NIFTY 50

The Nifty 50 index is a well-diversified 50 companies index reflecting overall

market conditions. Nifty 50 Index is computed using free float market
capitalization method. Nifty 50 can be used for a variety of purposes such as
benchmarking fund portfolios, launching of index funds, ETFs and
structured products.

The NIFTY 50 is a benchmark Indian stock market index that represents the
weighted average of 50 of the largest Indian companies listed on
the National Stock Exchange.
INDEX METHODOLOGY

Eligibility Criteria for Selection of Constituent Stocks:

i. Market impact cost is the best measure of the liquidity of a stock. It accurately reflects the
costs faced when actually trading an index. For a stock to qualify for possible inclusion into the
Nifty50, have traded at an average impact cost of 0.50% or less during the last six months for
90% of the observations, for the basket size of Rs. 100 Million.

ii. The company should have a listing history of 6 months.

iii. Companies that are allowed to trade in F&O segment are only eligible to be constituent of the
index.

iv. The Company should have a minimum listing history of 1 month as on the cutoff date.
Market Impact Cost

Impact cost represents the cost of executing a transaction in a given stock, for a specific predefined
order size, at any given point of time.

Impact cost is a practical and realistic measure of market liquidity; it is closer to the true cost of
execution faced by a trader in comparison to the bid-ask spread.

It should however be emphasised that:

• impact cost is separately computed for buy and sell
• impact cost may vary for different transaction sizes
• impact cost is dynamic and depends on the outstanding orders
• where a stock is not sufficiently liquid, a penal impact cost is applied

In mathematical terms it is the percentage mark up observed while buying / selling the desired
quantity of a stock with reference to its ideal price (best buy + best sell) / 2.
Index Re-Balancing:

Index is re-balanced on semi-annual basis.

The cut-off date is January 31 and July 31 of each year, i.e.

For semi-annual review of indices, average data for six months ending the cut-off
date is considered. Four weeks prior notice is given to market from the date of
change.

Index Governance:

A professional team manages all NSE indices. There is a three-tier governance

structure comprising the Board of Directors of NSE Indices Limited, the Index
Advisory Committee (Equity) and the Index Maintenance Sub-Committee.
BSE SENSEX

The BSE SENSEX (also known as the S&P Bombay Stock Exchange Sensitive
Index or simply SENSEX) is a free-float market-weighted stock market index of
30 well-established and financially sound companies listed on the Bombay
Stock Exchange. The 30 constituent companies which are some of the largest
and most actively traded stocks, are representative of various industrial
sectors of the Indian economy. Published since 1 January 1986, the S&P BSE
SENSEX is regarded as the pulse of the domestic stock markets in India.
Primary Markets

• In the primary market, new stocks and bonds are sold to the public for the first time.

• In a primary market, investors are able to purchase securities directly from the issuer.

• Primary markets are facilitated by underwriting groups consisting of investment banks that set a
beginning price range for a given security and oversee its sale to investors.

• Types of primary market issues include an initial public offering (IPO), a private placement, a rights
issue, and a preferred allotment.

• Stock exchanges instead represent secondary markets, where investors buy and sell from one
another.

• After they’ve been issued on the primary market, securities are traded between investors on what is
called the secondary market—essentially, the familiar stock exchanges.
Types of primary market issues:

• Initial public offering (IPO): when a company issues shares of stock to the public for the first time

• Rights issue/offering: an offer to the company’s current stockholders to buy additional new shares at
a discount.

• Private placement: an issue of company stock shares to an individual person, corporate entity, or a
small group of investors—usually institutional or accredited ones—as opposed to being issued in the
public marketplace.

• Preferential allotment: shares offered to a particular group at a special or discounted price, different
from the publicly traded share price
Secondary Market

A secondary market is a platform wherein the shares of companies are traded among investors. It
means that investors can freely buy and sell shares without the intervention of the issuing company. In
these transactions among investors, the issuing company does not participate in income generation,
and share valuation is rather based on its performance in the market. Income in this market is thus
generated via the sale of the shares from one investor to another.

Some of the entities that are functional in a secondary market include –

• Retail Investors
• Brokers and Security Dealers
• Financial Intermediaries
Types of Secondary Market

Stock Exchange

Stock exchanges are centralised platforms where securities trading take place, sans any contact
between the buyer and the seller. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are
examples of such platforms.

Over-the-counter

Over-the-counter markets are decentralised, comprising participants engaging in trading among

themselves. OTC markets retain higher counterparty risks in the absence of regulatory oversight, with
the parties directly dealing with each other. Foreign exchange market (FOREX) is an example of an over-
the-counter market.
Different Instruments in the Secondary Market

Fixed income instruments

Fixed income instruments are primarily debt instruments ensuring a regular form of payment such as
interests, and the principal is repaid on maturity. Examples of fixed income securities are – debentures,
bonds, and preference shares.

• Debentures are unsecured debt instruments, i.e., not secured by collateral. Returns generated from
debentures are thus dependent on the issuer’s credibility.

• Bonds are essentially a contract between two parties, whereby a government or company issues
these financial instruments. As investors buy these bonds, it allows the issuing entity to secure a
large amount of funds this way. Investors are paid interests at fixed intervals, and the principal is
repaid on maturity.

• Preference shareholders receive dividends before payment to equity shareholders. If a company

faces bankruptcy, preference shareholders have the right to be paid before other shareholders.
Different Instruments in the Secondary Market

Variable income instruments

Investment in variable income instruments generates an effective rate of return to the investor, and
various market factors determine the quantum of such return. These securities expose investors to
higher risks as well as higher rewards. Examples of variable income instruments are – equity and
derivatives.

• Equity shares are instruments that allow a company to raise finance. Also, investors holding equity
shares have a claim over net profits of a company along with its assets if it goes into liquidation.

• Derivatives, are a contractual obligation between two different parties involving pay-off for
stipulated performance.

Hybrid Income instruments

Convertible debentures are available as a loan or debt securities which may be converted into equity
shares after a predetermined period.
Initial Public Offer (IPO)

Initial Public Offering (IPO) can be defined as the process in which a private company or corporation can
become public by selling a portion of its stake to the investors. An IPO is generally initiated to infuse the
new equity capital to the firm, to facilitate easy trading of the existing assets, to raise capital for the
future or to monetize the investments made by existing stakeholders.

The institutional investors, high net worth individuals (HNIs) and the public can access the details of the
first sale of shares in the prospectus. The prospectus is a lengthy document that lists the details of the
proposed offerings.

Once the IPO is done, the shares of the firm are listed and can be traded freely in the open market.
The stock exchange imposes a minimum free float on the shares both in absolute terms and as a ratio
of the total share capital.
Types of IPO

Fixed Price IPO

Fixed Price IPO can be referred to as the issue price that some companies set for the initial
sale of their shares. The investors come to know about the price of the stocks that the
company decides to make public.
The demand for the stocks in the market can be known once the issue is closed.

Book building IPO

In the case of book building, the company initiating an IPO offers a maximum 20% price band
on the stocks to the investors. Interested investors bid on the shares before the final price is
decided. Here, the investors need to specify the number of shares they intend to buy and the
amount they are willing to pay per share.
The lowest share price is referred to as the floor price, and the highest stock price is known as
the cap price.
Benefits of Investing in an IPO

• Increased Recognition

• Access to Capital

• Diversification Opportunity

• Management Discipline

• Third-Party Perspective

Disadvantages of Investing in an IPO

• More Cost

• Lesser Autonomy

• Extra Pressure
Prospectus

The IPO prospectus is an offering document that provides potential investors with details
about the company and helps them decide whether or not to invest in the company.
The IPO prospectus is not an agreement for an initial public offering. It is an invitation to the
public to buy the shares

Types

1. Draft Red Herring Prospectus (DRHP)

2. Red Herring Prospectus (RHP)

3. IPO Final Prospectus

4. Abridged Prospectus
DRHP

The DRHP document is the preliminary prospectus that the issuer submits to initiate the IPO process.
The DRHP is required to be approved by SEBI/stock exchanges based on where it is a mainboard IPO or
SME IPO.
The DRHP contains information on the company overview, IPO structure, details of the offering (new
issue or offer for sale), management and promoters, shareholder structure, related risks, use of
proceeds, financial statements of the company and other information.
It does not contain detailed information about the size of the offering, the price or the number of
shares offered.

Validity – 12 Months (For Observation Letter of SEBI)

RHP

An RHP is filed with SEBI, exchanges and RoC once the IPO application has been approved. The RHP
contains all the latest and updated financial statements. All changes to the offering structure and
corporate information and all other updates and modifications to the DRHP are included in the RHP. The
RHP contains all details except the price or number of shares of the issue. (Mandatory in case of Book
Building Only)
IPO Final Prospectus

The IPO prospectus is the final and definitive offering document that contains all relevant information.
This includes the offering price, the number of shares offered and the size of the net offering.

Abridged Prospectus

An abridged prospectus is a mini/summary version of the offering document issued together with the
application form. An abridged prospectus contains a summary of the offer document with all relevant
information. Under the Companies Act, an abridged prospectus must accompany each application form.
An abridged prospectus saves investors time and ensures they do not miss important details by
providing them with the key information and features of the full prospectus at a glance.
An abridged prospectus contains information such as promoter details, price range, minimum bid lot
and provisional deadlines, BRLM details, names of intermediaries, business overview and strategy,
board details, the object of the issue, financial statements, a summary of claims and regulatory actions,
etc.
Follow On Public Offer

A Follow-On Public Offer (FPO) is a type of public offering in which a company already listed on the
stock exchange issues new shares of its stock to the public. The companies that have already raised
funds through IPOs by issuing their shares for the first time can issue additional shares through FPOs.
Types of Follow-On Public Offers (FPOs)
In the financial spectrum, FPOs are of two types. One of the types results in diluting the ownership,
while the other results in no valuation change.

● Dilutive FPO: Dilutive FPO is a type of FPO where the companies issue additional shares, increasing
the share float in the market. Since the outstanding shares increase, the ownership percentage for
current shareholders decreases, decreasing the earnings per share.

● Non-Dilutive FPO: In a non-dilutive FPO, the issuing company does not issue new shares of stock.
Instead, the company's existing shareholders, such as institutional investors or insiders, sell their shares
to the public. The sale does not alter the current shareholders' valuation or ownership percentage.
Advantages

● Capital raising: One of the primary reasons companies launch an FPO is to raise additional capital
for the company. The companies can use these funds to pay off debt or invest in expansion.

● Increased liquidity: FPO increases the liquidity of the company's shares by increasing the number of
shares available in the market. This makes it easier for investors to buy and sell shares in the company.

● Diversification: An FPO allows companies to diversify its investors base as new investors buy their
shares. It also results in diversifying the equity base of the company.

● Improved market reputation: A successful FPO can improve a company's market reputation, as it
demonstrates investors' confidence in the company's growth potential and financial stability.
IPO VS FPO
Offer For Sale
An Offer for Sale is a simpler method wherein promoters in public companies can sell their shares and
reduce their holdings in a transparent manner through the bidding platform for the Exchange. The OFS
segment was earlier allowed only for the Promoters/Promoters’ Group Entities of listed Companies, to
act as ‘Sellers’ to dilute/offload their holding to achieve minimum public shareholding of 25%. Now,
however, the segment has been extended to non-promoters of eligible companies holding at least 10%
of share capital of the company.

To make it easier for promoters of publicly listed companies to cut their holding and comply with the
minimum public shareholding. The OFS Mechanism was first introduced in the market by SEBI in 2012.
OFS Allocation, settlement& Timing.
• No allocation will be made in case order/bid is below floor price.

• Minimum of 25% of the shares offered shall be reserved for mutual funds and insurance companies,
subject to allocation methodology

• No single bidder other than mutual funds and insurance companies shall be allocated more than
25% of the size of offer for sale.

• Settlement shall take place on trade for trade basis. For non-institutional orders/bids and for
institutional orders with 100% margin, settlement shall take place on T+1 day. In case of orders/bids
of institutional investors with no margin, settlement shall be as per the existing rules for secondary
market.

• Client can place OFS order from 9.15 am to 2.45 pm

• Modification of orders in OFS is not allowed.

• In case OFS order get rejected from the exchange for any reason, bid will not go through.
Difference between OFS and FPO

• An OFS is used to offload Promoters’ shares while an FPO is used to fund new projects.

• Dilution of shares is allowed in an FPO leading to change in Shareholding structure while OFS does
not affect the number of authorized shares.

• Only the companies with a Market Capitalisation of Rs 1000 crores and above can use the OFS
route to raise funds while all the listed companies can use the FPO option.

• Ever since SEBI has introduced OFS, FPO issues have come down, and companies prefer to choose
the OFS route to raise funds
Block Deals

A block deal is a type of financial transaction that involves buying or selling a large number of
securities, in a single transaction. Block deals are executed off the exchange's central order book and
are negotiated between two parties, typically institutional investors such as mutual funds, insurance
companies, or banks.
Rules about block deal trading
• Morning Block Deal Window: This window shall operate between 08:45AM to 09:00 AM. The reference price
for execution of block deals in this window shall be the previous day closing price of the stock. The stock
exchanges shall set their trading hours between 08:45AM to 5:00PM with a stipulation that between 08:45AM and
09:00AM, the stock exchanges shall operate only for executing trades in the block deal window.

• Afternoon Block Deal Window: This window shall operate between 02:05 PM to 2:20 PM. The reference price for
block deals in this window shall be the volume weighted average market price (VWAP) of the trades executed in the
stock in the cash segment between 01:45 PM to 02:00 PM. Between the period 02:00 pm to 02:05 pm, the stock
exchanges shall calculate and disseminate necessary information regarding the VWAP applicable for the execution of
block deals in the Afternoon block deal window

• The orders placed shall be within ±1% of the applicable reference price in the respective windows as stated above.

• The minimum order size for execution of trades in the Block deal window shall be Rs.10Crore.

• Every trade executed in the block deal windows must result in delivery and shall not be squared off or reverse

• The stock exchanges shall disseminate the information on block deals such as the name of the scrip, name of the
client, quantity of shares bought/sold, traded price, etc.to the general public on the same day, after the market
hours.
Equity Shares

Equity shares are long-term financing sources for any company. These shares are issued to the general public and are
non-redeemable in nature. Investors in such shares hold the right to vote, share profits and claim assets of a company.
The value in case of equity shares can be expressed in various terms like par value, face value, book value and so on.

Preference Share
Preference shares, also commonly known as preferred stock, are a special type of share where dividends are paid to
shareholders prior to the issuance of common stock dividends.

Ergo, preference shareholders hold preferential rights over common shareholders when it comes to sharing profits.
Consequently, if a company lands into bankruptcy, preference shareholders are issued dividends first or have the first
right to the company’s assets before common stock investors.
For preference shareholders, the dividend is fixed; however, they don’t hold voting rights as opposed to common
shareholders.
Types of Preference Shares According to Section 55 of the Companies Act, 2013,

• Convertible Preference Shares • A company cannot issue irredeemable preference

shares.
• Non-Convertible Shares
• The preference shares issued shall be liable to be
• Non-Cumulative Preference Shares redeemed within a period not exceeding 20 years
from the date of their issue. However, company
• Cumulative Preference Shares engaged in infrastructure project may issue
preference shares for a period exceeding 20 years
• Non-Redeemable Preference Shares but not exceeding 30 years, subject to minimum 10%
of preference shares shall be redeemed from the
• Redeemable Preference Shares 21st year or onwards on a proportionate basis at the
option of the preference shareholders.
• Participating Preference Shares

• Non-Participating Preference Shares

Debentures

• A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10
years.
• Debentures are backed only by the creditworthiness and reputation of the issuer.
• Both corporations and governments frequently issue debentures to raise capital or funds.
• Some debentures can convert to equity shares while others cannot.
Classification
1. Convertible Debentures- One of the various types of debentures is convertible debentures. The most significant
feature of differentiation of a convertible debenture is that it can be converted into shares or stocks at a certain point in
time or when the firm notifies of the same. Although these debentures have a lower interest rate when compared to
stock, they are extremely useful.

2. Partially Convertible Debentures- The debentures which can be converted into shares but to a certain limit or a
certain percentage are known as partially convertible debentures. It is hybrid as after its partial conversion, some
portion remains debenture while some become part of the company’s share.

3. Non- Convertible Debentures- These are normal or basic kinds of debentures which can never be converted into
stocks after they have been issued and till the time they exist.

4. Registered Debentures- The kind of debentures which are transferred providing a pepper proof of records and
documents needed for it. These are one of the safest kinds of debentures as there is less chance of fraud compared to
bearer debentures discussed below.

5. Bearer Debentures- The type of debentures that are unregistered and can be delivered after purchase without any
compulsory need for evidence or record are known as bearer debentures. There is no tertiary involvement in the
transaction for a bearer debenture and it a comparatively more prone to tax evasion and fraud.
6. Secured Debenture- These are the kind of debentures that are like an alternative to a loan where the collateral is
needed to make money and when the firm starts paying off the debts at the time of its closure due to any reason, then
the secured debenture holders are paid first.

7. Unsecured Debentures- The type of debentures which don’t need any kind of collateral are unsecured debentures
and are preferred less at the time of payment compared to secured debentures.

8. Redeemable Debentures- The debentures which are purchases for a pre-specified period and are paid by the end of
this time are known as redeemable debentures.

9. Irredeemable Debentures- Also known as perpetual debentures, irredeemable debentures don’t have a fixed time
for the redemption of the invested amount.
Bonus Shares

A bonus issue is a stock dividend allotted by the company to reward the shareholders. In regular dividends, cash is paid
out to shareholders, but in a bonus issue, stocks are paid out instead of cash. The bonus shares are issued out of the
reserves of the company. The shareholders receive these free shares against shares they currently hold. These
allotments typically come in a fixed ratio of 1:1, 2:1, 3:1, etc. In a bonus issue, the stock price declines to the extent of
the bonus ratio, but this decline should not be mistaken for a correction in stock price or a fall.
Split Shares

Similar to a bonus issue, when the company declares a stock split, the number of shares held increases, but the
investment value remains the same. The big difference between a bonus and a split is that in the bonus issue, the face
value of the company remains unchanged, but in a stock split, the face value changes
Dividends

• Dividends are portions of profits made by the company, which are distributed to the company’s shareholders.
Dividends are paid on a per-share basis.

• The company directly remits the dividends to your bank account (linked to your Demat account).

• The dividend paid is also expressed as a percentage of the face value.

• It is not mandatory to pay dividends every year. If the company feels that instead of paying dividends to
shareholders, they are better off utilizing the same cash to fund a new project for a better future, they can do so.

• Typically, companies in the growth phase (young companies growing fast) choose not to pay dividends but rather to
plow back the profits into the business for more growth.

• However, when the company’s growth opportunities slow down and it holds excess cash, it would make sense to
reward its shareholders via dividends. Cash with shareholders makes more sense than retaining the cash on the
company’s book, and distributing the dividends may be the best way forward for the company.
• The dividends need not be paid from the profits alone. If the company has made a loss during the year but it holds a
healthy cash reserve, it can still pay dividends from its cash reserves.
Important Dates

Dividend Declaration Date: This is the date on which the AGM takes place, and the company’s board
approves the dividend issue

Record Date: The date the company decides to review the shareholder’s register to list all eligible
shareholders for the dividend. Usually, the time difference between the dividend declaration date and the
record date is 30 days.

Ex-Date/Ex-Dividend date: With the T+1 settlement cycle, the ex-dividend date normally is on the same day
as the record date. Only shareholders who own the shares before the ex-dividend date are entitled to
receive the dividend. This is because, in India, the equity settlement is on a T+1 basis. So for all practical
purposes, if you want to be entitled to receive a dividend, you need to ensure you buy the shares before
the ex-dividend date.

Dividend Payout Date: The date on which the dividends are paid to shareholders listed in the company
register.

Cum Dividend: The shares are said to be cum dividends till the ex-dividend date.
Buyback of Shares
A buyback can be seen as a company’s method to invest in itself by buying shares from other investors in the market.
Buybacks reduce the number of shares outstanding in the market; however, the buyback of shares is an important
corporate restructuring method. There could be many reasons why corporates choose to buy back shares…
Improve the profitability on a per-share basis

• To consolidate their stake in the company.

• To prevent other companies from taking over.
• To show the confidence of the promoters about their company.
• To support the share price from declining in the markets.

When a company announces a buyback, it signals the company’s confidence in itself. Hence this is usually positive for
the share price, but like other things in the market, always evaluate the reasons for the corporate action.