Explanations About Equity Shares and Major Equity Indices
Many financial instruments are issued in the market, each with different risk and return features that define its appropriateness for an investor. Let us look into the major instruments available in the Indian securities market:
1. Explanations About Who Issues The Equity Shares?
The companies issue equity shares in the market.
Who Can Invest?
Institutions and Individuals (Retail and HNI)
What Is The Medium Of the Issue?
Direct issuance by companies and Stock Exchange
Which Is The Regulatory Body?
SEBI, Regulators under the Companies Act Equity shares represent the form of partial ownership in a business venture. Equity shareholders jointly own the company. They carry the risk, so then they enjoy the rewards of ownership.
2. Debentures/Bonds/Notes
Who Issues The Equity Shares?
It is issued by Companies, Government, Special Purpose Vehicles (SPVs)
Who Can Invest?
Institutions and Individuals can invest.
What Is The Medium Of the Issue?
Direct issuance by issuers and Stock Exchange
Which Is The Regulatory Body?
· RBI, SEBI, and Regulators under the Companies Act Debentures/Bonds/Notes are instruments that raise long-term debt. Debentures were either secured (backed by collateral support) or unsecured. There is a range of debentures/bonds, such as fully convertible, non-convertible, and partly convertible debentures.
· Completely convertible debentures were completely convertible into ordinary shares of the issuing company.
· The terms of conversion are precise at the time of the issue itself.
· PCDs - Partly convertible debentures are slightly convertible into ordinary shares of the issuing company under described terms and conditions as described at the time of issue itself.
· The non-convertible segment of these debentures is justified as happens in any other vanilla debenture.
· NCDs - Non-Convertible Debentures are pure debt instruments lacking a feature of conversion. The NCDs are repayable/redeemable on maturity. Consequently, debentures can be pure debt or quasi-equity, depending on the case.
· Short-term debt instruments are used to raise debt for periods not exceeding one year.
These Instruments Compriseof Treasury Bills Issued By The Government, Commercial Papers Issued By The Companies And Certificate Of Deposit Issued By The Banks.
3. Warrants And Convertible Warrants
Who Issues The Warrants And Convertible Warrants?
Companies issue it.
Who Are The Investors?
Institutions and Individuals can invest.
What Is The Medium Of the Issue?
Direct issuance by companies and Stock Exchange
Which Is The Regulatory Body?
It is regulated by SEBI Warrants are options that entitle an investor to buy equity shares of the issuer company after a specific period at a given price. Very few companies in Indian Securities Market have issued warrants till now.
4. Indices
· A market index follows the market movement by using the prices of a small number of shares selected as a representative sample.
· Generally, leading indices are weighted by market capitalization to consider the fact that the more the number of shares issued, the greater the number of portfolios in which they may be held.
· Stocks included in an index are also quite liquid, making it potential for investors to imitate the index at a low cost.
· Narrow indices are usually made up of the most actively traded equity shares in that exchange. Other indices to follow sectors or market cap categories are also in use.
· India's most widely tracked indices are the S&P BSE Sensitive Index (S&P BSE Sensex), the MSEI Flagship Index (SX40), and the Nifty 50.
· The SX40 is composed of the 40 most representative stocks listed on the Metropolitan Stock Exchange of India Ltd (MSEIL), and the Nifty 50 is composed of the 50 most representative stocks listed on the National Stock Exchange.
· The shares included in these indices are selected on the root of aspects such as liquidity, availability of floating stock, and size of market capitalization. The composition of stocks in the index is re-examined and customized from time to time to keep the index representative of the underlying market.
A few other common indices in India are mentioned below:
· Nifty Next 50
· Nifty 100
· Nifty 500
· S&P BSE-100
· S&P BSE- 500
· S&P BSE-Midcap
· S&P BSE-Small Cap
There are also sector indices for banking, information technology, pharma, fast-moving consumer goods, and other sectors created by the exchanges to enable the tracking of definite sectors.
· The major uses of indices are listed below:
· The index can compare returns on investments in stock markets instead of asset classes such as gold or debt.
· To compare performance with an equity fund, a stock market index can be the Benchmark.
· The index indicates the economy's performance or any sector of the economy.
· Indices indicate Real-time market sentiments.
· Indices act as an underlying for Index Funds, Index Futures, and Options.
