This content originally appeared on DEV Community and was authored by Madhav Ganesan
Key Concepts
Demat Account
- It stores your shares and securities in electronic (dematerialized) form.
- It is maintained by Depository participants (DPs) such as NSDL or CDSL through banks or brokers.
Broker (Trading) Account
- It is used to buy and sell shares in the stock market.
- It is maintained by Stockbrokers (Zerodha, ICICI Direct, Upstox, etc.)
Tax Loss Harvesting
It is a strategy where you sell investments at a loss to offset capital gains (or even some other taxable income), reducing your total tax liability.
Market Mood Index (MMI)
- It is a tool used to gauge the sentiment or mood of the stock market at a given point in time.
- It reflects the psychological state of investors, which can influence market movements.
Extreme Fear: Investors are highly risk-averse; markets may be oversold.
Fear: Indicates cautious sentiment; often signals a potential buying opportunity.
Neutral: Balanced sentiment, with no strong bias toward buying or selling.
Greed: Investors are optimistic; markets may be overbought.
Extreme Greed: Euphoria in the market; caution is advised as corrections may follow.
Stock Exchange
National Stock Exchange (NSE) (1992)
- Key Index: Nifty
Bombay Stock Exchange (BSE) (1875)
- It is the oldest stock exchange in Asia.
- Key Index: Sensex (Sensitive Index)
Index
- It is a statistical measure that tracks the performance of a group of stocks, representing a specific segment of the market.
- It provides a snapshot of the overall market or a specific sector, allowing investors to gauge market trends and performance over time.
- It consists of a selected group of stocks chosen based on specific criteria, such as market capitalization, sector, or trading volume.
- It is not a product, but rather a tool or benchmark used to represent and measure the performance of a group of stocks within a particular segment of the stock market.
Eg:
- MSCI World Index
- FTSE All-World Index
- Dow Jones Industrial Average (DJIA)
- S&P 500
- Nasdaq Composite
- Nifty 50
- Sensex (BSE 30)
- FTSE 100
- Nikkei 225
- Shanghai Composite
Investors
Promoters
- It is an individual, group of individuals, or an entity that helps set up and promote a company, typically in its initial stages.
- They are referred to as the initial founders or those who start the company.
- They are the individuals or entities responsible for conceptualizing the business idea, bringing together resources, and taking steps to establish the company legally and operationally.
- A 0% promoter holding doesn't automatically mean the company is in trouble, but it can signal a significant shift in ownership, control, and governance.
(Note: However, not all initial founders may remain promoters forever, as their role and shareholding can change over time)
Retail Investors
- Individual, non-professional investors who invest in stocks, mutual funds, bonds, or other securities for personal goals
Domestic Institutional Investors (DII)
- Large organizations or entities like pension funds, mutual funds, insurance companies, hedge funds, or banks based in the home country that invest in domestic markets. Ex. ICICI Prudential Mutual Fund, HDFC Life Insurance, LIC, SBI Mutual Fund
Anchor Investors
- Institutional investors who invest in an IPO before it opens to the public, helping boost confidence and attract retail investors.
- They are allotted shares at a fixed price before the IPO subscription starts.
Foreign Institutional Investors (FIIs)
- Foreign entities or investors who invest in the financial markets of another country. Ex. BlackRock, Vanguard Group, Fidelity, JP Morgan, HSBC Global Asset Management
Angel Investors
- High-net-worth individuals who provide capital to startups or small businesses in exchange for equity or convertible debt.
Venture Capitalists (VCs)
- Professional investment firms or individuals who provide funding to startups and emerging businesses with high growth potential.
Key Concepts
Revenue (Top-line) (Gross earnings)
It is the total money a company earns from its operations.
Profit (Bottom-line) (Net earnings)
It is the money left after deducting all expenses from revenue
Public Float/Free Float
It refers to the number of shares of a company that are available for trading by the general public on the stock market.
Trailing Twelve Months (TTM)
It is a metric used to assess a company’s financial performance over the past 12 months, irrespective of the fiscal year.
Financing profit
- It typically comes from the difference between the interest income generated from investments or loans (e.g., lending money or bonds) and the interest expenses paid on borrowed capital (e.g., loans, bonds, or lines of credit)
- A positive financing profit means the company is earning more from its financing activities than it is spending.
- A negative financing profit means the company is paying more for its borrowings than it is earning from its investments or lending activities.
Liability
- It refers to any financial obligation or debt a company or individual owes to others.
- It is a component of the balance sheet under liabilities.
Leverage
- It refers to the use of borrowed funds or financial instruments to increase the potential return on investment.
Liquidity
- It refers to how quickly and easily an asset or security can be converted into cash without significantly affecting its market price.
Volatility
- It refers to the degree of variation or fluctuation in the price of an asset, security, or market index over a period of time.
Net NPA (Net Non-Performing Assets)
- It is a metric used in banking to assess the quality of a bank's loan book after accounting for provisions made against bad loans.
- It represents the actual risk to the bank from its non-performing assets (NPAs), which are loans or advances where the borrower has stopped making interest or principal repayments for a specified period (typically 90 days in India).
Multibagger
- It refers to an investment, usually in stocks, that generates returns several times the initial investment. Ex. 2-bagger means the investment has doubled in value10-bagger means the investment has increased tenfold
Opportunity Cost
- It is the value of the next best alternative that you give up when making a decision.
- It represents the benefits you could have gained by choosing a different option.
- In simpler terms, it’s the "cost" of missing out on something because you chose another course of action.
EPS (Earnings Per Share)
- It is a key financial metric that measures a company's profitability on a per-share basis.
- It indicates how much profit a company is generating for each share of its stock.
Book Value
- It refers to the net value of a company's assets, calculated by subtracting its liabilities from its total assets.
- It represents the value of a company's equity as recorded on its balance sheet.
- A higher book value relative to the stock price may indicate an undervalued stock.
- A lower book value may indicate the company has a lot of liabilities or intangible assets that are not reflected in the market value.
P/E (Price-to-Earnings) Ratio
- It is a key financial metric used to evaluate the valuation of a company's stock.
- It compares the market price per share to the earnings per share (EPS), indicating how much investors are willing to pay for each unit of earnings.
High P/E Ratio: Often indicates that the stock is overvalued or that investors expect high growth in the future.
Low P/E Ratio: May suggest that the stock is undervalued or that the company is experiencing challenges.
P/E Ratio of 1: This would indicate that the price of the stock is equal to its earnings, which is rare in well-established companies.
Current Ratio
It is a financial metric that is used to measure the liquidity of a company, which reflects its ability to pay off short-term liabilities with its short-term assets.
- Current Ratio > 1: The company has more current assets than liabilities, indicating good liquidity and financial health.
- Current Ratio < 1: The company may struggle to meet short-term liabilities, signaling potential liquidity issues.
- Current Ratio = 1: The company has just enough assets to cover its liabilities, offering limited financial flexibility.
PEG Ratio (Price/Earnings to Growth Ratio)
- The PEG ratio is a valuation metric used to determine the relative value of a stock by factoring in its earnings growth rate in addition to its price-to-earnings (P/E) ratio.
- It helps investors assess whether a stock is fairly valued, overvalued, or undervalued based on its future growth prospects.
- PEG < 1: The stock may be undervalued based on its growth potential.
- PEG = 1: The stock is fairly valued.
- PEG > 1: The stock may be overvalued.
Price-to-Book (P/B) Ratio
- P/B Ratio > 1: The market values the company higher than its book value. This can indicate that investors expect the company to generate high future growth
- P/B Ratio = 1: The market values the company exactly at its book value. This means investors are valuing the company at the same level as its net asset value.
- P/B Ratio < 1: The market values the company below its book value. This could indicate that the company is underperforming, facing financial difficulties, or the market perceives it to have limited growth prospects.
Market capitalization
It is the total value of a company's outstanding shares of stock
- Large Cap: Companies with a high market cap (e.g., ₹20,000 crores or more in India).
- Mid Cap: Companies with a market cap between ₹5,000 crores and ₹20,000 crores.
- Small Cap: Companies with a market cap below ₹5,000 crores.
Debt-to-Equity (D/E) Ratio
- It is a financial metric that measures the relative proportion of a company's debt and equity used to finance its assets.
- It indicates the company's financial leverage and risk level by showing how much debt it has for every unit of equity.
High D/E Ratio: Indicates that a company is using a higher proportion of debt to finance its operations, which could be riskier because debt must be repaid regardless of the company's financial performance. However, it could also signify potential for higher returns if the company successfully manages the debt.
Low D/E Ratio: Suggests that the company is more conservative in its financing, relying more on equity than debt, which may indicate lower financial risk but also less potential for higher returns from leverage.
Return on Equity (ROE)
- It is a key financial metric used to measure the profitability of a company in relation to shareholders' equity.
- It indicates how effectively a company is using its equity base to generate profit.
- Buyback of shares by a company can affect its Return on Equity (ROE), often leading to an increase in ROE.
Return on Capital Employed (ROCE)
- It is a financial metric used to evaluate a company's profitability and the efficiency with which its capital is employed.
- It measures the return a company generates from its capital employed in the business, which includes both equity and debt.
- Use ROCE when the company has significant debt or a complex capital structure.
Profit Var 5 Years
It refers to the growth or change in profit over a period of five years
Returns Over 6 Months
Interest Coverage Ratio (ICR)
- It measures a company’s ability to meet its interest payment obligations with its earnings before interest and taxes (EBIT).
It indicates the financial health of the company regarding its debt.
ICR > 3: Strong financial position, easily covering interest payments.
ICR = 1-3: Adequate coverage
ICR < 1: Financially stressed, earnings are insufficient to cover interest payments.
Current Ratio
It measures a company’s ability to pay its short-term liabilities (due within a year) using its short-term assets.
- Current Ratio > 1: The company has more current assets than current liabilities, indicating good short-term financial health.
- Current Ratio = 1: The company can just meet its short-term liabilities.
- Current Ratio < 1: The company may struggle to pay off its short-term liabilities, signaling potential liquidity issues.
Price-to-Sales (P/S) Ratio
- It is a valuation metric used to compare a company's stock price to its revenue per share.
- It helps investors evaluate how much they are paying for each unit of a company's revenue.
Pledged Percentage
- It refers to the proportion of a company's total promoter-held shares that have been used as collateral to secure loans or credit.
- It is expressed as a percentage of the promoter's shareholding.
Buyback of Shares
- It occurs when a company buys back its own shares from the open market. This reduces the number of outstanding shares in circulation.
Intrinsic Value:
- It refer to the calculated value of an asset, investment, or company, based on fundamental factors, rather than its current market price.
- It represents the true, inherent worth of an asset based on analysis of its fundamentals, such as earnings, dividends, growth potential, and economic conditions.
Square off
It refers to the act of closing an open position in the stock, derivatives, or commodities markets.
Relative Strength Index (RSI)
It is a momentum oscillator that measures the speed and change of price movements. It is used to evaluate whether an asset is overbought or oversold, which can help traders identify potential reversal points in the market.
Above 70: An RSI above 70 is often considered to indicate that the asset is overbought, meaning it may be due for a price correction or reversal to the downside.Below 30: An RSI below 30 is considered to indicate that the asset is oversold, meaning it may be undervalued and could be poised for a price increase or reversal to the upside.**Between 30 and 70: **This zone indicates a neutral market where the asset is neither overbought nor oversold, and price momentum is more balanced.
"No one can time the market!"
Rupee Cost Averaging (RCA):
- It is an investment strategy where you invest a fixed amount of money regularly in a particular asset, regardless of its price.
- This approach allows you to purchase more units when prices are low and fewer units when prices are high, averaging out the cost over time.
- If you had sold all 100 units in March (when the price was ₹60), you would’ve received ₹6,000.
- However, with RCA selling, you’ve benefited from the rising prices in April and May, receiving a higher average sale price.
Consolidation Phase
- It occurs when a stock's price trades within a narrow range without showing a clear upward or downward trend.
- This phase represents a period of indecision in the market, where buying and selling pressures are balanced.
Face value (Par value)
- It is the nominal value of a company's stock or bond as stated on its certificate.
- It is the original cost of the stock or bond at the time of issuance and does not change with market fluctuations.
- Face value is used to calculate dividend payouts.
For example, a 10% dividend on a face value of ₹10 means ₹1 per share.
Initial Public Offering (IPO):
- It is the process through which a private company offers its shares to the public for the first time, transitioning to a publicly traded company listed on a stock exchange.
- The IPO is a significant event for a company, as it raises capital by selling shares to investors and marks its entry into the stock market.
- When a company issues shares in an IPO, it is essentially selling partial ownership to the public.
- This means existing owners (founders, private investors, etc.) may have reduced control, as shareholders have voting rights.
- A public company must follow strict regulatory guidelines, disclose financial information quarterly, and maintain transparency with shareholders. This creates trust but also imposes regulatory costs and responsibilities.
- This capital is raised only once, at the IPO stage.
- Being publicly listed increases a company’s visibility and can enhance its brand image and reputation.
- This, in turn, can attract new customers, partners, and talent.
Why price fluctuates if the company gets only the initial money?
- The price movements are solely driven by demand and supply.
- When we buy shares in the secondary market (i.e., after the IPO), the money we pay doesn’t go to the company itself.
- Instead, the amount we pay for the shares goes to the person or institution selling those shares.
- The company only receives money directly from investors during the IPO (Initial Public Offering) phase, where they issue new shares to raise capital.
- After that, there’s no additional direct inflow of money to the company from secondary market trading.
- Once listed, the only outflow from the company to shareholders occurs when it pays dividends or other shareholder benefits.
Types of Market
Primary Market
- It is where securities are created and issued for the first time.
- In this market, companies raise capital by offering new shares or bonds to investors.
- The primary market plays a critical role in the initial funding of businesses and government projects.
Secondary Market
- It is where previously issued securities are bought and sold among investors.
- In this market, the company that issued the securities does not receive any money from the transaction.
- Instead, investors trade securities between themselves.
Draft Red Herring Prospectus (DRHP)
- It is a preliminary document filed by a company with the Securities and Exchange Board of India (SEBI) and the stock exchanges when the company intends to launch an Initial Public Offering (IPO).
- The DRHP provides detailed information about the company, its financials, operations, management, risks, and the structure of the IPO.
- It contains important details about the company, such as its business model, financial statements, management team, risk factors, and the purpose of raising funds through the IPO.
- It outlines the potential risks involved in investing in the company’s shares, including market competition, regulatory concerns, financial health, etc.
Overbought Zone
- It refers to a situation in the stock or asset market where the price of an asset (like a stock, mutual fund, or index) has risen too rapidly and may be due for a correction or pullback.
- It often indicates that the asset is trading at a higher price than its intrinsic value, and investors may start to take profits or reduce exposure.
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This content originally appeared on DEV Community and was authored by Madhav Ganesan

Madhav Ganesan | Sciencx (2025-09-29T08:45:54+00:00) Introduction to Equity Investments. Retrieved from https://www.scien.cx/2025/09/29/introduction-to-equity-investments/
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