First Review Synopsis

A COMPREHENSIVE PROJECT REPORT

ON
AN ANALYTICAL STUDY ON THE VOLATALITY OF
SECURITIES TRADED ON BSE SENSEX

INTRODUCTION
The Sensex falls by 36% in a day of hectic trading. The reserve Bank of India lowers
the repo rate by 25 basis points. The government of India raises 4500 crore rupees by issuing
bonds with a maturity of 10 years. So on and so forth all these are examples of securities
market at work. Most people are aware that this market has an important bearing on modern
life and glibly speak of Dalal Street the gilt Edged Market and the Nifty with a some
what vague understanding of these terms.
Factors responsible for price fluctuations
In a securities market, prices or returns show fluctuations for a variety of reasons:
changes in fundamental factors of firms, like, investors endowments, tastes or alternatively
the attitudes towards risk, correct or incorrect anticipations or expectations of investor and
other market participants, differences in information and mode of evaluation, transient
imbalances between demand for and supply of securities, and the nature and number of
stabilizing forces, among others, cause prices to fluctuate either from one point of
equilibrium to another or above and below an equilibrium point.
The changes in fundamental factors cause prices or returns to shift from one point of
equilibrium to another. For instance, information regarding changes in the economy, changes
in policies, including industrial policy, as also the political situation, and the social situation,
influence the over all price behavior of a market.
Apart from fundamental factors, the transitory imbalances between supply of and
demand for securities may also cause price fluctuations. For instance, in the absence of
stabilizing forces, excess supply (demand) of securities in the short- run causes the price to
fall (rise). In the presence of stabilizing forces, such as traditional speculators and value based
investors, the extent of fluctuations tend to be small, as these stabilizing forces act as buyers
(sellers), when there is excess of supply (demand), thus, arresting the magnitude of a fall
(rise) in the price. However, the stabilizing forces may not completely mitigate the price
change; as such acts may not bestow any benefit on them. These forces require a minimum
extent of price change in order to undertake the act of stabilization of prices, which would
give them scope to earn a responsible reward.
The expectations and foresight of investors as well as speculators determine the
magnitude of price fluctuations to a large extent. If market participants anticipate changes.

In either fundamental factors or technical factors correctly, and if the change or

anticipated change comes about gradually, the prices move in a smooth fashion from one
point of equilibrium to another. On the contrary, when the anticipations prove to be either too
optimistic or too pessimistic, or the changes in these factors or anticipations about them,
undergo a sudden change, the prices move erratically, rather than move in a smooth fashion
resulting in greater price fluctuations.
The numbers of speculations in relation to other traders also influences the extent of
fluctuations. The traditional role of a speculator is to act as a buyer when there is excess
supply and as a seller when there is excess demand.
Changes in fundamental and other factors as well as correct or incorrect anticipations
also determine the short- term and the long- term price changes. If the changes takes place
gradually and anticipations prove to be correct, the short-term fluctuations tend to be similar
in magnitude as that of average long-term fluctuations, as in this case, the short-term
fluctuations or price changes tend to be one direction, which add up to determine long- term
fluctuations. On the contrary, if the anticipations are not correct, irrespective of mode of
arrival of information- whether gradual or not gradual the average long-term fluctuations tend
to be smaller than the short-term fluctuations.
It is clear that the fluctuation of prices or price volatility is influenced by the arrival of
information- gradual or otherwise- and the correct or incorrect anticipation of market
participants. Further, the role played by speculators either corrects the situation by
minimizing the extent of fluctuations, or further accentuates fluctuations and thereby
destabilizes prices.
Types of volatility
We can review volatility in three contexts:

Historical volatility

Implied volatility

Projected volatility

NEED OF THE STUDY

The stock market in India existed for a well over a century. Now its importance in the
mobilization, allocation and efficient use of scarce investment recourses has not been
recognized until the last decade. During the last decade both secondary and primary markets
have witnessed phenomenal qualitative and quantitative developments. One of the important
characteristics of well functioning stock market is the stability of prices of securities traded
on it, which is price volatility.
Volatility of security price has important implications for firms investment and
financial decisions, valuations and investors sentiments. Price volatility of securities has
consequence for firms decisions on how much capital to issue, type of instrument to be used
when to use. Further high price volatility provides opportunities for expropriations between
various market players.
There for the study of volatility of security is very important contextual as well.
Hence analytical study of volatility of securities traded on Bombay Stock Exchange is the
topic of this project.

SCOPE OF THE STUDY

This study clearly defines the volatility of different companies concern during the working
period. The financial study helps us to analyze the violations by its background and the
utilization of their performance in sensex indices.
It is an attempt to provide an empirical support to the return factors across the 15 sectoral
indices of NSE and BSE sensex index. It attempts to cover the level of volatility from NSE
and BSE sensex index.
The study restricted to find out an impact of 15 companies.

LIMITATIONS OF THE STUDY

The most important limitation of this study is that it considers only Sensex companies
listed in Bombay Stock Exchange.
Only three months duration has been taken for the study.
The indices taken as benchmark have their own limitations. The BSE sensex consist
of 30 scripts. So it does not truly reflect as a whole. Hence there is a limitation that the
true returns from the market is not reflected indices
Generalization of findings and conclusions of the study are likely to be disputed as
security prices are determined by so many factors. However the findings and
conclusions drawn upon the secondary data collected is expected to through some
new light on volatility of share prices during public issues.

OBJECTIVE OF THE STUDY

To study the volatility of securities listed in the Bombay Stock Exchange (BSE).

To analyze the present trend (Buying/Selling) of the company

To suggest better investment decision based on calculated statistical tools of fifteen

companies.

To capture the trends, similarities and patterns in the activities and movements of the
Indian Stock Market.

To suggest investors category like (hedgers and speculators) on the behalf of beta.

RESEARCH METHODOLOGY

Research Design
Methodology

It covers the type of research used in this dissertation, sample size chosen, sample
description, data collection. Each will be described separately under the following
headings.

Sample size
For the study 15 companies have been selected. All these companies are the major
players in the economy and are part of Sensex. Sample technique
The current study requires no sampling techniques. All the fifteen companies in the
Bombay Stock Exchange Sensex which consisting of 60 days observations are
selected
Sample description
Table 1. LIST OF 30 COMPANIES IN SENSEX
CODE

NAME

SECTOR

500103 Bharat Heavy Electricals Ltd.

Capital Goods

500510 Larsen & Toubro Limited

Capital Goods

500010 HDFC

Finance

500180 HDFC Bank Ltd.

Finance

532174 ICICI Bank Ltd.

Finance

500112 State Bank of India

Finance

500696 Hindustan Unilever Ltd.

FMCG

500875 ITC Ltd.

FMCG

500087 Cipla Ltd.

Healthcare

532868 DLF Ltd.

Housing Related

532532 Jaiprakash Associates Ltd.

Housing Related

500209 Infosys Technologies Ltd.

Information Technology

532540 Tata Consultancy Services Limited

Information Technology

507685 Wipro Ltd.

Information Technology

500440 Hindalco Industries Ltd.

Metal, Metal Products &

Mining

532286 Jindal Steel & Power Ltd.

Metal, Metal Products &

Mining

500900 Sterlite Industries (India) Ltd.

Metal, Metal Products &

Mining

500470 Tata Steel Ltd.

Metal, Metal Products &

Mining

500312 ONGC Ltd.

Oil & Gas

500325 Reliance Industries Ltd.

Oil & Gas

532555 NTPC Ltd.

Power

500390 Reliance Infrastructure Ltd.

Power

500400 Tata Power Company Ltd.

Power

532454 Bharti Airtel Ltd.

Telecom

532712 Reliance Communications Limited

Telecom

532977 Bajaj Auto Limited

Transport Equipments

500182 Hero Honda Motors Ltd.

Transport Equipments

500520 Mahindra & Mahindra Ltd.

Transport Equipments

532500 Maruti Suzuki India Ltd.

Transport Equipments

500570 Tata Motors Ltd.

Transport Equipments

Actual collection of data

Basically, the data used in this study are secondary Past three months daily closing
price of stock of all companies listed in BSE has been used in this study. 60 daily
stock prices have been used for each company to test the applicability of Beta, SD,
Variance and Coefficient Correlation, which are used to measure volatility of shares.

Techniques used for data analysis

Basically whole data analysis has been performed using spreadsheet in Excel by
using different statistical functions inbuilt in Excel. The following statistical functions
have been employed during the data analysis.

Correlation:
Sigma:

Calculates the coefficient of correlation between

Market Return and companies return and
Companies return.
Calculates the summation of data.

Standard Deviation: Calculates the standard deviation that

Measures the risk of an asset from the
Expected value of return.

Beta

: The whole market is assigned a beta of 1.

Stocks that have a beta greater than 1 have
greater price volatility than the overall market
And are considered to have greater risk.
Stocks with a beta less than 1 have less price
Volatility than the market as a whole and are
Considered to have less risk.

INDUSTRY PROFILE

The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index
composed of 30 stocks with the base April 1979. It consists of the 30 largest and most
actively traded stocks, representative of various sectors, on the Bombay Stock Exchange.
These companies account for around one-fifth of the market capitalization of the BSE.
The base value of the Sensex is 100 on April 1, 1979 and the base year of BSE-SENSEX is
1978-79. At irregular intervals, the Bombay Stock Exchange authorities review and modify
its composition to make sure it reflects current market conditions.
The abbreviated form "Sensex" was coined by Deepak Mohoni around 1990 while writing
market analysis columns for some of the business newspapers and magazines. It gained
popularity over the next year or two.
The software industry comprises of businesses involved in the development, maintenance and
publication of computer software. The software industry started in the mid-1970s at the time
of the personal computer revolution. The industry also includes software services, such as
training and consultancy. The largest and most profitable of software companies are located
in the United States. As of 2006, the software industry is dominated by Microsoft. Software
Magazine's 500 list in 2005 shows the total amount of revenue brought in by software
companies per locale, with the highest being California due to Silicon Valley and the amount
of Fortune 500 software companies residing in that area.
There are mainly two types of businesses in the software industry; those developing
proprietary software such as Microsoft, and those developing open source software.
Developing proprietary software is costly and involves software licensing and the need to
protect the software from cracking and piracy.
A pharmaceutical company, or drug company, is a commercial business licensed to research,
develop, market and/or distribute drugs, most commonly in the context of healthcare. They
can deal in generic and/or brand medications. They are subject to a variety of laws and
regulations regarding the patenting, Testing and marketing of drugs, particularly prescription
drugs. From its beginnings at the start of the 19th Century, the pharmaceutical industry is
now one of the most successful and influential, attracting both praise and controversy
The oil industry operates on the petroleum market. Petroleum is vital to nearly all other
industries, if not industrialized civilization itself, and thus is critical concern to many nations.

Oil accounts for a large percentage of the worlds energy consumption, ranging from a low of
32% for Europe and Asia, up to a high of 53% for the Middle East. Other geographic regions
consumption patterns are as follows: South and Central America (44%), Africa (41%), and
North America (40%). The world at large consumes 30 billion barrels (4.8 km) of oil per year,
and the top oil consumers largely consist of developed nations. In fact, 24% of the oil
consumed in 2004 went to the United States alone.
A public utility is a company that maintains the infrastructure for a public service (often also
providing a service using that infrastructure). Public utilities often involve natural
monopolies, and as a result are often government monopolies, or if privately owned, treated
as specially regulated sectors.
The manufacturing industry includes those economic sectors that create a finished, usable
product: manufacturing and construction. This sector of industry generally takes the output of
the primary sector and manufactures finished goods or products to a point where they are
suitable for use by other businesses, for export, or sale to domestic consumers. This sector is
often divided into light industry and heavy industry. Many of these industries consume large
quantities of energy and require factories and machinery to convert the raw materials into
goods and products. They also produce waste materials and waste heat that may pose
environmental problems or cause pollution.

COMPANY PROFILES
The Associated Cement Companies Limited, an Indian company in cement
manufacturing business. Its registered office is called Cement House. It is located on
Maharishi Karve Road, Mumbai. It is a blue chip company. The stock price of this company
contributes in calculating BSE Sensex
The management control of the company was taken over by Swiss cement major
Holcim in 2004. On 1st September 2006 the name of The Associated Cement Companies
Limited was changed to ACC Limited. The company is the only cement company to get the
Super brand status in India
Bharti Airtel, formerly known as Bharti Tele-Ventures Limited (BTVL) is among
India's largest mobile phone and Fixed Network operators. With more than 28.6 million
subscriptions as of September 2006, the company is one of the world's fastest growing
telecom companies. It offers its mobile services under the Airtel brand and is headed by
Sunil Mittal, India's sixth richest men with a total worth of US$6.9 billion. The company is
the only operator to provide mobile services in all the 23 circles in India. The company also
provides telephone services and Internet access over DSL in 14 circles. The company
complements its mobile, broadband & telephone services with national and international long
distance services.
BHEL or Bharat Heavy Electricals Limited is a Gas and Steam turbine
manufacturer in India. It is one of the nine large Public Sector Undertakings known as
navratnas or 'nine jewels'. Some of its manufacturing units are located in Bhopal (Madhya
Pradesh), Haridwar (UttarKhand), Hyderabad (Andhra Pradesh), Trichi and Ranipet (Tamil
Nadu) and Bangalore (Karnataka). BHEL is a key player in power sector through erection,
commissioning and servicing of power plants all over the world
Grasim industries limited, a flagship company of the Aditya Birla Group, ranks
among India's largest private sector companies, with consolidated net revenues of Rs 102
billion (FY2006). Starting as a textiles manufacturer in 1948, today Grasim's businesses
comprise Viscose Staple Fibre (VSF), Cement, Sponge Iron, Chemicals and Textiles in all
of which the company holds a dominant position.

In July 2004, Grasim acquired a majority stake and management control in UltraTech
Cement Limited, the de-merged cement business of Larsen & Toubro Limited (L&T). One of
the largest of its kind, in the cement sector, this acquisition catapulted the Aditya Birla Group
at the top of the league in India. The Group's combined capacity stands raised to 31 million
tpa, of which 17.0 million tpa capacity comes from UltraTech and 1.1 million tpa from Shree
Digvijay Cement Co. Ltd, another subsidiary of Grasim.
Ambuja Cements was set up in 1986. In the last decade the company has grown
tenfold. The total cement capacity of the company is 16 million tonnes. Its plants are some of
the most efficient in the world. With environment protection measures that are on par with the
finest in the developed world. The company's most distinctive attribute, however, is its
approach to the business. Ambuja follows a unique homegrown philosophy of giving people
the authority to set their own targets, and the freedom to achieve their goals. This simple
vision has created an environment where there are no limits to excellence, no limits to
efficiency. And has proved to be a powerful engine of growth for the company. As a result,
Ambuja is the most profitable cement company in India, and the lowest cost producer of
cement in the world
HDFC or Housing Development Finance Corporation Limited, was incorporated
in 1977 with the primary objective of meeting a social need that of promoting home
ownership by providing long-term finance to households for their housing needs. HDFC was
promoted with an initial share capital of Rs. 100 million.
Hindalco industries, Hindalco Industries Limited, a flagship company of the Aditya
Birla Group, is structured into two strategic businesses Aluminium and Copper and is
an industry leader in both. A non-ferrous metals powerhouse with a turnover of Rs.11,396
crore (FY06), Hindalco's integrated operations and operating efficiency have positioned the
company as Asia's largest integrated primary producer of aluminium and among the most cost
efficient producers globally. Its copper smelter is today the world's largest custom smelter at a
single location.
Established in 1958, Hindalco commissioned its aluminium facility at Renukoot in
eastern U.P. in 1962 and has today grown to become the country's largest integrated
aluminium producer and ranks among the top quartile of low cost producers in the world.

With a strategic intent to achieve vertical integration in the copper business, Hindalco
acquired two captive copper mines in Australia Nifty and Mt. Gordon through Aditya
Birla Minerals Limited
Hindustan Unilever Limited, erstwhile Hindustan Lever Limited (also called HLL),
headquartered in Mumbai, is India's largest consumer products company, formed in 1933 as
Lever Brothers India Limited. Its 41,000 employees are headed by Mr.Harish
Manwani, the non-executive chairman of the board. HLL is the market leader in
Indian products such as tea, soaps, detergents, as its products have become daily household
name in India. The Anglo-Dutch company Unilever owns a majority stake in Hindustan
Lever Limited.
Recently in February 2007, the company has been renamed to "Hindustan Unilever
Limited" to provide the optimum balance between maintaining the heritage of the Company
and the future benefits and synergies of global alignment with the corporate name of
"Unilever". This decision will be put to the Shareholdrs for approval in next "Annual General
Meeting
Larsen & Toubro Limited is India's largest engineering and construction
conglomerate, with diverse interests such as Construction,hydraulic equipments, power
services electrical and electronics, fertilizer projects,medical electronics and information
technology. It generates almost 85% of its revenue from the construction business. Founded
in 1938, the company is currently headquartered in Mumbai, India. A strong, customerfocussed approach and the constant quest for top-class quality have enabled the Company to
attain and sustain leadership position for over six decades
L&T has made spectacular achievements in Indian industry. Many of the engineering
projects executed by L&T have set new benchmarks in terms of scale, sophistication and
speed. So do many buildings, highways, bridges and civil structures around the country
which are widely regarded as landmarks
Maruti Udyog Ltd is one of India's leading automobile manufacturers and the market
leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Untill
recently, 18.28% of the company was owned by the government, and 54.2% by Suzuki of
Japan. The Indian government held an Initial Public Offering of 25% of the company in June

of 2003. As of May 10, 2007, govt. of India sold its complete share to other financial
institutions. With this, govt. of India no longer has any stake in Maruti Udyog.
Maruti Udyog Limited (MUL) was established in February 1981, though the actual
production commenced in 1983. Through 2004, Maruti has produced over 5 Million vehicles.
Marutis are sold in India and various several other countries, depending upon export orders.
Cars similar to Marutis (but not manufactured by Maruti Udyog) are sold by Suzuki in
Pakistan and other South Asian countries.
The company annually exports more than 30,000 cars and has an extremely large domestic
market in India selling over five hundred thousand cars annually. Maruti 800, till 2004, was
the India's largest selling compact car ever since it was launched in 1983.
More than a million units of this car have been sold worldwide so far. Currently,
Maruti Alto tops the sales charts.
National Thermal Power Corporation is the largest power generation company in
India. The Forbes Global 2000 ranking for 2005 ranks it as the 5th leading company in India
and the 486th leading company in the world. It is a public listed (Bombay Stock Exchange)
Indian public sector company, with majority shares owned by the Government of India. At
present, Government of India holds 89.5% of the total equity shares of the company and the
balance 10.5% is held by FIIs, Domestic Banks, Public and others. NTPC ranks amongst the
top five companies, in terms of market capitalisation
NTPC's core business is engineering, construction and operation of power generating
plants and also providing consultancy to power utilities in India and abroad. As on date the
installed capacity of NTPC is 26, 404 MW through its 14 coal based, 7 gas based and 4 Joint
Venture Projects.
NTPCs share on 31 Mar 2006 in the total installed capacity of the country was
19.51% and it contributed 27.68% of the total power generation of the country during 200506. Thus, every fourth home in India is enlightened by NTPC. A total of 170.88 BUs of
electricity was produced across all the stations of the company in the financial year 20052006. The Net Profit after Tax on March 31, 2006 was INR 58, 202 million. Net Profit after
Tax for the quarter ended June 30, 2006 was INR 15528 million, which is 18.65% more than

the same quarter in the previous financial year (2004-2005) where the profit was INR 13087
million
Oil and Natural Gas Corporation Limited (ONGC) (incorporated on June 23,
1993) is a public sector petroleum company based in Dehradun, India. It is a Fortune Global
500 company, and contributes 77% of India's crude oil production and 81 % of India's natural
gas production. It is the highest profit making corporation in India. It was set up as a
commission on August 14, 1956. Indian government holds 74.14% equity stake in this
company.
ONGC is engaged in exploration and production activities. It is involved in exploring
and exploiting hydrocarbons in 26 sedimentary basins of India. It produces about 30% of
India's crude oil. It owns and operates more than 11,000 kilometers of pipelines in India.
Until recently it was the largest company in terms of market cap in india.
Ranbaxy Laboratories Limited is an Indian company incorporated in 1961. It is
India's largest pharmaceutical company. It exports its products to 125 countries with ground
operations in 46 and manufacturing facilities in seven countries. It is ranked among the top 10
generic companies worldwide. The CEO of the company is Malvinder Mohan Singh.Ranbaxy
went public in 1973
Reliance Industries is India's largest private sector company with a turnover of US
$19.976 billion and profit of US $2.033 billion for the fiscal year ending in March 2006
making it India's first and only private sector Fortune 500 company. It was founded by the
late Dhirubhai Ambani in the 1970s. After severe differences between the two sons of the
founder Dhirubhai Ambani, the group was divided between the two sons Mukesh and Anil
Ambani in 2006
State Bank of India (SBI) is the largest bank in India. If one measures by the number
of branch offices and employees, SBI is the largest bank in the world. Established in 1806 as
Bank of Bengal, it is the oldest commercial bank in the Indian Subcontinent. SBI provides
various domestic, international and NRI products and services, through its vast network in
India and overseas. With an asset base of $126 billion and its reach, it is a regional banking
behemoth. The government nationalized the bank in 1955, with the Reserve Bank of India
taking a 60% ownership stake. In recent years the bank has focused on two priorities,

reducing its huge staff through Golden handshake schemes known as the Voluntary
Retirement Scheme, which saw many of its best and brightest defect to the private sector,
and, computerizing its operations
The State Bank of India traces its roots to the first decade of 19th century, when the
Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The
government amalgamatted Bank of Bengal and two other Presidency banks, namely, the Bank
of Bombay (incorporated on 15 April 1840) and the Bank of Madras on 27 January 1921, and
named the the reorganized banking entity the Imperial Bank of India
The State Bank of India Act 1955, enacted by the Parliament of India, authorized the
Reserve Bank of India, which is the central banking organization of India, to acquire a
controlling interest in the Imperial Bank of India, which was renamed the State Bank of India
on 30 April 1955
Tata Consultancy Services Limited (TCS Limited) is an Indian information
technology, consulting, services and business-process outsourcing organization which
commenced operations in 1968. As of 2007, it is Asia's largest IT services firm with
annualised revenues of over US $4 billion and has the largest number of employees among
all the Indian IT companies with strength of over 95,000.For fiscal year 2005-06, it posted a
net profit of Rs. 3,709 core
TCS is part of one of Asia's largest conglomerates and most respected groups, the Tata
Group, which has interests in areas such as energy, telecommunications, financial services,
chemicals, engineering and materials