Bull & Bear Market, Blue Chips Stocks, Circuit Breaker in Stock Markets
The last month of the financial year 2020 turned out to be a nightmare for equity investors as Indian benchmark equity indices tanked nearly 25 per cent in March.
The 30 share Sensex plummeted over 9,000 points to 28,440 on March 30 from 38,297 on February 28. Likewise, 50-share Nifty index lost 2,900 points to 8,281 from 11,201 during the same period.
Bull & Bear Market
• The terms bull and bear market are used to describe how stock markets are doing in general i.e., whether they are appreciating or depreciating in value.
• At the same time, because the market is determined by investors' attitudes, these terms also denote how investors feel about the market and the ensuing trends.
It refers to a market that is on the rise.
It is typified by a sustained increase in price, for example in equity markets increase in the prices of companies' shares.
In such times, investors often have faith that the uptrend will continue over the long term.
Typically, in this scenario, the country's economy is strong and employment levels are high. It is one that is in decline, typically having fallen 20% or more from recent highs.
Share prices are continuously dropping, resulting in a downward trend that investors believe will continue, which, in turn, perpetuates the downward spiral.
During a bear market, the economy will typically slow down and unemployment will rise as companies begin laying off workers.
A blue-chip stock is a huge company with an excellent reputation. These are typically large, well-established and financially sound companies that have operated for many years and that have dependable earnings.
A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name.
For all of these reasons, blue-chip stocks are among the most popular to buy among investors. Some examples of blue-chip stocks are IBM Corp., Coca-Cola Co. and Boeing Co.
While dividend payments are not absolutely necessary for a stock to be considered a blue chip, most blue chips have long records of paying stable or rising dividends. The term is believed to have been derived from poker, where blue chips are the most expensive chips.
Features of Blue-Chip stocks
Assured returns: Blue-chip stocks generate returns quarterly in the form of dividends. The fact that companies which are well-established also serve as a safe investment avenue for most investors.
Credit-worthiness: Blue-chip companies have enough capital to clear their financial dues and obligations easily. This, in turn, makes the shares issued by such companies high in creditworthiness.
Risk factor: The risks factor associated with blue-chip stocks are comparatively less.
Investment horizon: The term of investment is usually over 7 years. Such extended term makes Blue-chip stocks suitable for achieving long-term financial goals owing to its long investment horizon.
Growth prospect: Blue-chip companies are those large companies who have reached their maximum growth potential. This influences the Blue-chip shares in India who undergo slow but steady growth over time.
Taxation: The gains generated through blue-chip shares In India are treated as income under Section 80 C of the Income Tax Act.
Circuit breakers are regulatory measures to temporarily halt in trading on an exchange, which are in place to curb panic-selling.
Lower or upper circuit is an automatic mechanism to stop a freefall or massive surge in a security or an index during trading hours. It is used to check the volatile swings in the market.
The index-based market-wide circuit breaker system applies at three stages of the index movement, either way at 10 per cent, 15 per cent and 20 per cent. These circuit breakers when triggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide.
Duration of halt depends on the time of the breach and the quantum of fall. Trade could be halted for 15 minutes up to the whole day.
After circuit breach, the market re-opens with a pre-open call auction session of 15 minutes post the duration of halt. The normal trading could begin and continue as long as the next circuit limit does not activate.
The circuit levels are determined by the stock exchanges so as to protect investors and brokers from an unwanted surprise moment. In case of a sudden swing investors tend to lose a massive chunk of their capital.
PEPPER IT WITH
Short term capital gain tax, Long term capital gain tax, Transfer pricing