THE GROWTH OF INDIAN STOCK MARKETS

The benchmark 30 share SENSEX (Sensitive Index) of the Bombay Stock Exchange (BSE) crossed 10000 for the first time ever and celebrated Valentine’s Day a week earlier on February 7th 2006.

The BSE Sensex is a weighted index of India’s top 30 largest and most actively traded stocks on the BSE. The 30 stocks represent various sectors like IT, Pharmaceuticals, Banking, FMCG, Metals, Oil, and Automobiles amongst others. Stocks like Infosys, Reliance, ONGC, SBI etc. form a part of the Sensex.

The Indian Markets have been on a bull run* for the past 2 years. Sensex first hit the 6000 Mark in January 2004 and since then there has been no looking back. It had a few hiccups when Congress came to power in May 2005 when Sensex stooped to a low of 4500.

It is remarkable that the market which was once in the hands of people like Harshad Mehta (early 90s) and Khetan Parekh (2000-01) who were manipulating stock prices for personal gains, has recovered from the lows and it now represents India’s economic growth and the strong fundamentals which have been laid by our PM Dr. Manmohan Singh when he was the Finance minister during Mr.P.V.Narasimha Rao’s tenure.

AN INSIDE VIEW ON THE STOCKS AND CAPITAL MARKETS

“Putting money in stock markets is investment and not gambling”

What are stocks (shares)?

Stocks are issued by a company to raise capital for its operations or expansions. When a person buys some shares of a company, he partially owns the company.

What can a person do with shares?

A person who holds the shares of a company has to find the right time when the price is high to sell-out and make profits. If the person sells his shares when prices are low, he ends up losing money.

Where can we buy/sell (trade) shares?

Stocks are traded at stock exchanges and the most prominent of them are Bombay stock exchange (BSE) and National Stock Exchange (NSE).

Why do stock prices go up/down?

When more people want to buy the shares of a company, i.e when the company is performing well, the share prices tend to go up. This happens because when there are more buyers than sellers, the supply is lesser than demand and the sellers sell at higher prices since buyers will want to buy shares even if they are highly priced. Similarly when more people want to sell the shares, the share prices go down since supply is more and demand is less.

How can one gain money from markets?

The ideal strategy would be to buy at lower levels i.e when the share prices go down and to sell at higher levels i.e when the share prices go up.

What should we do to trade shares?

Any person of age 18 and above can trade shares. The person needs to have a trading account as well as a demat account. The trading account is used to buy/sell shares. The demat account holds all the shares bought by the person.

What should one do to avoid loss?

Stocks should be bought on the basis of their fundamental value and not their short term price movement. NEVER buy penny stocks** neither because they go up daily for a few weeks nor that they are cheap. That is a sure shot way to lose money. You never know when they’ll start crashing down.

What if the shares bought by me go down in price?

Patience is the word for you if you have bought fundamentally good companies and there is no need to worry. In short term the markets may have wild swings but it the long term the markets tend to be stable. If you have bought “not so good” shares please sell them off immediately because there is a possibility of the capital being eroded completely.

Future Prediction:

The Indian markets have never gone up so consistently and they are expected to grow @ 30% annually, provided the companies give good results. If they continue to do so, the Sensex will probably hit the 30000 mark at the end of the year 2010. The Great Indian Story has just begun.

Bottom-line:

Stock markets are not for the faint hearted. So if you cannot afford that extra bit of risk in the short term, kindly avoid the stock market. You have other risk free options like Bank deposits, Post Office deposits amongst others.

Starred Terms:

* Bull Run: When the markets go up consistently over a long period they are said to be on a bull run. When the markets go down consistently over a long period they are said to be on a bear run.

** Penny Stocks: This term was originally coined in New York Stock Exchange (NYSE) to denote stocks whose price is lesser than 1$.In India they are the stocks whose price is less than Rs.10. These companies don’t have strong fundamentals and their prices move by mere speculation. You have more to lose than gain here.