MUMBAI: After Monday Mayhem, there was a semblance of revival. The BSE sensex closed 341 points higher at the end of the day.
Heavyweights which saw increased buying include Reliance Industries, which surged 4% to end at Rs 969.10, with volumes totalling 3.26m shares on the BSE alone. Diversified company and Aditya Birla flagship, Grasim Industries, also saw renewed interest with the stock jumping by an unprecedented 9% to Rs 1,916.70, with over 62,432 shares changing hands on the BSE.
“Smart guys are buying as Monday’s fall has presented a major opportunity,” said Arpit Agarwal, CEO of Dawnay Day AV, a unit of UK-based financial services major Dawnay Day, adding that many foreign funds have started buying “in a big way.” Indian equities had fallen by an average of 15% after reaching a high on May 11, when the index crossed the 12,600 levels.
Heavyweights which saw increased buying include Reliance Industries, which surged 4% to end at Rs 969.10, with volumes totalling 3.26m shares on the BSE alone. Diversified company and Aditya Birla flagship, Grasim Industries, also saw renewed interest with the stock jumping by an unprecedented 9% to Rs 1,916.70, with over 62,432 shares changing hands on the BSE. In the futures and options segment, market participants said that the situation had improved. “The panic which was there yesterday, was absent today with moderate rollovers,” said Rahul Rege, senior vice-president at Sharekhan. “Typically, the rollovers are about 40%; today they were about 25%,” he added.
Rollovers in the F&O segment implies closing out position in the current-month futures contract and taking a fresh position on the next-month futures contracts. The May futures contract expires on May 25. “The worst is over...and the biggest reason is because NSE is not pressing the panic button,” said Dimensional Securities MD Ajit Surana. “There were fears about payment crisis, but after the banks assured help, concerns about liquidity have gone.” Trading sentiment improved after the NSE clarified that there were no payments crisis.
But traders said that the trends in the coming days are not strong as most investors are still wary of higher levels. The fears come even as the OECD painted a grim economic outlook. In its recent report, the OECD said that India’s growth could slow to 7% next year, from the current 7.5% due to tight monetary and fiscal policy measures that will restrict investments. There was mixed sentiment among key markets overseas, with Hong Kong’s Hang Seng index rising 0.43%, while Japan’s Nikkei was down 1.63%. Singapore’s Straits Times Index was up 0.5%, while the Jakarta Composite Index rose 1.3%.
Why should we welcome the stock market crash
All races are fought with Risk!
Economics assumes that human beings are rational. But human reactions to stock market movements are utterly irrational. When markets rise, everybody cheers. When markets crash — as has been the case for two weeks — everybody moans. A hunt for culprits often ensues. No such hunt is ever announced when the markets are rising. In past scams, when manipulators like Harshad Mehta and Ketan Parekh sent share prices through the roof, they were hailed as geniuses and became celebrities. Some market experts cautioned that the markets had shot up to insane levels. But this plea for sanity was widely dismissed as stupid, and ordinary housewives and college kids bought frenziedly in the belief that share prices could only go up.
However, when the markets inevitably fell, the hero-manipulators were suddenly denounced as villains. They were accused of the dreadful sin of rigging markets, and thus misleading small investors. Ironically, no investor complained as long as the manipulators rigged prices upward. The complaints began only when the manipulators were unable to rig markets any more, and prices crashed. Truth be told, the real public complaint against Harshad Mehta and Ketan Parekh was not that they manipulated prices upward, but that they failed to manipulate it upward forever.
For that, this could not be forgiven. The underlying assumption of small investors is that share prices should rise forever. Now, if the price of rice, sugar or petrol rose forever, the small investor would complain bitterly. Yet he seems to think it perfectly fair that share prices should go up forever, and very unfair if share prices crash. How greedy and hypocritical humans are! Consider the current moaning over the stock market crash.
The fall of the sensex from 12,624 to 10,400 represents a sharp 20% decline within two weeks. But few people seem to remember that sensex was at just 9,390 at the start of 2006. So, even after the crash last Monday, the sensex was still up 10.5% since the start of the year. No bonds or fixed deposits could give such a high return within five months. This point escapes the CPI(M), which sees the market crash as reason enough to stop pension funds from investing in equities.
Remember that the sensex was around 5,000 during the last general election in 2004. It then slumped to 4,282 on panic selling. From that low point, the sensex tripled in two years to 12,624 on May 10, 2006. That has been a bonanza, fuelling speculative frenzy. So, the 20% correction is to be welcomed. Stock market valuations remained stretched by historical standards, though not by developed market standards.
If the sensex falls all the way to the 9.390 level at the start of the year, the market would still have yielded enormous gains to investors since 2004. The long run prospects of the economy are excellent. So, some investor exuberance is understandable. Yet such exuberance needs to be tempered by sharp corrections from time to time. This sends the valuable message that exuberance is no substitute for judgement.
Economics assumes that human beings are rational. But human reactions to stock market movements are utterly irrational. When markets rise, everybody cheers. When markets crash — as has been the case for two weeks — everybody moans. A hunt for culprits often ensues. No such hunt is ever announced when the markets are rising. In past scams, when manipulators like Harshad Mehta and Ketan Parekh sent share prices through the roof, they were hailed as geniuses and became celebrities. Some market experts cautioned that the markets had shot up to insane levels. But this plea for sanity was widely dismissed as stupid, and ordinary housewives and college kids bought frenziedly in the belief that share prices could only go up.
However, when the markets inevitably fell, the hero-manipulators were suddenly denounced as villains. They were accused of the dreadful sin of rigging markets, and thus misleading small investors. Ironically, no investor complained as long as the manipulators rigged prices upward. The complaints began only when the manipulators were unable to rig markets any more, and prices crashed. Truth be told, the real public complaint against Harshad Mehta and Ketan Parekh was not that they manipulated prices upward, but that they failed to manipulate it upward forever.
For that, this could not be forgiven. The underlying assumption of small investors is that share prices should rise forever. Now, if the price of rice, sugar or petrol rose forever, the small investor would complain bitterly. Yet he seems to think it perfectly fair that share prices should go up forever, and very unfair if share prices crash. How greedy and hypocritical humans are! Consider the current moaning over the stock market crash.
The fall of the sensex from 12,624 to 10,400 represents a sharp 20% decline within two weeks. But few people seem to remember that sensex was at just 9,390 at the start of 2006. So, even after the crash last Monday, the sensex was still up 10.5% since the start of the year. No bonds or fixed deposits could give such a high return within five months. This point escapes the CPI(M), which sees the market crash as reason enough to stop pension funds from investing in equities.
Remember that the sensex was around 5,000 during the last general election in 2004. It then slumped to 4,282 on panic selling. From that low point, the sensex tripled in two years to 12,624 on May 10, 2006. That has been a bonanza, fuelling speculative frenzy. So, the 20% correction is to be welcomed. Stock market valuations remained stretched by historical standards, though not by developed market standards.
If the sensex falls all the way to the 9.390 level at the start of the year, the market would still have yielded enormous gains to investors since 2004. The long run prospects of the economy are excellent. So, some investor exuberance is understandable. Yet such exuberance needs to be tempered by sharp corrections from time to time. This sends the valuable message that exuberance is no substitute for judgement.
Govt helps calm roiled markets
Sensex Rebounds, Gains 341 Pts
Mumbai: After three days of sharp decline and volatility, Tuesday’s market provided a welcome break for investors. When trading opened in the morning, there was sharp volatility as the sensex dropped by nearly 300 points. That’s when local institutions stepped up their buying to cushion the recent crash that had shaved nearly 17% off the sensex. As a result, the index rallied with the afternoon trade to close 341 points higher at 10,823.
Meanwhile, during the day, the finance minister also made a statement in the Rajya Sabha to assure members there that the government was doing its bit to restore confidence among investors and bring back order in the marketplace.
P Chidambaram attributed the sharp volatility largely to a technical correction in the domestic market, a sense of uncertainty across global markets, and the inability of some large, highly leveraged traders to meet their obligations. He said the banks were providing ample liquidity to meet the margin obligations of these highly leveraged traders. “Therefore, in view of the fact that calm has returned to the market my advice to genuine long-term investors is to stay invested,’’ Chidambaram said.
Market players said that to some extent these steps had assured investors and a relative calm had been restored. Compared to Monday’s 1,315 point swing in the sensex, it gyrated just 674 points on Tuesday. Against a 17.3% loss in the three previous sessions it gained 3.3% during the day. And compared to a Rs 5.3 lakh crore loss in investors’ wealth in three earlier sessions, they were now richer by nearly Rs 1 lakh crore.
The ferocity of the crash in the last few days, however, has made market players extremely cautious and most are following a waitand-watch policy. “Should the index (sensex) go up by another 500 points, the strength of the market will be put to test,’’ said Manish Kanchan, CEO, Ambit Capital. Any fresh buying or renewed selling at that point would determine the robustness of the index, he said.
Behind Tuesday’s seemingly government-directed buying by Life Insurance Corporation, select state-run banks and mutual funds, there are signs that the day’s trading could just be a breather for the crashing sensex, market players said. On Tuesday, while domestic institutions were buying, foreign funds were heavy sellers, clocking a net outflow figure of over Rs 1,100 crore. Even retail investors are selling at every rise in stock prices. “The undertone is still very weak. Selling is seen at every small rally,’’ said the head of a local brokerage.
Another reason for the market’s pessimism with the day’s recovery was the comparatively low turnover. Compared to the average daily volumes of about Rs 4,200 crore on the BSE, it was just Rs 2,800 crore. What this means is that large players weren’t willing to buy and hence the turnover was low. Unless the index rises were accompanied by higher turnover, the recovery would not continue for long, a dealer with a local brokerage said.
STORM AND AFTER
Mumbai: After three days of sharp decline and volatility, Tuesday’s market provided a welcome break for investors. When trading opened in the morning, there was sharp volatility as the sensex dropped by nearly 300 points. That’s when local institutions stepped up their buying to cushion the recent crash that had shaved nearly 17% off the sensex. As a result, the index rallied with the afternoon trade to close 341 points higher at 10,823.
Meanwhile, during the day, the finance minister also made a statement in the Rajya Sabha to assure members there that the government was doing its bit to restore confidence among investors and bring back order in the marketplace.
P Chidambaram attributed the sharp volatility largely to a technical correction in the domestic market, a sense of uncertainty across global markets, and the inability of some large, highly leveraged traders to meet their obligations. He said the banks were providing ample liquidity to meet the margin obligations of these highly leveraged traders. “Therefore, in view of the fact that calm has returned to the market my advice to genuine long-term investors is to stay invested,’’ Chidambaram said.
Market players said that to some extent these steps had assured investors and a relative calm had been restored. Compared to Monday’s 1,315 point swing in the sensex, it gyrated just 674 points on Tuesday. Against a 17.3% loss in the three previous sessions it gained 3.3% during the day. And compared to a Rs 5.3 lakh crore loss in investors’ wealth in three earlier sessions, they were now richer by nearly Rs 1 lakh crore.
The ferocity of the crash in the last few days, however, has made market players extremely cautious and most are following a waitand-watch policy. “Should the index (sensex) go up by another 500 points, the strength of the market will be put to test,’’ said Manish Kanchan, CEO, Ambit Capital. Any fresh buying or renewed selling at that point would determine the robustness of the index, he said.
Behind Tuesday’s seemingly government-directed buying by Life Insurance Corporation, select state-run banks and mutual funds, there are signs that the day’s trading could just be a breather for the crashing sensex, market players said. On Tuesday, while domestic institutions were buying, foreign funds were heavy sellers, clocking a net outflow figure of over Rs 1,100 crore. Even retail investors are selling at every rise in stock prices. “The undertone is still very weak. Selling is seen at every small rally,’’ said the head of a local brokerage.
Another reason for the market’s pessimism with the day’s recovery was the comparatively low turnover. Compared to the average daily volumes of about Rs 4,200 crore on the BSE, it was just Rs 2,800 crore. What this means is that large players weren’t willing to buy and hence the turnover was low. Unless the index rises were accompanied by higher turnover, the recovery would not continue for long, a dealer with a local brokerage said.
STORM AND AFTER
- LIC continued its buying spree, supported by mutual funds and select banks, cushioning any fall during morning trades, foreign funds were big sellers.
- By the end of the day, they were net sellers to the tune of Rs 1,132 cr.
- Speculative buying pushed up sensex towards the end of session
- Inside parliament, the FM once again assured members that all steps were being taken to reduce volatility
IT’S "RAINING" SHARES
INDIA INC. IS OFFERING A PLETHORA OF BONUSES AND STOCK SPLITS. HERE’S AN ANALYSIS OF THIS PHENOMENON TO UNDERSTAND ITS IMPACT ON YOU.
India’s economy is in the pink of health. The financial year 2005-06, saw it grow by 8.1 per cent. India Inc. has witnessed a similar growth.The Sensex, during the same time period, delivered a return of 70.78 per cent.This has led to several companies making ‘bonus issues’ and ‘stock split’ announcements. The calendar year 2005, witnessed 210 stock splits and 94 bonus issues. The current year (i.e. till May 5, 2006), has already observed 26 bonus issues and 46 stock splits.
READING INTO BONUS ISSUES
A bonus issue is the issue of additional equity shares by a company to its existing equity shareholders, at no cost to the shareholder. These shares are proportionately distributed in ratios, like 1:1 or 2:1, symbolising the proportion of your share holding and the bonus due to you.
RATIONALE FOR BONUS ISSUES
Reward Shareholders: The managements of profit-making companies opine that allotting bonus shares to shareholders is a method of distributing the profits to the shareholders as a reward for their belief in the company. Attract
Investments: A bonus issue sends a signal to the market that the company has been performing well and is confident that it can maintain its level of profitability in the future.
Peer Pressure: A company may feel pressured to announce a bonus issue if its competitor announces one.
GETTING A GRIP ON STOCK SPLITS
In a stock split, the face value of the existing shares is reduced in order to create fresh equity. There is no new equity issued.
RATIONALE FOR STOCK SPLITS
To change investor perceptions: There is a tendency for investors to consider a ‘high priced’ stock as expensive. Accordingly, companies whose share prices have risen to very high levels usually resort to stock splits, to artificially reduce their share price and attract a larger number of investors and thereby increase the liquidity of the stock. This corporate action will also make the company appear more attractively priced vis-à-vis its peers.
ELIGIBILITY
To be eligible for either of the two above-mentioned corporate actions, your name must appear in the company’s book on the ‘record date’. The record date is the date beyond which if your name appears in the company’s book, you will not be the beneficiary of the corporate action.
IMPACT OF THE ACTION
On the company’s share price: Immediately after the announcement of a bonus issue or a stock split, generally the share price increases. This rise is more pronounced in the case of a bonus issue than a stock split. Theoretically, after the record date, the price will fall to the extent of the ratio of the bonus issue or the stock split. However, in most cases, it has been observed that the fall is much less.This is because the share price depends on market sentiments, economic factors and the demand/ supply of the stock.
On retail investors: Investors can take advantage of the upward trend that a stock price witnesses when an announcement of a bonus issue or a stock split is made. When the share price falls after the record date,the investors will enjoy the added advantage of the increased liquidity that the stock will now enjoy.
On the overall stock market:Both these corporate actions would lead to a larger participation by all types of investor groups in the shares of the underlying company.
TAX IMPLICATIONS
Cost of shares: In the case of a bonus issue, the cost of the share is taken as nil. In the case of a stock split, the cost is proportionately divided between the original shares and the new shares in the ratio of the split. For instance, if the stock split is 1:1 and you have incurred a cost of Rs 100 per share (on the original share), the cost of the original share will now stand at Rs 50 and the cost of the new share you have received due to the split will be Rs 50.
Holding period of the shares: In case of equity, if you have held on to your shares for more than 12 months before selling, the profit is termed as long-term capital gain. If you have held on to your share for less than 12 months before sale, the profit earned is termed as shortterm capital gain. Presently, long-term capital gains on equity are tax exempt while short-term capital gains attract a flat tax rate of 10 per cent (+ education cess of 2 per cent + surcharge of 10 per cent, if applicable to you). In case of a bonus issue, the holding period of the bonus issue is taken from the date of allotment of bonus. In case of a stock split, the holding period is considered from the time of purchase of the original shares.
THE WAY FORWARD
Opt for a company which regularly announces bonus issues. However, it is imperative that the company should be financially sound, consistently record increasing profits, has a capable management and future potential. In the case of a stock split, do not be fooled into thinking that the stock is now available at a cheaper price. Remember that it is a psychological tool that the management uses to artificially reduce the stock price, and does not indicate the company’s profitability or future growth potential.
India’s economy is in the pink of health. The financial year 2005-06, saw it grow by 8.1 per cent. India Inc. has witnessed a similar growth.The Sensex, during the same time period, delivered a return of 70.78 per cent.This has led to several companies making ‘bonus issues’ and ‘stock split’ announcements. The calendar year 2005, witnessed 210 stock splits and 94 bonus issues. The current year (i.e. till May 5, 2006), has already observed 26 bonus issues and 46 stock splits.
READING INTO BONUS ISSUES
A bonus issue is the issue of additional equity shares by a company to its existing equity shareholders, at no cost to the shareholder. These shares are proportionately distributed in ratios, like 1:1 or 2:1, symbolising the proportion of your share holding and the bonus due to you.
RATIONALE FOR BONUS ISSUES
Reward Shareholders: The managements of profit-making companies opine that allotting bonus shares to shareholders is a method of distributing the profits to the shareholders as a reward for their belief in the company. Attract
Investments: A bonus issue sends a signal to the market that the company has been performing well and is confident that it can maintain its level of profitability in the future.
Peer Pressure: A company may feel pressured to announce a bonus issue if its competitor announces one.
GETTING A GRIP ON STOCK SPLITS
In a stock split, the face value of the existing shares is reduced in order to create fresh equity. There is no new equity issued.
RATIONALE FOR STOCK SPLITS
To change investor perceptions: There is a tendency for investors to consider a ‘high priced’ stock as expensive. Accordingly, companies whose share prices have risen to very high levels usually resort to stock splits, to artificially reduce their share price and attract a larger number of investors and thereby increase the liquidity of the stock. This corporate action will also make the company appear more attractively priced vis-à-vis its peers.
ELIGIBILITY
To be eligible for either of the two above-mentioned corporate actions, your name must appear in the company’s book on the ‘record date’. The record date is the date beyond which if your name appears in the company’s book, you will not be the beneficiary of the corporate action.
IMPACT OF THE ACTION
On the company’s share price: Immediately after the announcement of a bonus issue or a stock split, generally the share price increases. This rise is more pronounced in the case of a bonus issue than a stock split. Theoretically, after the record date, the price will fall to the extent of the ratio of the bonus issue or the stock split. However, in most cases, it has been observed that the fall is much less.This is because the share price depends on market sentiments, economic factors and the demand/ supply of the stock.
On retail investors: Investors can take advantage of the upward trend that a stock price witnesses when an announcement of a bonus issue or a stock split is made. When the share price falls after the record date,the investors will enjoy the added advantage of the increased liquidity that the stock will now enjoy.
On the overall stock market:Both these corporate actions would lead to a larger participation by all types of investor groups in the shares of the underlying company.
TAX IMPLICATIONS
Cost of shares: In the case of a bonus issue, the cost of the share is taken as nil. In the case of a stock split, the cost is proportionately divided between the original shares and the new shares in the ratio of the split. For instance, if the stock split is 1:1 and you have incurred a cost of Rs 100 per share (on the original share), the cost of the original share will now stand at Rs 50 and the cost of the new share you have received due to the split will be Rs 50.
Holding period of the shares: In case of equity, if you have held on to your shares for more than 12 months before selling, the profit is termed as long-term capital gain. If you have held on to your share for less than 12 months before sale, the profit earned is termed as shortterm capital gain. Presently, long-term capital gains on equity are tax exempt while short-term capital gains attract a flat tax rate of 10 per cent (+ education cess of 2 per cent + surcharge of 10 per cent, if applicable to you). In case of a bonus issue, the holding period of the bonus issue is taken from the date of allotment of bonus. In case of a stock split, the holding period is considered from the time of purchase of the original shares.
THE WAY FORWARD
Opt for a company which regularly announces bonus issues. However, it is imperative that the company should be financially sound, consistently record increasing profits, has a capable management and future potential. In the case of a stock split, do not be fooled into thinking that the stock is now available at a cheaper price. Remember that it is a psychological tool that the management uses to artificially reduce the stock price, and does not indicate the company’s profitability or future growth potential.
Sensex scales new peak, closes above 12620...
The record-breaking trend continued on the bourses, with the Sensex crossing another milestone of 12600 in today's trades.
Shrugging off the weak trend in Asian indices, the Sensex sailed in positive territory throughout the trading session on strong bullish sentiment and traded above the 12600 mark for a major portion of the day.
The breadth of the market was positive. Of the 2,646 stocks traded on the BSE 1,677 stocks advanced, 914 stocks declined and 55 stocks ended unchanged. Out of 11 sectoral indices on the BSE, eight indices ended in positive territory. The BSE Bankex ended firm with gains of 2.49% at 5809 while the BSE Metal index rose 2.21% at 11239. The BSE Oil & Gas index added 1.79% at 6394. However, the BSE Auto index, the BSE FMCG index and the BSE HC index ended weak.
Movers & Shakers
Reliance Natural Resources, which got the board’s nod to raise $300 million via FCCBs, ended in the green.
Zicom Electronic Security Systems notched up gains on reports of the launch of "ZlCOMhome", a sophisticated security system for homes in India.
JB Chemicals & Pharmaceuticals moved up on reporting a 35% increase in its Q4FY2006 net profit at Rs15.45 crore as compared to Rs11.44 crore for the quarter ended March 31, 2005.
Scandent Solutions, which announced the success of the first society for worldwide interbank financial telecommunication service bureau that supplies secure messaging services and interface software to financial entities worldwide, came under selling pressure.
Shrugging off the weak trend in Asian indices, the Sensex sailed in positive territory throughout the trading session on strong bullish sentiment and traded above the 12600 mark for a major portion of the day.
The breadth of the market was positive. Of the 2,646 stocks traded on the BSE 1,677 stocks advanced, 914 stocks declined and 55 stocks ended unchanged. Out of 11 sectoral indices on the BSE, eight indices ended in positive territory. The BSE Bankex ended firm with gains of 2.49% at 5809 while the BSE Metal index rose 2.21% at 11239. The BSE Oil & Gas index added 1.79% at 6394. However, the BSE Auto index, the BSE FMCG index and the BSE HC index ended weak.
Movers & Shakers
Reliance Natural Resources, which got the board’s nod to raise $300 million via FCCBs, ended in the green.
Zicom Electronic Security Systems notched up gains on reports of the launch of "ZlCOMhome", a sophisticated security system for homes in India.
JB Chemicals & Pharmaceuticals moved up on reporting a 35% increase in its Q4FY2006 net profit at Rs15.45 crore as compared to Rs11.44 crore for the quarter ended March 31, 2005.
Scandent Solutions, which announced the success of the first society for worldwide interbank financial telecommunication service bureau that supplies secure messaging services and interface software to financial entities worldwide, came under selling pressure.
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