Stock Market - Basics (Part-1)

Issues & Securities,

1.    If I write on a piece of paper saying “anyone who gives me 100 Rs., I’ll give him 120 rupees after 6 months” = this is public issue

2.    If you give me 100 Rs. And take that paper- then that paper becomes the ‘security’

Keep in mind that The 100 Rs you give to me or the 120 Rs. I’ll give to you after 6 months- that is NOT Security. That Piece of paper is the security.

Technical definition

·       Security means a formal declaration that documents a fact of relevance tofinance and investment gives the holder a right to receive interest or dividends.

·       Security  means  A guarantee that an obligation will be met

Shares, debentures.

They’re also securities of one type. You must be knowing about them already so just in brief--

1.    If for your 100 rs, I give you a limited ownership in my company and promise to give you the share from my profit = this is share

2.    But if I say that, I’ll give you 15 Rs. Every year no matter I get any profit / not = this is debenture.

Derivatives / Stock Market Derivatives

·       you gave me 100 Rs and I gave you a paper saying I’ll payback 120 Rs. (=Mrunal’s security paper)

·       there is another guy named Mitul who, same way borrowed 100 Rs. And gave you another paper saying he’ll pay you 120 Rs after 6 months. (Mitul’ssecurity paper.)

·       Now you need money before 6 months, so you write on a new paper, “anyone who gives me 220 Rs, I’ll give him 240 Rs. Worth Security  papers of Mrunal and Mitul.”

·       that new paper you crated is again a ‘security ’ but it doesn’t have ‘direct-money attached with it’ –instead, it derives its value from the security papers for Mrunal and Mitul. So your new paper is called ‘Derivatives’

lets now deviate from our article’s topic for a while to learn a few things related to recession from above talk.

Mortgage, Asset bubble & derivatives

·       You give me 100 Rs. And I give you paper saying “if I don’t pay back, you can take away my house”

·       this is mortgage. But again this is also one kind of ‘security paper’

·       Now you’re a big bank, so you’ve plenty of such mortgage papers because you give loans to lot of people. (even to those who can’t afford to pay back the loan)

·       Then you repack those mortgage papers (security )  and make a new security paper “anyone who gives me 500 Rs. I’ll give him mortgage papers of 5 houses” = this is derivative product.

·       Suppose 3^rd  guy bought such derivative papers and after few months, he repacks them- makes another derivative product and sell it to 4^th guy.

·       Such papers are one sort of ‘asset’ (because you can get money from someone using it.)

·       but as you can see, you did not create any ‘new asset’ you’re just keep reselling same stuff over and over to different people. So you’re blowing a ‘bubble’

·       After few months, I refuse to pay money, and tell the 4^th guy to take away my home. But the prices in reality  sector are low so even if you sell my home you can’t recover your 100 Rs. = this is ‘toxic asset’ / NPA = non-performing asset andyour asset bubble is ‘burst’

Financial Market

·       You gave me money I gave you a piece of paper (security) 

·       The place where we did this business is called financial market.

·       If I had promised to pay back money in less than 1 year (=short term loan) , this will be called Money Market

·       If I had promised to pay back money after long time like 10-20 years (=long term loan) , this will be called a CAPITAL MARKET.

Players in Capital Market (diagram)

Subparts of capital market.

·       As said above, when I take long term loan = its capital market.

·       When initially I took money from you and give you piece of paper = this is‘PRIMARY market.’ *

·       But after sometime, you need the money while I’m going to pay back after 10 years.

·       So you borrow 100 Rs from another guy and give that piece of paper (=security) to that guy. And tell him to recover the money from Mrunal = you traded my security. This is ‘SECONDARY MARKET’  (Sharemarket / BSE/NSE etc)

It’s the job of SEBI to control both Primary & Secondary Capital market in India.

As you saw on above diagram that Govt. is also a ‘player’ in capital market. So,

Why does Government issue securities?

·       Suppose I’m the Govt.

·       My expenses are more than my income

·       = I’m in deficit (gap)

I’ve following options to cover that deficit

1.    Increase tax rates (income tax, VAT, import duties) But this will make people unhappy and they’ll not vote for me in next election

2.    Print more money. But this will create inflation= again unhappy people= less votes.

3.    Borrow from international institution (world bank / IMF)

But if I borrow too much, I’ll have to play by their tunes regarding Kashmir, Copenhagen,WTO-Doha.

4.    Borrow from people within India. This sounds safer!

·       So I’ll issue securities. (When you issue for the first time = you’re inprimary market.)

·       keep in mind that Govt. does this for short term deficits. (its like I need money in October 2013 but you’re going to pay income tax in March 2014 so I’ll use this trick to cover my money needs.)

·       Govt. generally plays only in the primary market.

·       When you give me your money and receive that piece of paper (security)   = you can be certain that I’m going to pay back and won’t run away like AshokJadeja. After all I’m the Government.  And I pay good profits.

·       that’s why Govt. securities are called ‘Gilt-Edged securities’

How does this thing work?

·       As I decided to issue security in primary market, but that doesn’t mean I’ll send my peon/clerk/Secretary to the primary market with bag full of papers (security) and sell it like vegetables.

·       I give my piece of papers (security / treasury bills) to RBI- they’ll give me the money and then RBI’s men will sell it in the primary market. = RBI is Govt.’sdebt manager.*

·       *Security Paper= I’m going to pay money after some time. = I’m in your debt. And RBI manager’s my security papers so they’re my ‘debt manager.’

Separate debt Management office.

·       Ok so now you know that RBI is Govt.’s debt manager. But consider this

·       RBI’s main job = maintain liquidity (=money supply)   in market via monetary policy (=CRR,Repo etc crap)

·       But, When RBI sells Govt. securities in primary market, and give the money to Govt. = money supply flow is interrupted = liquidity is drying = harder to get loans

·       = conflict of interest.

·       That’s why many people are calling for separate Public debt Management office and relieve RBI from this duty.

Ok now ,final part in this article-As we saw, there are 2 types of capital market : Primary and secondary. but

 Why do we need Secondary market?

Gives Exit Route

·       I’m going to return money to you after 10 years. So your hands are ‘tied’ – you can’t recover it from me until next 10 years, so what if you needed money in emergency? You’ve secondary market so you’ll sell my security to someone else and recover the money. Otherwise,

·       In the absence of a secondary market, many of the investors would probably not agree to supply capital (money) in the primary market because they would not have an exit route for their investment.

Gives Price information

By active trading by millions of investor, you get price information regarding the securities.

This price information is used to judge

1.    the corporate performance (share prices)

2.    performance of the Government

3.    economy (through interest rates on Government debt).

4.    facilitating value-enhancing control activities (mergers & acquisitions) and

5.    enabling implementation of incentive-based management contracts (employee stock options).

[Special thanks to Mr.Mrunal for their work regard to this article]

Digital Mirror for New Medical sector [MEDICAL TECHNOLOGIST]

 

In the TV series Star Trek, Captain Kirk has a handheld device called a tricorder that can immediately assess a patient's condition and diagnose disease. This is 300 years in the future. 

In real life, technology is advancing so rapidly that within a decade, Kirk's tricorder will look primitive. Just as our bathroom scales give us instant readings of our weight, our smartphone tricorders will monitor our health and warn us when we are about to get sick. Our doctors—or their artificial intelligence replacements—will prescribe medicines or lifestyle changes based on our full medical history and genetic composition. 

This future isn't being created just in Hollywood or Silicon in Valley; Indian entrepreneurs too are leading the charge. 

Forus Health, for example, has built 3nethra—an inexpensive device for the early detection of common eye ailments. Sofomo Embedded Solutions markets Lifeplot—a 12-Lead mobile electrocardiogram (ECG). Agatsa is developing Sanket—a pocket-sized ECG with a display which does not require any leads or wires. NextServices has created enki - a mobile electronic health record platform Our smartphones already contain a wide array of sensors, including an accelerometer that keeps track of our movement, a high-definition camera that can photograph external ailments and transmit them for analysis, and a global positioning system that knows where we have been. 

All of these devices can feed data into our smartphones and cloud-based personal lockers—turning this into a medical device. Gujarat-based Azoi, for example, is launching an iPhone case that tracks blood oxygen level, blood pressure, ECG, respiration, temperature, and has an attachment for reading lung functions. 

Public Health Foundation of India has already built India's first tricorder—an android based mobile system called the Swasthya Slate that can perform 33 diagnostics tests including blood pressure, sugar, hemoglobin, and ECG. It can also test for pregnancy, dengue, and malaria 

The device, which retails for Rs 34,500 has been tested and approved for use in eight districts in Jammu and Kashmir. It is more features than products I have seen in Silicon Valley. 

When we get sick, we won't need to go—in high temperature and in severe pain—to our doctors' offices, only to wait in line with patients who have other diseases that we may catch. Our doctors will come to us over the Internet 

Telemedicine is already a fast-growing field, particularly in India's villages and remote parts of the world—where doctors assist people using SMS, two-way video, and email. We too will see our doctors using video technologies on smartphones and tablets. Our body sensors will provide them with better medical data than they have today.Then, our smartphones will evolve further and do part of the job of doctors. 

The same type of AI technology that IBM Watson used to defeat champions on the TV show Jeopardy will monitor our health data, predict disease, and advise on how to improve our health. 

Already, IBM Watson has learned about all the advances in oncology and is better at diagnosing cancer than are human doctors. Watson and its competitors will soon learn about every other field of medicine, and will provide us with better, and better-informed, advice than our doctors do. They will take a more holistic view of our bodies, lifestyles, and symptoms than our doctors can. They will, after all, have our full medical history from childhood, know where we have been, and keep track of our medical data on a minute-by-minute basis. 

Most doctors still work from brief, unintelligible, hand-scribbled notes and try to make a judgment about what medicines to prescribe us in a 10- to 15-minute consultation; they treat symptoms of interest rather than the holistic self. 

Then there is the most revolutionary technology of all: genomics.We learned how to sequence the genome about a decade ago, and sequencing it cost billions of dollars. Today a full human genome sequence costs as little as $1,000.