Effect Of Recession On Stock Market

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THE PROJECT IS PRESENTED BY MAHASWETA G. SWAPNALI GHADGE NO. 11 SMITA GUJAR PRANEELA PATIL DIPIKA PUJARI VIKAS RAJPUT

ROLL NO. 10 ROLL ROLL NO. 12 ROLL NO. 31 ROLL NO. 32 ROLL NO. 33

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The economy is a cycle. First it starts and it takes growth stage, then it takes boom stage and then falls down which is recession. Another indicator of recession is a decreasing gross national product of a nation, which is observed over two quarters. To be a successful investor you need two main things - the knowledge and the right trading platform. Economic activity usually passes through four phases – recession, depression, recovery and boom. In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

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A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. Stockbrokers and individuals can invest in the market. Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock). The stock market is one of the most important sources for companies to raise money. The economy and the stock market are closely related.

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The stock market starts to fall before a recession starts. It starts to recover in the late stages of a recession before the recession has reached its bottom. Stock prices almost always start to fall a few months before the recession has formally started – as signals of an impending slowdown and possible recession are already mounting even before a recession is formally triggered. The fall in the stock market level in the recession was 33.88% in the 1974-75 recession, 10.6% in the 1980 recession, 18.2% in the 1981-82 recession, 14.6% in the 1990 recession, 10.3% in the 2001 recession. Once a recession has triggered a severe bear market, at some point – before the bottom of the recession – the stock market does start to recover.

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Black Monday saw bloodbath on Dalal Street as the Indian stock markets crashed by over 1430 points in afternoon trade. Why did this huge fall happen? 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 markets to stable developed markets. How long will the markets keep falling? 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.

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It really depends on your situation and what type of investor you are. First, remember that a bear market does not mean there are no ways to make money. Some investors take advantage of falling markets by short selling stocks. Essentially, an investor who sells short profits when a stock declines in value. Problem is, this technique has many unique pitfalls and should be used only by more experienced investors. Another breed of investor uses recession much like a sale at the local department store.

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The capital market in India may continue to spring many a surprise in 2009, but smart investors have begun to increase their exposure to a few selective sectors which may outsmart others during this year. Analysts largely accept the view that there is not much downside to October lows for the Indian equity market. But none is sure how long this bear phase will continue, though everyone is convinced that stocks will begin to shine six months ahead of the recovery of the real economy. Yes, a few sectors or at times, a few individual stocks will give the leadership to the market which has now become largely range-bound.