2.4. PRIMARY MARKET
The primary market is that part of the that deals with the issuance of new . Companies, governments or public sector institutions can obtain through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called an (IPO).
Features of Primary Market
1. This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM).
2. In a primary issue, the securities are issued by the company directly to investors.
3. The company receives the money and issue new security certificates to the investors.
4. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
5. The primary market performs the crucial function of facilitating capital formation in the economy.
6. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as ‘going public’.
2.5. SECONDARY MARKET
The secondary market is the for trading of that have already been issued in an initial private or public offering. Alternatively, secondary market can be referred to as the market for any kind of used goods. The market that exists in a new security just after the new issue is often referred to as the aftermarket. Once a newly issued is listed on a , and can easily trade on the exchange, as provide bids and offers in the new stock.
2.6. STOCK EXCHANGE
A stock exchange, share market or bourse is a or which provides facilities for and , to trade company and other . 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 . The securities traded on a stock exchange include: issued by companies, and other pooled investment products and . To be able to trade a security on a certain stock exchange, it has to be listed. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are , 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 is by definition done in the and subsequent trading is done in the . A stock exchange is often the most important component of a . Supply and demand in stock markets is driven by various factors which, as in all , affect the price of stocks.
2.7. THE ROLE OF STOCK EXCHANGE
Stock exchanges have multiple roles in the , this may include the following:
2.7.1. Raising capital for businesses
The Stock Exchange provides with the facility to raise for expansion through selling to the public.
2.7.2. 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 with , are mobilized and redirected to promote activity with benefits for several economic sectors such as , and , resulting in a stronger and higher productivity levels.
2.7.3. Facilitating company growth
Companies view acquisitions as an opportunity to expand , increase distribution channels, hedge against volatility, increase its , or acquire other necessary business . A bid or a agreement through the is one of the simplest and most common ways for a company to grow by acquisition or fusion.
2.7.4. Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth although casual and professional through increases and get a chance to share in the wealth of profitable businesses.
2.7.5. Corporate governance
By having a wide and varied scope of owners, companies generally tend to improve on their standards and 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 tend to have better management records than .
2.7.6. 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 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, and to enjoy similar rates of returns.
2.7.7. 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 known as . 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 municipal 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.
2.7.8. Barometer of the economy
At the stock exchange, share prices rise and fall depending, largely, on forces. Share prices tend to rise or remain stable when companies and the in general show signs of stability and growth. An , depression, or could eventually lead to a . Therefore the movement of share prices and in general of the can be an indicator of the general trend in the economy.
2.8. TYPES OF STOCK
There are many different types of stocks. Here is a list a few of the most popular types.
2.8.1. Blue Chip Stocks
It consists of the oldest most continuously profitable companies, which usually pay a dividend. Some companies are more than 100 years old.
2.8.2. Growth Stocks
These stocks have or are expected to have superior earnings. They usually don't pay dividends because they reinvest their earnings for growth. Their share price can increase dramatically while in their growth stage. When they have a setback on bad news or some other problem, their share price can also go down dramatically. The investor must be prepared for these possible price fluctuations. Examples of growth stocks from the decade of the 90's include Microsoft, Gateway, Intel, Qwest, and Yahoo.
2.8.3. No Load Stocks
No Load Stocks can be purchased for reduced or no cost directly from companies.
2.8.4. Speculative Stocks
When a new investor thinks of stock as "risky", then they are usually speculative. The chances of losing a lot of money are great, and the chances of making a lot of money are small. Examples of speculative stocks are stocks priced under $5 per share.
SENSEX, THE BAROMETER OF THE ECONOMY
3.1. BOMBAY STOCK EXCHANGE
For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "The Stock Exchange, Mumbai" by paying a princely amount of Re.1. Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.
3.2. SENSEX (Sensitive Index)
SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.
The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.
Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). The SENSEX has over the years become one of the most prominent brands in the country.
The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through SENSEX.
3.3. SENSEX CALCULATION METHODOLOGY
SENSEX is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.
The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrip’s, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time.
3.4. MAJOR ADVANTAGES OF FREE-FLOAT METHODOLOGY
- A Free-float index reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market.
- Free-float Methodology makes the index more broad-based by reducing the concentration of top few companies in Index. For example, the concentration of top five companies in SENSEX has fallen under the free-float scenario thereby making the SENSEX more diversified and broad-based.
- A Free-float index aids both active and passive investing styles. It aids active managers by enabling them to benchmark their fund returns vis-à-vis an investable index. This enables an apple-to-apple comparison thereby facilitating better evaluation of performance of active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted index is best suited for the passive managers as it enables them to track the index with the least tracking error.
- Free-float Methodology improves index flexibility in terms of including any stock from the universe of listed stocks. This improves market coverage and sector coverage of the index. For example, under a Full-market capitalization methodology, companies with large market capitalization and low free-float cannot generally be included in the Index because they tend to distort the index by having an undue influence on the index movement. However, under the Free-float Methodology, since only the free-float market capitalization of each company is considered for index calculation, it becomes possible to include such closely held companies in the index while at the same time preventing their undue influence on the index movement.
3.5. SENSEX MILESTONES
Here is a timeline on the rise of the Sensex in the Indian stock market history.
-
1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.
-
2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr. Manmohan Singh.
-
3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.
-
4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the scam hit the markets and Sensex witnessed unabated selling.
-
5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.
-
6000, February 11, 2000 - On February 11, 2000, the InfoTech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.
-
7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.
-
8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.
-
9000, December 09, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.
-
10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.
-
11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.
-
12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a life-time peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.
-
13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 and still riding high at the Bombay Stock Exchange for the first time. It took 135 days to reach 13,000 from 12,000. And 124 days to reach 13,000 from 12,500. On 30th October 2006 it touched a peak of 13,039.36 & closed at 13,024.26.
-
14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000 and touched a life-time peak of 14028 at 9.58AM (IST) while opening for the day December 5, 2006.
-
15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and reached a magic figure of 15,000. it took almost 7 month and 1 day to touch such a historic milestone.
-
16,000, September 19, 2007- The Sensex on September 19, 2007 crossed the 16,000 mark and reached a historic peak of 16322 while closing. The bull hits because of the rate cut of 50 bps in the discount rate by the Fed chief Ben Bernanke in US.
-
17,000, September 26, 2007- The Sensex on September 26, 2007 crossed the 17,000 mark for the first time, creating a record for the fastest 1000 point gain in just 5 trading sessions. It failed however to sustain the momentum and closed below 17000. The Sensex closed above 17000 for the first time on the following day. Reliance group has been the main contributor in this bull run, contributing 256 points. This also helped Mukesh Ambani's net worth to grow to over $50 billion or Rs.2 trillion. It was also during this record bull run that the Sensex for the first time zoomed ahead of the Nikkei of Japan.
-
18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on October 9, 2007. The journey from 17k to 18k took just 8 trading sessions which is the second fastest 1000 point rise in the history of the Sensex. The Sensex closed at 18,280 at the end of day. This 788 point gain on 9th October is the biggest single day absolute gains ever. Sensex also saw intra-day gains of 1000 points from the day's lows in the backdrop of political uncertainty between the UPA and Left parties on the Nuke deal. The markets started coming off the day's lows on news that the immediate threat to the government had receded after the warring factions agreed to talk further. Reliance Industries was again the biggest contributor in this 1000 point gain. The Reliance-pack along with Infosys and L&T lead the Bull run.
-
19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on October 15th 2007.It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally ever and also the 640 point rally was the second highest single day rally in absolute terms. RIL contributed 153 pts, ICICI Bank 120 pts, ONGC 119 pts, L&T 108 pts and Bharti Airtel 96 pts. Top 5 stocks contributed 60% of rally from 18k to 19k. That means a record 3000 point rally in 17 trading sessions.
-
20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from 19k to 20k. The journey of the last 10,000 points was covered in just 869 sessions as against 7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone, there have been six 1,000-point rallies for the Sensex. L&T and ICICI Bank top contributors with 50% contribution of last 1000 points rally. However these 11 days between 19k and 20k have also been the most volatile in the history of India's stock markets on account of the P-Notes () crisis which involved the biggest intra-day crash as well as the biggest single day gain.
-
21,000, January 8, 2008-The Sensex opened with a huge positive gap of 157 points at 20,970, and rallied past the 21,000-mark to a fresh all-time high of 21,078.
Profit-taking at higher levels saw the index drop to a low of 20,697 - down 381 points from the peak. Fresh buying towards the end saw the index finish with a gain of 60 points at 20,873.
- 9,975, October 17, 2008 - Sensex crashes below the psychological 5 figure mark of 10K, following extremely negative global financial indications in US and other countries. Exactly one year back in October 2007, Sensex had gone past the 20K mark.
-
8701.07, , lost 10.96% of its value on the intra day trade, the 3rd highest loss for a one day period in its history
On May 22, 2006, the Sensex plunged by a whopping 1100 points during , leading to the suspension of trading for the first time since May 17, 2004. The volatility of the Sensex had caused investors to lose Rs 6 lakh crore ($131 billion) within seven trading sessions. The Finance Minister of India, , made an unscheduled press statement when trading was suspended to assure investors that nothing was wrong with the fundamentals of the economy, and advised retail investors to stay invested. When trading resumed after the reassurances of the and the , the Sensex managed to move up 700 points, still 450 points in the red. This is the largest ever intra-day crash (in points terms) in the history of the Sensex.
The Sensex eventually recovered from the volatility, and on , , the Sensex closed at an all-time high of 12,928.18 with an intra-day high of 12,953.76. This was a result of increased confidence in the economy and reports that India's manufacturing sector grew by 11.1% in August 2006.
3.1. PICTURE SHOWING THE ROLLER COAST OF SENSEX IN THE YEAR 2007
3.6. THE US SUB-PRIME CRISIS OF 2007
On , , the Sensex touched a new high of 15,733 points. On , the Sensex witnessed a huge correction because of selling by and global cues to come back to 15,160 points by noon. Following global cues and heavy selling in the International markets, the BSE Sensex fell by 615 points in a single day on August 1, 2007, the third such biggest fall in its history. Following the same trend, the BSE Sensex fell by 643 points in a single day on August 16, 2007, which is the biggest fall since April, 2007 and the second biggest ever (absolute terms) in history.
3.7. PARTICIPATORY NOTES CRISIS OF 2007
On the 16th of October, 2007, (Securities & Exchange Board of India) proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007. SEBI was not happy with P-Notes because it is not possible to know who owns the underlying securities and hedge funds acting through PNs might therefore cause volatility in the Indian markets.
However the proposals of SEBI were not clear and this led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). Within a minute of opening trade, the Sensex crashed by 1744 points or about 9% of its value - the biggest intra-day fall in Indian stock-markets in absolute terms. This led to automatic suspension of trade for 1 hour. Finance Minister P.Chidambaram issued clarifications, in the meantime, that the government was not against FIIs and was not immediately banning PNs. After the markets opened at 10:55 am, they staged a remarkable comeback and ended the day at 18715.82, down just 336.04 from Tuesday’s close after tumbling to a day’s low of 17307.90.
This was, however not the end of the volatility. The next day (October 18, 2007), the Sensex tumbled by 717.43 points — 3.83 per cent — to 17998.39, its second biggest fall. The slide continued the next day when the Sensex fell 438.41 points to settle at 17559.98 at the end of the week, after touching the lowest level of that week at 17226.18 during the day.
The SEBI chief, M.Damodaran held an hour long conference on the 22nd of October to clear the air on the proposals to curb PNs where he announced that funds investing through PNs were most welcome to register as FIIs, whose registration process would me made faster and more streamlined. The markets welcomed the clarifications with an 879-point gain — its biggest single-day surge — on October23, thus signaling the end of the PN crisis. SEBI issued the fresh rules regarding PNs on the 25th of October, 2007 which said that FIIs cannot issue fresh P-Notes and existing exposures were to be wound up within 18 months. The Sensex gave a thumbs up the next day - Friday, 26th October by re-crossing the 19,000 barrier with a 428 point surge. The coming Monday (October 29, 2007) history was created when the Sensex leaped 734.5 points to cross the hallowed 20,000 mark for the first time.
With so many factors contributing to the fluctuations in SENSEX, it is the investors who are ultimately affected. The volatility of the market is a nightmare to the investors.
4.1. PICTURE DEPICTING THE INVESTORS’ REACTION TO A BULLISH TREND OF SENSEX
ANALYSIS AND INTERPRETATION ON THE VIEWS OF INVESTORS
4.1. The Sensex by its nature is fluctuating. It is affected by the market demand and supply as well as other reasons like rumors, political issues or fluctuations in the global market. A structured questionnaire was used to collect primary data from the investors. The sample size was 50- 10 from investors under India Infoline, 10 from investors of Motilal Oswal Securities Ltd., 10 from investors of Kotak Securities Ltd., 10 from investors of Coimbatore Capital Ltd. and 10 from investors of JRG Securities Ltd.
4.2. Age
The age of the respondents will have an impact on the investors’ attitude towards Sensex fluctuations.
4.2. Table showing the Age of the Respondents
Source: Primary Data
Out of the 50 respondents, 46% are between the age group of 20-30, 30% are between the age group of 31-45, and 24 % are above the age of 45. From this table, we find that most of the investors are in the age group of 20-30. It is the youth who have the idea of trading in a stock exchange.
4.2. Diagram representing the Age of the Respondents
4.3. Sex
The sex of the respondents decides their attitudes towards investment.
4.3. Table showing the Sex of the Respondents
Source: Primary Data
Out of the 50 respondents, 80% are male and 20% are female. This shows that women invest comparatively lower than that of men.
4.3. Diagram representing the Sex of the Respondents
4.4. Education
The education of the investors plays a major role in determining their attitude towards investment.
4.4. Table showing the Education level of the Respondents
Source: Primary Data
From the above table, we find that 16% of the respondents have completed their High School or still below, 54% of the respondents have completed their graduation and the remaining 30% have completed post graduation. We are able to conclude that graduates are more comfortable in making investments.
4.4. Diagram representing the Education of the Respondents
4.5. Occupation
The occupation of the respondents also reflects the investors’ attitude towards the fluctuations.
4.5. Table showing the Occupation of the Respondents
Source: Primary Data
From the table, we find that 40% are businessmen/ industrialist, 26% are professionals, 18% are in service, 10% are housewives and 6% are retired. Therefore, when we come to investment in fluctuating Sensex, it is the business class people who opt more.
4.5. Diagram representing the Occupation of the Respondents
4.6. Family Income
The family income of the respondents affects the investment attitude in a fluctuating market.
4.6. Table showing the Monthly Family Income
Source: Primary Data
Out of the 50 respondents, 54% earn upto Rs.20,000/-, 26% earn in the income range of Rs.20,001/- to Rs.40,000/-, 8% earn in the income range of Rs.40,001/- to Rs.60,000/- and 12% earn above Rs. 60,000/-. Here, there are 27 respondents earning less than Rs.20,000/- . In this way, the income has an influence over the investment levels.
4.6. Diagram representing the Monthly Family Income
4.7. Average Investment in a Year
The average investment in a year determines as to how the attitude differs in a fluctuating market.
4.7. Table showing the Average Investment of the
Respondents in a Year
Source: Primary Data
From the above table, we find that 42% save their income upto Rs.10,000/-, 18% invest from Rs.10,001/- to Rs.25,000/- out of their income, 22% make an investment of their income from Rs.25,001/- to Rs.50,000/- and 18% invest above Rs.50,000/-. Therefore we can conclude that most of the respondents are able to invest only upto Rs. 10,000/- of their savings.
4.7. Diagram representing the Average Investment
Of the Respondents in a Year.
- Years of Experience in investing in Shares
The experience of the investors will help us determine their attitude and reactions towards the Sensex fluctuations.
4.8. Table showing the Years of Experience in investing in Shares
Source: Primary Data
Out of the 50 respondents, 32% have experience less than one year, 46% have experience of 1-3 years, 8% have experience of 3-5 years, 4% have experience of 5-8 years and 10% have experience more than 8 years. The majority of the investors who responded have an experience of 1-3 years which is actually sufficient enough to face a fluctuating market.
4.8. Diagram representing the Experience of the
Respondents in investing in Shares
4.9. Occurrence of Loss during the last two years
The incidence of the loss during the last two years while investing in a fluctuating Sensex helps us to calculate the imbalance among the investments.
4.9. Table showing the Occurrence of Loss to the Respondents
during the last two years
Source: Primary Data
From the table, we are surprised to note that 50% of the investors have suffered loss and the other 50% has earned a profit. So we come to a conclusion that the fluctuating Sensex is well balanced in giving both profits and losses to the investors.
4.9. Diagram representing the Occurrence of Loss to the Respondents
During the last two years
4.10. Advisory Services for further Investment
The respondents have different ideas as to get advisory services for making further investment in a fluctuating Sensex. Some of them might opt for advice while the others may go in for their own opinion.
4.10. Table showing whether the Respondents opt for
Advisory Services or not
Source: Primary Data
From the table we are able to interpret that 68% of the respondents get advisory services for further investments in a fluctuating market and 32% of the respondents go in for self-opinion thinking it to be the best. Therefore most of the investors get expert advice to invest as Sensex is not always stable.
4.10. Diagram representing whether the Respondents opt for
Advisory Services or not
4.11. Sources of Advisory Services
Those respondents who get advices for investment have different sources like stock brokers, banks, friends, associations, financial institutions and experienced investors.
4.11. Table showing the Different Sources of the Advisory Services
Source: Primary Data
Out of the 34 respondents who get advisory services, 56% get advice from the stock brokers, 8% from bankers, 20% from friends and associations, 6 % from other financial institutions and the remaining 16% from the experienced investors.
Thus it is concluded that 56% of the respondents get advice from stock brokers who are closely related to their investment plans. They have confidence in stock brokers as they are fully experienced with the volatile Sensex.
4.11. Diagram representing the Different Sources
of the Advisory Services
4.12. Safe Companies for Investment in a Volatile Sensex
There are different types of companies which are available for investment in BSE like IT companies, Banks, Infrastructure, Engineering, Cement, Pharma and Telecommunication companies. Some of them are safe while some others are risky.
4.12. Table Showing the Preference of the Respondents
towards Safe Investment.
Source: Primary Data
From the table we find that the respondents feel that Infrastructure companies are safest even during a fluctuating Sensex. The next safer companies are banks, followed by IT companies, Telecommunication, Engineering and Cement. The Pharma companies are the least safe companies because of the Sensex fluctuations.
4.12. Diagram Representing the Preference of the Respondents
towards Safe Investment.
4.13. Difficulties Faced in a Volatile Sensex
The investors face various difficulties like mere confusion, fear of capital erosion, etc. Sensex fluctuations thus imposes certain difficulties on the investors
4.13. Table showing the Difficulties Faced in a Volatile Sensex
Source: Primary Data
From the table, we find that 30% of the respondents are confused, while 32% fear capital erosion and the remaining 38% face no difficulty at all. Though the majority respondents face no difficulty, we may conclude that they still face difficulties of confusion and fear of capital erosion as there are slight variations only.
4.13. Diagram representing the Difficulties Faced
in a Volatile Sensex
4.14. Reacting to a Rising Market
When the Sensex rises, the market is said to be in a boom period. In a rising market, an investor may opt to liquidate the existing stocks, or buy more to make future profits, or go in for partial liquidation or just remain silent. He may react in a manner that does not result in loss to him.
4.14. Table showing the Reactions of the Respondents
in a Rising Market
Source: Primary Data
Out of the 50 respondents, 36% liquidate the existing stocks, 36% liquidate their stocks partially, 20% buy more to make future profits and 8% opt to remain silent. Thus it can be concluded that the investors are less risk taking. They are ready to liquidate their stocks entirely or partially to earn quick profits rather than buying more.
4.14. Diagram representing the Reactions of the
Respondents in a Rising Market
4.15. Reacting to a fall in the Market
The fall in the market is indicated by the fall in the Sensex value. The investors may liquidate the existing stocks, or buy more to average holdings, or go in for partial liquidation or just remain silent. He may react in a manner that does not result in loss to him.
4.15. Table showing the Reactions of the Respondents
in a Falling Market
Source: Primary Data
Out of the 50 respondents, 14% liquidate the existing stocks, 16% liquidate their stocks partially, 44% buy more to average holdings and 26% opt to remain silent. Thus it can be concluded that the investors opt not to sell their stocks, but instead buy more to avoid the risks. Some of them feel that remaining silent in a falling market, waiting for a rise is one of the best solutions.
4.15. Diagram representing the Reactions of the
Respondents in a Falling Market
4.16. Diversification of Stocks
Other than shares we have so many other investment avenues like Gold, real Estate, Mutual fund, Government bonds, ULIPS and Fixed deposits. By investing equally in all the investment avenues will help better portfolio management. This will reduce the risk of loss. Any loss incurred during a fluctuating Sensex may bee compensated with the profits from other investments.
4.16. Table showing the Preference of the Respondents
for Diversification.
Source: Primary Data
From the table we are able to interpret that 70% of the respondents feel that diversification in the different avenues will help to minimize their risks. But the remaining 30% say that diversification will only add up their risk of loss. Therefore most of the investors go in for diversification to compensate their losses in a roller-coast Sensex.
4.16. Diagram representing the Preference of the Respondents towards Diversification to minimize their Risks.
4.17. Avenues for Diversification
As already discussed, the investors have different investment avenues for diversification like Gold, real Estate, Mutual fund, Government bonds, ULIPS and Fixed deposits.
4.17. Table showing the Best Avenues for Diversification
Source: Primary Data
Out of the 35 respondents who get advisory services, 24.56% diversify in gold, 1.75% in metals like Aluminum and Zinc, 19.30% in Real Estate, 29.82% in Mutual Funds, 8.77% in Government bonds, 7.02% in ULIPS (United Linked Insurance Plan Scheme), and 8.77% diversify in fixed deposits.
Therefore, Mutual funds stand first with majority of the respondents opting for it, as there is professional advice. Next, stands Gold as its value is in the increasing trend these days.
4.17. Diagram representing the Different
Avenues of Diversification
4.18. Frequency of Trading
The investors may trade frequently during a rising market and remain silent without trading when the Sensex is fluctuating.
4.18. Table Showing the Frequency of Trading in a Month
Source: Primary Data
Out of the 50 respondents, 48% trade less than 20 times (i.e. at least once in a trading day) 16% trade from 20 to 50 times, 12% trade from 50 to 100 times, and 24% trade more than 100 times. This shows that the respondents avoid frequent trading while the Sensex is volatile.
4.18. Diagram representing the Frequency of Trading in a Month
4.19. Reacting to a Volatile Sensex
When the Sensex is fluctuating all the time, with high rises and deep falls, the investors may sell the shares which are speculating, or remain silent, or gradually invest in a few stocks.
4.19. Table showing the Reactions of the Respondents
to a Volatile Sensex
Source: Primary Data
From the above table, we find that 24% of the respondents sell the speculating shares, 24% remain silent without trading, while the remaining 52% gradually invest in a few stocks. So, during Sensex fluctuations the best solution is to invest gradually in a few selected stocks which will suit the investors’ needs.
4.19. Diagram representing the Reactions of the Respondents
to a Volatile Sensex
4.20. Reasons for Sensex Fluctuations
The rising and falling rates are affected by various reasons like FIIs (Foreign Institutional Investors), Domestic Speculation, Political Issues, Fall in the Global market and a fall in the US $ rate.
4.20. Table showing the Reasons for Sensex Fluctuations
Source: Primary Data
From the table we find that the respondents feel that Fall in the Global market is the actual reason for the fluctuations. It is followed by the other reasons such as high inflow of foreign capital, political issues and Domestic Speculation. The respondents feel that the fall in the US $ rate does not have much influence over the fluctuations.
4.20. Diagram representing the Reasons for Sensex Fluctuations
4.21. Basis for Choice of Investment Avenue
An investor may choose a particular share on the basis of the Quality management, PE Ratio & Growth in EPS, Dividend Track, and Nature of business and Price of the share.
4.21. Table showing the basis for Choice of Investment Avenue.
Source: Primary Data
Out of the 50 respondents, 16.39% each choose their investment on the basis of Quality Management and Dividend Track, 22.95% on the basis of PE Ratio & Growth in EPS, 19.67% on the basis of the nature of business while the remaining 24.59% decide on the basis of price of the shares. Thus it can be concluded that however good or bad the company may perform the investors look out for the share price before investing.
4.21. Diagram representing the basis for Choice of
Investment Avenues
2.22. Calculation of Sensex
Though the investors trade in BSE stocks, some may be aware of how Sensex is being calculated. On knowing this, they will be able to predict the future market trend.
2.22. Table showing the Respondents’ Knowledge regarding
Calculation of Sensex
Source: Primary Data
From the table we are able to interpret that 66% of the respondents know how Sensex is being calculated, while the remaining 34% are unaware of the calculation. This awareness among majority of the investors will help them in understanding the market conditions still better.
2.22. Diagram representing the Respondents’ Knowledge regarding Calculation of Sensex
FINDINGS
Findings from the analysis of the view of the Investors
6.1. Most of the investors are in the age group of 20-30. It is the youth who have the idea of trading in stock exchange.
6.2. 80% of the respondents are male. This shows that women invest comparatively lower than that of men.
6.3. 54% of the respondents have completed their graduation. We are able to conclude that graduates are more comfortable in making investments.
6.4. When we come to investment in fluctuating Sensex, it is the business class people who opt more.
6.5. There are 27 respondents earning less than Rs.20,000/-. In this way, the income has an influence over the investment levels.
6.6. 42% of the respondents are able to invest only up to Rs. 10,000/- of their savings.
6.7. The majority of the investors who responded have an experience of 1-3 years which is actually sufficient enough to face a fluctuating market.
6.8. The fluctuating Sensex is well balanced in giving both profits and losses to the investors.
6.9. 68% of the respondents get advisory services for further investments in a fluctuating market. Therefore most of the investors get expert advice to invest as Sensex is not always stable.
6.10. 56% of the respondents get advice from stock brokers who are closely related to their investment plans. They have confidence in stock brokers as they are fully experienced with the volatile Sensex.
6.11. Infrastructure companies are safest even during a fluctuating Sensex. The next safer companies are banks, followed by IT companies, Telecommunication, Engineering and Cement. The Pharma companies are the least safe companies because of the Sensex fluctuations.
6.12. Though the majority respondents face no difficulty, we may conclude that they still face difficulties of confusion and fear of capital erosion as there are slight variations only.
6.13. When the market rises, 36% liquidate the existing stocks, 36% liquidate their stocks partially. They are ready to liquidate their stocks entirely or partially to earn quick profits rather than buying more to make future profits.
6.14. In a falling market, the investors opt not to sell their stocks, but instead buy more to avoid the risks. Some of them feel that remaining silent in a falling market, waiting for a rise is one of the best solutions.
6.15. 70% of the investors go in for diversification to compensate their losses in a roller-coast Sensex.
6.16. When it comes to diversification to minimize risks, Mutual funds stand first with majority of the respondents opting for it, as there is professional advice. Next, stands Gold as its value is in the increasing trend these days.
6.17. 48% trade less than 20 times in a month. This shows that the respondents avoid frequent trading while the Sensex is volatile.
6.18. In a volatile Sensex, 52% gradually invest in a few stocks. So, during Sensex fluctuations the best solution is to invest gradually in a few selected stocks which will suit the investors’ needs.
6.19. The respondents feel that Fall in the Global market is the actual reason for the fluctuations. The fall in the US $ rate does not have much influence over the fluctuations.
6.20. 24.59% decide their investment avenue on the basis of price of the shares. Thus it can be concluded that however good or bad the company may perform the investors look out for the share price before investing.
6.21. 66% of the respondents know how Sensex is being calculated, while the remaining 34% are unaware of the calculation. This awareness among majority of the investors will help them in understanding the market conditions still better.
SUGGESTIONS
7.1. With the stock market moving to dizzying heights before succumbing to gravity, it's easy to get nervous or over-excited. Here's what we suggest the investors to do when the bulls and bears kick up a lot of dust to fuel the Sensex volatility.
7.2. WHAT ONE MUST DO
7.2.1. Don't panic
The market is volatile. Accept that. It will keep fluctuating. Don't panic. If the prices of your shares have plummeted, there is no reason to want to get rid of them in a hurry. Stay invested if nothing fundamental about the company has changed.
7.2.2. Don't make huge investments
When the market dips, go ahead and buy some stocks. But don't invest huge amounts. Pick up the shares in stages. Keep buying the shares periodically.
7.2.3. Don't chase performance
A stock does not become a good buy simply because its price has been rising phenomenally. Once investors start selling, the price will drop drastically.
7.2.4. Don't ignore expenses
When you buy and sell shares, you will have to pay a brokerage fee and a Securities Transaction Tax. This could nip into your profits specially if you are selling for small gains.
7.3. WHAT YOU MUST DO
7.3.1. Get rid of the junk
If the shares you feel to dispose off are showing a profit, you could consider selling them. Even if they are not going to give you a substantial profit, it is time to dump them and utilize the money elsewhere if you no longer believe in them.
7.3.2. Diversify
Don't just buy stocks in one sector. Make sure you are invested in stocks of various sectors. To balance your equity investments, put a portion of your investments in Mutual Fund and Gold, and other fixed income instruments like the Public Provident Fund, post office deposits, bonds and National Savings Certificates.
7.3.3. Believe in your investment
Trade cautiously. Invest in stocks you truly believe in. Look at the fundamentals. Analyze the company and ask yourself if you want to be part of it. You can also get advisory services from stock brokers, friends and associations.
7.4. WHAT THE EXPERIENCED INVESTORS HAVE TO SAY?
The fluctuating stock market has actually left people bewildered. Experienced investors reveal their secrets on how they plan to ride the storm.
7.4.1. Playing safe for now:
“I'm neither buying nor selling stocks at the moment. The market is fluctuating and I do not want to take any risk. I have suffered heavy losses”.
-Pritam Patel. Bhayander
7.4.2. Here's some advice:
“I have an advice for investors: the market will soon be stable. This is a passing phase, so hold on to your stocks and do not sell or buy in panic and excitement”.
-Vinodbhai Shah. Malad
7.4.3. Property is a good bet:
“Property rates are soaring and so that is where I'm investing. I don't see real estate prices de-escalating in the near future. It's the safest bet”.
-Jignesh Parikh. Matunga
7.4.4. Some stable stocks here:
“If you wish to invest in stocks, go for financial technologies and infrastructure. Despite the ups and downs in the market, these stocks have been doing really well. If you are so eager to invest in these volatile conditions, I advise you to consider only these segments of the market”.
-Nirali Shah. Andheri
7.4.5. Gold it is:
“Investing in gold will always ensure good returns. After the setback I faced when the Sensex crashed recently, I have decided against investing in the stock market. Even the experts say that gold is the safest form of investment”.
-Urvi Gandhi. Borivali
7.4.6. No need to worry:
“The Sensex will keep fluctuating. It's part of the game. Just because the market is fluctuating doesn't mean that one shouldn't invest. I understand people's apprehensions but one doesn't stop living for the fear of dying. Having said that, I'm very positive about the overall investment scenario”.
-Mayur Patel. Goregaon
These are the suggestions for the investing class of people to face the fluctuating Sensex.
CONCLUSION
.
The study has revealed the investors’ attitude and reactions towards Sensex fluctuations. The investors in Madurai city are generally conservative. They are not willing to take more risks to earn higher profits. They are ready to trade safely without being trapped by the volatile Sensex. The stock brokers also are in a dilemma in predicting the future of this Sensitive Index.
To conclude with, Sensex, by nature, is meant to fluctuate. After all, trading is affected by several factors like politics and economic policies. We can't expect it to stabilize till these factors have stabilized, which is impossible. So it is up to the investors to manage and make themselves a part of the volatile Sensex.
BIBLIOGRAPHY
Books
-
Preethi Singh, Investment Management 2006, Mumbai, Himalaya Publishing House, 14th Edition.
-
Dr. L. Natrajan, Investment Management,2005, Margham Publications, 1st Edition
-
Gordon & Natrajan, Financial Markets and Services, Himalaya Publishing House, 3rd Revised and Enlarged Edition.
Journals
- Business Today, December issue, P230.
- Business Line, The Hindu, January 9, 2008, P8.
Websites
- www.wikipedia.org
- www.indiainfoline.com
- www.investorwords.com
- www.sharekhan.com
- www.bseindia.com