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Summer training project report on fluctuation of indian stock market

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  • 1. Summer training project report on fluctuation of indianstock market @ prabath financial services limited -Document Transcript 1. SUMMER TRAINING PROJECT REPORT UNDER PRABATH FINANCIAL SERVICES LIMITED ON “Study of Fluctuations of Indian Stock Market” SUBMITTED IN PARTIAL FULLFILMENT OF THE REQUIRMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION OF THE RAJASTHAN TECHNICAL UNIVERSITY, KOTA. SUPERVISED BY:- SUBMITTED BY :- Mr. S. P. Kabra Rahul Jajoo FACITLITY SUPERVISOR:- Ms. Shilpi Kuntal SUBMITTED TO :- DEPARTMENT OF MANAGENENT STUDIES, SWAMI KESHVANAND INSTITUTE OF TECHNOLOGY, MANAGEMENT & GRAMOTHAN. JAIPUR 2008-2010 1 2. Certificate 2 3. Acknowledgement “The completion of any project depends upon the co-operation, coordination and combined efforts of several resources of knowledge, inspiration & energy.” Words fall short acknowledging immense support lent to me yet I will try to give full credit to the deservers. My sincere thanks goes to Mr. Vikas Shrotriya (HOD DMS) giving me an opportunity to discover more knowledge. I am also thankful to Mr. S. P. Kabra (Director,Prabhat financial services) for his support, guidance and cooperation throughout to accomplish this project also expressing deep sense of gratitude to my Project guide, Ms. Shilpi Kuntal (Lecturer) for her valuable guidance, continuous encouragement and tremendous patience in discussing my problems, have been of the greatest help in bringing out my task in present shape. I am equally grateful to all my other teachers for their complete support. It would be unfair on my part if I do not thank my colleagues for their continuous help without which this work could never have been accomplished. They made me realize the importance of teamwork and also the leadership skills. I am grateful to all of them standing with me and supporting me in this project. ( Rahul Jajoo ) Preface 3 4. In the present situation where stock market is going up and down, it is necessary to invest consciously in the market whatever it is, this is the study about the last two year fluctuation in stock market which enables the investor in taking decision regarding investment. This study tells the factor which directly or indirectly affects the market and some basic information not only share market but also other market such as derivatives or commodity market for the new investors or the students who have some interest in stock market. The objective of selecting the topic is to know about the market trends of the stock market and the information related to the investment for the future investor. The study of fluctuations of stock market makes the investor aquatinted with the factor affecting the investment and Stock prices can be volatile and some analysts argue that this volatility is excessive. This is not easy to prove, since it is difficult to assess certainty about future earnings and dividends. Companies tend to smooth dividends, so they will be less volatile than stock prices. Volatile stock prices do not have a major impact on consumption and capital spending since there is a good chance that price movements in one direction may be reversed. Contents 4
  • 2. 5. 1. Abstract 2. Research Methodology 2.1 Title of the Study 2.2 Duration of the Project 2.3 Objective of Study 2.4 Type of Research 2.5 Scope of Study 2.6 Limitation of Study 3. Core Study 4. SWOT 5. Conclusion 6. Bibliography Executive summary 56. A market is an environment that allows buyers and sellers to trade or exchange goods, services, and information. These interactions define demand and supply characteristics and are therefore fundamental to economies. A market can be defined as a place where any type of trade takes place. Markets are dependent on two major participants – buyers and sellers. Buyers and sellers typically trade goods, services and/ or information. Historically, markets were physical meeting places where buyers and sellers gathered together to trade. Although physical markets are still vital, virtual marketplaces supported by IT networks such as the internet have become the largest and most liquid. Some markets are very competitive, with a number of vendors selling the same kinds of products or services. Conversely, some markets have low or no competition, particularly if the industry is protected by government legislation. The number of buyers and sellers involved will have a direct bearing on the price of the good or service to be sold, and has become known as the law of supply and demand. Where there are more sellers than buyers, the availability of supply will push down prices. If there are more buyers than sellers, the increased demand will push up prices. Markets can appear spontaneously when there are goods or services to be exchanged, or they can be planned and regulated .Free markets operate under „laissez-fare‟ conditions, in that the government does not intervene in how the market operates. These markets may be distorted if a seller gains monopoly power by managing the majority of supply (or indeed if a buyer develops monophony power by managing demand). Governments or trade bodies often step in when such distortions undermine the smooth functioning of free markets. The currency markets are the largest continuously traded markets in the world. Twenty four hours a day, seven days a week, governments, banks, investors and consumers are buying and selling every currency, leading to massive money flows constantly changing hands. Stock markets have become highly complex markets that allow investors to buy shares in companies or in funds that aggregate companies or industries together. Most stock markets today are primarily electronic networks, although they often maintain a physical location for buyers, sellers and market makers to interact directly. Markets originally started as marketplaces usually in the center of villages and towns, for the sale or barter of farm produce, clothing and tools. These kinds of street markets developed into a whole variety of consumer-oriented markets, such as specialist markets, shopping centers, supermarkets, or even virtual markets such as eBay. With the rising price of oil and food, 67. commodity markets are once again under the spotlight. Commodities underpin economic activity. Commodity markets include: energy (oil, gas, coal and increasingly renewable energy sources such as biodiesel), soft commodities and grains (wheat, oat, corn, rice, soya beans, coffee, cocoa, sugar, cotton, frozen orange juice, etc), meat, and financial commodities such as bonds. Capital goods markets help businesses to buy durable goods to be used in industrial and manufacturing processes. A number of services can also be associated with these goods. Transactions tend to be wholesale with large quantities of goods being transacted at low prices. Everyone has seen it and everyone is wishing if he should have buy stocks before this rally. Albeit it could have been a gamble buying stocks before declaration of election results, it paid off for those who bought. Now thats
  • 3. history. Stock markets are going to be volatile for next few days. Today, i.e. on Tuesday, markets opened in red, went till 3oo points down, then recovered and went up to 500 points up and finally settled for flat closing. So what should a small investor do now? Should he buy stocks or should be selling stocks that he holds.This article is a COMPLETE guide to the basics of making money in the stock market! If you are considering investing in the stock market, you MUST read this article! We have explained all the concepts and talked about all the "myths" that people have about the stock market! INTRODUCTION TO THE ORGANIZATION 78. RESEARCH METHODOLOGY TITLE OF THE STUDY:- 89. “Study of fluctuations of Indian stock market” DURATION OF THE PROJECT:- 45 days OBJECTIVE OF STUDY To know the basic terminology of stock market. To make the investor aware about the factors which may affect their investment. To get the knowledge of other markets such as commodity market and derivatives. To know the ups and downs of stock market of last two years. To forecast or predict the future trend of stock market which helps in investment. To know the effect of these fluctuation on the Indian economy. TYPE OF RESEARCH Research Research is defined as human activity based on intellectual application in the investigation of matter. The primary purpose for applied research is discovering, interpreting, and the development of methods and systems for the advancement of human knowledge on a wide variety of scientific matters of our world and the universe. Research can use the scientific method, but need not do so. Scientific research relies on the application of the scientific method, a harnessing of curiosity. This research provides scientific information and theories for the explanation of the nature and the properties of the world around us. It makes practical applications possible. Scientific research is funded by public authorities, by charitable organizations and by private groups, including many companies. Scientific research can be subdivided into different classifications according to their academic and application disciplines. 910. In this project the research type used is descriptive because this research is the most commonly used and the basic reason for carrying out descriptive research is to identify the cause of something that is happening. For instance, this research could be used in order to find out what age group is buying a particular brand of cola, whether a company‟s market share differs between geographical regions or to discover how many competitors a company has in their marketplace. However, if the research is to return useful results, whoever is conducting the research must comply with strict research requirements in order to obtain the most accurate figures/results possible. DESCRIPTIVE RESEARCH Descriptive research is used to obtain information concerning the current status of the phenomena to describe "what exists" with respect to variables or conditions in a situation. The methods involved range from the survey which describes the status quo, the correlation study which investigates the relationship between variables, to developmental studies which seek to determine changes over time. Descriptive research can be of two types: i. Quantitative descriptive research emphasizes on what is, and makes use of quantitative methods to describe, record, analyze and interpret the present conditions. Qualitative descriptive research also emphasizes on what is, but makes use of non-quantitative research methods in describing the conditions of the present. SCOPE OF STUDY Derivatives Sebi Stock exchange Commodity market Stock market 10
  • 4. 11. Securities Day trading Factor affecting Indian stock market Effect on Indian economy LIMITATIONS Limitations are the limiting lines that restrict the work in some way or other. In this research study also their were some limiting factors, some of them are as under: 1. Data Collection: The most important constraint in this study was data collection as Secondary data was selected for study. Secondary data means data that are already available i.e. they refer to the data which have already been collected and analysed by someone else. 2. Time Period: Time period was one of the main factor as only one month was allotted and the topic covered in research has a wide scope. So, it was not possible to cover it in a short span of time. 3. Reliability: The data collected in research work was secondary data, So, this puts a question mark on the reliability of this data, which a very important factor of this study as conclusion has been derived from this secondary data only. 4. Accuracy: The facts and findings of the data cannot be accepted as accurate to some extent as firstly, secondary data was collected. Secondly, for doing descriptive research time needed to be more, because in short period you cannot cover each point accurately. 1112. Core study Stock market A stock market is a public market for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion US at the beginning of October 2008 . The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives cancel each other out (i.e., a derivative bet on an event occurring is offset by a comparable derivative bet on the event not occurring.). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.) The stocks are listed and traded on stock exchanges which are entities a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The stock market in the United States includes the trading of all securities listed on the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, e.g. OTCBB and Pink Sheets. European examples of stock exchanges include the London Stock Exchange, the Deutsche Börse and the Paris Bourse, now part of Euronext. Function and purpose The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. 1213. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up and coming economy. In fact, the stock market is often considered the primary indicator of a countrys economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an
  • 5. eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison dêtre of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. Relation of the stock market to the modern financial system The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via the traditional bank lending and deposit operations. The general publics heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 percent of households financial wealth, compared to less than 20 percent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a 1314. higher proportion of shares to bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another. The stock market, individual investors, and financial risk Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government insured) bank deposits or bonds. This is something that could affect not only the individual investor or household, but also the economy on a large scale. The following deals with some of the risks of the financial sector in general and the stock market in particular. This is certainly more important now that so many newcomers have entered the stock market, or have acquired other risky investments (such as investment property, i.e., real estate and collectables). With each passing year, the noise level in the stock market rises. Television commentators, financial writers, analysts, and market strategists are all overtaking each other to get investors attention. At the same time, individual investors, immersed in chat rooms and message boards, are exchanging questionable and often misleading tips. Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, and people who have turned to investing for their childrens education and their own retirement become frightened. Sometimes there appears to be no rhyme or reason to the market, only folly. This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett.[4] Buffett began his career with $100, and $105,000 from seven limited partners consisting of
  • 6. Buffetts family and friends. Over the years he has built himself a multi-billion-dollar fortune. The quote illustrates some of what has been happening in the stock market during the end of the 20th century and the beginning of the 21st century. 1415. Securities and Exchange Board of India SEBI Bhavan, Mumbai Headquarters of SEBI Organization Details Headquarters Mumbai, Maharashtra, India Established 1992 Jurisdiction India Head Chairman Chairman C B Bhave Term February 16, 2008 - Total Staff[1] 525 Official Website Website www.sebi.gov.in SEBI is the Regulator for the Securities Market in India. Originally set up by the Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.Chaired by C B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Organization Structure Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator. Prior to taking charge as Chairman SEBI, he had been the chairman of NSDL (National Securities Depository Limited) ushering in paperless securities. Prior to his stint at NSDL, he had served SEBI as a Senior Executive Director. He is a former Indian Administrative Service officer of the 1975 batch. The Board comprises[2] Name Designation As per Mr CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a) of the SEBI Act, 1516. 1992) Member (S.4(1)(b) of the SEBI Act, Mr KP Krishnan Joint Secretary, Ministry of Finance 1992) Secretary, Ministry of Corporate Member (S.4(1)(b) of the SEBI Act, Mr Anurag Goel Affairs 1992) Dr G Mohan Director, National Judicial Academy, Member (S.4(1)(d) of the SEBI Act, Gopal Bhopal 1992) Member (S.4(1)(d) of the SEBI Act, Mr MS Sahoo Whole Time Member, SEBI 1992) Member (S.4(1)(d) of the SEBI Act, Dr KM Abraham Whole Time Member, SEBI 1992) Member (S.4(1)(d) of the SEBI Act, Mr Mohandas Pai Director, Infosys 1992) Functions and Responsibilities SEBI has to be responsive to the needs of three groups, which constitute the market: • the issuers of securities • the investors • the market intermediaries. SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi- executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three member tribunal and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court. 1617. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. Stock exchange A stock exchange, (formerly a securities exchange) is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a
  • 7. central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation). There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities. The role of stock exchanges Stock exchanges have multiple roles in the economy, this may include the following: 1. Raising capital for businesses 1718. The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public. 2.Mobilizing savings for investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms. 3.Facilitating company growth Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion. 4.Redistribution of wealth Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses. 5.Corporate governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and 1819. heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are classical examples of corporate mismanagement. Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Lehman Brothers (2008), and Satyam Computer Services (2009) were among the most widely scrutinized by the media. 7.Creating investment opportunities for small investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small
  • 8. stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors. 8.Government capital-raising for development projects Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature. 9.Barometer of the economy At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy. 1920. Bombay Stock Exchange Introduction Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSEs pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of worlds best exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSEs services in raising resources from the capital market. Today, BSE is the worlds number 1 exchange in terms of the number of listed companies and the worlds 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is Indias first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a free-float methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made 2021. SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the iShares® BSE SENSEX India Tracker which tracks the SENSEX. The
  • 9. ETF enables investors in Hong Kong to take an exposure to the Indian equity market. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long- term view of the market. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named BSE Broadcast which enables information dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements. BSE also has a wide range of services to empower investors and facilitate smooth transactions: 2122. Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- Safe Investing in the Stock Market under which 264 programmes were held in more than 200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India. BSEWEBX.com: In February 2001, BSE introduced the worlds first centralized exchange- based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform. Surveillance: BSEs On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members positions and real- time measurement of default risk, market reconstruction and generation of cross market alerts. BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmes Awards The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSEs initiatives in Corporate Social Responsibility (CSR). • The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awards for excellence in financial reporting. 22
  • 10. 23. • The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technology Drawing from its rich past and its equally robust performance in the recent times, BSE will continue to remain an icon in the Indian capital market. History For the premier stock exchange that pioneered the securities transaction business in India, over a century of experience is a proud achievement. A lot has changed since 1875 when 318 persons by paying a then princely amount of Re. 1, became members of what today is called Bombay Stock Exchange Limited (BSE). Over the decades, the stock market in the country has passed through good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. BSE, in 1986, came out with a Stock Index-SENSEX- that subsequently became the barometer of the Indian stock market. The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stock exchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Index was renamed BSE-100 Index from October 14, 1996 and since then, it is being calculated taking into consideration only the prices of stocks listed at BSE. BSE launched the dollar-linked version of BSE-100 index on May 22, 2006. With a view to provide a better representation of the increasing number of listed companies, larger market capitalization and the new industry sectors, BSE launched on 27th May, 1994 two new index series viz., the BSE-200 and the DOLLEX-200. Since then, BSE has come a long way in attuning itself to the varied needs of investors and market participants. In order to fulfill the need for still broader, segment-specific and sector-specific indices, BSE has continuously 2324. been increasing the range of its indices. BSE-500 Index and 5 sectoral indices were launched in 1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the countrys first free-float based index - the BSE TECk Index. Over the years, BSE shifted all its indices to the free-float methodology National Stock Exchange of India National Stock Exchange Limited Type Stock Exchange Location Mumbai, India 19°3′37″N 72°51′35″E/19.06028°N Coordinates 72.85972°E/19.06028; 72.85972 Owner National Stock Exchange of India Limited Key people Mr. Ravi Narain (Managing Director & CEO) Currency INR No. of listings 1587 MarketCap US$ 1.46 trillion (2006) S&P CNX Nifty Indexes CNX Nifty Junior S&P CNX 500 Website http://www.nse-india.com/ 2425. NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and The National Stock Exchange of India Limited (NSE), is a Mumbai-based stock exchange. It is the largest stock exchange in India in terms of daily turnover and number of trades, for both equities and derivative trading.[1]. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. The NSEs key index is the S&P CNX Nifty, known as the Nifty, an index of fifty major stocks weighted by market capitalisation. other financial intermediaries in India but its ownership and management operate as separate entities. There are at least 2 foreign investors NYSE Euronext and Goldman Sachs who have taken a stake in the NSE. As of 2006[update], the NSE VSAT terminals, 2799 in total, cover more than 1500
  • 11. cities across India . In October 2007, the equity market capitalization of the companies listed on the NSE was US$ 1.46 trillion, making it the second largest stock exchange in South Asia. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities. It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%. Origins NSE building at BKC The National Stock Exchange of India was promoted by leading Financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment of the NSE commenced operations in November 1994, while operations in the Derivatives segment commenced in June 2000. Innovations 2526. NSE has remained in the forefront of modernization of Indias capital and financial markets, and its pioneering efforts include: • Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India. Since the success of the NSE, existent market and new market structures have followed the "NSE" model. • Setting up the first clearing corporation "National Securities Clearing Corporation Ltd." in India. NSCCL was a landmark in providing innovation on all spot equity market (and later, derivatives market) trades in India. • Co-promoting and setting up of National Securities Depository Limited, first depository in India[2]. • Setting up of S&P CNX Nifty. • NSE pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the NSE in the broker community. • Being the first exchange that, in 1996, proposed exchange traded derivatives, particularly on an equity index, in India. After four years of policy and regulatory debate and formulation, the NSE was permitted to start trading equity derivatives • Being the first and the only exchange to trade GOLD ETFs (exchange traded funds) in India. • NSE has also launched the NSE- CNBC-TV18 media centre in association with CNBC- TV18, it is the one of the most important stock exchange in the world. S&P CNX Nifty S&P CNX Nifty is a well diversified 50 stock index accounting for 21 sectors of the economy. It is used for a variety of purposes such as benchmarking fund portfolios, index based derivatives and index funds. S&P CNX Nifty is owned and managed by India Index Services and Products Ltd. (IISL), which 2627. is a joint venture between NSE and CRISIL. IISL is Indias first specialised company focused upon the index as a core product. IISL has a Marketing and licensing agreement with Standard & Poors (S&P), who are world leaders in index services. • The total traded value for the last six months of all Nifty stocks is approximately 65.68% of the traded value of all stocks on the NSE • Nifty stocks represent about 65.34% of the total market capitalization as on Mar 31, 2009. • Impact cost of the S&P CNX Nifty for a portfolio size of Rs.2 crore is 0.16% • S&P CNX Nifty is professionally maintained and is ideal for derivatives trading Sensex & the Nifty The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Just like the
  • 12. Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE.Most of the stock trading in the country is done though the BSE & the NSE. 2728. Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the “BSE Mid-cap Index”. The reasons for stock prices going "up" and "down" Stock prices change every day because of market forces. By this we mean that stock prices change because of “supply and demand”. If more people want to buy a stock (demand) than sell it (supply), then the price moves up! Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. (Basics of economics!) Understanding supply and demand is easy. What is difficult to understand is what makes people like a particular stock and dislike another stock. If you understand this, you will know what people are buying and what people are selling. If you know this you will know what prices go up and what prices go down! To figure out the likes and dislikes of people, you have to figure out what news is positive for a company and what news is negative and how any news about a company will be interpreted by the people. The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isnt going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Dalal Street watches with great attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their future value of a company on their earnings projection. If a companys results are better than expected, the price jumps up. If a companys results disappoint and are worse than expected, then the price will fall. 2829. Of course, its not just earnings that can change the feeling people have about a stock. It would be a rather simple world if this were the case! During the “dotcom bubble”, for example, the stock price of dozens of internet companies rose without ever making even the smallest profit. As we all know, these high stock prices did not hold, and most internet companies saw their values shrink to a fraction of their highs. Still, this fact demonstrates that there are factors other than current earnings that influence stocks. So, what are "all the factors" that affect the stocks price? The best answer is that nobody really knows for sure. Some believe that it isnt possible to predict how stock prices will change, while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know is that stocks are volatile and can change in price very very rapidly. The reasons for which companies issue stocks Why would the founders share the profits with thousands of people when they could keep profits to themselves? The reason is that at some point every company needs to "raise money". To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock. A company can borrow by taking a loan from a bank or by issuing bonds. Both methods come under "debt financing". On the other hand, issuing stock is called “equity financing”. Issuing
  • 13. stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way. All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO). It is important that you understand the distinction between a company financing through 2930. debt and financing through equity. When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments. This isnt the case with an equity investment. By becoming an owner, you assume the risk of the company not being successful - just as a small business owner isnt guaranteed a return, neither is a shareholder. Shareholders earn a lot if a company is successful, but they also stand to lose their entire investment if the company isnt successful. Stock Picking –Having understood all the basics of the stock market and the risk involved, now we will go into stock picking and how to pick the right stock. Before picking the right stock you need to do some analysis. There are two major types of analysis: 1. Fundamental Analysis 2. Technical Analysis Fundamental analysis is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price. On the other hand, technical analysis is the study of prices and volume, for forecasting of future stock price or financial price movements. Simply put, fundamental analysis looks at the actual company and tries to figure out what the company price is going to be like in the future. On the other hand technical analysis look at the stocks chart, peoples buying behavior etc. to try and figure out what the stock price is going to be like in the future. In this article we will go into the basics of “fundamental analysis”. Technical analysis is a little more complicated. It is much more of an "art" than a science. It depends more on experience and involves some statistics and mathematics, so explaining technical analysis is out of the scope of this article. Calculation of BSE SENSEX… 3031. This article explains how the value of the “BSE Sensex” or “sensitive index” is calculated. If you are not sure what we mean by the Sensex or what the Sensex is all about, you can find this out by reading our “How to make money in the stock market?” article. The Sensex has a very important function. The Sensex is supposed to be an indicator of the stocks in the BSE. It is supposed to show whether the stocks are generally going up, or generally going down. To show this accurately, the Sensex is calculated taking into consideration stock prices of 30 different BSE listed companies. It is calculated using the “free-float market capitalization” method. This is a world wide accepted method as one of the best methods for calculating a stock market index. Please note: The method used for calculating the Sensex and the 30 companies that are taken into consideration are changed from time to time. This is done to make the Sensex an accurate index and so that it represents the BSE stocks properly. 3 important things you must know and follow as an new investor! You need to KNOW some “unforgettable basics” before you enter the world of investing in stocks. The stock market is a field dominated by savvy investors who know the ins-and-outs of the market. For people who are not “on the inside”, the stock market can be a VERY dangerous place. : Dont even consider "tips" that tell you about "hot stocks". Consider the source: There are many people in the market who put in all their time and effort in promoting certain stocks. They do this because they have their money invested in those stocks. If they can get enough
  • 14. people to buy the stock and they can get the stock price to rise, they will sell the stock for a huge price, the stock price will crash and they will walk off to promote another stock. Always use your own brain: Its extremely important. You must always use your own brain. Relying on the advice of others, no matter how well intentioned it may be, is almost always a complete disaster. Make sure you dig in and really examine the "facts about the companies" 3132. before you invest. Ignore press releases which have very little substance, and rely on "hype" to tell the companys story. And finally the most important tip!!! Only invest money you can afford to lose!! Sure this is a basic point, but many many people miss it. You should only invest money that you can honestly afford to lose!! Everyone enters into investments with the idea of earning big profits, but in many cases, this never works. (Especially if you are new to investing in the stock market!) Please understand that the above tips are tips for beginners. Once you really get into the stock market you do not need to follow these rules anymore. But if you are a new investor, you MUST follow these rules. They are for your own safety. But then again, nothing comes free. Everything has a price. You will have to loose some money, make some bad decisions and then only will you really understand the market. You cannot understand the market by just looking at it from far. By following these rules, you will basically not loose too much! Derivatives Commodities whose value is derived from the price of some underlying asset like securities, commodities, bullion, currency, interest level, stock market index or anything else are known as “Derivatives”. In more simpler form, derivatives are financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset. It is a generic term for a variety of financial instruments. Essentially, this means you buy a promise to convey ownership of the asset, rather than the asset itself. The legal terms of a contract are much more varied and flexible than the terms of property ownership. In fact, it‟s this flexibility that appeals to investors 3233. . When a person invests in derivative, the underlying asset is usually a commodity, bond, stock, or currency. He bet that the value derived from the underlying asset will increase or decrease by a certain amount within a certain fixed period of time. „Futures‟ and „options‟ are two commodity traded types of derivatives. An „options‟ contract gives the owner the right to buy or sell an asset at a set price on or before a given date. On the other hand, the owner of a „futures‟ contract is obligated to buy or sell the asset. The other examples of derivatives are warrants and convertible bonds (similar to shares in that they are assets). But derivatives are usually contracts. Beyond this, the derivatives range is only limited by the imagination of investment banks. It is likely that any person who has funds invested, an insurance policy or a pension fund, that they are investing in, and exposed to, derivatives – wittingly or unwittingly. Shares or bonds are financial assets where one can claim on another person or corporation; they will be usually be fairly standardised and governed by the property of securities laws in an appropriate country. On the other hand, a contract is merely an agreement between two parties, where the contract details may not be standardized. Derivatives securities or derivatives products are in real terms contracts rather than solid as it fairly sounds. India Commodity Market 3334. The vast geographical extent of India and her huge population is aptly complemented by the size of her market. The broadest classification of the Indian Market can be made in
  • 15. terms of the commodity market and the bond market. Here, we shall deal with the former in a little detail. The commodity market in India comprises of all palpable markets that we come across in our daily lives. Such markets are social institutions that facilitate exchange of goods for money. The cost of goods is estimated in terms of domestic currency . India Commodity Market can be subdivided into the following two categories: • Wholesale Market • Retail Market Let us now take a look at what the present scenario of each of the above markets is like. The traditional wholesale market in India dealt with whole sellers who bought goods from the farmers and manufacturers and then sold them to the retailers after making a profit in the process. It was the retailers who finally sold the goods to the consumers. With the passage of time the importance of whole sellers began to fade out for the following reasons: • The whole sellers in most situations, acted as mere parasites who did not add any value to the product but raised its price which was eventually faced by the consumers. • The improvement in transport facilities made the retailers directly interact with the producers and hence the need for whole sellers was not felt. In recent years,the extent of the retail market (both organized and unorganized) has evolved in leaps and bounds. In fact, the success stories of the commodity market of India in recent years has mainly centered around the growth generated by the Retail Sector. Almost every commodity under the sun both agricultural and industrial are now being provided at well distributed retail outlets throughout the country. Moreover, the retail outlets belong to both the organized as well as the unorganized sector. The unorganized retail outlets of the yesteryears consist of small shop owners who are price takers where consumers face a highly competitive price structure. The organized sector on the other hand are owned by various business houses like Pantaloons, Reliance, Tata and others. Such 3435. markets are usually sell a wide range of articles both agricultural and manufactured, edible and inedible, perishable and durable. Modern marketing strategies and other techniques of sales promotion enable such markets to draw customers from every section of the society. However the growth of such markets has still centered around the urban areas primarily due to infrastructural limitations. Considering the present growth rate, the total valuation of the Indian Retail Market is estimated to cross Rs. 10,000 billion by the year 2010. Demand for commodities is likely to become four times by 2010 than what it presently is. Money Market When the stock prices show a downward trend , then it becomes risky to keep savings there. Although the stock market is associated with high risks and high returns , many are risk averse and prefer to invest in the more secure money market . The money market deals with very short term debt securities that mature in less than a year. Since the money market is extremely safe, it yields very low returns unlike the bond market. The money market securities that are issued by the government or financial institutions or large corporations are very liquid. Since the money market securities trade at very high denominations it becomes very difficult for the individual investors to have access to it. The money market is a type of a dealer market where firms purchase securities in their own account by assuming the risks themselves. Unlike the stock exchanges the money market securities do not operate in exchanges or through brokers. Transactions take place over phone or the electronic system. One may browse through the following links to have a more detailed information about money market. Money Market Definition Money Market Definition is simply meant as the short-term debt market. Treasury Bills and 35
  • 16. 36. certificate of deposits are regarded as the instruments in the money market. World Money Market World Money Market has been providing origination, trading and the distribution of short-term debt instruments across different regions over the world. Find detailed on the world money market. Money Market Index Money Market Index is a true indicator of the prevailing money market, which renders a clear-cut idea on making investment. Money Market Rates Money Market Rates can be simply defined as the market rates including the broker call loan rate, federal funds rate, rates on bankers acceptance etc. Get the method of finding the money market rates. Major Factors That Affect Stock Price in stock market globally When you wish to invest in the stock market, then you should always make a good survey of the whole market. As you know that you cannot predict the stock market, so in that case you need to know the functioning of the market. There are some major factors that affect stock price. So let us discuss about the different factors affecting the stock price in this article. Demand AND SUPPLY One of the major factors affecting stock price is demand and supply. The trend of the stock market trading directly affects the price. When people are buying more stocks, then the price of that particular stock increases. On the other hand if people are selling more stocks, then the price of that stock falls. So, you should be very careful when you decide to invest in the Indian stock market. Market Cap 3637. Never try to guess the worth of a company simply by comparing the price of the stock. You should always keep in mind that it is not the stock but the market capitalization of the company that determines the worth of the company. So market cap is another factor that affects stock price. "Market Capitalization"? You probably think that you have never heard of the term “market capitalization” before. You have! When you are talking about “mid-cap”, “small-cap” and “large-cap” stocks, you are talking about market capitalization! Market cap or market capitalization is simply the worth of a company in terms of it‟s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the “market capitalization”! To calculate the market cap of a particular company, simply multiply the “current share price” by the “number of shares issued by the company”! Just to give you an idea, ONGC, has a market cap of “Rs.170,705.21 Cr” (when this article was written) Depending on the value of the market cap, the company will either be a “mid-cap” or “large- cap” or “small-cap” company! Now the question is, how do YOU calculate the market cap of a particular company? You don‟t! Just go to a website like MoneyControl.com and look up the company whose market cap you are interested in finding out! The figure in front of “Mkt. Cap” will be the market cap value. News When you get positive news about a company then it can increase the buying interest in the market. On the other hand, when there is a negative press release, it can ruin the prospect of a stock. In this case you should remember that news should not matter much but the overall performance of the company matters more. So, news is another factor affecting stock price. Earning/Price Ratio 3738. Another important factor affecting stock price is the earning/price ratio. This gives you a fair idea of a company‟s share price when it is compared to its earnings. The stock becomes undervalued if the price of the share is much lower than the earnings of a company. But if this is the case, then it has the potential to rise in the near future. The stock becomes overvalued if the price is much higher than the actual earning. So, these are the major factors that affect stock price. Day Trading Day trading (and trading in
  • 17. general) is the buying and selling of various financial instruments, such as futures, options, currencies, and stocks, with the goal of making a profit from the difference between the buying price and the selling price. Day trading differs slightly from other styles of trading in that positions are rarely (if ever) held overnight or when the market being traded is closed. Day trading was originally only available to financial companies (such as banks), because only they had access to the exchanges and market data. But with recent technology such as the Internet, individual traders now have direct access to the same exchanges and market data, and can make the same trades at very low cost. Trading Styles There are several different styles of day trading, suited to different day trader personalities. The styles range from short term trading such as scalping where positions are only held for a few seconds or minutes, to longer term swing and position trading where a position may be held throughout the trading day. Most day trading systems have a lot of flexibility, and can have open positions for anywhere from a few minutes to a few hours, depending upon how the trade is doing (whether it is in profit). Some day traders will trade multiple styles, but most traders will choose a single style and only take that type of trade. 3839. Day trading also has different types of trade, such as trend trades, counter-trend trades, and ranging trades. Trend trades are trades in the direction of the current price movement (i.e. buying if the price is moving up), and counter-trend trades are trades against the direction of the current price movement (i.e. selling if the price is moving up). Ranging trades are trades that go back and forth between two prices, and are used when the market is moving sideways. Most day traders will choose a single type of trade, but some traders will take different types, and choose which one to trade depending upon the current condition of the market. In addition to the style and type of day trading, there are other variances between day traders. Some day traders like to make many trades throughout the trading day, while others prefer to wait for what they consider the best conditions for their trade, and perhaps only make one trade per day. However many trades are made, the trading process that is used, and the desired goal of making a profit, are the same. Current State of the Indian Economy: Capital Inflows During the April-January period of 2008- 09, India attracted total foreign investments of US $ 15,545 million. The foreign direct investment (FDI) stood at US $ 27,426 million, while the portfolio investment stood at US $ -11,881 million. Monthly trends in foreign investments ($ million) Foreign direct Total foreign Months Portfolio investments investments investments 2007- 2007-08(P) 2008-09(P) 2007-08(P) 2008-09(P) 2008-09(P) 08(P) April 1643 3749 1974 -880 3617 2869 May 2120 3932 1852 -288 3972 3644 3940. June 1238 2392 3664 -3010 4902 -618 July 705 2247 6713 -492 7418 1755 August 831 2328 -2875 593 -2044 2921 September 713 2562 7081 -1403 7794 1159 October 2027 1497 9564 -5243 11591 -3746 November 1864 1083 -107 -574 1757 509 December 1558 1362 5294 30 6852 1392 January 1767 2733 6739 -614 8506 2119 February 5670 - -8904 - -3234 - March 4438 - -1600 - 2838 - April- - 27426 - -11881 - 15545 January Source: Reserve Bank of India (RBI) Stock Market Trends * NSE - 50, i.e., Nifty has been rechristened as S & P CNX Nifty with effect BSE Sensitive Index BSE - 100 S & P CNX Nifty * (Base : 1978 - 79 = 100) (Base : 1983 - 84 = 100) (Base : November 3, 1995 = 1000) AveragHigh Low Average High Low Aver- High Low e age 1 2 3 4 5 6 7 8 9 10 40
  • 18. 41. Jan-08 19325.6 20873.33 16729.94 10526.54 11509.96 8895.64 5756.35 6287.85 4899.30 5 Feb-08 17727.5 18663.16 16608.01 9435.60 9969.59 8785.88 5201.56 5483.90 4838.25 4 Mar- 15838.3 16677.88 14809.49 8363.58 8907.23 7828.01 4769.50 4953.00 4503.10 08 8 Apr-0816290.9 17378.46 15343.12 8627.59 9240.57 8095.02 4901.91 5195.50 4647.00 9 May- 16945.6 17600.12 16275.59 8982.20 9348.64 8621.84 5028.66 5228.20 4835.30 08 5 June- 14997.2 16063.18 13461.60 7909.28 8488.62 7029.74 4463.79 4739.60 4040.55 08 8 July- 13716.1 14942.28 12575.80 7143.71 7760.32 6580.67 4124.60 4476.80 3816.70 08 8 Aug-0814722.1 15503.92 14048.34 7704.75 8101.48 7362.49 4417.12 4620.40 4214.00 3 Sept- 13942.8 15049.86 12595.75 7276.35 7860.87 6564.06 4206.69 4504.00 3850.05 08 1 Oct-08 10549.6 13055.67 8509.56 5432.92 6776.87 4343.21 3210.22 3950.75 2524.20 5 Nov-089453.96 10631.12 8451.01 4823.36 5396.09 4332.17 2834.79 3148.25 2553.15 Dec-08 9513.58 10099.91 8739.24 4864.55 5181.94 4443.50 2895.80 3077.50 2656.45 Jan-09 9350.42 10335.93 8674.35 4802.01 5328.95 4441.84 2854.36 3121.45 2678.55 4142. Full Market 52 Week Turnover Capitalisation INDICES % to % to Total Close High Low (Rs. crore) Total (Rs. crore) Turnover Mkt Cap SENSEX 14,060.66 17,293.34 7,697.39 2,120,875.46 47.08 2,622.93 31.17 MIDCAP 4,673.77 7,162.60 2,547.91 623,990.54 13.85 2,638.65 31.36 SMLCAP 5,208.18 8,802.18 2,864.24 211,367.38 4.69 906.68 10.77 BSE-100 7,285.25 9,186.01 3,949.13 3,450,102.13 76.59 5,528.28 65.69 BSE-200 1,692.43 2,157.02 921.75 3,897,398.18 86.52 6,917.42 82.20 BSE-500 5,240.70 6,890.08 2,899.28 4,262,866.24 94.64 8,019.12 95.29 BSE Sectoral Indices AUTO 4,516.63 4,888.65 2,127.86 137,683.58 3.06 184.56 2.19 BANKEX 7,919.53 8,688.54 3,598.92 407,161.95 9.04 663.40 7.88 CD 2,516.14 4,774.05 1,428.75 12,251.27 0.27 48.02 0.57 CG 11,411.90 13,744.98 5,393.91 284,809.36 6.32 735.60 8.74 FMCG 2,112.10 2,505.60 1,549.27 182,863.45 4.06 128.70 1.53 HC 3,330.60 4,602.15 2,490.86 123,485.99 2.74 202.39 2.41 IT 2,853.96 4,746.59 1,987.81 253,874.53 5.64 272.77 3.24 METAL 9,907.46 17,408.60 3,806.79 373,805.71 8.30 660.86 7.85 OIL&GAS 9,607.54 11,472.37 4,569.45 807,925.77 17.94 977.77 11.62 POWER 2,741.62 3,312.77 1,274.88 533,748.38 11.85 756.38 8.99 PSU 7,427.20 7,750.93 3,853.28 1,346,803.04 29.90 668.18 7.94 REALTY 3,361.43 8,001.23 1,297.82 104,081.66 2.31 1,042.16 12.38 4243. TECk 2,472.72 3,664.41 1,618.77 570,638.99 12.67 750.15 8.91 BSE Dollex Indices DOLLEX-30 2,423.64 3,328.13 0.00 -- -- -- -- DOLLEX- 1,582.32 2,227.59 0.00 -- -- -- - - 100 DOLLEX- 591.58 841.82 0.00 -- -- -- -- 200 Note : The market capitalisation of all the indices is free float market capitalisation except for BSEPSU. Trends in Inflation 4344. (1) Index Numbers Of Wholesale Prices in India ( Monthly Averages) (Base: 1993-94 = 100) Year Month All Primary Fuel, Power, Manufactured Commodities Articles Light & Products Lubricants 2006 January 196.30 194.78 310.80 171.28 February 196.43 192.88 314.10 171.40 March 196.75 191.90 315.50 171.90 April 199.02 195.84 317.00 173.76 May 201.30 200.63 320.08 175.05 June 203.10 205.05 324.73 175.30 July 204.02 202.76 326.94 177.00 August 205.28 204.93 328.80 177.83 September 207.76 211.72 330.32 179.08 4445. Forex An overview of the Forex market The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time
  • 19. events. The main enticements of currency dealing to private investors and attractions for short-term Forex trading are: 24-hour trading, 5 days a week with non-stop access to global Forex dealers. An enormous liquid market making it easy to trade most currencies. Volatile markets offering profit opportunities. Standard instruments for controlling risk exposure. The ability to profit in rising or falling markets. Leveraged trading with low margin requirements. Many options for zero commission trading. Forex trading The investors goal in Forex trading is to profit from foreign currency movements. Forex trading or currency trading is always done in currency pairs. For example, the exchange rate of EUR/USD on Aug 26th, 2003 was 1.0857. This number is also referred to as a "Forex rate" or just "rate" for short. If the investor had bought 1000 euros on that date, he would have paid 1085.70 U.S. dollars. One year later, the Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR/USD ratio) increased in relation to the U.S. dollar. The 4546. investor could now sell the 1000 euros in order to receive 1208.30 dollars. Therefore, the investor would have USD 122.60 more than what he had started one year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a "risk-free" investment. One example of a risk-free investment is long-term U.S. government bonds since there is practically no chance for a default, i.e. the U.S. government going bankrupt or being unable or unwilling to pay its debt obligation. When trading currencies, trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does increase in value, you must sell back the other currency in order to lock in a profit. An open trade (also called an open position) is a trade in which a trader has bought or sold a particular currency pair and has not yet sold or bought back the equivalent amount to close the position. However, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Forex-Forecasting This article provides insight into the two major methods of analysis used to forecast the behavior of the Forex market. Technical analysis and fundamental analysis differ greatly, but both can be useful forecast tools for the Forex trader. They have the same goal - to predict a price or movement. The technician studies the effect while the fundamentalist studies the cause of market movement. Many successful traders combine a mixture of both approaches for superior results. Analysis Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action. Technical analysis is concerned with what has actually 4647. happened in the market, rather than what should happen and takes into account the price of instruments and the volume of trading, and creates charts from that data to use as the primary tool. One major advantage of technical analysis is that experienced analysts can follow many markets and market instruments simultaneously. Technical analysis is built on three essential principles: 1. Market action discounts everything! This means that the actual price is a reflection of everything that is known to the market that could affect it, for example, supply and demand, political factors and market sentiment. However, the pure technical analyst is only concerned with price movements, not with the reasons for
  • 20. any changes. 2. Prices move in trends Technical analysis is used to identify patterns of market behavior that have long been recognized as significant. For many given patterns there is a high probability that they will produce the expected results. Also, there are recognized patterns that repeat themselves on a consistent basis. 3. History repeats itself Forex chart patterns have been recognized and categorized for over 100 years and the manner in which many patterns are repeated leads to the conclusion that human psychology changes little over time. Forex charts are based on market action involving price. There are five categories in Forex technical analysis theory: Indicators (oscillators, e.g.: Relative Strength Index (RSI) Number theory (Fibonacci numbers, Gann numbers) Waves (Elliott wave theory) Gaps (high-low, open-closing) Trends (following moving average). Some major technical analysis tools are described below: Relative Strength Index (RSI): 4748. The RSI measures the ratio of up-moves to down-moves and normalizes the calculation so that the index is expressed in a range of 0-100. If the RSI is 70 or greater, then the instrument is assumed to be overbought (a situation in which prices have risen more than market expectations). An RSI of 30 or less is taken as a signal that the instrument may be oversold (a situation in which prices have fallen more than the market expectations). Stochastic oscillator: This is used to indicate overbought/oversold conditions on a scale of 0-100%. The indicator is based on the observation that in a strong up trend, period closing prices tend to concentrate in the higher part of the periods range. Conversely, as prices fall in a strong down trend, closing prices tend to be near to the extreme low of the period range. Stochastic calculations produce two lines, %K and %D that are used to indicate overbought/oversold areas of a chart. Divergence between the stochastic lines and the price action of the underlying instrument gives a powerful trading signal. Moving Average Convergence Divergence (MACD): This indicator involves plotting two momentum lines. The MACD line is the difference between two exponential moving averages and the signal or trigger line, which is an exponential moving average of the difference. If the MACD and trigger lines cross, then this is taken as a signal that a change in the trend is likely. Number theory: Fibonacci numbers: The Fibonacci number sequence (1,1,2,3,5,8,13,21,34...) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next larger number is 62%, which is a popular Fibonacci retracement number. The inverse of 62%, which is 38%, is also used as a Fibonacci retracement number. 4849. Gann numbers: W.D. Gann was a stock and a commodity trader working in the 50s who reputedly made over million in the markets. He made his fortune using methods that he developed for trading instruments based on relationships between price movement and time, known as time/price equivalents. There is no easy explanation for Ganns methods, but in essence he used angles in charts to determine support and resistance areas and predict the times of future trend changes. He also used lines in charts to predict support and resistance areas. Waves Elliott wave theory: The Elliott wave theory is an approach to market analysis that is based on repetitive wave patterns and the Fibonacci number sequence. An ideal Elliott wave patterns shows a five-wave advance followed by a three- wave decline. Gaps Gaps are spaces left on the bar chart where no trading has taken place. An up gap is formed when the lowest price on a trading day is higher than the highest high of the previous day. A down gap is formed when the highest price of the day is lower than the lowest price of the prior day. An up gap is usually a sign of market
  • 21. strength, while a down gap is a sign of market weakness. A breakaway gap is a price gap that forms on the completion of an important price pattern. It usually signals the beginning of an important price move. A runaway gap is a price gap that usually occurs around the mid-point of an important market trend. For that reason, it is also called a measuring gap. An exhaustion gap is a price gap that occurs at the end of an important trend and signals that the trend is ending. Trends A trend refers to the direction of prices. Rising peaks and troughs constitute an up trend; falling peaks and troughs constitute a downtrend that determines the steepness of the current trend. The breaking of a trend line usually signals a trend reversal. Horizontal peaks and troughs characterize a trading range. Moving averages are used to smooth price information in order to confirm trends and support and resistance levels. They are also useful in deciding on a trading strategy, particularly in futures trading or a market with a strong up or down trend. 4950. The most common technical tools: Coppock Curve is an investment tool used in technical analysis for predicting bear market lows. DMI (Directional Movement Indicator) is a popular technical indicator used to determine whether or not a currency pair is trending. Unlike the fundamental analyst, the technical analyst is not much concerned with any of the "bigger picture" factors affecting the market, but concentrates on the activity of that instruments market. Fundamental analysis Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. In practice, many market players use technical analysis in conjunction with fundamental analysis to determine their trading strategy. Fundamental analysis focuses on what ought to happen in a market. Factors involved in price analysis: Supply and demand, seasonal cycles, weather and government policy. Fundamental analysis is a macro or strategic assessment of where a currency should be trading based on any criteria but the movement of the currencys price itself. These criteria often include the economic condition of the country that the currency represents, monetary policy, and other "fundamental" elements. Many profitable trades are made moments prior to or shortly after major economic announcements. 5051. What happened in 2008? Sensex was crossed 21,000 levels in January and analysts predicted 25,000 levels but Sensex fell to 7,800 in October. Experts are now talking about 7,000 targets in 2009. But todays it has been touch the point 14000 due to government stability. 2. Rupee strengthened to 39 against dollar and analysts like ICICI Kamat predicted 35 levels but rupee fell to 50 levels. Experts are now talking about 55 against dollar in 2009. 3. Crude Oil prices touched $147 per barrel and Goldman Sachs talked about $200 per barrel but crude oil in now trading around $45 levels. Experts are now talking about $30 per barrel in 20094. Inflation moved to 13% and analysts talked about 15% but inflation fell to 8% in December. Experts are now talking about 4% levels in 2009. They are actually now talking about deflation. 5. Indian GDP grew at 9% in 2007-08 and analysts predicted about 10% growth in 2009. Experts are now talking about 7% GDP growth in 2008-09 and 5% GDP growth in 2009-10. 6. Commodities traded around all time high levels in June, 2008 but they collapsed to 2003 levels in December, 2008. Companies are now shutting down plants and are removing employees due to lack of demand and piling up of inventories. 7. Investment banking is the most sought after industry in early 2008. They are now either disappeared or merged with banks. 51
  • 22. 52. 8. Real Estate prices reached stratospheric levels in early 2008 but investors bought them as if there will be no land available for purchase in 2009. They are now announcing bonuses and free offers to attract buyers. Many real estate stocks were corrected by 70- 90% in this year alone. We will hear some bankruptcies in 2009 in this sector. DLF and Unitech will cut prices by 30% in 2009. Investment lessons from 2008: 1. Unlike in past, stock markets now become more dynamic, more volatile and more unpredictable due to more global integration of economy and money flows. 2. Stock market investors will never react normally – they will either overreact or under react to the economic or political events. One should take into consideration this psychological aspect along with business fundamentals in arriving at price target. 3. As I said in my previous posts, stock markets always move much ahead of real economy. If real economy will suffer in early 2009, stocks fell by October, 2008. If economic conditions will improve by early 2010, stocks will rise by late 2009. 4. Timing: It is very difficult to time the stock market investments. 80% of price variations occur in 20% of days – time of maximum profits and losses. On 18 May we have been seen more variation in recession time market has been touched the level of 14000 with growth of 2100 points 5. Significant falls or rises do not occur in slow motion. They are steep and severe. 6. Never follow herds. Believe in your research and gut feeling. Just see what happened to investors in Reliance Power IPO. 7. Biggest investment lesson: When investors are in panic mood, even good companies with strong growth prospects also fall along with bad overvalued stocks. Significant statements: 1. RBI Governor: “The global economic crisis is turning out to be deeper and longer than we had earlier expected, the impact on India is also turning out to be stronger than we had earlier expected.” This is the frank statement from Subbarao. How long Government will deceive people on this unmanageable issue? Biggest problem with this crisis is no one in the world 5253. knows about magnitude and duration of financial crisis. According to RBI Governor, 2009-10 may be a more difficult year. 2. Commerce Minister: “Government will announce second stimulus package in the next week. Textiles, Agriculture and Construction are the priority sectors for Government in the next package.” 3. Jack Welch (former GE Chairman): “The terror strike in Mumbai could well tilt the focus of foreign investors towards neighboring China. This is the perception of foreigners about India. Many investors will be thinking about tilting the balance to China. How India‟s leaders respond to the Mumbai attacks will tell the business world what it wants and needs to know. Not just whether to pull back from India but how risky pushing forward will be.” 4. Rakesh Jhunjhunwala: “India will see the mother of all bull runs in the next 4 or 5 years, boosted by double-digit economic growth and increased investment by domestic investors, including pension and insurance funds.” 5. World Bank: “The financial crisis is now likely to result in the most serious recession since the 1930s.” 6. International Energy Agency (IEA): for the first time in 25 years, demand for crude falls. This is the first drop for crude oil demand since 1983. Significant statistics: 1.Reuters poll: Indias economy is expected to grow at its slowest pace in six years in the fiscal year to March 2009. Indian GDP growth will be around 6.8% in 2008-09 and 6.2% in 2009-10. Indian economy never grew less than 7.5% in the last 5 years. According to World Bank, India will grow by 5.8% in 2009. It estimates for Indian GDP: 6.2% in 2008-09, 5% in 2009-10 and will be around 7% in 2010-11. 53
  • 23. 54. 2. New claims for unemployment benefits reached their highest level (5,73,000) in 26 years in USA. These job losses will have cascading effect on real economy. More than 20 lakh Americans will lose jobs in 2009 and unemployment rate will touch 9% level in 2009. 3. McKinsey report: United States credit losses may top $3 trillion. These losses will increase if another major asset class will collapse 4. Goldman Sachs: China GDP growth for 2009 is around 6%. Shocking! China will grow at 9% in 2010 if Government takes proper simulative decisions. India will be in election mood when we need these measures. 5. World Bank: Global trade will fall for the first time since 1982. World economy will grow by 0.9% in 2009 and inflows to developing countries will fall by 50%. 6. Asian Development Bank (ADB): Growth rates of China and India will be at 8.2% and 6.5% respectively in 2009. India needs particular attention, given its weaker fiscal position. 7. China: Exports fell by 2.2% in November, the first decline since June 2001 - the largest year- over-year monthly decline since April 1999. 8. DLF and Unitech may lower property prices by 30% in mid-2009 to stimulate buyers. Positive Stock market news: 1. Government stability is big positive reason for sensex. 2. Global Telecom Companies are planning to buy 20-25% stake in Reliance Communications. R- Com stock lost 70% of value in 2008. Anil Ambani family holds 67% stake in the company. This deal is beneficial for investors as only 12% of shares are available for trading after this purchase in the secondary market. Promoter will not reduce his holding. 3. Manpower survey: India is the second most optimistic employment market in the world but there will freezing in hiring in the next 3 months. IT and Hospitality sectors are the worst affected while Telecom is the most optimistic one. 5455. FCCB shocks: Foreign currency convertible bonds (FCCBs?) of many companies will be due for repayment in the next 3 years. As stock markets are unlikely to recover in the next 12-15 months, it is interesting to see how promoters will clear their dues. We may hear some shocking news on this front in the next 2 years. NPA shocks: Many people are underestimating the impact of Non Performing Assets (NPAs). NPAs will affect in 2 ways. NPAs will not only propel the negative sentiment but increase the banks reluctance to give loans which will once again destroy the positive aspects of the bailout packages. Only positive aspect is many PSU banks reported fall in NPAs in 2008 over 2007 except SBI and IOB. NPA statistics: NPAs of ICICI Bank in 2007: Rs 5,930 crore. NPAs of ICICI Bank in 2008: Rs 9,500 crore.. Interesting statistics about Asian and World economies: 1. World Bank estimates: A. November, 2008: World economy will grow by 2.2% in 2009. B. December, 2008: World economy will grow by 0.9% in 2009. 2. ADB estimates about Asian economy in 2009: A. September, 2008: Asian economy will grow by 7.2% in 2009. B. December, 2008: Asian economy will grow by 5.8% in 2009. 3. ADB estimates about Asian economy in 2008: A. September, 2008: Asian economy will grow by 7.5% in 2008. B. December, 2008: Asian economy will grow by 6.9% in 2008. 5556. 4. Current P/E of Sensex: 10. P/E of Sensex in 2008 economic slowdown: 9.5 This is a much severe crisis than 2001 slowdown. Effect of fluctuation on Indian stock market Nothing actually. The economy is as sound as it was in the boom time. The companies are as profitable as they were a few days ago. Yet, the market crashed because the Government tried to instill some sort of regulation in it. Let me explain it a bit : As I wrote in my last article that a major portion of the money being invested into the share market is coming from FIIs (Foreign Institutional Investors). The cause of concern for the
  • 24. Government was that in this major share of FIIs, more than half was in the form of hot money being invested into the market by anonymous investors who pump money into the market by utilizing the Participatory Note (PN) facility. All those foreign investors who are not registered with the SEBI (Stock Exchange Board of India), the regulatory body for stocks in India, can not directly deal in buying/selling of sticks. So they took a sort of permission from registered FIIs by buying Participatory Notes (PN) from them in exchange of dollars, which ultimately allows them trade in the market. Though, this concept of allowing anonymous investors in the market broaden the reach of the market, it also ensure free entry of dollars into Indian economy as well as increase the percentage of hot money in the market. The hot money is that kind of money which is invested only for a short time to make some quick buck. It is not invested with a long term mindset. Since the continuous inflow of dollar into Indian economy is making the Indian currency (Rupee) stronger and thus making the export costlier, the Government was looking for someway to curb this inflow of dollars. Making the availability of Participatory Notes some difficult for foreign investors was one step Government thought would help control the inflow of dollars. So a few days ago the SEBI contemplated on a draft policy to make the issuing of PN difficult for FIIs. 5657. This was the step which gave a jolt to the buying spree of FIIs. As people found that it would be difficult to trade in the market in future owing to non-availability of PN, they started exiting form the market by selling their stock. Result- the market fell more than a 1000 point in a few hours and had to shut down for some time. Ultimately the Government had to rush in to alleviate the growing concern of Investors by stating that it would not control the issuing of PN to investors. This news will from the Business standard give you some detail of this exercise done by the Government. As of now the market is still fluctuating and is yet to be stabilized. However, I think that in all probability, it will continue it’s upward swing despite such momentary crash. The main reason of my belief is that the Indian economy as a whole is performing very well Same is the case with most Indian companies listed in the market. With the above note, here are some of my observations on what can happen if the stock market boom continues for lone in India: First some positive one First of all if this boom continues for long, soon the richest person in the world will be an Indian. On the last count (as per a leading newspaper report) Mukesh Ambani, the chairman of Reliance group was earning Rs 40 Lakhs ($ 100000) per minute. Yes you read it write. $100000 per minute ! Though it has much to do with his huge and expanding empire of Reliance industries, it is also because of the appreciation in the price of the shares of Reliance industries. Secondly most investors, who are in the market for quite sometime, are going to become really rich. The word crorepati (multimillionaire) can soon become a common thing in India all thanks to share market. However, there is a word of caution here. As this boom is being driven by FIIs (Foreign Institutional Investors), we must not forget that these people are here only till they find a new market more profitable than India. Once they find a place which offer better return on their investment than India, they will immediately shift there. Though, there is only a remote possibility of that as of now, you never know what can happen in future. That‟s why most expert 5758. are advising people to stick to their long-term investment plan and don‟t make any move in haste. Owing to stock market boom, there is another very interesting situation being faced by Reserve Bank of India(RBI) (the leading central bank which decides various
  • 25. economic policies here just like the Federal Reserve Bank of US.) The investment being made by FIIs in Indian share market has resulted in to a huge inflow of dollars into the economy. The RBI is facing difficultly in managing this continuous inflow of dollars as their huge supply and easy availability has resulted into dollar’s depreciation vis-à - vis Rupee. The Rupee is becoming stronger to dollar thus making imports cheaper and export costlier. Some of our major export oriented industries such as Softwares and textiles are feeling the heat every day. The profits margin of these industries have reduced as it mostly depend on current value of dollar. There is a pressure on Government to mange the appreciation of rupee to favour exporters. Ironically, this can only be done if Government put some break on the inflow of dollars by FIIs which will actually mean putting a break on stock market boom. (it actually happened some days ago as I described above) Government certainly don’t want to spoil the party that is going on in the stock market. However, the continued depreciation of dollar is also a cause of deep concern which needs to be addressed. The last but not the least is the overvaluation of many stocks in the market. Some experts have opined that market is trading at 22 to 23 times of actual earning and no one can justify these valuations. In nutshell if I am to summarize this boom of stock market, I must say that this boom is not going to last forever as it is dependent on some very volatile factors that may change in the times to come. As I explained in my earlier article, a increase in interest rate in US may reverse this flow of FIIs. Or we may see emergence of a new market with great potential on some other place on earth. All these things, if happen, can put a break on this boom. Recession A recession is a decline in a countrys gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down. 5859. Causes of recession An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6- 10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. Stock markets & recession The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors. When the global economy has been cooling down, and the financial sector in particular has been heading from one cold shower to the next, it was inevitable that stock markets around the world would start catching the chill. The way in which Asian stock prices responded last week to the fall of the Dow Jones and Nasdaq indices by 4 per cent, hitting a 10-month low, has also punctured a hole in the decoupling argument (which said Asia would not be hit by an America-based problem) that had become fashionable in recent weeks. Investors around the world have taken note of the fact that the broad-based S&P 500 index is at a 16-month low, along with European stocks. And investors seem to have little faith in the Bush rescue plans ability
  • 26. to ward off a recession in the US. The Fed will almost certainly respond with sharp cuts in interest rates towards the end of the month, but the market has already 5960. discounted for that. Indian markets worst hit It is interesting that Indian markets were hit the most, among all Asian markets. This may have been because the correction in the overheated Chinese stock market began some weeks ago. Investors will also have noticed that the third-quarter corporate numbers show significant deceleration in both sales and profit growth, when compared to the same quarter a year earlier. When coupled with the data showing that the export target for the year will be missed by a wide margin, and that the industrial sector has suffered a sharp slowdown, it was inevitable that stock prices would have to come off their dizzy highs. What began with profit-booking and unwinding of long positions cascaded on Friday into a 3.5 per cent decline in the Sensex. Foreign institutional investors had moved to the sidelines in the secondary markets even earlier, and FIIs have been net sellers to the tune of Rs 2,200 crore (Rs 22 billion) in January. Also relevant was the Reliance Power IPO, which pulled in a record amount of application money (Rs 1,15,000 crore (Rs 1,150 billion)). Even if a third or a fourth of that was being garnered by sale of stocks, it is a large enough sum for the market to go into correction mode. There is no doubt that valuations had become expensive. Even after the 10 per cent correction from the markets peak, the Sensex trades at a trailing P/E multiple of 24.5, which is not cheap in anyones book. Yet, buying may soon begin A global liquidity surplus had certainly contributed to momentum buying. The question is whether the correction that has occurred so far is enough for fresh buying to emerge, or whether a further fall is required before value-based buying starts. On a forward basis, the Sensex trades at an FY09 estimated P/E of 18. The floor therefore would probably be a Sensex level of 17,000-odd -- which would mean wiping out the gains of the past three months, no more. Provided the general economic and corporate news does not get worse than has already been anticipated, fresh buyingcannot be very far away. Impact of a US recession on India A slowdown in the US economy is bad news for India. 6061. Indian companies have major outsourcing deals from the US. Indias exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long- term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70. Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts. Black Monday saw bloodbath on Dalal Street as the Indian stock markets crashed by over 1430 points in afternoon trade (the market has since then recovered somewhat), reminding investors that there is no one-way bet on the stock market. factors. One, there is a change in the global investment climate. One of the primary triggers is the huge fear of the United States economy going into a recession with foreign institutional investors trying to reallocate their funds from risky emerging
  • 27. markets to stable developed markets. Analysts are now expecting a cut in US interest rates. Hedge funds and FIIs could have been the biggest sellers in the Indian markets, booking profits and making the most of the unprecedented bull run that has dominated the Indian stock market for a long time now. The current volatility is also linked to global bourses. There is a big correlation among global markets. The presence of hedge funds across asset classes, along with increased global movement of capital, has increased event-related volatility. 6162. Volatility in commodities markets has also significantly affected equity markets. A combination of global and local factors is affecting this market, said Mihir Vora of HSBC Mutual Fund, on NDTV Profit. On the global front, other emerging markets were down nearly 20% so India is playing catch-up, he said. On the local front there has been a huge build-up in derivatives positions and volatility led to margin calls. Also many IPOs have sucked out liquidity from the primary market into the secondary market, said Vora. At current levels it would be a buy call and we would not advise investors to wait to catch the bottom, he added. Analysts expect the markets to continue to be choppy for a while till global liquidity and commodity prices settle in. With the markets falling, a technical correction in the derivatives segment has perpetrated a larger fall. The Sensex can fall another 10-15%, said Adrian Mowat of JP Morgan, on NDTV Profit. India is trading at 65% premium to emerging markets and India is playing catchup with other declining global markets, he added. There is no need to get very pessimistic that this is the end of equity investing in India, he said. This could be seen as a buying opportunity and we will re- visit market valuations after the correction, he added. 6263. Strength: Weakness: High return High risk Large investment Based on the fluctuation. It Acquire capital becomes high for expanding the loss when market business goes down. Secure the future Can‟t predict losses future W s: al si O S T n a Opportunity: y Threat : Lot of people Recession wants to invest but don‟t invest New government due to insufficient Bubble burst knowledge. Fluctuates dollar Market is prices providing new opportunities and new options to invest. 6364. Conclusion: Through this research we can conclude that: Stock market fluctuates by the external environment. Stock market is all about future prediction. Stock market is very sensitive market. It is based on “high risk and high return.” Comparatively stock market is less risky than the other market and generates more money for the economy One who have good knowledge in stock market, may survive in the market and generates profits or good return whether the market is down Investors should not invest on the basis of rumors they must observe the market condition or trends Indian economy and than invest If they wanna generate good return. 6465. Bibliography Text books • The Stock Market-The Stock Market - Rik W.Hafer, Scott E. Hein, R. W.Hafer work package no. 6,7 & 8 Investment Analysis and portfolio management-M Raghunathan, Madhumati page no. 23,24,26,28,200,209 Journals and magazines JARN, Published Feb 2009 • Business today • Business standard Websites: www.tdd.ltslnewsStock_ExchangesStock.htm www.stockmarkets.com • www.bseindia.com • http://econ.worldbank.org • www.icai.org • http://en.wikipedia.org - • www.tradingstock.com • The economics times 6566. 66