Terminology of Various Terms Related to Stock Markets

Stock Market/Share Market: 

It is a market where securities or shares are bought and sold. Its basic function is to enable Public Limited Companies and Governments to raise funds by selling securities to investors and also provide the opportunity to the investors to park their funds.



Equity: 

Equity means ownership interest in a corporate entity in the form of stock.

Private Equity: 

Private Equity is money invested in companies that are not publicly traded on a stock exchange. These companies normally seek equity stakes in the form of partial ownership. Venture capital is a specialized category of private equity. Both are high risk, high reward investment approaches.

Venture Capital:

It is the money provided by an outside investor to finance a new startup, growing, or troubled business. The venture capitalist provides the funding fully knowing that there is a significant risk associated with the company’s future profits and cash flow. Capital is invested in the form of an equity stake in the business rather than given as a loan and the venture capitalist hopes that the investment will yield a better than average return.

Stock: 

The capital raised by a corporate entity through the issue of shares entitling the share holders to an ownership interest (equity).

Bull Phase: 

When the prices of stocks moves up rapidly crossing even the previous highs made, then that is called as the Bull Phase on the stock markets. Since it continues for many days at a stretch it is also termed as the ‘Bull Market Run’. Technically a bull market is a rise in value of the market indexes (SENSEX and NIFTY) on an average of 15% in a month. A ‘bull’ is an aggressive animal attacking its prey aggressively and that is why when the markets run upwards aggressively it is termed as Bull Phase.

Bear Phase: 

A Bear Phase is the opposite of a Bull Phase. When the prices of stocks move down rapidly cracking even their previous lows and the market indexes (SENSEX and NIFTY) closing downwards almost daily for many days, then it is termed as Bear Phase. Normally, there is a fall of 10% to 15% in the market indexes during a month in the Bear Phase. A ‘bear’ is an unaggressive animal and when the markets fall downwards speedily, it is termed as Bear Phase.

SENSEX: 

It is the short term for the words “Sensitive Index” and is associated with the Bombay (Mumbai) Stock Exchange (BSE). The SENSEX was formed on market capitalization basis on January 01, 1986 and used the market capitalization of the 30 most traded stocks of BSE. SENSEX touched an all time high level of 30,024.74 on March 04, 2017.

NIFTY: 

NIFTY is the index of National Stock Exchange (NSE). It has fifty most traded stocks of NSE. It was formed on November 3, 1995. NIFTY reached an all time high level of 9,008.40 on March 03, 2017.

Approximate Sensex/Nifty Levels: 

Both the SENSEX and NIFTY show the daily trading trends. Both these indexes are basically indicators whether most of the stocks have gone up or most of the stocks have gone down. An aspirant for a bank officer interview can safely answer that the Sensex is hovering approximately around 30000 and the Nifty is approximately hovering around the levels of 9000.

Price/Earnings Ratio (P/E Ratio): 

It is one of the widely used and common stock valuation ratios. It is a ratio of a company’s current market share price compared to its annual earnings per share (EPS). It is obtained by dividing the current market price of a company by its last EPS value. It generally reveals the sentiment of the investors. Stocks with P/E ratio less than 15 are often considered as comparatively cheaper for investment purposes. Stocks with higher P/E ratios indicate that investors are expecting high earning growth in future.

Dividend/Yield Ratio (D/Y Ratio): 

It is a financial ratio which indicates how much a company pays out in the form of dividends every year as compared to the market price of its one share. Dividend yield is represented as a percentage and can be calculated by dividing the value of dividends paid the company in a given year divided by the market price of that company’s share and multiplied by 100.
Dividend Yield = Annual Dividend per Share/Market Price Per share x 100
Investors invest their money in stocks to earn a return either by dividends or stock appreciation or both. Some companies choose to pay large quantum of dividends on a regular basis. These shares are often called income stocks. Other companies choose not to pay large quantum of dividends and instead reinvest this money in the business. These shares are often called growth stocks. Average dividend yield in stocks in India is 2.5% - the higher the dividend yield in a stock, it is better.

SEBI: 

The Securities and Exchange Board of India (SEBI) is the regulator for the Securities Market in India. Originally it was set up by the Government of India on April 12, 1988. It acquired statutory status on January 30, 199 with the passing of SEBI Act, 1992 by the Parliament of India. Presently, it is chaired by Ajay Tyagi – the 9th Chairperson of SEBI.

Mutual Funds: 

Mutual funds are investment companies that pool money from investors and use the capital thus raised to buy (invest) and sell (disinvest) shares/debentures on a continuous basis of various companies. The mutual funds have fund managers that invest the pooled money on a regular basis. The net gains less the commission of the asset management companies are distributed to the mutual fund investors.

Asset Management Company (AMC): 

AMC is a company that invests its clients’ pooled funds as per its declared financial objectives. AMCs provide investors with more diversifying and investing options than they would have by themselves. Mutual funds, Hedge Funds, etc. are run by the various AMCs. AMCs earn income by charging service fees as commissions to their clients.

Hedge Fund: 

‘Hedge’ means to reduce financial risk. A hedge fund is an investment fund open to a limited range of investors and requires a very large initial minimum investment. It is important to note that although hedging is actually the practice of attempting to reduce risk, but the ultimate goal of most of the hedge funds is to maximize return on investment.

Foreign Institutional Investor (FII): 

It is an institution established outside India, which proposes to invest in the Indian markets by buying stocks of Indian companies. FIIs generally buy in large volumes.

Foreign Direct Investment (FDI): 

FDI occurs with the purchase of the physical assets or a significant amount of ownership of a foreign company in India in order to gain a chunk of management control and having a large stake in an Indian company as per the Government of India regulations.

IPO: 

IPO means Initial Public Offer. It is the first offering of shares to the general public from a company that wishes to get its shares listed on the stock exchanges.

Disinvestment: 

Selling of the Government stake in Public Sector Undertakings (PSUs) is termed as Disinvestment.




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