Dr. P. Raja Babu
Investment is a form of an asset made by the individuals and organizations with a view of getting some return from it. Fame, (1981) and Barro, (1989) stated that the return on investment can rationalize a positive relation between investment and stock market prices.It is a source of finance through which everyone wants to earn optimum returns. People are much interested to invest their funds in the stock market to enjoy the maximum returns from their funds. Investment is never only being asset it is also a security for individual and organization protects against the risk situations. Depending upon the company and its financial strength investors speculate their shares in the market and earn higher returns in a short span of time. A strong financial position of a company in the stock market certainly will have a huge demand of their shares and affects towards market capitalization. Tobin, (1969) Tobin (1969) stated that investment in securities relates market capitalization and it has been influencing towards cost of new capital
The main objective to present this paper is to analyse equity market capitalization during the period of 2001-2015, to examine the trading fluctuations in equity stock for 2001-2015, to identify the unfair trade practices in the secondary market and to give appropriate suggestions for effective functioning of stock market in India.
Key words: Investment, securities, stock market
Stock market is a place where investors generally trade shares in any listed company. Speculating is a trading activity and it is related to secondary market. These days with the active participation of the internet and the trading of shares in the stock market has been much easier than before. In India, there are two significant stock exchanges viz., BSE and NSE are trading their listed shares.These stock exchanges are operated as per SEBI (Security Exchange Board of India) regulations. Any act enacted by SEBI should be implemented in these two stock exchanges.
SEBI is a apex body which was established to safeguard the best interest of the investor and to protect them from the speculative gamblers. Any company to trade its shares must compulsorily listed in the stock market.
Generally, different types of securities have been trading in the stock market. Some have fixed returns like debentures and preference shares and ther securities are fluctuating returns. Generally the holders of equity are called as owners. They have the right to question management activities as they need to bear the loss. Unlike any other share they don’t have any fixed return. The stock market is called as capital market in which investment made forms capital structure of a company. These shares are treated as liabilities because a company has the burden of repaying back to the investor after a certain period of time. Hence, they have always displayed under liabilities on a company’s balance sheet.
Generally, when a company needs of funds for their operations or investing activities. Actual capital requirement of the company is divided into convenient part in which each part is called as share. The person who holds a small part is called a shareholder. The share can also be termed as stock. The only difference between share and stock, share implies the single or a certain number shares in the company whereas stock implies the whole number of shares that we acquire in such company.
Investors can easily earn profits by investing their wealth in highly financial sounded company and can lose in the same extent for any wrong decisions. As a investor cannot always rely and trust the traders trading in the stock exchange sometimes they may implement gambling techniques for their benefits. Investing in the stock market also brings huge losses so there is no guarantee of earning profits as the prices of securities are never constant. Depending upon the company’s financial strength and strategies the market value of such shares are fluctuating in the stock market.
- REVIEW OF LITERATURE
The stock market has been in existence for the past several decades and trading tool. Many authors and writers quoted several definitions about shares and stock market. Tobin, (1969) in his literature mentioned that “investment increases when prospective returns from such investments are high”. A prudent man always wants to have optimum profits for the rupee he invested, so he/she only makes investment when he feels the returns from such investment are extremely good. Hayashi, (1982) stated that the distinction between average and marginal returns cause difficulty in empirical implementation theory as price moves in one direction and returns from such prices goes in another direction. In other words, as prices and returns are inversely related to each other.
The established empirical review (derived from the results of von Fursten Berg, (1977) Clark, (1979) Summers, (1981) the market value of any capital or security is constant only for a certain period of time. The returns which we obtained from shares are never similar all the time in the market. When compared to the other factors the market value becomes disappear. Here other factors include financial strength and strategies of a company.
According to the concept of security by David A Baldwin the investment in securities are useful in at least three ways: (i) It provides instant returns, (ii) It helps to compare with other securities, (iii) It provides scholarly communications.
Generally people purchase their shares in the stock market or option market. From past few years, it is noticed that security trading in option market is an average of 17%, this came from considering 60 firms shares in the market for last 5 years. Same as the security market, prices of securities in option market also fluctuate depending upon the marketing condition and company position the only difference in the stock market and option market is the buyers have right to buy but not obligated.
Shallu, (2014) pointed that every successful trader in the stock market will follow ethical ways to hack stock market to earn money. Major shareholders and managing directors manipulate the share prices by managing huge funds from banks and financial institutions.
- OBJECTIVES OF THE STUDY
The following objectives of the study are given below
- To analyse equity market capitalization of BSE during the period of 2001-2015.
- To examine the trading fluctuation in the stock market and the investor can understand how far it is profitable to invest in shares.
- To identify unfair trade practices and to provide appropriate suggestions for the effective functioning of the stock exchange
- DATA ANALYSIS
Table: 1 presents the information on trends in Indian stock market during the period of 2001-2015. From the analysis, it is found that there were tremendous fluctuations in the Indian stock market. Sometimes there were more purchases and other times it is sales form high place. Usually when expected future market values of listed companies are in growing such shares have been purchased and when the shares down trend that shares have sold during the period. It is observed that for the period 2007-2009 the bearish market is more than bullish market. From the above table we can notice that BSE contribution 88.8% stock trading in all India equity market. This can be easily understood with the help following graphical presentation.
- FINDINGS AND SUGGESTIONS
It is identified that there were many fluctuations in share prices, growth and dividend yield. The analyst felt that the major reasons for the downfall was due to increase the prices of commodities. There were many loopholes in trading process which leads to increases the prices of stocks. SEBI made several attempts to control unfair trade practice in the stock market even though it was failed. Traders take advantage of market loopholes are one of the most common traits among the highest achievers in trading stock. This article mentions some of the common loop holes in stock exchanges.
- False information provided by the stock brokers to investors that ruins their funds.
- Big companies may always have the option of the ruling market by influencing the stock prices in the trading market where as small companies are lowering the position in the Indian stock market.
- Investors cannot find fair value (intrinsic) of share as they are very poor knowledge in calculating its market value.
- No stock broker or trader follows unique technique for finding market value.
- Brokers and intermediaries may provide false invoice which has no original value in the market.
The Stock market is considered as most suitable investment for the common people as they can invest their money in the diversified managed portfolio at relatively low cost. These are operated by the rules of SEBI though it kept great efforts to provide transparency in trading process it doesn’t reach that mark. It is, therefore, investors should be careful before getting into investment in the stock market. It would be better to follow a unique technique for the valuation of stocks and it makes easy to investor to find the fair value of shares.
- Barro,r.j,1989, “The stock market and macro economy: Implications of the October 1987 crash”, in R.W. Kormendi, and J.W.H.Watson, Black Monday and the future of financial markets, Dow Jones Irvin, Homewood,Ill.
- H. Summers,1981, ”Taxation and corporate investment: A theory approach”, Brookings paper on economic activities.
- K. Clark 1979,”Investment in 1970’s theory, performance, and prediction”, Brookings paper on economic activity.
- F. Fame, 1981,”Stock returns, real activity, inflation and money”, American Economic Review.
- Hayashi, 1982, “Tobins marginal q and average q:A neoclassical interpretation”, econometrica.
- Tobin, 1969, “ A general equilibrium approach to monetary theory” , Journal of Money, Credit and Banking.
- M. Von Fursten Berg, 1977, “Corporate Investment : Does market Valuation matter in the Agreements?”, Brookings paper in the economic activity.
Associate Professor & Alternate HoD, KL University Business School, Vaddeswaram, Guntur District, A.P.