Glossary

Acid test ratio is used to calculate short term liquidity availability in a company. The formula to calculate the same is as follows: Acid test ratio= (Cash+Cash equivalents+ Marketable securities+Current Account s Receivables) / Total Current Liabilities

Alpha is the excess return on any investment after adjusting it for volatility in the market during the period of calculation and random fluctuations when compared with a benchmark index.

It is a mechanism through which US depository banks can list stocks of companies not registered in US in US exchanges like NYSE and NASDAQ. These stocks are denominated in dollars and their dividends are also reflected in the same.

Amortization is an accounting method used by companies to spread out the expenses incurred for acquiring a long term asset to be spread over a period of time(typically as long as the asset is in use), for taxation purposes.

For example:

If a company acquires machinery for say ₹1 crore which will be used for next 10 years today, then instead of showing the expense incurred towards this in one financial year in the accounting books, they will show 10 lakh as an expense over next 10 years

Annual General Meeting is a corporate event where the management gives a brief about the functioning of the company or organization for the last 1 year to shareholders. Voting on important matters pertaining to the company may also take place in an AGM, like appointment of directors, declaration of dividend, appointment of auditors, etc.

It is a report which gives a comprehensive review of a company or organisation's acitivities thoughout the preceding financial year. Important data included in this report

It is a long-term investment product issued by an insurance company which prevents you from the risk of outliving your income. Through annuitization process, whatever sum you have contributed towards payment of these products are converted into periodic payments that can last for life.

Arbitrage is the simultaneous purchase and sale of the same or similar asset in different markets in order to profit from tiny differences in the asset's listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.

For example :

A stock which is listed on both BSE is trading at ₹100 while the same stock is trading at ₹103 on NSE. In this case an arbitrage opportunity of ₹3 is available as you can buy the stock from BSE at ₹100 and sell it for ₹103 thus making ₹3 in the transaction.

It is the price quote of security at which the seller is ready to sell his holdings to buyers

Asset allocation is the act of dedicating portions of your investments to different asset classes in a manner consistent with an investment strategy. The risks and returns associated with different asset classes are different. Also, not all asset classes react similarly to a given economic condition. So, spreading your investments across asset classes can help you lower your risk exposure through diversification.

An asset management company (AMC) is a firm that invests funds collected from clients. The collected capital is then used to work through different investments including stocks, bonds, real estate, master limited partnerships, etc. AMCs manage hedge funds, pension plans, mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a single centralized portfolio.

An asset-backed security (ABS) is a financial investment that is collateralized by an underlying pool of assets—usually ones that generate a cash flow from debt, such as loans, leases, credit card balances, or receivables.They are exchanged in the form of a bond or note, paying income at a fixed rate for a period until maturity.

The authorised capital of a company is the maximum amount of share capital for which shares can be issued by a company. It is mentioned in the Memorandum of Association of the Company and is usually Rs. 1 lakh. The company can increase the capital at any time with shareholders approval and by paying an additional fee to the Registrar of Companies.

Eg: If a Private Limited Company has an authorized capital of Rs.10 lakh, it means that ABC Private Limited Company can issue shares worth up to Rs.10 lakhs to its investors.. However, the Company can still issue shares worth less than 10 lakhs to its investors as the company has not issued shares in excess of the authorised capital.

A plan offered by most mutual funds where a small fixed amount is automatically deducted monthly from an investor's bank account and invested in the mutual fund of their choice.

A plan offered by mutual funds where dividends received by the stocks in the portfolio are invested back into the folio in the form of more NAV units

Debt which is unlikely to be paid back is called as bad debt. Bad debts are usually treated as losses and written off against a reserve for such debts.

Balanced fund include both equity and debt in the portfolio schemes. Generally 50-75 percent holdings are in the form of equity and the rest in the form of debt.

It is the minimum interest rate investors will demand for investing in a non-Treasury security(Corporate bonds, municipal bonds,etc). It is also tied to the yield to maturity offered on the comparable-maturity treasury security that was most recently issued (on-the-run)

A basis point is a standard measure for interest rates and other percentages in finance. One basis point equals 1/100th of 1%, or 0.01%. Basis points are typically expressed with the abbreviations bp, bps, or bips.

Bear markets are characterised by a trend of falling stock prices for an extended period. Typically, if stock prices have fallen at least 20% from the previous high, we say we are in a bear market.

Beta is a concept that measures the expected move in a stock relative to movements in the overall market. A beta greater than 1.0 suggests that the stock is more volatile than the broader market, and a beta less than 1.0 indicates a stock with lower volatility.

It is the price quoted in the spread by the buyers of a security at which they are willing to buy a certain quantity of that security.

The bid–ask spread is the difference between the prices quoted for an immediate sale (ask) and an immediate purchase (bid) for any security in live market. When the bid price matches with ask price then a order goes through for that specific quantity.

The billing cycle is the period between the last billing date and the current billing date for any sale of goods or provision of services. The length of billing cycles varies depending on the lender or service provider, but usually, it lasts from 20 to 45 days.

It is a differential equation widely used to price options contracts. The Black-Scholes model requires five input variables: the strike price of an option, the current stock price, the time to expiration, the risk-free rate, and the volatility.

A block trade is a privately negotiated securities transaction. They are generally executed through different brokers to mask their size and hence are ececuted witht he help of many brokers. Block trades can be made outside the open market through a private purchase agreement.

Typically, blue-chip stocks are large companies with sound financials and good reputations. Blue-chip stocks, which have high stock prices, are often contrasted with penny stocks based on share prices.

Blue-chip companies are typically large-cap companies with considerable market share. Due to the large size of blue-chip companies, they are considered to have low growth potential but are likely to pay out dividends.

Bond ETFs are exchange-traded funds (ETFs) that invest in bonds. In India, you can find bond ETFs that invest in government bonds and private bonds. Bond ETFs are passively managed and track bond indices.

Exchange-traded funds (ETFs) have the features of mutual funds and stocks. They pool money from various sources, just like mutual funds and can be traded over the exchanges just like stocks.

Bond Rating determines creditworthiness of a bond.Moody's, Standard & Poor's, and Fitch are the three agencies which determine the creditworthiness of the bond issuer and rate them accordingly. The bond rating of AAA is the highest and means that the bond will be honoured at the end of maturity. As the rating goes below AAA the risk involved with default on bond increases.

Bonds are instruments through which governments and corporations borrow money. Bondholders are creditors or lenders and the issuer of the bond is the debtor or borrower.

Bondholders may earn a fixed interest rate or the bonds may be issued to them at a discount to be paid in full at maturity.

Trivia: The first known bond ever issued was issued circa 24000BC in Mesopotamia.

Bonus issues involve companies issuing bonus shares free of cost by capitalising the reserves accumulated from past profits. Companies can increase the number of outstanding shares and their equity base by issuing bonus shares. Due to the increased number of shares, the participation of retail investors might increase.

Book building is the process by which an underwriter attempts to determine the price at which an initial public offering (IPO) will be offered to secondary market participants. The process of price discovery involves generating and recording investor demand for shares before arriving at an issue price.

The book value of a company is calculated by subtracting its liabilities from its assets. It literally means the value of a company as reflected on its financial statements.

Investors may compare a firm’s book value with its market value to determine whether its stock is overpriced, underpriced or priced just right.

Bottom line refers to the net income that a company generated after everything else like sales and expenses are considered. The word bottom in the term depicts the location of the net earnings or the net income in the income statements, i.e., the last line of the bottom of the page.

Bombay Stock Exchange (BSE) is one of the 2 major stock exchanges in India. Having been established in 1875, BSE is Asia’s first stock exchange. BSE itself is listed on NSE, India’s other major stock exchange. In addition to enabling the trading of equities, BSE also provides a market for currencies, debt instruments, derivatives and mutual fund units.

Indian Clearing Corporation and BSE Institute are subsidiaries of BSE.

Bull markets are characterised by a trend of rising stock prices for an extended period. Typically, if stock prices have risen at least 20% from the previous low, we say we are in a bull market.

Bullion is a name given to precious metals like gold, silver, and platinum in their purest form. Bullion is generally sold in the form of ingots, bars and unmarked coins. Value of bullion is derived from its quantity and purity and not its casted shape.

Buy side analysts are analysts who research stocks and other securities in primary and secondary markets which can generate good alpha in the long run for investors. They use fundamental analysis , track sectoral growth and news to find the right investment opportunities.

The compound annual growth rate (CAGR) is the compound rate at which an investment would need to grow annually in the given period to reach its final value. CAGR is typically expressed in percentage terms.

Capital gains tax is a tax applied on profits arising out of selling of securities. There are two types of capital gains tax:

STCG : Short term capital gains tax which is applicable if a person sells any profibale security which is valued more than 1 lakh Rs and held for less than 12 months. The tax applicable on such transaction is 15% of the profits accrued.

LTCG: Long term capital gains tax is applicable at the rate of 10% if the security is held for a period of over 12 months

Cash and cash equivalents are those assets in the company's balance sheet which are held in cash in banks or such investments which are highly liquid in nature and can be converted into cash in a very short amount of time. Eg: Bank FD's, Bonds, commercial paper, etc.

Cash flow can be defined as the net amount of cash and cash equivalents which are being transferred in and out of a company's account due to the nature of its business.

Central Depository Services (India) Limited (CDSL) is one of the 2 depositories in India. Depositories enable the holding of securities in dematerialised form and transaction of securities. The company describes itself as a market infrastructure institution (MII) and provides services to exchanges, clearing corporations, depository participants (DPs), issuers and investors.

CDSL is a listed company.

A country's central bank is the primary authority which manages the currency of a country and controls the supply of money in its economy. In India Reserve Bank of India functions as a central bank.

A clearing corporation is an organization associated which handles the confirmation, settlement, and delivery of transactions which occurs on the stock exchange. Clearing corporation of India provides this function for Indian exchanges like NSE and BSE.

Clearing member is a member of the clearing corporation who settles the trades which have taken place in the secondary markets. Clearing members are generally banks, mutual fund houses and brokers.

Commodities are raw materials consumed directly or used to produce other goods. They include agricultural products and metals such as gold, silver and copper. Commodity investments are considered to be more volatile than stock investments but can sometimes act as hedges against inflation and provide diversification benefits.

When you reinvest your returns from an investment, you stand to earn returns on your original investment amount as well as your returns from it. Compounding is the process through which you would earn amplified returns because you reinvested your gains.

The power of compounding refers to the potential of compounding to grow your wealth exponentially.

Consumer price index measures the change in the prices of basket of goods and services over a period of time. It helps in understanding the rate of inflation seen in the economy. Major groups in the basket include food and beverages, housing, apparel, transportation, medical care, recreation, education and communications.

Contingent liabilities are liabilities or losses which may fall upon a company in future due to uncertainty arising out of nature of its work. These can be in the form of lawsuits, pending investigations, fines , warranties, etc

It is a investment strategy where an investor goes against the general market sentiment about a certain stock or sector, hence sell when others are buying and buy when others are selling.

Convertible bonds are bonds which gives the owner of such bonds a right to acquire a predetermined number of equity shares of a company on exercising the conversion option. Under normal circumstances it will perform as a common bond and provide yield in the form of interest payments.

The cut-off price is the offer price at which the shares get issued to the investors, which could be any price within the price band. For example if an IPO has a price band of ₹100-₹110 then selecting the cutoff price will indicate that you ready to subscribe the IPO for any price in the price band.

A cyclical stock is a stock which is affected by microeconomic , macroeconomic or sytematic changes that happen in the economy , in a predictable fashion. For example Consumer discretionary stock generally perform better when economy is performing better and people have disposable income, and vice versa

These are instruments used by large corporates to raise funds at a fixed interest rates but without any collateral to back. Investors generally invest in them based on the goodwill and earnings of corporates which offer them. They provide higher yields than collateral backed bonds.

Debt-to-equity (D/E) ratio is the ratio of a company's total debt and financial liabilities to the value of its shareholder's equity. The debt-to-equity ratio is considered to be a measure of how levered a company is or rather how much of a company's assets are financed through debt.

Typically, low debt-to-equity ratios are considered to be more desirable, but one should also keep in mind the sector of the company to get a proper idea of how levered the company is.

Deep in the money is any option contract that has nearly all its value in intrinsic terms (difference between strike price and current price) and minimal extrinsic or time value. For eg: If Nifty is trading at 18500 and I have a call option of strike price 17500 priced at ₹1050 then only the time value (extrinsic value) is only ₹50 and intrinsic value is ₹1000 which is nothing but difference in strike price and market price.

A defensive stock is any stock which is least affected by the change in economic conditions. These stocks are also called as non-cyclical stocks since they dont follow the economic cycles. The main reason for outperformance of these stocks is that the consumption of goods or services these stocks provide don't depend on market cycles. Eg: defense stocks, pharma stocks, etc.

Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy.

Delisted stocks refer to the stocks that are taken off from the exchanges. Delisted stocks have to be traded outside exchanges and in the over-the-counter market. A stock may get delisted due to multiple reasons, including bankruptcy, inadequate market capitalisation or failure to meet regulatory requirements.

Companies may delist voluntarily due to non-performance, amalgamations and mergers.

When a stock is being delisted, the promoters must offer to buy back the shares through a reverse book-building process.

Delta is the theoretical estimate of how much an option's value may change given a ₹1 move UP or DOWN in the underlying security. The Delta values range from -1 to +1, with 0 representing an option where the premium barely moves relative to price changes in the underlying stock.

Depository participants act as mediators between depositories and traders, and investors. They are also referred to as agents of depositories. In India, NSDL and CDSL are the 2 major depositories. A person can not directly open a Demat account with NSDL or CDSL. They need to go through depository participants.

Depository participants are responsible for storing assets such as securities.

A reduction in the value of an asset over time, due in particular to wear and tear. For eg: the value of a car bought by you reduces as it gets older and older.

The reduction or underestimation of the worth or importance of something from what it was valued at earlier. For eg: Many startups which were valued over $1 billion during 2020-21 have started losing their value due to market factors which have affected their growth prospects.

Institutional investors who invest in the same country they are based are called domestic institutional investors (DII). DIIs can include mutual fund houses, insurance companies, pension funds and banks. Institutional investors are often called market makers due to the high portion of trades carried out by them. They are essential for a market to be liquid.

Furthermore, institutional investors promote management accountability.

In the stock market, investors and traders need to go through brokers to invest and trade in securities. If a broker does not offer anything besides the facility to trade securities, they are called a discount broker.

Diversification involves investing in various assets and asset classes instead of focusing on any one asset to limit the risk exposure from any one asset.

Suppose you invest only in one company or only in companies from a particular sector. Then, if that company or sector faces a crisis, your entire portfolio might go down in value. But, if you spread your investments across sectors, market cap categories, and locations, the risk of your portfolio going down in value due to a crisis affecting any specific sector, market cap category or location is lowered.

The dividend yield is calculated by dividing the dividends paid in a particular year by its shareholder's equity and is expressed in percentage terms. The dividend yield is a useful ratio for investors aiming to earn high dividend returns.

The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity indexes

Drawdown is the decline of a stock from its peak prices during a specific period of investment. A drawdown is usually measured in percentage. For eg: If a stock was trading at ₹100 at its peak and trades at ₹80 today then it has shown a drawdown of 20%.

Dumping is a situation where investors are selling their holdings of a stock. If a very heavy dumping of stock happens then the stock may also reach lower circuit levels.

Earnings per share (EPS) is the ratio of the net earnings of a company in a previous financial year and its number of shares. EPS is a measure of the profitability of a company.

Typically, EPS is used to compare the profitability of two or more companies.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) is a measure of a company's core profitability. Depreciation and amortisation are non-cash expenses, and the taxes and interest expenses depend on a company's capital structure. By ignoring these expenses, we can learn about the cash profits earned by a company.

An emerging market is a market that has some characteristics of a developed market, but does not fully meet its standards. This includes markets that may become developed markets in the future or were in the past.

Earnings per share (EPS) is a company's net profit divided by the number of common shares it has outstanding. Eg: If a company has total earnings of ₹100 in this quarter and there are total 100 outstanding shares then EPS will be ₹1/share.

Exchange-traded funds (ETFs) have features of both mutual funds and stocks. They can be bought and sold over exchanges just like stocks, and they pool money from various investors and invest in different assets, just like mutual funds.

To invest or trade in ETFs, you need to have a Demat account.

When we talk about the liquidity of securities, we are talking about how easily investors can convert them into cash without losing value.

Since ETFs themselves are traded over exchanges, they have 2 layers of liquidity. One layer of liquidity of an ETF would be the ease with which investors can convert it into cash. The other layer would be the ease with which the underlying securities can be converted into cash.

Read more: What is ETF Liquidity and Why does it matter?

The ex-dividend date is the first business day after the stock dividend is paid (and is also after the record date). If you sell your stock before the ex-dividend date, you also are selling away your right to the stock dividend.

Exit load refers to the fees charged by mutual funds when an investor sells their units (exit) of the mutual funds. Exit loads are typically applicable only if investors pull out their money from mutual funds within a certain period from making the investment.

The expense ratio of a stock or asset fund is the total percentage of fund assets used for administrative, management, advertising, and all other expenses. An expense ratio of 1% per annum means that each year 1% of the fund's total assets will be used to cover expenses.

To manage a certain investment fund, the fund management company incurs various costs, including the costs of employing fund managers and a research team, computer equipment, office rent and administrative costs. The total cost of running a fund is recovered from the investors of such funds.

The expense ratio is the ratio of the total costs of running a fund and the assets under management (AUM) of the investment fund. A fund's expense ratio helps investors understand how much of their investments are being paid to the fund management company as fees.

The expense ratio of a fund is typically expressed in percentage terms.

The formula for calculating the expense ratio for a fund is as follows: Expense ratio= Total costs incurred in running the fund/ Assets under management(AUM) of the fund

The face value of a security is a term used to describe the security’s nominal value as stated by its issuer. In the case of stocks, the face value is the original cost of the stock as listed on the certificate, while in the case of bonds, it is the amount paid to the holder at maturity.

An estimated price at which buyers and sellers would freely trade an asset is called fair value. The various ways to determine the fair value of an asset include looking at recent market transactions for similar assets and estimating its expected earnings or the cost of replacing it.

SEBI defines foreign institutional investors (FIIs) as institutions established or incorporated outside India seeking to invest in securities in India. For developing countries, FIIs can be an important source of capital. However, various countries place limits on the FIIs to limit their influence on a country's capital markets and the damage they might cause if they flee during a crisis.

FOMC or the Federal Open Market committee is a twelve member body of the US Federal Reserve which makes the important economic decison of managing key interest rates and money supply in US markets. Since US Dollar is a major currency used for trading between nations the decisions of FOMC is very important data point to track for investors.

Follow-on public offers (FPOs) are issuances of shares by a company already listed on stock exchanges. Public offers are ways for companies to raise money that can be used for various purposes like expansion activities or paying off existing debt.

Free-float is a term used to denote the number of outstanding shares that are not restricted from trading or closely held.

Restricted shares are the share that can be traded unless certain conditions are met and are typically held by the management. Closely held shares are the shares held by major long-term investors or insiders.

NIFTY 50 and SENSEX, the 2 major Indian stock market indices, are calculated based on free-float market capitalisation.

It is an illegal practice where trading or investing in a stock happens based on insider information which will affect the price of stock in future. The front runner invests before everyone else and gets out of the trade once peak price has been achieved.

In the stock market, investors and traders need to go through brokers to invest and trade in securities. If a broker provides other services besides the facility to trade securities, they are called a full-service broker.

These additional services may include research and advisory services, retirement planning, financial planning and portfolio management.

Funds of funds (FoFs) are mutual funds that invest in other funds. Unlike funds that directly invest in stocks, commodities or other asset classes, FoFs invest in other funds that make direct investments or other FoFs.

FoFs aim to provide a higher level of diversification by investing in various fund categories like growth funds, foreign equity funds, gold funds, bond funds, etc.

FoFs that invest only in funds made by their own company are called fettered FoFs, and if an FoF invests in any fund, it is called an unfettered FoF.

Read more: ETF vs FOF: What are the major differences?

Fundamental analysis is a technique of studying a stock or security based on the information available about it or the sector in which it operates publically. Usually fundamental analysts use financial statements, state of economy, interest rates etc as proxy to invest in the stocks and figure out if they are undervalued or overvalued.

Gamma is the rate of change for an option's delta based on a single-point move in the delta's price. It is a second-order risk factor, sometimes known as the delta of the delta. Gamma is at its highest when an option is at the money and is at its lowest when it is further away from the money.

Gold ETFs are funds that invest in 99.9% 24K pure gold. 1 unit of a gold ETF equals 1 gram of physical gold. You can invest in just 1 unit of a gold ETF, and you need a Demat account to invest in gold ETFs.

Exchange-traded funds (ETFs) have the features of mutual funds and stocks. They pool money from various sources, just like mutual funds and can be traded over the exchanges just like stocks.

Read more: Difference Between Gold ETFs Vs Gold Mutual Funds.

Gold funds are investment funds that invest in gold and gold-related assets. Gold funds include gold ETFs and gold mutual funds. When we talk about gold-related assets, we can be talking about other gold funds as well. For example, gold ETFs invest in 99.5% purity gold, while gold mutual funds invest in gold ETFs.

Government securities (G-Secs) are debt instruments issued by the government. When you own a g-sec, you are lending to the government. Long-term g-secs offer periodic interest payments, while short-term g-secs are issued at a discount and redeemed at par.

Since governments rarely default on their debt obligations, g-secs are considered to be credit risk-free. The Indian government has never defaulted on its debt obligations.

Read more: Government Securities

When a new clause or policy is added to a law, certain persons may be relieved from complying with the new clause. This is called “grandfathering”. “Grandfathered” persons enjoy the right to avail concession because they have made their decisions under the old law.

Hedging is a strategy that tries to limit risks in financial assets. It uses financial instruments or market strategies to offset the risk of any adverse price movements. Put another way, investors hedge one investment by making a trade in another. Futures and options are generally used as instruments for hedging.

A holding company is a type of financial organization that owns a controlling interest in other companies, which are called subsidiaries. The parent corporation can control the subsidiary's policies and oversee management decisions but doesn't run day-to-day operations.

An option is said to be "in the money" when the current price at which the underlying scipt is trading is higher than the strike price. For eg: If a underlying script is trading at 18000 then a call option of strike price 17800 will be ITM by 200 points, while a put of 18200 will also be ITM by 200 points.

Indices are meant to be ways to track the performance of a group of assets in a standardised manner. Indices may track groups of stocks, bonds or other assets.

Trivia: The Dow Jones Transportation Index, published by Charles Dow, is the world’s first stock index launched on 3rd July 1884.

India VIX, a.k.a NIFTY VIX, is a volatility index that reflects the uncertainty in NIFTY 50 values expected by traders over the next 30 days. The value of India VIX is calculated using NIFTY 50 options. India VIX is sometimes also called the fear index. NIFTY 50 and India VIX have a strong negative correlation.

Insider trading refers to trading a company’s securities by insiders based on material information that is not publicly available. Insider trading is considered unfair and illegal as the insiders stand to make unfair gains at the cost of outsiders to the company.

Not all trades by insiders of a company are considered illegal. As long as insiders of the company inform SEBI and do not trade based on material nonpublic information, their trades are not illegal.

Insolvency is a state of financial distress in which a business or person is unable to pay their bills. It can lead to insolvency proceedings, in which legal action will be taken against the insolvent person or entity, and assets may be liquidated to pay off outstanding debts.

Intraday trading is a process by which buyers or sellers of a security settle their trades before the market closes on that particular day itself. For example if I buy some shares of Reliance in the morning and sell them before 3:30 pm then the trade would be considered as intraday trade.

Initial Public Offerings (IPO) are issuances of shares by a company that is not yet listed on the stock exchange but wants to be. Public offers are one of the ways in which companies raise money and are preferred over taking on debt which can be expensive due to interest payments.

In the calendar year 2021, 65 companies went for an IPO in India.

The issue price of a security is the price at which they are offered for sale when they first become available to the public.

KYC is a process mandatory for financial institutions where they are supposed to know the person identity and credentials before making financial products available to them. KYC standards are designed to protect financial institutions against fraud, corruption, money laundering and terrorist financing

In India, SEBI defines large-cap companies as the 100 biggest companies according to their market capitalisation. Typically, large-cap companies are well-established in their respective industries and are considered to be safer than relatively smaller companies.

Trivia: Reliance Industries is currently the largest listed company in India

Read more: All You Need To Know About Large-Cap Stocks In India

These are policy standards which are applicable to all the participants involved in a operating business in a particular sector of economy. No special treatment is provided to anyone in terms of exception to law, etc,

In finance leverage is use of borrowed capital for any investment, expecting that the profits made to be greater than the interest payable.

A liability can be defined as the sacrifice of accrued economic benefits by the entity to other entity as a result of past transactions or other past events. For eg: If you take a loan from any bankl then the loan amount is a liability upon you, while for the bank it is an asset.

A limit order is a buy or sell order punched on an exchange with a fixed price ,only when the price criteria is met the order goes through and the transaction gets completed. For Eg: If I want to buy 50 shares of Reliance at ₹2500 and currently Reliance is trading at ₹2505 then my buy order will execute only when the price of stock reaches ₹2500 else the order will get cancelled at the end of the day.

Liquid funds are debt funds that lend to companies for a period of up to 91 days. These are the safest funds amongst all fund categories.

Liquidation is the process of converting all the security holdings in your entire portfolio or a part of it into cash.

Liquidity refers to the ease with which an investor can buy or sell a particular asset without changes in its price. Stocks with low liquidity might be seen as riskier than other stocks due to difficulties in exiting them.

Liquidity can also mean the ability of a company to raise cash. High liquidity is favourable for a company as it can help in smooth operations.

Liquidity can also refer to the accessibility of cash in an economy. High liquidity in an economy can boost consumption expenditure but might also lead to inflation. Low liquidity can hurt consumption expenditure, but it can help alleviate inflation.

Listing is the process of price discovery of a stock by selling its shares to general public and getting it up on the bourses.

Lock-In period is a period of time during which the security held by an investor cannot be sold to anyone else. For Eg: Certain mutual fund products have a lockin period of 1 year before they can be sold.

LTCG or Long term capital gains tax is a tax applicable on profits accrued due to sale or purchase of securities which are held for more than 12 months. They are taxed at the rate of 10% currently.

Lower circuits of stocks refer to the lower limit beyond which its price can not go on the current trading day. Lower circuits, like upper circuits, are typically calculated as a percentage of the previous closing price. Stocks hit lower circuits when there are many sellers, even at the lower circuit price, but no buyers.

Lower circuits exist for indices as well. Like upper circuits for indices, lower circuits for indices are calculated as a percentage of the previous closing value. They are placed at various levels, which, when reached, lead to halting trading activity for a specified period.

A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting stocks and managing the portfolio.

Margin call is an intimation by broker when an investor/trader needs to add additional funds in their accounts in order to have adequate fund balance according to make sure that their open positions can be continued without being squared off.

Mark-to-market is a term which denotes a system of valuing an asset based on its current market price in real time.

Market cap or market capitalisation is the market value of a company calculated by multiplying its share price by its number of outstanding shares. The market cap of a company is used as an indicator of its size.

Companies are often divided into large-cap, mid-cap and small-cap categories based on their market capitalisation.

It is the total value of a company based on the value of its outstanding shared which are publically traded. For eg: If a company has total 1 lakh outstanding shares and they are trading at ₹100 in the secondary markets then the Market capitalization of the company would be ₹1 crore.

It is the current price of any security which is trading in secondary market on realtime basis

MCX or Multi Commodity Exchange is an Indian commodities exchange which deals in trading of energy, bullion and commodity products.

In India, SEBI defines mid-cap companies as the ones ranking 101st to 250th according to their market capitalisation. Mid-cap companies are considered to have higher growth potential than large-cap companies but less than that of small-cap companies. Mid-cap companies are considered to be safer than small-cap companies but riskier than large-cap companies.

When we say a business has a good moat, we are saying that it has a high ability to protect its market share. An example of a company with a good moat would be a government company operating in a sector that is reserved for the government.

Trivia: The term originates from ‘moats around castles,’ which are deep ditches either dry or filled with water that surround castles and are meant to be a protective barrier against intruders.

Momentum stocks are stocks which show a high rate of change in price movement over a period of time, higher rate of change of price help investors determine the strength of a trend and invest in these stocks to gain profits.

The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. T-bills, commercial papers ,REPO agreements are traded in these markets.

A legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt.

A mortgage-backed security is a type of asset-backed security which is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals that securitizes, or packages, the loans together into a security that investors can buy.

Multibaggers stocks provide investors with returns multiple times higher than the cost of investing in them. The term ‘multibaggers’ was coined by Peter Lynch, a well-known investment manager from the 80s and 90s.

Multibaggers can come from any sector or market cap category.

Municipal bonds (“munis”) are debt securities issued by state and local governments. They can be thought of as loans that investors make to local governments, and are used to fund public works such as parks, libraries, bridges and roads, and other infrastructure. Interest paid on municipal bonds is often tax free, making them an attractive investment option for individuals in high tax brackets.

A mutual fund is a trust fund that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities. These funds are managed by registered professionals with expertise in capital markets.

Nasdaq Stock Market is an American stock exchange based in New York City. It is ranked second on the list of stock exchanges by market capitalization of shares traded, behind the New York Stock Exchange. NASDAQ Index is the benchmark index of this exchange and mainly consists of technology stocks.

NAV is the value of one unit of a mutual fund scheme which an investor can invest in. The value of NAV changes based on the value of the underlying assets held in the mutual fund scheme.

NYSE is one of the largest stock exchanges in the world with a total MCap of $26 Trillion. It is based in lower Manhattan District of New York City in USA.

NIFTY 50 (commonly referred to as just NIFTY) is NSE’s benchmark index made up of 50 companies listed on NSE and is meant to reflect the overall market conditions. The methodology used to calculate NIFTY 50 is known as the free float market capitalisation method. The index was launched in 1995.

National Securities Depository Limited (NSDL) is one of the 2 depositories in India. Depositories enable the holding of securities in dematerialised form and transaction of securities. Through its nationwide network of depository partners, NSDL provides a range of services to various parties, including stockbrokers, investors, custodians, and issuer companies.

The National Stock Exchange of India (NSE) is one of India's 2 major stock exchanges. In addition to facilitating the trading of stocks, NSE also facilitates the wholesale debt market and the cash market segment.

Some of NSE's investments in complementary businesses include mutual fund registry services, back-end exchange support services for its platforms, depository services, e-corporate governance and commodity, power and receivables exchanges.

A combination of two orders in which the execution of either one automatically cancels the other.

Open Network for Digital Commerce (ONDC) is a government initiative for promoting open networks for all aspects of the electronic or digital exchange of goods and services. With ONDC, buyers and sellers need not be on the same platform to discover each other, making it easier for customers to find products. Also, ONDC takes away the power of imposing policies from platforms and helps smaller retailers access the online marketplace.

The Organization of the Petroleum Exporting Countries is a cartel of 13 petroleum exporting countries. The 13 member countries account for an estimated 44 percent of global oil production and 81.5 percent of the world's proven oil reserves. The decision of these countries on production of crude oil which moves the prices of these commodities as well as the world economies.

The buying and selling of government securities–Treasury bills, notes, and bonds—by the Federal Reserve.

Sales minus all expenses except income taxes and other items not related to basic business.

In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option. There are two types of options call options and put options

A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.

Any extra amount received by the company more than the proposed issued capital.

Price-to-book (P/B) ratio is calculated by dividing the market capitalisation of a company by its book value. The book value of a company is the value of a company calculated by subtracting its liabilities from its assets.

The P/B ratio is a valuation multiple. It is used by investors to judge whether a company’s shares are overpriced, underpriced or priced just right.

If the shares of a company are underpriced, one might expect the share prices to increase. Similarly, if a company’s shares are overpriced, one might expect the share prices to decrease.

Trivia: Eugene Fama and Kenneth French are credited with being the inventors of the P/B ratio.

Price-to-earnings (P/E) ratio is a valuation multiple that is calculated by dividing the market capitalisation of a company by its earnings or by dividing its share price by its earnings per share (EPS).

The P/E ratio is widely used by value investors in determining whether a company is valued correctly or not.

In simple terms, it helps investors determine whether paying the current price would be cheap, expensive or just right for the stock of a company.

Trivia: Robert Shiller, a Nobel Laureate, is accredited with being the creator of the P/E ratio.

Read More: Price-To-Earnings (P/E) Ratio

The part of the issued capital of a company that has been paid up by the shareholders

Penny stock is a term that originated in the US markets and was used to describe stocks whose prices were just a few pennies. Typically penny stocks have low market capitalisation, share prices, and liquidity.

Due to the small size of penny stock companies and their low share prices, some might think penny stocks have the potential to give high returns in short periods, but it should be noted that penny stocks tend to be risky due to low liquidity and the small size of the companies.

The Purchasing Manager's Index (PMI) is an economic indicator derived from the monthly survey of the private sector companies. PMI aims in providing information regarding the current and future conditions of a business to the decision-makers, analysts and investors of the company.

An investor’s portfolio is the collection of all their investments across all asset classes, e.g. stocks, bonds, commodities, real estate, etc. Ideally, an investor’s portfolio should match their risk profile and be appropriate for the kind of goals they want to achieve.

Instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal.

Concept of taxation according to which income tax is based on "average" income instead of actual income.

Where firms sell new financial assets typically with the assistance of an investment banker.

An index that shows the cost of resources needed to produce manufactured goods during the previous month.

Promoter holding is a measure of equity of a company held by its promoters. Typically, it is expressed as a percentage calculated by dividing the number of shares with promoters and the total number of shares of the company.

High promoter holding stocks might sometimes be considered to be safer than low promoter holding stocks as it reflects the high confidence of promoters in the company.

The ratio of put trading volume divided by the call trading volume. For example, a put/call ratio of 0.74 means that for every 100 calls bought, 74 puts were bought. It is a contrary indicator. A reading of 1.0 or more is very bullish as most people think the market is going down. When the majority thinks the market is going to move a certain direction, it usually does the opposite.

A quant is someone who is really good at math, computer science and the like and brings those skills to bear in the securities industry. The rise of computers and exotic derivatives on Wall Street is both a cause and an effect of quants. Such tools (along with the big bucks to be made) bring quants to the industry, who in turn create more such tools themselves.

Indicates a company's financial strength; a company's cash and equivalent divided by current liabilities.

Over time, an investor’s portfolio allocations to different assets and asset classes might shift due to differences in the type and amount of returns. Also, after some time, an investor’s strategy might change. In such cases, it is necessary to make trades to ensure that the portfolio remains aligned with the investment strategy and to apply any changes in the investment strategy.

Rebalancing a portfolio is the act of making trades to ensure the portfolio remains aligned with the strategy and that any changes in the strategy are applied to the portfolio.

The record date, or date of record, is the cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution.

Return from an investment refers to gain made by the investor. Returns can be in the form of capital gains where the value of the asset increases, or they might be in the form of income. Interest and dividends are returns earned in the form of income.

Investment returns are typically expressed in percentage terms.

Risk is the chance of an investment’s actual gain differing from the expected outcome. It includes but is not limited to the possibility of making losses.

Learning about the risks associated with assets you can invest in can help you lower your risk exposure, i.e. help avoid unnecessary losses.

Risk management is the identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.

The risk/reward ratio, sometimes known as the "R/R ratio," compares the potential profit of a trade to its potential loss. It is calculated by dividing the difference between the entry point of a trade and the stop-loss order (the risk) by the difference between the profit target and the entry point (the reward).

Return on capital employed (ROCE) helps assess a company's profitability and capital efficiency. ROCE is a ratio that is measured by dividing a company's operating profit or EBIT (earnings before interest and taxes) by the capital employed.

The capital employed by a company can be calculated by subtracting current liabilities from the total assets of a company.

Return on equity (ROE) is a ratio of a company's net income and shareholder's equity. ROE is a ratio that helps investors determine whether a company is utilising its funds efficiently or not.

Typically, investors compare the current ROE to the historical ROE or ROE of a company to other companies in the same sector.

Rollover is a way of churning the current positions in futures contracts to the next expiry contract by cutting the positions in current expiry contract.

The secondary market, also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.

Companies from similar industries are placed in the same sector. For example, if there are 30 companies producing chemicals, 30 companies will be placed in the chemicals sector. Similarly, if there are 20 companies producing fast-moving consumer goods (FMCGs), 20 companies will be placed in the FMCG sector.

A sector fund is an investment fund that invests in one type of industry or sector. · Sector funds are usually available as mutual funds or exchange traded funds

BSE SENSEX is BSE’s benchmark index made up of the 30 largest and financially sound companies listed on BSE. Its name is derived from the words ‘sensitive’ and ‘index’. SENSEX is meant to reflect the overall condition of the Indian stock market. SENSEX is calculated using the free float market capitalisation method.

Share buybacks involve companies repurchasing their own shares. Typically, companies buy back shares at a premium to the current market price. Companies may announce buybacks if it wants to protect against takeovers, to reward shareholders tax-efficiently, or if it believes that the current stock price is lower than its intrinsic value.

A shareholding pattern is a disclosure of the ownership pattern of promoters and non-promoters like mutual fund houses and retail investors. Typically, shareholding patterns are presented as pie charts or bar charts with percentage annotations.

In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals.

It is simply the average price over the specified period. The average is called "moving" because it is plotted on the chart bar by bar, forming a line that moves along the chart as the average value changes.

Systematic Investment Plans (SIPs) involve making a fixed periodic investment into an asset of your choice. SIPs are a well-known way of investing in mutual funds, but you can set up SIPs in various assets. SIPs play an important role in making investing accessible to a larger number of investors as they help them start small.

An advantage of SIPs is that since asset prices vary and the investment amount remains constant, investors would buy more at lower prices than at higher prices. This phenomenon is known as Rupee Cost Averaging.

In India, SEBI defines small-cap companies as the ones ranking 251st and lower according to their market capitalisation. Small-cap companies are considered to be riskier than large-cap and mid-cap companies, but they are also considered to have a higher growth potential than the other 2 category companies.

Read more: What Are Small-Cap Stocks?

The spot price is the current price in the marketplace at which a given asset—such as a security, commodity, or currency—can be bought or sold for immediate delivery.

The standard deviation is a measure of the amount of variation or dispersion of a set of values. A low standard deviation indicates that the values tend to be close to the mean of the set, while a high standard deviation indicates that the values are spread out over a wider range.

Stock exchanges are markets where securities are bought and sold. These securities include stocks, bonds and derivatives.

In India, there are 2 major stock exchanges, namely the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Trivia: Amsterdam Stock Exchange is considered to be the oldest stock exchange in the world having been established in 1602 by the Dutch East India Company, the first company to offer its equity shares to the public.

Read more: What is the Difference Between NSE and BSE?

Stock market bubbles are phases in which stock prices have risen well above their intrinsic values. Bubbles are frowned upon as they are followed by crashes. Bubbles are typically the result of speculative activity.

Stock splitting is a corporate action that involves reducing the face value of shares and increasing the number of shares. Stock splits do not affect the market value of companies, but due to the increased number of shares, the liquidity of its shares might increase.

Stocks represent ownership of their holders in the issuing company. Stocks may be common stocks or preferred stocks. Preferred stockholders earn a fixed amount of dividends whose payment takes priority over that of ordinary share dividends. While common stockholders do not get a fixed amount of dividends, they do get voting rights in company matters.Stocks are also known as equities.

Trivia: The Dutch East India Company was the first company to offer equity shares of its business to the public

It is a type of order which can be placed on an exchange over an already existing open trade such that in case of the position going against the investor/user he can get out out of it with minimum losses.

A Treasury Bill (T-Bill) is a short-term government debt obligation backed by the Treasury Department of the central bank with a maturity of one year or less.

Trading involves trying to make profits from short-term fluctuations in asset prices. While an investor would hold a stock for at least a year and sometimes for decades, a trader might sell off the stock within minutes. Trading is considered riskier than investing as short-term price fluctuations can be challenging to predict.

Trailing twelve months is a measurement of a company's financial performance used in finance. It is measured by using the income statements from a company's reports, to calculate the income for the twelve-month period immediately prior to the date of the report.

An underlying security is a stock or bond on which derivative instruments, such as futures, ETFs, and options, are based. In most cases, the underlying security is the item which must be delivered by one party in the derivative contract and accepted by the other party.

Undervalued stocks are stocks whose current stock price is lower than their intrinsic value. The intrinsic value is the current value of all future cash flows expected from it.

If a stock is undervalued, one can gain by investing in it and selling it off once it reaches its intrinsic value. But, you should note that not all stocks that appear undervalued are undervalued.

Upper circuits of stocks refer to the upper limit beyond which its price can not go on the current trading day. Upper circuits are typically calculated as a percentage of the previous closing price. For a stock to hit the upper circuit, the current investors must not be willing to sell even at the upper circuit price, while various probable investors want to invest at that price.

Upper circuits also exist for stock indices and are calculated as percentages of the previous closing value. For stock indices, circuit limits are placed at various levels, which, when reached, lead to the halting of trading activity for a specified period.

Value at risk is a measure of the risk of loss for investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period such as a day.

Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions.

Volatility refers to how liable something is to change fast and unpredictably. In the stock market, volatility measures how likely a stock, sector or market is to move unpredictably. Typically, high volatility is associated with high risk and vice versa.

The quantity of overall trades which occured in a security instrument in a given period of time is called as the volume

It is a trading benchmark that represents the average price a security has traded at throughout the day, based on both volume and price. VWAP typically is most useful to short-term traders.

The rate at which each irregular or regular investment would have to grow so that the total investments reach their final value is called the Extended Internal Rate of Return (XIRR).

To calculate the XIRR for a set of investments, one has to rely on MS Excel or Google Sheets, as the manual process can be tedious and time-consuming.

Yield is the income returned on an investment, such as the interest received from holding a security. The yield is usually expressed as an annual percentage rate based on the investment's cost, current market value, or face value.

A portfolio constructed to have zero systematic risk, that is, having a beta of zero.

The 52-week high of a security or an index refers to the highest value or price achieved by it in the past year (or 52 weeks). If a stock is close to its 52-week high, people would question whether the company’s growth justifies its valuation nearing the highest it has been in a year.

The 52-week low of a security or an index refers to the lowest value or price achieved by it in the past year (or 52 weeks). If a stock is close to its 52-week low, people would question whether the company is performing so poorly that its valuation is near the lowest it has been in a year.