After the report of American research agency Hindenburg about Adani Group, many such words related to market or finance are being used which are not heard in common parlance. But, to understand the Adani case it is also necessary to understand the meaning of these words. Similar terms are short selling, market capitalization, FPO, IPO and stock manipulation which are used many times. Hindenburg describes himself as a 'short seller' and he too is being accused of releasing this report to make a profit.

At the same time, Hindenburg in his report has accused Adani Group of fraud and stock manipulation. After this report came, there has been panic among the investors of Adani Group and there has been a huge fall in the shares. Even concerns are being expressed about the loans given to the Adani group from the banks.

At present, Finance Minister Nirmala Sitharaman and the Reserve Bank of India have assured that there is no risk to investors and are maintaining regulatory vigil on the matter.

The matter of Adani group remains a topic of discussion among the Indian media, common people and politicians. Its echo is being heard in the Parliament as well. In such a situation, to understand this matter, let us know the meaning of some important words related to the market-

What is short selling?

Generally, in the stock market, you buy shares of that company whose share prices are going to increase in future. When the share price goes up, you sell them. But, in short selling, buying and selling of shares is done when their prices are likely to fall in the future. In such a situation, the short seller sells them despite not having shares with him. But, he does not buy and sell shares but sells them on credit.

Understand this with an example - like if a short seller expects that a stock of Rs 100 can break up to Rs 60, then he will borrow the stock from the broker and sell it to other investors who will buy it at Rs 100. are ready to When this stock falls to the level of 60, the short seller will buy it and return it to the broker. In this way he can make a profit of Rs 40 on each share.

Short selling is a valid way of buying and selling shares but it carries a lot of risk. However, short selling done with the right strategy by assessing the risk can also be profitable.

There can be a lot of profit and loss in this. The loss can happen when the share price rises instead of falling, the short seller will have to return the borrowed shares by buying them at a higher price. It is mostly used by experts who are able to do deep analysis and research in it. Only companions who have the capacity to bear the loss.

Why does a short seller borrow instead of buying shares?

When you buy shares, you pay a fixed price for them. On the other hand, when you borrow shares, you only have to return the shares and you can make full profit from the changes in the share prices.

What is Initial Public Offering (IPO)?

When a private company wants to raise money, it sells its shares to the public. This process is fully regulated and the first time a company sells its shares is called Initial Public Offering or Maiden Offer. After the IPO, the company is listed on the stock exchange on which trading can take place.

What is Follow-on Public Offering (FPO)?

If a company already listed on the stock exchange or IPO wants to raise money, then it again brings its new shares for sale among the people.

This is called a follow-on public offering. This money is usually collected for debt payment or for raising funds.

There is less risk in FPO as compared to IPO as the financial condition of the company is already public.

What is shell company?

A shell company is one that exists only on paper but does not do any business. It is not illegal to have a shell company in India as it can be used for many business purposes in a legitimate way.

However, shell companies are sometimes used for illegal purposes such as tax avoidance and stock manipulation. They also have legitimate uses, such as for anonymizing business ownership information in acquisitions and public listings.

What is manipulation of share prices or market?

The price of any share depends on its supply and demand. If more people want to buy a stock i.e. its demand is high, then it starts being sold (supplying) and its price increases.

At the same time, how much the demand for a share will increase, it is related to the foundation of the company and its performance. If a company performs well or is likely to do well, then the demand for its shares increases, which in turn increases their price.

Although the process of increasing and decreasing demand, supply and price of shares goes on naturally, but when it is deliberately interfered with, it is called tampering with the share price.

Share price manipulation means when someone artificially affects the demand or supply of a share to increase or decrease its price.

This can be done by spreading false information about the company or by buying and selling shares of a single company to show fake demand-supply. This can increase or decrease the share price.

It is illegal to do so but it is very difficult to catch and prove. Share prices can be manipulated through shell companies and unethical brokers.

stock market

Market capitalization (market capitalization) or market value (market value) of a company is the total value of all the shares of that company. It is derived by multiplying the price of one share by the rest of the shares. For example, a company has 10 crore shares and the price of one share is Rs 100, then the market capitalization or market value of this company will be Rs 1000 crore.

Investors assess the risks and benefits of investing in a company through market capitalization. Changes in the market capitalization of a company are linked to changes in the price of its shares. However, the capitalization may change even if new shares are issued.

Companies often use market capitalization or market value as collateral to raise funds. When capitalization falls, the company is required to provide additional funds to cover the fall in the value of the guarantee.

What is tax haven?

Tax haven is called such a country or independent area where foreign companies and individuals do not have to pay taxes at all or very little tax has to be paid. Although tax havens are legal, they are used illegally by companies or wealthy individuals for tax evasion, money laundering and fraud.

Source: BBC