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Sensex touches new heights

The SENSEX-(or SENSitve indEX) was introduced by the Bombay stock


exchange on January 1 1986. It is one of the prominent stock market indexes
in India. The Sensex is designed to reflect the overall market sentiments. It
comprises of 30 stocks. These are large, well-established and financially
sound companies from main sectors.The method adopted for calculating
Sensex is the market capitalisation weighted method in which weights are
assigned according to the size of the company. Larger the size, higher the
weightage. The base year of Sensex is 1978-79 and the base index value is
set to 100 for that period. Whereas NIFTY is an Index computed from
performance of top stocks from different sectors listed on NSE (National
stock exchange). NIFTY consists of 50 companies from 24 different sectors.
NIFTY stands for National Stock Exchanges Fifty. The companies which form
index of NIFTY may vary from time to time based on many factors
considered by NSE. NIFTY is for NSE similarly SENSEX is for BSE.
Current Scenrio of Stock Exchange
The Indian stock markets are moving towards a fresh life time high at Nifty at
9008 level and Sensex at 29593 . In current session, Healthcare and Oil &
Gas index were in the focus, surges by more than 200 points each. Mid-caps
and Small-Caps also closed in green territory, up by 100 points each. The
Sensex and Nifty registered fresh lifetime high levels in trades on today
bolstered by a surprise repo rate cut by the Reserve Bank of India. The 50share Nifty opened 120 points higher at 9,116 and the BSE benchmark
Sensex surged 431 points to 30,015. Reserve Bank Governor Raghuram
Rajan today announced a surprise repo rate cut, the second inter-meeting
interest rate cut in less than two months. Repo rate has been reduced by 25
basis points or 0.25 per cent to 7.5 per cent with immediate effect. The move
comes days after Union Budget announcement. In his Budget, it had
loosened the reins on public spending to drive growth, but promised lowerthan-expected borrowing despite raising the fiscal deficit target. Boosted by
the rate cut, rate sensitive stocks came in demand and were witnessing
buying. Banking, capital goods and real estate stocks were the leading
sectoral gainers on the BSE. The Indian stock markets are moving towards a
fresh life time high at 9008 level.

Factors resposible for change in indian stock market :


A) News
Stock market always reacts for appropriate news. Like merger
announcement, this news will impact more if the merger is related to foreign
company,its a positive news - stocks may rise.Demerger announcement will
have negative impact - negative news - stocks may fall Merger and
Demerger announcement may have major impact on Indian Stock Stock
markets reacts in the Same way in case of market.Acquisition (takeover)
Announcement. Similarly expansion plan , political news , sector news also
affects the stock exchanges.
B) Impact of Other Asian Market
Most of the time it has been observed and studied that Indian Market
(Nifty/Sensex) follows other Asian markets and USA markets. Asian markets
like China - Shanghais market, Japan - Nikkei market, Hong Kong - Hang
Sung market.Above all Asian markets open early than Indian market. Most
of the time Indian market will follow this Asian markets. If these Asian
markets open in positive and lead to positive direction than the Indian
markets will react in the same manner and vice-versa provided that there is
no major news in India.USA market - USA markets like NASDAQ and DOW will
also have major impact on Indian market.
C) Quarterly Results Quarterly results declared by all Indian Companies will have major impact on
that company and hence their stocks in Indian stock market. Every company
declares its quarterly results. If any company declares extra-ordinary results
that will definitely affects its stocks. Most of all stock traders concentrate on
much profit and target sales that company had made. If company achieved
good profit than they declare dividend, bonus stocks etc. This will make
positive impact on stocks of that company.
D) Fundamental News
Fundamental news means companies own news. Companies own news
means future turnover announcements, any change in director body, future
releases etc. If the company has good fundamentals like board of directors,

companies expansion plans, future acquisition etc then its worth to invest in
such companies for long term.
E) Inflation Rate Inflation rate is prices of consumer goods. This rate is declared by
Government for every week at Friday (weekend) 12.00 pm. The inflation rate
indicates what the wholesale price was for that week. If it is low As compared
to previous week, then it is positive news and you may see stock prices
going up and if the rate is higher as compared to previous week, then it is
negative and this may affect stock prices negatively and stock prices may
come down. So keep a watch. Inflation rate declare by Indian Government at
every Friday 12.00 pm and trade accordingly.Indian stock market reacts to
inflation rate.
Relationship between economy and stock market
Often share price movements are reflections of what is happening in the economy. E.g. a fear of
a recession and global slowdown could cause share prices to fall. The stock market itself can
affect consumer confidence. Bad headlines of falling share prices are another factor which
discourage people from spending. On its own it may not have much effect, but combined with
falling house prices, share prices can be a discouraging factor.
If we talk about incestment Falling share prices can hamper firms ability to raise finance on the
stock market. Firms who are expanding and wish to borrow often do so by issuing more shares
it provides a low cost way of borrowing more money. However, with falling share prices it
becomes much more difficult.

A brief about Budget..!!


Circa, 1760, the chancellor in England would carry the statement of government finances to the
House of Commons in a leather bag. The French word for such a leather bag is bougette which
became budget in English. Thus the Chancellor would present the budget in house of
commons.
In India, it is the finance minister who presents the Union Budget in parliament on the last
working day of February. The fiscal year begins on April 1 and ends on March 31. The
government has to operationalize the budget from April 1. However, before that happens, it has
to get the budget approved by Parliament. The Railway Budget is presented separately.
The speech of finance minister in parliament consists of two parts. In part A, the minister
presents the Economic Survey of fiscal year gone by. This is the ministrys view on annual
economic development of country and it forms the backdrop for presentation on budget for new
fiscal year in part B of speech. One can accessEconomic Survey and the Budget documents at
Government of Indias website at http://indiabudget.nic.in .

The finance minister also submits thee annual final statement which consists of estimated
reciptsan spending, which are operated through three separate accounts:

The Consolidated Fund

The Contingency Fund

The Public Account

Consolidated Fund : All revenues and loans raised and recovered from part of consolidated
fund, of which no amount can be spent without the approval of parliament.
Contingency Fund : It is an imprest that is available to president of India to meet unforeseen
expenditures, such as, expenditure to tackle natural disasters or accidents.
Post-facto approval of such expenditure is sought from parliament, and an equivalent amount is
drawn from the consolidated fund.
The current corpus of this Contingency fund is Rs 500 Crore. (not sure if it is still the same)
Public Account : It holds amounts which are held by the government in trust. These include
items such as Employees Provident Fund and Small savings.
No parliamentary approval needed for such payments, except when the amounts are withdrawn
from consolidated funds and kept in public account for specific expenditures (for example, road
construction)
One popular and useful measure of size of an economy is called GDP. When we express the size
of economy, that tells us how big or small government participation is in the economy.
TYPES OF EXPENDITURES AND REVENUES
Revenue Expenditure: All the expenditures incurred on the functioning of the judiciary,
maintaining law and order , routine administration, salaries, subsidies, pension for administrative
stff and payments on past debts are classified as revenue expenditure.
Capital Expenditures: These include asset creating expenditures for providing public goods
such as, dams, bridges & roads, and plants & machineries built for use in Govt. sector.
Revenue Receipts: These include tax receipts and non-tax receipts, such as, stamp duties, fees,
&dividends , if any, from public sector undertakings.
Capital Receipts: include grants received and loans recovered by the Govt. and occasional
disinvestment proceeds earned by selling PSUs. These are called non-debt capital receipts.

Generally the non-debt capital receipts are low, and this means that the Govt. has to borrow to
cover the deficit amount. Therefore, borrowing is a capital receipt, albeit a debt creating capital
receipt.
The Govt. has three choices for generating debt capital receipts: Borrowing domestically from
the public; borrowing from external financial institutions; or , under extreme conditions,
borrowing from Central Bank of the country.
TYPE OF DEFICIT:
Revenue Deficit : It measure the difference between revenue expenditure and revenue receipts.
It shows that the Govt. has to borrow money to finance administrative activities which do not
lead to the creation of any assets.
Fiscal deficit: It is the difference between Governmentstotal expenditure and the total non-debt
receipts. It shows the total debt generated by the Govt. to finance the total budget expenditure.
Such a deficit is justified as long as the expenditures are being incurred to finance activities
leading to the creation of National Assets.
Primary deficit: The difference between the fiscal deficit and the interest payment on debts
incurred in earlier years. The incumbent Govt. uses this static to show that the interest payments
on previous debt are not of its making. If resultant deficit turns out to be very small, it proves the
prudent management of the budget by incumbent Govt.
International Monetary Fund has been recommending that the fiscal deficit should not be more
than 3% of GDP.
The revenue deficit as a percentage of fiscal deficit has been extremely high in the recent past
averaging about 75% . Such a high percentage is worrisome, for it tells us that most of the debt
that the Govt. is incurring is being used for routine administrative expenses and will not lead to
any asset creation.
When the Governments fiscal deficit is large, it implies that the Govt. has to borrow heavily.
This means that the demand for loans will rise in the market, causing interest rates to go up. As
interest rates rise, the cost of borrowing for private firms goes up. As the cost of borrowing rises,
firms find that fewer and fewer investment projects are economically viable. Therefore, private
firms borrow less and do not invest in new projects. The fall in private investments naturally has
an adverse impact on employment generation and income.

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