
Some interesting links:
Top 10 stock brokers in India, Compare Best Stock Broker in India 2020
Equity margins
How much margins/leverage does Zerodha provide?
List of all charges and taxes
Orders - Kite User Manual
Thank you!
Questions?