SUBJECT- FINANCIAL MARKET OPERATIONS &

FINANCIAL STATEMENT ANALYSIS

TOPIC- REASONS FOR TURMOIL IN

SHARE MARKET
 INTRODUCTION

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section
of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much
as by underlying economic factors. They often follow speculative stock market bubbles.

Stock market crashes are social phenomena where external economic events combine with crowd
behavior and psychology in a positive feedback loop where selling by some market participants drives
more market participants to sell. Generally speaking, crashes usually occur under the following
conditions: a prolonged period of rising stock prices and excessive economic optimism, a market
where P/E ratios exceed long-term averages, and extensive use of margin debt and leverage by
market participants.

There is no numerically specific definition of a stock market crash but the term commonly applies
to steep double-digit percentage losses in a stock market index over a period of several days. Crashes
are often distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear
markets are periods of declining stock market prices that are measured in months or years. While
crashes are often associated with bear markets, they do not necessarily go hand in hand. The crash
of 1987 for example did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the
1990s occurred over several years without any notable crashes.

PARTICIPATION FROM RETAIL INVESTORS

Individual investors who buy and sell securities for their personal account, and not for another
company or organization. Also known as an "individual investor" or "small investor".
An investor who invests small amounts of money for himself/herself rather than on behalf of
anyone else. Retail investors are the polar opposite of institutional investors, which are large firms
who invest on behalf of clients. Some investment vehicles require minimum investments so as to
discourage retail investors from them. Retail investors are thought to be risk-averse and poorly
informed compared to other investors, though there is disagreement as to how true that is. The
participation from retail investors have been relatively on the lower side leading to less strength in
the markets

FII’s SELLING

The biggest reason for the current market fall is due to FII (foreign institutional investors) selling
off. Suddenly American and European markets are looking better than Indian or Asian Indices. Note
that US markets are rising from last some months and Europe has outperformed Indian markets by
20%+ in January alone. FII’s have sold a lot of in the last 1 month, below is the data taken from
NSE website. However, not everyone agrees to this argument. “FII’s have invested around 50,000
crores in Indian markets from the point when Nifty was around 5,400 last time, which was around
Aug 2010, However FII’s have sold taken out just 15% of what they invested, and right now we are
at the same levels , so still lot of FII’s money is lying around.

RECENT SCAMS

1) 2G Spectrum Scam

We have had a number of scams in India; but none bigger than the scam involving the process of
allocating unified access service licenses. At the heart of this Rs.1.76-lakh crore worth of scam is
the former Telecom minister A Raja – who according to the CAG, has evaded norms at every level
as he carried out the dubious 2G license awards in 2008 at a throw-away price which were pegged
at 2001 prices.

2) Commonwealth Games Scam

Another feather in the cap of Indian scandal list is Commonwealth Games loot. Yes, literally a loot!
Even before the long awaited sporting bonanza could see the day of light, the grand event was
soaked in the allegations of corruption. It is estimated that out of Rs. 70000 crore spent on the
Games, only half the said amount was spent on Indian sportspersons.
The Central Vigilance Commission, involved in probing the alleged corruption in various
Commonwealth Games-related projects, has found discrepancies in tenders – like payment to non-
existent parties, will-ful delays in execution of contracts, over-inflated price and bungling in
purchase of equipment through tendering – and misappropriation of funds.
3) LIC Housing Scam

India has predominantly become a land of scams by now with so many new scams being revealed
one day or the other these days involving the names of high level politicians, administrators,
government officials, police, judiciary and what not.
The recent scam revealed on the cards is one involving a clean imaged age old Indian government
owned largest insurance company Life Insurance Company of India or LIC in short.

Inflation

There seems to be a real problem with inflation rising globally and more so in emerging markets
like India. As the prices of everything from Oil to food continues to hit new records there will
clearly be a negative impact on RPI figures. Consumption is bound to drop off as people tighten
their belts and the growth story starts to look not as rosy as it did in 2007. There seems to be very
little room to use monetary policy to boost consumer confidence as well. The property sector is
already starting to feel the pain and I see the large property companies getting hammered every day
in the stock market. The question now is how long before this translates onto the real economy and
house prices start falling? Consequently this also makes mortgage banks like HDFC probably less
attractive at the moment.

Some other major reasons are enumerated below:-

 Fall in IIP numbers (1.6%) but in line with expectations because of fall in industrial output
.
 Rumours about ADAG group stocks regarding misappropriations of money raised outside
India leading to a contributor for fall in the stock markets.

 Rumours of fight between North and South Korea leading to a heavy selling in Korean
markets and passing on the effects to the Indian stock market.

 Interest rate hike by China almost after 25 years leading to panic among global investors.

REMEDIES AGAINST THE FALL

 The investors should not play open in the markets; they should hedge their investments in
order to protect themselves from the uneven market fluctuations.

 Government should take some quick and strong initiatives to control the rising inflation.

 Corporate Governance and Corporate Social Responsibility should be mandatorily followed

by each and every company.
 Government should take proper initiatives to provide export incentives and shoul try to
reduce level of imports.

 Investors should not panic because a lot depends on their psychology so they should trade
calmly and wisely.