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    Indian Stock Market and Investors Strategy
    Indian Stock Market and Investors Strategy
    Indian Stock Market and Investors Strategy
    Ebook107 pages2 hours

    Indian Stock Market and Investors Strategy

    By Dr.Priya Rawal

    3.5/5

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    About this ebook

    Investment is an important means for channelizing the idle savings into the development of the economy. The material wealth of a society is determined ultimately by the productive capacity of its economy – the goods and services that can be provided to its members. Investment raises the level of aggregate demand which in turn increases the level of income and employment in the economy.

    LanguageEnglish
    PublisherDr.Priya Rawal
    Release dateApr 29, 2016
    ISBN9781533764249
    Indian Stock Market and Investors Strategy
    Author

    Dr.Priya Rawal

    “What we learn from our experience is something we called our attitude which make you stand different from the crowd”

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    Book preview

    Indian Stock Market and Investors Strategy - Dr.Priya Rawal

    Indian Stock Market and Investors Strategy

    Preface

    Investment is an important means for channelizing the idle savings into the development of the economy. The material wealth of a society is determined ultimately by the productive capacity of its economy – the goods and services that can be provided to its members. Investment raises the level of aggregate demand which in turn increases the level of income and employment in the economy. With changes taking place at terrific pace in the field of investments, it has become a specialized activity demanding scientific plans and procedures for success. Availability of large number of innovative product alternatives has added complexity to the process. One is therefore required to master the science of investing in order to optimize his investment function. Since equity share is one of the important media of investments among the aforementioned group a study shall definitely help the investors to acquire substantive knowledge on equity investment management and can devise active investment strategies in accordance with their investment objectives and resource constraints. By understanding the dynamic nature of the relationship between these factors and stock prices, the prediction of stock price behavior would be much simpler for them. They need not be gone after the rumors and rationality shall guide the investors in their investment valuation mechanism. The results of the study need to be reinforced by assessing the performance of all strategies considered under it with the sample of stocks from other sectors also. Similarly with the inclusion of samples from several international markets one can determine the universal acceptability of its findings. Both are possible and are certainly valuable lines of future research.

    Dr.Priya Rawal

    Acknowledgements

    Without the unconditional love of my brother Mr. Puneet Kumar Rawal, my parents Mr. K.V.S Rawal (father) & S.K Rawal (mother), I would not have dared to begin and complete my book. They have always been on my side and backed me to fulfil my desires in anything I choose to pursue. I have got to be grateful to my beloved family members, friends and well-wishers for the constant inspiration, support and prayers they rendered for the completion of this work. Last but not the least, I kneel down in profound humility and deep gratitude before The Lord Almighty for showering His blessings and grace on me through all the stages of this humble endeavor and thereafter.

    Dr.Priya Rawal

    Chapter 1

    INTRODUCTION

    Economy and Stock Market

    Economies need funds for their development and growth. The fund requirements of these economies are usually met from the surplus economic units or savings. A surplus unit can be an individual, a firm or the government whose income exceeds the consumption during the period under consideration. By making use of these funds the economies purchase assets such as land, building, knowledge and machines, generate income and then allocate the same among the suppliers of funds. This phenomenon will be continued as far as an economy is in its growth phase. So for attaining sustainable growth and development of an economy there should be an environment conducive for the savings and investment growth. In a study conducted by, Dailami and Atkin showed that the provision of funds to finance domestic capital formation is a key factor for the prospects for long term economic growth of developing countries. Investment is an important means for channelizing the idle savings into the development of the economy. The material wealth of a society is determined ultimately by the productive capacity of its economy - the goods and services that can be provided to its members. Investment raises the level of aggregate demand which in turn increases the level of income and employment in the economy.

    The stock market is an integral part of the overall economy of a country especially that of an emerging economy likes India. It plays an important role in the economy by mobilizing domestic resources and channeling them to productive investment. For an investor or security analyst cash flows means dividend and earnings which is expected to accrue from his stock investments. So the stock returns should be affected by any factor that influences future cash flows or the discount rate of cash flows. Cash flows of the firms move according to the real economic activity. The movement of stock prices is highly sensitive to changes in fundamentals of the economy and to the changes in expectations about future prospects. If the economy grows rapidly, the industry is also expected to show rapid growth reflecting the prosperous outlook for its sales and earnings which would result in increased cash flows and stock prices. An outlook sagging economic growth can lead to lower profits, a prospect that can endanger investor pessimism and lower stock prices. Similarly if the economy is recovering and booming, when the corporate turnaround is in progress, the corporate revival will be faster and stronger. On the other hand, if the economy is in the grip of severe recession when the corporate turnaround is launched, the entire recovery process will slow down. So the analysis of macroeconomic environment is very important in order to understand the earning prospects of companies and to study the behavior of the prices of their stocks traded in a market.

    One can relate the stock markets of a country with the performance of its economy in many ways. Significant amounts of literature are available to examine the relationship between stock market returns and the macroeconomic environment over a number of stock markets and time period. On consolidating these literatures we can find that two general views exist among the scholars and practitioners with regard to such relationship. The first relationship views that the changes in stock market cause fluctuations in macroeconomic environment of a country and the second perceives that the stock market development and changes are the rash of economic conditions of the country. In other words the former case implies that stock market leads economic activity, whereas the latter suggests that it lags economic activity and which is more important for a security analyst.

    Indian Economy

    Indian economy is the third largest economy in the world in terms of purchasing power. As predicted by Goldman Sachs, the Global Investment Bank, by 2035 India would be the third largest economy of the world just after US and China. This booming economy of today has to pass through many phases before it can achieve the current milestone of 9% GDP.  The economic history of India since Indus Valley Civilization to 1700 AD can be said under pre-colonial phase. During Indus Valley Civilization the economy was very well developed. It had very good trade relations with other parts of world, which is evident from the coins of various civilizations found at the site of Indus valley. Then came the phase of Colonization. The arrival of East India Company in India ruined the economy of India. There was a two-way depletion of resources. British used to buy raw materials from India at cheaper rates and finished goods were sold at higher than normal price in Indian markets. During this phase India's share of world income declined from 22.3% in 1700 AD to 3.8% in 1952. As a part of the process of economic liberalization, the stock market has been assigned an important place in financing the Indian corporate sector. Besides enabling mobilizing resources for investment, directly from the investors, providing liquidity for the investors and monitoring and disciplining company managements are the principal functions of the stock markets. The main attraction of the stock markets is that they provide for entrepreneurs and governments a means of mobilizing resources directly from the investors, and to the investors they offer liquidity. It has also been suggested that liquid markets improve the allocation of resources and enhance prospects

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