Page 151 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes Long regarded as an art, investment decision-making has only recently been considered as
science with an attendant body of literature being developed helping us understand its dynamics.
Investment decision-making is now accepted both as an art as well as a science. Decision-makers
attempt to update themselves on the characteristics of returns securities, which keep changing.
Their understanding needs sustained efforts.
Changes in the management of any particular company or changes in government policy at
macro level can bring about changes in the attractiveness of certain securities.

Example: Before 1992-93, the shares of sugar industry in India did not catching the
attention of the investing public. But due to changes in the government policy towards this
industry around 1999, sugar industry shares became quite attractive. Policy changes made by
the government related to hike in the sugar per sold both in open market as well as through
public distribution system, increase in the quantity of sugar for sale in the free market etc.
played a very important role in making the shares of sugar companies attractive. There may be
other factors too, that are more specific to a particular company or industry.

Table 7.1: Opportunities and Threats in the Macro-economic Environment

S. No. Economic Indicator Opportunity Threat
1. Economic cycle stage Boom Recession
2. Gross National Product Growth Decline
3. Employment Increase Decrease
4. Aggregate demand Rise Fall
5. Personal disposable income Increase Decrease
6. House construction Increase Decrease
7. Personnel savings during inflation Increase Decrease
8. Rate of interest Low High
9. Corporate taxation Low High
10. Balance of trade Positive Negative
11. Rupee in foreign exchange market Strong Weak
12. Prices Stable Unstable

Task List down the trends that indicate the macro-economic changes affecting the risk
and return on investment.
Self Assessment

Fill in the blanks:
5. The analysis of the state of the economy at the …………………….. level incorporates the
performance of the economy in the past, how it is performing in the present and how it is
expected to perform in future.
6. …………………….. policy is concerned with the spending and tax initiatives of the
government.

146 LOVELY PROFESSIONAL UNIVERSITY