Friday, October 24, 2008

Stock Markets

Today is 25th October 2008 and newspapers carry front page very bold headlines—SOS: Save Our Stocks (Times of India) and Investors lose Rs 3,00,000 cr (Deccan Chronicle).
I have not studied economics as a subject in college. My understanding is mere commonsense.
When a company floats shares, it does at a premium. A share is worth Rs 10/- but is issued at Rs 50/-. But when it comes to paying the dividend the calculation is on intrisic value of the share. Great!
When a buyer of shares later sells them at a much higher rate the company does not get anything out of it. The company remains unaffected. A buyer buys shares at Rs 300/- per share. In a year the share value jumps to Rs 500/-. Thereby he gains if he sells them. If he keeps them and susequently the value drops to Rs 400/- he claims he has lost Rs 100 per share. Pathetic! Why do we call them investors instead of calling them gamblers?

It is agreed that the speculator’s purchasing power reduces when the market crashes. But what percentage of Indians participates in the market? Just one percent of Indians participate in the market.
It is very true that GDP is affected when the speculaters do not make money because stock market speculaters and those with black money consume a very large portion of GDP.

Excerts from PM’s speech on civil services day as reported in Deccan Chronicle of 22-4-06 :
“Markets will increasingly become the arbitrators of resource allocation in many cases. At the same time, it is necessary to realise that markets can at times lead to marginalisation of the poor and the vulnerable. We must not forget that markets serve those who are part of the market system,”
. “While markets can facilitate higher growth, a government must ensure that growth is equitable, inclusive and not unduly harsh on those not equipped to manage change. Ensuring and assuring equitable and sustainable growth is, therefore, an important challenge before the government and its managers,”
The Sensex, at that time ended flat at 9.25 points up to close at 12,030 after touching a high of 12,102 and a low of 11,878.35 points. At one point, it was down 153 points.

M J Akbar in Deccan Chronicle on 3-6-07:
“The latest issue of India Today informs me that in just one year, 2006-2007, Dr Singh’s government permitted the shareholders of 1,100 companies to pocket Rs 40,000 crores in dividends. Did they pay any tax on Rs 40,000 crores? Not a rupee. Take out a calculator and do the math.”

Mani Shankar Aiyar Posted online: Tuesday, April 24, 2007 at 0000 hrs:
“So when you talk of a nine point two per cent growth rate, it becomes a statistical abstraction: 0.2 per cent of our people are growing at 9.92 per cent per annum. But there is a very large number, I don’t know how many, whose growth rate is perhaps down to 0.2 per cent. But certainly, the number of those who are at the lower end of the growth sector is very much larger than those who are at the higher end.” Mani Shankar Aiyar

Kushwant Singh in Deccan Chronicle of 18.11.07.:

“The day India’s Sensex crossed the 20,000 mark and Mukesh Ambani was declared the richest man in the world, 20,000 men and women from Central India arrived on foot from Gwalior to Delhi to protest they had not enough to eat one square meal a day. It was as ironical an coincidence as could be, what in American slang is known as a double whammy — two slaps on the face. India which is counted among the poorest of the poor nations of the world should also produce the richest of the rich.”