A SEMINAR REPORT ON
“Stock Market Development And Growth in India”
Submitted in partial fulfillment for the
MASTER OF BUSINESS ADMINISTRATION 2nd SEMESTER (2008-2010)
Under the Supervision to:Prof . Ashwini Agrawal
Submitted by:Richa Trivedi M. B. A. (Semester 2nd)
G.D. MEMORIAL COLLEGE OF MANAGEMENT & TECHNOLOGY
I express my sincere thanks to my project guide, Prof. Ashwini Agrawal Designation Director, Dept. of Management, for guiding me right from the inception till the successful completion of the project. I sincerely acknowledge him for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support he/she/they had provided to me with all stages of this project. I would also like to thanks the supporting staff Mr. Ashish Asopa, Miss Sheetal Soni, Miss Ritu Khokar and Miss Divya Khatri Department, for their help and cooperation throughout our project.
Stock Market in India……………………………………………………..11 Margin buying……………………………………………………….11 Short selling……………………………………………………….12 Preferred stock……………………………………………………….5 4..... Introduction……………………………………………………………….12 Common stock……………………………………………………….4 3..Contents:
1.12 7.8 Irrational behaviour………………………………………………….1 4 ModerateAggressive………………………………………………... Trading……………………………………………………………………. and financial risk………….. Market Participants………………………………………………………. individual investors.4 2.9 Stock market index…………………………………………………...14
...10 Leveraged strategies………………………………………………. Function of stock exchange Issuing Stock…………………………………………………………….11 6..8 iii) The behaviour of the stock market………………………………….12
iv) v) vi) vii) viii) ix)
8. IV.. Importance of Stock Market………………………………………………7 Function and Purpose………………………………………………7 The stock market. III..12 Convertible preferred stock…………………………………………. Type of investor according to their risk taking behaviour………………13
Conservative………………………………………………………… 13 Moderate-conservative……………………………………………… 14 Moderate…………………………………………………………….. Types of Stock…………………………………………………………….6 5..10 Derivative instruments……………………………………………. II..
the NASDAQ.18 12.) 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.16 11. Reasons for the present slowdown………………………………………24 15. An overview of year 2006………………………………………………. Conclusion…………………………………………………………… …. because it is stated in terms of notional values.
A stock market. The stock market in the United States includes the trading of all securities listed on the NYSE. as well as on the many regional exchanges..26
V..20 13. The value of the derivatives market. which traditionally refers to an actual value. Moreover.. the Amex. An overview of year 2007……………………………………………….6 trillion US at the beginning of October 2008. 11 times the size of the entire world economy.e.
.. 14 9. rather than an actual market price.15 10.). Year 2007 at a glance……………………………………………………. cannot be directly compared to a stock or a fixed income security. Many such relatively illiquid securities are valued as marked to model.. the vast majority of derivatives 'cancel' each other out (i.Aggressive…………………………………………………………. OTCBB and Pink Sheets. is a private or public market for the trading of company stock and derivatives at an agreed price. a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring. e. Sensex during year 2008…………………………………………………23 14. or equity market. Year 2006 at a glance……………………………………………………. The size of the world stock market is estimated at about $36. The total world derivatives market has been estimated at about $791 trillion face or nominal value. these are securities listed on a stock exchange as well as those only traded privately.g..
The performance of the sensex is analyzed with the help of data and graphs collected from various sources and some of the most talked about movements of sensex starting with the secondary. we are going to discuss the most roaring of them i.our share market has went through many phases in there 2 years. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids
. That’s why we have followed the BSE sensex.Stock Market in India
There was a time when India was discussed as the land of snake charmers.e. still we call BSE sensex as the barometer of our economy. since year 2006. Some exchanges are physical locations where transactions are carried out on a trading floor. Now we are going to deal with the ups and downs in the share market since last two years i.e. Indian economy at its height compelled the world to change its viewpoint towards India. The magical figures displayed by our market turned all the heads on India. Out of the several factors which changed the face of modern India. we had two indices to follow: BSE sensex and NSE nifty. The earlier reform procedures adopted by India gave India the two most sought after world-class brands i. We saw how the market rewarded the undervalued shares and how the overvalued shares fell down to demonstrate the saying.e. has to fall. SENSEX and NIFTY. Their orders usually end up with a professional at a stock exchange. Though NSE nifty is a more advanced option and has left BSE sensex far behind. by a method known as open outcry. our share market.” So to analyze the saga of Indian share market. who can be based anywhere. And India became one of the most favoured places for investment. We saw the investors getting overjoyed at 21K and we saw them crying too when it crashed. “everything which raise more than expected. It was not possible to track each and everyday figure of the sensex since last two years.
Participants in the stock market range from small individual stock investors to large hedge fund traders. black magic and epidemics but the revolutionary Indian growth story changed everything. who executes the order.
Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. However. respectively. (Buying or selling at market means you will accept any ask price or bid price for the stock. If a spread exists. Although there is a significant amount of human contact in this process. composed of a network of computers where trades are made electronically via traders. which then notifies the investor who placed the order. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.and offers simultaneously. Orders enter by way of exchange members and flow down to a floor broker. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm. The New York Stock Exchange is a physical exchange. The NASDAQ is a virtual listed exchange. thus providing a marketplace (virtual or real). computers play an important role. buyers and sellers are electronically matched. who goes to the floor trading post specialist for that stock to trade the order. no trade immediately takes place--in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. The specialist's job is to match buy and sell orders using open outcry. The process is similar to the New York Stock Exchange. also referred to as a listed exchange — only stocks listed with the exchange may be traded. a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price.) When the bid and ask prices match.
. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers. where all of the trading is done over a computer network. The other type of stock exchange is a virtual kind. The exchanges provide real-time trading information on the listed securities. especially for so-called "program trading". facilitating price discovery.
Therefore. Share prices also affect the wealth of households and their consumption. the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor. The rise of the institutional investor has brought with it some improvements in market operations. pension funds. investor groups. exchange traded funds. An economy where the stock market is on the rise is considered to be an upcoming economy. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. on the smooth operation of financial system functions. hedge funds. with long family histories (and emotional ties) to particular corporations. but only after the large institutions had managed to break the brokers' solid front on fees. Thus. tend to be associated with increased business investment and vice versa. In fact. and can influence or be an indicator of social mood.g. compared to other less liquid investments such as real estate. central banks tend to keep an eye on the control and behaviour of the stock market and. markets have become more "institutionalized". the stock market is often considered the primary indicator of a country's economic strength and development. banks and various other financial institutions). such as wealthy businessmen. or raise additional capital for expansion by selling shares of ownership of the company in a public market. mutual funds. Over time. buyers and sellers were individual investors.
. Financial stability is the raison d'être of central banks. Rising share prices. buyers and sellers are largely institutions (e. This allows businesses to be publicly traded. index funds. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity. Function and purpose
The stock market is one of the most important sources for companies to raise money. for instance. in general. worldwide. insurance companies.Market participants
Many years ago.. This is an attractive feature of investing in stocks.
Importance of stock market 1.
This is a quote from the preface to a published biography about the long-term value-oriented stock investor Warren Buffett. 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. This is something that could affect not only the individual investor or household. Yet. are exchanging questionable and often misleading tips. This is certainly more important now that so many newcomers have entered the stock market. Television commentators.Exchanges also act as the clearinghouse for each transaction. the noise level in the stock market rises. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. only folly.e. immersed in chat rooms and message boards. and market strategists are all overtaking each other to get investors' attention. Buffett began his career with $100. then plummet just as quickly. and financial risk
Riskier long-term saving requires that an individual possess the ability to manage the associated increased risks. financial writers. Stock prices fluctuate widely. In this way the financial system contributes to increased prosperity.
2. and guarantee payment to the seller of a security. despite all this available information. meaning that they collect and deliver the shares. and people who have turned to investing for their children's education and their own retirement become frightened. The stock market. analysts. or have acquired other 'risky' investments (such as 'investment' property. investors find it increasingly difficult to profit. Sometimes there appears to be no rhyme or reason to the market. The following deals with some of the risks of the financial sector in general and the stock market in particular. Over the years he has built himself a multi-billion-dollar fortune. individual investors.. With each passing year. and $105. real estate and collectables). At the same time. individual investors. in marked contrast to the stability of (government insured) bank deposits or bonds. The
. but also the economy on a large scale. Stock prices skyrocket with little reason.000 from seven limited partners consisting of Buffett's family and friends. i.
in the sense that stock prices in the aggregate tend to follow a Gaussian distribution).2002 bear market. (And later amplified the gloom which descended during the 2000 . the average did not rise above 5%). In one paper the authors draw an analogy with gambling. is quite unforgiving of amateurs. The behaviour of the stock market
From experience we know that investors may 'temporarily' move financial prices away from their long term aggregate price 'trends'. Irrational behaviour
. Inexperienced investors rarely get the assistance and support they need.2002 bear market.
3. In times of market stress.) Over-reactions may occur—so that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. In the run up to 2000. In the period running up to the 1987 crash. the probabilities are known and largely independent of the investment decisions of the different players. the game becomes more like poker (herding behaviour takes over). with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economy stock market.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.. less than 1 percent of the analyst's recommendations had been to sell (and even during the 2000 .e. predictions of a DOW average below 5000 were quite common)
4. The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically. The stock market. (Positive or up trends are referred to as bull markets. however. as any other business. In normal times the market behaves like a game of roulette. the media amplified the general euphoria. New theoretical and empirical arguments have since been put forward against the notion that financial markets are 'generally' efficient (i. negative or down trends are referred to as bear markets. so that by summer of 2002.
e. the stock market may be swayed in either direction by press releases. 2008.42 points or 11 percent. people are generally not as rational as they think. Stock market index
The movements of the prices in a market or section of a market are captured in price indices called stock market indices. the S&P. the whole notion of EMH is that these non-rational reactions to information cancel out. this occurred on October 13. even if that news is likely to have no real effect on the technical value of securities itself. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment. Over the short-term.Sometimes the market seems to react irrationally to economic or financial news.
5. in turn. Emotions can drive prices up and down. However. since often such news has been anticipated. The Dow Jones Industrial Average biggest gain in one day was 936. Therefore. with the weights reflecting the contribution of the stock to the index. leaving the prices of stocks rationally determined.g. are opportunities to make money. which causes market inefficiencies. Such indices are usually market capitalization weighted. the FTSE and the Euro next indices.
6. making the stock market behaviour difficult to predict. as more experienced investors (especially the hedge funds) quickly rally to take advantage of even the slightest. and a counteraction may occur if the news is better (or worse) than expected. rumours. of which there are many. which. stocks and other securities can be battered or buoyed by any number of fast market-changing events. Behaviourists argue that investors often behave 'irrationally' when making investment decisions thereby incorrectly pricing securities. Derivative instruments
. But this may be more apparent than real. and the reasons for buying and selling are generally obscure. momentary hysteria.. but generally only briefly. euphoria and mass panic.
margin buying may be used to purchase stock with borrowed funds. derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale. Leveraged strategies
Stock that a trader does not actually own may be traded using short selling. The practice of naked shorting is illegal in most (but not all) stock markets. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. making money if the price fell in the meantime or losing money if it rose.
8. equity swaps. Margin buying
. As all of these products are only derived from stocks. or.Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. hoping for the price to fall. or traded over-the-counter. The trader eventually buys back the stock. they are sometimes considered to be traded in a (hypothetical) derivatives market.
9. These last two may be traded on futures exchanges (which are distinct from stock exchanges—their history traces back to commodities futures exchanges). Some examples are exchange-traded funds (ETFs). stock index and stock options. Short selling
In short selling. and stock index futures. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. single-stock futures. the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market.
7. rather than the (hypothetical) stock market.
and there is often a maintenance margin below the $500). if you want to make a $1000 investment. In the United States.
Types of Stock
Common stock As a unit of ownership. and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright. speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. it can be a maximum of a certain percentage of those other stocks' value. common stock typically carries voting rights that can be exercised in corporate decisions Preferred stock It typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders Convertible preferred stock It is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares.) Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. the trader borrows money (at interest) to buy a stock and hopes for it to rise. Before that. the margin requirements have been 50% for many years (that is. you need to put up $500.In margin buying. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity. A margin call is made if the total value of the investor's account cannot support the loss of the trade. The investor is responsible for any shortfall following such forced sales. usually anytime after a predetermined date
etc. They use this money to finance expansions. which involves selling bonds. known as dividends. these two markets (stock exchange and OTC) form the secondary market. Investors may sell their shares through brokers to other investors on the secondary market. The primary market is the market in which investors have the first opportunity to buy a newly issued security. the word “equity” usually refers to stocks.
Type of investor according to their risk taking behaviour
. The other method of raising money is debt financing. Together. Exchanges are located all over the world. The primary and secondary markets together make up the stock market. A company sells its stock to the public on the primary market through its initial public offering. rather than on the floor of an exchange. Stock exchanges are the physical locations where stocks are bought and sold.
Businesses issue stock to raise money. Dividend Investors may purchase stock on the primary or secondary market. such as the National Association of Securities Dealers Automatic Quotation System. with the most famous one being the New York Stock Exchange. such as the New York Stock Exchange (NYSE). or a dealer market. The secondary market can be structured as an auction market. The over-the-counter (OTC) market refers to a market in which securities transactions are conducted through a telephone and computer network connecting dealers in stocks and bonds.Function of stock exchange. When companies make profits. The money received from investors who buy stocks is called equity capital. pay for equipment and fund projects. called NASDAQ. The fancy term for issuing stock to raise money is equity financing. they may reward their stockholders with pieces of their profits. on television and the Internet. Stock prices (quotes) can be found in newspapers. In the world of securities. Corporations issue stock when they may need additional capital to operate successfully.
Investment objective: Capital growth
. Investors who choose this model feel that maximizing returns is equally important to minimizing risk.
Investment objective: Balanced growth For investors who seek higher potential growth with relatively stable capital appreciation.
Investment objective: Conservative For investors who seek moderate capital appreciation. Investment objective: Preservation For investors who are primarily interested in preserving their investment principal. Emphasis on providing a high level of current income Future growth of income and principal are secondary objectives. Future growth of income and principal are of minor importance Short investment time horizon and low tolerance for big fluctuations in current income. Investors who choose this model seek low volatility and a low probability of capital loss. Approximately equal emphasis on current income and potential for future appreciation and income growth. Investors who choose this model are comfortable with only limited swings in the annual returns earned on their portfolios.
BSE Sensex (top 30stocks) which was 9. Investors who choose this model will tolerate large market fluctuations in value in exchange for potentially greater returns. For investors who seek high potential growth. Emphasis on future appreciation. the uptrend continued in 2006-07 with BSE indices closing above 14000(14. The pickup in the stock indices could be attributed to impressive growth in the profitability of Indian corporate. 2007. In terms of listed companies.398 at end-December 2005 and 10. the BSE ranks first in the world. recovered soon thereafter to rise steadily to 13787 by end-December 2006. on a point-to-point basis. NSE continued to occupy the third position among the world’s biggest exchanges in 2006. not current income.7%. Year-to-year principal stability is not important. During 2006. overall higher growth in the economy. as in the previous three years. Investors who choose this model are willing to accept an above-average risk in exchange for greater potential gains. 2006.929 on June 14. uncertainties as depicted by Indian indices were higher than those in outside India such as S&P 500 of United States of
. BSE occupied the sixth position in 2006.399 at end-May 2006.015) for the first time on January 3. In terms of volatility of weekly returns. and other global factors such as continuation of relatively soft interest rates and fall in the international crude prices. Sensex rose by 46. slipping one position from 2005. after dropping to 8.
Investment objective: Aggressive growth For investors who want to build significant wealth over time and are willing to accept greater risk to do so. According to the number of transactions.
Year 2006 at a glance:
In the secondary market. After a somewhat dull firsthalf conditions on the bourses turned buoyant during the later part of the year with large inflows from Foreign Institutional Investors (FIIs) and larger participation of domestic investors.
is one of the main criteria sought by the investor while investing in the stock market.g.26.76 and S&P CNX Nifty at 21. Higher the liquidity. and as the second highest among emerging markets. Market forces of demand and supply determine the price of any security at any point of time.America and Kospi of South Korea. The better valuation could be on account of the good fundamentals and expected future growth in earnings of Indian corporate Liquidity. Impact cost quantifies the impact of a small change in such forces on prices. was higher than those in most emerging markets of Asia. e. South Korea. Malaysia and Taiwan. January 2005 to December 2006 as compared to January 2004 to December 2005 the market valuation of Indian stocks at the end of December 2006. with the Sensex trading at a P/E multiple of 22. Mar Apr May Jun Jul Aug Sep Oct Nov Dec BSE 9920 10370 11280 12043 10399 10609 10744 11699 12454 12962 13696 13787
An overview of year 2006:
. Thailand. which serves as a fuel for the price discovery process.
SENSEX during 2006:
2006 Jan Feb. lower the impact cost. The Indian indices recorded higher volatility on weekly returns during the two-year period.
1% in current year. The rise in share prices was partly attributed to a fall in oil price. it was evident that the move will encourage investors and boost the confidence of the markets. On Saturday. Since full convertibility was expected to attract more foreign money and also allow local companies to tap foreign debt markets more easily. with most of the volatility coming in the last hour of trading. Sensex’s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh’s announcements on Capital Account Convertibility. Prime Minister Manmohan Singh hinted at moving toward a free float of the rupee and on Tuesday.017. 10th 2006.000 club on February 6.3% respectively. RBI said it constituted a panel to thrash out the contours for full convertibility.20.905. The new trading high was reached 29 days after Sensex entered the elite 10. to settle at $60. we saw two roaring figures. higher liquidity and
. the greatest demerger of Indian history between the Ambanis paved the way for 9000. And the sensex entered the year 2006 with a 9000 + figure. The US April crude oil prices plunged 3. Hang Seng and Dow Jones could boast of being above 10.000 mark in a lifetime intraday high. participants said it was evident the markets had sent out a message .that the growth story of Asia’s third largest economy is intact and that liquidity flows into the bourses would continue to remain firm. backed by strong corporate earnings. the BSE responded by crossing the 11.During December 2005. After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both cash and futures markets and a move by stock exchanges to raise margins on share transactions by about 250 basis points.35. The 238-point rally was contrary to expectations as it came despite negative news flow about a fresh tussle between Ambani brothers over transfer of ownership of the four companies demerged from erstwhile RIL. with manufacturing and the agriculture sectors estimated to grow at 9. 2006 crossed yet another milestone when it breached the 12. But the reason behind roaring sensex was not sachin’s records rather it was rallied by strong FII inflows and robust data. April 20. on the New York Mercantile Exchange due to sample US inventories. fluctuating 153 points.25 points in mid-afternoon trade. After hitting a high of 11.4% and 2.7% or $2. On Feb. both sensex and sachin tendulkar crossing 10000 mark. Sensex lost 35. The government forecasted a GDP growth of 8.000-point mark.91 points to close at 10.42 a barrel. Only Nikkei.000 at that time. the 131-year-old BSE on Thursday. Although the index later ended lower with investors wanting to book gains.
9%. everything was going fine perhaps it was the lull before the storm. it was based on the expectations that (corporate) results would be great and by the first few companies was more than matching those expectations. The Sensex ended at its highest closing level of 13024.000-mark on Tuesday. pointing to a slowdown. Sensex was beaten to the 12. Benchmark stock indices vaulted to new highs on Monday. Earlier. which is unlikely. 2006. a rapidly growing economy and relatively stable crude oil prices.38.45 points or 0. a gain of 117.001 crore while local mutual funds have pumped in a net Rs 638.robust economic growth. the time it took to breach this milestone has been one of the fastest. Marauding bulls defied the weak trend globally. Although. have chosen India as one of their top investment destinations.26. buoyed by a booming economy. Back home. Higher interest rates drive up borrowing costs for corporate as well as the retail consumer. the BSE-30 Sensex went on to close 826. 18th may 2006 as an ambiguous Government circular on taxing investment gains prompted foreign funds to book profits. Oct. The index was being driven by the strong flow of liquidity. The benchmark 30-share sensex briefly crossed the psychological 14. While foreign institutional investors have been aggressive buying stocks over the past few months. Market watchers said sentiment could be affected only if the hike is more than 25 basis points. the response of domestic mutual funds has been guarded. 30th 2006 driven by a heady cocktail of strong corporate earnings. Suddenly the Dalal Street experienced its worst single day crash on Thursday.
. In the last two months alone. in turn causing a slack in domestic demand. FIIs bought net stocks worth Rs 17. knocking the bottom off the jittery stock market. Traders point to the fact that foreign investors. the mood was upbeat even as some expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on Tuesday. In May. Opening amidst weak global markets and reports of rising US interest rates. which was sparked off by weak US GDP growth figure. December 5.000 mark by various global indices. crash saw the Sensex shedding its market capitalization by as much as 14% in just one month. However the Dealers said the fall was accentuated by large-scale selling of client positions by broking firms due to margin calls or the lack of margins. who could then cut back on their investments and spending.07 crore. Now.
the indices maintained their north-bound trend during the year. The buoyant conditions in the Indian bourses were aided by.000 and 6.000 mark in December 2007 and 21.000 to 19.
Sensex during 2007:
2007 Jan Feb
BSE 14091 12938
. continued uptrend in the profitability of Indian corporate. the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21. BSE Sensex has given an annual return of more than 40 per cent during the last three years.1 and 54. This could be attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors. BSE and NSE indices declined subsequently reflecting concerns on global developments.000 mark was achieved in just four trading sessions during October 2007. While the climb of BSE Sensex during 2007-08 so far was the fastest ever. Sensex and Nifty Indices rose by 47. among other things.000 in an intraday trading in January 2008. In terms of simple average.5 per cent per year between 2003 and 2007. impressive returns on equities and a strong Indian rupee on the back of larger capital inflows. During 2007. on a point-to-point basis. Although the indices showed some intermittent fluctuations. India posting a relatively higher GDP growth amongst the emerging economies. The selloff in Indian bourses in August 2007 could partly be attributed to the concerns on the possible fallout of the sub-prime crisis in the West. respectively. in January 2008. It further crossed the 20. reflecting change in the market sentiments.300. BSE Sensex yielded a Compounded return of 36. the journey of BSE Sensex from 18. However. respectively. persistence of difference in domestic and international levels of interest rates.8 per cent.Year 2007 at a glance:
In the secondary market segment. The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. particularly the institutional investors.
As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March.85 points or 1. FIIs have pressed substantial sales over those days in contrast to an intermittent surge in inflow in February 2007. February 23rd.150. the day when Sensex had lost 273 points. Their net outflow was worth Rs 3080. the year-to-date return generated by the Sensex was negative 0. the sensex which closed at 14091 on January 31st closed at 12938 on February 28th. On April 24th. Market continued to reel under selling pressure on 5th march 2007 taking cue from weak global markets and heavy FII sales as a result of fall over 400 points. The Sensex again crossed the 14K mark and was trading at 14. though the year started on a rather tentative note with a marked slowdown being observed in the FII inflows into the country. The inflows received from FIIs in January and February 2007 was 48 per cent less than what was received during the same period in 2006.18 having gained 221.97 per cent. The return provided by the BSE Sensex for 2007 turned into negative territory following the 389-point tumble on Friday. As a result. all the indices were in red.80 crore in four trading sessions from 26 February to 1 March 2007. sensex entered into 2007 with a promising figure of 14000+. The midcap and smallcap indices
.59%.Mar Apr May Jun Jul Aug Sep Oct Nov Dec
13072 13872 14544 14651 15551 15319 17251 19838 19363 20287
An overview of year 2007:
After touching 14K mark on December 5th 2006.
S. The Sensex took 146 sessions to cover the 1. Further we can see May and June having month end figures at 14544 and 14651 respectively.000-mark.75.000 point distance from 14. July 06 2007 before closing at 14964. The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15. India experienced a flow of good news. especially auto. The festive spirit did not end with the immersion of Ganapati. it boiled over to the streets of Mumbai and its financial district. When FIIs were pumping money in stock market and were Net Buyers of Equity worth Crores. Fed Reserve to reduce the rates by 50 basis points.000.03% at 14809. Many thought that FIIs were playing blind in Indian stock market. tech stocks. which were the whipping boys till Tuesday. September 19th.17 per cent at 16322. On Wednesday. Sensex has to go down. the Sensex touched the magical 17. IT and metals stocks. Despite weak global cues. Suddenly.000 till 15. became hot favourites. to reach a record high of 15007. As expected. Sensex closed down 951. By staying well above the 16000-mark. But when FIIs have turned Net Sellers of Equity and have started booking profit backed by massive sell off of shares in global markets.000 number. But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday. On Friday. the Sensex plunged by 600 Points in early trading on 16th August and most of the shares were down by 4 to 5 per cent.000 to 7. pharma. It took Dalal Street just 5 days to travel 1.63 points or 4. as the benchmark 30-share BSE Sensex moved up sharply by 653.49.were rather moving slow indicating that the actual movers are the large cap stocks but at the month end it finally closed at 13872. 2007 gave thumbs up to the decision of the U. The sensex experienced its second bigger ever fall on 2nd august 2007.000 points. The fall came in after the Fed Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase agreed to buy Bear Stearns for USD 2 a share. Up and Up on weekly basis. the Sensex was moving Up . This is the highest since the index took 371 trading sessions to move up from 6. On the auspicious occasion of Ganesh chaturathi.22.12.000.03 points or 6. Indian stocks were in great demand. it outperformed most Asian peers and it was the biggest single day gain. this lifted the Bombay Stock Exchange's benchmark 30-share Sensex past the magical 15. Why? Hopes that the rupee will soften as a result
. for the first time intra-day on Friday.000-mark. This trend shows that global cues had an influential effect on our market.
used by foreign institutional investors (FIIs).073. the same seems to hold true for any stock with the prefix ‘Reliance’. At the end of the day. On October 9th. In a knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes.39. amidst heavy buying by investors. But it was followed by a huge one-day gain as on October 23 when the BSE barometer rose 878.67. After the U. 2007. capital goods. The bellwether index finally settled at 16. the stock market crashed by 1743 points in intra-day. Since September.82. It took the index a little over 20 years to reach the first 10. But there were no takers for this.280 on the back of eyepopping rallies in Reliance & Reliance. Reliance Energy and Reliance Communications lifted the 30-share Sensex to a record high of 18. but recovered substantially later to close with a loss of 336. Sensex hits a record high of 18.000 crore in the cash market. the bull roared to breach the 19000 mark in just 4 sessions Sensex was up by 639. a re-rating of the emerging markets had been seen wherein liquidity flows were quite robust.000 mark.S. This rise came on the back of some strong sectors for which the macro picture is quite bright — power. RBI's measures may not be enough to rein in the rupee.85 points after market regulator SEBI allowed sub-accounts of Foreign Institutional Investors (FIIS) to trade.42 intradays. 30.of RBI's latest announcements to allow more outflow sparked a rally in tech stocks.04 points or 1.87 during the day. they nearly pumped in more than Rs. the easiest way to maximize returns was to buy into any stock with the suffix ‘Software’ or ‘Technologies’. an overseas derivative instrument (ODI). On October 15th 2007. prompting suspension of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional Investors. Then suddenly happened the second biggest crash the sensex ever experienced when the sensex crashed by 1743 points on 17th October 2007 within minutes of opening. pushing the Sensex to a new high of 17.76 per cent at 18715.327. Federal Reserve cut interest rates by 50 basis points. infrastructure and telecom. At the height of the dotcom mania in 199900. but just a little over 20 months to double that score and the sensex made history with touching the
.47 per cent at 19058. given their baffling run-up over the past one month.921. Foreign Institutional Investors were pumping in huge money in the equity market and this too was pushing up the index. Eye-popping rallies in Reliance Industries.63 points or 3. Eight years on.
Sceptics point to the fact that there were only a handful of stocks that was driving the market higher. the journey from 20. And they felt their predictions coming true when sensex touched the 21000 mark on 8th January 2008. As per BSE data. So if one has to take out some pointers from this journey from 20. It fell to a low of 16.100 crore worth of shares over the last three trading sessions while local funds have net bought over Rs 2. the midcaps and smallcaps have been outperformers and in terms of flows. it was the local institutions that were in the driver’s seat.261. However.300 crore worth of shares. that came in due to weak global cues as well as profit booking by FIIs in the holiday season. there was not much involvement of foreign investors.000 to 21. The Sensex ended losing 769 points from the previous close.000 to 21. shedding 2062 points intra-day. down 1408. But the rosy picture soon turned gloomy. brokers and even investors predicted new heights for the year. the political development also gelled well with the sentiment. The trade pundits. But in December 2007. Significantly. It closed at 17.35 points or 7. The fall was triggered as a result of weakness in global markets. sensex entered year 2008 with rosy pictures. FIIs were negative sellers. The market succumbed to profit booking. The market gain was because of global cues. On 13th November. BSE Sensex registered its biggest ever gain in a single of 893.50. Besides.951. The rally was driven by short covering. they sold in the cash market to the tune of USD 45 billion.000 marks. at 19.58 points to settle at the third-highest level ever on buying by investors in bank counters and blue chip companies such as Reliance Industries. it has been domestic institutional investors which have been really putting the money. sensex again experienced a black Monday on 17th December. The market tumbled on account of a broad based sell-off that emerged in global equity
. foreign funds have net sold over Rs 1.000.20000 mark on October 29 2007.35.000 is dominated by domestic institutional investors. strong buying by domestic investors. but the impact of the global rout was the biggest in India.4 per cent.605.
Sensex during year 2008:
After scaling new heights of 20000+. It’s interesting if one sees in terms of flows. The skyrocketing sensex suddenly started heading south and Sensex saw the biggest absolute fall in history. it is the longest journey which we have seen in the last 5.
its biggest quarterly fall since the June 1992 quarter. a fact reinforced by the strong movement in the mid-cap and small. 31st march the last day of the financial quarter. India finished the month as the second worst emerging market. Though inflation touched a high of 7. The underperformance can partly be attributed to the fact that Indian markets outperformed global markets in the last two months of 2007and hence we were seeing the lagged impact of that outperformance. developments in the US economy and US markets continued to dominate investor sentiments globally and we saw volatility move up sharply across most markets. IT stocks fell on worries about the health of the US economy. After the worst January in the last 20 years for Indian equities.4%. After then nobody saw a stable sensex even. weak industrial production data.44 percent on Monday.9 percent. In the shorter term. According to market analysts. every forecasting has failed. February turned out to be a flat month with the BSE sensex down 0. So April was the last month to close positive.markets.68% in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%.
Reasons for the present slowdown
The first month of the financial year 08-09 proved to be a good one for investors with the month ending on a positive note. still emergence of retail investors was also seen. The Bombay Stock Exchange (BSE) Sensex fell 4. to end the quarter of March down 22. Sometimes it surged by 600+ points. The sensex is dancing on the music of lifetime high inflation rates. as reports of rising inflation and global economic slowdown dampened market sentiments. The only relief came in the form of weakening Indian rupees which
. political uncertainties and obviously the sentiments of domestic as well as FIIs. tightening RBI policies. but very next day it plunged by some 800 odd points and this story is still continuing. historic crude prices.cap index that rose 16% and 18% respectively. The BSE sensex showed a gain of 10. Every prediction. Fears over the solvency of major Western banks rattled stocks in Asia and Europe. A combination of firming global markets and technical factors like short covering were the main reasons for the up move in the markets.57% against 6.5% to close at 17287 points. Indian IT firms depend on the US clients for a major share of their revenues. Financial stocks led the Sensex slide along with IT.
54 points or 1. Bombay’s Sensex index closed 506.066. In May.14% to 15.67% at 17.18 in the week ended 6 June 2008. The S&P CNX Nifty fell 242. hit by rumours that the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later in the day to tame runaway inflation. sharp spurt in crude oil prices
.89 points or 0. On 6 June 2008. IT stocks gained on slipping rupee.3 points or 4.22. Presently it is revolving around the figures of 14000 and no one knows what next? The 30-share BSE Sensex fell 117. expected Q4 gross domestic product figures provided some relief to the bourses on Friday. The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate. Equities extended losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important 14. On 30th May an imminent hike in domestic retail fuel prices due to soaring crude oil prices weighed on the market last week. equities staged a solid rebound after touching fresh calendar 2008 lows in early trade.572. A setback to stocks in Asia and US.97% to 4627.373.01 on Tuesday.90 points or 4.4% and slipped below 15. The market declined sharply as a hike in fuel prices by about 10% announced by the Union government on Wednesday.65 in the week.39 points or 5. On the week ending 27th June 2008 Sensex declined 769. Foreign institutional investors sold close to Rs 2204 crore in the first three trading sessions of the week which accentuated the downfall.enlightened the IT sector and most recently the UPA gaining vote of confidence. local benchmark indices underperformed their global peers. On 9th June 2008. The 30-share BSE Sensex declined 197. Oil prices surged to record levels.80 in the week.25% to settle at 15. 6 May 2008.802.08 points down at 15. However. 4 June 2008. fanning fears that they will keep climbing and hurt world growth.000 mark for the first time in 10 months since late August 2007. The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market.85% to 4136. The S&P CNX Nifty lost 210. having earlier fallen 4.07 points or 5. Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control.10. The BSE Sensex declined 843. despite the fact that economic growth is slowing in key nations such as the US and UK.28% to 13.000 for the first time since March.18. Indian inflation stood at 8.572.2%. On 25 June 2008. triggered possibility of a surge in inflation to double digit level. BSE Sensex rose in two out of five trading sessions.
An 800+ point surge was experienced in the market on the day following UPA gaining vote of confidence but the very next day market couldn’t maintain the momentum and since then it’s in a doldrums’ position. On July 15th 2008. And above all we can't see any positive trigger that can dilute the flow of negative news. Although Indian banks have no direct exposure to the US subprime mortgage sector. we can say that stock market touched its peak at 21000 but then crashed badly. The rupee's rise against the US dollar the regulator's decision to restrict
. 13000 and 14000 levels in the same calendar year. Also. And talking about year 2007. the serial blasts at Ahmadabad and Bangalore adding to the worries and enhancing the negative sentiments. heavy inflow of funds from FIIs towards the close of previous calendar year and decent to highly encouraging surge in earnings of top notch companies all pointed to a rosy 2007. Indian shares fell 4.41%. joining a world equities rout as investor’s dumped financials on concerns about the fallout from worsening global credit turmoil. investors’ wealth seem to have grown double fold with the Sensex touching the 10000. Though the sensex is a barometer and after seeing such fluctuations one could be afraid of investing. Investor wealth in terms of market capitalization has been growing in the range of 6. 11000. 12000. During year 2006. Now it is revolving around 14000-16000 figure.9 per cent to their lowest close in 15 months. Still we can say that people can play safe by investing the blue-chips and undervalued shares. Strong economic data.84-12.
After going through all the analysis regarding the stock market in last 2 years. the global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds. if we keep aside that brief period of loss that the market witnessed from may 10 2006 to June 14 2006.and political uncertainty due to Indo-US nuclear deal rattled bourses on 27 June 2008. we can summarize the happenings of year 2007 as a year which redefined the resistance levels at sensex. Presently. we can saw market plunging after the RBI announced further hikes in Repo rate as well as CRR both increased to 9%.
And adding to the worries are global slowdown. the tremors are being felt in India. serial bomb blasts. Savings in India have risen at a historic rate of 35 per cent on the growing GDP base. The loss of market cap in the US is only 14 per cent vis-À-vis 38 per cent in India. we can say that India story has not ended. But the inherent strength of the Indian economy.investments made through participatory notes. fairly buoyant results quarter after quarter. But even after analyzing the causes for downturn. we can be hopeful for a positive market. negative public sentiments etc. So even after such downturns. Presently the hike and seek being played by crude prices. 17 per cent of this is in gold.
. Exports being 14 per cent of GDP. it would amount to $40 billion of incremental money being diverted to capital markets. did halt the market's progress at times. inflation and RBI is affecting our market to a great extent. political instability. rising crude oil prices. Even this is skewed towards deposits both banking and non-banking. It is indeed surprising that though the epicenter of the sub-prime crisis is the US. concerns over a slowing down US economy and The Left parties' opposition to the Indo-US nuclear pact. while the percentage of savings in shares and debentures is a mere 6. Political uncertainties too have narrowed down. commodities and real-estate while financial savings represent 18 per cent of GDP. the various chops and subsidies announced by the government and sustained efforts made by the market regulator to keep investor confidence in the system alive kept the momentum going. If this percentage goes to 25 per cent.3 per cent. India is less vulnerable to external shocks than many other Asian nations. the subprime mortgage woes in US. else $200 billion with institutional investors would have fled for safer waters.