Stocks Markets – Current trends and the way forward

The stock market can hold an air of mystery to the uninitiated. How the price of a share is derived, why do stock market swing so drastically, should one buy or sell, whats the real worth of one share versus another are all areas of concern to the potential investor. We will try to answer some of these questions with respect to the current Stock Market environment.

Some of you even feel that Stock Market investment is a gamble. It is not exactly true, Some investors do invest in Stock Market purely to speculate, however Stock Markets play an important role in a Nation’s economy. To start, let us look at the purpose with which stock markets operates.

Purpose of Stock Market

The stock market exists in any country primarily for the purpose of assisting corporations and governments to raise the capital they need to fund their operations. At the same time, investors exert an influence on the national economy by contributing to its capital base while receiving a return on their investments.

The stock market is an ever-visible barometer of a nation’s economic vitality. The stock exchange is an efficient allocator of scarce capital resources from net savers, both individuals as well as institutions, to net users of the savings, mainly companies listed in the Stock Market. It increases productivity and value added which, of course, benefits the whole community. The efficient allocation of capital resources by definition enables the best rate of return to be earned for the capital that is invested. This process is facilitated through the operation of the stock exchange. It is the vehicle for the essential marshaling and distribution of capital, which is the prerequisite for economic development in a capitalistic system.

Key Advantages of investing in Stock Markets

  • shares have the capacity to produce both income and capital growth;
  • over the long-term they will outperform all other investments;
  • shares provide a hedge against inflation;
  • shares can yield tax advantages through dividend imputation;
  • shares can be bought with lower transaction costs (brokerage, duty etc.) than managed investments and property;
  • shares can be more readily bought and sold than property holdings; and
  • shares have the capacity to provide good dividend yields that grow over time.

Why did the Stocks Markets bounced back post Election 2009 results?

Markets hit Upper Circuits – Left was out, and retail investors were left out.

This week, the benchmark indices touched two upper circuits on Monday after UPA’s (United Progressive Alliance) one sided win in the Lok Sabha Election 2009. PersonalMoney.in had predicted favorable response from the Market if UPA Forms the Government without Left Parties Support, however the market pleasantly surprised even us when it closed in upper circuits on Monday.

There were many reasons for this upward movement in the Stock Markets :

  1. Favourable outcome from Election 2009
  2. Many individual as well as institutional investors were holding cash and were waiting to enter the markets post election.
  3. Large F&O positions were build before election results were announced, many market players had to buy stocks from the Cash Market Segment to contain their losses in the F&O segment.
  4. Some market operators had gone short in the F&O Segment, and had to cover their position which drove the Cash Market prices up.

Will the Stock Market Up-trend continue?

In this week, the market reported a record turnover, ever. which means that the total amount of trades that took place in the Stock Markets this week was an all time high. However, the question which many small and large investors are asking is, will this up-trend continue?

Well, PersonalMoney.in did advised you to buy front line large-cap stocks in our earlier post “Is it the right time to enter stock market?” dated March 11, 2009, with a caveat that market may give short term pains but long term gains. The BSE Sensex was at 8343.75 points then, this week the market closed at 13,887.15 points, a gain of a whooping 66.44%. We still maintain the same view for the market going forward.

Should you Buy or Sell stocks?

The Finance Minister has promised to come out with the Budget for the year 2009-10 within 45 days of Government formation. Market Analysts expect that he could doll-out some good news for the corporates as well as individuals in the budget. This will act as another stimulus for the market in a few days. In the meanwhile, markets will remain volatile. Directions of the global markets will have an impact on Indian markets as well. You should hold on to your stock positions and buy large cap stocks only on declines. Small and Mid cap stocks may carry a larger risk, so you may avoid them for now.

Conclusion

Our objective is to provide you guidence and enable you take control of your investment in the long term. We believe that the short term market swings may impact you momenteraliy but a careful selection and regular investments in Stock Market will provide a distinct advantage over other investment asset classes over long period of time. If you are new to Stock Markets, it would be advisable if you put your money in Mutual Fund schemes that invest in large-cap stocks, instead of taking direct exposure to equities.

Disclaimer : PersonalMoney.in and/or its authors take no responsibilities whatsoever for any loss that you may incur based on acting on the opinion expressed in our articles. We are not certified investment advisers. You and solely you are responsible for your investment decisions. We suggest that you seek expert guidance from Certified Investment Advisers before taking any investment decision. Investment in Stock Markets are subject to various risks.

9 thoughts on “Stocks Markets – Current trends and the way forward”

  1. Excellent, well explained, anybody invested at 8000 or 9000 level have gained a lot in last month or so but next one month will be same is very difficult to predict ?

    • Thanks for pointing out, Khalid.

      Let me clarify, the point that I wanted to make by saying “We still maintain the same view for the market going forward” was not related to the gain that Sensex generated in last two months or that it will continue to rise with same proportions in next two months, but we maintain an overall positive outlook for the market in the long run say in next 3 to 5 years. People investing now can also make decent returns! What do you think?

      • Well Manish
        For long term, its OK, one can enter at these levels but should be carefull about choosing stocks and at the same time one should invest only 25% to 30% of hsi investment amount and remaining should keep for decline time.

  2. Hello all,
    I am an IT pro.
    Recently I have started investing in shares .
    Is it right time to invest for It Company’s shares ?
    Please advice.
    Thank you

    • Yes it is a good time to start investing small amounts in stocks. I am saying small amounts because in the short term i.e. 1 to 12 months, markets may come down again, then again you can pick up some good stocks at a cheaper rate.

      Further, on whether you should invest in company stocks or not, depends on how much time you can devote to select and track companies to investment in. Generally, new retail investors select wrong companies and suffer losses. They then start blaming the entire Stock Market as risky and shy away from equities. I would suggest that you should start investing in MF SIP and do a little more research on Stocks Investing. One option is to subscribe to personalmoney.in articles in your email 🙂

  3. Excellent article.
    Its task is to make people capable of joint performance, to make their weaknesses irrelevant, says the Management Guru Peter Drucker. It creates harmony in working together – equilibrium in thoughts and actions, goals and achievements, plans and performance, products and markets. It resolves situations of scarcity, be they in the physical, technical or human fields, through maximum utilization with the minimum available processes to achieve the goal. Lack of management causes disorder, confusion, wastage, delay, destruction and even depression. Managing men, money and materials in the best possible way, according to circumstances and environment, is the most important and essential factor for a successful management.

  4. Good article manish.good insight about the share mkt movement.ur suggestion abt mid cap and small cap is also good to averse the risk of losing ur money.
    Pl suggest about infrastructure funds avilable in the mkt and abt reliance infra.

    • Thanks Manasvi!

      Yes, infrastructure is a good sector to be in considering the commitment of Government to fuel infrastructure improvement in India. We may expect to see many favorable policy decisions for infrastructure sector in the Union Budget 2009-10.

      About Reliance Infrastructure Fund, I must say that the fund manager, Mr. Sunil Singhania, has some good funds to his credit. But, investing in NFOs are a bit tricky, my personal opinion (I may be wrong) is that buy the fund post NFO. Also, there are other existing Infrastructure funds available in the market with a track record to choose from, such as Canara Robeco Infrastructure, DSPBR T.I.G.E.R., ICICI Prudential Infrastructure, Tata Infrastructure, etc.

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