FINANCIAL MARKET STOCK MARKET MECHANISM by Mr Fahim

FINANCIAL MARKET STOCK MARKET MECHANISM by Mr Fahim Akhtar 1

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FINANCIAL MARKET STOCK MARKET MECHANISM Topic Introduction 3

Sequence General perception How stock forms Stock market index Features of market Some abnormal gainers / losers Why investors mostly loose 4

Perception About Market A gamble or a casino 5

Perception About Market A place where big fishes eat small 6

Perception About Market Puzzling function 7

Perception About Market A place where one is always 8

Perception is wrong Trading stock is a science and equally art too 9

Science Something that may be studied or learned like systematized knowledge 10

Art Expression or application of human creative skill & imagination 11

Conceptually how stock emerges A company is desirous to expand the business. Options for generating the required funds: q Get from some one amongst FNF q Borrow from bank q Get maximum financers from general public 12

Company emerging in exchange q Company is registered under company ordinance q IPOs ( Initial Public Offering ) is offered q IPO given normally multiples of 500 q Fund raised through IPO utilized in business q Stock trades in stock exchange 13

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What happens ahead § Registered company engages in business with funds generated § Company reports profit quarterly § Earnings and profitability is disbursed amongst all stake holders including those holding share during specified time § Company earns more, shares goes up and in case of loss share sinks 15

Why stock price moves up or down § Company doing good or bad business § Financial results and bright or depressive expectations § Players go for buying seeing rapid growth or selling anticipating depressed earnings § New innovative product launched / business explored § Some incentives / taxation affecting stock 16

How Stock Gains Ø Growth in earnings and profitability Ø Better management Ø Cheaper inputs and raw material Ø Demand going up for product or service Ø News and rumours Stocks mostly moves in speculation and attempt to discovers the right price 17

Fundamentals Fundamental analysis is gauged on historical and present data, but with the goal of making financial forecast. q A company stock valuations and predict its probable price q Make a projection on its business performance q Evaluate its management and make internal business decisions 18

What stock exchange / market is? A place where buyer and seller meet and trade stocks under regulations set 19

Bulls & Bear Market Bulls indicate market is positive Bear indicates selling pressure 20

Indices A stock index or stock market index is a method of measuring the value of a section of the stock market 21

Features of stock market q Opportunities & Better returns q Pronounced risk factor q Speculation, rumours and news orientation q Diverse type of participants q Connectivity with other financial markets q Dependence on commodity move q Fiscal, monitory and taxation policy effects q Sector performance and incentives by government 22

Benefits of investment in stocks Possibility of high returns Easy liquidity Unbeatable tax benefits Income from dividends 23

Historical performance of Market 24

Stock market crashes in Pakistan Market has a trend of crashes every 3 -4 years The reasons for 2008 crash were § Poor law and order after assassination of lady PM § Bad economic outlook § Panic selling by funds and foreigners § Recession § Market manipulation 25

Some indifferent gainers / looser Stock High Low Price Gain / loss %age gain 20. 6 Aug 2012 154. 7 May 2013 125 770 Pak Petroleum 100 2008 2009 100 Lucky Cement 103 June 2012 206 June 2013 100 3. 9 2 jan 12 1370 31 Jan 2008 8 April 2013 16 June 2013 Engro Foods Jahangir Siddiqui Company Bank of Punjab 1366. 1 8 100 26

Why Engro Foods outperformed § Best selling products § Persistent growth § Efficient management § Good products in pipeline to launch § Eps not too good but expected to go higher 27

Why stock investors mostly loose q Greed and Fear q Lack of knowledge q Rely over brokers and friends q Lack of analytical skills q Poor comprehension of / with changing indicators q Insider trading 28

What to do as investor § Plan your Investment § Go for long term Investment § Control your fear and greed § Decide right entry and exit in market § Diversify your portfolio § Always keep some reserve cash § Learn science and develop art of investment 29

Questions 30