17344602 All About Stock Market

First step to Investing in

Stock market!!!!

MANIBA INSTITUTE OF BUSINESS MANAGEMENT

Created by:~ Changani J.G (05) (Group leader) Ahir Bhadresh (01) Andghad Anil (02) Beladiya Vilas (03) Chandpara Reshama (04)

STOCK MEANS:~ Steadfast Talented Observer Comfortable Knowledgeable

STOCK MARKET WORKING REGULATORY FRAMEWORK WHY DO PEOPLE BUY SHARES? WHY STOCK MARKET IS SO VOLATILE? HOW TO MAKE MONEY IN STOCK MARKET? ROLE OF STOCK MARKET IN ECONOMY

INTRODUCTION:

Stock market??

The market for long term securities like bonds, equity stocks is divided into PRIMARY MARKET and SECONDARY MARKET. PRIMARY MARKET Deals with the new issues of securities.  SECONDARY MARKET Deals with outstanding securities. Also known as “STOCK MARKET”.

JARGON OF EQUITY MARKET: • SECURITY • BOND • STOCK 1)COMMON STOCKS 2)PREFERRED STOCKS • SHARE • MUTUAL FUNDS. • PAR VALUE vs. MARKET VALUE • BULLISH vs. BEARISH

How does the stock market function? Stock exchanges Brokers  Registrars Depositories and their participants Securities and Exchange Board of India (SEBI)

MARKET INDICES: Stock market indices are the barometer of the stock market. BSE SENSEX,NSE-50 etc are some of the market indices.

Their usefulness:  Indices help to recognize broad trends in the market.  The investor can use the indices to allocate the funds rationally among the stocks.  Technical analysts use these indices to predict the future market.  Indices function as a status report on the general economy.

JOB OF THESE INDICES:

These indices have just one job: To capture the price movement. So a stock index will reflect the price movements of shares while a bond index captures the manner in which bond prices go up or down.

WHY STOCK PRICE RISES? The price of every stock increases or decreases for the following possible reasons:

 News about company.  News about the country.  Exchange rate regime.  Depends on demand and supply for that stock.

WHO SELECTS THESE STOCKS? They are selected by the Index committee. Some of the criteria they follow include : 1)Market capitalization. 2)Liquidity. 3)Continuity. 4)Industry representation. 5)Listed history.

Why must I Invest in Shares? Why need I invest? So what are the various investment options? Why shares?

Other benefits of investing in shares?

Because they can make big money on it. Compared to your investments in fixed deposits in banks it makes more profits ,but the bad news is that you are also expected to bear the losses ,if any.  1) Possibility of high returns 2) Easy liquidity 3) Unbeatable tax benefits 4) Income from dividends

What are the expenses during a transaction?  Capital gains tax  Securities transaction tax  Brokerage  Depository fees

SO HOW DOES ONE BUY SHARES? There are basically two ways in which you can invest in shares:  Purchase shares from the primary market (i.e. IPO's) Trade in the secondary market, i.e. stock exchanges.

COMPUTATION OF STOCK INDEX: A stock market may either be a price index or a wealth index. In India most of the indices are using wealth index for computation of stock market. Face value=Rs.10/No. of Market Market Market Market Compan y

shares

Price on 09/02/0 6

cap (Rs.)

Price on 18/02/0 6

cap (Rs.)

TATA

10

20/-

200/-

30/-

300/-

INFOSY S

20

30/-

600/-

40/-

800/-

IBM

20

100/-

2000/-

150/3000/-

TOTAL MARKE T CAP

2800/-

4100/-

Base value=100/Index present value= (100*4100)/2800= 146.428

WHY STOCK MARKET IS SO VOLATILE? Acceptance of globalisation,internationalisation and integration of the Indian market with the world markets. Introduction of flexible exchange rate regime. Intro of new, innovative ,hybrid financial instruments. Human element. Technological changes.

HOW TO MAKE MONEY IN STOCK MARKET? patience, profound knowledge. Best guess. Diversification . Portfolio management.

ROLE OF MARKET ACTIVITIES IN ECONOMY:  In theory they are required to facilitate, support, enable the healthy growth and functioning of primary markets but in practice they are not . The current focus of thinking on the SENSEX, market capitalization etc.reflects an excessive preoccupation with the secondary market activity. Beyond a point, the expansion of the secondary markets may reduce the volume of activity not only on the new issue market but also in the banks, other financial institutions, gold, real estate and commodities. The multiple serious problems visiting the stock market caution us against too much optimism and enthusiasm about the stock market.

DRAWBACKS OF INDIAN STOCK MARKET: Unethical practices. Big irrational greed, excessive speculation. Lack of protection to interests of the genuine and small investors . Trading is extremely thin and restricted. Structural and organisational imbalance in the growth of the stock market. Volatility of the market has increased over the years.

REMEDYS: So in order to make it flawless system authorities should initiate certain measures such as

 Single authority  Demutualization.  Prescribing capital adequacy norms.  Stricter registeration of brokers  Margin requirements .

Some Basic Background On The Stocks And The Economic Market

WHAT ARE SECURITIES? • Securities can be either stocks or bonds which are sold and bought on the stock market.

WHAT IS THE NEW YORK STOCK EXCHANGE? • World’s largest market place for securities • Currently membership limited to 1,366 members. • Seat obtained by purchasing from existing member

INTERESTING FACT: HOW DID STOCK EXCHANGE BEGIN? • The Exchange evolved from a group of men who used to meet under a buttonwood tree on what is now Wall Street in 1792 to discuss securities

THE GREAT BULL MARKET • Great American stock exchange boom of 1928-1929 • Huge bubble where there were high speculations • People made many investments to make big money

BULL MARKET SPARKED BY? • • • •

Growth in American industries Technological progress Increase in productivity Rise in national income from 33,200 million to 79,200 million from 1914 to 1925 • Expectation for great future and unboundless optimism for the market

WHAT SPARKED THIS GROWTH IN INDUSTRY? • The Electrification of the production process – This expanded the ability to transform raw materials into finished products – Ex. Ford Motors

HOWEVER?????? • Wages did not raise even though the production did and prices of products failed to decrease. • There was not an excess demand for labor – Leaving unemployment rate steady

STOCK EXCHANGE AVERAGE RISE IN SHARE PRICES 1924-1928 250 200 24-May 24-Dec 25-Dec 26-Dec 27-Dec

150 100 50 0

Stock Exchange

POLITICAL PROMISES SPARK MARKET SPECULATION • Herbert Hoover was the most promising candidate for president because of his ideas which promised increased economic growth in America.

HOOVER’S PLAN • Proposed a Tariff bill which Senator Smoot presented called the SmootHawley Tariff – Promised increased tariffs on imports – Planned to allow more productivity for US manufacturers – Help ease unemployment

INVESTORS MARVEL AT THIS PROPOSAL • Investors believed profits from stocks would increase if the tariff bill was passed • Sparked intense speculation • Dow Jones Industrial Average increased by almost 35% because expected election of Hoover and his bill

This Bubble was bound to Burst!

THE CRASH OF 1929 • “American economic disaster that precipitated the Great Depression which was approximately a 10 year economic slump affecting all the western industrialized countries.” – Encyclopedia Britannica

GENERAL CAUSES OF THE CRASH • Rampant over speculation in market • People holding companies and investment trusts (which by nature creates debt) • Bursting of Bull Market economic bubble in August 1929 • Large bank loans could not be liquidated

DIRECT CAUSE OF CRASH OF STOCK MARKET • After Hoovers election certain people began to doubt if the tariff bill would help the US Economy – Farmers, America’s trading partners, Democrats, and some Republican’s opposed the passage of new tariffs. – On October 21, 1929 Senate announces plans to limit tariff revisions – October 22, 1929 more limits set on tariff bill

INVESTORS REALIZE TARIFF BILL IS DOOMED!!!!!!!!!!!!! PANIC! PANIC! PANIC!

BLACK THURSDAY • On October 18, 1929 prices began to fall • Panic stuck out on October 24 “BLACK THURSDAY” after the announcements from the Senate • Record of 12,894,650 shares were traded

BLACK THURSDAY (Continued) • Major banks and investment companies bought up great blocks of stocks to stop the panic but…. THERE ATTEMPTS FAILED!!!!!!!!!

BLACK MONDAY & TUESDAY • The Panic continued and 16,000,000 shares were traded • Prices on the stock market collapsed completely!!!!

HOOVER’S PLAN TO COMBAT CRASH • Extracted promises from manufacturers to maintain production. • Signed legislation providing generous additional funds to pubic works • Smoot-Hawley Tariff 1930 (finally passed): to raise duties 50%

• ALL THESE FAILED TO EASE CRISIS AND DEPRESSION FOLLOWED!!!!

CAUSES OF GREAT DEPRESSION • Agriculture had crashed in 1919 and was a continuing source of weakness. • Banks over-extended • Wages had not kept up with profits • In 1920’s consumers were reaching limits of ability to borrow and spend

CAUSE’S OF DEPRESSION (continued) • Production was declining and unemployment increasing EVEN before the crash! • Destroyed confidence in the economy • Down sizing of industry causing unemployment

THE GREAT DEPRESSION • The stock prices in the next three years continued to fall • By 1932 prices had dropped to only about 20% of there original value

EFFECTS OF DEPRESSION ON INDIVIDUAL • Thousands of individual investors ruined • Loss of savings • Poverty and panic • Less spending and demand • Unemployment • Wages decrease

Decline in Production DOWNWARD SPIRAL - little out put means less jobs - Manufacturing output fallen to 54% of its 1929 output - 25-30% of work force unemployed - 12 -15 Million jobless

REASONS AMERICA’S DEPRESSION EFFECTS WORLD • World War I left Europe with large war debts – America was a major financer and creditor of post war Europe. Once US slumped American investments to Europe dried up – Germany hurt because of large war reparations

REASONS (continued) • Nations attempt to protect domestic production with tariffs and having quotas on imports – This only reduced international trade and damaged market even more

SOME OF FDR’S PROGRAMS • Civilian Conservation Corp • National Recovery Administration • Federal Deposit Insurance Corporation • Securities and Exchange Commission

MORE PROGRAMS • 1935 Wagner Act (authority of Federal government in industrial relations) • National Labor Relations Board • Social Security, unemployment compensation, disability insurance

END TO DEPRESSION • Outbreak of World War II causes – US factories flooded with orders form armaments and munitions – Unemployment decreases and production increase – Depression ends completely by the time the US enters the war in 1941

WHAT DID WE LEARN FROM THE 1929 CRASH? • Market can be very unpredictable • Investors must not get caught up in market bubble illusions • Market forces alone may be unable to achieve recovery from economic slump • Changes were needed in US economic structure

GOVERNMENT ACTION TAKEN NOW TO ENSURE ECONOMIC STABILITY • Taxation • Industrial regulation • Social programs (social security, pensions, welfare, others) • Public programs • Deficit spending

STOCK MARKETS MORE INFORMATION

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