Introduction to Indian Stock Market

Introduction to Indian Stock Market

Technology has become an integral part of our daily life, because of which we have to forget the 1980 stock market, I mean to say working of 1980 stock market, it has to change according to current scenario for better functioning and growth. Bombay Stock Exchange or BSE Limited was started in 1875, as  trading exchange. While trading these stocks / Equity, traders have to stand and shout the prices of the stocks for buying and selling. The traders would then exchange the money collected with physical receipts of the shares called share certificates. This resulted in great amount of paper work and headache. The settlement also takes much time approximately 7 to 10 working days. 

The settlement of agreements took a huge amount of time because of the requirement to physically deliver the share certificates. The risk associated with these transactions was substantial as the physical securities could be forged, stolen and the handling of the massive amount of paperwork often led to errors.

Towards the end of the 1980s, economic forces, the economic growth and currency crisis emphasized the need for modernization of the financial system. Then our Government decided to create the Securities and Exchange Board of India (SEBI) in 1988.

In April 1992, with market crashing due to Harshad Mehta Scam, then Finance Minister Mr. Manmohan Singh urged the need of another Stock Exchange & with that in November 1992, National Stock Exchange of India Limited (NSE) was established as the first electronically traded Stock Exchange in India. NSE was the first to introduce electronic screen based trading. Three segments of the NSE trading platform were established one after another. 

The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000.

With the introduction of depository and mandatory dematerialization of shares, chances of fraud reduced further. In 1996, National Securities Depository Limited (NSDL), commenced its operations coining the term dematerialization or demat, as it is commonly known, to mitigate the risks associated with share trading in paper form. 

"Dematerialisation is the process through which an investor converts his/ her physical share certificate to electronic form". NSDL holds the securities of investors in electronic form in its Depository system. NSDL interfaces with its investors through its agents called Depository Participants (DPs). If an investor wants to avail the services offered by the Depository, the investor has to open an account with a DP. In India, all demat accounts are currently held by two Depositories, namely National Securities Depository Limited (NSDL) & Central Depository Services (India) Limited (CDSL). NSDL holds 90% of the market share in terms of custody value.

A Demat account secures all the investments that an individual makes in the form of shares, exchange traded funds, government securities, bonds and mutual funds in one place. For online trading, it is necessary for an investor to hold a Demat account.

Process of Dematerialisation of physical shares

Dematerialisation is the process by which you can get physical certificates converted into electronic form.

• Dematerialization starts with opening a Demat account. You need to approach any Depository Participant (DP) of your choice for demat account opening. 
• To convert the physical shares into electronic form, a Dematerialization Request Form (to be provided by DP) needs to be filled in and submitted to your DP along with share certificates. On each share certificate, ‘Surrendered for Dematerialization’ needs to be mentioned to avoid any risk on account of loss of certificate in transit.
• The DP will process this request and arrange to send the share certificates to the concerned company or its Registrars and Transfer Agent.
• Once the request is confirmed by the concerned company or its Registrar and Transfer Agent, the share certificates in the physical form will be cancelled and a confirmation of dematerialization will be sent to depository.
• The depository will then confirm the dematerialization of shares to your DP. Once this is done, credit of your securities can be seen in your demat account.
• This cycle generally takes 15 to 30 days after the submission of complete and properly filled up dematerialization request form. Dematerialization is possible only with a demat account.

Dematerialisation & its benefits

Our four fathers were stuck with investment opportunities which were a sum total of saving accounts, term deposits and insurance policies. We however, are blessed with  options to choose from which are ranging from high risk-high return, low risk-low return to low risk - guaranteed return. The risk-taking capabilities of an investor decides most of his investment – mutual funds, stocks, Exchange Traded Funds (ETFs), are few names.

This brings us to the subject of dematerialisation. If you want to deal in stocks or ETFs, a demat account is mandatory as all the dealings are carried through this account. In simple terms, a demat account is a place to park all your securities electronically instead of holding them in physical form in your safe deposit locker or at home from where risk of these physical papers getting stolen increases.

With the introduction of dematerialisation, the whole process of buying and selling shares has become smooth and easy. The advantages offered by demat are varied in their usefulness. A demat account makes pledging for shares a hassle-free job and avoids confusion in the ownership title of securities. It also provides an easy receipt of public issue allotment. You can avoid delays in transaction, making you liquidity rich. This is the easiest way to transfer securities, eliminating the risk of forgery and counterfeiting. A single instruction given to the Depository Participant (DP) is capable to bring about any change which you want. 

The disadvantages of holding a physical certificate have been completely wiped out by the electronically held demat account offering various advantages over its predecessor. But, the hands down best feature of the demat account is that investors have access to their transaction details through Internet and emails. SEBI has made dematerialisation of physical shares compulsory. 

Opening a demat account has never been easier than now. You can open a demat account by approaching any DP of NSDL or DP of CDSL and the procedure is quite simple.  

In the Indian Stock Market scenario, there is an upward trend with tremendous growth opportunities for both short term and long term investments. First time investors can go ahead and open their demat account to grasp the benefits. The larger the coverage of instruments under the demat account umbrella, the greater the convenience that you will experience.

Last but not least, a demat account is not for shares only. You can use the same account for mutual fund units, tax saving bonds, debentures, government securities, sovereign gold bonds, national pension Scheme, Fixed Deposits etc.

Important Terminology:

Depository: It can be compared with a bank. A depository holds securities like shares, debentures, bonds, Government Securities, sovereign gold bonds, mutual fund units etc. of investors in electronic form. Besides holding securities, a depository also provides services related to transactions in securities.

Transmission : It is a process by which securities of a deceased account holder are transferred to the account of the surviving joint holder(s)/ legal heirs / nominee of the deceased account holder. This process in case of dematerialised holdings is very convenient as the transmission formalities for all securities held in a demat account can be completed by submitting documents to your DP whereas in case of physical securities the surviving joint holder(s)/ legal heirs/ nominee have to correspond independently with each company in which shares are held.

Bull Market: It is when the share prices are rising and the public is optimistic that the share price will continue to rise

Bear Market: In Bear Market the share prices falls and the public is pessimistic about the stock market. The public becomes fearful and thinks that the market will continue to fall and hence, selling increases in the market.

Broker: It is an individual/organization who is a registered member of the stock exchange and are given license to participate in the securities market in place of its clients. They can directly buy & sell stocks in the share market on behalf of their clients and charge a commission for this service.

Stock Exchange: It is just like a vegetable market, exchanges act as a market where the stock buyers connect with stock sellers. In India we have two well known stock exchanges which are very popular- Bombay stock exchange (BSE) and National stock exchange (NSE).

Index: Since there are thousands of company listed on a stock exchange, hence it’s really hard to track every single stock to evaluate the market performance at a time. Therefore, a smaller sample is taken which is the representative of the whole market. This small sample is called Index and it helps in the measurement of the value of a section of the stock market. The index is computed from the prices of selected stocks.

Registrar and Transfer Agent: An agent appointed by a company to maintain records of security owners. A transfer agent's principal functions are to issue and cancel certificates to reflect changes in ownership of the securities of an entity and to act as an intermediary for the company.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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Outbreak of New Virus In CHINA...

Outbreak of New Virus In CHINA...

For starters, when you have a disease outbreak, you have to spend a lot of money on diagnosing and treating patients. It’s also imperative that you invest in preventive measures i.e. setting up protocols to screen people in high-risk areas, commission studies to understand the virus/epidemic better, coordinate with other countries to contain the outbreak. But more importantly, human lifes are at stake.

When the healthcare infrastructure in your country can’t deal with the crisis effectively, mortality rates shoot up. Ebola virus which took life of over 11,000 people in Guinea, Liberia, and Sierra. But that’s not enough because the response team was so ill-equipped, over 150 health care workers perished in the process. 

As the World Health Organisation notes — “Every single loss of a doctor or nurse diminishes response capacity significantly” And this further increases the crisis.

When there are such devastating human costs involved, you will see a material impact on the economy almost immediately. Such outbreak of virus results decrease tourist to the country, loss of country's GDP in medical emergency, indirect costs, decline in trade and overall sense of doom and gloom surrounding the country.  

These are people who participate in the labour force i.e. people who work, earn and spend. The eventual loss in productivity because of a sudden collapse of the nation's workforce.   Imagine all the people that desist from visiting public parks, the movies, trains etc. The fear of a widespread epidemic can manifest in ways that further erodes confidence in an economy and hurt it in perpetuity. 

The only difference here is that we are not talking about West African countries but China is different in many ways. For one, it is tightly integrated into the global economy through an extensive trade network built over the past few decades. And this means a pandemic, the kind we are seeing with Corona virus can have other more dangerous implications.

For instance, in 2003, Chinese authorities confirmed the outbreak of the SARS virus. And between November 2002 and July 2003, we had over 8000 cases, accompanied by over 700 deaths reported in 37 countries. Researchers pegged the economic loss at $40 Billion. (approx 2 %)  The outbreak was exacerbated by the fact that containment was particularly hard considering the extensive interaction between people from China and other South Asian economies. And when the disease spreads, we are talking about countries where population density is high and the response mechanism is ineffective.

So, with 440 cases of Corona virus already being reported in multiple countries, we need to find ways to better insulate potential hotbeds from becoming potential deathbeds. 

Impact on the markets?

Investors bet on stocks based on future expectations. When these expectations sour, they’ll demand a higher risk premium. They’ll want a better price to invest in markets that could potentially be impacted by the virus. Which is why you see selling, the moment investors become aware of a global pandemic. 

In the past, we have seen pharma stocks rally when news of an outbreak hits mainstream media. If we are talking about a potentially deadly disease, you’ll need extended medical care for prospective patients and sales of pharmaceutical drugs do see an immediate uptick. Past evidence has shown that consumer spending goes down dramatically when news of an outbreak spreads. Investors have second thoughts when parking their money in their favorite frozen foods brand.

Now readers do have to bear in mind that these are early days. There have only been 11 deaths reported so far despite hundreds of cases cropping up every day. Meanwhile, China seems to be dealing with the issue rather proactively. Based on latest news, China has stopped all sorts of human movement to the infected city. 

You never know when these things spiral out of control.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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What is US China Trade Agreement ?

What is US China Trade Agreement ?

The United States signed the first phase of its trade agreement with China last week. The agreement plays a part in resolving a long standing dispute between both countries, and comes after more than a year of hard negotiations, including several months of suspension of talks between two of the largest economies in the world.

Only the first phase of the agreement has been signed so far, and it includes agreements on Intellectual Property (IP) Protection and Enforcement, ending forced technology transfer, dramatic expansion of American agriculture, removing barriers to American financial services, ending currency manipulation, re-balancing the US-China trade relationship and effective dispute resolution.

However, the most important aspect of the deal is that China has agreed to purchase an additional $200 billion worth of US farm products and other goods and services over the next two years. This is over and above the $186 billion that China purchased from the US prior to trade war in 2017. The deal also has not removed the tariffs that US has imposed on $360 billion worth of Chinese imports, which might act as a leverage for the US administration for future negotiations. The US however has cancelled plans to impose tariffs on an additional $160 billion in Chinese imports, and has agreed to cut in half, to 7.5%, existing tariffs on $110 billion of goods from China.

China has also pledged not to competitively devalue its currency and has promised to be more transparent about its interventions in foreign exchange markets. In line with this promise, China has agreed to make public disclosures about its foreign exchange reserves and its quarterly imports of goods and services, among other things.

The trade war between China and the United States has affected the economies of both the countries, in addition to its impact on emerging markets like India. The tensions between the countries have affected the United States manufacturing sector and has lowered China’s exports to the United States. The first phase of the agreement is a significant step in resolving the dispute, and could restore some much needed confidence in global markets.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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Parenting Tips for Child Education

Parenting Tips for Child Education

Most parents think of their child performing badly or average in studies. As you recognize , the standard of your child’s life depends upon the education he or she receives. According to  studies, parental involvement is the single most successful think about a child’s academic success. Following tips will assist your child not just succeed in school but get a better overall education.

1. Attitude and Expectation

Your attitude towards education is what your child will incur , without either of you being conscious of it. If you don’t believe how important good education is, your child will never take school or their education seriously. Your expectations from your child are even as important. Time and again, studies have shown that children answer what's expected from them, to a really high degree. Your child knows that you simply expect him to try to to well in class. You ought to include your expectations in your regular interaction together with your child. On a subconscious level, your children look to your judgement about them in forming their self-image. So, if you've got high expectations, so will they.

2. Discipline

What was good decades ago remains good today. The very fact is that there's no alternative to instilling a strong  sense of discipline in your child. Study time has got to take precedence over television time, game time and each other “time”. Is it any wonder our youngsters are performing so poorly in school? According to study, the typical 8 to 18-year-old spends almost 7 hours on non-productive electronic entertainment, which incorporates social media, online games, chatting on different messenger applications non-studies related web surfing. While it’s true that tons of oldsters don’t wish to be too strict, but the very fact is that the standard of the children’s lives does depend upon the standard of education they get.

3. Responsibility

Hold your children in charge of their results, and once they meet their targets, give them a sense of accomplishment or reward. Responsibility helps them earn that they need the facility to impact their academic results. Allow them to know that there are consequences, good and bad, to how they perform in class. Good grades should be rewarded, only with verbal praise and recognition, and bad grades got to be constructively criticized, not excused away. You ought to use bad grades to convince your children that they will do better next time and overcome whatever they think is standing in their way. Remember, always have high expectations from your children, as this is often an attitude which will motivate them to perform better for meeting your expectations. Imagine the difference it'll make in their lives if they always learnt the way to overcome problems.

4. Involvement

On a sensible note, there's limited time that you simply can spend together with your children the thought is to form the simplest use of the time that you simply have. Take a sneak peek to  their homework which will only take a couple of minutes, it will help  you recognize if your child is maintaining with the studies or lagging behind. This helps you communicate to your child that their education is vital to you and need to ascertain them succeed. Get more involved in their studies by setting realistic goals and suggesting ways to satisfy them.

5. Helping with homework

There are two ways parents often fail in helping their children with homework. Some parents do the homework for his or her children and a few parents think they are doing not know enough about the topic to assist . Give your child the time, space and materials they have to try to to their homework, but let them do it . Of course, you ought to attempt to help them if they grind to a halt , but your help should be more or guidance than execution.

In my view apart from above tips, parents should be financially strong enough to build their child's future, this can be achieved by investing goal oriented mutual funds (Children's Gift Funds) which is being offered by various fund houses. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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