INDIAN SHARE MARKET – Overview and Excellent Guide Based on Practical
Experience with Great Tips
Ads by Google
Capital markets worldwide are
subject to huge volatilities – both upsurge and downfall. But the countries
which call themselves as champions of globalization and economic liberalization
look at capital markets functioning as the true and perfect index of their
economic growth and success. Nonetheless, there are so many other economic
indices that need to be studied and compared so as to arrive at the total
picture. For instance, employment generation, national income, inflation, index
of industrial production, gross domestic product, foreign exchange assets,
internal and external debts, local currency’s appreciation/depreciation against
all major currencies of the world, major breakthroughs achieved in science and
technology, space science etc. are such indicators. Equally important is the
progress achieved in social indicators like education, health care,
infrastructure, transport and communication, quality of governance as reflected
in taxation policies of the government, corruption, transparency and law and
order of the society. Without achieving real, visible progress in these areas,
any amount of economic growth will be a mirage and short-lived.
The present UPA government is going
the whole hog in promoting capital markets, at the cost of consistent, stable
and healthy national savings. Lot of incentives in the form of tax free
dividends, long term capital gains etc. are given to people who invest in
company stocks. The latest ‘Rajiv Gandhi Equity Savings Scheme - 2012’ (RGESS)
is also a step aimed at attracting first time investors to the stock market.
Many incentives and exemptions given to conventional instruments like Bank
Deposits, National Savings Certificates etc. are gradually being diluted or
abolished. Withdrawing of Section 80 CCF for exemption of investment up to
Rs.20,000 in long term infrastructure bonds from this financial year (2012-13)
has also met with widespread criticism and incurred the resentment and anger of
the individual investors.
Ads by Google
Now, let us see the merits and
demerits of capital markets.
1) A good entrepreneur with low
financial resources will find stock market very useful and attractive to
translate his dreams into a reality.
2) Banks demand collateral
security and collect high rate of interest. Moreover, many stringent
conditions are stipulated and tight monitoring also is put in place. This
affects the freedom and privacy of the entrepreneurs, creates hurdles in
their day to day affairs and kills their enterprising spirit too.
3) Stock market helps
entrepreneurs with bright ideas to mobilize funds at very cheap cost.
4) Moreover, funds so mobilized
need not be returned to the investors by the promoter.
(5) The risks in the venture get
distributed amongst a vast population and everybody's liability is limited
to the extent of the amount (purchase price) of the shares held only.
(6) If someone wants to buy more
shares, he/she can approach the stock exchanges and buy additional shares at
the prevailing market price, which is usually at a premium to the face value
of each share.
(7)Similarly, when someone needs
liquid cash or wants to exit a particular stock due to a variety of reasons
can sell such shares in the stock market.
(8) When someone wants to sell
some shares, there will be someone to buy them and vice versa.
(9)Usually, the returns on
equity shares are high and attractive, as compared to the other avenues for
(1) In case of shares traded in
low volumes, buying and selling become very difficult and to determine the
correct market price share is also a challenging task.
(2) Since most of the trade
transactions are done by impulsive and speculative behaviour of the
participants, often their decisions go wrong and the retail investors are
the worst affected.
(3) Insider information gives an
unfair advantage to some company executives and also the brokers close to
(4) The regulator cannot watch
all the stocks, all the time. So, the individual investor must be cautious,
while dealing with stocks because of high degree of volatility and risks
(5) Greed of the investors leads to
catastrophe very often.
(6)Many companies become sick
but not their promoters. They are not blacklisted and prevented from
starting new companies. This is the
biggest flaw in the system.
(7) Many investors go by market
sentiments and they do not know anything about the company whose shares they
want to deal in. Knowing the fundamentals of a company is very important to
remain in the stock market.
(8) High degree of volatility of
some stocks brings uncertainty and great risks.
(9) Stocks traded within a
narrow band for a longer period do not bring cheers to investors who want to
make quick money.
(10) In spite of a total ban on
kerb deals (deals clinched after the closing hours of the stock exchanges),
they are said to flourish even today unofficially.
(11) Greater transparency is
needed in fixing the price band for each share at the time of IPO (initial
public offer) and FPO (follow on offer). The mechanisms involved,
assumptions and presumptions made, composition of the decision making team
and their mode of selection etc. are to be made public by each company.
(12) ‘Private Placements’ and
‘Buy back’ of shares by the companies concerned also need more transparency
and the whole process in this regard must be an open affair from the
beginning till the end and made accessible to each interested person – not
just investors alone.
SOME USEFUL TIPS TO
OPERATE IN STOCK MARKET
(1) Never be misguided by
sensitive information that has no basis.
(2) Analyze a company's
background, its promoters, its activity, its financial strength, its group
companies’ position, past trends in the trading of stocks of the company,
published annual report for the past 2 or 3 years, information in the
website of Ministry of Corporate Affairs regarding the particular company
etc. very thoroughly.
(3) Seek the guidance and advice
of some familiar and reliable persons.
(4) Reserve the ultimate
decision making to yourself.
(5) Buy a share when its price is
falling and sell a share when its price is peaking.
(6) One important rule is one
must have a stop loss limit in both the cases. Once this threshold limit is
breached, activate the buy or sell decision without any hesitation.
(7) To know this threshold limit,
study of past trends at least for the past 52 weeks will be immensely
useful. High and Low of past 52 weeks, average price during the past year
by using moving averages method, volume of daily trade in a particular stock
etc. are some of the tools used by professionals.
(1) Keep your portfolio
well diversified .
(2) Never enter into intra-day
trades unless you have a very fair idea of the market behaviour and the
movements of a particular stock you wish to trade in.
(3) Never attach sentiment to a
(4) Do not
invest all your money in stock market. It is highly risky.
(5) Do not invest in a new/unknown
(6) Do not simply go by the
reputation of the holding company alone, in case of a newly started
(7) Trading in secondary market
calls for specialized knowledge and skills and professional expertise.
(8) As already discussed above,
never wait until the stock price reaches the new peak or new bottom level.
Here the concept of stop loss limit comes in handy.
(9) Averaging the
price of stock already bought at a higher price, by buying additional shares
when the price reaches lower levels is a wise decision.
(10) It is very important to
know the correct face value of each share you trade in.
(11) Company's dividend payout
record, history of allotment of fresh shares on rights basis, issuance of
bonus shares etc. will reveal more useful information.
(12) Keep track of the price
movements of the shares you are interested in.
(13) Watch/read all the news that
appears in the media about a particular company with which you are
(14) Watch out for regional,
national and global trends of each field/industry before you form an opinion
about a company.
(15) It is not sufficient if a
particular company does well in the market. Majority of the companies
engaged in the same activity or profession also must be kept track of.
(16) Government’s policies on
licensing, taxation, imports and exports, availability of financial support
from the government and the banks/financial institutions, interest rates,
pollution control and labour laws impact the growth prospects of a company
(17) Rapid technological changes
sweeping across all industries and fields will also affect the future of a
(18) Do not resort to any
legal/statutory violations, in order to earn unnatural and huge pecuniary
Of late, the market regulator (SEBI)
has been taking several steps to check high degree of volatility in the stock
markets, fuelled by insider information and harmful rumours. Most notable among
them are screen-based trading (electronic trading) and necessity to have a demat
account to engage oneself in buying and selling of shares.
Some more grievances remain in the
area of more transparency in the allotment of shares, declaration and
distribution of dividends, disposal of unclaimed dividends, dealing with
individual complaints etc. To address these issues, awareness is necessary
among the individual investors. Investor education is an area that is growing
now and several agencies like SEBI, Stock Exchanges, Ministry of Corporate
Affairs, Banks/Financial Institutions offering ‘portfolio management services’,
Mutual Funds and the media are showing keen interest in educating the common,
retail investors suitably at regular intervals, by conducting seminars and
workshops at various places, advertisements, campaigns and news items. Though
things have changed much better as compared to the situation that prevailed 3
decades ago, there is a still long way to go.
ALL THE BEST FOR
YOUR FUTURE DECISIONS.
You can give your feedback / comments about this Article. Please give only relevant comments as irrelevant comments are
waste of time for yourself and our other readers.