“Why there is two exchanges in India”

A. Exchanges are places where you can buy and sell something.

India has two operational stock exchanges: Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

There were other stock exchanges in India also.

But they shut down due to operational reasons like not being able to remain technologically updated or not being able to stick to the regulatory requirements, etc.

Example: Calcutta Stock Exchange, Bangalore Stock Exchange, Madras Stock Exchange — are all stock exchanges in India that are no longer operating.

Stock exchange is like a shopping mall — a place to buy and sell.

There can be any number of stock exchanges in a country.

Right now, we have two exchanges.

Nifty Next 50

Nifty Next 50 is an index (collection) of stocks.

It consists of the 51st to 100th biggest stocks of India. The 50 biggest stocks are shown in the index Nifty 50, the 30 biggest are shown in Sensex 30.

The size of the stocks is determined by their market capitalization (m-cap).

How is the IPO price decided?

There are firms that take companies through the IPO process. They are called underwriters.

Underwriters use various methods to estimate the share price. There are a few methods like discounted cash flow method, comparing with other companies, etc.

Once they have a share price that they think is good, they have two options.

Fixed price offering: where one share price is offered to investors.

Book building offering: where they keep the price in a 20% range and let investors bid for shares.

Based on the bidding, the final price is decided.

Why do companies go for an IPO?

To get money.

IPO is a procedure in which a company sells its own shares to investors.

The money can then be used to expand the business operations, spend on R&D, pay back loans, etc.

Once the shares are sold to investors, the company itself does not get any money from the further buying and selling of the shares.

Example. XYZ Company sold 20,000 of its shares in an IPO.

Now, share market investors buy and sell these 20,000 shares among each other.

“How is the capital gains tax is calculated on the shares bought 10 years ago”

A. 10 years ago, there was no long term capital gains tax on shares.

It was introduced in the financial year (FY) 2018-19 — 10% on the gains (profit).

So if you bought a share 10 years ago, there will be no tax calculation till FY 2018-19.

Gains made after 2018-19 will be taxed at 10%.

Do note: shares are only taxed when selling. Simply holding a share does not attract any taxes.

Also, in every financial year, up to Rs 1 lakh gains from equity investment (shares and mutual funds) is tax-free.

PE ratio

PE ratio—also known as P/E ratio, P to E ratio, or simply PE.

PE ratio has become one of the most talked about measures of valuation—if a stock is fairly valued, undervalued, or overvalued.

This week, we will learn more about this ratio, what it tells us, and what it cannot tell us.

First, how is it calculated?

Price of one stock divided by the earnings-per-share of that company.

PE ratio = Current share price / earnings-per-share.

Earnings-per-share = net profit of a company / total shares.