We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail.
Let us first understand what is the capital market?
Understanding Capital Market
Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc.
Let us now understand the types of capital market.
Types of Capital Market
The capital market is of two types i.e. Primary Market and Secondary Market.
- Primary Market
The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises.
- Secondary Market
The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised.
Ways of Raising Funds
- Offer through Prospectus
In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public.
- Private Placement
Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically.
- Rights Issue
The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public.
e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public.
The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market.
Functions of the Capital Market
- Helps in the movement of capital from the people who save money to the people who are in need of it.
- Assists in the financing of long term projects of the companies.
- Encourages investors to own the range of productive assets.
- Minimises the transaction cost.
- Helps in the faster valuation of financial securities like debentures and shares.
- Creates liquidity in the market by facilitating the trading of securities in the secondary market.
- Offers cover against price or market risks through the trading of derivative instruments.
- Helps in efficient capital allocation by way of competitive price mechanism.
- Helps in liquidity creation and regulation of funds.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Stock Investment Strategies before investing in Stocks
Stock market is one of the biggest wealth creators in India. It is the most popular investment option that provides ample opportunity to multiply your capital. There are number of ways or strategies through which you can do stock investment. The stock investment strategy varies from one person to another as it majorly depends upon your financial goals, risk appetite and investment horizon. In this article, we will walk you through the strategies that you can use while investing in stocks. Stock Investment Strategies Invest in Business, Not Stocks One of the important principles of stock investment is that you must invest in the business and not in stocks. This means that if a business is viable and has a bright future, the stock price will ultimately move up. You must avoid looking at the market trends and other noise and study the fundamentals of a company. Purchasing the stock of a company having a good business and whose probable future performance seems bright will help you in earning higher returns. This, however, requires research, long term commitment and patience to hold the stock for the long term. Be Passionate About What You Buy When you make a stock market investment you must be passionate about the companies where you are putting your money. Being passionate here means that you must keep each and every information about the business of the company. This is because often the investors get trapped by buying stocks just by looking at the financial statements. Instead, you must conduct deep research about the various ratios like price to equity, debt to equity, EPS, etc. When you invest in companies by looking beyond the financials, you are likely to make higher returns and keep them for a long period in your portfolio. Thus, getting into the deep details of the company should be your mantra for stock market investment. Invest in Companies Whose Business You Understand You must make the stock investment in those companies whose business you understand easily. To become a successful investor, you must be aware of the various activities of the company and sector in which you are investing. However, sometimes it might not be possible for you to get or understand each and every detail of the company. In such cases, as an investor, you have to factor that as uncertain risk. Moreover, value investors look for simple business model companies because in such companies even incompetent management cannot cause much harm to the business. Invest in Well Managed Companies It is no secret that the market has always been harsh on companies that have poor management quality. Therefore, before making stock market investment, you must find companies that have a good set of management. Good management can do wonders for a company. There have been many cases in the past where investor’s stock market strategy has been to invest money in companies with good management and they have made huge profits in the long run. Good management always ignores the market value of a company and focuses on business growth. Ignore the Market Most of Times When making the stock investment, you must ignore the market. This is because you are making an investment in the company and you will hold on to it until the fundamentals are good. The market may have a temporary effect on the price of the stock but in the long run stocks with strong fundamentals will give you good gains and help your portfolio grow. There would be times when there would be huge sell-off in the market and holding to the stocks during such period is the key to success. Diversify But Don’t Over Stress It is a known fact that a diversified portfolio is the best portfolio. However, one should not overstress on diversification. This is because there can be a scenario in the market where only a few stocks are having a good run and adding them in large quantities would be against the diversification theory. In such situation, a value investor invests more money in stocks where the upside is obvious rather than keeping his capital idle. Be Consistent Always maintain a consistent approach to be successful in the stock market. Investors always seek the best stocks to buy today and in the process forget to maintain discipline. You can build and maintain your portfolio well when you are consistent with the strategies, your financial goals and have the patience to hold stocks for the long term. Taking irrational decisions when the market is volatile can prove to be fatal and it is against the basic rule of investing in the stock market. The above mentioned are a few strategies for investing in stocks. The best stock to buy today shall always be the one that successfully meets your research and analysis benchmarks. If you want any more assistance for stock investment, you can contact IndiaNivesh Ltd. We assist you in creating wealth through our customised solutions. We aim to exceed our client’s expectations in all endeavours. Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Intraday Trading Stock Tips - How to Select Stocks for Intraday
Intraday trading is one of the most popular ways to make quick money on a regular basis. However, to be successful in intraday trading, you need to pick the right stocks to trade in. Wrong selection of stocks for trade can mean wrong trading decision as well as losses. Intraday traders are always in search of the best intraday stocks for today. Gaining market knowledge and researching a bit can go a long way in picking good stocks. To further assist you with intraday trading, we list down some of the intraday trading tips that would be useful to you in making profitable trades. Intraday Trading Tips Liquid Stock The first intraday trading tip is to pick those stocks for trade that are liquid in nature. Liquidity here means higher volume. Stocks with higher liquidity or volume provide greater opportunities to trade. When there is a higher volume in stock then large quantities of it can be purchased and sold without affecting its price significantly. Moreover, intraday trading is all about closing the position at the end of the day. This is possible only when you have sufficient buyers and sellers at different price levels. Liquidity in the stock depends on its quality, news flow and many other factors. Therefore, best stocks for intraday trading on NSE are those that have higher trading volumes. Avoid Volatile Stocks The stocks that have low trading volumes and expect some news flow are generally very volatile. It is very difficult to predict the share price movement in such shares. It is advisable to avoid such stocks because they continue to show signs of volatility even after the news flow is over. Never Trade Against the Trend Another important intraday trading tip is to always follow the trend of the market. Taking a trade in the direction of the market will give you good results most of the time. When the markets are going high, the best intraday stock tip is to go long in the stocks and when the market is in the bear phase, it is advisable to go short in the stocks. Put Stop Loss To become a successful intraday trader you must always put a stop loss in your trade. Market does not always function as per your expectation. You might have thought that the coming days will see a bull market but the actual scenario turns out to be exactly opposite of it. In such scenarios, stop loss comes handy as it squares off your position when a particular price level is triggered. Stop loss acts as safety against huge losses and saves your capital by closing your trade at minimum losses. Hence, you must always put a stop loss in place for all of your intraday trades. If you are a beginner in the stock market, you can set your stop loss at a 3:1 reward to risk ratio. This means that your stop loss should be three times lower the price at which you are ready to book the profit. Timely Book Profit The intraday traders get the benefit of high leverage and margins. This helps them to take big trades and make larger profits. Here the key to success is to not get greedy when the targets are achieved in a stock. Once the target is hit, you must book profits instead of holding it with a hope that the stock would rise further. However, in some special circumstances, the stock price movement can be strong and it can go further up, in such cases you can adjust your stop loss. Determine the Entry and Exit Price You can be successful in intraday trading if you know at what price you would purchase and sell a stock. This is because, during intraday trading, price movements are very fast and your mind can immediately change if you do not have predetermined levels in your mind. Therefore, before taking a trade make sure you know the entry and exit price. Do Not Take Trade to Next Day Intraday trading is all about closing your open positions by the end of the trading session. However, sometimes when your price targets are not met, you might be tempted to take delivery of stocks and take the position to the next day. This is not a good strategy because you took the trade on the basis of intraday market trends and technical levels of that stock on a particular day. There is always a possibility of a trend change on the next day and your trade turning bad. Therefore, it is always advisable to close all the intraday positions on the same day. Research Another intraday stock tip to become a successful trader is to keep researching for a set of stocks that you would like to trade. Study the support and resistance levels of the stocks along with the technical levels. Also, find out which stocks have events lined up ahead and can see good price movements. This would enable you to take the trades confidently and help you earn higher profits. The above mentioned are a few intraday trading tips that would help you in becoming a better trader. If you are a beginner, you must understand that trading is an art and you would learn it with time. Never take trades in a hurry. However, if you want any assistance regarding intraday trading, you can open a demat account with IndiaNivesh Ltd. We regularly update our clients with picks in the form of best intraday stocks for today. Moreover, these stock market tips for intraday are free.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
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