First step to Investing in

Stock market!!!!
MANIBA INSTITUTE OF BUSINESS MANAGEMENT

Created by:~ Changani J.G (05) (Group leader)

Ahir Bhadresh (01)
Andghad Anil (02)
Beladiya Vilas (03)
Chandpara Reshama (04)
STOCK MEANS:~

Steadfast
Talented
Observer
Comfortable
Knowledgeable
 STOCK MARKET

WORKING
REGULATORY FRAMEWORK
WHY DO PEOPLE BUY SHARES?
WHY STOCK MARKET IS SO VOLATILE?
HOW TO MAKE MONEY IN STOCK MARKET?
ROLE OF STOCK MARKET IN ECONOMY
 INTRODUCTION:
Stock
market??

The market for long term securities like bonds,

equity stocks is divided into PRIMARY MARKET and
SECONDARY MARKET.

PRIMARY MARKET
Deals with the new issues of securities.

 SECONDARY MARKET
Deals with outstanding securities.
Also known as “STOCK MARKET”.
JARGON OF EQUITY MARKET:
• SECURITY

• BOND

• STOCK
1)COMMON STOCKS
2)PREFERRED STOCKS

• SHARE

• MUTUAL FUNDS.

• PAR VALUE vs. MARKET VALUE

• BULLISH vs. BEARISH

 How does the stock market function?
Stock exchanges
Brokers
 Registrars
Depositories and their participants
Securities and Exchange Board of India (SEBI)
MARKET INDICES:

Stock market indices are the barometer of the stock

market.
BSE SENSEX,NSE-50 etc are some of the market indices.

Their usefulness:
 Indices help to recognize broad trends in the market.
 The investor can use the indices to allocate the funds
rationally among the stocks.
 Technical analysts use these indices to predict the future
market.
 Indices function as a status report on the general
economy.
JOB OF THESE INDICES:

These indices have just one job: To capture the

price movement. So a stock index will reflect the price
movements of shares while a bond index captures the
manner in which bond prices go up or down.
 WHY STOCK PRICE RISES?

The price of every stock increases or decreases for the

following possible reasons:

 News about company.

 News about the country.
 Exchange rate regime.
 Depends on demand
and supply for that stock.
 WHO SELECTS THESE STOCKS?
They are selected by the Index committee.
Some of the criteria they follow include :
1)Market capitalization.
2)Liquidity.
3)Continuity.
4)Industry representation.
5)Listed history.
 Why must I Invest in Shares?

Why need I invest?

So what are the various

investment options?
Why shares?
 Other benefits of investing in shares?

Because they can make big money on it. Compared to your

investments in fixed deposits in banks it makes more profits ,but
the bad news is that you are also expected to bear the losses ,if
any.

 1) Possibility of high returns

2) Easy liquidity
3) Unbeatable tax benefits
4) Income from dividends
What are the expenses during a
transaction?

 Capital gains tax

 Securities transaction
tax
 Brokerage

 Depository fees
 SO HOW DOES ONE BUY
SHARES?

There are basically two ways in which you can invest in

shares:

 Purchase shares from

the primary market
(i.e. IPO's)
Trade in the
secondary
market, i.e.
stock exchanges.
COMPUTATION OF STOCK INDEX:

A stock market may either be a price index or a wealth

index. In India most of the indices are using wealth index for
computation of stock market.
No. of Market Market Market Market
Face value=Rs.10/-
Compan Price cap Price cap
y shares on (Rs.) on (Rs.) Base value=100/-
09/02/0 18/02/0
6 6
TATA 10 20/- 200/- 30/- 300/- Index present value=
INFOSY 20 30/- 600/- 40/- 800/-
S (100*4100)/2800=
IBM 20 100/- 2000/- 150/-
3000/- 146.428
TOTAL 2800/- 4100/-
MARKE
T CAP
 WHY STOCK MARKET IS SO
VOLATILE?
Acceptance of globalisation,internationalisation and
integration of the Indian market with the world markets.
Introduction of flexible exchange rate regime.
Intro of new, innovative ,hybrid financial instruments.
Human element.
Technological changes.
 HOW TO MAKE MONEY IN
STOCK MARKET?

patience, profound knowledge.

Best guess.
Diversification .
Portfolio
management.
ROLE OF MARKET ACTIVITIES
IN ECONOMY:
 In theory they are required to facilitate, support, enable the
healthy growth and functioning of primary markets but in
practice they are not .
The current focus of thinking on the SENSEX, market
capitalization etc.reflects an excessive preoccupation with the
secondary market activity.
Beyond a point, the expansion of the secondary markets may
reduce the volume of activity not only on the new issue market
but also in the banks, other financial institutions, gold, real estate
and commodities.
The multiple serious problems visiting the stock market caution
us against too much optimism and enthusiasm about the stock
market.
DRAWBACKS OF INDIAN STOCK
MARKET:

Unethical practices.
Big irrational greed, excessive speculation.
Lack of protection to interests of the genuine and small
investors .
Trading is extremely thin and restricted.
Structural and organisational imbalance in the growth of the
stock market.
Volatility of the market has increased over the years.
REMEDYS:

So in order to make it flawless system authorities should initiate

certain measures such as

 Single authority
 Demutualization.
 Prescribing capital adequacy norms.
 Stricter registeration of brokers
 Margin requirements .
 Some Basic Background On The
Stocks And The Economic Market
WHAT ARE SECURITIES?

• Securities can be either stocks or bonds

which are sold and bought on the stock
market.
WHAT IS THE NEW YORK STOCK
EXCHANGE?

• World’s largest market place for

securities

• Currently membership limited to 1,366

members.

• Seat obtained by purchasing from

existing member
INTERESTING FACT: HOW DID
STOCK EXCHANGE BEGIN?

• The Exchange evolved from a group of

men who used to meet under a
buttonwood tree on what is now Wall
Street in 1792 to discuss securities
THE GREAT BULL MARKET

• Great American stock exchange boom

of 1928-1929
• Huge bubble where there were high
speculations
• People made many investments to
make big money
BULL MARKET SPARKED BY?

• Growth in American industries

• Technological progress
• Increase in productivity
• Rise in national income from 33,200
million to 79,200 million from 1914 to
1925
• Expectation for great future and un-
boundless optimism for the market
WHAT SPARKED THIS GROWTH
IN INDUSTRY?

• The Electrification of the production

process
– This expanded the ability to transform raw
materials into finished products
– Ex. Ford Motors
HOWEVER??????

• Wages did not raise even though the

production did and prices of products
failed to decrease.
• There was not an excess demand for
labor
– Leaving unemployment rate steady
STOCK EXCHANGE AVERAGE RISE
IN SHARE PRICES 1924-1928

250

200

150 24-May
24-Dec
100 25-Dec
26-Dec
50 27-Dec

0
Stock
Exchange
POLITICAL PROMISES SPARK
MARKET SPECULATION

• Herbert Hoover was the most promising

candidate for president because of his
ideas which promised increased
economic growth in America.
HOOVER’S PLAN

• Proposed a Tariff bill which Senator

Smoot presented called the Smoot-
Hawley Tariff
– Promised increased tariffs on imports
– Planned to allow more productivity for US
manufacturers
– Help ease unemployment
INVESTORS MARVEL AT THIS
PROPOSAL

• Investors believed profits from stocks

would increase if the tariff bill was
passed
• Sparked intense speculation
• Dow Jones Industrial Average
increased by almost 35% because
expected election of Hoover and his bill
This Bubble was bound to Burst!
THE CRASH OF 1929

• “American economic disaster that

precipitated the Great Depression
which was approximately a 10 year
economic slump affecting all the
western industrialized countries.” –
Encyclopedia Britannica
GENERAL CAUSES OF THE
CRASH

• Rampant over speculation in market

• People holding companies and
investment trusts (which by nature
creates debt)
• Bursting of Bull Market economic
bubble in August 1929
• Large bank loans could not be
liquidated
DIRECT CAUSE OF CRASH OF
STOCK MARKET
• After Hoovers election certain people
began to doubt if the tariff bill would
help the US Economy
– Farmers, America’s trading partners,
Democrats, and some Republican’s
opposed the passage of new tariffs.
– On October 21, 1929 Senate announces
plans to limit tariff revisions
– October 22, 1929 more limits set on tariff
bill
INVESTORS REALIZE TARIFF
BILL IS DOOMED!!!!!!!!!!!!!

PANIC! PANIC! PANIC!

BLACK THURSDAY

• On October 18, 1929 prices began to

fall

• Panic stuck out on October 24 “BLACK

THURSDAY” after the announcements
from the Senate

• Record of 12,894,650 shares were

traded
BLACK THURSDAY (Continued)

• Major banks and investment companies

bought up great blocks of stocks to stop
the panic but….

THERE ATTEMPTS FAILED!!!!!!!!!

BLACK MONDAY & TUESDAY

• The Panic continued and 16,000,000

shares were traded

• Prices on the stock market collapsed

completely!!!!
HOOVER’S PLAN TO COMBAT
CRASH
• Extracted promises from manufacturers
to maintain production.

• Signed legislation providing generous

additional funds to pubic works

• Smoot-Hawley Tariff 1930 (finally

passed): to raise duties 50%
• ALL THESE FAILED TO EASE CRISIS
AND DEPRESSION FOLLOWED!!!!
CAUSES OF GREAT DEPRESSION

• Agriculture had crashed in 1919 and was a

continuing source of weakness.

• Banks over-extended

• Wages had not kept up with profits

• In 1920’s consumers were reaching limits of

ability to borrow and spend
CAUSE’S OF DEPRESSION
(continued)
• Production was declining and unemployment
increasing EVEN before the crash!

• Destroyed confidence in the economy

• Down sizing of industry causing

unemployment
THE GREAT DEPRESSION

• The stock prices in the next three years

continued to fall

• By 1932 prices had dropped to only

about 20% of there original value
EFFECTS OF DEPRESSION ON
INDIVIDUAL

• Thousands of individual investors

ruined
• Loss of savings
• Poverty and panic
• Less spending and demand
• Unemployment
• Wages decrease
Decline in Production

DOWNWARD SPIRAL
- little out put means
less jobs
- Manufacturing
output fallen to 54%
of its 1929 output
- 25-30% of work
force unemployed
- 12 -15 Million
jobless
REASONS AMERICA’S
DEPRESSION EFFECTS WORLD

• World War I left Europe with large war

debts
– America was a major financer and creditor
of post war Europe. Once US slumped
American investments to Europe dried up

– Germany hurt because of large war

reparations
REASONS (continued)

• Nations attempt to protect domestic

production with tariffs and having
quotas on imports
– This only reduced international trade and
damaged market even more
SOME OF FDR’S PROGRAMS

• Civilian
Conservation Corp
• National Recovery
Administration
• Federal Deposit
Insurance
Corporation
• Securities and
Exchange
Commission
MORE PROGRAMS

• 1935 Wagner Act (authority of Federal

government in industrial relations)
• National Labor Relations Board
• Social Security, unemployment
compensation, disability insurance
END TO DEPRESSION

• Outbreak of World War II causes

– US factories flooded with orders form
armaments and munitions
– Unemployment decreases and production
increase
– Depression ends completely by the time
the US enters the war in 1941
WHAT DID WE LEARN FROM
THE 1929 CRASH?

• Market can be very unpredictable

• Investors must not get caught up in
market bubble illusions
• Market forces alone may be unable to
achieve recovery from economic slump
• Changes were needed in US economic
structure
GOVERNMENT ACTION TAKEN NOW TO
ENSURE ECONOMIC STABILITY

• Taxation
• Industrial regulation
• Social programs (social security,
pensions, welfare, others)
• Public programs
• Deficit spending
STOCK MARKETS MORE INFORMATION
THANK YOU FOR YOUR ATTENTION

•Email: changanij.g@gmail.com Mo no. +9190165495623