Last year, the capital market regulator SEBI had banned 18 people from trading in the capital market for 3 years on charges of manipulation. Also, their mutual fund, equity market and other holdings were banned. All these accused were directly or indirectly associated with Green Crest Company, which was providing them money for buying and selling shares. This company was registered as a Non-Banking Financial Institution (NBFC). The number of people who bought the shares of this company was 16, while the number of people who sold them was 15. The limited number of buyers and sellers of the shares meant that they were repeatedly buying and selling shares among themselves, which was against SEBI rules.
Due to the wrong practices in the business, company’s annual revenue increased from Rs.80 lakh to Rs.10 crore. According to SEBI, in the financial year 2013-14, the annual revenue was Rs.8.38 crore, but the net profit was only Rs.70 lakh. Similarly, in the financial year 2014-15, its annual revenue was Rs.10.30 crore, but the net profit was only Rs.1.16 crore. A difference of 10 times between net profit and revenue is illogical. The market capitalization of Green Crest Company was Rs.2,552 crore, while the price of one of its shares was Rs. 12. This difference was also not logical.
The Bombay Stock Exchange (BSE) Sensex Index, which is a measure of performance of the shares of top 30 companies, has crossed 75,000 points. The companies listed in it represent various industrial sectors. BSE is the oldest index in India and Asia, established in the year 1875, while the National Stock Exchange (NSE) has 50 listed companies. It was established in 1996 as CNX Nifty and its index has crossed 23000 points recently.
The word Sensex is derived from the English word Sensitive. In Hindi it is called “Samvedi Suchkank”. This is an index which is very sensitive. It keeps fluctuating due to very small events or activities, such as the forecast of normal monsoon, change in policies of the government, whether the government is stable or not, negative or positive news about companies spreading in the market, provisions in the budget, etc.
To understand the stock market, it is important to understand the operation of shares and stock market. Share means part. Shares of companies listed in the stock market were bought and sold with the help of stockbrokers. Now, trading is done online by many investors. There are two major stock markets in India named BSE and NSE or Nifty. Bonds, mutual funds and derivatives are also bought and sold in the stock market.
Any listed company issues share to raise capital. Investors have to buy shares as per the company’s requirement. The more investors buy shares, the more their ownership rights over the company increase. Investors can sell their share of shares in the stock market anytime self or with the help of a broker. When shares are issued, the company decides how much share to give to a person or group.
To get itself listed in the stock market, the company has to make a written agreement with the stock market. After this, the company submits the desired documents to the Securities and Exchange Board of India (SEBI), which is verified by SEBI. If the information is found correct in the investigation, the company is listed on BSE or NSE based on the application. Thereafter, the company has to give information to SEBI about its economic activities from time to time, so that the interest of the investors is not affected.
The performance of a company is evaluated on the basis of information such as getting orders or not, financial results being better, profit increasing or decreasing, import or export happening or not, work in a factory being halted, production increasing or decreasing, finished goods being marketed or not, etc. Therefore, the price of shares fluctuates daily based on the positive or negative impact on the company. Apart from this, the price of shares fluctuates due to reasons such as demand for shares in the stock market, shares available for sale, future estimates, financial results of the company, etc.
The regulator of the stock market is SEBI, which monitors the activities of listed companies. If a listed company works other than the agreement, then SEBI separates it from BSE or NSE. Its job is also to control the brokers who artificially increase or decrease the prices of shares. In the past years, Harshad Mehta, who was a stock broker, perpetrated a big scam by artificially increasing and decreasing the prices of shares, while on 13 January 2021, SEBI banned CNBC Awaaz host Hemant Ghai, his wife and mother from trading in the stock market on charges of fraudulent trading. Mr. Ghai is accused of earning Rs.2.95 crore from fraudulent trading.
Currently, due to the improvement in the Indian economy, positive government policies, appropriate steps being taken by the Reserve Bank of India, continuous profit earning by government banks, reduction in NPA, increase in investment, etc., there is a continuous upward trend in the stock market, which has a strong possibility of remaining bullish in the near future.
Investors in the stock market should understand very well that the results of the stock market may be unpredictable. No matter, how expert someone is, his or her predictions may prove to be wrong. Therefore, do not consider the stock market to be a synonym for employment.
It cannot become a means of livelihood. If you are not too greedy, you can earn some money from the stock market, but you will also have to be ready for losses.
Usually, domestic and foreign investors invest in companies in the form of shares in the hope of getting high returns, but due to lack of understanding of the economy & health of companies, investors often have to bear losses. Therefore, if an investor wants to invest in shares, he or she needs to be cautious.
However, fluctuations in share prices do not only harm investors. It also has a negative impact on the country’s economy. Selling by foreign investors reduces foreign direct investment (FDI), while buying increases it. FDI is very important for India’s economic development. Along with this, investment by domestic investors is equally important. Due to less investment, there is a decrease in employment generation, economic activities are adversely affected etc.
The NDA government has been formed and the economy is in a better condition. All domestic and foreign agencies have improved the GDP growth estimate for the financial year 2025, economic activities in the country have also improved continuously. On this basis, it can be said that now is a favourable time to invest in the stock market. Nevertheless, before investing, understand the movements of the companies thoroughly, only then take the risk of investing.
Satish Singh, Ahmedabad based Senior Columnist, Views are personal.
