At present, the selling shares is going on in the stock market of almost all the developed countries including USA. Along with ups and downs, the stock market is also diving. Due to corona pandemic, geopolitical crisis, ongoing war between Russia-Ukraine, high price of crude oil in the international market, the condition of the stock market in developed countries is not good. The global economy also remains dismal. There are chances of recession in some countries. On the contrary, Indian stock market has been on a boom for the last few months. On June 21, the Sensex closed at a record high of 63,588 with a gain of 261 points and earlier on December 1, 2022, it closed at 63,523 with a gain of 195 points. Now on June 28, the Sensex crossed the 64000 marks. According to experts, by the end of this year the Sensex can reach the level of 70,000.
Even though the Nifty could not reach its highest level of 18,887 on June 21, however, it remained around the all-time high of 18,640. Then, on 28th June it crossed 19000 level. According to experts, Nifty can reach the level of 21000 by the end of this year. Due to the boom in the stock market, the wealth of the stock market investors has increased by Rs.40 lakh crore in the last 3 months. Not only this, by the year 2025, it is being said that the Indian economy will be from 3 trillion to 5 trillion. At the same time, in the recent report of HSBC, it has been said that the Indian economy will be 7 trillion in incoming 5 to 10 years. Thus, right now, there is a favourable environment for investing in India. Domestic institutional and foreign direct investment (FDI) can take advantage of this.
The Indian economy is also in a state of recovery. Gross Domestic Product (GDP) is also improving. In the last quarter of the financial year 2022-23, the GDP was estimated to be 4.2 percent, but it was 6.1 percent. Due to the improvement in the GDP growth rate in the fourth quarter of the financial year 2022-23, the growth rate of the entire financial year has also been improved. In the first financial year 2022-23, the MPC had predicted 6.8 percent of GDP, which was 7.2 percent.
What is stock market?
To understand the ups and downs in the stock market, it is necessary to understand its operations. Share means share in asset or company. Shares of companies listed in the stock market are bought and sold with the help of a stockbroker, that is, shares of companies are bought and sold. Now, due to the digitization of buying and selling of shares, there is no need for stockbrokers. Any investor can buy and sell shares by himself through a smartphone. There are two major stock exchanges in India namely Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Bonds, mutual funds, and derivatives are also bought and sold in the stock market.
Meaning of Buying Shares
Any listed company issues share to raise capital. Investors have to buy shares as per the offer of the company. The more an investor buys shares, the more he owns the company. When shares are issued, it is up to the company to decide how much shares to give to an individual or group. Investors can sell their share of shares anytime in the stock market with the help of a broker or on their own. Brokers charge some fee from the investors in lieu of this work or the investor has to pay some fee even after buying and selling the shares online by himself.
Procedure for getting the company listed.
To list itself in the stock market, the company has to enter into a written agreement with the stock market. Thereafter, the company submits the required documents to SEBI, which is examined by SEBI. If the information is found to be correct on verification, the company is listed on BSE or NSE, depending on the application. Thereafter, the company has to inform SEBI about its economic activities from time to time, so that the interest of the investors is not affected.
Fluctuations in share prices
Evaluation of the work of a company, whether orders are received or not, profits increase or decrease, level of import, or export, stoppage of work in the factory, production decreases or increases, level of marketing of finished goods, etc. Therefore, the price of shares fluctuates daily depending on the positive or negative impact it has on the company.
SEBI is the Regulator
The regulator of the stock market is SEBI, which works to monitor the activities of the listed companies. If a listed company works outside the agreement, then SEBI separates it from BSE or NSE. Its work is also to rein in the brokers who artificially increase or decrease the prices of shares. Last years, Harshad Mehta, who was a stockbroker, had carried out a big scam by artificially inflating the prices of shares.
Effect of weak rupee on Stock Market
The weakening of the rupee against the dollar makes it costlier for Indian companies to import, as goods worth Rs.100 have to be bought for Rs.105 or Rs.110. Since, India is still dependent on imports to meet most of its needs, therefore, companies have to spend more money in importing raw or finished goods, which leads to a fall in the stock price of the company when its economic condition is tight.
The value of the rupee against the dollar entirely depends on its demand and supply, which is decided based on imports and exports. If a country exports more than it has more reserves of foreign exchange. Since, India imports more than exports, therefore, the reserves of foreign exchange are always limited here. Due to low foreign exchange reserves, the rupee always remains weak compared to the dollar.
Dollar is an international currency, which is used by many countries and for this reason it is considered the strongest currency in the world. Therefore, in international trade, we pay the price of goods in dollars.
Rupee weakens even when foreign exchange reserves are low. For example, if India has a currency reserve of $ 100, but it has to buy or import goods worth $ 110. In such a situation, he has to spend more money to buy $ 10 from the market, due to which the rupee depreciates.
Conclusion
Generally, domestic, and foreign investors invest in companies in the form of shares in the hope of getting higher returns, but due to lack of understanding of the economy or proper analysis of the balance sheet or financial results of the companies, political reasons etc., investors have to bear the loss. So, if an investor wants to invest in the stock market, then he needs to be cautious and keep a close eye on the activities of the listed companies in the stock market.
It is not only the investors who suffer due to the fluctuations in the share price. This also has a negative impact on the country’s economy. Selling of shares or property by foreign investors reduces FDI, whereas FDI is very important for India’s economic development. In the absence of this, the growth rate of India, which is already running slow, can go down further. If FDI comes less, there will be a decrease in employment as well as economic activities will also be adversely affected.
Satish Singh–The Author is Ahmedabad based Senior Columnist. Views are personal.
