Stocks and Sensex Series- Article 2

After understanding what are stocks, now it is the time to understand Why do the companies issue stocks and Why do the stock prices move up and down…

Firstly let us understand Why do the companies issue stocks:-

The reason is that at some point every company needs to "raise money". To do this, companies can either borrow it from somebody or raise it by selling part of the company, which is known as issuing stock.

A company can borrow by taking a loan from a bank or by issuing bonds. Both methods come under "debt financing". On the other hand, issuing stock is called “equity financing”.

Issuing stock is advantageous for the company because it does not require the company to pay back the money or make interest payments along the way.

All that the shareholders get in return for their money is the hope that the shares will someday be worth more than what they paid for them. The first sale of a stock, which is issued by the private company itself, is called the initial public offering (IPO).

It is important to understand the distinction between a company financing through debt and financing through equity. When you buy a debt investment such as a bond, you are guaranteed the return of your money (the principal) along with promised interest payments.

This isn't the case with an equity investment. By becoming an owner, you assume the risk of the company not being successful - just as a small business owner isn't guaranteed a return, neither is a shareholder. Shareholders earn a lot if a company is successful, but they also stand to lose their entire investment if the company isn't successful.

There are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. And there is no obligation to pay out dividends. Without dividends, an investor can make money on a stock only through its appreciation of the stock price in the open market.

On the downside, any stock may go bankrupt, in which case your investment is worth nothing. 

Why do the stock prices move up and down:-

Stock 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 want to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

Understanding supply and demand is easy. What is difficult to understand is what makes people like a particular stock and dislike another stock. If you understand this, you will know what people are buying and what people are selling.

To figure out the likes and dislikes of people, you have to figure out what news is positive for a company and what news is negative and how any news about a company will be interpreted by the people.

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).

If a company's results are better than expected, the price jumps up. If a company's results disappoint  and are worse than expected, then the price will fall.

Of course, it's not just earnings that can change the feeling people have about a stock. During the “dotcom bubble”, for example, the stock price of dozens of internet companies rose without ever making even the smallest profit. As we all know, these high stock prices did not hold, and most internet companies saw their values shrink to a fraction of their highs. Still, this fact demonstrates that there are factors other than current earnings that influence stocks.

So, what are "all the factors" that affect the stocks price? 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 very very rapidly.

At the most fundamental level, supply and demand in the market determines stock price.There are many types of techniques and methods that investors use to figure out whether a stock price will go up or down. 

IMI gdpi experience..

Date : 25th march 2011
venue :Hyderabad

The first step was to write an essay then gd then pi..

essay topic: International trade barriers work (this is how it was ..same wording..)
 wrote against the topic ...saying it creates work..and supporting arguments from diff. scenarios....was ok..

Gd : one of us (group) was asked to come there and pickup a chit...on which topic would be writte...if we are not comfortable with the first topic then we can pickup another chit...for another topic..

We all agreed with the first topic...

Topic as heard by me : Judiciary system in India
we were given 5 mins to think...and a paper to note down our points...

I started the gd...was speaking continuosly...spoke for about 3-4 mins..was loosing on points...no one was interrupting me... then after 3-4 mins , one guy said "what u are speaking is correct but we are here to discuss about education system in India."

phew!!!!!!!!!!!!!!!!!!!!!

was shocked totally...ppl were shocked and so they were not interrupting me!!!!wow!!!

was totally blank...then that guy spoke for 2-3 mins on the education system...

as soon as he finished ...i took over again and this time i spoke on "education system " :) ...
From then onwards spoke around 5-6 times .....since i had a little research on education system.....

PI:-

dont remember the exact sequence of questions ....

i was asked on "tell me about urself", ur college,why mba(was grilled on this..for about 15-20 mins atleast)...about my performance in GD(??????) ...then asked me to go to Tiss or SPJAIN or other colleges which offer social entrepreneurship, then about my friend in IMI, how should IMI promote itself, what should it do....how much time do i spend online daily, what stuff do i read, what is going on in libya, what is no-fly zone, what will happen if someone imposes no-fly zone and if the other country doesn't follow, what do you think of US taking control of libya in the name of protecting its civilians, what if all the members of UNSC decide against manmohan singh and india and decide to attack...thats it..


Final Results Out on April 17th 2011(today)
Result : Converted

Series of articles about Stocks, Shares, Sensex....

First Article in this series:

Basics of Stocks:

A “stock” is a share in the ownership of a company. A stock represents a claim on the company's assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater. 

Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim to everything the company owns. This means that technically you own a tiny little piece of all the furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well. These earnings will be given to you. These earnings are called “dividends” and are given to the shareholders from time to time. 

A stock is represented by a "stock certificate". This is a piece of paper that is proof of your ownership. However, now-a-days you could also have a “demat” account. This means that there will be no “stock certificates”. Everything will be done though the computer electronically. Selling and buying stocks can be done just by a few clicks.    

Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, “one vote per share” to elect the board of directors of the company at annual meetings is all you can do. For instance, being a Microsoft shareholder doesn't mean you can call up Bill Gates and tell him how you think the company should be run.

The management of the company is supposed to increase the value of the firm for shareholders. If this doesn't happen, the shareholders can vote to have the management removed. In reality, individual investors like you and I don't own enough shares to have a material influence on the company. It's really the big boys like large institutional investors and billionaire entrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal. After all, the idea is that you don't want to have to work to make money, right? The importance of being a shareholder is that you are entitled to a portion of the company’s profits and have a claim on assets. 

Profits are sometimes paid out in the form of dividends as mentioned earlier. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors have been paid.

Another extremely important feature of stock is "limited liability", which means that, as an owner of a stock, you are "not personally liable" if the company is not able to pay its debts. In other legal structures such as partnerships, if the partnership firm goes bankrupt the creditors can come after the partners “personally” and sell off their house, car, furniture, etc.

Owning stock means that, no matter what happens to the company, the maximum value you can lose is the value of your stocks. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets. 

                                                     Series to be continued...:)

Policy Rates and Reserve Ratios

At first let us consider two similar rates – bank rate and repo rate. Bank rate is the rate of interest that commercial banks and other financial intermediaries have to pay on the loan that they take from country’s central or federal bank. Repo rate is similar to bank rate except that it is applicable to short term loans while bank rate is applicable to long term loans. In India Reserve Bank of India (RBI) is central bank. Suppose that bank rate in India is 5% which means that if a commercial bank takes a loan of 1 million rupees from central bank then it has pay 5% of 1 million i.e. Rs. 50,000 as the interest. Reverse repo rate is the counterpart of repo rate. It is the rate of interest commercial banks and other financial intermediaries receive on excess funds they deposit with the central bank. Now suppose the commercial bank deposits 1 million rupees in central bank with reverse repo rate being 5% then the commercial bank will receive Rs. 50, 00 as interest on their deposit. The three above mentioned rates are also referred to as policy rates.


Cash reserve ratio(CRR) and statutory liquidity ratio(SLR) are reserve ratios which put a limit on the minimum amount of reserve that commercial banks and other financial intermediaries are required to keep in central bank. CRR is the percentage of their total deposits that the commercial banks have to keep in central bank in form of cash. SLR is similar to CRR except that apart from cash other liquid assets like precious metals such as gold and approved short term securities like treasury bills may be used to meet the reserve requirements. A better understanding of reserve ratio will be possible after going through the example provided below. Assume that the CRR and SLR are 6% and 20% respectively and a commercial bank has a total deposit of 10 million rupees with itself. Now the bank has to keep 0.6 million rupees in cash as a deposit with central bank and make a net deposit of 2 million rupees in form of liquid assets with the central bank.

The RBI reviews these rates and ratios on a monthly basis with intent to keep a check on money supply and inflation rate in economy. In order to increase the supply of money in economy RBI may decrease its policy rates and reserve ratios. The decrease will have the combined effect of increasing the deposits available with the commercial banks which may be offered as loans to general public thereby pumping money into the economy. The current value of these ratios and rates can be found at http://www.rbi.org.in/home.aspx

Lokpal Bill and Anna Hazare...

• What is Lokpal and what is the controversy surrounding it?

Lokpal is an independent body to enquire into the lapses and complaints against legislators, including members of Parliament.

The global Corruption Perception Index has put India at the 87th place out of 178 countries, showing the country slipping from the 84th position in 2009. The result is that India has 100,000 billionaires and 8.7 crore families (a minimum of 40 crore people) living below the poverty line.

The Central Government has at last proposed the Lokpal Bill 2010, but unfortunately it fails even to be a cosmetic exercise to fight corruption.

The Lokpal is a three-member body consisting of the chairperson, who is a former Chief Justice or a judge of the Supreme Court and two members who are have been judges of the Supreme Court or High Court Chief Justices. 

The jurisdiction of the Lokpal under Section 10 apparently covers the Prime Minister, ministers and members of Parliament. But hypocrisy is exposed when at the same time it nullifies the same by providing that the Lokpal shall not enquire into any allegations of corruption against any member of either House of Parliamentunless the recommendation of Speaker or the Chairman of the Council of States, as the case may be, is received by it. 

Not only that, but insultingly after the enquiry and even when the Lokpal finds that any of the charges have been proved against members of Parliament, all he can do is to send a report of his finding to the Speaker and Chairman of the Council of States, and they alone will determine what action is to be taken — obviously it may include rejecting the report of the Lokpal.

The government is treating the members of Parliament like sacred idols in a temple who cannot be touched by the Lokpal, but only by the Brahmanical priesthood of co-legislators, who will decide finally. This reduces the authority of the Lokpal to worse than a lower-level magistrate whose order has to be complied with by even the highest in the land, including the President.

The Lokpal under Section 11 is forbidden to enquire into any memo of complaint if it is made after the expiry of five years from the date when the offence is alleged to have been committed.

Also, has the UPA government considered that if a five-year period were to be provided, then by the same logic, would they not be barred from holding an enquiry into the 2G spectrum scam of 2001-02 during the BJP-led government (which, by all standards, should be held along with the enquiry into the 2G scam against former minister A. Raja) ? 

Read the Full article here

• Who is Anna Hazare and what is he demanding?

Anna Hazare , is an Indian social activist who is especially recognized for his contribution to the development of Ralegan Siddhi, a village in Parner taluka of Ahmednagar district, Maharashtra, India and his efforts for establishing it as a model village, for which he was awarded the Padma Bhushan by the Government of India in 1992.


On 5 April 2011, Hazare started a 'fast unto death' to exert pressure on the Government of India to enact a strong anti-corruption act as envisaged in the Jan Lokpal Bill, a law that will establish a Lokpal (ombudsman) that will have the power to deal with corruption in public offices. The fast led to nation wide protests in support of Hazare. The fast ended on 9 April 2011. All of his demands of the movement are agreed by the Government of India and Government issued a gazette notification on formation of a joint committee headed by senior minister Pranab Mukherjee to draft an effective Lokpal Bill


Source : Wikipedia

Creation of New States :-

Background(w.r.t. Telangana)

When India became independent, Telugu-speaking people were distributed in about 22 districts, 9 of them in the former Nizam's dominions of the princely state of Hyderabad, 12 in the Madras Presidency (Andhra region), and one in French-controlled Yanam. In December 1953, the States Reorganization Commission was appointed to prepare for the creation of states on linguistic lines. 


The States Reorganisation Commission (SRC) was not in favour of an immediate merger of Telangana region with Andhra state, despite their common language. SRC said “opinion in Andhra is overwhelmingly in favour of the larger unit; public opinion in Telangana has still to crystallize itself”. The people of Telangana had several concerns. The region had a less-developed economy than Andhra, but with a larger revenue base (mostly because it taxed rather than prohibited alcoholic beverages), which people of Telangana feared might be diverted for use in Andhra.  It was feared that the people of Andhra, who had access to higher standards of education under the British rule, would have an unfair advantage in seeking government and educational jobs.

Prime minister Jawaharlal Nehru initially was skeptical of merging Telangana with Andhra State, fearing a "tint of expansionist imperialism" in it. He compared the merger to a matrimonial alliance having "provisions for divorce" if the partners in the alliance cannot get on well.

Following the Gentlemen's agreement, the central government established a unified Andhra Pradesh on November 1, 1956.In the years after the formation of Andhra Pradesh state, the people of Telangana expressed dissatisfaction over how the agreements and guarantees were implemented. Discontent intensified in January 1969, when the some of the guarantees that had been agreed on were supposed to lapse. Student agitation for the proper implementation of the agreement began at Osmania University in Hyderabad and spread to other parts of the region

Due to agitation in the Seema-Andra region in 1973 protesting the protections for Telangana, the central government diluted the protections in Gentlemen's agreement by initiating the Six point formula.,which was an agreement to avoid such agitations in future.

IN 2000, New states Chattisgarh, Jharkhand and Uttaranchal were created and Telangana was not created (bcoz of the stiff opposition from the then ruling party In Andhra Pradesh(TDP) and as a result TRS party was formed.

And after the death of the CM YS Rajashekhara Reddy and protest unto death of TRS leader Chandrasekhar Rao ,the protests have been started again and continuing still.

 

Why do the people demand for creation of new States

1)Identity Crisis:- They feel they are do not have their separate identity and are not getting the proper recognition.

2)In case of larger states. Govts concentrate on core market areas and many of the other regions in the state are not competitively developed compared to some cities

3)Employment oppurtunities:-

When ppl feel that people from other regions are getting the jobs what they deserve

Ex:-Telangana

4)To Assume Political leadership:-

---->Why shouldn’t there be any more new states:-

1)Growth of Naxalism and Maoism

Ex: Condition of Naxalism and Maoism because of underdevelopment in Chattisgarh and Jharkhand created in 2000

2) Unnecessary duplication of Resources available. There has to be creation of separate assemblies, allocation of funds to the new states etc etc

3) Splitting of the powers of center. Loss of national integrity

4) Ex president KR Narayanan in his book “dimensions of federal nation building” argues that strngest democratic country is the one with the strongest centre. So, splitting the centre would decrease strengths of central government

5) There are many conflicts between the already existing states. Ex : Conflicts between the Ap and Karnataka, Ap-tamilnadu over Cauvery water and almatti dam . Creation of new states would further increase the conflicts

6)Meghalaya was created on ethnic basis but still there are conflicts between khasi and ghairo tribes

7)76% revenue of Andhra Pradesh comes from Telangana . so Telangana is not an underdeveloped region

8)sri Krishna committee report solutions and comments are also not in favour of Separate State

Read all the solutions suggested by the report here :

http://www.indianexpress.com/news/telangana-report-srikrishnas-6-options-and-comments/734150/0

9) Giving a separate Telangana would increase the demands for creation of some more states