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Monkey business-A story about how stock market really works!!!

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The “Monkey Man” bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the “Monkey Man” man, the assistant told the villagers. “Look at all these monkeys in the big cage that my boss has collected. Here’s a deal! I will sell them to you at $35 and when he returns from the city, you can sell them to him for $50 each.”

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the “Monkey Man” nor his assistant ever again, only monkeys everywhere!

Now you have a better understanding of how the stock market works!!!

This is the Sensex Network & you are watching BSE Tv

BSE TV

STOCK EXCHANGE

http://PersonalFinance201.com

Overview of Financial Markets

AN OVERVIEW

Equity Markets

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago

BSE is the oldest stock exchange in India started in 1875 and got permanent recognition from Govt. of India in 1965

2 primary stock exchanges in India – BSE & NSE accounting for more than 99% of total turnover

NSE & BSE - Market capitalization of more than 1 trillionThere are more than 7500 listed companies on BSE & NSE

BULLS & BEARS

The BullsA bull market is when everything in the economy is great, people are finding jobs, GDP is growing, and stocks are rising. Things are just plain rosy! Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is an optimist, believing that stocks will go up, he is called a bull and said to have a bullish outlook.

The BearsA bear market is when the economy is bad, recession is looming, and stock prices are falling. Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end and only then start buying in anticipation of a bull market. If a person is a pessimist, believing that stocks are going to drop, he is called a bear and said to have a bearish outlook.

PIG & CHICKEN

The PigPigs are high-risk investors looking for the one big score in a short period of time. Pigs buy on hot tips and invest in companies without doing their due diligence. They get impatient, greedy, and emotional about their investments, and they are drawn to high-risk securities without putting in the proper time or money to learn about these investment vehicles. Professional traders love the pigs, as it's often from their losses that the bulls and bears reap their profits.

The ChickenChickens are afraid to lose anything. Their fear overrides their need to make profits and so they turn only to money-market securities or get out of the markets entirely. While it's true that you should never invest in something over which you lose sleep, you are also guaranteed never to see any return if you avoid the market completely and never take any risk

PRIMARY / SECONDARY MARKET

Primary Market A market for new issues of shares, debentures and bonds, where investors apply directly to the issuer for allotment on a pre-specified basis (price, minimum application amount etc.)

Secondary MarketA market of buyers and sellers who trade in securities that have already been issued in the primary market. Distinguished from the primary market in which the issuer sells shares directly to the investor. This is where the major transactions happen which result into frequent fluctuation of stock prices

DEPOSITORY / DEPOSITORY PARTICIPANTS

DepositoryA depository holds the securities of investors in electronic form just like a bank holds cash of its customers. As in a Bank, investors can deposit/withdraw and transfer securities. The National Securities Depository Limited (NSDL) is the first depository in India. The functions of NSDL are regulated by the Securities and Exchange Board of India (SEBI).

Depository ParticipantThe Depository Participants (DPs) are the link between the Shareholder, the Company and NSDL. Banks, Financial Institutions, Custodians, Stock Brokers etc. can become DPs subject to their meeting certain requirements prescribed by NSDL and SEBI. NSDL publishes from time to time the list of DPs registered with them.

You can open your accounts with one or more DPs, as you like. The procedure for opening an account with the Depository Participant is similar to opening a Savings Bank Account with the Bank. After opening the account, you can hold shares of any number of companies in your account, provided all such companies have entered the depository system.

FREE-FLOAT MARKET CAPITALISATION

Free Float Factor ( Total of free float shares available in the market – decided by BSE).

Market Capitalisation = Current Share Price x No. of Shares Issued by Company

Free Float Market Capitalisation = Free float Factor x Market Capitalisation

SENSEX / NIFTY BASE

* Base Value of SENSEX (1979) = 100.* Base Value of NIFTY (1995) = 1000.* Value of Free Float Market Cap (FFMC) of 30 companies for Sensex.* Value of Free Float Market Cap (FFMC) of 50 companies for Nifty.

E.g. 1979FFMC Base Value100000 Cr. 100 2008FFMC150000 Cr. (x)By Ratio-Proportion Method 100000 = 150000 100 (X)(X) = 150000 x 100 100000 = 150

SELECTION CRITERIA FOR BSE 30 & NIFTY 50

Listed History:The stock must have a listing history of at least 3 months at BSE or at NSE.

Trading Frequency:The stock should have been traded on each and every trading day for the past three months.

Market Capitalization Weightage:Free-float factor of the company should be greater than 0.5 and should be among top 100 companies listed based on market capitalization.

Industry Representation:The index companies should be leaders in their industry group.

Track Record:The company should have an acceptable track record.in addition to all the above there are few exceptions that can be considered even.

Other than these factors for NIFTY Exchange following are also consideredSix Monthly Avg. Mkt. Capital of 500 Cr. Or moreAtleast 12% of stock available to its investors.

DEMAT ACCOUNT

Demat AccountDemat refers to a dematerialised account. Demat account is a safe and convenient means of holding securities just like a bank account is for funds. Today, practically 99.9% settlement (of shares) takes place on demat mode only.

Sr. No. Differentiation Bank Account Demat Account

1 Form of Holdings/Deposits Funds Securities

2 Used for Safekeeping of money Safekeeping of shares

3 Facilitates Transfer of money (without actually handling money)

Transfer of shares (without actually handling shares)

4 Where to open A bank of choice A DP of choice (can be a bank)

5 Requirement of PAN Number Not Mandatory Mandatory (effective from April 01, 2006)

6 Interest accrual on holdingsInterest income is subject to the applicable rate of interest

No interest accruals on securities held in demat account

7Minimum balance requirement

Quaterly Balance maintainance is specified for certain bank accounts

No such requirement

8 Either or Survivor facility Available Not available

ONLINE TRADING

How to do Online TradingOpen a savings account with a Bank providing Internet Banking & Online Trading Facility eg: PNB, BOB,

ICICI, HDFC, HSBC, etc.Obtain your Internet Banking “USER ID, USER PASSWORD & TRANSACTION PASSWORD . ” Obtain your DP “USER ID, USER PASSWORD & TRADING PASSWORD . ”Go to website of your DP…say “http://www.idbipaisabuilder.in”

Follow the steps as underLOGIN : using your USER ID & USER PASSWORD.DEMAT Allocation: You need to allocate your demat shares for the purpose of trading online. SELL

orders can be placed, only after you have allocated your shares for trading.FUNDS Allocation: You need to allocate your funds from your linked bank account, for the purpose of

trading online. You can start trading online from your account, only after you have allocated your funds.

BUY/SELL: Now you can Purchase or Sell the shares the money will be accounted to your Savings Account using Internet Banking.

ORDER Status : Here you can check the current status of your shares.LOGOUT.

Your online trading is complete Wishing you very healthy & wealthy Stocks!!!

SUB-PRIME CRISIS

What is subprime Market ?High Risk Home loan market, fluctuating interest rate due to fluctuating market condition

What is subprime Crisis ?It is a economic problem which blocks liquidity in the global credit market.In this, the person approaches bank for a loan .Bank checks for his credit rating .If the credit rating is

poor then the bank denies to give loan. Now the person with good credit rating borrows loan of bulk amount, he then divides it in to lots and lends the money to no. of persons whose credit rating is poor at floating interest rate. those people become subprime borrowers and this type of borrowing is called subprime borrowing.

The person with good credit rating collects some securities from the subprime borrowers .He then doesn’t wait for recovering the loan amt from them via monthly installment. He sells the

securities to big institutional investors who have proportionate Fixed investment all over the world and repays the loan amount to the bank. Now the risk is transferred to the institutional investors. It means the subprime borrowers now have to pay the monthly installment to institutional investors.

Now If the Real Estate market prices come down then the interest rates raise. the subprime borrowers finds it difficult to cope with rising interest rate & monthly installments. So slowly they become defaulters.

Since the institutional investors incur huge losses in the market they start selling their investments in emerging market where their investment is doing good.

Their selling price far overweighs the amount of buying. This results in higher supply than demand. Hence the share prices fall affecting the entire share market.

Current Scenario

The Bear has taken the Bull by its horns

Humpty Dumpty had a great fall

Sensex & Nifty down 28% since 8th January

The 10 largest falls of the Sensex

1. Jan 21, 2008 ---    - 1,408.35 points2. Mar 17, 2008 ---    - 951.03 points3. Mar 3, 2008 ----    - 900.844. Jan 22, 2008 ---    - 875.41 points5. Feb 11, 2008 ---    - 833.98 points6. May 18, 2006 ---    - 826.38 points7. Mar 13, 2008 ---    - 770.63 points8. Dec 17, 2007 ---    - 769.48 points9. Oct 17, 2007 ---    - 717.43 points10. Jan 18, 2007 ---    - 687.82 points

The largest fall of the Sensex Ever In The Indian History

In The Year Of 2008 From 21000 Pointsto 8500 Points

Reasons for Fall

Started with FII Sell off – Profit BookingNegative Global clues Domestic cues Ignored

Big Daddy is ILL

Sub prime CrisisUnemployment on riseHousing Sector –SlowdownUS Economy in Recession phaseFed Rate cut fails to reimpose confidence

Is US going through recession ?

Higher InflationSlowdown in Industrial ProductionNegative Job GrowthHousing Industry –Bubble burstsGDP Growth 0.8% in FY08 (estimates)

Trends in US Housing prices

Damage Control

FED’s Falling Interest Rates – Since 12 Months

The Indian Story

Fear of Sub prime crisis in IndiaHousing Bubble ?Taming InflationDomestic Consumption StoryGDP growth –ScenariosIIP- 8.7% growth

Markets are Imperfect

Fear Factor – Current levels look expensiveNear term sharp uptrend ruled outGlobal cues would continue to hauntDomestic cues ignored Wait for Better prices

Getting the Bull out of Bear

Ignore companies with higher US exposureIdentify fundamentally strong companies with focus

on domestic consumptionDon’t get carried away by prices…look for valueAvoid Banking sector at current levelsPharma & FMCG are good bets in current scenarioAvoid futuristic companiesDo staggered BuyingAvoid speculative positions

Words of Wisdom

"You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it." Warren Buffett

Words of Wisdom

“The individual investor should act consistently as an investor and not as a speculator. This means.....that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase.” Ben Graham

REFRENCES

SEBI.gov.inBSEINDIA.comMONEYCONTROL.comWikipedia.com

http://rbi.org.in

http://sbidfhi.com/http://www.geocities.com/kstability/learning/finance/toc.htmlhttp://www.iibf.org.in

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