Thursday, February 21, 2008

Stocks of BSE Sensex

Which stocks comprise of the BSE Sensex?

The SENSEX Index is composed of 30 major Indian stocks and regarded as the country's premier stock market index. Theses stocks are:

ACC
Ambuja Cements
Bajaj Auto
BHEL
Bharti Airtel
Cipla
DLF
Grasim Industries
HDFC
HDFC Bank
Hindalco
Hindustan Lever
ICICI Bank
Infosys
ITC
Larsen & Toubro
Mahindra & Mahindra
Maruti Udyog
NTPC
ONGC
Ranbaxy Laboratories
Reliance Communications
Reliance
Reliance Industries
Satyam Computer Services
State Bank of India
Tata Consultancy
Tata Motors
Tata Steel
Wipro

Monday, February 18, 2008

Recession in US and its effect in India

What's a recession? How will US slowdown hit India
The fear of a recession looms over the United States. And as the cliche goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown.

Weakening of the American economy is bad news, not just for India, but for the rest of the world too.

So what is a recession?
A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down.

What causes it?
An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stockmarkets fall on negative sentiment.

Stock markets & recession
The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors.

Current crisis in the US
The defaults on sub-prime mortgages (homeloan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans.

The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.

How to fight recession
Tax cuts are the first step that a government fighting recessionary trends or a full-fledged recession proposes to do. In the current case, the Bush government has proposed a $150-billion bailout package in tax cuts. The government also hikes its spending to create more jobs and boost the manufacturing and services sectors and to prop up the economy. The government also takes steps to help the private sector come out of thecrisis.

Past recessions
The US economy has suffered 10 recessions since the end of World War II.

The Great Depression in the United was an economic slowdown, from 1930 to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high poverty.

The trade market was brought to a standstill, which consequently affected the world markets in the 1930s. Industries that suffered the most included agriculture, mining, and logging.

In 1937, the American economy unexpectedly fell, lasting through most of 1938.

Production declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent in 1937 to 19.0 per cent in 1938. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade.

This was followed by Black Monday in October 1987, when a stockmarket collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans.
The early 1990s saw a collapse of junk bonds and a financial crisis.

The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record.

From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91 recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990.

The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.
The dot-com burst hit the US economy and many developing countries as well.

The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed.

Impact of a US recession on India
A slowdown in the US economy is bad news for India.

Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking.

The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper bringing down inflation. A recession could bring down oil prices to $70.

Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts.

Source: Rediff

Friday, February 15, 2008

Rally in the Stock Market

What is a Rally in the Stock Market?
A rally can be described as a sudden rise in stock prices, especially after a period of falling ones. [For example, if the stock market drops in the morning and investors rush in to buy companies at the cheaper prices, the stock market has rallied.]
If the increase in stock prices holds up, journalists and financial professionals refer to it as a sustained rally. If it continues for several weeks or months, it is referred to as a bull market.

Bull market and Bear Market

Difference between Bull and Bear Market.

A bull market is typified by generally rising stock prices, high economic growth, and strong investor confidence in the economy whereas bear market is typified by falling stock prices, bad economic news, and low investor confidence in the economy.
A bull market is slang for when stock prices have increased for an extended period of time. If an investor is "bullish" they are referred to as a "bull" because they believe a particular company, industry, sector, or market in general is going to go up. Simply put, bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. During this time, economic production is high, jobs are plentiful and inflation is low.
A bear market is slang for when stock prices have decreased for an extended period of time. If an investor is "bearish" they are referred to as a bear because they believe a particular company, industry, sector, or market in general is going to go down. Bear markets are are movements in the stock market in which prices are falling, and the view is that they will continue falling. The economy will slow down, coupled with a rise in unemployment and inflation.

How and where can I buy shares?

There are two ways to buy shares.
1.) Primary market :- When a company makes a new issue of shares and offers directly to the public is known as primary market. It is also called an initial public offering (IPO). The investors either apply on the basis of the issue price or need to bid by the book building process. Once the IPO is over, this stock gets listed in the secondary market and traders can start trading it.
2.) Secondary market :- Buying shares of a company which is already listed in the stock exchange is called secondary market. The shares in secondary market are bought through brokers. The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. It can also be called as a market on which an investor purchases an asset from another investor rather than an issuing corporation. In the BSE as well as NSE, all stock exchanges are part of the secondary market, as investors buy securities from other investors instead of an issuing company.

How to succeed in Stock Market?

Follow theses two steps to achieve success in the stock market.
1.) How not to lose :- If you have learned what to do and what not to do in order to lose nothing means you have won the half battle. Only then you can learn how to gain or what to do in order to win. A new investor should do paper trading in order to get the market knowledge before actually entering into the market.
2.) How to gain :- How to gain requires deep understanding about the market trends and fluctuations . A new investor can safeguard himself by taking the route of mutual fund.

Tuesday, February 5, 2008

Profit Booking

What is Profit Booking?

Profit-booking is nothing but encashing or realising the profit or gain in a share by selling it. E.g., In the market you buy a stock or share say at Rs.150. You are holding it for more than 2 months. Now its quoted at, lets say... Rs.320. The market has been bullish and you expect the trend to continue. So you hold on to the stock. Another week goes. The quote rises from Rs.320 to Rs.325. No doubt the stock is .... still bullish or ... on the rise. But dont you see that there is a slow down in the rise. Yes this is the time to think seriously ....and Sell the stock and take the profit... this is called profit-booking, whether done by individuals or by big operators or by brokers.

The profit-booking normally brings the bull run to a halt or to a near halt. Those who sense it in advance and book the gain immediately are the ones who will get maximum profit. Again, there is no hard and fast rule. Market is always irriational .. as it had .. so far proved to be. But what ever it is as long you stand to gain (gain is more than the notional bank interest on the investment). It is always advisable to book atleast partial profits every now and then.

Friday, February 1, 2008

Some Do's and Don'ts while investing in Stock Market

Invest in Stocks - Some Points To Consider

Investing in stock is a complex process which requires a fair deal of due dilligence and a certain degree of training. When you first consider the decision of purchasing a stock, you may be overwhelmed with the information. Stocks are not something simple which can be mastered in an hour.

Don't enter any decision to purchase equities lightly and always be aware of the numerous risks that occur when engaging in a speculative venture. Make sure to analyze the financials of the company you plan to invest in.

And above all else, remember this: when you invest in stocks you are purchasing part ownership of a corporation. Companies and their stocks are not seperate. A stock will rise or fall in accordance with the management of the daily operations of the enterprise. Find out as much as you can about a company before making an investment.

Things to Consider:

  • Demand full disclosure of any fees and commissions of any investment
  • Read the financial information that is provided thoroughly
  • Seek third party opinions if you are unsure of anything
  • Be wary of any investment with claims that "sound too good to be true"
  • Always investigate any company that you are unfamiliar with.

Stick to the sunny streets of the stock market and not the shady underground. Stocks listed on the major exchanges like NYSE have to meet strict requirements not necessary for over the counter issues.
Things constantly change with companies, stocks, and the stock market. If you are an investor you need to be informed. You will need to research and stay on top of any developments in any companies you own.