Basis point: One hundred basis points equals one percentage point.
Bear: One who believes that market prices will fall. A bear market is a declining market.
Beta coefficient: Beta is a measure of a stock’s volatility in relation to the key benchmark index.
Bid: An offer of a price to buy or sell as in an auction. It also refers to the price one is willing to pay for a security.
Bonds: It is a fixed income Debt Instrument issued for a period of more than one year with the purpose of raising capital. The central or state government and public sector organizations sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date called “Maturity date”.
Bonus share: It is essentially a book transfer by which a sum of money equal to the value of the bonus shares is transferred from the reserves to the equity capital in the company’s book of accounts.
Book Value per Share: Book value per share = Share holder’s Funds Total Number of Equity Shares issued
Or BV/ Share = Equity capital + Reserves Total No. of Equity Shares issued
The market prices of shares are generally much higher than book values. B.V. gives an idea whether a particular share is over or under priced.
Bull: One who believes that market prices will rise. A bull market is a rising market.
Capital market: A financial market including equity and long term debt instruments.
Circuit Breaker: A method employed to stop trading temporarily in the event of large price changes.
Commodity exchange: A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities.
CNX Nifty (Nifty): It is a scientifically developed, 50 stock index, reflecting accurately the market movement of the Indian markets. It is maintained by IISL which is a joint venture between NSE and CRISIL.
Debentures : Debt securities issued by the company bearing a fixed rate of interest usually payable half yearly and principal amount on a particular date.
Debenture is a debt intrument issued by private corporate sector.
Debt Instrument: Debt instrument represents a contract where by one party lends money to anothere on predetermined terms with regards to rate and periodicity of interest, repayment of principal amount by the borrower to the lender.
Dematerialization: Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investors account with his Depository Participant (DP).
Depository: A depository is like a bank where in the deposits are securities ( e.g. shares debentures, bonds, government securities units etc.) in electronic form.
Derivative: Derivative is a product whose value is derived from the value of one or more basic variables, called underlying .The underlying asset can be equity, index, foreign exchange (forex), commodity or any other asset.
Dividend Yield: Dividend Yield = Dividend per Share *100 % Market Price per Share
Earning per share (EPS): Earning per share = Profit After Tax or (NP) (NP is net profit available to share holder) Total No. of Equity Shares issued
EPS is the true indicator of the returns on your share investments.
Face value: Value as appears on the face of the share. It is the original cost of the stock shown on the certificate.
Futures : A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that former are standardized exchange traded contracts, such as futures of the Nifty Index.
Hedge: Protecting a long position in one asset while short in another in order to reduce overall risk.
Index: A measure based upon comparison with a base year.
Important Indices in the World :
| Name of the index | Country |
Weight |
No. of Stock |
Base Year |
Base Value |
| S&P CNX, NIFTY | NSEIL, India | Market Capitalisation | 50 | 1995 | 1000 |
| SENSEX 30 | BSE, India | Market Capitalisation | 30 | 1978-79 | 100 |
| NASDAQ 100 | NASDAQ USA | Market Capitalisation | 100 | 1985 | 125 |
| FTSE 100 | UK | Market Capitalisation | 100 | 1984 | 1000 |
| Hang Seng | Honkong | Market Capitalisation | 33 | 1964 | 100 |
| Dow Jones | USA | Price | 30 | 1928 | |
| Nikkel 225 | Tokyo | Price | 225 | 1949 |
Index option: A cash settled listed option based on index average.
Insider : One who is restricted from trading in a company’s shares because he has access to price sensitive information. Insiders include officers, directors, auditors and large share holders.
Initial Public Offer (IPO) : When an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public the issue is called Initial Public Offer. This paves way for listing and trading of
the issuer’s securities.
Liquidity: Quality of an asset of being readily convertible to cash without suffering a decrease in price in order to effect a hasty sale.
Long position: Buying and holding an asset in hope of profiting from its cash dividends, interest, price increases or other benefits.
Mutual Fund: A mutual fund is a body corporate registered with SEBI that pools money from individuals / corporate investors and invests the same in a variety of different financial instruments or securities such as equity shares, government securities, bonds, debentures etc. Mutual funds are funds operated by an investment company. Mutual funds units are issued and redeemed by the fund management company.
Market capitalisation :
Market capitalisation = number of shares in issue * market price (current share price)
MSCI INC: An investment research firm that provides indices, protfolio risk and performance analytics and governance tools to institutional investors and hedge funds.
MSCI is a public traded company on the New York Stock Exchange.
MSCI is a leading provider of investment decision support tools to over 6000 clients world wide.
Net Asset Value (NAV) = Market value of shares + cash balances – operational expenses Total Number of units
NAV is a very useful ratio. It tells you what each individual unit issued by the fund is worth at any given point of time.
NIFTY : See CNX Nifty
Nikkei 225 : Average of 225 Japanese shares traded on the Tokyo stock exchange.
Open Interest : 1. The total number of options and futures contracts that are not closed or delivered on a particular day.
2.The number of buy market orders before the stock market opens.
Option: The right to buy or sell a security at an agreed price during a specified period or an a specified date.
An option is a contract which gives the right, but not an obligation, to buy or sell the underlying at a stated date and at a stated price. While a buyer of an option pays the premium and buys the right to exercise his option, the writer of an option is the one who receives the option premium and therefore obliged to sell/buy the asset if the buyer exercises, it on him. Options are of two types Calls and Puts options.
“Call” gives the buyer the right but not the obligation to buy a given quantity of the underlying asset at a given price on or before a given future date.
“Put” gives the buyer the right, but not the obligation to sell a given quantity of underlying asset at a given price on or before a given future date.
Presently, at NSE futures and options are traded on the Nifty, CNXIT, Bank Nifty and more than hundred single stocks.
Option writer: The seller of an option who guaranties performance by a deposit of cash, Securities or Both.
Out of the money : An option with time value but no intrinsic value. The current market price of the underlying stock is below the strike price of a call or above that of a put.
Primary market: The market for new issue of shares.
Price earnings ratio (P/E) : Price earning ratio(P/E) = Market Price of the Share Earnings per Share
Companies which enjoy the confidance of investors and have a higher market standing usually command high P/E ratios. (P/E ratio should preferanly be seen together with future earnings and grouth prospects of a company)
PEG ratio (PEG): PEG ratio (PEG) = P/E Forecasted Growth Rate in the EPS
Price to book value ratio : Price to book value ratio expresses the market price of a share in relation to its book value.
Public issue: Public issue is an offer to the public to subscribe to the share capital of a company.
Preferential issue : It is an issue of shares or of convertible securities by listed companies to a select group of companies to a select group of persons under section 81 of the companies act, 1956 which is neither a rights issue nor a public issue. This is
a faster way for a company to raise equity capital.
Repo : Repo is a purchase agreement . A short term loan between dealer and customer. Collateralized by debt securities. The seller agrees to buy back the securities at a higher price, at agreed cost.The period in practice ranges from a fortnight to one year. The interest is market determind and built in to the repo transaction. Repo transaction is undertaken between commercial banks, financial institutions, stock brokers and Discount and Finance house of India (DFHI).
Reverse Repo: A repurchase agreement by the lender rather than the borrower in order to acquire securities that have been sold short.
Rights Shares: Companies Sometime raise funds by the sale of additional equity shares on a “rights basis” to its share holders. Such shares are called rights shares because the company’s shares holders have a prior right to buy these shares by virtue of their existing share holding.
Return On Capital Employed (ROCE) : ROCE = Operating Profit or (Net Profit after Tax) *100 % Total Capital employed (Net worth +Debt)
ROCE reflects the overall earnings performance and operational efficiency of a company’s business.
Return On Net Worth (RONW): RONW = Net profit *100 % Net Worth
Secondary market: Market where shares are traded after being issued.
Securities and Exchange Board of India (SEBI) : Constituted under the Security and Exchange Board of India Act,1992. It is the duty of SEBI to protect the investors in securities and to promote the development of and to regulate the securities market.
Security: An investment contract in which money is invested. The investment is in an expectation of profit. Examples of securities are shares, debentures, options etc.
SENSEX: Sensitive Index of equity prices of 30 companies from both specified and non specified groups issued by the Bombay stock exchange on the basis of market activity on the days BSE is open (1978-79=100)
SEBI: The security and exchange board of India (SEBI) is the regulatory authority in India established under section 3 of SEBI Act, 1992.
Short: Sale of security which is settled by the delivery of borrowed securities rather than by delivery of securities owned by the seller. Sometimes the seller may not own securities at all.
S&P 500: Standard and Poors Index of 500 companies is a value weighted average of stock prices of the Largest 500 American Corporations.
Stock exchange: SCRA 1956 defines stock exchange as any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or
controlling the business of buying, selling or dealing in securities.
Tick Size: Minimum difference between bids is the smaller increment tick by which the price of stock futures contract of other exchange traded investment can move.
Treasury bills: (It is a type of bond) Short term (up to one year) bearer discount security issued by Government as a means of financing their cash requirements.
Volatility: The degree of fluctuation over a given period in a stock based upon the standard deviation in the price.
Wash sale: A sale or purchase of shares at the same time by the same party to create an illusion of great activity in the share with the object of increasing the price. It is an illegal act.
Zero coupon bond: A bond which pays no current interest. Such a bond sells at a deep discount from its redemption price.