Welcome to Financial Trend Forecaster

The primary charts we watch are:

Moore Inflation Predictor (MIP) New York Stock Exchange Rate of Change (ROC), and the NASDAQ Rate of Change (ROC).

Using these three charts you can get a good feel for not only the economy but the stock markets as well. With commodities in general skyrocketing in price (or the dollar devaluing) one way to tell what the real value of something is, is to compare it with something else.

Other Charts:
Two highly volatile commodities that are always in the news are Gold and Oil. So to tell how they compare we have prepared a Gold vs Oil chart. This can be thought of as the number of barrels of oil an ounce of gold will buy.

Moore Inflation Predictor (MIP)

NYSE Rate Of Change NYSEROC

NASDA Q Rate Of Change NASDA QROC

The NASDAQ Rate of Change (ROC) chart like the NYSE ROC will help you

The Moore Inflation Predictor (MIP) is a highly accurate graphical representation forecasting the future direction of the inflation rate. It has a 97%+ accuracy rate on forecasting inflation rate direction & turning points. And over 90% of the time the inflation rate falls within the projected likely range and 7% of the time it falls within the possible range.

The NYSE Rate of Change (ROC) chart is very helpful in getting

the big picture view quickly. The old saying a picture is worth a thousand words is very applicabl e to this chart. Once you understa nd how to read the ROC chart you can easily spot the direction of the market which makes it easy for you to know whether you want to be invested in the market or not.

see the big picture of the market. Looking at this chart will quickly tell you when the market is gaining or losing money over the year or just breaking even. It quickly tells you when the rate of return is gaining or falling and generates only a few buy/sell signals so they should be heeded when they happen.

What is the Moore Inflation Predictor?

September 15, 2011

The Moore Inflation Predictor (MIP) is a highly accurate graphical representation designed to forecast the inflation rate. It has a 97%+ accuracy rate on forecasting inflation rate direction & turning points. And over 90% of the time the inflation rate falls within the projected likely range and 7% of the time it falls within the possible range. By watching the turning points, we can profit from inflation hedges (like Gold, Real Estate and Energy Producers) when the inflation rate is trending up and from Bonds when the inflation rate is trending down. In addition, the Moore Inflation Predictor forecast could be used to judge whether to lock in a mortgage rate or wait a month or two for a better rate, since interest rates tend to track inflation rates. Inflation has had a wild ride over the last few years. As recently as July 2008 inflation was at 5.6% by July of 2009 it had fallen to a negative -2.10%. a fall of 7.7% in twelve months. Six months later by January 2010 it was back at 2.63% but it spent most of the end of 2010 around 1.15% coinciding with a low in mortgage rates of about 4.55% in November. You would think projecting the inflation rate would be difficult under those conditions but the Moore Inflation Predictor has done fairly well (except on a couple of rare occasions). In the following chart we can see how the Moore Inflation predictor has done over the crazy years weve just been through. The first chart is from April 2010 based on the March 2010 data. Even though there was a sharp drop in the inflation rate the MIP did a good job of forecasting it, as the actual (blue line) shows. The actual inflation rate tracked the extreme low almost exactly and held it consistently for nine months. On the tenth month inflation moved back into most likely territory.

NYSE Rate of Change (ROC)

What is the NYSE ROC?

Updated 9/15/2011 The NYSE Rate of Change (ROC) chart is helpful in getting the big picture of the stock market very quickly. The old saying a picture is worth a thousand words is very applicable to this chart. Once you understand how to read the ROC chart you can easily spot the direction of the market which makes it easy for you to know whether you want to be invested in the market or not.

The NYSE Rate of Change (ROC) chart

Click for Larger Image

The NYSE Rate of Change (ROC) chart shows the annual rate of return along the left axis and the years since 1990 along the bottom. Since this chart shows the rate of return rather than the current price it is much easier to see performance, we dont have to guess if we are up or down from last year. If we are below the zero line we are down, if we are above the zero line we are up. The key is to exit positions while we are in positive territory (with a gain) rather than waiting until we have a loss and then we can reenter when we get a buy signal. The red line is the 12 month moving average. As with most moving averages a buy signal is generated as the index crosses above the moving average and a sell signal is generated as the index crosses below the moving average. (See Current Analysis Below) Another helpful way to use this chart is to look at the slope of the red moving average line. If the slope is down the market is trending down if the slope is up the market is moving up. And obviously if the line is basically flat the market is not trending at all.

Just because this chart is not moving higher does not mean we should sell. In the period from May 2005 May 2007 the red moving average line was basically flat, although it had a bit of wiggle, but it was still flat at around 12% rate of return so holding during that period would have produced returns above the long term average. If you are looking for big gains, the best buy signals come from a movement from below the 0% line. This allows you to capture the greatest up move. Note: While viewing this chart we must remember that it represents the rate of return we would have earned if we had been holding the entire NYSE for the previous 12 months. Which can be achieved through the use of an index fund.

Current Analysis:
The NYSE ROC is up 1.69% this month. The annual rate of return is still barely positive at 0.27%. So if you had held the entire NYSE (or a fund that emulated the NYSE) for a year you would be up about 1/4 of 1%. As Ive been saying for a couple of months now, we are in whipsaw territory and it is a painful time but usually averages out to single to low double digit returns (8-10% annual). But it is possible that we could be repeating the double-dip of ten years ago. Ive added two new red arrows indicating that we could be repeating the double dip and could be nearing another spell below the zero return line. One option is that we rebound off the zero line and bounce around above it. The other option is that we plunge below the zero line and things get even nastier.

Financial Market Trends - OECD Journal

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The articles in Financial Market Trends focus on trends and prospects in the international and major domestic financial markets and structural issues and developments in financial markets and the financial sector. This includes financial market regulation, bond markets and public debt management, insurance and private pensions, as well as financial statistics.

Updated 2 Sept 2011

URL for this page www.oecd.org/daf/fmt

Comments and questions should be addressed to fmt@oecd.org.

>> Purchase a subscription to this journal >> Access to all articles for subscribers to iLibrary

Financial Market Trends No. 100 Volume 2011/1 September 2011 Long-term investment and growth

Fostering long-term investment and economic growth: summary of a high-level OECD financial roundtable Financial stability, fiscal consolidation and long-term investment after the crisis Lessons from the last financial crisis and the future role of institutional investors Fostering long-term investment and economic growth: a longterm investors view The contribution of the asset management industry to longterm growth Infrastructure needs and pension investments: creating the

perfect match Investing in infrastructure: getting the conditions right How to foster investments in long-term assets such as infrastructure Creating a better business environment for financing business, innovation and green growth Financing future growth: the need for financial innovations Promoting longer-term investment by institutional investors: selected issues and policies

Current issues in financial markets

Global SIFIs, derivatives and financial stability Guarantee arrangements for financial promises: How widely should the safety net be cast? The economic impact of protracted low interest rates on pension funds and insurance companies

Debt management and bond markets

Outlook for the securitisation market OECD statistical yearbook on African central debt: summary and overview

Financial Market Trends No. 99 Volume 2010/2

A market perspective on the European sovereign debt and banking crisis Sovereign debt challenges for banking systems and bond markets Systemic financial crises: How to fund resolution Risks in financial group structures Financial systems of the Southeast Asian economies OECD Sovereign Borrowing Outlook No.3 A public debt management perspective on proposals for restrictions on short selling of sovereign debt Assessing the labour, financial and demographic risks to retirement income from defined-contribution pensions The second corporate governance wave in the Middle East and North Africa

SHARETIPSINFO >>Articles Directory >>Indian Stock Market Trends, How shares moves in stock market

Stock Market is synonymous with the word gambling for both the experts as well as beginners. It is highly advisable to understand the functioning of the stock market before making any transaction or investment. And this can be easily accomplished by performing quality research, paying heed to experts opinion and proper consideration to the trends and tactics of the market. It is very important to learn the technique of buying and selling the shares with the perfect sense of timing in order to earn huge profits. The companies offer their shares to the public, so that the interested investors can participate and buy their shares. The process of buying and selling of stock is executed in Stock Exchange. However this is just an outlay or a framework of the stock market. The real game starts with the tactics and strategies that are used by the investors. And for this, you may have to learn many new economic terms used to explain the moods of the stock market. First and foremost vital step is to understand the trends of the market, often termed as market movements. There are adequate patterns, following which the stocks and supplies rise and fall. The reason could be anything from spoilt reputation of a firm to the infamy name of the company, which is not necessary to be noted. Whats important here is to concentrate on the time as in when the value of a share is rising and when it is going down. When the value is touching sky, it is best to sell the shares so that you can make big gains. Timing rules the stocks merchandising. Proper understanding of the trends can only be earned by experience and focus. And once you are clear with market trends you can easily manage your investments with right timing. Another is the stock trading systems. Nowadays many software companies provide valuable information on stock trading systems. Through this the investors can understand and manage the trends of many stocks. They can even seek assistance to know how profitable it will be to invest in a particular company. These trading systems are available with many shares that are cost-effective if invested in, letting you free from the extra burden of work. But dont forget before starting trading or investing in Indian stock market you need to do your homework as in proper research is required.

 A market trend is a putative tendency of a financial market to move in a particular direction over time.[1] These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.[2] Traders identify market trends using technical analysis, a framework which characterizes market trends as a predictable price tendencies within the market when price reaches support and resistance levels, varying over time. The terms bull market and bear market describe upward and downward market trends, respectively[3], and can be used to describe either the market as a whole or specific sectors and securities.[2]

Contents
[hide]

1 Secular market trend 2 Secondary market trend 3 Primary market trend o 3.1 Bull market 3.1.1 Examples o 3.2 Bear market 3.2.1 Examples o 3.3 Market top 3.3.1 Examples o 3.4 Market bottom 3.4.1 Examples 4 Investor sentiment 5 Market capitulation 6 Changes with consumer behavior 7 Etymology 8 See also 9 References 10 External links

[edit] Secular market trend

A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets. In a secular bull market the prevailing trend is "bullish" or upwardmoving. The United States stock market was described as being in a secular bull market from about 1983 to 2000 (or 2007), with brief upsets including the crash of 1987 and the dot-com bust of 2000 2002. In a secular bear market, the prevailing trend is "bearish" or downward-moving. An example of a secular bear market was seen in gold during the period between January 1980 to June 1999, culminating with the Brown Bottom. During this period the nominal gold price fell from a high of $850/oz ($30/g) to a low of $253/oz ($9/g),[4] and became part of the Great Commodities Depression.

[edit] Secondary market trend

Secondary trends are short-term changes in price direction within a primary trend. The duration is a few weeks or a few months. One type of secondary market trend is called a market correction. A correction is a short term price decline of 5% to 20% or so.[5] A correction is a downward movement that is not large enough to be a bear market (ex post). Another type of secondary trend is called a bear market rally (sometimes called "sucker's rally" or "dead cat bounce") which consist of a market price increase of only 10% or 20% and then the prevailing, bear market trend resumes. Bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading down to the market bottom in 1932, and throughout the late 1960s and early 1970s. The Japanese Nikkei 225 has been typified by a number of bear market rallies since the late 1980s while experiencing an overall long-term downward trend.

[edit] Primary market trend

A primary trend has broad support throughout the entire market (most sectors) and lasts for a year or more.

[edit] Bull market

A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.
[edit] Examples

India's Bombay Stock Exchange Index, SENSEX, was in a bull market trend for about five years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points. A notable bull market was in the 1990s and most of the 1980s when the U.S. and many other stock markets rose; the end of this time period sees the dot-com bubble.

[edit] Bear market

A bear market is a general decline in the stock market over a period of time.[6] It is a transition from high investor optimism to widespread investor fear and pessimism. According to The Vanguard Group, "While theres no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period."[7] It is sometimes referred to as "The Heifer Market" due to the paradox with the above subject.
[edit] Examples

A bear market followed the Wall Street Crash of 1929 and erased 89% (from 386 to 40) of the Dow Jones Industrial Average's market capitalization by July 1932, marking the start of the Great Depression. After regaining nearly 50% of its losses, a longer bear market from 1937 to 1942 occurred in which the market was again cut in half. Another long-term bear market occurred from about 1973 to 1982, encompassing the 1970s energy crisis and the high unemployment of the early 1980s. Yet another bear market occurred between March 2000 and October 2002. The most recent examples occurred between October 2007 and March 2009.

[edit] Market top

A market top (or market high) is usually not a dramatic event. The market has simply reached the highest point that it will, for some time (usually a few years). It is retroactively defined as market participants are not aware of it as it happens. A decline then follows, usually gradually at first and later with more rapidity.

William J. O'Neil and company report that since the 1950s a market top is characterized by three to five distribution days in a major market index occurring within a relatively short period of time. Distribution is a decline in price with higher volume than the preceding session.
[edit] Examples

The peak of the dot-com bubble (as measured by the NASDAQ100) occurred on March 24, 2000. The index closed at 4,704.73 and has not since returned to that level. The Nasdaq peaked at 5,132.50 and the S&P 500 at 1525.20. A recent peak for the broad U.S. market was October 9, 2007. The S&P 500 index closed at 1,576 and the Nasdaq at 2861.50.

[edit] Market bottom

A market bottom is a trend reversal, the end of a market downturn, and precedes the beginning of an upward moving trend (bull market). It is very difficult to identify a bottom (referred to by investors as "bottom picking") while it is occurring. The upturn following a decline is often short-lived and prices might resume their decline. This would bring a loss for the investor who purchased stock(s) during a misperceived or "false" market bottom. Baron Rothschild is said to have advised that the best time to buy is when there is "blood in the streets", i.e., when the markets have fallen drastically and investor sentiment is extremely negative.[8]
[edit] Examples

Some examples of market bottoms, in terms of the closing values of the Dow Jones Industrial Average (DJIA) include:

The Dow Jones Industrial Average hit a bottom at 1738.74 on 19 October 1987, as a result of the decline from 2722.41 on 25 August 1987. This day was called Black Monday (chart[9]). A bottom of 7286.27 was reached on the DJIA on 9 October 2002 as a result of the decline from 11722.98 on 14 January 2000. This included an intermediate bottom of 8235.81 on 21 September 2001 (a 14% change from 10 September) which led to an intermediate top of 10635.25 on 19 March 2002 (chart[10]). The

"tech-heavy" Nasdaq fell a more precipitous 79% from its 5132 peak (10 March 2000) to its 1108 bottom (10 October 2002).

A bottom of 6,440.08 (DJIA) on 9 March 2009 was reached after a decline associated with the subprime mortgage crisis starting at 14164.41 on 9 October 2007 (chart[11]).

[edit] Investor sentiment

Investor sentiment is a contrarian stock market indicator. By definition, the market balances buyers and sellers, so it's impossible to literally have 'more buyers than sellers' or vice versa, although that is a common expression. The market comprises investors and traders. The investors may own a stock for many years; traders put on a position for several weeks down to seconds. Generally, the investors follow a buy-low, sell-high strategy.[12] Traders attempt to "fade" the investors' actions (buy when they are selling, sell when they are buying). A surge in demand from investors lifts the traders' asks, while a surge in supply hits the traders' bids. When a high proportion of investors express a bearish (negative) sentiment, some analysts consider it to be a strong signal that a market bottom may be near. The predictive capability of such a signal (see also market sentiment) is thought to be highest when investor sentiment reaches extreme values.[13] Indicators that measure investor sentiment may include:[citation needed]

Investor Intelligence Sentiment Index: If the Bull-Bear spread (% of Bulls - % of Bears) is close to a historic low, it may signal a bottom. Typically, the number of bears surveyed would exceed the number of bulls. However, if the number of bulls is at an extreme high and the number of bears is at an extreme low, historically, a market top may have occurred or is close to occurring. This contrarian measure is more reliable for its coincidental timing at market lows than tops. American Association of Individual Investors (AAII) sentiment indicator: Many feel that the majority of the decline has already occurred once this indicator gives a reading of minus 15% or below. Other sentiment indicators include the Nova-Ursa ratio, the Short Interest/Total Market Float, and the Put/Call ratio.

[edit] Market capitulation

Market capitulation refers to the threshold reached after a severe fall in the market, when large numbers of investors can no longer tolerate the financial losses incurred.[14] These investors then capitulate (give up) and sell in panic, or find that their pre-set sell stops have been triggered, thereby automatically liquidating their holdings in a given stock. This may trigger a further decline in the stock's price, if not already anticipated by the market. Margin calls and mutual fund and hedge fund redemptions significantly contribute to capitulations.[citation needed] The contrarians consider a capitulation a sign of a possible bottom in prices. This is because almost everyone who wanted (or was forced) to sell stock has already done so, leaving the buyers in the market, and they are expected to drive the prices up. The peak in volume may precede an actual bottom.

[edit] Changes with consumer behavior

Market trends are fluctuated on the demographics and technology. In a macro economical view, the current state of consumer trust in spending will vary the circulation of currency. In a micro economical view, demographics within a market will change the advancement of businesses and companies. With the introduction of the internet, consumers have access to different vendors as well as substitute products and services changing the direction of which a market will go. Despite that, it is believed that market trends follow one direction over a matter of time, there are many different factors that change can change this idea. Technology s-curves as is explained in the book The Innovator's Dilemma. It states that technology will start slow then increase in users once better understood, eventually leveling off once another technology replaces it. This proves that change in the market is actually consistent.

[edit] Etymology
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(October 2008)

The precise origin of the phrases "bull market" and "bear market" are obscure. The Oxford English Dictionary cites an 1891 use of the term "bull market". In French "bulle spculative" refers to a speculative market bubble. The Online Etymology Dictionary relates the word "bull" to "inflate, swell", and dates its stock market connotation to 1714.[15] The fighting styles of both animals may have a major impact on the names. When a bull fights it swipes its horns up; when a bear fights it swipes down on its opponents with its paws.[16] When the market is going up, it is similar to a bull swiping up with its horns. When the market is going down it is similar to a bear swinging its paws down. One hypothetical etymology points to London bearskin "jobbers" (market makers),[17] who would sell bearskins before the bears had actually been caught in contradiction of the proverb ne vendez pas la peau de l'ours avant de lavoir tu ("don't sell the bearskin before you've killed the bear")an admonition against over-optimism.[18] By the time of the South Sea Bubble of 1721, the bear was also associated with short selling; jobbers would sell bearskins they did not own in anticipation of falling prices, which would enable them to buy them later for an additional profit. Another plausible origin is from the word "bulla" which means bill, or contract. When a market is rising, holders of contracts for future delivery of a commodity see the value of their contract increase. However in a falling market, the counterpartiesthe "bearers" of the commodity to be deliveredwin because they have locked in a future delivery price that is higher than the current price.[citation needed]

Some analogies that have been used as mnemonic devices:

Bull is short for 'bully', in its now mostly obsolete meaning of 'excellent'.[citation needed] It relates to the speed of the animals: bulls usually charge at very high speed whereas bears normally are thought of as lazy and cautious movers[citation needed]a misconception because a bear, under the right conditions, can outrun a horse.[19] They were originally used in reference to two old merchant

banking families, the Barings and the Bulstrodes.[citation needed] The word "bull" plays off the market's returns being "full" whereas "bear" alludes to the market's returns being "bare".[citation needed]

In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as the herd. This is especially relevant to participants in bull markets since bulls are herding animals. A bull market is also sometimes described as a bull run. Dow Theory attempts to describe the character of these market movements.[20] International sculpture team Mark and Diane Weisbeck were chosen to re-design Wall Street's Bull Market. Their winning sculpture, the "Bull Market Rocket" was chosen as the modern, 21st century symbol of the up-trending Bull Market.[citation needed] Overview of Indian Capital Market

The Indian capital market is more than a century old. Its history goes back to 1875, when 22 brokers formed the Bombay Stock Exchange (BSE). Over the period, the Indian securities market has evolved continuously to become one o the most dynamic, modern, and efficient securities markets in Asia. Today,

Indian market confirms to best international practices and standards both in terms of structure and in terms of operating efficiency .Indian securities markets are mainly governed by a) The Companys Act1956, b) the Securities Contracts (Regulation) Act 1956 (SCRA Act), and c) the Securities and Exchange Board of India (SEBI) Act, 1992. A brief background of these above regulations are given below

a) The Companies Act 1956 deals with issue, allotment and transfer of securities and various aspects relating to company management. It provides norms for disclosures in the public issues, regulations for underwriting, and the issues pertaining to use of premium and discount on various issues.

b) SCRA provides regulations for direct and indirect control of stock exchanges with an aim to prevent undesirable transactions in securities. It provides regulatory jurisdiction to Central Government over stock exchanges, contracts in securities and listing of securities on stock exchanges.

c) The SEBI Act empowers SEBI to protect the interest of investors in the securities market, to promote the development of securities market and to regulate the security market.

The Indian securities market consists of primary (new issues) as well as secondary (stock) market in both equity and debt. The primary market provides the channel for sale of new securities, while the secondary market deals in trading of securities previously issued. The issuers of securities issue (create and sell) new securities in the primary market to raise funds for investment. They do so either through public issues or private placement. There are two major types of issuers who issue securities. The corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the governments (central and state governments) issue debt securities (dated securities, treasury bills). The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. A variant of secondary market is the forward market, where securities are traded for future delivery and payment in the form of futures and options. The futures and options can be on individual stocks or basket of stocks like index. Two exchanges, namely National Stock Exchange (NSE) and the Stock Exchange, Mumbai (BSE) provide trading of derivatives in single stock futures, index futures, single stock options and index options. Derivatives trading commenced in India in June 2000

Other leading cities in stock market operations

Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After 1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills were floated, the need for a Stock Exchange at Ahmedabad was realized and in 1894 the brokers formed "The Ahmedabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmedabad, the jute industry was to Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in industrial advancement under Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100 members. However, when boom faded, the number of members stood reduced from 100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated. In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited).

Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump. But, in 1943, the situation changed radically, when India was fully mobilized as a supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities, those dealing in them found in the stock market as the only outlet for their activities. They were anxious to join the trade and their number was swelled by numerous others. Many new associations were constituted for the purpose and Stock Exchanges in all parts of the country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated into the

Delhi Stock Exchange Association Limited.

There are two major indicators of Indian capital market- SENSEX & NIFTY:

What are the Sensex & the Nifty?

The Sensex is an "index". What is an index? An index is basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. The Sensex is an indicator of all the major companies of the BSE. The Nifty is an indicator of all the major companies of the NSE. If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down. Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the NSE. Just in case you are confused, the BSE, is the Bombay Stock Exchange and the NSE is the National Stock Exchange. The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major stock exchanges in the country. There are other stock exchanges like the Calcutta Stock Exchange etc. but they are not as popular as the BSE and the NSE. Most of the stock trading in the country is done though the BSE & the NSE . Besides Sensex and the Nifty there are many other indexes. There is an index that gives you an idea about whether the mid-cap stocks go up and down. This is called the BSE Mid-cap Index. There are many other types of index.Unless stock markets provide professionalized service, small investors and foreign investors will not be interested in capital market operations. And capital market being one of the major source of long-term finance for industrial projects, India cannot afford to damage the capital market path. In this regard NSE gains vital importance in the Indian capital market but if we see the sensex & nifty graph there is a great variation.

Down fall or variability in returns. To measure all these crisis FM (Finance minister) of India has done some measures which are

following :

FM says state-run banks ready to provide credit to small, medium business sectors

RBI to keep a close watch on liquidity

Finance Minister P Chidambaram today said the Reserve Bank of India (RBI) will keep a close watch on liquidity and state-run banks are ready to provide credit to the small and medium business sectors. The finance minister today met the chiefs of state-run banks.

Exports growth slumps to 10.4% in September 2008

Exports up by 30.9% in April-September 2008

Indian merchandise exports during September 2008, recorded meager 10.4% growth at US $ 13.75 billion, taking the toll from recessionary tendencies in major export destination in US and Europe. On the other hand import growth remaining buoyant surged 43.34% to US $ 24.38 billion, causing the trade deficit to more than double to US $ 10.63 billion in September 2008 compared to US $ 4.55 billion in September 2007. Global financial crisis and recessionary tendencies in major economies have severely impacted India's export growth, though import surged rampantly.

Soaring crude oil prices placed immense pressure on import bill during the month of September 2008. The share of oil import in total imports surged to 37.31% in September 2008 compared to 34.05% in the corresponding period last year. Oil imports during

September 2008 surged 57.1% to US $ 9.1 billion, whereas non-oil import increased 36.2% to US $ 15.28 billion. Cumulative oil import during April-September 2008 stood 59.2% higher at US $ 55.06 billion, while non-oil imports surged 29.3% to US$ 99.68 billion over corresponding period last year.

Exports during April- September 2008 expanded 30.90% to US $ 94.97 billion (36.7% to Rs.405118 crore) while imports advanced 38.6% to US $ 154.74 billion (44.9% to Rs 661208 crore).

In rupee terms, exports scaled up 24.7% to Rs.62641 crore, while imports increased by 61.9% to Rs 111085 crore, in September 2008 compared corresponding period last year.

Trade deficit in April-September was estimated at $59.77 billion as against $39.1 billion in the same period the last fiscal.

PM says govt will take all steps to protect growth

Govt working closely with other countries for coordinated policy action

Prime Minister Manmohan Singh told top business leaders on Monday, 3 November 2008, that the government will take all the necessary monetary and fiscal policy measures to protect growth. The Prime Minister also said the government was working closely with other countries to ensure coordinated policy action for the containment of the global financial crisis.

RBI slashes CRR and SLR by 100 bps each and Repo rate by 50 bps

CRR revised to 5.5%, Repo rates to 7.5% while SLR stands reduced to 24%

RBI has cut CRR by 100 basis points to 5.5%, SLR by100 basis points to 24% and repo rate by 50 basis points to 7.5%, in a surprise move on 1st November 2008. Though the market was expecting a cut, the market is surprised by strong dose of cut in all the three rates in one go.

The cut in CRR will be implemented in two phases of 50 basis points each. CRR will come down to 6.0% effective from the fortnight beginning 25th October 2008 and further down to 5.5% effective from the fortnight beginning 8th November 2008. Incidentally, this is in addition to 250 basis points cut in CRR effective from the fortnight beginning 11th October 2008. Thus, in October 2008 alone, we are seeing 300 bps cut and another 50 bps cut in November 2008. The latest 100 basis point cut in CRR will bring in Rs 40000 crore into the banking system. Together, the 350 basis points cut across October and November 2008 will bring in Rs 140000 crore into the banking system

Since 16 September RBI has been offering an additional liquidity support for banks to the extent of 1% of NDTL under the Liquidity Adjustment Facility (LAF) along with waiver of penal interest. Now, RBI making this reduction permanent has reduced the Statutory Liquidity Ratio (SLR) by 100 bps to 24% of NDTL effective from the fortnight beginning 8th November 2008.

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Other Measures

RBI has also introduced a special refinance facility for all scheduled commercial banks (excluding RRBs) to provide refinance up to 1% of the relevant bank's NDTL as of 24th October 2008 at the LAF repo rate up to a maximum period of 90 days. RBI said that during this period, refinance could be flexibly drawn and repaid.

In addition to the cut in SLR and special refinance facility, RBI also extended the limit of liquidity support for banks from 0.5% to 1.5% of NDTL under LAF through relaxation in the maintenance of SLR and the coverage is extended to NBFCs also. Further, RBI said that banks can apportion the total accommodation allowed between Mutual funds and NBFCs flexibly as per their business needs. But RBI directed that this relaxation in SLR should be exclusively used for the purpose of meeting the funding requirement of NBFCs and Mutual funds.

RBI has asked the entities with bulk forex requirements to approach it through their banks. Accordingly, RBI will sell foreign exchange through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand supply gaps.

RBI has also allowed non-deposit taking NBFCs (NBFCs-ND-SI), as a temporary measure, to raise short-term foreign currency borrowings under the approval route. However, this will be subject to their compliance with prudential norms on capital adequacy and exposure norms.

Further, in the context of forex outflows in the recent period, RBI has decided to conduct buy back of MSS dated securities so as to provide another avenue for injecting liquidity of a more durable nature into the banking system. RBI indicated that this would be calibrated with the market-borrowing programme of the Government of India.

Outlook

On the growth front, it is important to ensure that credit requirements for productive purposes are adequately met so as to support the growth momentum of the economy. However, the global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability. The Reserve Bank has reviewed the current and evolving macroeconomic situation and liquidity conditions in the global and domestic financial markets. Based on this review, RBI has taken slew of above measures, including cut in CRR, SLR and repo rate. The total liquidity support provided through the latest reductions in the CRR, SLR and temporary accommodation under the SLR is likely to be in the order of Rs.1,40,481 crore. With RBI announcing slew of liquidity boosting measures overall interest regime in the country is likely to ease in the near term. Some of the banks have already announced interest rate reduction and more are likely to follow soon. The reduction in SLR would release much needed liquidity into the system and signals reduction in the interest rates.

The Reserve Bank will continue to closely monitor the developments in the global and domestic financial markets and will

take swift and effective action as appropriate.

Rate cuts at corner

In the wake of the stress on our financial markets as a result of the global financial crisis, the Reserve Bank announced a series of measures starting mid-September 2008 to ease both domestic and foreign exchange liquidity. The task of monetary policy has always centered on managing a judicious balance between price stability, sustaining the growth momentum and maintaining financial stability. The relative emphasis across these objectives has varied from time to time depending on the underlying macroeconomic conditions. At this juncture, the apex bank of the country has focused on financial stability thanks to ease in inflation.

India witnesses the effects global meltdown through liquidity crunch, which reflected in significant growth in call rates- the rate at which banks borrows from each other. The month started with 16.51% weighted call rates which further moved up to18.53% as on 10 October 2008. On review of the liquidity situation, the RBI announced a reduction in CRR by 250 bps to 6.5% effective from fortnight beginning on 11 October 2008. As result of reduction of the reduction in the CRR around Rs 1,00,000 crore was expected to be released into the banking system. The RBI also decided to open a special 14-day fixed rate repo window for a notified amount of Rs 20000 crore with a view to enabling banks to meet the liquidity requirement of mutual funds.

Reflecting the impact of these measures, the average call rate declined to 9.92% as on 13 October 2008 and further tanked to 6.6% as on 17 October and slipped below reverse repo rate to 4.16% on 18 October 2008. However we have seen pressure mounting on inter bank call money rates since 25 October, as banks scrambled to borrow at call money market to meet funding requirements in a holiday-shortened week, while fresh debt auctions also weighed. The RBI has conducted the auctions of Rs 7000 crore worth of treasury bills on 29 October, while Rs 10000 crore worth

of securities will be auctioned on 31 October. As result call rates surged to 8.56% on 25 October and further up to 9.35% and 11.26%, as on 27 and 29 October 2008, respectively. The RBI is committed to maintain close watch on the entire financial system to prevent pressures building up in the financial markets and it may take appropriate steps if pressures persist.

The sharp dip in the crude oil prices, RBI aims liquidity boosting measures and easing inflation has compounded bullish sentiments in the bonds market, raising the bond prices incessantly. The yield on 10- year benchmark government securities (g-sec 8.24% 22 April 2018) eased substantially to its 8 months low level 7.5% on 29 October 2008 from 8.44% on 1 October 2008. Bond yield and inflation has a positive co-relation, whereas bonds trade transmits an inverse price-yield relationship. During the week ended 18 October 2008, general price index popularly called inflation has down to 10.68%. It was the fifth sequential week were the inflation has declined on week on week basis. The downtrend in inflation will give leverage to the apex bank of the country to act aggressively on financial stability with further cut in interest rates.

Along with inflation, we have seen slight deceleration in money supply growth. According to the latest data released by RBI, the annual growth rate in broad money or M3 has below 20% mark. However it is still above the comfort zone of the apex bank (RBI holding 17% target for the current financial year).

Central banks across the globe are trying to curb an economic slowdown as the financial crisis weighs on consumer sentiment and business spending. The Federal Reserve's reduced interest rates by 50 bps to 1% on 29 October in order to stimulate economic growth by encouraging consumer and business spending. In Asia, China's central bank announced its third reduction by 27 basis points to 6.93%, while Taiwan's central bank surprised with a 25 bps cut in lending rates to 3%, its fourth easing in two and a half months. Similarly the market expects rate cut to be announced in Japan on Friday, while European Central Bank and Britain may add to monetary easing in the ensuing weak to restrict the adverse impact of what could be the worst financial crisis in 80 years and its impact

in terms of a long global recession. Against the backdrop of these global and domestic developments and in the light of measures taken by the Reserve Bank over the last month, we are excepting further dose of medicine from the apex bank of the country.

RBI prefers to buy time and leaves all rates unchanged

But cuts GDP growth projections to 7.5 to 8.0% for FY 2008-09

RBI has declared mid-term policy review with stable interest rates. Effective from the fortnight beginning 11th October 2008, the CRR was already cut by 250 basis points to 6.5% while repo rate was cut by 100 bps effective form20th October 2008. But still select Industry associations were expecting further cut in repo / CRR. Instead, RBI has decided to wait and watch, before taking further monetary measures.

However the Reserve Bank has revised the projection of overall real GDP growth for 2008-09 to a range of 7.5-8.0 per cent, down from its own projection of around 8.0% in July 2008, thanks to global and domestic development.

Highlights

1)The Bank Rate has been kept unchanged at 6.0 per cent.

2)The repo rate under the LAF has been kept unchanged at 8.0 per cent.

3)The reverse repo rate under the LAF has been kept unchanged at 6.0 per cent.

4)The cash reserve ratio (CRR) of scheduled banks is currently at 6.5 per cent of net demand and time liabilities (NDTL). On a review of the current liquidity situation, it has been decided to keep the CRR unchanged at 6.5 per cent of NDTL.

The market reaction on the policy was negative as market participants had expected further rate cut. However there is no change in any rate of interest as well as in CRR and SLR.

The apex bank of the country has already taken slew of measures in response to the developments in the global and domestic market in the last few weeks. Hence, RBI has preferred to observe the impact of these measures rather than rushing with additional dose of medicine.

Meanwhile, for four consecutive weeks, inflation rate has been coming down on week on week basis. Nevertheless, RBI has unchanged the inflation target for the remaining year, evidencing its discomfort on the underlying pressure on price level. At the same time we have not seen any change in target for money supply. With the reference of the recent date published by RBI, the growth in money supply was slightly down, but still far away from the target of the RBI (17%).

The recent measures taken by the apex bank (CRR and Repo cut) will boost the liquidity in the market along with the relaxation in

ECB norms will play critical role in overall monetary assessments for the remaining financial year.

To sum up, the unchanged interest rate , and the downward revision in GDP growth target together indicate that apex bank has tried to maintain the balance between growth and inflation. However this is one of the most critical challenge for policy makers worldwide to make a choice between stable inflation or growth. At home ground, RBI preferred to buy the time to see the impact of the measures that has already placed.

No change in the policy rates or CRR in the Mid Term Review

RBI's Mid Term Review of Annual Policy keeps all rates unchanged

Dr D Subbarao, Governor, Reserve Bank of India, unveiled the Mid Term Review of Annual Policy for the Year 2008-09 on 24th October 2008.

RBI has kept the Bank Rate, Repo Rate, Reverse Repo Rate and Cash Reserve Ratio unchanged. In effect, no major monetary measures have been taken in the Mid Term review on 24th October 2008.

RBI has revised India's GDP growth projection for FY 2008-09 to a range of 7.5 to 8.0% on 24th October 2008, down from its own earlier projection of around 8.0% in July 2008.

RBI cuts India's GDP growth projection to 7.5 to 8.0% for FY 2008-09

GDP growth projection cut from 8.0% made in July 2008

RBI has revised India's GDP growth projection for FY 2008-09 to a range of 7.5 to 8.0% on 24th October 2008, down from its own earlier projection of around 8.0% in July 2008.

Dr D Subbarao, Governor, Reserve Bank of India, unveiled the Mid Term Review of Annual Policy for the Year 2008-09 on 24th October 2008. The downward revision in GDP projections were made in this review.

RBI indicated that in its First Quarter Review in July 2008, it had projected India's projection of real GDP growth in 2008-09 at around 8.0 per cent for policy purposes. But RBI said that since then, there have been significant global and domestic developments which have rendered the outlook uncertain, and have increased the downside risks associated with this projection.

In particular, RBI highlighted that the global downturn may be deeper and more protracted than expected earlier. Consequently, the adverse implications through trade and financial channels for emerging economies, including India, have amplified.

RBI cautioned that if the recession is deeper and the recovery is long drawn as is the current expectation, emerging economies have also to contend with second round effects in the form of potential terms of trade losses, erosion of export competitiveness and restricted external financing. These adverse developments are overlaid on the moderation of growth in the industrial and services sectors in the first half of 2008-09.

RBI also said that the south-west monsoon conditions and water storage levels support the prospects of maintaining the mediumterm trend growth rate in agriculture in 2008-09.

Taking these developments and prospects into account, the Reserve Bank has revised the projection of overall real GDP growth for 2008-09 to a range of 7.5-8.0 per cent

Foreign Institutional Investment in India

The liberalization and consequent reform measures have drawn the attention of foreign investors leading to a rise in portfolio investment in the Indian capital market. Over the recent years, India has emerged as a major

recipient of portfolio investment among the emerging market economies. Apart from such large inflows, reflecting the confidence of cross-border investors on the prospects of Indian securities market, except for one year, India received positive portfolio inflows in each year. The stability of portfolio flows towards India is in contrast with large volatility of portfolio flows in most emerging market economies.

The Indian capital market was opened up for foreign institutional investors (FIIs) in 1992. The FIIs started investing in Indian markets in January1993. The Indian corporate sector has been allowed to tap international capital markets through American Depository Receipts (ADRs), Global Depository

Receipts (GDRs), Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs).Similarly, nonresident Indians (NRIs) have been allowed to invest in Indian

companies. FIIs have been permitted in all types of securities including Government securities and they enjoy full capital

convertibility. Mutual funds have been allowed to open offshore funds to investing equities abroad. FII investment in India started in 1993, as FIIs were allowed to invest in the Indian debt and equity market in line with the recommendations of the High-Level Committee on Balance of Payments. These investment inflows have since then been positive, with the exception of 1998-99, when capital flows to emerging market economies were affected by contagion from the East Asian crisis. These investments account for over 10 per cent of the total market capitalization of the Indian stock market.

Limits on Foreign Institutional Investors

Each FII (investing on its own) or sub-account cannot hold more than 10 per cent of the paid-up capital of a company. A sub-account under the foreign corporate/individual category cannot hold more than 5 per cent of

the paid up capital of the company. The maximum permissible investment in the shares of a company, jointly

by all FIIs together is 24 per cent of the paid-up capital of that company. The limit is 20 per cent of the paid-up capital in the case of public sector banks. The ceiling of 24 per cent for FII investment can be raised up to

sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. A cap of US $1.75 billion is applicable to FII investment in dated

Government securities and treasury bills under 100 per cent and the 70:30route. Within this ceiling of US $1.75 billion, a sub-ceiling of US $200 million is applicable for the 70:30 route. (FIIs are required to allocate their

investment between equity and debt instruments in the ratio of 70:30.However, it is also possible for an FII to declare itself a 100 per cent debt FII in which case it can make its entire investment in debt instruments.)

A cumulative sub-ceiling of US $500 million outstanding has been fixed on FII investments in corporate debt and this is over and above the sub- ceiling of US $1.75 billion for Government debt.

Recent trends in the global capital markets :

Several current trends will continue to influence the worlds financial markets long after the present bout of turbulence ends.

FEBRUARY 2008 Diana Farrell, Christian S. Flster, and Susan Lund

Struggling credit markets, slumping stocks, and a sliding dollar have been generating anxiety among executives and policy makers in early 2008. Amid the turmoil, its easy to forget that long-term structural change in the worlds capital markets will probably prove more important than short-term fluctuations, as it did after the 1987 US stock market crash, the 1992 assault on the British pound, and the 1997 unraveling of Asias financial markets.

Recent McKinsey Global Institute (MGI) research highlights several trends that look set to continue during the years ahead, long after the present bout of market turbulence has ended:

the continued growth and deepening of global capital markets as investors pour more money into equities, debt securities, bank deposits, and other assets around the world

the soaring growth of financial markets in emerging economies and the growing ties between financial markets in developed and developing countries

the shift of financial weight in Asia from Japan toward China and other fast-growing emerging markets

the growing financial clout of the eurozone countries and the significance of the euro

the burgeoning role of oil-rich Middle Eastern countries as suppliers of capital to the world, along with the rise of new financial hubs in the Middle East to complement the rapidly growing hubs in London and Asia

While these trends reflect a shift in financial power from the United States toward other parts of the world, the sheer size and depth of the US market will give it a leading role on the international financial stage for years to come.1

The exhibits that follow track the progress of these long-term shifts.

The research rests on several proprietary MGI databases that cover the financial assets, cross-border capital flows, and foreign investments of more than 100 countries since 1990. Most of the analysis focuses on developments through 2006, the most recent year for which comprehensive data are available. But some data also show that many of the broad trends continued through late 2007 and will probably persist in years to come.

The continued growth of global financial assets

The full fallout from the credit market volatility of 2007 remains to be seen. But over the longer term, the volume of global financial assets (the value of all bank deposits, government debt securities, corporate debt securities, and equity securities) will continue to expand. Over the past 25 years, through stable and stormy times alike, financial assets have grown robustly. In 2006, their value rose to $167 trillion, from $142 trillion the year beforea 17 percent increase, more than double the average annual growth rate (8 percent) from 1995 through 2005.2

For many years, as equity and bond markets thrived, bank deposits have accounted for a shrinking share of total financial assets. That trend continued in 2006, but the rate of decline slowed because the absolute value of bank deposits around the world jumped by $5.6 trilliontwice the average increase of the previous three years.3 The largest contributor to this rise was the United States, thanks largely to strong income growth and the housing boom, which enabled many households to tap their home equity for quick cash. This source of growth was shaky by 2007. Looking forward, the growth of deposits will depend to a large degree on China, where they are the primary savings vehicle.

Growing cross-border investment links financial markets

The rising level of foreign investment is making the world more financially inter-dependent than it was even a few years ago. By the end of 2006, the outstanding stock of cross-border investments reached the highest level, in real terms, in history$74.5 trillion of assets. This sum includes the foreign investments of multinational corporations, purchases of foreign debt and equity securities by investors around the world, and foreign lending and deposits. Preliminary data indicate that the total grew to another record level in 2007, despite the disruptions in European and US credit markets during the second half of the year.

Whats more, the source and direction of cross-border investment flows are shifting. In 1999, the United States was the dominant hub of the global financial system. By 2006, it remained the largest single foreign investor and a major hub in global capital markets but the eurozone countries together had as many financial links with other parts of the world, including emerging markets. The United Kingdom too has become a more significant global financial hub, and Middle Eastern countries are now major investors in global financial markets, thanks to the windfall generated by rising oil prices. In 2006, for the first time since the 1970s, the oil-exporting countries joined those of East Asia as the worlds largest net suppliers of capital.

Conclusion:

The Indian financial system has undergone structural transformation over the past decade. The financial sector has acquired strength, efficiency and stability by the combined effect of competition, regulatory measures, and policy environment. While competition, consolidation and convergence have been recognized as the key drivers of the banking sector in the coming years, consolidation of the domestic banking system in both public and private sectors is being combined with gradual enhancement of the presence of foreign banks in a calibrated manner. There has been improvement in banks capital position and asset quality as reflected in the overall increase in their capital adequacy ratio and declining NPLs, respectively. Significant improvement in various parameters of efficiency, especially intermediation costs, suggests that

competition in the banking industry has intensified. The efficiency of various segments of the financial system also increased. The major challenges facing the banking sector are the judicious deployment of funds and the management of revenues and costs. Concurrently, the issues of corporate governance and appropriate disclosures for enhancing market discipline have received increased attention for ensuring transparency and greater accountability. Financial sector supervision is increasingly becoming risk based with the emphasis on quality of risk management and adequacy of risk containment. Consolidation, competition and risk management are no doubt critical to the future of Indian banking, but governance and financial inclusion have also emerged as the key issues for the Indian financial system. The capital market in India has become efficient and modern over the years. It has also become much safer. However, some of the issues would need to be addressed. Corporate governance needs to be strengthened. Retail investors continue to remain away from the market. The private corporate debt market continues to lag behind the equity segment.

Read more: http://drpiyushprakash.articlesbase.com/marketingarticles/recent-trends-in-indian-and-global-capital-market691800.html#ixzz1aIdUTvhn Under Creative Commons License: Attribution No Derivatives Causes of market fluctuations Why do market fluctuate? How Does the Stock Market Fluctuate? Flag this photo 1.

Pre-Opening
o

Before the market opens every day, the opening price of each stock traded on that market is determined. Generally, it will be the same as the closing price of the stock from the previous day's trading. However, if something significant happened to the company while the market was closed, the specialist or market makers in the stock will adjust the opening bid and offer accordingly. The specialist or market makers

will attempt to strike a balance between the buy and sell orders that were entered prior to the market opening for the day.

Market Hours
o

During market hours, the stocks are freely trading. Market fluctuations are caused by an imbalance in supply and demand or, more simply, buy orders and sell orders. If there are more buy orders for a certain stock than there are sell orders, the price of that stock will rise. If there are more sell orders for a given stock than buy orders, the price of that stock will fall. The market constantly seeks a balance between buyers and sellers, between supply and demand, and this causes the moment-to-moment fluctuations in individual stocks and in the overall market. This is why market timing is so important for institutional investors. When buying or selling a large block of stock, it is possible to move the price of that stock in one direction or the other. Institutional investors who work in large blocks of stock attempt to choose the best time to buy or sell. When buying, they determine the maximum price they are willing to pay for a stock and wait until the stock comes under an imbalance of selling pressure, enabling them to buy the stock without driving the price up. Likewise, when selling, they look for an increase in the buy-side volume of a stock so that when they sell a large position it doesn't drive the market price down.

After Hours
o

The final prices of the stocks are calculated and posted within 30 minutes of the closing bell. That is when after-hours trading begins. Though after-hours trading volume is minuscule compared to the volume during market hours, after-hours trading can give a good indication of what may happen the next trading day. In addition, stock futures trade after-hours and can provide a clue or two about what may happen to the overall market the next trading day. Significant

news events, earnings releases, and reports of insider buying or selling all effect the market sentiment in a given stock which causes investors to want to buy or sell that stock, forcing the stock market to fluctuate.

Read more: How Does the Stock Market Fluctuate? | eHow.com http://www.ehow.com/how-does_4690182_stock-marketfluctuate.html#ixzz1aIee28uh ,,,,,,,,,,,,,,,,,,,,,,,,,

Best Answer - Chosen by Voters

Rather than understanding why stock price fluctuate daily, it is better to understand human psychology. in stock market, greed and fear drive stock prices ups and downs. though there are economic indicators (like inflation, interest rate, corporate earnings etc.) that able to explain on certain price movement, others still and will remain hidden. nobody in the world can explain exactly what happen in the stock market and what causes the stock price fluctuations. that is why, technical analysis came into picture. though it is very subjective topic, but certain human behaviors will remain the same; greed and fear. the price movement somehow able to reveal some pattern that reflect to human 'greed and fear'. given an example, they buy when they 'feel' the stock is affordable and sell when they 'thought' the stock is already over-valued; with something in mind to buyback when the price drops later. if you are serious about trading stock, these are the topic that you need to go deeper. as each stock has different 'type of player', its pattern will be different to another stocks. stock charting software able to help you to do the analysis, but to me nothing beat human intelligent; which is why it still need your 'human judgement'. however, if you are incline to invest for long-term, daily price fluctuations is the last thing you will ever to consider. instead of betting in 'human behavior', you are investing in profitable businesses. however, selecting profitable businesses is crucial than if stock traders, selecting stock with 'high beta' is more than important.

Effect of fluctuation on Indian stock market

In my last article I wrote about the reason behind booming stock market in India. When I wrote that article ( only a few days ago actually) the Indian stock market was booming with the huge inflow of money from FIIs. However, suddenly it crashed and lost more than 2000 points in the next few days. In the festive season on Navratra, the pall of gloom engulfedthe market and the mood of investors turned from jubilant a sober. What actually happened ? Nothing actually. The economy is as sound as it was in the boom time. The companies are as profitable as they were a few days ago. Yet, the market crashed because the Government tried to instill some sort of regulation in it. Let me explain it a bit : As I wrote in my last article that a major portion of the money being invested into the share market is coming from FIIs (Foreign Institutional Investors). The cause of concern for the Government was that in this major share of FIIs, more than half was in the form of hot money being invested into the market by anonymous investors who pump money into the market by utilizing the Participatory Note (PN) facility. All those foreign investors who are not registered with the SEBI (Stock Exchange Board of India), the regulatory body for stocks in India, can not directly deal in buying/selling of sticks. So they took a sort of permission from registered FIIs by buying Participatory Notes (PN) from them in exchange of dollars, which ultimately allows them trade in the market. Though, this concept of allowing anonymous investors in the market broaden the reach of the market, it also ensure free entry of dollars into Indian economy as well as increase the percentage of hot money in the market. The hot money is that kind of money which is invested only for a short time to make some quick buck. It is not invested with a long term mindset. Since the continuous inflow of dollar into Indian economy is making the Indian currency (Rupee) stronger and thus making the export costlier, the Government was looking for someway to curb this inflow of dollars. Making the availability of Participatory Notes some difficult for foreign investors was one step Government thought would help control the inflow of dollars. So a few days ago the

SEBI contemplated on a draft policy to make the issuing of PN difficult for FIIs. This was the step which gave a jolt to the buying spree of FIIs. As peope found that it would be difficult to trade in the market in future owing to non-availability of PN, they started exiting form the market by selling their stock. Result- the market fell more than a 1000 point in a few hours and had to shut down for some time. Ultimately the Government had to rush in to alleviate the growing concern of Investors by stating that it would not control the issuing of PN to investors. This news will from the Business standard give you some detail of this exercise done by the Government. As of now the market is still fluctuating and is yet to be stabilized. However, I think that in all probability, it will continue its upward swing despite such momentary crash. The main reason of my belief is that the Indian economy as a whole is performing very well Same is the case with most Indian companies listed in the market. With the above note, here are some of my observations on what can happen if the stock market boom continues for lone in India: First some positive one First of all if this boom continues for long, soon the richest person in the world will be an Indian. On the last count (as per a leading newspaper report) Mukesh Ambani, the chairman of Reliance group was earning Rs 40 Lakhs ($ 100000) per minute. Yes you read it write. $100000 per minute ! Though it has much to do with his huge and expanding empire of Reliance industries, it is also because of the appreciation in the price of the shares of Reliance industries. Secondly most investors, who are in the market for quite sometime are going to become really rich. The word crorepati (multimillionaire) can soon become a common thing in India all thanks to share market. However, there is a word of caution here. As this boom is being driven by FIIs (Foreign Institutional Investors), we must not forget that these people are here only till they find a new market more profitable than India. Once they find a place which offer better return on their investment than India, they will immediately shift there. Though, there is only a remote possibility of that as of now, you never know what can happen in future. Thats why most

expert are advising people to stick to their long-term investment plan and dont make any move in haste. Owing to stock market boom, there is another very interesting situation being faced by Reserve Bank of India(RBI) (the leading central bank which decides various economic policies here just like the Federal Reserve Bank of US.) The investment being made by FIIs in Indian share market has resulted in to a huge inflow of dollars into the economy. The RBI is facing difficultly in managing this continuous inflow of dollars as their huge supply and easy availability has resulted into dollars depreciation vis- -vis Rupee. The Rupee is becoming stronger to dollar thus making imports cheaper and export costlier. Some of our major export oriented industries such as Softwares and textiles are feeling the heat every day. The profits margin of these industries have reduced as it mostly depend on current value of dollar. There is a pressure on Government to mange the appreciation of rupee to favour exporters. Ironically, this can only be done if Government put some break on the inflow of dollars by FIIs which will actually mean putting a break on stock market boom. (it actually happened some days ago as I described above) Government certainly dont want to spoil the party that is going on in the stock market. However, the continued depreciation of dollar is also a cause of deep concern which needs to be addressed. The last but not the least is the overvaluation of many stocks in the market. Some experts have opined that market is trading at 22 to 23 times of actual earning and no one can justify these valuations. In nutshell if I am to summarize this boom of stock market, I must say that this boom is not going to last forever as it is dependent on some very volatile factors that may change in the times to come. As I explained in my earlier article, a increase in interest rate in US may reverse this flow of FIIs. Or we may see emergence of a new market with great potential on some other place on earth. All these things, if happen, can put a break on this boom. Being an Indian myself, I dont want that to happen. I wish this boom lasts for the next 1000 years. Amen ! . Not only daily, but almost every minute the stock price will

changes. To me, stock market is just like a voting machine. Stock that have the most votes will beat the market, whereas the one that not popular enough, will be the loser eventually. The mechanism works democratic way and keep the stock price moving. Basically, the stocks perform their best, up to investors which one they believe in. Lets go deeper to understand better. Demand and Supply In stock market investing, the stock price falls if sellers overrule the buyers. Conversely, if there are more investors who want to buy the stock than the number of shareholders who are willing to sell their holdings, the price will go up, and up, and up. As a result, stock prices fluctuate daily. This is a classic example on law of demand and supply in economics. Next question would be what forces the demand and supply? Market Psychological Effect Demand and supply for the available shares to be traded is due to market sentiment effect. Every time investors feel that the stock will not able to meet their expectation, they sell their equities and leave the company. On the other hand, if they are optimistic of its future growth, they will buy more shares of that stock to get better return on investment. What cause the market sentiment, you may ask. Unfortunately, there is no single answer to that one question. However, the most obvious factors are interest rates, inflation, quarterly earnings reports, news on corporate events, crime and fraudulent, energy prices, war and terrorism as well as local and worldwide political stability. Bear in mind though, when it comes to market sentiment, media is the king.

To make the news popular and gain the most viewers, great things can be interpreted as bad actions sometimes. Therefore, filter the information with extra cautious and do not let media control your investment logic. Individual Investor Needs This is the most difficult one to identify but is the most reason why stock prices fluctuate daily. Look, every now and then, investors who buy the stock can have variety of reasons, and that reasons wont be the same from one investor to another. They buy and sell stocks according to their strategy and needs on daily basis. The fact is there are traders who make living out of stock trading. Therefore, the price will fluctuate based on their trading activities. . Stocks Basics: What Causes Stock Prices To Change? Read more: http://www.investopedia.com/university/stocks/stocks4.asp#ixzz1aI go6DS5 Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Read more: http://www.investopedia.com/university/stocks/stocks4.asp#ixzz1aI gs6Goj Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock. This comes down to figuring out what news is positive for a company and what news is negative. There are many answers to this problem and just about any investor you ask has their own ideas and strategies. That being said, the principal theory is that the price movement of a stock indicates what investors feel a company is worth. Don't equate a company's value with the stock price. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. For example, a company that trades

at $100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 that has 5 million shares outstanding ($100 x 1 million = $100 million while $50 x 5 million = $250 million). To further complicate things, the price of a stock doesn't only reflect a company's current value, it also reflects the growth that investors expect in the future. The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Wall Street watches with rabid attention at these times, which are referred to as earnings seasons. The reason behind this is that analysts base their future value of a company on their earnings projection. If a company's results surprise (are better than expected), the price jumps up. If a company's results disappoint (are worse than expected), then the price will fall. Of course, it's not just earnings that can change the sentiment towards a stock (which, in turn, changes its price). It would be a rather simple world if this were the case! During the dotcom bubble, for example, dozens of internet companies rose to have market capitalizations in the billions of dollars without ever making even the smallest profit. As we all know, these valuations did not hold, and most internet companies saw their values shrink to a fraction of their highs. Still, the fact that prices did move that much demonstrates that there are factors other than current earnings that influence stocks. Investors have developed literally hundreds of these variables, ratios and indicators. Some you may have already heard of, such as the price/earnings ratio, while others are extremely complicated and obscure with names like Chaikin oscillator or moving average convergence divergence. So, why do stock prices change? The best answer is that nobody really knows for sure. Some believe that it isn't possible to predict how stock prices will change, while others think that by drawing charts and looking at past price movements, you can determine when to buy and sell. The only thing we do know is that stocks are volatile and can change in price extremely rapidly. The important things to grasp about this subject are the following: 1. At the most fundamental level, supply and demand in the market

determines stock price. 2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless. 3. Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices. 4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything. Read more: http://www.investopedia.com/university/stocks/stocks4.asp#ixzz1aI gyc0jl