12.1 – Overview
For a market participant transacting just based on company-specific information may not be sufficient. It is also important to understand the events that influence the markets. Various outside factors, economic and/or non-economic events have a key impact on stocks and markets’ performance in general.
In this chapter, we will try to understand some of these events, and also how the stock market reacts to them.
12.2 – Monetary Policy
The monetary policy is a tool with which the Reserve Bank of India (RBI) controls the money supply by controlling the interest rates. They do this by tweaking the interest rates. RBI is India’s central bank. The world over every country’s central bank is responsible for setting interest rates.
While setting the interest rates, the RBI has to strike a balance between growth and inflation. In a nutshell – if the interest rates are high, that means the borrowing rates are high (particularly for corporations). If corporate can’t borrow easily, they cannot grow. If corporations don’t grow, the economy slows down.
On the other hand, when the interest rates are low, borrowing becomes easier. This translates to more money in the hands of corporations and consumers. With more money, there is increased spending which means the sellers tend to increase prices leading to inflation.
To strike a balance, the RBI has to consider all the factors and carefully set a few key rates. Any imbalance in these rates can lead to economic chaos. The key RBI rates that you need to track are as follows:
Repo Rate – Whenever banks want to borrow money, they can borrow from the RBI. The rate at which RBI lends money to other banks is called the repo rate. If the repo rate is high, that means the cost of borrowing is high, leading to slow growth in the economy. Currently, the repo rate in India is 8%. Markets don’t like the RBI increasing the repo rates.
Reverse repo rate – Reverse Repo rate is the rate at which RBI borrows money from banks. When banks lend money to RBI, they are certain that RBI will not default, and hence they are happier to lend their money to RBI as opposed to a corporate. However, when banks choose to lend money to the RBI instead of the corporate entity, the banking system’s supply of money reduces. An increase in reverse repo rate is not great for the economy as it tightens the supply of money. The reverse repo rate is currently at 7%.
Cash reserve ratio (CRR) – Every bank is mandatorily required to maintain funds with RBI. The amount that they maintain is dependent on the CRR. If CRR increases, then more money is removed from the system, which is not good for the economy.
The RBI meets every two months to review the rates. This is a key event that the market watches out for. The first to react to rate decisions would be interest-rate sensitive stocks across various sectors such as – banks, automobile, housing finance, real estate, metals, etc.
12.3 – Inflation
Inflation is a sustained increase in the general prices of goods and services. Increasing inflation erodes the purchasing power of money. All things being equal, if the cost of 1 KG of onion has increased from Rs.15 to Rs.20, then this price increase is attributed to inflation. Inflation is inevitable, but a high inflation rate is not desirable as it could lead to economic uneasiness. A high level of inflation tends to send a bad signal to markets. Governments work towards cutting down the inflation to a manageable level. Inflation is generally measured using an index. If the index is going up by certain percentage points, it indicates rising inflation, likewise index falling indicates inflation cooling off.
There are two types of inflation indices – Wholesale Price Index (WPI) and Consumer Price Index (CPI).
Wholesale Price Index (WPI) – The WPI indicates the movement in prices at the wholesale level. It captures the price increase or decreases when they are sold between organizations as opposed to actual consumers. WPI is an easy and convenient method to calculate inflation. However, the inflation measured here is at an institutional level and does not necessarily capture the consumer’s inflation.
As I write this, the WPI inflation for May 2014 stands at 6.01%.
Consumer Price Index (CPI)– The CPI, on the other hand, captures the effect of the change in prices at a retail level. As a consumer, CPI inflation is what really matters. The calculation of CPI is quite detailed as it involves classifying consumption into various categories and subcategories across urban and rural regions. Each of these categories is made into an index. This means the final CPI index is a composition of several internal indices.
The computation of CPI is quite rigorous and detailed. It is one of the most critical metrics for studying the economy. A national statistical agency called the Ministry of Statistics and Programme Implementation (MOSPI) publishes the CPI numbers around the 2nd week of every month.
The CPI stands at 8.28% for May 2014. Here is a chart for the inflation for the last one year in India.
As you can notice, the CPI inflation had kind of cooled off from a peak of 11.16% in November 2013. The RBI’s challenge is to strike a balance between inflation and interest rates. Usually, a low-interest rate tends to increase inflation, and a high-interest rate tends to arrest inflation.
12.4 – Index of Industrial Production (IIP)
The Index of Industrial Production (IIP) is a short-term indicator of how the country’s industrial sector is progressing. The data is released every month (along with inflation data) by the Ministry of Statistics and Programme Implementation (MOSPI). As the name suggests, the IIP measures the Indian industrial sectors’ production, keeping a fixed reference point. As of today, India uses the reference point of 2004-05. The reference point is also called the base year.
Roughly about 15 different industries submit their production data to the ministry, which collates the data and releases it as an index number. If the IIP is increasing it indicates a vibrant industrial environment (as the production is going up) and hence a positive sign for the economy and markets. A decreasing IIP indicates a sluggish production environment, hence a negative sign for the economy and markets.
To sum up, an upswing in industrial production is good for the economy, and a downswing rings an alarm. As India is getting more industrialized, the relative importance of the Index of Industrial Production is increasing.
A lower IIP number puts pressure on the RBI to lower the interest rates. The following graph shows the change in IIP in percentage terms for the last 1 year.
12.5 – Purchasing Managers Index (PMI)
The Purchasing managers’ index (PMI) is an economic indicator that tries to capture business activity across the country’s manufacturing and service sectors. This is a survey-based indicator where the respondents – usually the purchasing managers- indicate their business perception change concerning the previous month. A separate survey is conducted for the service and the manufacturing sectors. The data from the survey are consolidated on a single index. Typical areas covered in the survey include new orders, output, business expectations, and employment.
The PMI number usually oscillates around 50. A reading above 50 indicates expansion, and below 50 indicates a contraction in the economy. And reading at 50 indicates no change in the economy.
12.6 – Budget
A Budget is an event during which the Ministry of Finance discusses the country’s finance in detail. The Finance Minister, on behalf of the ministry, makes a budget presentation to the entire country. During the budget, major policy announcements and economic reforms are announced, which impacts various industries across the markets. Therefore the budget plays a vital role in the economy
To illustrate this further, one of the budget expectations (July 2014) was to increase the duties on a cigarette. As expected, during the budget, the Finance Minister raised the duties on a cigarette, and hence the prices of cigarettes were also increased. An increased cigarette price has a few implications:
- Increased cigarette prices discourage smokers from buying cigarettes (needless to say this is debatable), and hence the profitability of the cigarette manufacturing companies such as ITC decreases. If the profitability decreases, then investors may want to sell shares of ITC.
- If market participants start selling ITC, then the markets will come down because ITC is an index heavyweight.
As a reaction to the budget announcement, ITC traded 3.5% lower for this precise reason.
A budget is an annual event, and it is announced during the last week of February. However, under certain special circumstances such as a new government formation, the budget announcement could be delayed.
12.7 – Corporate Earnings Announcement
This is perhaps one of the important events to which the stocks react. The listed companies (trading on the stock exchange) must declare their earning numbers once in every quarter, also called the quarterly earnings numbers. During an earnings announcement, the corporate gives out details on various operational activities, including:
- How much revenue has the company generated?
- How has the company managed its expense?
- How much money they did the company pay in terms of taxes and interest charges?
- What is the profitability during the quarter?
Besides some companies give an overview of what they expect from the upcoming quarters. This forecast is called ‘corporate guidance’.
Invariably every quarter, the first blue-chip company to make the quarterly announcement is Infosys Limited. They also give out guidance regularly. Market participants keenly follow what Infosys has to say in terms of guidance as it has an overall impact on the markets.
The table below gives you an overview of the earning season in India:
| Sl No | Months | Quarter | Result Announcement |
|---|---|---|---|
| 01 | April to June | Quarter 1 (Q1) | 1st week of July |
| 02 | July to September | Quarter 2 (Q2) | 1st week of Oct |
| 03 | October to December | Quarter 3 (Q3) | 1st Week of Jan |
| 04 | January to March | Quarter 4 (Q4) | 1st Week of April |
Every quarter when the company declares its earnings, the market participants match the earnings with their own expectation of how much the company should have earned. The market participant’s expectation is called the ‘street expectation’.
The stock price will react positively if the company’s earnings are better than street expectation. On a similar logic, the stock price will react negatively if the actual numbers are below the street expectation.
If the street expectation and actual numbers match, the stock price tends to trade flat with a negative bias more often than not. This is mainly because the company could not give any positive surprises.
Key takeaways from this chapter
- Markets and individual stocks react to events. Market participants should equip themselves to understand and decipher these events.
- Monetary policy is one of the most important economic events. During the monetary policy, review actions on a repo, reverse repo, CRR etc. are initiated.
- Interest rates and inflation are related. Increasing interest rates curbs inflation and vice versa
- Inflation data is released every month by MOSPI. As a consumer, CPI inflation data is what you need to track.
- IIP measures industrial production activity. Increase in IIP cheers the markets, and lower IIP disappoints the market.
- PMI is a survey-based business sentiment indicator. The PMI number oscillates around the 50 marks. Above 50 is good news to markets, and PMI below 50 is not.
- The Budget is an important market event where policy announcements and reform initiatives are taken. Markets and stocks react strongly to budget announcements.
- Corporate earnings are reported every quarter. Stocks react mainly due to the variance in actual number versus the street’s expectation.
1. From the close of a quarter/financial year, what are the time limits within which companies must declare the results?
2. In case of insider trading (SAST), what is the time limit to inform the exchanges about it ?
3. Is there any rule/law making it mandatory for companies to report events with financial significance?
Answers in the same order –
1) If I’m not wrong companies must declare results within 30 days
2) In order to make it a level playing field SEBI mandates the companies to disclose insider trading ‘at the earliest’, which pretty much means the company has to declare this information within the same trading day
3) Yes companies have to declare this information.
Hi,
What is insider trading and SAST ? How it works?
Is their any facility into Versity to get notification once get solution of query?
You should get an email notification when this gets answered. Anyway, insider trading is basically trading on information not known to the public. For example, an employee of TCS can buy the shares of TCS based on his knowledge of the quarterly results yet to be announced.
Thanks Karthik 🙂
Cheers!
By 8% & 7% in Repo and Reverse repo rate, do you mean it is same as we borrow from banks at 11 % ?
No, repo & reverse repo rate are rate at which banks transact with RBI. The lending rates to us are different.
Sir, i am not able to understand “Purchasing managers index(PMI)”
PMI or the Purchasing Manager’s Index is an index which measures the activity of a purchasing manager (PM) of a company. This is measured by running a survey across many PM’s across sectors and industries. If the PM is sheen to be purchasing things for the company then the perception of growth and industrial activity is created, which is good for the markets. Else its considered not so good.
Thank you sir
Welcome 🙂
Important & better for new trader
You bet, it is.
Where Can one collect data of Street Expectation ?
Unfortunately street expectations are not published by anyone…or at least I’m not aware of anyone doing this.
Every bank is mandatorily required to maintain funds with RBI.
1. What does maintaing funds with RBI really mean?
2. How CRR plays a role in this?
So every bank is supposed to maintain some of their deposits with RBI. For example if they have 100Crs in deposits, they maybe required to deposit lets say 10Crs with RBI.
Is the money deposited with RBI must be used by it for Repo lending (to other banks) ?
Mangesh, we cant really deposit money with RBI directly.
Dear karthik
Could you please explain the anamolous behaviour of CNX Nifty and Bank Nifty w.r.t the Bank rate cuts by the RBI on 15th March and 2nd June. Ideally the above mentioned indices should have zoomed up but the opposite happened. Meanwhile after the rate cut on 15th January, the market rocketed as expected. I’m still unsure about this behaviour.
Well, this is because the market is forward looking, and it always factors in the news especially such as rate cuts.
So, going along with the speculations of a rate cut on 29th September, the market would have already discounted the same. From a 15.7 level on 7th Sep to 17.2 level on 24th Sep, one should expect the market to fall even after a rate cut on 29th Sep?
In simple terms my query is how to know if the market has already factored the expectation or not?
Thanks in advance
* Above data was for Bank NIfty Index
Yeah, bank nifty is more sensitive to RBI decisions.
Yes, my sense is that the market has factored in a rate cut…but if the rates do get slashed by anything more than 25bps, I think markets can rally.
1) But in the longer run the rate cut is good for Bank and industries as such. So is it profit booking which drags the CNX Nifty and Bank Nifty down after such announcement?
2) Would it be prudent to bet on PUT options in this scenario or Straddle strategy is better here?
3) For any of the above is CNX nifty better or Bank Nifty for options trading?
Thanks in advance and my gratitude towards you for clarifying such doubts. You are like a messiah for me for having cleared such doubts in my mind 🙂
My answers as below –
1) Yes, the movement can be attributed to profit booking. But then do remember if RBI’s action is beyond the street’s expectation then the reaction could be far severe. For example everyone now expects a cut (if at all it happens) of about 25bps…but if RBI cuts it by 50 bps or does increases the rate (as opposed to general expectation) then the markets may react quite severely
2) Buying Put options or call options could be a dangerous idea – suggest you read about volatility in the options chapter
3) Nifty has a better liquidity hence my preference to trade Nifty
Extension to the above questions
4) The market dragged itself today at EOD. Does this imply anything as to if RBI does cut the rate tomorrow the markets shall improve or the downtrend shall continue as the market has already factored in the rate cut?
My guess would be same as yours Vivek 🙂
Hi Karthik
Market rallied yesterday coz of ECB reforms. And yesterday night news came up that China has cut the rates which led to zooming up of US markets and erasing off the losses of 2015. My questions:
1) Did the US market shoot up as China would again be a lucrative destination for investment plus demand of US tech products would rise?
2) How will this impact Indian market as now India would be losing on the edge it had against China? Overall sentiment of global market is good so I guess Indian market should also rally. But Noting that China is a rival leads me to think that Indian market would be bearish.
I am basically trying to understand the dynamics of global market before I start trading.
Also, during intraday TA of CNX Nifty I seldom find any conclusive results. e.g. lot of Marubuzos and Dojis are visible but the next candle comes out to be against what should have come based on the TA.
And once again thanks for your time and inputs for I know no one else who could sort out these doubts of mine.
Vivek – honestly very few people with access to right information understand China. Its a difficult economy to understand. I believe the economic dynamics of India and China are very different..with India is a better position. Of course this is just my personal view.
I would suggest you start with overnight trades (swing trades) before you get into intraday.
What is an overnight trade? Aren’t trades restricted to the time when markets are open?
Its just a terminology used to convey the fact that you have on open position in the market which you are carrying forward. Example : Monday I buy Nifty futures and sell the same on Wednesday, then it means to say I carried the position overnight (for 2 nights).
Where can we get these event calendar? like RBI policy announcements dates etc at one place? do zerodha have any tool for this?
No Sumit…not yet.
Hi, sir,
Any other events impact on Indian stock market apart from IIp,WPI,CPI,PMI,BUDGET,CORPORATE EARNING ANNOUNCEMENT
Is there any impact from Crude Oil price,any other currency like USD,EURO?
and please share if there any link to get these information
Of course all these things matter a lot for the markets!
Hi, sir
Please share if there any web link to get informations about CPI,PMI,IIP?
All the data you want and more – http://mospi.nic.in/Mospi_New/site/home.aspx
Check the banner on the left hand side (latest news).
sir , in mospi website as you said left banner we can get cpi but there is no charts or relevant information ?please can you suggest better website please
Can you try trading economics site?
Hi,sir
How to impact on Indian stock market from other country’s economy like China,USA,Germany
which country is more impact on our stock market and why please share with details
Suresh – this is a macro economic view and I’m afraid this cant be explained as a comment. However in a nutshell, US is probably a very important country for us.
Hi, sir
any reason for declining nifty? For how long will it go down ?
Decline is mainly due to the situation in Chinese markets. How low will it go? Well, your guess is as good as mine 🙂
Hi, sir
any official link to get informations about stocks’ result,split,bonus, right issues?
As of now your best bet is Moneycontrol.
Hi.
Does Inflation keeps compounding every year or Can we treat Inflation in same terms as of Simple Interest ?
Thanks
No, inflation can be controlled by economic tweaking. In fact this is what our beloved RBI Governor Mr.Rajan is trying to achieve!
So, You mean inflation doesn’t compound ?
Inflation is nothing but the CAGR of the rate at which things are getting expensive.
Thanks Got it
Cheers.
I liked how you have lucidly explained the concepts but there are no examples, as you would provide in the options module. Please include a section where some case studies are discussed around the corporate events, the more the merrier.
Thanks for the suggestion, will try and do this.
Why does the stock price/Index keep moving up/down while the market is closed? I have seen sometimes after 3:30PM the market still keeps moving and the closing price at 4:00PM is different (sometimes it happens until 5:30PM), or sometimes the opening price itself is higher or lesser before 9:15AM, though no trades have happened yet.
Market closes at 3:30 PM and there wont be any movements after that. At 3:45PM market is open for 10 minute window wherein you can just square off any existing positions, but at the closing prices of the day.
So we get alerts on email when our queries are answered now – pretty cool!!
Is this square off (@ 3:45PM) for only delivery based spot cash purchases, or is it for Futures also?
And what happens between 9:00AM to 9:15AM – the pre-open price is because of the speculation or bulk-orders?
Its between 3:40 PM to 4:00PM, and works only for NSE Eq spot and not F&O. Between 9:00 – 9:15 AM, we have a pre opening session, I’d suggest you have a look at this – http://zerodha.com/z-connect/queries/stock-and-fo-queries/pre-marketpost-marketafter-market-orders
Thanks for the link Karthik!
As per the write-up the first 8mins (9:00 to 9:08) is open only is it for Eq Spot and not for F&O – right?
Yup!
I also have seen share prices keep moving/fluctuating even after 03:40 PM or 04:00 PM when market is closed!
Why does it happen?
That will be the post-market widow. This is basically to square off the position but at the closing price only.
Sir,
Why is every company’s face value Rs. 10? Which one among the face value and market value is included in the accounts(financial statement) of a company?
Its just a norm, not a rule. Usually companies going public like their FV to start at 10.
Hi Sir, thanks for the great article. Just an observation – You have stated “The RBI meets every quarter to review the rates.”. I think now it is once every two months and not once every quarter. Please correct if I am right. Thanks.
Rajiv – thanks so much for pointing this out. Will make the correction.
considering that during budget time the market will be very volatile,why cant the exchanges be closed for few days , so that investors can take time to digest the news after the news is cooled off and there would be no panic selling?Just a thought..
That would be considered as market manipulation 🙂
How the inflation will affect stock price and investors money?
High inflation leads to higher interested rates, which means tighter supply of money, which means businesses cannot borrow money easily, which means lesser business growth, which means stock prices will not go up, which means investors will not make enough money.
Hi Karthik,
Why would RBI borrows money from other banks..?
And it is mentioned that, when banks choose to lend money to the RBI instead of the corporate entity, the supply of money in the banking system reduces. Is it not true when the banks lend money to the corporate entities..? or is it that the RBI borrows huge amount than the corporate entities which causes reduction in the supply by other banks?
And great initiative by Zerodha..You guys Rock..!!!!
Thanks in advance
RBI itself is a bank and it deals only with other banks. So if a bank has excess funds, then it can part that with RBI and earn an interest.
What are the key factors to watch during Quarterly results(EBITDA etc.,). For example – Lets take Infosys, After results, How/when do we conclude whether the stock will raise or fall?
For Infy and other IT companies look for guidance for the coming quarters along with Revenue, EBITDA, and PAT (along with its growth and margins). The stock will raise or fall based on the results.
Can you please explain a more about EBITDA and PAT.
EBITDA is the operating profit of the company. It is basically Revenue – Expenses. PAT is EBITDA minus applicable taxes and other adjustments.
I thank you Zerodha Team.
I am holding 600 shares of Aurobindo Pharma as on today.
The following is self explanatory from the company:
“Aurobindo Pharma Ltd has informed BSE that a Meeting of the Board of Directors of the Company will be held on May 29, 2017, inter alia, to consider and approve, the Audited Financial Results of the Company for the year ended March 31, 2017 and also to consider dividend, if any, for the financial year 2016-17.
Further to the letter dated May 12, 2017 informing the closure of Trading Window of the Company from May 18, 2017 until 48 hours from the date of declaration of the Audited Financial Results of the Company for the year ended March 31, 2017, Company inform that trading window will be closed up to May 31, 2017 and shall be re-opened on June 01, 2017.”
Now my situation is, if I sell, there will be loss of 20% as per the present market.
Pls advise what to do. I will be obliged.
The trading window closure is applicable only to the insiders of the company. Not applicable to regular shareholders.
Thank you for the prompt reply.
They are mentioning “to consider divident”, what does it mean ?
Regular traders do get any benefit from it ?
Pls clarify.
Dividend is cash payout from the company, this is rewarding shareholders from the profit.
Hi,
What are the impacts of elections ?
1.) India Loksabha election
2. ) Particular states vidhan sabha election.
3.) Election of different countries ( say USA, UK, Germany etc ).
After election result how it moves ( I have seen different party wins election then also market reacts heavily, it’s not related to 1 party ) EX : Delhi AAP won market zoomed, Bihar Nitish Won market zoomed, Maharastra BJP won Market zoomed, Punjab congress won market zoomed.( Expectations were different and results different then also +ve reaction ) Why ? Please answer
Please reply
I just did!
Markets rallies when one party forms a majority. It does not like a split house. This is with an expectation that party in power will take up reform-oriented approach as opposed to getting into cheap politics.
Where Is CPI inflation data available.?
Can someone please post the link. I found 2012 data in gov. webpage –> Ministry of Statistics and Programme implementation
Hey Deepak – these links should help, although you might have to dig around a bit.
https://tradingeconomics.com/india/consumer-price-index-cpi
https://data.gov.in/catalog/all-india-consumer-price-index-ruralurban
Hello,
Sir you said companies issue corporate guidance…where can we find these..??
Thank you!
Not all companies do, but if they do, you can find that in the investor conference transcripts, which will be made available on the company’s website under the investor’s section.
1) When the stock split is announced, that day the stock chart shows a gap down. But the next day somehow the price is adjusted. how??
2) If you look at the chat of OIL fut (date-1-12-2017) there is a big gap, due to stock split. But the chart for the same in spot market does not have any gap?
1) Becuase the stock gets adjusted for the split – this is required to show a continuous chart.
2) I just checked the charts and it looks fine, can you relook at this? Thanks.
What is the process to adjust a chart, just reduce every thing to half in case of 1:1 split?
Yup, you will have to do this historically.
same is the case with reliance. there is a big gap in the futures chart but the spot chart does not show any gap.(date-9-6-2017)
Also the spot price is some how adjusted.
Please explain?
Ah, are you looking at the continuous charts? If not, click on the continuous option in the chart ‘Display’ menu.
Yes i am looking at the continuous data chart for the Reliance nov fut. On (6-9-2017) the price is around Rs 1600 but on the next day(7-9-2017) the price is near Rs 800(displaying a big gap). And this(futures) chart is not adjusted.
but the spot chart for the same date is adjusted and it shows a continuous chart.
Ok, let me check this.
Is there anything i should keep in our mind or anything i should be cautious about if lets say i hold a futures contract and there is a stock split announced?
Nothing really.
how to identify whether a particular speculative announcement is already discounted or not in the price of index/stock before such announcement is made.e.g reduction in RR, RRR etc
Usually, you can observe a rapid increase/decrease in price leading to the event/news – this is indicative of the price discounting the news.
Karthik Sir
how do stock prices of fundamentally sound companies ( eg. tcs , reliance , hul etc) react during a market crash ( eg. 2008 ) ? do they crash/fall very fast too like rest of market (say for example 20 % on a single day) or correct slowly over a longer period of time ( eg. 2-3 % in a day ) ?
what are other things that happen only during crash ?
thanks 🙂
When the market falls, all stocks tend to fall, irrespective of the quality. However, the difference is that the quality stocks, tend to bounce back much quicker than the rest.
so it plays out something like the past week . i thought much worse & crazier than now.
We will have to wait and watch!
Sir
How do I check the charts of CPI,WPI. Though I checked on mospi, I can found only PDF and it is very difficult to extract information from there. And please do tell me about CRR,Repo rate,Reserve Repo rate charts too.
Sir,
is there a way to know which companies have contributed via data to PMI or IIP sector index ?
Since Indian economy has major share Unincorporated companies
You will get the details here – http://mospi.nic.in/iip#about_id
Can u keep an email alert once the question is answered and when module of updated or added new chapters.
Just difficult to keep track of it.
Thanks
That may just spam too many people, comments run up to few 100s 🙂
Is PMI a subjective index or it is determined by quantified parameters ? If then how do they assure its accuracy & remove bias(if any)?
The nature of the index is to capture the opinion of the purchasing managers, Mangesh. So there is bound to be some amount of bias here.
Hello Kartik,
Other economic factors that have significant impacts on any stock market would be: money supply, trade deficit, FII, crude price and gold price. Could you dwell on these topics from the indian PoV while updating this page. would love to know how exactly they affect the indian market.
Thanks.
of course, these factors matter too. I’ve just tried to summaries a handful of events with maximum impact. Will try and include these events as well 🙂
I could see the quarterly resume is more than estimation and less than market estimation. Where I can find the estimation/expectation ?
*quarterly profit result
Usually, third-party sources like Bloomberg and Reuters give out estimates. Check moneycontol, they do broker polls as well.
Karthik sir.,i am a beginner. U have written in such a lucid and easy to grasp form unlike other contents online… Thank u so much…prior to this I don’t know even a single topic of stock market and indices… Now I am learning a lot… It’s cool…
Happy learning, Vivek 🙂
Is Repo Rate the most important outcome of rbi monetary policy which is monitored by market
Yes, Repo and reverse repo are the most important policy rates to watch out for.
sir
How we can check
for a stock how many times a stock split had occured in history .
I think moneycontrol has a link using which you can check the corporate action history.
Sir how do I get the PMI data and what is the frequency of the report?
sir
how many days after ex date will take to get the dividents in account (generally).
Usually with 5 days.
Explain how increase in reverse repo rate is bad for market?
As higher the reverse repo rate the less likely RBI is to borrow money from banks, hence leaving more for corporations?
Do check this Ishit – https://cleartax.in/s/repo-rate#how
Hey Karthik, tomorrow the IIP & CPI data is coming out. Can you please let me know around what time do these type of data generally get announced? And are they announced at the NSE site or someplace else?
Thanks!
Unlike US, there is no set time for this, Sachin. But if I were to guess, this will be around 2 PM.
Dear Karthik,
Greetings!!
Could you please tell me a good book on Python learning for Algo Trading Or a good book on Algo Trading, or online study materials. Thanks.
Raja..
Raja, I’m not sure about that. I’ll check and let you know.
OK..Thank You…
Hello sir,
I want to know that how can we know about upcoming government meetings before a week so that we can make position accordingly.
Like total news that impact the market for the upcoming week ?
Thanks
For this, you will have to keep track of articles and news reports and track it. No other options.
Thankyou 🙂
Hello Karthik,
As of Today 1 March 2020. NSE: RELIANCE price is 1,327.00 INR −59.25 (-4.27%) due to coronavirus market is down,
A -4.27% change means a big FII player has withdrawn money(sell) from Reliance.
Buy Sell happens when one is selling @100 & another is Buying @100.
QW. -> who is buyer here ? Because The Big Player FII is only selling..
P.S. We know Retail investor can not effect even 1% in market.
Thanks.
Hope this questions helps everyone.:)
Janesh, 1 retail participant cannot influence the market (whereas 1 FII can), but when large number of retail traders either buy or sell, then the price of the share does get influenced.
Let me explain with an example.
The Gitanjali Gems is wiped out due to Neerav modi case. The stock was started falling. Obeviously no one is interseted to buying here, So my question is who is buying here ?? Why stock price goes down when there is no buyer..
People speculate they buy with an expectation that the price will go up. Remember, the different opinions is what makes a market.
Hello sir could you explain more to me if I buy a share of “x” company at delivery condition and sell a share of same company on same day which was in position and not in holding. Is there any think wrong in this transaction if yes then please explain in details
No, nothing wrong with it. The trade is considered as an intraday trade and hence will be charged intraday brokerage.
Hello Karthik,
Thanks for the clarification. As the article mentions, it says there are risks involved in BTST. Will you please tell me what risks involved and how BTST trade will be charged?
Check this – https://zerodha.com/z-connect/queries/stock-and-fo-queries/btstatst-buyacquire-today-sell-tomorrow
Hello Karthik
In presenting IIP (Index of Industrial Production) does MNC’s (foreign companies) established in india are they included in IIP??
Thanks .
I guess they would be, Umesh. Can’t think of a reason why they would be excluded.
why would rbi borrow money from banks and also how will it benefit banks to lend money to rbi instead to a corporate entity?
RBI does not borrow, it mandates bank to park money. This is how it regulates the money supply in the economy.
Sir can u give a easy example for PMI??
Check this – https://tradingeconomics.com/india/manufacturing-pmi
Sir, 1) Among all of above points which one impact more strongly over market ?
2) where to check these news in advance ?
1) They all have different importance Sadvik. Hard to isolate events.
2) News portals, that is the only portal for all of us.
low-interest rate tends to increase inflation and a high-interest rate tends to arrest inflation.
Need a Clarification in the Above Statement
The low-interest-rate increases the supply of money, hence easy access to money driving the costs higher. This leads to inflation.
I spend more time reading the comments when compared to the content. As all my doubts are answered by you here. The comments section is so extensive and INFORMATIVE!!!! cheers to you Karthik!
Yes, overtime the comment section has turned out to be gold with tons of information! Happy reading!
Sir,
I am back testing a trend following system from 2008 sir. Only in Nifty. By buying options.
I am planning to square off before RBI day and and take trade after the RBI announcement.
Should I take any other into consideration as well sir? I’m asking for only trading nifty.
Is this strategy specific to monetary policy activity? If yes, then this is good enough.
Hi,
1. I understand banks can borrow money from RBI and repo rate is applicable, but apart from banks any other entity can borrow from RBI?
2. Same as above, apart from banks can any other entity lend money to RBI and get the reverse repo rate interest out of it?
3. Out of curiosity, does RBI have money all the time? or they get it when needed via creating money / bonds?
4. Regarding CPI, it is the change taking previous month as the baseline? or has a fixed baseline like IIP. If the change is based on previous month value then always the inflation is increasing right, whenever I see news it is always a positive change never negative. That means currency value is decreasing?
1) Banks and the Govt can borrow from RBI
2) When you buy GSEC bonds, you essentially lend to RBI
3) Yes for both 🙂
4) I’m not sure about this, need to read up on CPI guideline again 🙂
thank you sir for this great knowledge. Love you 3000 sir ji
sir regarding this article I have certain queries-
1- why is IIP for a particular month updated 6 weeks later by MOSPI ?
2- Where do we and how do we check PMI?
I did some research and came across ihsmarkit but I couldn’t get the knowledge of PMI over there
thank you😊
Thanks for the kind words, Roopam 🙂
1) It used to be latest, on monthly basis, not sure if things have changed, its unlikely though.
2) Trading Economics is usually a good place for such data – https://tradingeconomics.com/india/manufacturing-pmi
I’m not sure about the source that you’ve mentioned. But of its good, no harm using it. Good luck!
“Wholesale Price Index (WPI) – The WPI indicates the movement in prices at the wholesale level. It captures the price increase or decreases when they are sold between organizations as opposed to actual consumers.”
What is ‘they’ in above sentence ?
They = goods.
Sir is there a free site from where we could find ‘street expectation’. for a Company/ Stock?
Regards
Sanjay
Not sure, Sanjay. Long back Moneycontrol would provide that, I’m not sure if it still exists.
where can we find all this information of a prticular stock in NSE?
If there is any corporate event, then that will show up as ‘Event’ next to the scrip name in Kite.
Hi Sir,
u have mentioned that higher the reverse repo rate lowers the cash flow in the system
but why would RBI borrow money if the rates are high?
and if they dont borrow money (due to high r-r rates) doesn’t it mean there’s more money available for the rest of us and eventually corporates and the general public could use it for development right ?
The interest rate is a function of how the economy performs right? RBI cannot change the rates without any underlying reasoning.
I’m saying/asking that reverse repo and the devp of the company/market are inversely proportionate
please comment
Thanks a ton for the effort and time you’ve spent to deliver these phenomenal modules
Not really, as I mentioned, it is dependent on the underlying economy.
Where can I track these Indexes or register for the announcements?
YOu will have to track the news closely for this.
There have been instances where the stock price decrease heavily when the quarterly results of a particular company is announced and the company has performed quite good. Is it the reverse psychology where the retail investors wants to buy but the big players sell off their shares?
Current results could be good, but it also depends on future guidance from the management. After all, stock markets are forward-looking.
Very well predicted the ITC share future. 6 years have passed by and ITC is trading at its lowest all thanks to the increased taxes & duties on cigarettes
True.
Sir,
In today’s scenario, the lending rate decreasing, purchasing power decreasing, but Inflation increasing. Why? Kindly explain.
This is how it is, rates lower, more money in the hands of investors leading to higher inflation.
Sir thanks,you give us so many data and knowledge, thanks for your help and advice,sir I want to know a secure income from options trading , will you advice me, thanks again for your help
Markets are inherently risky, so there is no question of secure income 🙂
at current repo rate has come down to 4
In your example you mentioned that repo rate is 8% and reverse repo rate is 7%. Then why banks will give loan to RBI ?
What will they do if they have excess money?
Sir this is how you defined CRR
“Cash reserve ratio (CRR) – Every bank is mandatorily required to maintain funds with RBI. The amount that they maintain is dependent on the CRR. ”
Then you said this
“If CRR increases, then more money is removed from the system, which is not good for the economy.”
But i have confusion if CRR increases doesn’t that mean more funds are maintained with the RBI, then how is that bad for the economy??
That also means more money stuck and not being put to use right?
Can somebody please say, How to track live government decisions that affect market movements.
Which website to look into?
All public information is given out to all new agencies at the same time. So there is no real edge here.
Sir , please recommend me a book for amateur long term investors to understand how to get 20 percent or more cagr in the next 20 to 40 years
20% is quite a bit, the only thing that will help you is consistent practice and sticking to basics.
Understood
nice
Hello Sir,
How does one identify the street expectations for results?
You can build a model around it. We have started a new module to discuss this topic – https://zerodha.com/varsity/module/financial-modelling/
Hello Sir,
What about world events that affect us?
Could you speak about them also?
There are so many of them 🙂
Like US fed events (similar to our RBI events), what other ones ?
Repo rate is approx 4% ………..then why 8% is mentioned?
Rates keep changing, it was 8% when we wrote this.
Dear Karthik,
Here, I have two queries:
1. How do we know what is the street expectation? OR What is the method of calculation of street calculation?
2. In every quarter, after Q1, the data of previous quarter is also included or is independent of it? I mean, when the Company publishes the Q2 results, then does is include the data of Q1 also or is only for Q2 separately? Same query for Q3 and Q4.
3. Is Q4 and Annual Report the same? In other words, is the Q4 report published as a Annual Report?
1) You keep track of news, you will know what the street is expecting
2) Companies usually do for comparison purpose
3) It will be separate, but in most cases released at the same time.
Good work Karthik!
I completed the first 4 modules on Varsity (app)…
I know, I still have miles to walk before I can sleep!
Hope I can meet you in person one day just to give you a handshake
I’d love to shake hands with you, Don!
Happy reading 🙂
What will impact on share price after increase in dearness allowance of employees
It has no impact on stock prices.
Which economic data release affect the particular sector of stock market? How can we interpret this economic data?
Different sectors have different data points that matter. But in general, things like interest rate policy will have an impact on all the sectors.
I am so impressed with the entire content of the chapters i have read till now.
I wish i had known earlier 🙂
Thanks Karthik for the amazing lessons!
Never too late to start, happy learing, Pratika 🙂
Namaste Karthik
Thanks for sharing your tremendous knowledge with all of us.
The way you explain is very simple and easy to understand and helps people with non finance backgrounds like us.
Thanks.
Namaste, Sada. Thanks for the kind words, hope you continue to enjoy learning on Varsity 🙂
If reverse repo rate is increased, then the amount of money that rbi will borrow will decrease. Thus more money remains in liquid/market.
Why is it written then, “An increase in reverse repo rate is not great for the economy as it tightens the supply of money.”
Hi sir
I am very glad to say thanks for this learning instrument which made me to know and understand the stock Market very well.
1)where we can get the street expectations of quarterly results?
2) Is there any particular site or link is available?
3)where we can get the News related to stock Market?? Whenever I get the News I have been a way far late for news (like getting the train ticket after the departure of missed train)??
So please help me sir ☺️🙏…
Chetan,
1) You will have to keep an eye out on news and analysts coverage for this, you will get a sense of what the street expects
2) Not sure
3) Check this – https://pulse.zerodha.com/
What is the Current Repo Rate charged by the RBI ?
Its 4:00% (repo) and 3:35% (rev repo). You can check here – https://www.rbi.org.in/
For instance, a company’s quarter results are expected to be negative than previous one… The promoter obviously knows about his company has made a huge losses in revenue, so he decides to sell his few shares in CMP (profit booking) before the company announces its results… Can this happen, and is it fair ??
Yup, it is not allowed by the exchanges as it is considered insider trading.
nice explaination sir
With increased spending how will the price of a commodity go up ie how will it lead to inflation with increased spending
Demand increases and the price tends to go up, leading to inflation.
Thank you karthik
How do you calculate street expectation ? Is there any index or how else do you know about it.
P.S. Thank you for all this knowledge
For street expectations, you generally have to follow the stock and the news around it. You will get a sense of what the street expects.
I am loving this. Thanks!
Happy learning, Utkarsh!
Hlo sir ye hindi m translate mil skti hai?
I’m not from finance background and don’t know much about Stock market but I usually make money looking at historical trend (0-3 years) and investing in good brands in equity market.
What can cause loss to me, which has never been so far though.
Bad luck 🙂
Sir, I am using the Zerodha Varsity app for studying these concepts. I have one query though the certificate which I get after giving the quiz can I add the same to me Linkedin profile and where do I find the credential id for the same??
Surya, making a note of this. Will check.
Sir any update on the matter.
Nifty and banknifty moves in same direction
Nope, not always.
Sir, it would be great if you can update the RATES given above since it is quite old, is it possible to fix it sir?
The idea is to get an idea about how to go about these events and get an idea. Not really to keep track of the latest rates 🙂
Which are the important days we would look at for high market fluctuations
like Bank nifty – all Thursdays
last Thursday of the month for F&O
could you provide me a list
Expiry is an important day. Otherwise, all the days that which has events will matter.
How much importance should we give to FED announcements?
and one more thing, yesterday, FED raised interest rates by 25 bps but still markets are reacting positive to that. How will you justify this?
Its generally important. But most of these hikes are factored in all the time, unless it all of a sudden without anyone expecting, which is unlikely these days 🙂
It means they also have told that they are going to increase rates in coming meetings as well. This is already known information. As long as everything remains same without sudden surprises market will react just normally in future as well?
Sir,
In the United States, labour and employment figures are also collected, I read somewhere. Is there a similar system in india?
YOu need to check the HRD ministry site for data. Maybe here as well – https://www.mospi.gov.in/
A lower IIP number puts pressure on the RBI to lower the interest rates!!
Plz explain this.
And if IIP increase IS GOOD FOR ECONOMY ?
If IIP is low, that means industrial activity is low. One way to boost the economy (industrial activity) is by lowering the interest rate and increasing the supply of money in the economy.
Zerodha Can add notification/ kind of alert for every event before it happens .. so we can close or reduce our position size
We do highlight in the market watch. Check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/kite-mw/articles/event-tag-on-marketwatch-holding
Hello sir
Can a company increase its face value? Suppose from 5 rupees to 10 rupees.
Yes, that is possible.
Dear Karthik Rangappa sir
i just want to tell you that if a company announces its quarterly result let us take infosys as an example i am of the point of view that the news which may be positive or negative aren’t we the last one who is receiving that news and is it possible that the movement is already happened in the market.
Yeah, news by the time it gets to you will be delayed. But if you are interested, you can develop financial models to predict the results and develop your assessment of results.
Hello sir,
1. Sir, whenever people refers to interest rates prevailing in the country, so are they talking about repo rate?
2. When RBI increases the repo rate, does it have any impact on the interest rates that we receive on our fixed deposits?
3. may I know who set’s the reverse repo rate, RBI or banks?
Thank you and have a good day sir.
1) Yes, the repo rates set by RBI or the central bank of the country
2) Eventually it does get passed on to FD rates
3) Its Reserve Bank of India (India) and the Federal Bank in US