How the stock market works

(Dalal Street has always been somewhat of a mystery to the man from Main Street. In the greater interest of spreading the spirit of casino capitalism, we furnish below news reports that will, we trust, greatly enhance your knowledge of the stock market.)

A day in late February: The stock market crashed today, because the Shanghai market crashed yesterday on worries about the Chinese economy overheating. Experts pointed out that as a result of globalisation, all markets were now linked by a common destiny.

Early March: The Chinese market rallied to fresh highs as investors decided they liked an overheated economy. But Indian stocks remained down in the dumps.

Early March: The market traded in a narrow range today as brokers worried themselves sick whether interest rates in the US would go up or down.

Early March: Foreign investors said that Indian stocks were among the most expensive in the world. The market fell as a result.

Middle March: Experts declared that the four year bull run in emerging market equities was finally over. The market crashed.

Early April: Experts were unable to decide whether it was the strength of the yen or the yuan that triggered today’s correction on Dalal Street. Some said it was a typing error.

Late April: Excellent first quarter results have proved to be a tonic for the markets, propelling them to fresh highs.

Mid-June: Experts declared that nothing could stop the bull run and that the global economy was on a roll.

Mid-June: The market went down today on profit-booking.

The day after: A wave of loss-booking sent the market reeling.

Early July: Foreigners decided Indian equities may be expensive but they were also nice, so they started buying stocks.

Late July: Although corporate profits slowed in the second quarter, analysts say that doesn’t matter, because growth is still strong.

Late July: Indian stocks fell sharply as the subprime mortgage mess hit the ceiling in the US. Brokers said they were so busy looking up what subprime was that they couldn’t trade today.

Early August: Foreign investors said that they were selling Indian equities because of the credit crunch in the US.

Mid-August: Experts declared the four and a half year bull run was finally over.

Early September: The markets saw a relief rally today, as they thought the worse of the subprime crisis was behind them

Next day: The Sensex fell today on relief that the relief rally was over.

The day after: The markets did not either rise or fall today. Experts point out that it was having a difficult time making up its mind whether to go up or down.

Mid-September: Experts were torn between attributing today’s Sensex fall to the flapping of a butterfly’s wings in Brazil or to the swishing of a kangaroo’s tail in Australia.

Next day: Stocks rallied as traders bet that high oil prices would mean more money from the Middle East coming to our markets.

Late September: Stock prices rose across the board today as foreign investors decided that the markets were not all that correlated and that the rally in emerging markets was intact.

Early October: The Sensex made a new high in ten days flat, as investors felt the market had not gone up far enough. A foolish analyst who said the Indian market was too expensive was found murdered in cold blood. The market celebrated by going up another thousand points.

Mid-October: The market rose another thousand points today but most investors missed it completely as they were watching cricket.

17 October: The market was worried in the morning because of Sebi’s move to ban a section of foreign investors from bringing in their dollars, but it soared in the afternoon after the finance minister assured everybody that the government had no option but to curb dollar inflows.

18 October: The warm, fuzzy feeling generated by Mr Chidambaram’s remarks continued this morning till investors realised that curbing dollars meant no more money for the markets.

19 October: The market decided the finance minister wasn’t Mr Nice Guy after all.

Manas Chakravarty is Consulting Editor, Mint