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me 1, Number 2, July - Aug (2010), IAEME ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), pp. 98-105 IAEME IAEME, http://www.iaeme.com/ijm.html
IJM
RECENT FALL IN INDIAN STOCK MARKETS: A CASE OF GLOBAL INTEGRATION OF FINANCIAL MARKETS:
K.V.Marulkar Assistant Professor, Department of Commerce and Management Shivaji University, Kolhapur
INTRODUCTION:
Stock market has now become a news item since every fall or rise either small or big gets the coverage in the news at national or even local media. Everyday, we come across the popular indices of stock exchanges namely SENSEX or NIFTY falling down or rising up. These fluctuations take place due to number of factors internal as well as external. But what we have observed recently, is the sharp fall in the values or prices of shares the world over. The causes for this fall are not merely the local or indigenous; but more important reason is the weakness in the capital markets in the globe in general and in USA in particular. The present paper tries to emphasize on the significance of weakness in the global capital markets and its adverse impact on the Indian capital market.
Asian giant and very soon it is likely to be amongst the top markets in the world. The stock exchanges in India started in the year 1875 with the inception of Bombay Stock Exchange. But the manner of transaction which were taking place in the stock exchange, was totally different. Initially, few brokers started the trading in the stock exchange. This was not a formal or regulated way of trading. It started under a tree where now a historical building of Jijibhoy Tower is established. In the early phases, the other stock 98
International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
exchanges were established in the big cities like Ahmedabad, Chennai, Delhi and after the second world war, there has been an enormous increase in the trading in the stock exchanges. In the last decade of 20th Century, the policy of liberalization, privatization and globalization was announced and that increased the pace of growth of capital market even further. During the same time, Securities and Exchange Board of India (SEBI) was also established to protect the investors rights and to regulate the functions of the stock exchanges in the country. Thus, it can be clearly understood here that, even though the history of stock exchanges is as old as 130 years, still most of the important developments have taken place during last 20 years only. Now, considering the ability of Indian markets, more and more money is being pumped in by the foreign institutional investors. This money has been also called as a hot money as it has an ability to fly from one country to another. Since toady, India is a better market for foreign investors, they are pumping their money in India tomorrow if another attractive destination is identified by them, the money which is coming in to Indian markets would easily be transferred to the another market. But still we can not ignore at this stage that in the years to come, India can fulfill the expectations of the global investors and remain as an attractive destination.
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
the recent fall of Indian stock markets and the global integration of the market. The specific objectives behind this paper were as follows: 1. 2. To find out the impact of global cues on the Indian Stock Markets To find out how the globalization is contributing to volatility in markets.
HYPOTHESIS
The present paper throws light on the recent fall in the Indian Stock Markets. It also tries to come out with possible causes of this fall. One of the causes may be global integration of the financial markets and considering this particular phenomenon, the hypothesis which has been formed is: The recent crash in the stock markets world over is an example of the integration of financial markets world over. Due to the recession
fears in the US, there has been a panic in the markets and even the better performing markets have also participated in the global meltdown of the stock markets.
mentioned above are more popular than the money markets. As far as money markets are concerned, London money market is looked as the most developed money market in the world. Similary we have mutual fund market and debt fund market which support the development of other markets like capital market and money market. Equity markets deal with long term securities while money markets deal with short term securities. Mutual fund industry has different schemes and accordingly some gilt funds or liquid funds are components of money market while equity and diversified (mutual) funds are players of the capital market. Debt funds also deal in medium term securities.
Eventhough there are several aspects about global financial markets, this paper tries to emphasise only on the equity or capital markets. The reason behind this is that, the
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
institutional investors invest their funds into the equity markets because they expect higher rate of return in equity markets than debt/money market or mutual funds.
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
money invested by FIIs in other countries. That resulted in outflow of the funds from emerging markets which finally resulted into the crash in emerging markets also. This is a perfect case of global integration of the financial markets world over. Since the US is still leader in the world markets, its impact can easily been seen on the other markets. To illustrate it further following table provides the data relating to the collapse in the stock markets throughout the world during the month of January, 2008.
Country/Stock Exchange USA-Dow Jones Japan Tokyo Brazil Mumbai - India Hong Kong South Korea Name of the index Dow Jones Nikkei Bovespa Sensex Hang Seng Composite Fall in the index recorded in January, 2008 21 % 19 % 18 % 19 % 17 % 18 %
It can be clearly understood from the above table that the financial markets world over and to be specific, capital markets world over, have reacted to the fall of the US markets during the month of January, 2008. It we try to find out the possible causes of this global meltdown, we get the interesting observations. Some of these observations have been elaborated here.
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
loans were being given, due to the positive indications from the sector, some sanctions or concession were given for real estate loans. Lateron, when the boom phase was over and economy started showing indication of slowdown, the prices of real estate started falling down. That resulted into the loss suffered by the real estate players (i.e. contractors, developers, brokers). This made the problem of recovery for the banks and therefore, the banks also suffered loss in this activity. Since the quantum of these loans was high, most of the loans were either required to be written off to some extent or provisions were required to be done. Due to this, the
profitability of the banks was affected and further the money supply was also restricted. Then they had no option but to pull out the investment from the market and that resulted in selling pressure in the equity markets entailing the crash in the stock markets. 4. The (Short) story of Strong Fundamentals: The emerging economies including India and China were confidently asserting the strong fundamentals in the Indian markets. But interesting point to note here is that, the US markets just signaled regarding soaring inflation and recession and lateron, every other nation started signaling the same fears. Therefore the question which can be raised here is Do Indian markets really have strong fundamentals?
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
3. Technological Advancements: The advancements in the technology which have taken place in the last decade have also contributed to this integration. Now since the fact that electronic clearing and settlement, E-trading have become the part of the markets, it is easier for the market players to operate from distant places. 4. Institutionalization: Due to the increasing institutionalization, it has become easier to trade in the large scale. Such huge trades have the ability to determine the pace and give directives to the markets. This has also resulted in high volatility in the markets. The monitoring has also become simpler than the past through this
institutionalization.
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International Journal of Management (IJM), ISSN 0976 6502(Print), ISSN 0976 6510(Online) Volume 1, Number 2, July - Aug (2010), IAEME
REFERENCES:
1.Books Kulkarni P.V. (Business Finance) Kuchchal S.C. (Corporate Finance) Pandey I.M. (Financial Management) Avadhani V.A. (Indian Financial System)
2. Periodicals Indian Journal of Finance (Various Issues) The Economic Times (Various Issues) Business Standard (Various Issues)
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