Ch 1

stock prices will react negatively if earnings are . . .

lower than the street expectation

Corporate earnings are reported every

quarter

Index of Industrial Production (IIP)

is a short-term indicator of a country’s industrial sector’s progress

a low-interest rate tends to

increase inflation

CPI (Consumer price index)

the price of a weighted average market basket of consumer goods and services purchased by households

Wholesale Price Index (WPI)

indicates the movement in prices at the wholesale level and does not necessarily capture the consumer’s inflation.

High inflation erodes the . . .

purchasing value of money

Federal Reserve Interest Rate (FOMC)

**the rate at which banks and credit unions borrow from and lend to each other**

when there is increased spending . . .

sellers tend to increase the prices of goods/services, causing inflation

Borrowing becomes easier when . . .

Interest rates are low

Central banks tweak the interest rates to . . .

control the money supp,y

Buyback signals a

positive outlook for promoters

Buybacks reduce the …

number of shares outstanding in the market and can be seen as a company’s way to invest in itself by buying shares from other investors in the market

The idea behind a rights issue is . . .

to raise fresh capital

Rights issue

an invitation to existing shareholders to purchase additional new shares in the company

A stock split encourages more

retail participation by reducing the value per share

In a bonus issue the face value of a company remains

unchange

In a stock split, the face value of a company

changes

Stock Split

when a company increases the number of its outstanding shares to boost the stock's liquidity

when a company declares a stock split

the number of shares held increases, but the investment value remains

When a stock price bloats

companies issue a bonus share to slash the stock price without impacting any other financial metric

When bonus shares are issued

the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same

In a bonus issue stocks are paid out instead of

cash

Final dividend

dividends paid at the end of the financial year

Interim Dividend

Paid anytime during the financial year

special dividends

Usually large payments compared to a regular dividend, non-reoccurring, and happens on a one-time basis

Dividend payout date

date which dividends are paid to shareholders

Ex-dividend date

marks the cutoff point for shareholders to be credited a dividend

Record date

The date the company decides to list all eligible shareholders for the dividend

A corporate action is initiated by

the board of directors and approved by shareholders

Corporate actions are . . .

Financial actions undertaken by a company that results in a change in the stock price

Quantitative analysis

Uses math and statistical modeling to understand behavior

Technical analysis

Aims to predict future market behavior based on past price action and volume data

Fundamental analysis

Measures a stock’s intrinsic value by examining related economic and financial factors, like quarterly numbers

What are the 2 types of IPO

Fixed price and book building

Fixed Price IPO

An IPO in which the price is set and doesn’t change

Greenshoe option

Grants the underwriter the right to sell investors more shares than initially planned

Oversubscribed

Term used when the demand for a new issue of stock is greater than number of shares available

Under-subscription

When the number of shares applied for by the public is less than the number of shares issued by the company

Secondary market

financial market in which previously issued financial instruments are bought and sold.

Primary market

Where companies sell new stocks/bonds to the public for the 1st time

Book Building

Where a company provides a price band for investors to bid on. once biding closes, the company decides the final price for an IPO

Roadshow

Presentations made in many locations leading up to an IPO

Price band

The lower and upper limit of the share price within which the company will sell its shares to IPO applicants

IPO failure

A stock that closes its 1st day below its IPO price

Underwriting

The process by which an investment bank evaluates the risks associated with an IPO and agrees to purchase shares of the offering at a set price

Investment banks help companies

Go Public

Reasons to IPO

1. Raise funds to meet CAPEX requirement
2. Avoid debt
3. The promoter can spread the risk amongst a large group of investors instead of one large investor
4. **Provide an exit for early investors by selling their shares**
5. **Reward employees with stock options**

The company’s valuation increases as and when . . .

the business, revenues, and profitability increase

In terms of risk, PEs have a lower risk compared to

VCs or angles

The valuation of a company signifies how . . .

much the compnay is valued by considering the company’s assets, liabilities, and future growth prospects

Angle investors

People who invest in a business at the prerevenue stage

When a company files for an IPO,

they have to offer its shares to the public

Series C investing

Groups like hedge funds, investment banks, PE firms invest in mature companies

Seed funding (initial investment) is followed by

Series A, B, and C investing

VC invest in businesses that are . .

In early stages of operations, hence they are risky investments

Finance Charges

The cost that a borrower incurs by borrowing money

Series A funding

1st round of capital after a seed round that a startup company raises from professional investors

Series B

2nd round of funding for a business through investment, including VCs

Capital Expenditure (CAPEX)

The money an organization spends to buy, maintain, or improve its fixed assets, like buildings and equipment

Face Value

A stock’s initial cost

Bid Price

The price that the buyer expects shares to cost

Stock exchanges prioritize

sellers willing to offer shares at the lowest price

Offer price

The price that a seller offers

Stop-loss orders

orders w/instructions to close out a position by buying or selling a security when it reaches a stop price

Market Orders

Transactions meant to execute as quickly as possible at the current market price

Buy limit order

order to purchase an asset at or below a specified price

Percentage change

Indicates the percentage change in the LTP with the respect to the previous day’s close

LTP (Last Traded Price of the Stock)

Gives a sense of how much the stock is trading at the very moment

Wholesale debt market (WDM)

Deals with fixed-income securities

Currency Derivatives (CDS)

Where currency pairs like UD and EUR are traded

Futures and options (FO)

AKA equity derivative segment, are where leveraged products are traded

Capital Markets (CM)

Offer tradeable securities like stocks and etfs

Market Segment

A division within which a certain type of financial instrument is traded

Volumes

Represent the total transactions for a stock on a day

OHLC

In stock prices refer to open, high, low , close

Intraday positions

Trading position one initiates with an expectation to square off the position withing the same day

All short positions in stocks are . . .

Intraday positions

If you are short on a stock squaring off the position means

buying the stock

If you are long on a stock squaring off the position means

selling the stock

Square off

Indicates that one intends to close on an existing position

Being short a stock

You have a negative position in the stock and will profit if it falls

When you short a stock you must . . .

buy back the stock on the same day

Being long a stock means . . .

that you own it and will profit if the stock rises

The exchange places circuit limits to control

excessive volatility when a stock reacts to news

Upper/Lower circuit limit

The highest/lowest price a stock can be on a day

Trend

refers to the general market direction

Bearish

expect stock prices to go down

Bullish

Expect stock prices to go up

Asset management company (AMC)

Invest pooled funds from clients to work through different investments

Depository

Institution, like a bank, where money is deposited and assists in the trading of securities

Debenture Trustee

Financial entity appointed to represent the interests of debenture holders (investors) in a debenture issues

Debenture

Debt instrument used by large companies to borrow money, at a fixed rate of interest

Credit rating agency

A company that assigns credit ratings, which rate a debtor’s ability to pay back debt

Market participant

Anyone who transacts in the stock market

Free-Float market capitalization method

The weight of stocks in an index is based on market capitalization

Weightage

How much importance a stock in an index gets compared to others

Index

Group of many stocks from different sectors representing the economy’s state

Benchmark Index

Standard reference point that is used to compare similar the results of similar investments over time

If there is a mixed trend . . .

You would say markets are sideways or flat for the day