“THE MONEY MARKET”
During this lockdown, many unfortunate events took place which we couldn’t do anything about
but some of us were fortunate enough to sit on the couch, enjoy the coziness of our home with
good food by our side and binge watch tv or web series. As our conversation got to web series,
there is a new Indian series in the “market” called THE SCAM 1992- THE HARSHAD MEHTA
STORY by sony liv.
Many of us watched the series as it was one of most hyped tv series recently. So, the story goes
like this.....oh let's not give you spoilers but basically it was based on the life of a legendary man
named Harshad Mehta who became a billionaire by earing through stock market. Though we all
watched the series and found it interesting; we don’t actually know about this “Stock Market” or
the “money market”. The limited knowledge that we have is, if we put money there, we will lose
all our money. So, let us know about it.
In the 1600s, the Dutch East India company assigned 100s of ships to sell gold, spices around the
globe which was a huge deal for this they turned to the local citizens to pay like as invest in their
companies on which they will get the shares of the prices of the ship's profit which was the first
ever stock exchange in the world. Though the first stock exchange was created by accident, later
they changed some rules, made it look a bit sophisticated and here we have our present Stock
Exhange Market.
In layman's word, stock market works as like if some promoter opens a company where they
firstly have to advertise and convince investors about the company. As the investors starts
buying the shares, they are held as partners in profit of the company; the demand increases and
the profit in return to the investors also increases. The company makes their own personal profit
by increasing products and facilities to their customer as well. As the market price goes up for
the company, shares increase gradually and vice versa. Many of us think it is a gambling game;
to be very honest yes, it is a game but this game goes systematically under laws and rules. People
in our country has some conceptions about the market which is basically myths; MYTHS:
1. stock market is very risky, as it is risky for short term profit gain and it shows gain in the
long run as the market can crash but there must be an area where it can always bounce back after
some time. 2.strong knowledge in finance, here I can tell you Harshad Mehta himself wasn't
from any commerce background nor is many other billionaires in the market. This market
requires practical knowledge that one can only get when they get involved in the market.
A stable government is a positive factor in stock market. Now, let us get introduced to our Stock
Market,
The Bangladesh stock market started back in 28 April, 1954 when the East Pakistan
Stock Association Ltd was established for the first time. The formal trading began two years
after in 1956. The trading was suspended in 1971 due to the Liberation War and again resumed
as per the new government's policy in the independent country. Firstly, there are two stock
exchanges in Bangladesh; Dhaka Stock Exchange (DSE) is situated in Motijheel, Dhaka and the
other one is in Agrabad (which is claimed as the business district) in downtown Chittagong. DSE
General Index increased 645 points or 14.49% since the beginning of 2020, according to trading
on a contact for difference (CFD) that tracks this benchmark index from Bangladesh. At present,
there are approximately 30 banks and 23 financial institutions listed on the stock market which
plays a great role on the capitalization of the market. There are 22 industrial sectors in Dhaka
Stock Exchange and 578 listed companies. The Dhaka Stock Exchange is open for trading
Sunday through Thursday between 10:00 am – 2:30 pm BST, with the exception of holidays
declared by the Exchange in advance. In the month of Ramadan, the exchange is open for trading
between 10:00 am – 2:00 pm BST. The companies that are listed in DSE are shown as per their
trading codes which we basically see popping on the screen.
So, after the basic introduction, we can also need to know some terminologies of the market,
First thing is Long term capital gain, which is when you buy the shares, hold it for more than 1
year and then sell it on a profit, the capital gain will be long term capital gain. If we earn from a
long-term capital gain, you don't need to pay any tax against it. But, for the profit on interest is
taxable and the dividends are tax free under certain limits. We got here the word DIVIDENDS;
There is a huge difference between interest and dividend. If we take an example as, we get
interests against of fixed deposits or FD which is firstly mandatory for the bank, doesn't vary
according to bank or the market's will and the rate remains constant, whereas the dividend
against the shares is opposite. There are some foreign companies who does not give dividends on
their shares like Google and Apple.
Secondly, is the Top line growth and Bottom-line growth. Topline growth is nothing but a
turnover a company has and the bottom-line growth is the profit they are making after paying the
taxes. If the bottom line is growing at a higher pace than the topline it is a positive sign for the
investors. Another terminology is stock split. This basically happens as the company issues more
share to its current shareholders without diluting the value of their stakes. here the face value
decreases, it allows the new investors to invest more and remains neutral for the old investors.
The face value of the share is split, no of shares will increase proportionately, no change in the
value. In the series “The Scam 1992”, we heard about the “Bull gang” and the “Bear gang”. The
Bear cartel; the people involved they manipulate the market to drop the market of a certain
company share and starts selling the shares in order to gain profit whereas the bull gang
manipulates market to raise the market price to gain profit. It gives the investors’ confidence that
the share prices will rise and they tend to buy more shares in the market. The investors who are
optimistic and buy shares at this time are called “Bulls.” A bear market is when the buyers are
pessimistic about the rise in the prices of the shares and the sellers outnumber the buyers in the
market.
Stock market can mobilize household savings and idle funds and can influence economic activity
through creation of liquidity. Now if we see what liquidity in markets means, is when we can
easily buy or sell stocks as there is always high trading going on Volatility (the relative rate at
which the price of security goes up and down; mainly the speed at which prices move) in market
is when there is no direction for the market.
The source of funding for the private sector investments has been always the banking sector. The
contribution of stock market has been marginal. Investments have been sluggish. Many banks
have started investing in government securities following the lower demand for private sector
credits which is one of the reasons why entrepreneurs prefer bank credit instead of raising funds
from the capital market. According to an article of Daily star, we cannot expect rapid
development of stock market unless private sector investments pick up to a level where banks
cannot afford long term loan with short term borrowing. Bangladesh Securities and Exchange
Commissions (BSEC) is the apex regulator for the stock market. It was formed in 1993. The
scam or debacle that happened in 2011 was considered as a failure of BSEC. It basically works
as a regulator of the country's capital market. The purpose is to protect the interest of investors in
securities, develop the securities and obviously making rules. It regulates the market and
business of the stock exchange or any other securities market. Thus, we can say that BSEC need
a close contact with all their regulators for the stability if the market. The bullish market turned
bearish during November 2010, with the exchange losing 1,800 points between December 2010
and January 2011. Millions of investors have been rendered bankrupt as a result of the market
crash. The crash is believed to be caused artificially to benefit a handful of players at the expense
of the big players.
According to the Former Chairman of the Securities Exchange Commissions, Bangladesh's stock
market lacks depth. Equity is the only product traded in the market. Number of listed companies
is inadequate and companies with excellent track record are fewer still. We need more listed
companies with good fundamentals. But the listing of new companies is slow and good
companies are not coming forward for various reasons. The progress of listing public sector
enterprises has been extremely slow due to the lack of firm political commitment to withstand
bureaucratic resistance. Derivative products and the bond market have not developed at all.
There is practically only one corporate bond traded in the market. The Bangladesh bond market
is dominated by treasury debt securities, which are not traded in the exchanges. Thus, the equity
market is limited as there are particularly no other products in the market. Supply side constraint
can lead to market instability when there is excess liquidity in the market and demand goes up.
There are regulatory bodies which regulates the total transaction from a bank to another bank
which are Regulatory Affairs Committee (RAC), Board of Investment (BOI) and Bangladesh
Bank.
Talking about the economy of Bangladesh, it is now the 35th largest in the world and in the first
quarter of 2019, it was the 7th fastest growing economy and 2nd in the Indian sub-continent with
a rate of 7.3% real GDP growth. As of 2020, Bangladesh's GDP per capita income is estimated
as per IMF data at US$5,139 (PPP) and US$2,064 (nominal). Bangladesh is a member of the D-8
Organization for Economic Cooperation, the South Asian Association for Regional Cooperation,
the International Monetary Fund, the World Bank, the World Trade Organization and the Asian
Infrastructure Investment Bank. The economy faces challenges of infrastructure bottlenecks,
bureaucratic corruption, and youth unemployment.
Nowadays it's not an option, it's a necessity. For a person who earns 50k in one month and his
expenditure is 30k per month, he is saving 20k per month that is 240000 taka per year.; if the
income increment is 10% and the inflammation is increasing as 8%, if he keeps saving for 20
years, he will get 1.7 crore taka. But if he invests his money in a certain place which is giving a
return of 10% per year, you do the rest of the calculations and think about it. so, if you keep it in
a bank the return will always be same or even real estate in which we can't predict anything so
there is no guaranteed return. So, here comes stock market and here comes use of our brains.
Before investing in shares, one has to analyze the factors like the topline growth, profit before
tax, the bottom-line growth and the market price for minimum 5 years and basic fundamentals of
the company. Now the question appears how to trade in share market in our country. For that
firstly we need a BO (Beneficiary Owner) account for that you need national ID, Bank statement,
photocopy of check leaf and other necessary documents which needs 500-1000 taka. It is mainly
done by any brokerage house. You deposit the money in the BO account which will allow you to
trade shares as per your will. But there is a brokerage fee on every transfer which is 0.25%-
0.60%. For example, if the brokerage fee is 0.5%, if an individual investor buys stock valuing
100-taka, brokerage fee will be 50 paisa. The one has to place their buy-sell orders physically or
by phone sms etc. Now, if you want to withdraw the money from the BO account, one has to
submit a fund withdrawal request to the brokerage house and the money will be send to the bank.
Another conception we have is as students we can’t go into stock market, that’s only elder
people can do. But as students though our income source is limited and does not have a lot of
savings but as we are young, we can take risks more where we don't have the responsibility of
our family on our hands and again if we start from a young age, we will get more time to learn
and move forward.
Reported by:
Sristi Mitra,
Representor, DYDF-India.
Delhi Technological University(Former DCE),
Delhi, India.
"The purpose of this blog was not to teach you what is stock market but is to give a mere idea
about it and raise the interest in students for these investments."
Thanks for this. Very Informativ.
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