Master of Business Administration

MANISHA VERMA
 ACKNOWLEDGEMENT

The project report on “Factors Affecting Nifty Index” dilution of

various individual .I can not translate their help and co-operation. The
smallest act of kindness is worth more than grandest intention. It would be
unfair on my part, if I do not thank to all those people, without whom it
would not have been impossible for me to furnish this project on
schedule.
I am very thankful to my project guide Mrs. Aradhana Chouksey
support and guidance this project would not have been completed. She
has been source of inspiration for me throughout this project and has
extended all possible support.
At last I express my heartfelt thanks to all faculty members of KCB
Technical Academy and support and encouragement provided by our co-
coordinator Faculties, KCBTA, DAVV and the entire people who are
directly or indirectly helped me at every stage of this study.

MANISHA VERMA
 CERTIFICATE

This is to certify that the project titled,

“Factors affecting Nifty Index”

Submitted by Ms. Manisha Verma for partial fulfillment of

Degree of Master of Business Administration (Finance), from KCBTA,
DAVV, Indore. She has done this project under my Guidance and the study is
based on the research work done by her.

Aradhana Chouksey
HOD OF KCBTA
DAVV Indore (MP)
 DECLARATION

I, hereby declare that this project titled, “Factors Affecting Nifty Index” is
Purely original and is formulated on the basis of actual data gathered by
me Through visiting Kottek Security, Money Control, NSE India, BSE
India,SEBI, RBI website and through Capital Market, India Today exacta
Magazines & Many News Papers.

Ms. MANISHAVERMA
MBA (FINANCE)
 Contents
 Introduction

• Indian financial market

• Types of financial markets
• Capital Market

 Objectives

 Review of literature

 Stock Market

• National Stock Exchange of India Limited

• Index calculation

 Movement of Nifty S&P Index

 Sector break-up of industries in S&P Nifty

 Macro factors
• Interest rate

• Growth rate of gross domestic product of India

• Inflation
• FII inflow

 Micro factors

 Bibliography
 Introduction

A share is a financial security that gives the holder an ownership claim in

a company. It gives the holder rights to receive dividend distributed by a

company and voting rights at the company’s annual meeting. The

shareholders vote to elect the directors of the company who appoint the

company’s management and set the dividend policies. The shareholders

have specific right under corporate law and the company’s bylaws.

Shares that are publicly listed on stock exchanges and are required to

provide information or disclosure to their shareholders in return for being

publicly traded .common share are also referred to as “equity security” or

equities alluding to the accounting term “owner’s equity”. Investors and

commemorators use the term “equity market” or “equities” when they refer

to stocks or the stock market.

Indian financial market is a platform that allows people to easily buy and

sell (trade) financial securities (such as stocks and bonds), commodities

(such as precious metals or agricultural goods), and other fungible items

of value at low transaction costs and at prices that reflect the efficient

market hypothesis.
Financial markets have evolved significantly over several hundred years

and are undergoing constant innovation to improve liquidity.

Both general markets (where many commodities are traded) and

specialized markets (where only one commodity is traded) exist. Markets

work by placing many interested sellers in one "place", thus making them

easier to find for prospective buyers. An economy which relies primarily

on interactions between buyers and sellers to allocate resources is known

as a market economy

Financial markets can be domestic or they can be international. The term

Financial markets could mean:-

1. Organizations that facilitate the trade in financial products. i.e. Stock

exchanges facilitate the trade in stocks, bonds and warrants.

2. The coming together of buyers and sellers to trade financial products.

i.e. stocks and shares are traded between buyers and sellers in a number

of ways including: the use of stock exchanges; directly between buyers

and sellers etc.

In academia, students of finance will use both meanings but students of

economics will only use the second meaning.

 Types of financial markets

The financial markets can be divided into different subtypes:

• Stock markets, which provide financing through the issuance of

shares or common stock, and enable the subsequent trading

thereof.

• Bond markets, which provide financing through the issuance of

Bonds, and enable the subsequent trading thereof.

• Commodity markets, which facilitate the trading of commodities.

• Money markets, which provide short term debt financing and

investment.

• Derivatives markets, which provide instruments for the management

of financial risk.

• Futures markets, which provide standardized forward contracts for

trading products at some future date; see also forward market.

• Insurance markets, which facilitate the redistribution of various risks.

• Foreign exchange markets, which facilitate the trading of foreign

exchange.
 CAPITAL MARKET

The capital market is the market for securities, where companies and the

government can raise long-term funds. The capital market includes the

stock market and the bond market. Financial regulators, such as the SEBI

(Securities and Exchange Board of India) oversee the capital markets in

their designated countries to ensure that investors are protected against

fraud. The capital markets consist of the primary and secondary market.

PRIMARY MARKET

The primary is that part of the capital markets that deals with the

issuance of new securities. Companies, governments or public sector

institutions can obtain funding through the sale of a new stock or bond

issue. This is typically done through a syndicate of securities dealers. The

process of selling new issues to investors is called underwriting. In the

case of a new stock issue, this sale is an initial public offering (IPO).

Dealers earn a commission that is built into the price of the security
offering, though it can be found in the prospectus. Features of Primary

Market are:-

1. This is the market for new long term capital. The primary market is the

market where the securities are sold for the first time. Therefore it is also

called a New Issue Market (NIM).

2. in a primary issue, the securities being issued by the company directly

to investors.

3. The company receives the money and issue new security certificates to

the investors.

4. Primary issues are used by companies for the purpose of setting up

new business or for expanding or modernizing the existing business.

5. The primary market performs the crucial function of facilitating capital

formation in the economy.

6. The new issue market does not include certain other sources of new

long term external finance, such as loans from financial institutions.

Borrowers in the new issue market may be raising capital for converting

private capital into public capital; this is known as ‘going public’.

Methods of issuing securities in the Primary Market

1. Initial Public Offer;

2. Rights Issue (For existing Companies); and

3. Preferential Issue.
 SECONDARY MARKET

The secondary market is the financial market for trading of securities

that have already been issued in an initial private or public offering

alternatively; secondary market can refer to the market for any kind of

used goods. The market that exists in a new security just after the new

issue, is often referred to as the aftermarket. Once a newly issued stock

is listed on a stock exchange, investors and speculators can easily trade

on the exchange, as market makers provide bids and offers in the new

stock.

In the secondary market, securities are sold by and transferred from one

investor or speculator to another. It is therefore important that the

secondary market be highly liquid (Originally, the only way to create this

liquidity was for investors and speculators to meet at a fixed place

regularly. This is how stock exchanges originated,

Secondary marketing is vital to an efficient and modern capital market.

Fundamentally, secondary markets mesh the investor's preference for

liquidity (i.e., the investor's desire not to tie up his or her money for a long

period of time, in case the investor needs it to deal with unforeseen

circumstances) with the capital user's preference to be able to use the

capital for an extended period of time. For example, a traditional loan

allows the borrower to pay back the loan, with interest, over a certain

period. For the length of that period of time, the bulk of the lender's

investment is inaccessible to the lender, even in cases of emergencies.

Likewise, in an emergency, a partner in a traditional partnership is only

able to access his or her original investment if he or she finds another

investor willing to buy out his or her interest in the partnership. With a

securitized loan or equity interest (such as bonds) or tradable stocks, the

investor can sell, relatively easily, his or her interest in the investment,

particularly if the loan or ownership equity has been broken into relatively

small parts. This selling and buying of small parts of a larger loan or

ownership interest in a venture is called secondary market trading.

 OBJECTIVES

A Study of market movement with reference to macro economic

fundamentals

A Study of nifty movement with special reference to GDP, INTEREST

RATE INFLATION RATE & FII’s

A Study of sensitivity of market indices (with special reference to nifty) with

macro economic fundamentals like GDP, INTEREST RATE INFLATION
RATE & FII’s.
Niche wala pehla objective set kiya

tha mene then fir change karva diya

then upper wala set kiya.

Objectives

In this study the major objective is to find out the

correlation and causal relationship, if any, between the stock

market and real economic variables. It will shed light on the

degree of integration of the two markets and how they affect

each other. The specific sets of objectives of the study are as

follows:
 To calculate correlation and causality, if any, between

the stock market index Nifty and real economic variables.

 To study the data of few of the economic macro

variables like the Inflation, Foreign institutional

investment and Micro variable like Govt. policies, taxes,

duties, company policies extras.

 To explore that to what degree the two, stock market and

real economic variables cause each other.

 REVIEW OF LITERATURE
1. Price and Volume Effects of S & P CNX Nifty Index Reorganizations.

(Dr. Srinivas S S Kumar)

Abstract

This paper considers the effects of changes (both inclusions and

exclusions) in the composition of the Nifty and Jr. Nifty index for the

period 1996-2010. The study finds no significant price effects on the

announcement day. However price effects were observed only for the

Nifty index on the effective day averaging around 1.47% which is

subsequently reversed by ninth day. Similar results were found for the

Nifty deletions too. For the Jr. Nifty no price effects were observed either

on announcement day or on the effective day for both inclusions as well

as exclusions. However there were no abnormal volumes associated with

the price effects for the Nifty index. Also the study finds no significant

changes in the liquidity of the stocks that were either included or excluded

to/from the Nifty. Since the price effects are confined only to Nifty and

were absent for the Jr. Nifty certification effect may be ruled out. There is

prima facie support for the price pressures hypothesis however the
conclusions are not emphatic because of the lack of abnormal volumes in

the effective day window.

Key words: Changes in indices, event study, abnormal returns, price and

volume effects

2. Econometric Estimation of Systematic Risk of Nifty-Fifty Constituents

of the Indian Stock Market. ( A.V.Lakshmi Narayana )

Abstract

This study deals with assessment of systematic risk of equity stocks,

which is an important issue in the modern theory of finance and has

received the attention of a number of financial theorists over the past

three and a half decades. Empirical research on this issue has, in

general, been carried out in various countries, where daily quotes of stock

prices are available electronically in the form of comprehensive data files.

Estimation problems particularly arising from infrequent trading of stocks

could be studied in detail, only with the availability of such comprehensive

data inclusive of those infrequently traded stocks. With the advent of

internet technology in India, such authentic data files have recently

become available to researchers, which has facilitated the present study.

3. Do the S&P CNX Nifty Index And Nifty Futures Really Lead/Lag?

Error Correction Model: A Co-integration Approach. (Shalini Bhatia)

Abstract

Applying the Co-Integration approach to study the long run relationship

between Nifty futures and spot index and the Error Correction Model to

examine the short term adjustment process, using high frequency data,

the study finds that, price discovery happens in both, the futures and the

spot market. However the S&P CNX Nifty Futures Index is more efficient

than the S&P CNX Nifty Index and leads the spot index by 10 to 25

minutes. Such a finding is consistent with similar studies in U.S and U.K

markets.

Keywords: lead-lag relationships, Co-integration Analysis,

 Stock Market
A stock market is a private or public market for the trading of company

stocks (shares, bonds etc ) and derivatives of company stock at an

agreed price both of these are securities listed on a stock exchange as

well as those only traded privately. There are mainly two stock exchanges

in India which is as follow:-

THE NSE AND BSE

Most of the trading in the Indian stock market takes place on its two stock

exchanges - the BOMBAY STOCK EXCHANGE (BSE) and

the NATIONAL STOCK EXCHANGE (NSE). The BSE has been in

existence since 1875. The NSE, on the other hand, was founded in 1992

and started trading in 1994. However, both exchanges follow the same

trading mechanism, trading hours, settlement process etc. At the last

count, BSE had about 4,700 listed firms, whereas rival NSE had about

1,200. Out of all the listed firms on the BSE, only about 500 firms

constitute more than 90% of its market capitalization; the rest of the crowd

consists of highly ILLIQUID shares. Almost all the significant firms of India

are listed on both the exchanges. NSE enjoys a dominant share in SPOT

TRADING, with about 70% (as of 2009) of the market share and almost a

complete monopoly in DERIVATIVES trading, with about a 98% share in

this market (also as of 2009). Both exchanges compete for the order flow

that leads to reduced costs, market efficiency and innovation. The

presence of ARBITRAGEURS keeps the prices on the two stock

exchanges within a very tight range.

• NSE BSE (National Stock Exchange of India Limited, at

Bombay)

• BSE (Bombay Stock Exchange of India Limited , at Bombay )

 National Stock Exchange of India Limited

The National Stock Exchange of India Limited (NSE) is a Mumbai-

based stock exchange. It is the largest stock exchange in India in terms

daily turnover and number of trades, for both equities and derivative

trading. Though a number of other exchanges exist, NSE has a market

capitalization of around Rs 47,01,923 crore (7 August 2009) and is

expected to become the biggest stock exchange in India in terms of

market capitalization by 2009 end.[3] Though a number of other

exchanges exist, NSE and the BSE are the two most significant stock

exchanges in India, and between them are responsible for the vast

majority of share transactions. The NSE's key index is the S&P CNX

Nifty, known as the NSE NIFTY (National Stock Exchange Fifty), an

index of fifty major stocks weighted by market capitalisation NSE and

the Bombay Stock Exchange are the two most significant stock

exchanges in India, and between them are responsible for the vast

majority of share transactions.

NSE is mutually-owned by a set of leading financial institutions, banks,

insurance companies and other financial intermediaries in India but its

ownership and management operate as separate entities. As of 2006, the

NSE VSAT terminals, 2799 in total, cover more than 1500 cities across

India. In October 2007, the equity market capitalization of the companies

listed on the NSE was US$ 1.46 trillion, making it the second largest stock

exchange in South Asia. NSE is the third largest Stock Exchange in the

world in terms of the number of trades in equities. It is the second fastest

growing stock exchange in the world with a recorded growth of 16.6%

 Origins

The National Stock Exchange of India was promoted by leading Financial

institutions at the behest of the Government of India, and was

incorporated in November 1992 as a tax-paying company. In April 1993, it

was recognized as a stock exchange under the Securities Contracts

(Regulation) Act, 1956. NSE commenced operations in the Wholesale

Debt Market (WDM) segment in June 1994. The Capital Market (Equities)

segment of the NSE commenced operations in November 1994, while

operations in the Derivatives segment commenced in June 2000

Innovations

NSE has remained in the forefront of modernization of India's capital and

financial markets, and its pioneering efforts include:

• Being the first national, anonymous, electronic limit order book

(LOB) exchange to trade securities in India. Since the success of

the NSE, existent market and new market structures have followed

the "NSE" model.

• Setting up the first clearing corporation "National Securities Clearing

Corporation Ltd." in India. NSCCL was a landmark in providing

 innovation on all spot equity market (and later, derivatives market)

trades in India.

• Co-promoting and setting up of National Securities Depository

Limited, first depository in India

• Setting up of S&P CNX Nifty.

• NSE pioneered commencement of Internet Trading in February

2000, which led to the wide popularization of the NSE in the broker

community.

• Being the first exchange that, in 1996, proposed exchange traded

derivatives, particularly on an equity index, in India. After four years

of policy and regulatory debate and formulation, the NSE was

permitted to start trading equity derivatives

• Being the first and the only exchange to trade GOLD ETFs

(exchange traded funds) in India.

• NSE has also launched the NSE-CNBC-TV18 media centre in

association with CNBC-TV18, a leading business news channel in

India.

Currently, NSE has the following major segments of the capital market:

• Equity

• Futures and Options

 • Retail Debt Market

• Wholesale Debt Market Indices

• Mutual fund

• Stock Landing & Browing

NSE became the first stock exchange to get approval for Interest rate

futures as recommended by SEBI-RBI committee, on 31 August 2009, a

futures contract based on 7% 10 Year GOI bond (NOTIONAL) was

launched with quarterly maturities

 Indices

NSE also set up as index services firm known as India Index Services &

Products Limited (IISL) and has launched several stock indices, including:

• S&P CNX Nifty

• CNX Nifty Junior

• CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)

• S&P CNX 500 (= CNX 100 + 400 major players across 72

industries)

• CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap

200)
 Isme changes nahi kaar pai thi

Index calculation

The Index was initially calculated based on the "Full Market

Capitalization". To understand the term 'Full market capitalization'. We

need to know what ‘market capitalization, is. Market cap or market

capitalization is simply the worth of a company in terms of its shares. To

put it in a simple way, if you were to buy all the shares of a particular

company, what is the amount you would have to pay? That amount is

called the “market capitalization”! To calculate the market cap of a

particular company, simply multiply the “current share price” by the

“number of shares issued by the company.”

For instance our own NSE -- National Stock Exchange, the larger of the

two stock exchanges in the country, uses its own index called NSE S&P

CNX Nifty. This index is a well diversified 50 stock index accounting for 22

sectors of the economy. It is used for a variety of purposes such as

benchmarking fund portfolios, index based derivatives and index funds.

Something about the long name of this index. NSE stands for the

"National Stock Exchange." S&P (Standard & Poor) is a leading company

in the world in offering indexing services. The CNX in its name stands for
'CRISIL NSE Indices'. The X in CNX represents the x in the word 'Index'

or ‘Exchange.’ Nifty represents the 'NSE fifty' stocks. It is calculated as a

weighted average, so changes in the share price of larger companies

have more effect. The base is defined as 1000 at the price level of

November 3, 1995.
 Isme bhi change nahikiya hai

Movement of Nifty S&P Index

It is based on some factors which can be broadly classified into macro

and micro factors of economy. These factors affect the movement of nifty

S&P Index via affecting the share pieces of companies

FIGURE 1: - The figure below shows the movement of SENSEX and S&P

CNX Nifty in the year 2006-07

Since the total FII inflow was during the year increased by 3222 US
million dollars and inflation was also rise from 3.9% to 6.7%, hence the
market got rise up to 3400 to 3750 points.
Ye current figer nikale the

FIGURE 2: - The figure below shows the movement of SENSEX and S&P

CNX Nifty in the year 2008-09

BSE Sensex - Wednesday July 08, 2009 (Chart 1)

S&P CNX Nifty - Wednesday July 08, 2009 (Chart 2)

Ye bhi current hai

Sector break-up of industries in S&P Nifty : -

percentage participation of each sector in S&P Nifty
CNX NIFTY 14 Sep 17:30
Industry Movement
Aluminium -2.41 %
Auto - 2 & 3 Wheelers -0.35 %
Auto - Cars & Jeeps 1.15 %
Auto - LCVs/HCVs 2.75 %
Banks - Private Sector 1.30 %
Banks - Public Sector -0.87 %
Cement - Major -1.98 %
Cigarettes 1.23 %
Computers - Software 1.88 %
Construction & Contracting - Civil 1.73 %
Construction & Contracting - Real Estate 2.48 %
Electric Equipment 0.86 %
Engineering - Heavy 0.60 %
Finance - Housing 1.07 %
Finance - Investments 3.03 %
Finance - Term Lending Institutions 0.29 %
Metals - Non Ferrous 2.91 %
Oil Drilling And Exploration 0.52 %
Personal Care -0.36 %
Pharmaceuticals 0.12 %
Power - Generation/Distribution -0.51 %
Refineries -0.22 %
Steel - Large -0.60 %
Steel - Sponge Iron -0.98 %
Telecommunications - Equipment 1.25 %
Telecommunications - Service 1.50 %

Source:- www.moneycontrol.com

The above table describes the sector wise distribution a of Nifty

scrip
 sector break-up of infty

1 2 3 4 5 6 7 8 9 10 11 12 13
14 15 16 17 18 19 20 21 22

This Pie chart shows the sector wise distribution of Nifty shares

S&P CNX NIFTY 30 Sep 10:57

Company Industry Last Change % Mkt Cap Weight
(Rs cr)
Name Price Chg
ABB Electric Equipment 933.30 -5.80 -0.62 19,777.41 0.53

ACC Cement - Major 1,007.85 2.70 0.27 18,941.53 0.51

Ambuja Cement - Major 145.20 -1.95 -1.33 22,138.94 0.59

Cements
Axis Bank Banks - Private Sector 1,521.90 11.50 0.76 62,221.54 1.67

Bharti Airtel Telecommunications - 361.15 -2.25 -0.62137,147.80 3.68

Service

BHEL Engineering - Heavy 2,482.00 4.60 0.19121,498.86 3.26

BPCL Refineries 750.85 -14.30 -1.87 27,146.39 0.73

Cairn India Oil Drilling And Exploration 334.30 3.80 1.15 63,428.32 1.70

Cipla Pharmaceuticals 316.55 -0.55 -0.17 25,416.48 0.68

DLF Construction & Contracting - 371.00 -1.95 -0.52 62,973.66 1.69

Real Estate
GAIL Oil Drilling And Exploration 476.30 1.65 0.35 60,417.58 1.62
HCL Tech Computers - Software 416.35 -0.85 -0.20 28,311.74 0.76
HDFC Finance - Housing 721.70 14.70 2.08105,377.54 2.83
HDFC Bank Banks - Private Sector 2,455.00 12.15 0.50112,854.07 3.03
Hero Honda Auto - 2 & 3 Wheelers 1,850.00 -15.10 -0.81 36,942.19 0.99
Hindalco Aluminium 190.60 -0.95 -0.50 36,470.86 0.98
HUL Personal Care 307.30 1.30 0.42 67,062.69 1.80
ICICI Bank Banks - Private Sector 1,100.90 -1.05 -0.10122,835.60 3.29
Idea CellularTelecommunications - 74.00 0.05 0.07 24,424.49 0.66
Service
IDFC Finance - Term Lending 201.50 -0.55 -0.27 29,386.04 0.79
Institutions
Infosys Computers - Software 3,022.00 -9.05 -0.30173,432.91 4.65
ITC Cigarettes 172.70 -0.90 -0.52132,588.10 3.56
Jaiprakash Construction & Contracting - 120.45 -1.05 -0.86 25,591.22 0.69
Asso Civil
Jindal Steel Steel - Sponge Iron 700.50 -5.65 -0.80 65,422.71 1.75
Kotak Banks - Private Sector 473.85 -10.25 -2.12 34,630.52 0.93
Mahindra
Larsen Engineering - Heavy 2,036.70 -3.60 -0.18122,847.05 3.29
Mah and Auto - Cars & Jeeps 699.00 0.25 0.04 40,432.57 1.08
Mah
Maruti Auto - Cars & Jeeps 1,420.60 -9.45 -0.66 41,042.56 1.10
Suzuki
NTPC Power - 216.65 -0.35 -0.16178,637.99 4.79
Generation/Distribution
ONGC Oil Drilling And Exploration 1,383.10 -38.25 -2.69295,827.46 7.93
PNB Banks - Public Sector 1,273.00 -24.35 -1.88 40,138.01 1.08
Power Grid Power - 107.65 -1.00 -0.92 45,308.18 1.22
Corp Generation/Distribution
Ranbaxy Pharmaceuticals 550.95 -5.05 -0.91 23,181.45 0.62
Labs
Rel Capital Finance - Investments 794.25 -1.90 -0.24 19,551.26 0.52
Reliance Refineries 989.40 -9.60 -0.96323,656.26 8.68
Reliance Telecommunications - 167.90 -2.00 -1.18 34,655.01 0.93
Comm Service
Reliance Power - 1,072.00 -12.50 -1.15 26,250.09 0.70
Infra Generation/Distribution
Reliance Power - 160.10 -1.10 -0.68 38,372.77 1.03
Power Generation/Distribution
SAIL Steel - Large 204.75 -0.10 -0.05 84,569.95 2.27
SBI Banks - Public Sector 3,181.00 -14.70 -0.46201,992.90 5.42
Siemens Telecommunications - 814.25 -7.35 -0.89 27,453.27 0.74
Equipment
Sterlite Ind Metals - Non Ferrous 164.45 3.05 1.89 55,281.54 1.48
Sun Pharma Pharmaceuticals 2,030.00 29.35 1.47 42,044.63 1.13
Suzlon Engineering - Heavy 52.15 -0.60 -1.14 9,200.80 0.25
Energy
Tata Motors Auto - LCVs/HCVs 1,089.90 -16.55 -1.50 62,189.69 1.67

Tata Power Power - 1,335.00 -16.25 -1.20 31,680.52 0.85

Generation/Distribution
Tata Steel Steel - Large 644.70 -8.40 -1.29 57,211.32 1.53
TCS Computers - Software 924.65 4.30 0.47180,974.44 4.85
Unitech Construction & Contracting - 87.25 -0.55 -0.63 21,968.31 0.59
Civil
Wipro Computers - Software 440.50 -1.85 -0.42107,900.48 2.89
market capitalization of Nifty companies and
its weight age in total portfolio
CNX NIFTY 14 Sep 17:31
Company Name Industry Last Change Market Cap. Contribution
(Rs cr)
Price (Rs) (%)

Wipro Computers - Software 417.90 14.70 3.65 102,364.61 5.92

TCS Computers - Software 895.35 15.60 1.77 175,239.78 5.02
ONGC Oil Drilling And Exploration 1,396.30 13.95 1.01 298,650.77 4.90
Bharti Airtel Telecommunications - Service 356.45 7.65 2.19 135,362.96 4.77
HDFC Bank Banks - Private Sector 2,334.20 51.75 2.27 107,301.00 3.91
Infosys Computers - Software 2,975.60 38.70 1.32 170,770.01 3.65
Sterlite Ind Metals - Non Ferrous 171.30 4.85 2.91 57,584.24 2.68
Tata Motors Auto - LCVs/HCVs 1,055.20 28.20 2.75 60,209.71 2.64
Kotak Mahindra Banks - Private Sector 475.65 20.95 4.61 34,762.07 2.52
ITC Cigarettes 165.20 2.00 1.23 126,434.22 2.52
DLF Construction & Contracting - Real Estate 341.15 8.25 2.48 57,906.91 2.30
HDFC Finance - Housing 672.50 7.10 1.07 98,080.25 1.70
Larsen Engineering - Heavy 1,920.20 15.70 0.82 115,820.15 1.56
Jaiprakash Asso Construction & Contracting - Civil 126.25 3.75 3.06 26,823.51 1.31
BPCL Refineries 770.05 17.75 2.36 27,840.55 1.05
Rel Capital Finance - Investments 801.75 23.55 3.03 19,735.88 0.95
Maruti Suzuki Auto - Cars & Jeeps 1,346.50 18.35 1.38 38,901.74 0.87
BHEL Engineering - Heavy 2,502.45 8.75 0.35 122,499.93 0.70
Cipla Pharmaceuticals 310.45 4.90 1.60 24,926.69 0.65
PNB Banks - Public Sector 1,258.20 12.25 0.98 39,671.36 0.63
Mah and Mah Auto - Cars & Jeeps 670.95 6.10 0.92 38,810.06 0.58
Siemens Telecommunications - Equipment 730.60 9.05 1.25 24,632.92 0.50
Reliance Power Power - Generation/Distribution 158.15 1.05 0.67 37,905.39 0.41
ICICI Bank Banks - Private Sector 1,100.15 2.15 0.20 122,717.19 0.39
ABB Electric Equipment 790.00 6.70 0.86 16,740.76 0.23
Suzlon Energy Engineering - Heavy 51.60 0.60 1.18 9,103.77 0.17
Idea Cellular Telecommunications - Service 74.85 0.25 0.34 24,705.04 0.14
IDFC Finance - Term Lending Institutions 191.70 0.55 0.29 27,956.85 0.13
Reliance Infra Power - Generation/Distribution 1,057.10 1.35 0.13 25,885.24 0.05
Unitech Construction & Contracting - Civil 85.00 0.10 0.12 21,401.79 0.04
Axis Bank Banks - Private Sector 1,426.30 0.10 0.01 58,259.35 0.01
Cairn India Oil Drilling And Exploration 326.65 -0.40 -0.12 61,976.85 -0.12
HCL Tech Computers - Software 409.30 -1.25 -0.30 27,807.38 -0.14
Hero Honda Auto - 2 & 3 Wheelers 1,721.70 -6.00 -0.35 34,380.20 -0.20
Reliance Comm Telecommunications - Service 162.15 -0.60 -0.37 33,468.20 -0.20
Ranbaxy Labs Pharmaceuticals 504.65 -2.95 -0.58 21,233.36 -0.20
Sun Pharma Pharmaceuticals 1,746.45 -8.05 -0.46 36,171.84 -0.27
Power Grid Corp Power - Generation/Distribution 105.05 -0.50 -0.47 44,213.88 -0.35
HUL Personal Care 278.15 -1.00 -0.36 60,701.23 -0.36
Tata Power Power - Generation/Distribution 1,264.40 -10.75 -0.84 30,005.13 -0.42
ACC Cement - Major 970.05 -20.40 -2.06 18,231.12 -0.63
Ambuja Cements Cement - Major 136.70 -2.65 -1.90 20,842.93 -0.66
Tata Steel Steel - Large 596.90 -4.60 -0.76 52,969.50 -0.67
SAIL Steel - Large 200.10 -1.00 -0.50 82,649.31 -0.68
Jindal Steel Steel - Sponge Iron 710.70 -7.00 -0.98 66,375.33 -1.07
GAIL Oil Drilling And Exploration 464.90 -5.90 -1.25 58,971.51 -1.23
Hindalco Aluminium 186.45 -4.60 -2.41 35,676.77 -1.45
NTPC Power - Generation/Distribution 205.90 -1.70 -0.82 169,774.11 -2.30
Reliance Refineries 988.15 -4.35 -0.44 323,247.36 -2.34
SBI Banks - Public Sector 3,109.55 -39.00 -1.24 197,420.20 -4.07
Nifty : 35.55
The above table describes the market capitalization of
Nifty companies and its weight age in total portfolio.

Market capitalization of the company is

calculated by using following formula

MARKET CAPITALIZATION
= Market price of share of company * No. of outstanding
share of that company

WEIGHTED AVERAGE
= (Market cap. Of A company / total market capitalization)
*100
 ye bhi purana data hai yaha se kuch bhi thik nahi kar pai me

MACRO FACTORS

INTEREST RATE
Interest rate as a specific financial parameter indicates the value of

money and significantly influences any actions on money and capital

markets. Interest rate on money market is the main parameter

representing at the same time a minimum yield in comparing various

yields on investments on money and capital markets. Investor’s decision

on investments on money and capital markets will be always based on

the interest rate prevailing on money market.

Interest rate varies with maturity, default risk, inflation rate productivity of

capital, special futures, and so on. Traditionally the interest rate in India

was fairly high and most of the interest rate in the organized sector was

regulated. In the several interests have deregulated. More important, in

the last few years interest rates have softened significantly.

*A rise in the interest rates depresses corporate profitability and also lead

to increases in the discount rate applied by equity investors both of which

have an adverse impact on stock price on the other hand, a fall in interest

rate improves corporate profitability and also leads to a decline in the

discount rate applied by equity investors, both of which have a favorable

impact on the stock price.

GROWTH RATE OF GROSS DOMESTIC PRODUCT

OF INDIA

The gross domestic product (GDP) is a measure of the total production of

final goods and services in the economy during a specific period usually a

year. the growth rate represent the average of the growth rates of the

three principal sectors of the economy – service sector , industrial sectors

and agriculture sector.

Growth rate of GDP, the most important indicator of the performance of

the economy. The average rate of GDP in India during 1950 – 80 was

around 4% in real terms (the real growth rate is the nominal growth rate

the less inflation rate) with wide year to year fluctuation though. The GDP

growth rate had risen to about 5% in the 1980s, in the 1990s the GDP

growth rate began on a dismal note significantly subsequently, but decline

slightly towards the end.

Firm estimate of the GDP rate are available the time lag of one to tow

year before so, but preliminary estimates are made from time to time by
various bodies like RBI. The higher the growth rate of GDP, other things

being equal the more favorable it is for the stock market.

2005-06 GDP

India’s GDP estimated in the year 2005-06 by 8.1 %.

2006-2010 GDP

India GDP Growth Rate (2006-2010)

The Indian economy expanded 7.40 percent over the last year, as

measured by the year-over-year change in Gross Domestic Product.

Unlike the commonly used quarterly GDP growth rate the annual GDP

growth rate takes into account a full year of economic activity, thus

avoiding the need to make any type of seasonal adjustment. The India

Gross Domestic Product is worth 1296 billion dollars or 2.09% of the

world economy, according to the World Bank. From 2006 until 2010,

India's average annual GDP Growth was 8.50 percent reaching an

historical high of 9.70 percent in March of 2007 and a record low of 6.70

percent in March of 2009.

By the Central Statistical Organization (CSO) on February 7, 2007, places

the growth of

GDP at factor cost at constant (1999-2000) prices in the current year at

9.2 per cent.

 INFLATION
Not in itself an indication of aggregate economic activity, the price level

measure the degree to which the nominal rate of growth in GDP is

attributable to inflation.

The sector inflation rate in Indian economy has been around 7 percent till

the lat 1990s, with wide year to year infatuation though in resent years

inflation rate has increases in significantly.

The effect of inflation on the corporate sector tends to be uneven. While

certain industries may benefit other tend to suffer. industries that enjoy

strong market for their product and which do not come under preview of

price control may benefit on the other hand , industries that have a weak

market and which come under the preview of price control tend to lose .an

estimated inflation in the end of 2007 was 3.8 percent .

Country Interest Rate Growth Rate Inflation Rate Jobless Rate Current Account Exchange Rate
5.00% 8.80% 11.25% 7.32% -13 46.7650
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2010 16.22 14.86 14.86 13.33 13.91 13.73 11.25
2009 10.45 9.63 8.03 8.70 8.63 9.29 11.89 11.72 11.64 11.49
2008 5.51 5.47 7.87 7.81 7.75 7.69 8.33 9.02 9.77 10.45

FOREIGN INSTITUTIONAL INVESTORS (FII)

FIIs share in the Indian capital markets has shown steady increases from

US $ 200 million in 1991-1992, to 10 billion in 2005. This market growth of

FII investment is due to the financial liberalization policies followed by

India since 1991. This buoyancy demonstrated the high level of

confidence that the international investor repose in the Indian economy.

One reason for the surge in FII inflow is the strengthening of the rupee

against the US $. The strengthening of the rupee is due to the weakening

of dollar across global currencies. Until about two years ago, FIIs used to

bear losses on their portfolio investment when the rupee would

continuously depreciate. With the rupee strengthening, that’s not the case

now.

Give the perception about FIIs as market leaders in the domestic stock

market along with their dominate position in the nifty companies; we can

understand that FIIs are in a position to influence the movement of nifty in

a significant proportion. The influence of FIIs on the movement of the nifty

became apparent after the general election in India when the sudden

reversal of FII flows triggered a panic reaction, which resulted in very high

volatility in the Indian stock market. During this period, the S & P Nifty

experienced its worst single-day decline in its history and in the three-

month period between April to June 2005, it declined by about 17 percent.

And it all started because of the selling pressure entered by the FIIs after

the post election phase when they became less confident about the

continuation of reform process in India.

However, when we look at the shareholding pattern of FIIs in Nifty

companies, we see that the shareholding pattern of the FIIs have

remained relatively unchanged between March and June 2007.

In the first year of crisis, 1997-1998, there was a large FIIs net inflow of

$1,828million. In the second and worst year, 1998-99, there was a tiny

outflow of $68 million. And in last year of the crisis, 1999-2000, there was

a again net inflow of $3,024 million. FIIs would like to sale at high prices

and exit during a panic. Even a small sale of $100 million by the FIIs

causes the nifty of plummet by 10 %.

As they issue participatory notes or operate through FII sub-account

route they can pull out even faster, thereby creating turbulence in the

Indian market.

The volume of trades done by FIIs is not very high as compared to other

market participants; they are the driving force in determination of market

sentiments and price trends. This is so because they do only delivery-

based trades and they are perceived to be infallible in their assessment of

the market. Another aspect is that the other market participants perceive

the FIIs to be infallible in their assessment of the market and tend to

follow the decisions taken by FIIs. This heard instinct displayed by other

market participants amplifies the importance of FIIs in the domestic stock

market in India.
 FII INFLOWININDIA INUS$MILLION

4000

2000

0 FII INFLOWIN

g
g
rl

rl
c

c
p

e
p

u
INDIA INUS$
a

d
-2000 MILLION
5

6
0

0
0

0
0

0
-4000
2

-6000 2

The above figure shows the relation between the S&P NIFTY INDEX and

FII inflow for the financial year 2005-06 and 2006-07.

 MICRO FACTORS
GOVERNMENT POLICIES(CURRENT)
The govt. policy announced by govt. has own impact on companies and
industries of a favorable or unfavorable govt. policy.
There may be a big change in the company or industry after the
announcement of govt. policy. If a policy is in favor of company than the
profit and sales may grow. These policies mainly reflect in the annual
budget. For this study we study the annual budget 2005-06 and 2006-07
separately. And will see the impact of it on the Nifty companies
graphically.

Budget 2005-06(insert the latest budget)

The market fell significantly after a rally on budget day. The fall in the
market was attributed to negative announcement in the budget like overall
duty cut of oil marketing companies. Tech stock was depressed on
account of fringe benefit tax.
Due to overall depressing budget the market reacted very sharply as it
was on the start of the year it was 3473.3 points and at the end of
financial year it was on 3821, which very nominal growth.
 Close

5000
4000
3000 Close
2000
1000
0

10/3/2006
4/3/2006

6/3/2006

8/3/2006

12/3/2006

2/3/2007

The trend of market in financial year 2006-07

The key points were in the budget was as follows which affects
market accordingly.

1. Corporate tax

The government reduced corporate tax from 35 to 30%.

Specific tax proposals and their impact on individual stock.

Reduction in customs duty on crude to 5 percent it is negative for ONGC .

Reduction in income tax rates: this would put more money in the hands of

the consumers and should be positive for all FMCG companies,

especially HLL ITC.

10 % surcharge on tobacco products is negative for ITC.

Excise duty cut on PFY is positive for Reliance.

Excise duty cut on refined edibal oil and vanaspati would benefit ITC and

HLL.

Effect of taxes on nifty shows that it affects the market. Other taxes like
FBT has not a very big impact on market. The major impact is from the
side of corporate and excise tax. It reveals that it affect the nifty but for
short term.

2. AUTOMOBILES
POSITIVE

• Reduction in excise duty on motorcars and tiers from 32 % to 24%.

• This may result in lower prices to the consumer and possibly boost

demand.

• Reduction in the excise duty on electric vehicles from 16 % to 8 %.

This will have marginal impact, as electric vehicles have not

become popular as yet.

NEGATIVE

• Increases in additional custom duty on petrol and high speed diesel

oil from Rs. 1 par litter to Rs. 1.50 par litter; increases in the excise
 duty on light diesel oil by Rs. 1.50 par litter; impositions of additional

Cass of 50 pace par litter on diesel and patrol, imposition of duty of

Rs. 50 par metric tune on imported crud oil. Rising fuel price could

dampen growth in sales of automobile as price of fuel rise, fuel-

efficient vehicles are expected to benefit.

• Imposition of 1 % national calamity contingent duty for one year on

motor care, MUV’S and two wheelers.

Major Beneficiaries:-Maruti Suzuki, Tata Motars, Ashok Leyland,

BajajAuto, Hero Honda Motors and TVS Motors.

Close Price
3500
3000 BAJAJ
2500 Close Price
2000
1500 HEROHONDA
1000
500 Close Price
10/3/2006

12/3/2006
4/3/2006

6/3/2006

8/3/2006

2/3/2007

0 MRUTI
Close Price
M&M
Close Price
TATA MOTARS

As it is clearly seen in the graph positive factor being discounted in the

whole year and then it come down to its fare value, after appreciation.

BANKS
POSITIVES

• Buy-back of old high cost debts of the govt. from the banks at a

premium and the business income so earned to get tax benefit it set
 of against NPA provisioning . This would give banks liquidity and

help clean up their balance sheet as well.

• Hike in FDI in privet banks from 49% to 74% and removable of

voting right restriction of 10 %. This should lead to strategic

investment by international investors. However, the retention of the

FDI limit at 20 % form PSU banks has been a disappointment.

• Extension of the benefits of section 72A of IT act to nationalized

banks where by banking companies can merge with consequential

tax benefit. This would pave the way for consolidation. Continuation

of sops for housing. Surge in retail loans portfolio in this segment to

continue.

• Reduction in small savings and PPF rates by 1%. This would help

banks reduce deposit rates and maintain spread. Lowering of

savings account rate from 4% to 3.5% would also benefit banks.

• Rising section 80L benefits from Rs. 12000 to Rs 15000. And

additional

• Rs 3000 by why of interest income would be tax exempt and help

the depositors

NEGATIVE
 • Fixing of S.S.I. (small scale industries) landing under band of 2 %

above and below PLR. This may exert miner pressure on interest

rate spread.

2000
Close Price
1500 HDFC
1000 Close Price
500 ICICI
0 Close Price
10/3/2006

12/3/2006
8/3/2006

2/3/2007
4/3/2006

6/3/2006

PNB
Close Price
SBIN

The overall budget was good for the banking sector as it is shown in the
graph but the cut in small scale industries interest rate affect its share
price considerably
CEMENT

POSITIVES

• Moderately positive

• Demand triggers for cement from thrust on infrastructure: a quarter

of the proposed 48 new road projects would be cement concrete;

funding for north –south and east- west corridors tied up with the

levy of cases of 50 peace on petrol or diesel (to garner rupies 26

Billion) and augmentation of resource for rural road; continuation of

housing sops and tax exemption of income from approved housing

project.

• Railway budget in announcement –reduction in freight rates for

clinker by 3.7 % and cement by 3.6 %.concision in short distance

freight. These measures stand to benefit cement transported

through rail, which is 30% to 40% of the total freight transported.

NEGATIVE

• Increase in excise duty on cement from Rs350 per mt to 400 per mt,

clinker from Rs 200per mt to Rs 250 per mt, mini cement plants

from Rs 200 per mt to250per mt and cement cleared in bulk from

Rs332 per mt to Rs382 per mt. Although the price revision per bag
 on this count would be marginal, it would nevertheless impact the

industry reeling under price pressure.

3500
3000 Close Price
2500
2000 ACC
1500 garasim
1000
500
0
4/3/2006

6/3/2006

8/3/2006

10/3/2006

2/3/2007
12/3/2006

Since the budget was moderately positive the market reacts

accordingly

INFORMATION TECHNOLOGY
POSITIVES

• Restoration of tax breaks for IT companies under section 10A and

10B of the income tax act to 100% from 90%. This would provide

an incentive to companies looking out for inorganic growth and

could spurt some big ticket mergers and acquisitions.

 • Reduction in custom duty on electronic components form 25% to

15% and on routers modems and fixed wireless terminals 15% to

10%.

• This would reduce the cost of many hardware requirements of the

IT industry.

• Exclusion of value of pared loaded soft wear from cost computers

for the purpose of levying excise. This might result in marginal

reduction in prices of PCs.

4000
3500
3000
2500 tcs
2000
1500 infosys
1000
500
0
8/3/2006
4/3/2006

6/3/2006

10/3/2006

12/3/2006

2/3/2007

Both stock were splitted on the month of august from rs 5 face value to rs
1 face value that’s why the stock price were fall down sharply otherwise
the whole financial year was good for the industry
STEEL
POSITIVES

• Announcement of initiatives in the infrastructure sector aggregation

Rs600 bn: 48 new roads projected with a total length of 10,000 kms,
railway projects of Rs 80bn, airport and seaport projects of Rs 110
bn and convention canters of Rs 10 bn. Exemption from income tax
for housing projects approved by local authorities up to march
07.thess would trigger demand for construction grade steel.
• Reduction of excise duty on automobiles from 32% to 24% .this
mightily to high automobile sales there by benefiting the flat steel
manufactures.
• Reduction in custom duty on nicile, an input imported by stainless
steel manufacture, from 15% to 10%.

NEGATIVES

• Increases in services tax from 5% to 8%. In the face of severe

competition, passing on the additional burden to customers may be
difficult.
 Close Price SAIL

150
100 Close Price
50 SAIL
0
4/3/2006

6/3/2006

8/3/2006

10/3/2006

12/3/2006

2/3/2007

The year was good for the steel industries. As budget for the year for this
sector was beneficial
RESEARCH METHODOLOGY

DATA COLLECTION

The aim of the study to detect the relationship between economic

variable and S & P Nifty. the data has been taken for two years of

30 companies listed in nifty (excluding for regression analysis).

for regression analysis the annual average of sensex is taken from

the year 2005-07

Inflation - April-2005 to March-07

Foreign institutional investment – April 2005 to March 2007
Date Close NIFTY INFLATION RATE IN % FII INFLOW IN INDIA
IN POINT IN % IN US $ MILLION
Apr-05 1902.5 6 -299
May-05 2087.55 5.3 -470
Jun-05 2220.6 4.3 1313
Jul-05 2312.3 4.2 1746
Aug-05 2384.65 3.3 1204
Sep-05 2601.4 4.3 1035
Oct-05 2370.95 4.8 -469
Nov-05 2652.25 4.5 -17
Dec-05 2836.55 4.6 2122
Jan-06 3001.1 4 1386
Feb-06 3074.7 4.2 1692
Mar-06 3402.55 4.1 684
Apr-06 3557.6 3.9 3276
May-06 3071.05 5 -3906
Jun-06 3128.2 4.8 1157
Jul-06 3143.2 4.7 -595
Aug-06 3413.9 5.3 1212
Sep-06 3588.4 5.6 1064
Oct-06 3744.1 5.3 1703
Nov-06 3954.5 5.6 2159
Dec-06 3966.4 5.9 -507
Jan-07 4082.7 6.7 24
Feb-07 3745.3 6.2 2385
Mar-07 3821.55 6.7 -2433

METHODOLOGY
In the study, the macro factors used as a parameters to study the
movement of nifty. Here, we consider that the both factors affect the nifty
index by share prices of nifty listed companies.
The macro factors are studies in compare to share prices of companies.
The macro factors are those who affect the industries or economy of the
country have their own impact on share prices of a company.
Here, an attempt has been made to develop a model which can tell the
dependency of these variables on nifty. Some assumption which is drawn
from the study of macro factors that assumes, each factor may have an
influence on share piece or nifty index. But this effect can be major or
miner.
Macro factors
In macro factors the 2 factors are used as a variable – inflation and FII.
Both factors have their own impact on the share prices. Any change
occurs in these factors leads to change in movement of S & P nifty or
share prices. All these factors have been described in the section in the
macro factors. To draw the result of the relation ship between nifty index
with inflation and FII an econometric tool is also used as regression
analysis. This tool studies the linear relationship of dependent and
independent variable.
The movement of nifty is depending on independent variable such as
inflation, FII inflow in India. It will show that any change (positive or
negative) would affect the nifty or not.
In study of micro factors, the various ratios are taking as a tool to
compare the performance of the company. The micro variables are
company own policies, taxes etc.

The macro factors has analyzed on the basis of two year comparison.
Macro factors which is analyzed here- FII and Inflation. Here the percent
increase in both the factors has calculated with the increase in nifty,
This analysis support the study in the Manner that if there is increases in
the inflation and FII inflow their will be also rise, index.
In statistics, linear regression is a regression method that allows the
relationship between the dependent variable Y and the p independent
variables X and a random term ε. The model can be written as

Where β1 is the intercept ("constant" term), the βis are the respective
parameters of independent variables, and p is the number of parameters
to be estimated in the linear regression. Linear regression can be
contrasted with non-linear regression.
 COUNCLUSION

• The factors affecting nifty can be described in two categories micro

and macro. In macro factors, FII’S and inflation, in micro factors

taxes govt. policy.

• Inflation affects the Nifty it can be shown by the regression analysis

in which inflation and nifty relationship shows that there is increase

in inflation leads to increase in nifty.

• FII, increaser in FII investment, will lead to increaser in share price

of that company and ultimately the rise in investment. Inflation is

good for the index but up to some extent. The mild level of inflation

is good for the market

BIBLIOGRAPHY
 Websites

• www.google.com
• www.nseindia.com
• www.rbi.org

 Magazines

• Capital market
• Dalal street

 News papers

• DNA money
• Business line