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Sunday, January 10, 2016

Most of the people think of Public Provident Fund (PPF) as a good tax saving instrument more than anything else. However, having a PPF account adds more values to financial planning than just taxing saving.
It is a good option for investors who want to invest money for a long period and get tax free and risk free returns. The returns can be reinvested in the PPF account to get more returns. Currently the rate of return on PPF is 8.6 % per year, which is compounded annually. The interest is calculated on the lowest balance in the account between the close of the fifth day and the last day of every month. Contributions to the account can vary from a minimum of Rs 500 to a maximum of Rs 100,000 on a yearly basis. A PPF account holder who becomes an NRI during the tenure of maturity period also has the option to continue to subscribe to the fund till its maturity.
The tenure of the PPF account is 15 years, which can be extended in blocks of 5 years for any number of blocks. The extension can be with or without contribution. When one continues with such fresh subscription, he/she can withdraw up to 60% of the balance to his credit before the commencement of the extended period.

Some aspects of PPF
Investors need to look at PPF as a long term investment as it has the Power of Compounding. This means the returns just keep getting better with the number of years for which the investment is made. One is the best ways to invest in PPF is to invest a monthly basis.  An investor can invest in a PPF account through monthly ECS in a SIP basis.  This reduces the overhead expenses for the investor to visit the bank in order to deposit the funds into your PPF account and also bring in a disciplined approach to the investment.
PPF account gives interest on minimum balance in the PPF account between 5th of the month and the end of the month. So it is recommended that the investor makes the payment into PPF account before the 5th of the month.
As PPF is a 15 year product, most of the people feel that it is cannot be liquidated in case of emergency. However, there is an option to take the money out after completion of 7 years. One can take out 50 percent of the balance outstanding at the end of 4 years. There is also a provision to take loans on the amount that is invested in the PPF account.
If the PPF account-holder fails to maintain the minimum deposit of Rs 500 in a financial year, the account is considered as discontinued. However, the interest will continue to accrue and be paid at the end of the term. The account can be revived by the payment of a fee of Rs 50 for each year of default. The arrears of subscription of Rs 500 for each such year also has to paid.

Differences between PF (Provident Fund) and PPF (Public Provident Fund)
EPF (Employee Provident Fund) /PF is a retirement benefit scheme that is available to salaried employee.  PPF (Public Provident Fund) is not a retirement scheme.
The amount of investment that can be made into PF (Provident Fund) is decided by the government. Currently it is 12% of an employee’s basic salary. An employee does have the option to invest more than the stipulated amount. On the other hand PPF (Public Provident Fund) is more of an investment scheme which can be opened in any nationalized bank and selected post offices. The minimum amount to be deposited in a PPF account is Rs 500 per year. The maximum amount can be deposited every year is Rs 70,000.
Investments in PF and PPF are eligible for deduction under the Rs 1, 00,000 limit of Section 80C. In PF withdrawal before completion of five years is taxed whereas in PPF there is no such taxation on maturity.
Both in EPF and PPF there is Premature Withdrawal and Loan Facilities available. In EPF, Premature Withdrawal is allowed only for the Daughter’s Wedding or for Buying a Home. For PPF, loan can be taken from the third year of opening the account onwards up to the sixth year.
How to transfer PPF account to another post office or bank

An investor can easily transfer his account from the post office or bank where it is held to another post office or other branches of the same bank or other authorized banks. A written application for the transfer needs to submit an application to the bank or post office where the investor currently has his PPF account. This has to be accompanied with the transfer form (SB10-b) after filling it in. This application has details of the account, the names and addresses of the post office or bank where the PPF account is currently held and the location to which the PPF account is to be transferred. After this the signature of the account holder is verified and the old bank or post office closes the PPF account.

ABOUT PPF

By: Market Wires on: Sunday, January 10, 2016

Monday, November 16, 2015

Rakesh Jhunjhunwala’s portfolio has always been a subject of interest for investors across the world. With a huge number of stocks comprising of both large-caps and mid-caps, the portfolio has a lot of variety. Some of the stocks are well-known household names, while others are relatively unknown. Some of stocks are present in large quantities while others in small quantities. However, there must be in the portfolio that makes it one of the best in the world. In this article we will try to decode some aspects of it.

 (1) Concentrated portfolio against diversified portfolio.
The most interesting thing that the portfolio reveals is the concentration in specific stocks.  As of November, 2015 the net worth of the portfolio was Rs. 4336 crores.  Out of these the net value of 4 stocks stood at Rs. 3,309 crores, which is nearly 76% of the net worth of the portfolio. These stocks are Titan Ind(Rs. 1799 crores), CRISIL(Rs.444 crores), Lupin(Rs.737 crores) and Rallis India(Rs. 349 crores).
Jhunjhunwala approach is however in line with Warren Buffett usually takes big bets on the stocks he identifies for his portfolio. Warren Buffett refers to over-diversification as a "low-hazard; low return" situation.

(2) Buying in small and adding later
It is seen has Rakesh Jhunjhunwala has an approach of buying stock in small quantities and increasing the holding according to the performance of the stock. This can be also seen as buying a stock and putting it into a ‘probation period’ to track the performance. If the stock proves to be a good investment then the investment in the stock is increased. It the stock fails to perform then the position is not increased. As he keeps doing this for years, the investments in good stocks increase and ultimately there they become part of the core portfolio. As a result the portfolio gets concentrated in 5-6 stocks which have been performing well over the years. The portfolio as such becomes with diversification and slowly keeps getting concentrated with 5-6 good stocks. This is very much contrary to way common investor trade. They tend to book out on profit making stocks and holding on to loss making stocks.  Rakesh Jhunjhunwala however does the opposite adding on to good stocks and reducing the loss making stocks.

(3) Diversify between sectors:
Another interesting feature of the portfolio is the diversification across sectors. There is almost 40% investment in the retail sector with stocks like Titan Industries, VIP Industries and Provogue. With stock like Lupin and Bilcare Pharma has a weight age of 20%. The financial stocks make up 20% with CRISIL and Karur Vyasa remaining the top picks. The rest of the holding are in sectors like Oil & Gas(4%) , Engineering / Construction(7%), Chemicals(2%), Information Technology           (3%), Autos(1%) , Hotels(1%), Media(1%) and Services(5%).  We can see that he has a huge holding in the Retail Sector which is based on his likings about “the great India-consumption" story. The diversification in sector is quite contrary to concentration in stocks. This is another remarkable feature of the portfolio. Another thing to note here is that each of the six dominant stocks in the portfolio is from a different sector.

(4) Buying stocks with scalable opportunity:
Rakesh Jhunjhunwala in one of his interviews advised investor not to look for companies that would give profits but understand factors that help in creating profits. He said, “Profits are created due to various stages of circumstances. I always look at how large is the opportunity for that business in the sector.”

If we look at his current portfolio we find that Titan has a high weightage. It is another of his buys which is based on scalability. Time and again Rakesh Jhunjhunwala says that the retail story in India is expected to see huge boom in future. As such he has bought Titan Industries which is a well known name in the sector.  Stocks like CRISIL and Rallis too have a similar story and as such they have been brought into the portfolio. 

RAKESH JHUNJHUNWALA PORTFOLIO ANALYSIS

By: Wire Inc on: Monday, November 16, 2015

Saturday, October 24, 2015

Opening a saving bank account is very easy.  These days, there is no such thing as minimum balance as the Reserve Bank of India has advised all banks to open saving accounts with “NIL” balance. This is called a Basic Savings Bank Deposit Account. One just needs to fill up the account opening form with a latest photograph and submitting documents to comply the “know your customer” (KYC) norms, i.e., proof of our identity and residence. The account can also be opened on the basis of the Aadhar Card. Some of the other features are that banks will not charge fees for deposit of money any number of times.  Banks will also not charge for four withdrawals during a month. The account holder also gets a passbook and an ATM/smart card without any fee.

The latest benefit of saving account has been the deregulation of interest rates on Saving Accounts by the RBI. Till 24/10/2011, the interest on saving accounts was regulated by RBI and it was 4.00% per year on the daily balance basis. Since 25th October, 2011, RBI has deregulated the interest rates on Saving Accounts and banks have been given the freedom to decide the interest rates within certain conditions imposed by RBI. With this announcement of this policy a competition has begun between the banks to draw more deposits by offering higher interests on savings accounts. To avail full benefits of this facility one needs to choose the bank that offers the best interest rates.

Here are two ways to more benefits out of the saving bank account:
1. Sweep in Facility
Sweep in facility is a special feature of the savings bank account that not many are familiar with. Here, the account holder sets a threshold limit for the saving account. Any amount deposited in the savings bank account above the threshold automatically moves to a fixed deposit and earns a higher rate of interest prevailing on the fixed deposits for the tenure that it remains with the bank.
Another advantage of this facility is that in case your savings account balance is too low, this facility allows that to be taken care of by your fixed deposits. Let us say a person has set a threshold limit of Rs. 10,000 in your savings bank account and deposited Rs. 50,000 in the account. Now Rs. 10,000 will remain in your savings bank account, while Rs. 40,000 flows to the fixed deposit account which earns a higher rate of interest of about 8-9% p.a. After this, if the person issues a cheque of  Rs. 15,000 and the savings bank account has just Rs. 10,000, then the deficit of Rs. 5,000 will be recovered from the  fixed deposit.
Going by this example, one is able to earn an interest of 4% on Rs. 10,000 in the saving account and interest of 8-9% returns on Rs. 40,000, where there is an additional interest rate of about 4-5%. The deposit in the fixed deposit account also allows the person to meet liquidity requirement for any emergency situation.

2. Flexi -Deposit Sweep in Facility
To avail the flexi deposit facility one needs to have a savings bank account and a fixed deposit with a bank. The fixed deposit will be linked to the savings bank account. In case there is insufficient fund to clear a cheque from the saving bank account the deficit amount will automatically get transferred from your fixed deposit to the savings bank account.
For example, let us say a person has Rs. 10,000 in the savings bank account a fixed deposit with the bank of Rs. 1 lakh. In case of an insufficient balance in your savings bank account, the fund from this fixed deposit will be used. If the person draws a cheque of Rs. 25,000 and the savings bank account has just Rs. 10,000 then the deficit of additional Rs. 15,000 will be taken the linked fixed deposit.
In the above example, the person will earn savings bank account interest of 4% on Rs. 10,000 and 8-9% returns on Rs. 1,00,000 fixed deposit instead of earning 4-5% on the entire amount.

Saving Bank Account also provides some other benefits:
1.Promotional Offers
There are some some banks that offer discounts at restaurants or shopping places that are associated with them.
2. Insurance
Some banks provides over-the-counter insurance products like accident cover or life insurance with accident cover. Some banks also insure debit cards in case they are stolen or misused. In such a case that also provide a purchase protection clause which ensures that there is some reimbursement up to a certain limit in case the stolen or misplaced debit card is used for shopping.
3. International debit cards
Some banks provide International debit cards, which can be used for shopping and withdrawing cash from ATMs abroad at free of cost.
4. Locker discount
Some banks provides special discount on locker fee depending on the minimum average quarterly balance and the account type chosen.
5. Family schemes
Some banks offer special facilities to family members who have an account with them like clubbing of all family members' deposits. 

HOW TO GET MORE BENEFITS FROM YOUR SAVING BANK ACCOUNT

By: Market Wires on: Saturday, October 24, 2015

Monday, September 28, 2015

The life cycle of a stock or even the benchmark indices can be divided into several phases. In every phrase it is the effect of the bulls and bears that influence the stock price movements. In phrases where the bulls dominate the stock prices move up and in phrases the bears dominate the prices see down side. The behavior of bulls and bears on stock markets is influenced by several factors like the economic condition of the country. In terms of stock specific activities the performance of the underlying company may influence the behavior of bulls and bears and thereby influence the stock prices.

The influence of the bulls and bears can also be explained in terms of greed and fear. When the markets look attractive, there is greed in the markets and the investors go into buying mood for more returns. This is explained as the markets becoming more bullish. A market is said to be in a bear phrase when there is fear in the investors and they go into selling mode.

This can be explained in a chain. Suppose a stock called is seeing some price appreciation in the back of some positive news. The bulls get greedy and there is fear in the bears. As such more buying activity emerges and selling activity weakens. As such the stocks keep getting more bullish and the prices are driven into higher levels. This is termed as a bullish phrase in the stock’s lifecycle. It is always a combined effect of greed and fear which makes a phrase in the stocks lifecycle.

There are basically four phases that kept repeating in the life cycle of a stock. The bench market indices also seem to have a similar lifestyle.


1.    Accumulation: This phrase generally takes place when a stock is oversold after the heavy bear carnage. There is a lack of buyers in the market for the stock. At this point the wise and smart long term investors enter the stock with the correct perception that the stock has discounted all the bad news. These investors keep accumulating the stock while the general investors keep dumping their stocks in the fear of facing further losses. Thus the buying activity of the smart investors and the selling activity of the general public keeps stock price stable. On the charts this is shown by a base formation at the bottom levels after a huge decline.

2.  Mark Up: In this phrase the stock begins to show price appreciation. The stock enters into an uptrend after breaking out from the accumulation levels.  The mood of the general investors also turns bullish and buying takes place with huge participation.

3. Distribution: In this phrase the smart and wise investors who entered the stock at accumulation levels start exiting the markets with the correct perception that the stock is now getting overpriced. The general investor is not, however convinced of that view and they keep buying. The selling activity of the smart investors and the selling activity of the general public keeps stock price stable.

4. Mark Down: In this phrase the general investors suddenly realize that the stock is indeed overbought and overvalued at the current levels. There is fear in them that the ongoing bubble may burst and as such they begin selling the stock. There is a breakdown in the price levels and it keeps taking the stock prices lower.

After the mark down phrase the stock again enters the accumulation period and the cycle continues. Here we have discussed the market cycle in terms of a bull rally. The reverse situation occurs in case of bear rallies. 

MARKET CYCLE

By: Wire Inc on: Monday, September 28, 2015

Monday, July 13, 2015

Let’s have a look at the various types of stocks and how to trade them.

DEFENSIVE STOCKS
Defensive stocks are that stocks of companies that provide stable earnings regardless of the condition of the overall stock market. Stock prices of defensive stocks remain relatively stable during periods of economic uncertainty and decline. They are the stocks of companies which cater to human needs and/or vices. As such the companies see more or less stable earnings throughout the year. Generally they are the stocks of FMCG companies. These companies may lack the appeal of high-growth companies, but provide slow but safe investment opportunities for long term.
Defensive stocks tend to lag behind during economic expansion because the demand does not increase as dramatically as the other companies in an upswing. Betas of defensive stocks are less than one.

GROWTH STOCKS
Growth stocks in general are those stocks that have prospects for outperforming the stock markets in general over the long term because of the growth story. In general, these are the stocks of these companies whose revenues and earnings increase at a faster rate than the peers in the same sector. The growth stocks do not pay much attention to giving dividends to the investors as they tend to focus on expansion of the company like reinvesting the retained earnings in capital projects.
For long term investors growth stocks are a good investment opportunity. However, careful analysis needs to be done while selecting the stock. In the last few years the Indian Stock Markets has seen the emergence of growth stocks like Jubilant Foodworks and TTK prestige, which has purely benefited due to the market dominance in the area of their operation. However, often the growth stakes get highly overvalued, so investors need to be careful while selecting them.

VALUE STOCKS
Value stocks represent companies that have been undervalued by the market. This may be due to temporary financial stress on the company or underestimation of the growth potential. Value investors look for these types of stocks on belief that at some point the market will realize the company's true value and the stock price will rise.
It is recommended to follow a buy-and-hold strategy while investing in these stocks. A good amount of homework also needs to be done.

INCOME STOCKS
Income stocks are stocks which are brought for dividend yields. These are stocks of companies that consistently pay higher dividends compared to the other stocks in the markets. These companies do not have much of growth prospects, but they provide steady income. As these companies pay regular dividends are valued for the extra return, they provide to shareholders through dividends beside the increase in stock prices.

These are good Investments for older and retired because of the cash-flow they generate. However, one needs to be careful while buying such stocks as higher dividends lowers the prospects of future expansion plans.

TYPES OF STOCKS

By: Market Wires on: Monday, July 13, 2015

Monday, January 12, 2015

High risk, high rewards… This is what penny stocks are about. Indeed the safe investor chooses to ignore the class of penny stocks, but the risky trader knows that there is a case for earning 100% in a penny stock in a short time but not in a blue chip like Reliance.  In simple terms a penny stock is a stock which trades at a very low price usually below Rs 10. The term originated in the US and was used for stocks below $5. About 25% of the stocks on BSE and 10% of the stocks in NSE trade below Rs.10 and can be considered as penny stocks. Most penny stocks have been put under the trade-to-trade category so as to avoid speculative activities. Many of the stocks are also included in the B group category on BSE. 

The Risks of Penny Stocks
Price manipulation is the biggest risk while investing in penny stocks. The low prices make manipulation easier as a small investment can easily trigger a spike.  As such manipulators can push prices and trap the retail investor. For example, a Rs 2 stock can be easily rigged to Rs 5 giving a 150 per cent return. Such a return draws the attentions of the retail investors. Once they start entering, the manipulators start selling. Thereby a crash occurs and the small investors are left in the lurch. Often the manipulator spread false rumors about the company to propel the prices and this too traps the small investors who are drawn to the stocks.
Another problem with penny stock is the difficulty in finding legitimate information about the company. Most brokerages do not research on penny stocks. Again, it is seen that many a time manipulators spread false rumors about these companies to rig the stock prices.
It has also been found that the companies whose stocks are considered as penny stocks often violate the rules of the exchanges. In order to avoid this, many a times the stock gets suspended from exchanges and the investors are left at nowhere.

The Returns on Penny Stocks
As penny stocks are available at low prices they entice many investors, particularly first-time investors to explore the markets, without risking an extensive amount of money. If the stock prices fall the investors are saved from losing excessive amounts of money.
Penny stocks can easily become multi-baggers by rising. A penny stock trading at Rs 5 can reach levels of Rs 50 in less than a year.  It is not uncommon for some penny stocks to double or triple in price in extremely short periods of time, but this is not possible in case of blue-chip stocks. One can find it difficult to believe that an ICICI Bank can give a 10 times return in even 5 years.

Tips for buying Penny Stocks
1. Fundamental factors like corporate governance, the potential of the business and the management of the company should be considered when investing in penny stock. It is recommended you to buy the stocks of those companies while have a high promoter stake.
2. While selecting penny stocks keep a watch on the trading volume. If you trade with stocks that are trading with low volumes, it could be difficult to get out of your position. As such, it is advisable to trade in penny stocks that have a good deal of liquidity.
3. Analyze the details of the companies well. If you think a company is good, but due to some temporary setback the stock has been hammered you can invest.  For example a few months ago stocks like GMR Infra, Suzlon and GVK Power were available at very low prices. Such prices offered good opportunities for the investors.
4. Do not invest in penny stocks on the basis of speculative actions.
5. Do not buy a penny stock on the basis of the stock prices in absolute term. You should access whether the stock is undervalued or overvalued on the basis of fundamental indicators like price to earnings the company is generating, growth, assets, dividends, etc. 
6. Like any investing venture, you must do your research and your homework before making any financial decisions. Stock price itself should not be the sole factor on which to make this decision. It is no indicator of past or future performance of a company.
7. Try to invest in penny stocks that have a long term growth story in them. In such cases you must hold the investment for years and allow the story to play out and the stock to appreciate in value. 

INVESTING IN PENNY STOCKS

By: Wire Inc on: Monday, January 12, 2015

Monday, October 27, 2014

The journey of the Indian Markets to being one of the most attractive destinations has been through several ups and downs. It has not been a joyride all the way. May 17, 2004, May 22, 2006 and October 17, 2007 will always be remembered as the darkest days in Indian stock market history. In these three days the markets hit the 10 per cent lower circuit.
This article is aimed at exploring at some of the phrases in the Indian Stock Markets has the strongest bear attacks.

In the early 2000s, the stock markets saw a phase of the bear run on account of the Dot-Com Bubble. On account of the euphoria surrounding the technology sector the stocks of IT sector saw a huge buying interest not only in the United States but across the globe. India was no exception. The technology companies had seen huge public interest whenever they made efforts to raise money for their venture. The investors were buying them at whatever price they were available.  However, the bubbles finally exploded. The NASDAQ crashed in April as the technology companies were found in a cash crunch scenario. Investor across the world began to panic and sold off the tech stocks. The Indian Stock markets too saw selling pressure. The Sensex fell to levels of 3943 in the May of 2000 from a high of 6150 in the month of February, 2000. The BSE IT index saw a bloodbath as the index fell by close to 70%. The correction ended in September 2001 with Sensex touching a low of 2,600.

In 2004 the BJP government lost in the central elections and the UPA led by Congress came to power. Investor panicked if the coalition-led UPA government would be able to address the economic concerns of the country. The political uncertainty brought trouble to the equity markets. Foreign institutional investors pulled out money from India stocks and the markets went into a sharp correction. On May 17, trading was halted twice in Sensex as the index fell by more than 10 per cent. The Sensex saw a fall of 842 points in Intraday and closed 565 points lower for the day after hitting lower-circuit.

On May 10, 2006, Sensex touched a new high of 12,612 as the UPA government settled in the center. However the bullishness did not last long. Soon trouble emerged metal prices across the globe faced correction as demand from China began to slow down. This also triggered a panic in equity markets worldwide and FIIs soon started pulling out cash from Indian equities too. Adding fuel to the fire was the Left Parties’ decision to pressurize the ruling government to rethink levying long-term capital gains tax on equity investments and scratching the double taxation avoidance agreement (DTAA) with Mauritius. This further dampened the investor sentiment. On May 22, the Sensex fell by 1,111 points Intraday and hit the lower circuit. The consumer durables and metal stocks were the worst hit. The BSE Metal index was down 7 per cent for the day.

On 16th October, 2007, the Securities & Exchange Board of India (SEBI) came up with proposals to put curbs on participatory notes. The participatory notes, then accounted for around 50% of FII investments in the Indian Markets. This led to a knee-jerk crash when the markets opened on the following day (October 17, 2007). The following day when the markets opened  the Sensex crashed by 1744 points a minute of opening trade. It was the biggest intra-day that the Indian stock-markets had ever seen in absolute terms. This led to automatic suspension of trade for 1 hour. After this the then Finance Minister P.Chidambaram issued clarifications that the government was not against FIIs and was not immediately banning PNs. After this, when the markets re-opened at 10:55 am, they made a remarkable comeback and ended the day at 18715.82, down just 336.04. The next day (October 18, 2007), the Sensex tumbled by 717.43 points  and the day following that the Sensex fell 438.41 points to settle at 17559.98 at the end of the week.
The SEBI soon made some positive announcements that funds investing through PNs were most welcome to register as FIIs, whose registration process would be made faster and more streamlined. In the next session, the markets welcomed the clarifications with an 879 point gain. Within the next few sessions the Sensex allied further and touched the 20,000 mark.

In January 2008 the markets saw another downturn, which was triggered by the row of bankruptcy filings by US' big mortgage banks on sub-prime losses. As a result of the extended period of easily available credit there was a bubble in the US mortgage-backed securities which were marketed around the world. This speculative bubble was spread across real estate and equities because of the risky lending practices. The speculations sparked by the easily available credit led to an exorbitant rise in asset prices and associated boom in economic demand. It is also believed that competition between lenders for revenue and market share contributed to declining underwriting standards and risky lending. However, soon losses mounting on US' big mortgage banks because of the bad loans. The fall of Lehman Brothers on September 15, 2008, led to a major panic and there were question marks on the other US' big mortgage banks. There were soon troubles for other US' big mortgage banks also. The housing market also suffered in some areas and also prolonged unemployment. On account of this equity markets throughout the world faced sharp corrections. The Indian benchmark Sensex was no exception. It also saw a long bear run hitting a low of 8160 in March 2009. To combat the recession, fiscal and monetary policies were significantly eased to stem the recession and financial risks.

BIGGEST CRASH IN INDIAN STOCK MARKET

By: Wire Inc on: Monday, October 27, 2014

Monday, April 14, 2014

The general sentiment of the stock market can be defined bullish or bearish and the market on the whole can be called bull market or a bear market.
A bull market indicates positive sentiment with uptrend in the stock market. On the other hand a bear market indicates downtrend in the stock market with negative sentiment. Uptrend means that the stock price is showing appreciation  while downtrend means that with time the stock price is having depreciation.
Stocks too can be defined in terms of bullish and bearish sentiment.  A particular stock that is in a downtrend is described to be bearish and a stock in an uptrend is said to bullish.

Bull market
In a bull market, there is increasing investor confidence which leads to appreciation of stock prices. This occurs as investors feel that the economy will keep seeing better days and the investments will fetch high return. Thus, there is a positive sentiment in the investor community about the economy. This may occur due to several reasons like reasonable interest rates with good economic health indicators like low unemployment. There is an overall optimism about the economy and this causes more demand than supply for securities. This keeps pushing the prices of securities higher. Eventually there occurs euphoria of buying leading to pricing bubbles which are beyond proper valuations. This is perhaps the last stage in a bull market in which the sentiment is at the peak of bullishness.
Examples:
India's Bombay Stock Exchange Index (SENSEX) was in a bull market trend for about five years from April 2003 to January 2008 when it increased from 2,900 points to 21,000 points

Bear market
In a bear market the situation is exactly reversed. They generally occur when the economy faces a crisis like slowdowns. The investors tend to lose their confidence and that leads to sell off in the stock markets. Investors unload their stock with the perception that condition of the economy will worsen and earnings will continue to decline. They expect that in future the stocks will be available at much lower levels and buying can be done at those levels. Defensive investment instruments like bonds, then draw attention because of the safety they carry. End of bear markets is generally marked by exaggerated selling activity where there is the extreme bearish sentiment.
Examples:
During the Wall Street Crash of 1929 the Dow Jones Industrial Average lost its market capitalization by 89% (from 386 to 40) by July 1932. After a recovery of 50% the markets again lost 50% of its value from 1937 to 1942 during the period of the Great Depression.


The terms "bear" and "bull" are thought to derive from the way in which each animal attacks its opponents. A bull thrusts its horns up into the air while a bear swipes down. These actions were then related metaphorically to the movement of a market. Uptrend is considered as bull market while downtrend is considered as bear markets. 

BULL MARKET AND BEAR MARKET

By: Wire Inc on: Monday, April 14, 2014

Monday, March 24, 2014

The Elliot Wave theory is used to how a stock will behave in future by correlating crowd psychology with the stock price trends.

THE DISCOVERY
The theory was discovered by Ralph Nelson Elliot (1871-1948) accountant in the 1930s. It was published in the book The Wave Principle in 1938.

THE THEORY
In Elliott's model, market prices alternate between two phases - motive and corrective phase. Impulses are always divided into a set of 5 lower-degree waves. They alternate between motive and corrective character.  If there are waves 1, 3, and 5 which are impulse waves, there are 2 and 4 which are corrective.

RELATIONSHIP WITH PSYCHOLOGY
 The Wave 1 is the first wave of a new bull market when there is still believed the bear market is not over. The fundamental news is still bad and the analyst communities are pessimistic about the atmosphere. The economy still continues to look weak and the conviction is there that the bear market is dominant.
The Wave 2 is a correction of the wave 1 and here the correction does not retest new lows. On this bears get excited and keep shorting the market on belief that the bear market is very much intact. However, generally this correction does not correct more than 61.8% (Fibonacci number) of Wave 1.
The Wave 3 is the largest and the most powerful rally in the trend. Here the good news starts coming in and the analyst community turns a bit positive. Generally it is only when the wave reaches its midpoint does the bulls starts participating in volumes. There is short covering seen which gives powerful rally. This wave is generally an extension of wave 1 by 1.618:1 ratio.
The Wave 4 is a correction of the wave 3. This is a buying opportunity and the correction is generally 38.2% of Wave 3.
The Wave 5 is the final leg of the trend. Here there is positive news everywhere the sentiment keeps getting more bullish every moment. Volume is very high and there is lack of sellers and there are almost no short positions. There is buying seen almost everywhere. However, soon the peak is seen and the investors get trapped.
The Wave A is the first wave of the counter trend. Though this is the onset of a bear market, investors generally take this as a correction of the ongoing Bull Run. The news is very much positive and investors see this as a buying opportunity.
The Wave B is a correction of the wave A and it is upward pattern. However, this wave does not break the high of the Wave A and head and shoulders pattern may be seen.
The Wave C is a strong downward wave which confirms that bull market is over and bears get aggressive. Bulls suddenly realize they have been caught on the wrong side and soon they too start selling to cut their losses. The wave is an extension of Wave A by 1.618 times.

FIBONACCI RELATIONSHIP
Elliott believed that the number of waves that exist in the stock market's pattern is reflected in the Fibonacci sequence of numbers. As per Fibonacci series, any number is approximately 1.618 times the preceding number and approximately 0.618 the following number.  The relationship between the lengths of waves of an Elliot wave model to a huge extent seems to carry the Fibonacci number relationships.

CRITICISM OF ELLIOT WAVE
The Elliott Wave is considered by many as hypothetical theory and it contradicts the concepts of price and volume actions. It depends on crowd psychology and this may not be a valid reason to go with all the time. It sounds much of a subjective way of analysis and as such this is cannot be a valid way of analysis all the time.

ELLIOT WAVE THEORY

By: Wire Inc on: Monday, March 24, 2014

Monday, January 13, 2014

Below are some of the biggest scams that took place in the Indian Stock Markets:

1. Ramalinga Raju
The biggest ever corporate scam in India came from Byrraju Ramalinga Raju, who was then one of the most respected businessmen. Ramalinga Raju was the founder of Satyam, one of the top IT companies of India. In January 2009, Raju confessed that Satyam's accounts had been falsified over the years and the company's balance sheet as of September 30,2006 carried an inflated (non-existent) cash and bank balances of Rs 5,040 crore as against the Rs 5,361 crore (Rs 53.61 billion) that was reflected in the books. Raju said that this was done largely due to the efforts in covering-up for a poor quarterly performance. On the day of his confession the Satyam shares got heavily sold off and fell down by 78 per cent to Rs 39.95 on the Bombay Stock Exchange. On the following day the share price fell as low as Rs. 11.50 rupees. The fraud involved about Rs 8,000 crore (Rs 80 billion).

2. Harshad Mehta
Harshad Mehta was once regarded as the 'Big Bull' of the Indian Stock Markets and was even to have started the Bull Run in the year 1992. Such was his buying phenomena that Associated Cement Company (ACC), which attracted his attention, was bid up to Rs. 10,000. He justified this by the replacement cost theory. On April 23, 1992, journalist Sucheta Dalal of The Times of India, exposed that Mehta was  using the banking system to finance his buying. She explained that the crucial mechanism through which the scam was affected was the ready forward (RF) deal. The RF was a secured short-term loan given by one bank to another. The Ready Forward deal was a mechanism in which a borrowing bank sold securities to a lending bank and brought them back at the end of the loan period at a slightly higher price. Mehta was using this for channelling money from the banking system. It was found out that the securities scam was involved in diverting funds to the tune of Rs 4000 crore from the banks to stockbrokers in between April 1991 to May 1992.When the scam got exposed, the stock markets crashed. Mehta was arrested and banned for life from trading in the stock markets. His brother Sudhir Mehta and 72 others were also charged with criminal charges. They were sentenced to rigorous imprisonment ranging from 1 year to 10 years.

3. Ketan Parekh
Ketan Parekh, a chartered accountant used to a run his family business, NH Securities. In 1999-2000 he was found to be involved in stock market manipulation. Ketan usually targeted smaller stock exchanges like the Calcutta Stock Exchange and the Allahabad Stock Exchange to carry out this illegal means. It was found out that he had borrowed Rs 250 crore from Global Trust Bank and Rs 1,000 crore from Madhavpura Mercantile Co-operative Bank to rig stock prices. He mostly dealt with ten scripts like Zee Telefilms, Himachal Futuristic, SSI Ltd, Global Tele-Systems, DSQ Software, Silverline, Pentamedia Graphics and Satyam Computer. These scripts were also known as the K-10 scripts. He used to buy the shares in fictitious names.  However, according to RBI regulations, a broker was allowed a loan of only Rs 15 crore. On account of this rigging the stock prices reached amazing higher levels. When the scam got exposed he was debarred from trading in the Indian stock exchanges till 2017.

4. C R Bhansali
C R Bhansali was born in Rajasthan and brought up in Kolkata. He launched a lot of companies, the first being CRB Capital Markets. This was followed by the CRB Mutual Fund and CRB Share Custodial Services. From 1992 to 1996 he had a dream run by collecting money from the public through various means like fixed deposits, bonds and debentures. He then floated around 133 subsidiaries and unlisted companies. CRB Capital Markets went for IPO in 1992 within the next three years raised Rs 176 crore. Over the next few years, the other companies of the CRB Group kept on raising money through IPOs. Between 1992 and 1995 Bhansal succeeded in raising about Rs 900 crore from the markets. After 1995 the stock markets did not play out to his advantage and his investments in the property market were also not paying off. Being caught in a financial trap, Bhansali also to do repeated borrowings from the stock markets to repay the interest rate on amounts he borrowed earlier. This created a huge bubble. When the Reserve Bank of India (RBI) refused to give banking status to CRB, things got totally messed up. When the scam got exposed it was found that it had resulted in a loss of over Rs 1,200 crore.

5. IPO Scam
The IPO scam was one of the biggest scams in the Indian Equity Markets. It involved 24 key operators like Indiabulls and Karvy Stock Broking who were alleged of using fictitious accounts to corner huge shares of companies during their IPO in order to keep high prices during the IPO.  Some of these companies were Suzlon Energy, Jet Airways, Patni Computer System and TCS.  Suzlon Energy Ltd's Rs 1,496.34 crore IPO was issued between the 23rd and 29th September, 2005. The retail portion was oversubscribed 6.04 times but the non-institutional portion was oversubscribed 40.27 times. This was due to mailicious activity of the key operators. Similar was the case with Jet Airways's Rs 1,899.3 crore IPO. Though the retail portion was subscribed 2.99 times the non-institutional portion by 12.5 times. The IPO of Patni Computer System Ltd was oversubscribed 9.36 times in the retail portoin, but the non-institutional portion by 39.22 times. When the scam got exposed the Securities and Exchange Board of India barred all the involved key operators from operating in the stock market. It also banned 85 financiers from capital market activities.

BIGGEST SCAMS IN INDIAN STOCK MARKET

By: Market Wires on: Monday, January 13, 2014

Monday, November 11, 2013

Recurring deposits
Recurring deposit is one of the finest investment options available in the market. It is very useful if one wants to invest in small amounts and is not very open to take risks by investing in equity or in mutual funds.
With the increasing household expenses, investing in a lump sum is becoming too difficult. The advantage of recurring deposit is that the saving amount is very small. The amount is as small as Rs. 10 if one opens a recurring account with India post and with banks like ICICI and HDFC one can start with as small as Rs 500 per month.
On a pre-decided date, every month the account holder is required to make the payment. The payment can be made either through cheque or it can be directly debited from the bank account through ECS facility. One can open a recurring deposit for a period of as less as 6 months with a maximum tenure of 10 years. The interest rates offered under a Recurring Deposit are similar to the rates offered by fixed deposits. There is 0.5% extra rate of interest for senior citizens. Some banks also give a facility of grace period as well, which is around 5 days.

Planning your Short Term Goals using Recurring Deposits
Recurring deposits are ideal financial products for meeting short-term goals over a horizon of 1-3 yrs. These may include:
1.   Down payment of a new home
2.   Home Renovation expenses
3.   Higher Education Expenses if one is doing a job
4.   Upcoming Marriage expenses due in 2-3 years
5.   Setting aside funds for a vacation
Recurring Deposits do not carry risk like mutual funds and equity and thus they are the ideal solutions for short-term goals in life in which investors looks for guaranteed returns.

Using Recurring Deposits for Short term goals in life
Let us say a person wants to buy a new LCD TV in the next 6 months. Let us say the person cannot pay for such a TV in one lump sum. A recurring deposit account can prove very useful in such a situation.
One can open a recurring and contribute some money every month to the account. At the end of the tenure, the account holder gets the deposit along with the additional interest.

Other features of Recurring Deposit:
1.    There is no TDS on recurring deposits, but the interest income is fully taxable.
2.    A recurring deposits can be liquidated any time before maturity with some penal interest.
3.  Some Banks offer flexible recurring deposits also, where the amount of deposit can be  increased.
4.    There is Nomination Facility, so benefits will be passed on to the nominee in case of death.
5.    Loans can be taken against recurring deposits up to 80-90% of RD worth

6.   The only disadvantage of a recurring deposit is that the money can be drawn at any time.  They are not as liquid as a savings bank account.

HOW TO USE A RECURRING ACCOUNT

By: Market Wires on: Monday, November 11, 2013

Monday, October 14, 2013

Rakesh Jhunjhunwala is known as India’s most successful investor and trader of this era. It will quite interesting to have a look at the success story of how is made 8000 crore from Rs.5000.

Rakesh Jhunjhunwala was born on 5th July 1960. His father, an income-tax office was interested in stocks and used to discuss about the stock markets with his friends. Rakesh as a child listened to them. The markets fascinated him. One day he asked his father why the prices fluctuate. His father asked him to check the news. For Rakesh, it was the first lesson of the stock markets -news makes the prices fluctuate.
He expressed his wish to get into stock markets to his father. He told him to do whatever he wanted in life, but get some professional qualification before that. Rakesh did chartered accountancy and completed his CA in 1985.
Rakesh now wanted to enter the stock markets. His father advised him to trade with his own money and do not take money from him or any of his friends.

Rakesh Jhunjhunwala started his career in 1985 when the BSE Sensex was at 150. In 1986, he made a major profit by selling 5,000 shares of Tata Tea at a price of Rs 143 which he had purchased for Rs 43 just 3 months earlier.
Between 1986 and 1989, he earned Rs 20-2.5 million. His first major successful trade was in Sesa Goa (now Sesa Sterlite). Rakesh Jhunjhunwala bought 400,000 shares of Sesa Goa in forward trading, worth Rs 10 million.  The stock was available at a low price of Rs. 25-26 due to a depression in the iron ore industry. Rakesh Jhunjhunwala saw the possibility of a very good growth and profitability for the company in the next year. The company soon saw good fortunes and Jhunjhunwala made huge profits. He sold about 2-250,000 shares at Rs 60-65 and another 100,000 shares at Rs 150-175. The prices finally rose to Rs 2200 where he sold some more shares.
Between 1986 and 1989 he is said to have earned Rs 20-25 lakhs. After 1986, the market went into a bear run.  Rakesh Jhunjhunwala sensed the opportunity and put money on Tata Power and the Tata Power which later gave him handsome returns.

Rakesh Jhunjhunwala bought 6 crore shares of Titan in 2002-03 at an average price of around Rs 3. This was to be one of the best investments of his life. After Jhunjhunwala’s purchase, the stock then rose to Rs 80 and later fell to Rs 30. He did not sell a single share as neither EPS nor PE had peaked and there was a lot of growth opportunity. It was indeed one of the wisest decisions. The stock proved to be a huge multi-bagger in the long term.
In 2006 he bought Lupin around Rs.150. From 2006 to 2008, Lupin did not grow much even though the markets doubled. Over the next six years, the share price jumped to ₹7, 500. Lupin gave Jhunjhunwala enormous growth as the stock continues to make new highs every now and then.
In fact Titan and Lupin are two of the his three top holdings, the third being Crisil. According to him, a large part of the businesses of these three companies is directly linked to the Indian economy, especially that of CRISIL and Titan.  According to him, as much as 70 percent of CRISIL’s business and 25 percent of Lupin’s business is linked to the Indian economy.  The Jhunjhunwala’s believes that Indians will save $1 trillion a year over the coming years, and if 10 percent of that money flows into the markets, there will be a huge bull market.
There is a small story around his investment in Crisil. Rakesh Jhunjhunwala’s mother has never been concerned about money. She pointed out that he puts money only on paper and never on property. So, in 2004 Rakesh Jhunjhunwala bought a flat in Malabar Hill in 2004 by selling ₹27 crore worth of Crisil shares. The flat was soon sold for ₹48 crore but according to Jhunjhunwla had he not sold those Crisil shares back then, they would have been worth ₹700 crore plus a ₹50-crore dividend.

On the personal front, Rakesh Jhunjhunwala is known to be a very practical person. Though he does not spend much on lifestyle, he spends a lot of money on the maintenance of his horses. The connection with horses goes back to his childhood. His father was very fond of racing. He used to go to the Mahalaxmi Race Course at least four days a week and loved the place. In spite of his successes, Jhunjhunwala restrains from writing books or articles on investing. He does not even engage in managing other people’s money because that would impinge on his freedom apart from being a huge responsibility.
Recently Rakesh Jhunjhunala has found interest in making movies. He has produced Sridevi-starer English Vinglish in 2012 and Shamitabh featuring Amitabh Bachchan and Dhanush in 2015. Both the movies have made money. For Rakesh Jhunjhunwala, the sector is profitable and there is a good scope for making money. However, he does not invest more than 2-3% of his wealth at a time.


Jhunjhunwala uses the income from dividends to take care of his requirements. He now gives away 25 percent of his dividend income to charity. Nutrition and education are two areas which he plans to address in the coming areas. He also aims to set up a quality institution of learning over the next 10 years. He is also considering the idea of setting up an institution to ensure more effective government spending.

RAKESH JHUNJHUNWALA BIOGRAPHY

By: Wire Inc on: Monday, October 14, 2013

Monday, August 12, 2013

The Wall Street Crash of 1929, also known as the Great Crash and the Stock Market Crash of 1929. In the decade of 1920s the American Economy saw a phrase of excess monetary action. This was known as the Roaring Twenties.  During this phrase there was huge speculation which made the Dow Jones industrial Average rise five times in a span of just 6 years reaching 381.17 on September 3, 1929
On October 24, 1929 things got shaken up when the New York Stock Exchange (NYSE) suddenly crashed by 11%. This day was also known as "Black Thursday". This was a sudden shock and led to an immediate panic situation. Wall Street Bankers like Thomas W. Lamont of Morgan Bank, Albert Wiggin of Chase National Bank and Charles E. Mitchell of National City Bank sat down to discuss the issue. Richard Whitney, vice president of the Exchange, to act on their behalf.
Whitney used the banker’s financial resources and placed a bid to purchase a large blocks of shares of Blue Chip stocks at a price well above the current market.  This was a tactic which was used in the Panic of 1907. The strategy brought relief and the Dow Jones Industrial Average recovered to close with minor loss of 6.38 points for the day.
This was, however a temporary relief. On October 28, also known as "Black Monday" investors began dumping stocks in panic and there was a fall of 38.33 points or 13% on the Dow Jones Industrial Average. The exit continued on the next day, "Black Tuesday", October 29, 1929 with a fall of 30 points, or 12% with huge volumes. This was on account of rumors that U.S. President Herbert Hoover would not veto the pending Smoot-Hawley Tariff Act.
The markets continued to decline arriving at an interim bottom on November 13, 1929, with the Dow closing at 198.60. Then the markets recovered for a few months and reached 294.07 on April 17, 1930. After the Smoot-Hawley Tariff was enacted in June, the Dow dropped again but soon stabilized above 200. The downturn soon returned in the following year, this time with more depth. The Dow began a period of long and steady decline from April 1931 to July 8, 1932 when it closed at 41.22, which was the lowest level of the 20th century. In the decade of the 1930s the Dow began to recover, but it took almost 15 years for it to regain the peak closing of September 3, 1929 on November 23, 1954 when it broke the 381.17 high.
Economists attribute cause to of crash to the excess speculation in the stock markets in the late 1920s. During that phrase thousands of Americans invested heavily in the stock market, some even borrowed money for this purpose which due to a high leveraged position. Loans worth over $8.5 billion had been taken which was more than the entire amount of currency circulating in the U.S. at the time. This led to an economic bubble. As most of the positions were on margin buying a little amount of panic was enough to trigger huge selling pressure. This is exactly what happened.

Indeed the panic of October 1929 was seen as a symbol of the economic contraction that gripped the world during the next decade. It wiped out billions of dollars of wealth in one day, and this immediately depressed consumer buying. It in fact made policy makers all over the world relook at the way stock markets worked. Some historians still debate whether the 1929 Stock market Crash triggered the Depression or did it is merely a coincidence. It did have some other impacts as business faced difficulties in securing capital market investments for new projects and expansions. This in turn adversely affected the job market. There was contraction of credit, business closures, firing of workers, bank failures, the decline of the money supply and other economic depressing events. It set off a worldwide run on US gold deposits and forced the Federal Reserve to raise interest rates into the slump. Some 4,000 banks and other lenders ultimately failed.  

GREAT DEPRESSION

By: Wire Inc on: Monday, August 12, 2013

Monday, July 8, 2013

Many market participants often wonder about the factors that influence stock prices. There is no mathematical equations or formula which can help to determine whether a stock price will go up or down. However a number of factors play a key role in the price of a stock. This article will look to explore some of these factors :

1. Fundamental Outlook: Fundamentals of the underlying company influence stock prices to a huge extent. The earnings per share (EPS) and the Price to Earnings ratio (P/E) is an important indicator of how the stock has been priced relative to the company’s performance. Along with this free cash flow per share is also a good indicator of the earnings potential of the company. These indicators can be used to determine how a stock will get priced in relation to the fundamental outlook of the underlying company.

2. Takeovers or mergers: When there is anticipation that a company will become a potential takeover target there is positive price movement seen in the stock of the company. This happens as companies are generally taken-over at a price which is at a premium to the current market valuations. In other words, it means that the shares of the company will be bought over at a higher price than its current market price, which will eventually move stock prices higher.

3. Launch of new products and services: The launch of new products also lead to appreciation in stock prices. This happens as there are hopes that the product will break into new markets and earns more revenues for the company.

4. New orders and contracts: When a company wins new contracts or orders there are expectations that they will add more revenues to the companies and the earnings will see appreciation. This leads to a sharp increase in stock prices. The reverse occurs when a company loses order and contract.

5. Analysts upgrade and downgrades:   Stock prices generally see upside on analyst upgrade as it leads to a positive sentiment. Investors get confident about the stock when analysts upgrade them. There is belief that the experts are finding the stocks undervalued in comparison to the earning potential.  This boosts the sentiment and the stocks generally see bullishness. Similarly, stocks see sell off on analyst downgrades as investor loses confidence in the stock.

6. Share buybacks:  The share buyback by a company is seen by investors very positively. It reflects that the company’s management has confidence in the company and they are finding the current market valuations cheaper to its prospects. Share buybacks also reduce the number of shares available in the open market.  This means that there will be a reduction in shares available for trading after the buyback, which will cause a drop in supply and this will help increase the share price.

7. Management changes:  Management changes also influence stock pricing. If investors feel that the new management has the potential to take the company into greater heights they buy into the stock. This happens as there is anticipation decision the new management has the ability to increase the earnings potential of the company which will lead to appreciation in stock prices.

8. Technical & Charts: Stock pricing patterns on the charts too have a major role. In fact, it is often said that, charts tend to price in all the factors that influence stock prices. The patterns or indicators in stock prices, volumes, moving averages and many others over a time frame can give good indications as to how the stock will get priced in futures. For example, crossover of stock prices over the 50-day and 200-day Moving Averages generally led to a sharp increase in stock prices.

9. Demographics: Macroeconomic factors play a major role in the stock markets as a whole. Amongst the various macroeconomic factors, demographics are an important factor. Generally middle-aged people tend to invest more in stock markets than old aged people. So stock markets of countries that have more of middle-aged people tend to perform well than the stock markets of countries that have aged demographics.

10. Interest Rates:  Interest rates are also a major macroeconomic factor that has an overall influence on the stock markets. Higher interest rates would leading to higher cost of borrowing money. This would reduce the money available in the economy and reduce the flow of money into the stock markets, The economic activity also tends to slow down and the earnings tend to see depreciation. This leads to drop in stock prices. Similarly, when the interest rates are low there stocks see bullishness.
Along with the above discussed factors other factors like inflation, natural disaster, product recalls and lawsuits, patent approval, war and political outlook which also influence stock prices. 

FACTORS AFFECTING STOCK PRICES

By: Market Wires on: Monday, July 08, 2013

Monday, June 10, 2013

Supply and Demand
One of the widely used concepts in trading is Support and Resistance. Share prices are determined by supply and demand. Supply is arises from selling activity whereas demand arises from buying. Increase in supply or selling activity leads to fall in stock prices whereas increase in demand or buying activity leads to increase in stock prices. In this way the forces of demand and supply drive the stock prices with movement in the favour of the stronger force.

Support and Resistance
Support is the price level in a stock which is believed to bring in buying momentum. At support, the stock price is believed to bring in a demand amongst the buyers and thereby prevent the prices from declining further. At supports, buyers generally find stocks more favourable for buying and seller finds do not find much of selling opportunities.
Resistance is the price at which supply is thought to be strong enough to prevent the price from rising further. At resistances, sellers find stocks more favourable for selling and buyers do not find much of buying opportunities.
Support and resistance are based on belief that price has memory. When stock prices reach levels where it had seen significant buying in previous occasions, it is believed that a similar reaction will be seen even in the current occasion amongst buyers.

Types of Support and Resistance
Support and resistance can be of two types on basis of duration-
1. Minor Support or Resistance-These are supports and resistances that have been formed based on the price movements of stocks for time frames measured in weeks.
2. Intermediate Support or Resistance - These are supports and resistances that have been formed based on the price movements of stocks for time frames measured in months.
3. Major Support or Resistance - These are supports and resistances that have been formed based on the price movements of stocks for time frames measured in years.

Breakouts and Breakdowns
Movement of the stock prices beyond Supports and Resistances lead to breakdowns and breakouts. These events led to a sudden change in sentiment and lead to huge price movement beyond the Supports and Resistance. When the stock price crosses a resistance level, the level could potentially become support. Similarly when the price crossed through a support level, that level could become resistance.
The strength of resistance or support is measure on basis of how long the stock tests that level of resistance or support without breaking it. Similarly the strength of the follow-up move on breakout or break down depends on strength of the support or resistance level which is measure on basis of how long the broken support or resistance had been holding.
When there is a breakout or breakout which does not last but falls back in the reverse direction there, it is called False Breakout or False Breakdown.

Support and Resistance Lines
When various support levels or resistance levels are joined to form lines, they are called trend lines. Trend lines can be extended and used to identify points where the stock can face Support and Resistance in future.
These lines can be 2 types:
1. Horizontal Supports and Resistance- These are formed when supports or resistances at same price levels are joined to create trend lines.
2. Inclined Supports and Resistance- These are formed when supports or resistances at increasing or decreasing price levels are joined to create trend lines.

Importance of Support and Resistance
1. It also gives signals to traders and investors when to enter or exit a stock.
2. Supports and Resistance helps traders and investors to identify trends in the stock prices.
3. Supports and Resistance can be used to identify chart patterns as Head and Shoulders, Double top to determine stock trends more accurately.

Conclusion
When a stock price approaches an important support level, it is thought that at those levels buying pressure would be greater than selling pressure and a potential reversal can take place and traders can look to go long. On the other hand, when a stock price approaches an important resistance level, it is assumed that there will be more of selling pressure and a potential reversal can take place and traders can look to go short. In such a case if support or resistance level is broken, it can cause a change in the dynamics of the supply and demand. Breakout of resistance levels signal that bulls have gained more ground and breakdown of support levels signals that bears are gaining more strength.

SUPPORT AND RESISTANCE

By: Wire Inc on: Monday, June 10, 2013

Monday, May 13, 2013

Partial profit booking is a great technique of booking profits on investments. It is a different from the conventional way of profit booking and is aimed to make more out of profitable trades.
It is well known that the main idea behind any investment is capital appreciation or monetary growth. The main objective is to get rewards out of the investments in the form of profit. Wherever there is a chance of reward there is a possibility of risk.
However, many investors tend to get so much carried away by greed of making more out of profits that they tend to forget the risk aspect part of an investment. It is seen that in the pursuit of making more profits out of good trades they forget to capture the profits. Ultimately they end up losing money on these trades. As such risk management is an essential part of the investment.
To control risk means taking care of “Capital Preservation”. It is often recommended that  “Capital Preservation” should be given preference to “Capital Appreciation”.
For example, on an investment the investor quickly earns a profit of 60%. However, in his greed to make more profits he does not provide any risk management techniques in place. However, soon some news hit the stock and its price starts falling. The investor ultimately ends up making a loss. For this capital preservation is very important so that the investors can make use of the opportunities when he/she is making profits.
As stock markets are highly speculative in their behavior the need of capital preservation is even more in case of investments in stock markets than other ventures.

PARTIAL PROFIT BOOKING
Partial profit booking is way of profit booking which aims at preservation of profits and ensure that profits are not lost due to sudden price damages in the stock. It aims to minimize risk and control the conservation of profits by booking it in a planned approach.
As we know stock markets are uncertain and volatile and anticipate their movement is very difficult. The idea behind partial profit booking is to book some part of the profits and thereby reduce the risk exposure of investments. If the outstanding investment sees losses, then it would be compensated by the profits which had been booked earlier. If the outstanding investment sees upside then these profits would add up to the profits booked earlier..
Example
An investor invests Rs.1, 00,000 in shares of a company X. Within a span of 3 months the investment sees a growth of 50% and the investment valuation turns Rs.1, 50,000. After 3 more months the market crash and the shares of X see a huge fall of 40% and the valuations turn Rs.90, 000. If the investor had continued to hold the shares during the entire time span, he would end up making a loss of Rs.10, 000.

The trick of Partial Profit Booking
A safe strategy here would be book partial profits.
Let us divide the investment sum of Rs.1, 00,000 into 2 parts of Rs.50,0000 each and let us call these Investment Pt 1 and Investment Pt 2.
In this table I have shown the fate of the two parts of the investment which went through profit booking in two phrases. They are shown as Investment Pt 1 and Investment Pt 2.

Time Frame
Investment Pt 1
Valuation of Pt 1
Investment Pt 2
Valuation of Pt 2
3 months
50000
75000
50000
75000
6 months


75000
45000

Booked
75000
Booked
45000

As such, it is seen that if the investor booked a 50 % profit after 3 months and held the rest till now he would be in profits. The valuation at the end of 6 months would stand at Rs.75, 000 (from the Investment Pt 1  which was booked after 3 months) + Rs. 45,000 (from the Investment Pt 2  which was booked over 6 months) = Rs.1, 20,000.
We are not discussing how the approach of profit booking would have played out if the Investment Pt 2 also ended up in making profit. It is evident that in such a scenario the profit would only add up.

A trick for long term investors
Many investors use the technique of partial profit booking to recover the capital of the investment. This is a useful trick which can make investments attain a high level of safety.
Example
Let us say an investor invests Rs.1, 00,000 in shares of a company X. Within a span of 6 months the investment sees a profit of 100% and the investment valuation turns Rs.2, 00,000. In such a case the investor can sell 50% of his investment and recover the entire capital he had spent in the investment. The remaining part of the investment would continue to give him returns.

PARTIAL PROFIT BOOKING

By: Wire Inc on: Monday, May 13, 2013

 
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