TAX, STOCK MARKETS-614 Cr, SMALL CAPS..!!

How they made Rs614 crore playing the system

Investors in four companies mis-used the tax benefit on long-term capital gains to make a huge profit

 

Rajesh Kumar 

Four small companies, a stock exchange platform, an intention to cheat, and misuse of tax laws—all came together to change the colour of the money.

Recently, in a letter to the Ministry of Finance, the Bombay Stock Exchange (BSE) suggested that differential treatment of capital gain between unlisted and listed securities should be harmonized as it is being used by some to manipulate stock prices and evade taxes. While long-term capital gains (LTCG) on listed shares is exempt from tax under Section 10(38) of the Income-tax Act, 1961, the same is 20% after indexation for unlisted shares.

The letter was motivated by a recent Securities and Exchange Board of India (Sebi) order, which looked into transactions related to four companies listed on the BSE’s small and medium enterprise (SME) platform. The transactions showed how the system was used by some “to convert ill-gotten gains into genuine one”, stated the Sebi order.

Modus operandi

Sebi looked into the transactions related to four companies, namely, Eco Friendly Food Processing Park Ltd (Eco), Esteem Bio Organic Food Processing Ltd (Esteem), Channel Nine Entertainment Ltd (CNE) and HPC Biosciences Ltd (HPC). All are listed on the SME platform of the BSE. All four companies were listed between January and March of 2013. What caught the regulator’s eye was the massive increase in share prices of these companies. Eco’s share price went up about 64 times between 14 January 2013 and 31 December 2014. Similarly, Esteem’s share price went up about 32 times between 7 February 2013 and 31 December 2014. The other two companies (CNE and HPC) also registered comparable increase in their stock prices. This was despite no improvement in their fundamentals. That was only the beginning of the story.

The Sebi investigation found that an entity named Goldline International Finvest Ltd (Goldline) was holding shares in three of the above mentioned companies. Further, it was allocated shares on preferential basis and, later, these companies issued bonus shares. The idea was to increase the share capital on the books of the companies. As the share capital went up, they approached the market with an initial public offer (IPO). Meanwhile, before the IPO, Goldline had transferred its stake in these companies to other entities. During the IPO, it has now been discovered, common entities were buying or funding buyers for all companies. “It has been observed during preliminary inquiry that a set of common entities were funding the IPO of all the aforesaid companies either through directly transferring the amount in the escrow account of the companies on behalf of certain IPO allottees or by transferring the amount to the concerned IPO allottees’ bank accounts, who, in turn, applied for the shares in IPO,” said the Sebi order.

After the IPO, the proceeds were transferred back to the funding entities either directly or through layers of transactions. That’s not all. What is interesting is that these IPOs came one after another and proceeds of one IPO were routed to buy shares of the other companies through the funding group. Naturally, the money raised through the IPO was not being used for the stated purpose. But that is only a minor offence in the given scheme and scale of operations.

People managing the show had different ideas. Once the shares were listed, as expected, the trading volume was low, but prices kept rising. As the lock-in period for the pre-IPO allotment of shares got over, volumes also began to rise. There was no corporate action to justify the spurt in volume and prices. In fact, as the regulator pointed out, these companies had poor fundamentals. Further examination revealed that connected entities were pushing stock prices for all the companies. This trading group also bought most of the shares from preferential allotees who had received them during the pre-IPO days. It was also learned that the trading group was receiving funds from several sources to do this. For example, one Ashvin Verma reported an annual income of Rs.1.81 lakh in financial year 2012-13 but received around Rs.38 crore between 12 September 2013 and 9 August 2014 from three different entities, which was later transferred to a stock broker. But why will someone give money to someone else to buy shares, and that too in companies that have no fundamental backing? As the market regulator discovered, the entire setup was created to make use of the stock exchange platform and misuse laws. Money was given to a set of participants to inflate stock prices and create a profitable exit route for investors who had received preferential allotment before the IPO.

“From the above facts and circumstances, I prima facie find that the preferential allottees, pre-IPO transferees acting in concert with Funding Group and Trading Group have used the stock exchange system to artificially increase volume and price of the scrip for making illegal gains and to convert ill-gotten gains into genuine ones,” said Rajeev Kumar Agarwal, whole time member, Sebi, in the order dated 29 June 2015, which banned 239 individuals and entities from the capital market till further direction. Sebi is also of the view that all this would not have been possible without the involvement of promoters and directors of these companies. Agarwal observed that all this was done to create fictitious LTCG, so that the unaccounted money of preferential allottees is converted into accounted funds and income can be shown from a legitimate source, the stock exchange. Funds were provided to the trading group through layers of transactions, so that the people and entities who got shares in the preferential allotment and transfers before the IPO could exit profitably.

As a result, according to Sebi, all the preferential allottees and pre-IPO transferees, together made a profit worth Rs.614 crore.

In response to Mint’s query about this case, a spokesperson of the Central Board of Direct Taxes said in an email, “Necessary action is being taken by the jurisdictional authorities in the Income Tax Department in the cases found actionable as per provisions of the Income-tax Act, 1961. Requisite coordination with Sebi is also being done wherever required.”

Will changing tax laws help?

In order to avoid such misuse of the stock exchange platform in future, the BSE suggested in the letter mentioned earlier that differential treatment of capital gains in listed and unlisted companies be removed. “Going by Sebi’s observations, there is a strong case for removing exemption on long-term capital gains tax as it is being used to evade taxes,” said Ashishkumar Chauhan, managing director and chief executive officer, BSE.

But not all are with the exchange on this suggestion. Prithvi Haldea, chairman and managing director, Prime Database, for example, said that the tax exemption on LTCG is for a reason and is a well thought out policy decision. “The problem is with law enforcement. You can change the tax laws but people will find some other way. My view is that surveillance and enforcement should be increased, and fear of punishment should work as deterrent,” added Haldea. Others are in agreement. “My response is that it (suggestion to remove exemption) is unfair to a large number of ordinary investors. We have a small investor base and the exemption is an excellent motivation,” said C.J. George, managing director, Geojit BNP Paribas Financial Services Ltd, adding that stock exchanges should improve their surveillance system. Dinesh Thakkar, chairman and managing director, Angel Broking Pvt. Ltd, also said that there is a need for processes that act as deterrents and remove people who use the system to evade taxes. “We have to follow the process that we are following. Since equity is a risky asset class, people need invectives to invest,” he added.

Clearly, what the regulator has exposed is a problem that’s too big and runs too deep to be contained by simply changing tax laws. For investors, this case once again reinforces an argument that has been consistently highlighted in these pages—that individual investors should stay away from investing in small companies as these are difficult to follow and prices can be manipulated.

http://www.livemint.com/Money/txqW73VK7bDUymK4pNWbZJ/How-they-made-614-cr-playing-the-system.html

CHINA LOCALS vs GLOBAL FIIs

China stock brokers set up $19 billion fund to stem market rout

The 21 brokers led by Citic Securities will invest the equivalent of 15% of their net assets as of the end of June, or no less than ¥120 billion in total

Beijing: Chinese brokerage firms have come together to set up a stock-market fund, the latest effort to stem the biggest three-week drop in China’s key share index since 1992.

The 21 brokers led by Citic Securities Co. will invest the equivalent of 15% of their net assets as of the end of June, or no less than ¥120 billion ($19.3 billion) in total, the Securities Association of China said in a statement on its website Saturday. The fund will invest in blue-chip exchange- traded funds, it said.

The move comes after measures to shore up equities failed to stop margin traders from unwinding positions at a record pace, with the market losing more than $2.8 trillion of value in three weeks. The People’s Bank of China cut interest rates last week, while margin-trading rules were eased and trading fees were cut Wednesday.

The new fund to bolster equities may have only “a fleeting effect when daily turnover has reached ¥2 trillion”, according to Hao Hong, China equity strategist at Bocom International Holdings Co. in Hong Kong.

“This ¥120 billion won’t last for an hour in this market,” Hong said by phone from Beijing Saturday. “It might benefit blue-chip stocks, as investors may see them as value, but the bursting of the bubble in small-cap/tech stocks is likely to continue.”

Small-Cap stocks

The ChiNext index of smaller companies in Shenzhen traded at a record 131 times reported earnings last month — five times the level of the Shanghai Composite Index -- after tripling over the past year. The gauge had lost 33% from its 3 June peak as of Friday, trimming this year’s gains to 77%.

“The market’s most acute concern is still these smaller cap stocks, as investors levered up to buy them and now margin lending curbs hit them the hardest,” Hong said. “With their valuation in the stratosphere, nobody is willing to step in and bolster these stocks.”

The brokers on Saturday pledged not to reduce any proprietary investments in the equity market as long as the Shanghai Composite Index stays below 4,500, the association said; it closed Friday at 3,686.92. Listed brokers will actively buy back outstanding shares, while encouraging their parent companies to increase holdings, according to the statement.

The group of 21 brokers said the economic fundamentals that had justified the stock market’s rally before the rout hadn’t changed.

“It is therefore our duty to unite in stabilizing this market,” the statement said.

Li-Gang Liu, chief China economist for the Australia & New Zealand Banking Group Ltd., said the market would eventually find its own level.

“If a listed company thinks its shares are undervalued it could buy back shares. Such purchases shouldn’t be triggered by any kinds of administrative calls,” he said. “I believe the market is still under big downward pressure.”

There remain additional steps the government could take to support the market. China’s central bank-affiliated Economic Observer reported last week the government is considering reducing the stamp tax, while the finance ministry said it will allow the national pension fund to invest in shares.

On Friday, China’s securities regulator said it will limit the number of initial public offerings this month and revise rules to encourage foreign investment in the market. Chinese media reported that a unit of China’s sovereign wealth fund has been buying exchange-traded funds in the past week to support the market. Bloomberg

http://www.livemint.com/Money/jy1YOJCdnfUj6ybSLGbTMM/China-stock-brokers-set-up-19-billion-fund-to-stem-market-r.html

India’s $100 bn push- solar energy

India’s $100 bn push into solar energy to be driven by foreign companies as locals take backseat

Last week, Softbank became the latest foreign player to enter India's solar market, leading an investment of up to $20 billion.

India’s $100 billion push into solar energy over the next decade will be driven by foreign players as uncompetitive local manufacturers fall by the wayside, no longer protected by government restrictions on the sector.

The money pouring into India’s solar industry is likely to be soaked up by foreign-organised projects such as one run by China’s Trina Solar – not the country’s own solar panel manufacturers.

Last week, Softbank became the latest foreign player to enter India’s solar market, leading an investment of up to $20 billion. The Japanese firm said it would consider making solar panels locally, but with Taiwan’s Foxconn rather than a local manufacturer.

Many Indian solar panel producers have benefited over the past six months from a surge in demand for panels not yet fulfilled by foreign companies. But their small scale and outdated technology will quickly make itself felt when the global players arrive.

“The smaller manufacturers of India, especially the cell manufacturers, will be adversely hit because they are unable to compete both on technology and even on price structures,” said Jasmeet Khurana at solar consultancy Bridge To India.

India’s solar panel makers can no longer turn to the Indian government for help. The government is more concerned about creating jobs quickly and ensuring plentiful power supply in a country known for its many blackouts.

India, in contrast to Chinese and German efforts to protect local producers, has scrapped most restrictions on where equipment that turns sunshine into energy is bought. Last year, it dropped an anti-dumping duty on panel import.

Foreign players making panels in India are expected to compete with local manufacturers to fulfil so-called domestic content requirements for government projects.

Trina has unveiled plans for a $500 million plant and US.-based SunEdison is investing up to $4 billion in a manufacturing facility. Both are tying up with Indian power firms to build the plants.

SOLAR TARGETS

India has said it expects peak power demand to double over the next five years from around 140,000 megawatts today. To help meet that demand, 100,000 MW of new capacity is to come from solar panels, and of that it wants at least 8,000 MW to come from locally-made cells.

Foreign players manufacturing in India will probably win the bulk of those orders.

Indian rivals like Indosolar and Moser Baer produce panels, but they cost 8 to 10 percent more than foreign producers, Khurana said.

It is not yet clear which foreign firms will emerge as the winners, with most of the facilities years away from being built and the big tenders for huge solar parks touted by the government still to be awarded.

But those who can quickly build scale will be the most able to compete on cost.

“The lowest cost in manufacturing will only come from scale and integrated facilities,” said Sujoy Ghosh, India Country Head at U.S.-based First Solar.

First Solar is to build 5,000 MW of solar power before 2020, but will rely on imported panels for now because it is cheaper to buy component parts internationally where they are more readily available.

As for some of India’s small panel makers, they are looking to complement the efforts of foreign players instead of trying to derail them.

Maharishi Solar, a small manufacturer based in Delhi, is looking to tie up with a foreign company, the company’s head Ajay Prakash Shrivastava told Reuters.

It stopped producing solar panels a few years back as it could not compete with foreign manufacturers, primarily Chinese. Shrivastava said import panels are as much as 45 percent cheaper thanks to subsidies in their home countries and lower borrowing costs.

“The Indian manufacturers do have a disadvantage,” he said. “We are trying to find a partner who can bring in the latest technology.”

First Published on July 2, 2015 2:37 pm======================

http://www.financialexpress.com/article/economy/indias-100-bln-solar-push-draws-foreign-firms-as-locals-take-backseat/93546/

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Just imagine the POTENTIAL AVAILABLE. It will be like wireless-mobile revolution.

The companies are going to use the HIGH-WAYS as OPPORTUNITY to Cover the VILLAGES and connect to GRID...Just wait for GESTATION period to explode.

FEED--ENCOURAGE & NOW CHINA MARKETS BUTCHERED...???

China stocks plummet as investors stampede out of the market

CSI300 index falls 7.9%, Shanghai Composite Index loses 7.4%

Reuters  |  Shanghai  

June 26, 2015 Last Updated at 12:59 IST

China stocks on Friday posted some of their worst losses in seven years, as investors stampeded out of a market amid increasing signs the country's eight-month-long bull run is running out of fuel.

The key CSI300 index fell 7.9%, to 4,336.19, while theShanghai Composite Index lost 7.4%, to 4,192.87 points.

For the SSEC, it was the worst one-day loss since Jan 19. For the CSI300, the drop was the biggest since June 2008.

Stocks fell across the board, with nearly 2,000 of the roughly 2,800 listed companies in Shanghai and Shenzhen slumping by their 10% daily limit.

After the CSI300 fell through several technical support levels, then there is "no technical buying support left following a massive rally over the last year or so," investment advisor Rivkin said in a note.

Further falls in China stocks "will send ripples throughout Asian markets," Rivkin said.

A more than doubling of China's stock market over the past year had been underpinned by rapidly-expanding margin financing, monetary easing and hopes of economic restructuring, but analysts said two of the three legs are now shaky.

Regulators have been cracking down on illegal margin financing and urging brokerages to tighten rules. Many investors have also faced increasingly expensive margin calls in the past week as share prices have retreated.

Outstanding margin loans shrank for the third straight day on Wednesday to 2.2 trillion yuan ($354.35 billion), as investors slashed 61.5 billion yuan worth of leverage during the period, the latest data shows.

Jiang Chao, strategist at Haitong Securities, said that further monetary easing - long another pillar of investor optimism - is also in question.

"Recent bond market performance reflects institutional investors' view that the rate cut cycle is coming to an end," he said.

Morgan Stanley sees Shanghai's benchmark index falling between 2 and 30% from current levels over the next 12 months, citing heavy equity issuance, weak corporate earnings, demanding valuations and excessive levels of margin financing. 

http://www.business-standard.com/article/reuters/china-stocks-plummet-as-investors-stampede-out-of-the-market-115062600322_1.html

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CHINA MARKETS BUTCHERED...???

MY SIMPLE QUESTION IS WHO IGNITED THE FIRE IN THE RALLY TO A STUPENDOUS LEVELS OF 87 P/E RATIOs,...AND WHO RECOGNISED THE VALUATIONS MIS-MATCH & MISTAKES AND OFCOURSE FINALLY WHO LOST?

WINNING TRENDS IN STOCK MARKETS

“PEOPLE ARE NOT DISTURBED BY THINGS RATHER BY THE VIEW OF THINGS” –ALBERT ELLIS, AN AMERICAN PSYCHOLOGIST WHO DEVELOPEDRATIONAL EMOTIVE BEHAVIOUR THERAPY.

THIS PSYCHOLOGICAL APPROACH IS APT TO MANY BUSINESS HOUSE DECISIONS BUT VERY TRUE IN STOCK MARKETS AS VIEWS BECOME PALE & FEARFUL DURING THE TIMES OF DEPRESSIVE NEGATIVE ENVIRONMENTS, JUSTLIKE NIGHTMARES IN  THICK FORESTS OF ABUNDANT DESOLATION.

THE STOCK-MARKETS CLEARLY REPRESENT A FRIGHTENING CLUMSY PICTURE AT TIMES WHEN VOLITITIY AT ITS PEAK & FALL CONTINUES!!, NO MATTER HOW SEASONED SOMEBODY BUT TO OVERCOME THE NERVE WRENCHING FEAR AND FORESEE THE FUTURE BECOMES DREADFUL.

TO AVOID UNCERTAINTIES IN STOCK MARKETS ARE NOT AT ANYBODY'S COMMAND OR CAPACITY BUT EVERY PARTICIPANT'S WISH....

TO MITIGATE THE FEAR AND UNDERSTAND THE EMERGING OPPORTUNITIES IN CHAOS, THE FOLLOWING APPROACHES CAN BE ADOPTED FOR BETTER RESULTS AND TO KEEP PACE WITH THE MARKET TRENDS...!!

A) CONVERGENT PROCESS:

THIS APPROACH IS MORE WIDELY ACCEPTED AND FOLLOWED BY THE FIIs, DIIs AND ESPECIALLY FOR THAT MATTER MORE PRECISELY BY HEDGE FUNDS. THESE HIGH RISK SEASONED CUTTING EDGE SMART PEOPLE PLACE HIGH BETS WITH AN ANTICIPATION OF HIGH RETURNS. THE BLOOM AND GLOOM CO-EXIST MANY A TIMES BUT THEIR SPIRITS ARE VERY HIGH.

HERE, STOCK PURCHASE CONCENTRATION IS SO HIGH THAT HUGE MONEY PUMPED AND LARGE CHUNK ACQUIRED AT A REASONABLE PRICE. THE COMPANY FUNDAMENTALS, ECONOMIC &BUSINESS TRENDS AND OTHER IMPORTANT PARAMETERS ARE LITTLE KNOWN TO OTHER RETAIL PARTICIPANTS BUT GET SURPRISED WHY AND HOW THESE COUNTERS ARE HOLDING ON TO THE TOP. 

LAST BUT NOT LEAST, THE VERY IMPORTANT MARKET MANAGEMENT MECHANISMS ARE PUT IN PLACE TO SEE THE PRICES RISE STEADILY AND GRADUALLY TO A LIMIT AND THEN A FINAL SHOOT UP …?. UNFORTUNATELY THE GREEDY POOR TRADERS AND RETAIL INVESTORS GET TRAPPED WHEN PARTICIPATE HEAVILY AND OFCOURSE THE WELL INFORMED SEEK AN EXIT…???

B) DIVERGENT PROCESS:

MAINLY FOLLOWED BY HNIs AND SMALL FUND HOUSES. THE PHILOSOPHY IS TO PROTECT THE CAPITAL AND INCREASE PROFITS IN BABY STEPS. THESE INVESTORS NEVER KEEP ALL EGGS IN ONE BASKET BUT PREFER DIFFERENT SECTORS. THIS DIVERGENT MEANS OF MAKING MONEY CAN OFFER SOLACE THAN ANY OTHER MODEL AS THE MARKET WAGGERIES ARE WELL TAKEN CARE. 

THESE PLAYERS ARE MODERATE IN RISK TAKING APPROACH, HAVE GOOD CONFIDENCE IN MARKETS BUT FEARFUL IN APPROACH. THEY ADOPT LONG-TERM PLAY WITH AN EYE ON SHORT-TERM GAINS, PLACE THEM IN GOOD POSITION AS THEY OFTEN TAKE-OUT PROFITS AT HIGHER LEVELS AND RE-ENTER AT LOWER LEVELS. SO, SAFE AND SECURE ALL THE TIME.

C) CHANNELLED PROCESS:

THE LADDER LIKE APPROACH IS ADOPTED BY SMART INDIVIDUALS TO ENSURE SUCCESS AT EVERY MOVE  WITH A LIMITED RESOURCE/MONEY. THEY KEEP MAINTAIN A WINNING STEAK ON BOTH THE DIRECTIONAL MOVES, SAIL ALONG WITH BULLS AND BEARS AS THEIR ADAPTABILITY & LIQUIDITY AT HAND ALLOWS SUCH FACILITY. THEY KEEP INCREASE VERY CALCULATED BETS, ALSO MAKE SUCCESS, A COMMON PHENOMENA LIKE CLIMBING A LADDER.

THESE PLAYERS ARE KNOWLEDGEABLE AND QUITE SMART IN CATCHING TRENDS IN THE MARKETS AND PLACE THEIR BETS SAFELY, ALSO MAKE SOME GOOD MONEY. THE PLAYERS SUCK EACH EMERGING OPPORTUNITIES IN STOCK MOVEMENTS BUT THEIR WELL ESTABLISHED APPROACH IS NOT KNOWN IN THE MARKET CIRCLES BUT MAKE DECENT COOL MONEY.

D) ZIG-ZAG JUMPING PROCESS: 

THIS APPROACH IS MOSTLY ADOPTED BY THE DAY TRADERS AND SWING TRADERS, ENJOY BUYING AND SELLING MANY A TIMES DURING THE DAY.THESE ENTHUSIASTIC TRADING PLAYERS ARE BACK-BONE TO MARKET LIQUIDITY AND FOR STOCK-TIPS ADVISORS. THEY KEEP ENGAGED EVERY TIME AND EACH TIME THEY TAKE A CALL AS THEIR GAME IS HIGHLY VOLATILE AND NO-BODY UNDERSTANDS WHY A BUYING IS MADE AND INSTANTLY A SELLING IS INITIATED. MANY A TIMES THEY BUY AT ONE COUNTER AND ALSO SELL ANOTHER SCRIP. ULTIMATELY, THEY ENJOY PARTICIPATION RATHER THAN MAKING MONEY.

THESE SMALL TIME RATHER INSTANT PLAYERS NEVER MAKE HUGE MONEY STORED IN THE MARKETS BUT LOSE MONEY FOR SURE, BECAUSE OF BUNDLE OF CONFUSIONS!. THE MORE THEY PLAY THE MORE THEY PAY. THEY HARDLY MAINTAIN ANY ORDER/METHOD, FIND NO TIME TO STUDY, PREFER EXTERNAL DEPENDENCY, MAINTAIN ADAMANT BEHAVIOUR TO A LOSING DEALS, RELY ON IRRATIONAL MEDIA COVERAGES & LIVE IN RUMORS AND PLACE HUGE BETS, BELIEVE IN CARRY ALONG WITH THE MOB IN THE MARKETS...ETC. ALL THE MORE, TAKE VERY FRAGILE DECISIONS AND UN-MINDFULLY INVITE HIGH-RISKS, UNFORTUNATELY GO INTO DUST...UN-NOTICED!!!!

The Influence of Psychological factors-Decision making practices in Capital Markets:

Renowned Investor's great sayings.....“Individuals who cann’t master their emotions are ill-suited to profit from the investment process. Never forget to account for the psychology of the investor”- Benjamin Graham, the Father of fundamental “Value Investing” in Stock markets.

The stock investing in India in recent times is increasing many folds in leaps and bounds through organised Exchanges like BSE (Bombay Stock Exchange) and NSE (National stock Exchange). The stock-investors, be it an individual person or a group/institution who would allocate surplus money from their savings with an anticipation of a better financial returns from their investments to meet the future needs/aspirations. The awareness of stock investment is increasing with the growing economy and more companies are raising capital through markets.  There are various investment options and different investment schemes are made available other than the traditional bank deposits, like Equity Investments, Debt securities, Gold, Commodities, Currency..etc through recognized Stock Exchanges.

There are more than 5000 companies listed and are regularly trading in both the exchanges. The Indian corporate market capitalisation has increased many fold to cross 1 trillion USD and at times, the trading volumes in the bourses are breaking the world records. So far, the Indian capital markets are offering safe and higher returns from blue chip companies that offer regular higher dividend along with price appreciation attracting the Foreign Institutional Investors. The FIIs dollar driven liquidity accelerating the growth of Indian Market Capitalisation, made investments of Rs 6,370 crores in 2000 has increased to an all time high of Rs 1.405 Lakh crores in 2012, even the average is working out  Rs1.0 Lakh cr for last 3 yrs. Apart from the FIIs, the universe of Investors base is increasing day by day and day after day, those can be of individual retail investors, Mutual Funds, Hedge Funds, Venture Capitals, Insurance companies like LIC of India & other private insurance companies and Investment trusts like EPF (Employee Provident Funds).

The Advantage INDIA:

The Indian economy has taken the advantage of attracting the Foreign Direct Investment in India is benefiting the Indian companies at large. The huge geographical spread and rich natural resources attracting multi-billion dollars of investment in mining, oil& gas exploration, highways, ports, pharma and in manufacturing sector etc. The high skilled employees of Software industry and exports from India are bringing dollars to national wealth reserves, are culminating the growth of economy and the Stock markets as well.

The positive side of growth expansion has also opened with new Govt in office. The recent run-up in Indian stock markets opened even more challenges to Retail Investors in choosing the companies for investment, timing the investment and the lack of expertise in en-cashing such Investments are jeopardizing the whole investor fraternity. 

There are many opportunities associated with stock market investing. It can make or break the life of an investor in no time. Most stock Investor blindly believes publicly available suggestions and keep emphasis with over-confidence about the quality advice/credibility of such information received while investing, has been universally accepted and repeated investment mistakes termed as psychological biases. So, individual human psychology determines success or failures in Stock Investing. 

Psychological Issues of Investment models:

The psychological aspects influences to make the difference from the rest, as everybody in the stock market is smart with their investment plans & brilliance offsets each other. To become successful in the stock-market, merely sound knowledge about the market does not suffice. It requires various right decisions that bring the investors to emerge out as successful winners.

The psychological presumption of following the trend is nothing but herd mentality when right time exit does’t take place!. The retail investors participation in purchasing the stocks from the secondary market will be tepid at the bottom where the Indices show little interest to go up, so is the stock uptick. On the other hand, when the markets rise and are close to their yearly highs, the traders and short-term Investors exuberance is high with high level of participation at the tops for quick bucks!

It is often observed that the bubble formation takes place when the retail investor fund inflow increases phenomenal as the money chases the stocks relentlessly without considering the fundamental values of the company and its performance. The volatility levels will be high and the returns are immediate, also huge at the short-term is more often seen as “God sent Opportunity” and shear speculation to make quick bucks as “Want of owning the Stock” for short-term gains leads to disastrous burst.

The “Greed and Fear” of the investor’s psyche that drive the market’s nerve-wrecking volatility that constitutes a deep struggle between the two fundamental emotional forces of BULLs and BEARs. The market’s peaks and bottoms are the mirror images of the irrational emotional swings of investors who are too OPTIMISTIC or PESSIMISTIC of the stock prices and their future performance.

Psychological influences on Investors:

The Indian investors are considered to be with strong value system being maintained with morals and ethics. However, he /she may not be avoided with some influences that come from both internal and external directions. The Fly by Night Operators take the advantage of Bullish periods of stock markets to sell a bunch of multi colored dreams of stocks future valuations by showing irrelevant projections and prospects of thinly traded stocks, mint money by selling those to retail investors.

The most common investing “Psychological Pothole Traps” coupled with external recommendations, group behaviors, irrational relative comparisons with blind confirmations and internal individual views consists of anchoring presumptions, delay due to doubts & suspicion, over enthusiasm & wrong aspirations, lack of confidence, lack of risk taking behavior & knowledge converting to dependency, along with inordinate reliance on existing trend, procrastinating & denial with adamantine nature for a change when needed and horrifying, compelling panic-ness to SELL during fall leading to serious capital erosions, instead of what was thought!. These abnormal behaviors, irrational investment decisions generate huge losses there by lowering Self-confidence and respect in markets which ultimately affecting on decision making abilities of the investors.

Investment cross-check:

The Investor fraternity has to examine the influence external forces on decisions making practices in capital markets, be it the peer group or media, or personalized solicitations via mails/SMS about investment tips. Investors shall focus on the individual cash flows, knowledge about markets& risk taking behaviour, needs & aspirations and most importantly the emotional balance to sudden SHOCKS, also the availability of supportive family environment & mentor group behaviour, if any. So, special emphasis would on stable composure to identify quality stocks and the price relevance apart from analysing other economic and political factors, while considering stock investments!!!....

THERMAX.....

MIND BOGGLING YET…

I WAS AMAZED TO SEE THE PRICE ROCKETED TO CREATE ENOUGH TURBULENCE IN ME.

I BOUGHT 1000 SHARES OF THERMAX FOR Rs 38.65, 15 YEARS BACK,

TODAY, THE PRICE OF THERMAX IS Rs 1050/- OF Rs 2/- FACE VALUE (EQUAL TO Rs 5150/-). IN OTHER WORDS, ONE LAKH INVESTED HAS BECOME MORE THAN 66 LAKHS.

EVEN RECENTLY, 2-3 YEARS BACK, I FOUND MARKSAN AT Rs 2.30 NOW IT IS QUOTING Rs 64/-.

ALSO FOUND MORARJEE TEXTILES AT Rs 7.0 NOW TOUCHED A HIGH OF Rs 61, INDOCOUNT INDUSTRIES AT Rs 7.0 NOW TOUCHED A HIGH OF Rs 390/-.

BUT THE ABOVE THREE WERE JUST MEMORIES BUT NO PARTICIPATION……

MERRY CHRISTMAS TO YOU AND ALL INVESTORS & TRADERS…