MDC

MODULE I: INVESTMENT ENVIRONMENT,

MARKETS, AND INSTRUMENTS:

1. Financial Market: Primary & Secondary Market

• Primary Market: This is where new stocks or bonds are first sold to raise money for
companies or governments. Example: A company selling shares for the first time in an
IPO (Initial Public Offering).
• Secondary Market: This is where investors buy and sell stocks and bonds that have
already been issued. Example: Buying shares of a company on the stock exchange
(like BSE or NSE).
• Classification of Financial Markets:
o Capital Markets: Long-term investments (stocks, bonds). o
Money Markets: Short-term investments (T-bills, certificates of
deposit). o Forex Market: Currencies are traded. o Derivatives Market:
Trading contracts based on assets like stocks or commodities.

2. Role/Functions of the Primary Market (Issue Market)

• The primary market helps companies and governments raise money by selling new
securities (stocks, bonds) to investors. This is important for funding business growth
or government projects.

3. Key Differences Between IPO and FPO

• IPO (Initial Public Offering): When a company sells shares for the first time to the
public.
• FPO (Follow-on Public Offering): When a company that is already public sells more
shares to raise additional funds.

4. Secondary Market/Stock Exchanges

• Instruments of the Secondary Market: These are the items traded in the secondary
market, such as stocks, bonds, and ETFs.
• Key Differences Between Debentures/Bonds and Shares:

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 o Debentures/Bonds: These are loans where the issuer (company or
government) promises to pay back with interest. o Shares: Ownership in
a company. Shareholders can earn through dividends and capital gains.

5. Major Agencies of the Secondary Market

• BSE (Bombay Stock Exchange) and NSE (National Stock Exchange): These are
the two main stock exchanges in India where stocks are traded.
• NSDL and CDSL: They keep securities (like stocks and bonds) in electronic form,
making trading easy.
• SEBI: The regulatory body that ensures fairness, transparency, and protects investors'
interests in the stock market.

6. Different Types of Trading

• Derivative Market: This is a market where people trade contracts based on the value
of assets like stocks or commodities. It's mainly used for hedging risks or speculation.

7. Major Indices of BSE and NSE

• BSE Sensex: Tracks the performance of 30 large, top companies listed on the
Bombay Stock Exchange.
• NSE Nifty: Tracks the performance of the top 50 companies listed on the National
Stock Exchange.

8. Different Traders in the Secondary Market

• FIIs (Foreign Institutional Investors): These are investors from outside India who
buy and sell stocks in India.
• DIIs (Domestic Institutional Investors): These are local financial institutions (like
mutual funds or insurance companies) that invest in Indian stocks.
• Retail Investors: Regular individuals who invest in the stock market, typically
through buying and selling shares for themselves.

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 MODULE II: EQUITY SELECTION:

1. Fundamental Analysis: Meaning and Importance

• Fundamental Analysis: This is the method of evaluating a company’s financial health and
performance by looking at factors like its revenue, earnings, growth potential, and the
economy.
o Types/Processes of Fundamental Analysis: Involves analyzing:
 Financial statements (balance sheet, income statement).
 Company management and business model.
 Economic conditions and market trends.
o Importance of Fundamental Analysis: It helps investors determine whether a stock
is undervalued or overvalued and whether it's a good investment based on its real
financial value.

2. Important Ratios in Fundamental Analysis

These ratios help investors assess a company’s performance:

• Price-to-Earnings (P/E) Ratio: Measures how much investors are willing to pay for
each unit of earnings. A high P/E may suggest overvaluation, while a low P/E may
suggest undervaluation.
• Price-to-Book (P/B) Ratio: Compares a company’s market value (stock price) to its
book value (net asset value). A low P/B may indicate undervaluation.
• Dividend Yield: The annual dividend paid by the company as a percentage of its
stock price. Higher dividend yield is attractive to income-focused investors.
• Earnings Per Share (EPS): Measures the profitability of a company. The higher the
EPS, the better the company’s profitability.
• Return on Capital Employed (ROCE): Shows how efficiently a company is using
its capital to generate profits. Higher ROCE indicates better performance.
• Return on Equity (ROE): Measures how well a company is generating profit from
shareholders' equity. A higher ROE means better profitability.
• Debt-to-EBITDA Ratio: Shows the company’s ability to pay off its debt using
earnings before interest, taxes, depreciation, and amortization. A lower ratio is
considered better.
• EV-to-EBITDA Ratio: Compares a company’s enterprise value (EV) to its EBITDA
(earnings before interest, taxes, depreciation, and amortization). This is used to value
companies by comparing their debt and earnings potential.

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3. Technical Analysis: Meaning and Importance
• Technical Analysis: A method of evaluating stocks by analyzing past market data, mainly
price and volume, to predict future price movements.
o Importance: It helps traders and investors identify trends, entry/exit points, and make
informed decisions based on market behavior rather than company fundamentals.

Important Methods in Technical Analysis

• Charts: Visual representations (like line charts, bar charts, or candlestick charts) used
to track stock price movements over time.
• Candlesticks: A type of chart that shows price movements over a period. Each
"candlestick" represents the open, high, low, and close prices for that period.

Important Indicators in Technical Analysis

• Support and Resistance: o Support: The price level at which a stock tends to stop falling
and may start rising.
o Resistance: The price level at which a stock tends to stop rising and may start falling.
• RSI (Relative Strength Index): Measures whether a stock is overbought (above 70)
or oversold (below 30), helping identify potential price reversals.
• Moving Average (M.A.): A line that smooths out price data to help identify trends
over time. Common types are the simple moving average (SMA) and exponential
moving average (EMA).
• Volume Indicators: Track the number of shares being traded. High volume can
indicate strong investor interest, while low volume can suggest weak interest.
• Price Channel: A tool to show the upper and lower limits of price movement, helping
identify trends and breakout points.
• VIX (CBOE Volatility Index): Measures market volatility. A high VIX indicates a
lot of uncertainty and potential for larger price movements.

4. Differences Between Fundamental Analysis and Technical Analysis

• Fundamental Analysis focuses on the company’s financial health, business model, and
economic factors to decide if a stock is undervalued or overvalued.
• Technical Analysis focuses on past price movements and trading volumes, using charts
and indicators to predict future price movements without considering the company's
fundamentals.

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 MODULE III: PORTFOLIO CREATION:

1. Theories of Portfolio Creation

• Capital Asset Pricing Model (CAPM): This model helps determine the expected
return on an investment by considering its risk in relation to the overall market. It uses
a formula that factors in the risk-free rate, the stock’s beta (a measure of its volatility
relative to the market), and the market's expected return.
• Arbitrage Pricing Theory (APT): APT is an alternative to CAPM. It suggests that an
asset's return can be predicted by considering various macroeconomic factors (like
interest rates, inflation, etc.) rather than just the overall market risk. APT assumes that
asset returns are influenced by multiple factors.
• Markowitz Portfolio Theory: Developed by Harry Markowitz, this theory focuses
on diversification. It suggests that investors can build an optimal portfolio by
balancing risk and return through a mix of different assets. By combining assets that
don't move in perfect correlation with each other, overall risk can be reduced.
• Behavioral Portfolio Theory: This theory takes into account human psychology in
investment decisions. Unlike traditional theories that assume rational decisionmaking,
it suggests that investors often make choices based on emotions, biases, or mental
shortcuts, which can impact portfolio creation.

2. Different Types of Brokers

• Full-Service Broker: Provides a wide range of services including research, advice,
and retirement planning, along with executing trades. They charge higher fees for
these services.
• Discount Broker: Focuses mainly on executing trades for clients at a lower cost,
without offering additional services like financial advice or research. They charge
lower fees and are suitable for experienced investors who prefer managing their own
portfolios.
• Online Broker: A broker that operates via the internet and allows users to trade
stocks and other securities online. These brokers are typically low-cost and offer a
wide variety of tools for self-directed trading.

3. Process of Opening a Demat Account with a Discount Broker

• Step 1: Choose a discount broker that suits your trading style (check fees, user
interface, and tools provided).
• Step 2: Submit required documents (ID proof, address proof, PAN card, and bank
details).
• Step 3: Fill out the application form online or offline.

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 • Step 4: Complete the in-person verification (in some cases, it may be done via video
call).
• Step 5: Once approved, you’ll receive the Demat account details and can start trading.

4. How to Open a Demat Account Online?

To open a Demat account online:

• Visit the website of your chosen broker.

• Complete the registration process and upload scanned copies of necessary documents.
• Use e-signature or video KYC (Know Your Customer) for verification.
• Once everything is verified, your account is opened, and you can begin trading.

5. Maintaining Trading Account Details

• Profit and Loss Statement (P&L): A document showing the gains or losses made
from trading activities. It summarizes the buying and selling transactions, the profits,
and losses incurred during a specific period.

6. Capital Gain and Capital Gain Tax

• Capital Gain: The profit made from selling an asset (like stocks or property) for more
than the purchase price.
o Short-term Capital Gain (STCG): Profit from assets sold within a short
period (usually less than 1 year for stocks).
o Long-term Capital Gain (LTCG): Profit from assets held for a longer period
(typically over 1 year for stocks).
• Capital Gain Tax: Tax levied on the profit made from selling assets.
o STCG Tax: Tax on short-term gains, which is generally higher than LTCG
tax.
o LTCG Tax: Tax on long-term gains, often at a lower rate, with exemptions in
some cases (like for equities above a certain threshold).

7. Details to Be Included in the Income Tax Return

When filing your income tax return, include the following details:

• Personal Information: Name, address, and PAN details.

• Income Details: Salary, business income, capital gains, and any other income.
• Tax Deducted at Source (TDS): Include any TDS certificates or forms (Form 16 for
salary income).

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 • Deductions: Deductions under sections like 80C (investments in PPF, life insurance,
etc.), 80D (insurance premiums), etc.
• Capital Gains: Include details of any capital gains from selling assets like stocks or
property.
• Other Taxable Income: Include rental income, interest income, etc.

MODULE IV: TRADE MANAGEMENT:

1. Different Sectors in the Secondary Market:

The secondary market is where investors buy and sell securities (stocks, bonds, etc.) that have
already been issued in the primary market. Different sectors in the secondary market include:

• Banking: Involves stocks of financial institutions like banks and financial companies.
It is often considered a stable sector.
• Auto: Includes companies that manufacture vehicles or automotive parts, a sector that
can be sensitive to economic cycles.
• Pharma: Refers to pharmaceutical companies. The pharma sector can be more
resistant to economic downturns, as healthcare is essential.
• IT: Information Technology companies, such as software and tech service providers.
This sector can offer high growth, particularly in tech-driven economies.
• FMCG (Fast-Moving Consumer Goods): Companies producing essential consumer
products (e.g., food, beverages, toiletries). It’s generally a stable and defensive sector,
as demand remains steady.

2. Portfolio Allocation and Selection in Different Sectors:

• Maintaining Risk-Reward Balance: When building a portfolio, it's important to
balance risk and reward. Higher potential returns usually come with higher risks. You
need to allocate your investments in different sectors to maintain this balance and
avoid putting all your money into high-risk sectors.
• Position Sizing of Equities: This refers to how much money to invest in a particular
stock or sector. Position sizing is important to ensure you are not overly exposed to a
single investment. Proper sizing helps manage risk by diversifying your investments.

3. Capital Building Through Cumulative Investment:

Capital building through cumulative investment refers to the strategy of consistently
investing over time to accumulate wealth. By making regular, smaller investments (like

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monthly or quarterly), you can take advantage of compound growth over the long term. This
is also known as Systematic Investment Plan (SIP) in mutual funds.

4. Trader Psychology:
• Need and Approach to Maintain Good Psychology by a Trader: A trader's mindset
is crucial to success. Traders must be disciplined and avoid emotional decisions like
panic selling or overtrading during market swings. It’s important to: o Stay
patient: Understand that markets have ups and downs. o Stick to your strategy:
Avoid making impulsive decisions based on shortterm market movements. o
Control emotions: Fear and greed can often lead to poor decisions, so maintaining a
calm and rational mindset is essential for consistent success.

5. Practice:
• Download a Virtual Trading Platform and Selection: Many brokers and platforms
offer virtual trading simulators where you can practice trading without using real
money. These platforms allow you to simulate trades and test your strategies in
realmarket conditions. This is an excellent way to learn and gain confidence before
trading with real funds.

6. Creating a Portfolio Composed of Multiple Segments:

Building a portfolio with multiple segments means diversifying your investments across
different asset classes or sectors (stocks, bonds, real estate, etc.). This helps reduce risk, as
different segments may perform well in different economic conditions. For example:

• Stocks for growth

• Bonds for stability
• Real estate for income and capital appreciation

7. Getting Familiar with the Demat Account of Any One Broker:

A Demat Account (short for Dematerialized Account) is used to hold securities in electronic
form. It’s essential for trading in the stock market. To get familiar with the Demat account:

• Learn how to access your account and monitor your investments.

• Understand how to buy, sell, and transfer securities.
• Review the account statements and keep track of your portfolio’s performance.

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 MODULE V: open ended
1. Trade in Range-Bound Markets:
A range-bound market occurs when the price of a security (like a stock or bond) stays
within a certain price range over a period of time, without breaking above or below that
range. Traders use this information to make trades, buying when the price is near the lower
end of the range and selling when it approaches the upper end. The market isn't showing
strong upward or downward trends, so traders typically focus on short-term opportunities
within the established range.

2. Trading Signals:
Trading signals are indicators or triggers that suggest a good time to buy or sell a security.
These signals can come from technical analysis (like price patterns, indicators, or chart
analysis) or fundamental analysis (like news, earnings reports, or economic data). Some
common trading signals include:

• Crossovers (when one moving average crosses another)

• Breakouts (when a price moves outside a previous range)
• Overbought or oversold conditions (based on indicators like RSI)

3. What is the Relationship Between Yield and Price of a Bond?

The yield of a bond is the return an investor can expect from it, typically expressed as an
annual percentage. The relationship between bond price and yield is inverse, meaning:

• When bond prices go up, yields go down (because you’re paying more for the bond and
getting the same fixed interest).
• When bond prices go down, yields go up (because you can buy the bond at a lower price and
still get the same fixed interest).

This inverse relationship is important for bond investors when market interest rates change.

4. Bond Price, Yield, and the Rate of Interest:

• Bond Price: The market value of the bond, which can fluctuate based on interest rates and the
bond's perceived risk.
• Yield: The return an investor receives from a bond, which is often fixed but can change based
on the bond's price.
• Rate of Interest: The interest rate set by central banks (like the Federal Reserve or RBI)
affects the overall interest rates in the market, which in turn impacts bond prices and yields.

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An Illustration:

Imagine you buy a bond with a fixed interest rate of 5%. If the general interest rates in the
economy rise to 6%, the bond you own becomes less attractive because newer bonds offer a
higher return. As a result, the price of your bond would likely fall, increasing its yield (since
investors can buy it at a lower price but still receive the same fixed 5% return).

Conversely, if interest rates fall, the price of your bond may rise, and its yield would
decrease.

5. Major Foreign Stock Market Indices:

Stock market indices are used to track the performance of a group of stocks, representing a
specific market or sector. Some major foreign stock market indices include:

• Dow Jones Industrial Average (DJIA): Represents 30 large, publicly traded companies in
the U.S.
• S&P 500: Tracks 500 of the largest U.S. companies, widely used to represent the overall U.S.
stock market.
• NASDAQ Composite: Includes over 3,000 stocks, with a focus on technology companies.
• FTSE 100: Represents the 100 largest companies listed on the London Stock Exchange.
• Nikkei 225: The most prominent index in Japan, tracking 225 large companies.
• DAX: Represents the 30 largest companies in Germany.

These indices are used by investors to assess the overall health and trends of their respective
markets and economies.

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