Study of Volatility and Its Factors On Indian Stock Market

MBA
Volatility & Affecting Factors in Indian Stock Market
An investor with a heavy concentration of stocks in an investment portfolio might be feeling some unease these days. The market is behaving a lot different now then over recent years. Stock market volatility is all about uncertainty. How macroeconomic events and trends will affect the future profitability (dividends, cash flows) of listed companies and hence their market valuations?. Typical examples of such variables in the current environment are: geo-political tensions, energy prices, inflation expectations, interest rate policies, instability of exchange rates, p-notes, RBI and Government policies, sub prime crises, investors sentiment etc. These uncertainties in some form or another are always present and some times it is much higher than in other periods. Furthermore, volatility increases with the financial leverage (debt) of companies. In addition, volatility is correlated with interest rate movements and increases during economic recessions. Stock markets in general have treated investors well over the past few years with no major setbacks. In general markets followed one direction only, namely upwards (in the long run). However, during this year (FY 2007-2008) volatility once again has come to the fore as more investors and traders were piling into the markets. The main objective of this study is to analyse the causes of stock market volatility. This report approaches to study: the various causes that results in volatility in stock market the reactions of stock market to these causes using the above information to manage the future volatility in the stock market This study makes a detailed analysis of various issues causing volatility in stock market there by reflecting it on the market movements i.e., response and behaviour of market.
1 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
During the past years, Indian Capital Market has undergone metamorphic reforms. Every segment of Indian Capital Market viz primary and secondary markets, derivatives, institutional investment and market intermediation has experienced impact of these changes. Our market, today, is being recognized as one of the most transparent, efficient and clean markets. Several techniques /instruments are used by academicians, policy makers, practitioners and investors to test the extent of efficiency of the market. An attempt has been made to analyse characteristics of stock indices in India and compare them with some of the mature as well as emerging capital markets around the globe. In the recent past there have been perceptions that volatility in the market has gone up; Inter and Intra-day volatility. News items and some clinical research papers also provided figures to evidence this argument. SEBI undertook a comprehensive and deep analysis of volatility by using several statistical techniques to measure and analyse it. 18 countries covering almost all continents- developed as well as emerging markets and young and old markets- have been analysed. The results show that the volatility has gone up in the recent past as it has been perceived. Indian stock market provides a very high rate of return and comparatively high volatility. Efficiency of Indian market appear to have improved in the past few years owing to contraction in settlement cycles, introduction of derivative products, improvement in corporate governance practices etc. Financial markets play an important role in the process of economic growth and development by facilitating savings and channeling funds from savers to investors. While there have been numerous attempts to develop the financial sector, growing economies are also facing the problem of high volatility in numerous fronts including volatility of its financial sector.
MBA
Volatility may impair the smooth functioning of the financial system and adversely affect economic performance. Similarly, stock market volatility also has a number of negative implications. One of the ways in which it affects the economy is through its effect on consumer spending. The impact of stock market volatility on consumer spending is related via the wealth effect. Increased wealth will drive up consumer spending. However, a fall in stock market will weaken consumer confidence and thus drive down consumer spending. Stock market volatility may also affect business investment and economic growth directly. A rise in stock market volatility can be interpreted as a rise in risk of equity investment and thus a shift of funds to less risky assets. This move could lead to a rise in cost of funds to firms and thus new firms might bear this effect as investors will turn to purchase of stock in larger, well known firms. While there is a general consensus on what constitutes stock market volatility and, to a lesser extent, on how to measure it, there is far less agreement on the causes of changes in stock market volatility. Some economists see the causes of volatility in the arrival of new, unanticipated information that alters expected returns on a stock . Thus, changes in market volatility would merely reflect changes in the local or global economic environment. Others claim that volatility is caused mainly by changes in trading volume, practices or patterns, which in turn are driven by factors such as modifications in macroeconomic policies, shifts in investor tolerance of risk and increased uncertainty. The causes and the degree of stock market volatility can help forecasters predict the path of an economys growth and the structure of volatility can imply that investors now need to hold more stocks in their portfolio to achieve diversification there by minimizing risk with maximum returns.
MBA
Indian Stock Market:

The ever-growing and fast-maturing 'India Market' is a lucrative business destination for developed countries. With 7-8% of GDP growth, huge analytical, young and English speaking work force the 'pull' for opportunities are luring. The bandwidth of 'India Market' is enviably wide and very deep.
'Markets in India' are well protected by legal guidelines and efficient administrators. With a liberal and proactive government at the center the road ahead for 'Markets of India' is very rosy. 'Market India' has witnessed exponential growth over past one and half decade. Liberal and transparent financial policies has effected free-in-flow of FII and as a result of which 'India Market' has grown to a colossal monster in the international market. Foreseeing sure and substantial returns on investments (ROI) companies are pro- actively listing on the stock market indexes. Government agencies once much hated for red tape and bribes has shed its image. Professionalism is their new mantra. Public Enterprises like IOC, ONGC, BHEL, NTPC, SAIL, MTNL, BPCL, HPCL and GAIL, SBI, LIC, Hindustan Antibiotics Limited, Air India etc. to name a few, are giving Private Indian companies a good run for their money. Private giants like Reliance Industries Limited, Infosys, Tata, Birla Corporation, Jet Airways, Ranbaxy, Biocon, Bajaj Auto, ICICI are breaking their own records every financial years.
'Markets in India' has witnessed meteorite rise of the Indian Software, Telecommunication and Banking Industry. This has propelled growth of Urban Indian class which, in turnas increased consumerism. Today, each and every type of industry of 'Market India' like Infrastructure, Pharmaceutical & Biotechnology, Banking & Insurance, Electronics, FMCG etc. has tremendous growth potential. Retail Industry along with Agriculture & Food industry are yet to contribute their share to the growth story of 'Market India'.
MBA
The unpredictable behavior of the market gave it a tag a volatile market. The factors that affected the market in the past were good monsoon, Bharatiya Janatha Partys rise to power etc. The result of a cricket match between India and Pakistan also affected the movements in Indian stock market. The National Democratic Alliance led by BJP, during 2004 public elections unsuccessfully tried to ride on the market sentiments to power. NDA was voted out of power and the sensex recorded the biggest fall in a day amidst fears that the Congress-Communist coalition would stall economic reforms. Later prime minister Man Mohan Singhs assurance of reforms with a human face cast off the fears and market reacted sharply to touch the highest ever mark of 8500. India, after United States hosts the largest number of listed companies. Global investors now ardently seek India as their preferred location for investment. Once viewed with skepticism, stock market now appeals to middle class Indians also. Many Indians working in foreign countries now divert their savings to stocks. This recent phenomenon is the result of opening up of online trading and diminished interest rates from banks. The stockbrokers based in India are opening offices in different countries mainly to cater the needs of Non Resident Indians. The time factor also works for the NRIs. They can buy or sell stock online after returning from their work places. The recent incidents that led to growing interest among Indian middle class are the initial public offers announced by Tata Consultancy Services, Maruti Udyog Limited, ONGC and big names like that. Good monsoons always raise the market sentiments. A good monsoon means improved agricultural produce and more spending capacity among rural folk. The bullish run of the stock market can be associated with a steady growth of around 6% in GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of telecommunication, mass media, education, tourism and IT sectors backed by economic reforms ensure that Indian stock market continues its bull run.
MBA Bull and Bear Markets:
Bull market refers to a market that is on the rise, it has sustained increase in market share prices.In such times, participants have faith that the uptrend will continue in the long term.Typically,country's economy is strong and employment levels are high. Bear market is one that is in decline,share prices are continuously dropping,resulting in a downward trend that participants believe will continue in the long run,having a spiraling effect. During a bear market,the economy typically slows down and unemployment may rise as companies begin laying off workers. Bear and Bull markets are named after the way in which each animal attacks its victims. It is characteristic of the Bull to drive its horns UPWARDS into the air,therefore upward moving markets are termed Bull Markets. Bear on the other hand,swipes its paws DOWNWARDS upon its unfortunate prey,therefore downward moving markets are termed Bear Markets. Exchanges are an organised marketplace, either corporation or mutual organisation, where members of the organisation gather to trade company stocks and other securities. The members may act either as agents for their customers, or as principals for their own accounts.
Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerised. The trade on an exchange is only by members and stock broker do have a seat on the exchange.
MBA
List of Stock Exchanges In India:

Bombay Stock Exchange National Stock Exchange Regional Stock Exchanges Ahmedabad Stock Exchange Bangalore Stock Exchange Bhubaneshwar Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Coimbatore Stock Exchange Delhi Stock Exchange Guwahati Stock Exchange Hyderabad Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange Madhya Pradesh Stock Exchange Madras Stock Exchange Magadh Stock Exchange Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange Of India Pune Stock Exchange Saurashtra Kutch Stock Exchange Uttar Pradesh Stock Exchange Vadodara Stock Exchange The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know
MBA
by the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the Government of India. National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian stock market. The history of Indian stock market is almost the same as the history of BSE. The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled based on the performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992. The reason for such huge surge in the stock market was the liberal financial policies announced by the then financial minister Dr. Man Mohan Singh. The up-beat mood of the market was suddenly lost with Harshad Mehta scam. It came to public knowledge that Mr. Mehta, also known as the big-bull of Indian stock market diverted huge funds from banks through fraudulent means. He played with 270 million shares of about 90 companies. Millions of small-scale investors became victims to the fraud as the Sensex fell flat shedding 570 points. To prevent such frauds, the Government formed The Securities and Exchange Board of India, through an Act in 1992. SEBI is the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers investment advisors etc. SEBI oblige several rigid measures to protect the interest of investors. Now with the inception of online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI. Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was crossed in June and the 8000 mark on September 8 in 2005. Many foreign institutional investors (FII) are investing in Indian stock markets on a very large scale. The liberal economic policies pursued by successive Governments attracted foreign institutional investors to a large scale. Experts now believe the sensex can soar past 14000 mark before 2010.
MBA
Bombay Stock Exchange (BSE): Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Brse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capital market. Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference, are classified into A, B, S, T and Z groups. The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major 9 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Brse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares brand, has created the 'iShares BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market. BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's equity markets for the first time, without requiring American Depository Receipt (ADR) authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market. BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT).
BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate 10 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street. In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements.
MBA
BSE also has a wide range of services to empower investors and facilitate smooth transactions: Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 450 cities in India. BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform. Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a realtime basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts. BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmes
Awards:
MBA
Volatility & Affecting Factors in Indian Stock Market The World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE's initiatives in Corporate Social Responsibility (CSR).
The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awards for excellence in financial reporting.
The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technology
Drawing from its rich past and its equally robust performance in the recent times, BSE will continue to remain an icon in the Indian capital market.
National Stock Exchange (NSE): 13 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE 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 unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in Novem The most popular index is the Nifty 50, followed by the CNX Nifty Junior, CNX 100, S&P CNX 500, Nifty Midcap 50, CNX Midcap, S&P CNX Defty, S&P CNX Industry indices (for 72 industries) and CNX IT. These indices are monitored and updated dynamically and are reviewed regularly. These are maintained professionally to ensure that it continues to be a consistent benchmark of the equity markets, which involves inclusion and exclusion of stocks in the index, day-to-day tracking and giving effect to corporate actions on individual stocks.
Meaning of Volatility:
MBA
Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. Volatility most frequently refers to the standard deviation of the change in value of a financial instrument with a specific time horizon. It is often used to quantify the risk of the instrument over that time period. Volatility is typically expressed in annualized terms, and it may either be an absolute number ($5) or a fraction of the mean (5%). One measure of the relative volatility of a particular stock to the market is its beta. A beta approximates the overall volatility of a security's returns against the returns of a relevant benchmark. Volatility is often viewed as a negative in that it represents uncertainty and risk. However, volatility can be good in that if one shorts on the peaks, and buys on the lows one can make money, with greater money coming with greater volatility. The possibility for money to be made via volatile markets is how short term market players like day traders hope to make money, and is in contrast to the long term investment view of buy and hold. In today's markets, it is also possible to trade volatility directly, through the use of derivative securities such as options and variance swaps.
Scope of the study:

MBA
The existence of volatility is not surprising: stock market volatility depends on the overall health of the economy, and real economic variables themselves tend to display existence of volatility. The persistence of stock market return volatility has two interesting implications. First, volatility is a proxy for investment risk. Persistence in volatility implies that the risk and return tradeoff changes in a predictable way over the business cycle. Second, the persistence in volatility can be used to predict future economic variables. Some of the facts of stock market volatility are: The volatility of daily returns of the Sensex has come down sharply from the levels they were at in 1992. Daily return volatility of Sensex and Nifty in 2003 was comparable to volatility of a few of the indices in developed markets. Daily return volatility of Sensex and Nifty increased in 2004 compared to 2003. Despite increase in volatility in 2004, Sensex and Nifty continue to be slightly less volatile than market indices in Brazil and South Africa. Brazil and South Africa are two of the many emerging markets that are competing with India for FII flows. Volatility in markets in Brazil and South Africa also increased in 2004. Nifty and Sensex suffered a fall of 12 per cent in a single day in May 2004.
We also need to consider margins. Margin- money collected from traders facilitates smooth settlement of trades. When the market is caught in a frenzy, however, these margins accentuate volatility. 16
TMU
New Satara College of Engg. & Mgmt. Pandharpur
MBA
Stock markets globally have experienced weak starts in 2008, many realising substantial falls during the month of January. Although many markets have bounced back since that point, confidence remains fragile and volatility remains.
The current market turmoil has its roots in the US housing market, and is an illustration of how globalised financial markets have become.
The impact
of
rising
oil prices,
the outcome
of the US
Presidential election and increase in interest rates in the US also caused volatility in Nifty and Sensex. The January 2008 stock market volatility was a sharp decrease in nonU.S. stock market prices on Monday, January 21, 2008, and to a lesser extent on Tuesday, January 22, 2008. Some called it "Black Monday" and a "global shares crash," even though the effects were quite different in different markets and the Dow Jones Industrial Average never closed worse than a 1.6% decrease from the previous Friday, and indeed closed up for the week. In the first three weeks of 2008, the Dow Jones Industrial Average fell 9%. On Monday the biggest falls since September 11, 2001 occurred in Asian stock markets. "India's benchmark stock index tumbled 7.4%, while Hong Kong's blue chip Hang Seng Index plummeted 5.5% to 23,818.86" Over the course of two days, the BSE Sensex in India dropped from 19,013 on Monday morning to 16,370 by Tuesday evening or a two day fall of 13.9%. In the first 21 days of 2008, Japan's Nikkei has lost 13% of its value and Hong Kong's Hang Seng 14%.The 17 New Satara College of Engg. & Mgmt. Pandharpur
TMU
MBA
Volatility & Affecting Factors in Indian Stock Market Asian crash is thought to have been caused by the fallout from general economic fear stemming from the 2007 subprime mortgage financial crisis triggered by a drop in the U.S. housing market and fears of a U.S. India's Sensex registered its biggest ever gain of 1,139.92 points (6.62%) on the 25th January, 2008 recovering much of its losses from the 21st January, but fell by 4% again on reopening on the 28th January. Many commentators have declared that the global bull market in equities which has been in place since 2003 is now over. The most important factor to focus on for investors is what the prospects for equity markets are from here.
However, what happens to equity markets over the short term is a lot more difficult to predict. Theres no doubt that the recent market movement resembles a period of panic, which differentiates it from most stockmarket corrections in a bull market. And theres also no doubt that the economic backdrop is more troubling than it has been since the start of the bull run in 2003 a US recession seems likely, a global downturn is possible.
1. Background:
MBA
Due to the ever changing Global Economy and its effects, the Indian Economy is also becoming volatile. Hence the stock markets in India are having too many ups and downs. Hence many Investors are facing the problem of deciding and analyzing their investment pattern in equity market to minimize the risk and maximize the returns.
2. Statement of the problem: STUDY OF VOLATILITY AND ITS FACTORS IN INDIAN STOCK MARKET 3. Objectives of the study:
To know the causes of volatility in Indian Stock Market To make a detailed study of each and every cause of volatility To know the Market reaction to various causes of volatility To put the investors and traders at ease to play in the Indian Stock market To increase the return and reduce the risk of the investors and traders To help investors and traders in managing future volatility To suggest the steps to be taken by investors and traders during volatility
4. Methodology of the study:

MBA
Research Design:
Descriptive Research design: 1. Survey: 2. Observation: Personal Interaction with investors Personal Observation of Secondary data
Research Type:
Stratified Random Sampling Type.
Data Collection tool:

Practical observation
Data Collection Methods:

Primary Survey Secondary Survey
Duration of the Project:

2 months
Analysis Technique:
Mean Mode Standard deviation Co-variance Co-efficient of variation
MBA
Presentation tools to be used:

Date wise presentation of stock market data
5. Scope of the Report: The study mainly focuses on the BSE markets for the year 2007-08.
To know the movement of BSE SENSEX. To make a detailed study of the causes of volatility. To help the investors and traders in analyzing markets easily.
To study various factors that effects the movement of markets and market response The study mainly concentrates on the recent year i.e., 2007-08 FY
6. Limitation of the Study:

The study is limited to Bombay Stock exchange.
What is true in case of BSE may not be the same for other stock exchanges. The period of the study is limited to the year 2007-08.
The study does not include other small factors which indirectly results in volatility.
MBA
7. Chapter Scheme: Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Executive Summary Introduction Review of Literature Methodology Data Analysis & Interpretation Findings & Conclusion Bibliography Annexure
8. Contribution from the Study:

To learn the practical aspects of equity market.
To help the investors and traders to take right decisions at different circumstances. To help the investors and traders to make maximum profits at minimum risk. To help in analyzing and ascertaining the future movements in the market. To help investors in analyzing stop loss, support and resistance levels To help the investors and traders with the tricks of playing in volatile markets.
Vision and Principles:

MBA
Relax Investments was born out of a vision to explore the immense investment opportunities in the Indian financial market, to benefit the investors. The firm is built on the pillars of financial expertise, professionalism, exemplary ethics and a commitment to provide ultimate customer satisfaction. Relax constantly strives to meet the changing market needs and trends.
The guiding principles of Relax Investments are:

Serve the clients with the highest level of responsiveness and integrity.
Place the client's interests and protection of their investments as the top priorities.
Operate on predefined and constantly updated service standards. Be customer driven, rather than deal driven.
Adopt futuristic technology to gather vital information on real time basis to optimize investor protection and investor returns.
Set up most modern trading facilities for its clients at par with global standards.
Business profile:
The company began as a sub-brokerage house in the year 2007. The financial expertise and professionalism coupled with ethics and a commitment has made 23 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
Relax Investments one of the major players in market. Relax Investment caters efficiently to the diverse and complex needs of over 20,000 customers, most of whom are individual traders, institutions and money managers. The vision of the Relax Investment is to be a financial player in Market. It aims to provide all types of financial services to its clients at one place to save them from going from place to place to meet their investment needs. With the opening up of the Indian economy and the advent of IT enabled trading, the Indian capital market has become a whole new ball game. From floor trading, the custom is fast shifting to Internet trading. Equally fast is the role of the financial service provider, which is being redefined. Earlier, a financial service provider's responsibility was limited to executing customer's instructions to buy and sell. Now, the whole operational paradigm has progressively shifted with the opening of more and more avenues to offer strategic customer supports.
SWOT ANALYSIS
MBA
Strength Advantage inside the Company

A very good team of employees Very good Infrastructure
Good and uninterrupted terminal set up and connection
broadband
Good communication setup among various branches This indicates that company is very transparent in its Good services to clients who are satisfied with the transactions company so far Growth in no. of Clients and services Betterment of services and upgradation of Margin provided by the Company to Customers technology at regular intervals.
Weakness Disadvantage inside the company

Satellite Signal problems Convincing of uneducated clients which is a very Educating the unknown clients about the advantages Communication Gap among clients and employees Restrictions on intra-day margin to clients difficult task and disadvantages of various investment options
Opportunities Advantages outside the company
TMU
More no. of people opting for trading options

25 New Satara College of Engg. & Mgmt. Pandharpur
MBA
Increase in investments Increase in job opportunities which has blown up Entry of foreign companies Increase in FII Dematerialization which has reduced complexities New investment opportunities such as currency
savings
of trading in Stock Market trading
Threats Disadvantages outside the company

Large no. of Competitors Volatility in the Stock market Strict regulations from SEBI Strict regulations from Government Change in technology Increase in Taxes
MBA
Stock market is the barometer of the economy and is the sensitive segment of the economy. Volatility of stock market is caused due various reasons. It may be caused by Arbitrage. Arbitrage is the simultaneous or almost simultaneous buying and selling of an asset to profit from price discrepancies. Arbitrage causes markets to adjust prices quickly. This has the effect of causing information to be more quickly assimilated into market prices. This is a curious result because arbitrage requires no more information than the existence of a price discrepancy. Another obvious reason for market volatility is technology. This includes more timely information dissemination, improved technology to make trades and more kinds of financial instruments. The faster information is disseminated, the quicker markets can react to both negative and positive news. Most people would say that new information in general causes volatility. News digests of the days market performance almost always include a reason the market is up or down. Often, different writers give different reasons for market changes Volatility is difficult to analyze because it means different things to different people. People are rarely precise when they talk about volatility. Also, there is a lot of misinformation about volatility. Hence it is very important to know the various factors that cause volatility in the stock market. When the stock market goes up one day, and then goes down for the next five, then up again, and then down again, thats what you call stock market volatility.
In laymans terms, volatility is like car insurance premiums that go up along with the likelihood of risky situations, such as if you have a poor driving record or if you keep the car in a high-theft area.
Some cynics say volatility is a polite way of referring to investors nervousness.
MBA
Investors may think volatility indicates a problem. But many analysts believe that increased volatility can indicate a rebound. Success in the market does not depend on predicting the futurepredictions only measure the short term. Volatility is more dependent on mass hysteriafear and greedthan on underlying economic or financial events. Those are not reliable emotions on which to base long-term investment decisions.
Some of the Important factors that cause volatility are:

1. Foreign Institutional Investors: 2. Impact of Global Economy: 3. Inflation: 4. RBI Policies 5. Government policies and budget 6. Other factors
Foreign Indirect Investments:Mutual funds, insurance companies, pension funds, university funds, investment trusts, endowment funds and charitable trusts incorporated outside India but investing in equity and debt securities in the country are known as FIIs. They 28 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
collect money from individuals and corporates (primarily from countries belonging to the European and American continents), and invest it in financial instruments worldwide, with India being one of the targeted markets. FIIs were first allowed to transact in Indian markets in 1993. SEBI lays down parameters relating to eligibility, investments and taxation. Chief among these relates to investment limits. The collective FII holding in a listed company cannot exceed 40 per cent of its equity capital. FIIs wanting to invest in equity and debt securities in India have to register with SEBI (Securities and Exchange Board of India) under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995. They also have to get approval from the RBI (Reserve Bank of India) to operate foreign currency accounts (to bring in and take out funds) and rupee bank accounts (to pay for transactions). Typically FIIs invest either directly or as sub accounts (through participatory notes) or as domestic entities. Participatory Notes (P Notes) are used by FIIs for foreign funds, not yet registered. The key benefits of FII investments include reduced cost of capital, imparting stability to India's balance of payments, institutionalizing the market, improving market efficiency and strengthening corporate governance. FIIs have been termed as speculators, arbitrageurs and fair weather friends. FII inflows, globally, are considered hot money.
In the past four years there has been more than $41 trillion worth of FII funds invested in India. This has been one of the major reasons on the bull market witnessing unprecedented growth with the BSE Sensex rising 221% in absolute
MBA
terms in this span. The present downfall of the market too is influenced as these FIIs are taking out some of their invested money. On the basis of some elementary analysis, It was basically found that correlation between FII flows (net) and the Sensex, from January 2006 to September 2007. The coefficient was very low at 0.18, which can hardly be said to be a strong correlation. Further, the regression analysis between the two variables found that FII flows explain only 3% of the Sensex movements. However, this 3% was STATISTICALLY significant. It's a bit difficult to reach at a final conclusion when such issues are concerned. At times markets over-react to FII flows. However, FIIs are more than just money. They represent something unquantifiable known as investors' sentiment. Thats why we get a bit anxious when there are sudden FII outflows, since such behavior may reflect a change in investor sentiment.
Macro-economic importance of FII flows for India:

A survey of literature on portfolio investments revealed the importance of such investments for a developing economy like Indias. Foremost, FII investments are non-debt creating flows, also a reason why Indian policy makers sought to liberalize such flows in the wake of the BoP crisis in 1990-91. Theoretically, FII investments bring in global liquidity into the equity markets and raise the price-earning ratio and thereby reduce the cost of capital domestically. FII inflows help supplement domestic savings and smoothen inter-temporal consumption. Studies indicate a positive relationship between portfolio flows and the growth performance of an economy, though such specific studies for India were not found.
India, in the recent past few years seems to have received a disproportionately large part of its foreign investment flows via the FII investments in the equity markets. The large build-up of foreign exchange reserves through FII inflows poses a potential threat of destabilization of the economy. Portfolio flows are most often 30 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
referred to as hot money that can be notoriously volatile when compared to other forms of capital flows. The Mexican crisis and the East Asian crisis are classic examples of the damage that sudden outflows of portfolio money can do to an economy. Without immediately implicating any significant withdrawal of funds out of India of crisis precipitating proportions, it needs to be noted that outflows of FII capital from the market could adversely impact the value of the Indian currency, as FII inflows form the most significant part of foreign inflows into the economy. Indeed, the recent soft trends in FII inflows in May had led the Indian currency to depreciate against the US dollar The risk of a large depreciation is even more as we are in a situation where the higher international price of crude oil has led to a significant weakening of the current account deficit. In other words, in the event of a significant tapering off of FII inflows, $/Re could depreciate sharply in consonance to a widening current account deficit, as the other forms of capital inflows into the economy are not significant enough.
There are likely to be repercussions on the growth momentum of the Indian economy if FII inflows significantly slow down. This is because a large extent of buoyancy in consumption was possible due to the positive wealth effects of a booming stock market and a decline in the interest rates due to a large overhang of rupee liquidity in the system (also a byproduct of large FII inflows over the last few years). Therefore, if FII inflows were to slow down, it will reduce the wealth generated by the stock market, the Indian currency will depreciate and RBI will
have to draw down on the foreign exchange reserves or hike interest rates to prevent wild swings in the exchange rate.
MBA
FIIs are the most dangerous people for the Indian markets. Unlike mutual funds, they dont sit on their investments in difficult times. They just sell their shares and go to another country for better options. But this correction is good for fresh investments and real investors. There is little doubt that FII inflows have significantly grown in importance over the last few years. In the absence of any other substantial form of capital inflows, the potential ill effects of a reduction in the FII flows into the Indian economy can be severe. Thus, FII inflows are per-se bad, there is possibly a need to gear up macro-economic policies to target other form of foreign investments into the economy and reduce the over-reliance of the economy on portfolio flows. The swings in the market forced several FIIs to withdraw from India and invest their dollars in other emerging markets. Some of the other markets include Uruguay, Russia, the Ukraine, and several other former Soviet countries. Though there have been swings in the past too but FII response this time was different because of margin pressures back home as even they have to provide regular returns to their investors.
The Indian markets are not seen as a good short-term bet any more. India is seen as a good investment for the medium to long term. FIIs seem to fear the pace of growth and the fundamentals of the markets.
Most FIIs are looking at corporate governance and execution abilities, which could be significant drivers in creating a strong portfolio of Indian stocks. Recent action taken by the market regulator indicates that the Indian government would like to moderate the inflow of FII money.
MBA
Some of the volatile dates and events Caused by the FII on Indian Stock Market are: Friday, July 27, 2007: This is the day everyone is waiting for. IT was a wonderful opportunity for entering into good stocks. This selling was mainly due to withdrawal of funds by FIIs. Heavy selling was seen in all the global markets with 2-5% loss in various indices.
Local Political Crises Thursday, August 23, 2007 Communist parties are doing their best to dampen the spirits of bulls. Before this political uncertainty, India was the last option for withdrawal of money by FIIs due to the strong fundamentals. But India is now the first choice for FIIs to withdraw money in case of crisis due to political uncertainty. Uncertainty is always more dangerous than real thing. Communists may not withdraw support to UPA Government but they will cause enough damage to the investors by their comments. Monday, October 8, 2007 This is the single most major reason for stock market crash in October 2007 also. Investors especially FIIs never like political
MBA
instability and they will book profits and go to another country. Even though political turmoil will have no significant impact on the growth of companies, stock markets always negatively respond to political instability Wednesday, October 17, 2007 All hell broke loose in the stock markets for a few minutes on Wednesday, hours after SEBI announced the previous night that it planned to impose restrictions on participatory notes (PNs), which could effect the in-flow of FII money. In less than three minutes, the Sensex, the benchmark index on the Bombay Stock Exchange, plunged by over 1,500 points, shedding nine per cent and triggering off lower circuit-breakers and forcing the authorities to stop trading for an hour. It was only after Finance Minister P. Chidambarams assurance that the government had no plans to ban PNs, and SEBIs objective was merely to moderate capital inflows that the markets bounced back. Chidambaram also clarified the government would not discourage FIIs from investing in the capital markets. Wednesday, January 9, 2008 Huge foreign capital has been a key driver to the surge in Indian stock market, but a possible outflow of FIIs has a potential to send the benchmark Sensex crashing down to 14,000 points within a quarter, a report said on Wednesday. "This would imply a level of 14,000 for Sensex, which was the level around a year ago"
MBA
HBJ Capital Report:Friday, March 21, 2008
FII Investments In Indian Companies & Its Negative Impact.
Just look at the above chart, as on today FII has investment of close to $200bn in India companies (20-30% of Mcap of BSE which is $0.75 to $1 trillion). During last 3 months they have withdrawn just $3bn (3-4% of total Investments) and Indian Stock Market tanked 30% down.
MBA
Impact of Global Economy:Markets across the world are seeing a lot of short term volatility (frequent rise or fall in stock market) mainly driven by news and events in the global markets. For example, news/rumours related to economic recession in USA, soft/hard landing and estimation of losses due to sub-prime crisis in USA, speculation over interest rates cut by FED, rise in global commodities prices, fluctuation in global crude oil prices etc. These are some fundamental reasons why global markets, especially the Indian stock market behave in a volatile manner based on developments in global markets. Indian economy is increasingly exposed to global markets post liberalization in the early 90s. We are seeing fast economic growth in last few years and as a result we have seen large fund inflows into Indian market from across the world. Most of these foreign funds are large momentum players and their activity in the market results in large volatility in stock markets.
Investment decisions of these funds are driven and depend on the development/events in foreign markets, or their own local markets. As a result, we are seeing our markets are getting more and more integrated with movement in global (especially American) stock markets. Market analysts track and talk about these global events and global market movements very closely. USA economy is the largest economy in the world. A lot of small and large countries mainly depend on exporting to American markets (for example China). As a result, analysts track the news related to USA very closely (for example weekly USA employment numbers, sub-prime crisis of USA, FED interest rate movement etc). Whenever we see any negative news triggered from the American markets it triggers a tsunami in global markets especially in short term.
Indian economy is mainly driven by the domestic consumption, but post liberalization the share of Indian trade as part of global trade is growing at a rapid 36 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
pace. India's economy has grown over USD 1 trillion and ranked as the eleventh largest economy in the world. A large number of Indian companies are getting involved in exporting their products to global markets, raising funds by listing on foreign stock exchange (NYSE, London Stock exchange and NASDAQ etc). The percentage revenue of Indian companies coming from foreign markets is growing year over year. Therefore, share price movements of these companies are more likely to be affected by the development in world economy. Turmoil in the global financial currency markets has started affecting Indian companies and the stock market. While ICICI Bank has lost as much as $264 million until January due to its exposure to the overseas credit derivatives markets, other banks too are facing significant losses. Analysts note that the total mark-tomarket losses of corporate Indias exposure to the foreign exchange derivatives market may be in the region of $5 billion.
Us Economy
Recession:
The fear of a recession looms over the United States. And as the clich goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown. Weakening of the American economy is bad news, not just for India, but for the rest of the world too. A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down. The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. 37 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors. During a full recession, US companies in health care, financial services and all consumer demand driven firms are likely to cut down on their spending. Among other sectors, manufacturing and financial institutions are moderately vulnerable. Worst affected because of US recession will be the service industry of India. Under service industries come BPO, KPO, IT, ITeS etc. Service industry contributes about 52% to India's GDP growth. Now if that is going to get hurt then it will also hurt India's overall growth but very slightly.
Subprime lending:
The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans.
Recession and GDP:

Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70. The whole of Asia would be hit by a recession as it depends on the US economy. Even though domestic demand and diversification of trade in the Asian region will 38 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
partly counter any drop in the US demand, one simply can't escape a downturn in the world's largest economy. The US economy accounts for 30 per cent of the world's GDP. If the service sector takes a serious hit, India may have to revise its GDP to about 8 to 8.5 per cent or even less.
Some of the volatile dates and events Caused by the impact of Global Economy on Indian Stock Market are: Wednesday, July 25, 2007: Indian stocks will see heavy selling in the initial session due to fall down in global markets. If late buying is not seen in the late session, today will become black Wednesday. Capital goods will see heavy selling due to vertical rise in the recent days. This correction is good for markets and real investors who are waiting in the sidelines for fresh investments. New inexperienced investors should stay away from markets until RBI announced credit policy. Weakness in global markets, rising rupee, drop in earnings, derivative expiry, crude price will make the stock markets a dangerous territory in the coming day.s Wednesday, July 18, 2007 Indian share Markets are in bearish phase: Bears will dominate Indian stock markets in the following sessions due to weak global markets and profit booking. There was be a clear slow down in the growth of most sectors and failed to justify their very high valuations. This was a very opportunistic period for new investors who want to enter into good stocks.
MBA
Tuesday, March 18, 2008: Finance Minister P Chidambaram said that the fallout of the US subprime crisis on the global credit and housing markets would impact India. When crisis (has) moved from the subprime mortgage market to the housing market, and now the housing market to the credit market, there is an impact on India. There is an impact in terms of credit flows and financial flows. But at the moment, the impact is second-order impact and a moderate impact.
MBA
Inflation:Most analyses of accelerating inflation in India emphasise the role of imported inflation in driving Indian prices upwards. With the annual rate of inflation in India having touched 7 per cent on a point-topoint basis during the week-ending March 22, 2008, the search for policies to combat the price rise has begun. One factor seen as making that search difficult is the ostensible role of imported inflation in driving the rise in domestic prices. There is an obvious reason why such an argument arises. Among the products primarily responsible for the current inflation are food products of different kinds, including cereals, intermediates like metals and the universal intermediate, oil. While the disruption caused by the US occupation of Iraq, other geopolitical factors and the speculation that followed have played a role in the case of oil, what explains the recent increase in other global commodity prices, especially food articles and metals? Chart 3 (based on IMF data) shows that, except for agricultural raw materials whose prices have increased very little, all the other commodity groups have shown sharp rises in price. The rise in price levels for metals was the earliest in the recent surge, with the weighted average of metals prices increasing sharply from the last quarter of 2005, and almost doubling in the two-year period to February 2008. Coal prices more than doubled last year, thereby showing a faster rise than even the oil price. Food prices, like agricultural raw materials, had shown only a modest increase until early 2007. But since then they have zoomed, such that the IMF data show more than 40 per cent increase in world food prices over 2007.
MBA
The FAO food price index, which includes national prices as well as those in crossborder trade, suggests that the average index for 2007 was nearly 25 per cent above the average for 2006. Apart from sugar, nearly every other food crop has shown very significant increases in price in world trade over 2007, and the latest evidence suggests that this trend has continued and even accelerated in the first few months of 2008. The net result is that globally the prices of many basic commodities have been rising faster than they ever did during the last three decades. Forces behind the rise in inflation: To understand this, it is necessary to examine the forces behind the price rises for different commodities. In the case of food, there are more than just demand forces at work, although it is certainly true that rising incomes in Asia and other parts of the developing world have led to increased demand for food. Five major aspects affecting supply conditions have been crucial in changing global market conditions for food crops.
MBA
First, there is the impact of high oil prices, which affect agricultural costs directly because of the significance of energy as an input in the cultivation process itself (through fertiliser and irrigation costs) as well as in transporting food. Across the world, governments have reduced protection and subsidies on agriculture, which means that high costs of energy directly translate into higher costs of cultivation, and therefore higher prices of output. Second, there is the impact of both oil prices and government policies in the US, Europe, Brazil and elsewhere that have promoted bio-fuels as an alternative to petroleum. This has led to significant shifts in acreage as well as use of certain grains. For example, in 2006 the US diverted more than 20 per cent of its maize production to the production of ethanol; Brazil used half of its sugarcane production to make bio-fuel, and the European Union used the greater part of its vegetable oil production as well as imported vegetable oils, to make bio-fuel. This has naturally reduced the available land for producing food. Third, the impact of policy neglect of agriculture over the past two decades is finally being felt. The prolonged agrarian crisis in many parts of the developing world; the shifts in acreage from food crops to cash crops relying on purchased inputs; the excessive use of groundwater and inadequate attention to preserving or regenerating land and soil quality; the lack of attention to relevant agricultural research and extension; the overuse of chemical inputs that have long-run implications for both safety and productivity; the ecological implications of both pollution and climate change, including desertification and loss of cultivable land: all these are issues that have been highlighted by analysts but largely ignored by policymakers in most countries. Reversing these processes is possible but will take time and substantial public investment, so until then global supply conditions will remain problematic.
MBA
Fourth, there is the impact of changes in market structure, which allow for greater international speculation in commodities. It is often assumed that rising food prices automatically benefit farmers, but this is far from the case, especially as the global food trade has become more concentrated and vertically integrated. A small number of agribusiness companies worldwide increasingly control all aspects of cultivation and distribution, from supplying inputs to farmers to buying crops and even in some cases to retail food distribution. This means that marketing margins are large and increasing, so that direct producers do not get the benefits of increases expect with a time lag and even then not to the full extent. This concentration also enables greater speculation in food, with more centralized storage.
Some of the volatile dates and events Caused by the impact of Inflation on Indian Stock Market are: Friday, July 20, 2007 Profit booking in the late session Indian share markets rise in the early session due to strong cues from global markets. Profit booking will be seen in the late session due to rise in inflation and unsustainable valuations. Saturday, March 1, 2008 Inflation continues to rise; touches 5.11 per cent for week ended. Rise in headline inflation is mainly due to increase in price of primary articles
MBA
Friday, March 28, 2008 Inflation at 6.68%. High inflation is a big election problem and the only way to counter it is high interest rates. Government continues with fiscal measures to curb inflation. Three major components aided the rise in inflation i.e. the fuel group, food articles & manufactures products
Monday, March 31, 2008 Emergency cabinet committee meeting to tackle inflation The cabinet is likely to have discussions on prices of steel, wheat, cement, edible oils and food articles including rice and other essential goods. Monday, April 7, 2008 Inflation touches 7%; RBI may hike key rates
The current inflation is mainly supply led, with rising prices of metals, fuel and agriculture commodities being key contributors The high inflation may prompt RBI to take tough monetary measures to ease out inflationary pressure in its annual credit policy, scheduled to be announced on 29 April.
MBA
RBI Policies:The capital market, which has been at the receiving end since the unexpected hike in the Cash Reserve Ratio and repo rates in end March,2007 to contain the rising inflation rate, has cheered the Reserve Bank of India for leaving unchanged all the key rates in the April 24 Annual Policy Statement. The policy response to the rising inflation and the overheating of the economy has been to hike the repo rates five times in FY-07 from 6.50 per cent to 7.75 per cent. As the RBI had already intervened recently via market operations, this time around the central bank appears to have stayed its hand. The market correctly did not expect any rate to be raised, reflected in the Bank Index being up 1.4 per cent just before the Policy announcement. Further, in a CNBC poll before the policy announcement, 67 per cent of the respondents predicted `no change' in interest rates. Predictably, the market welcomed the Monetary Policy wholeheartedly, as evident from the equity index ending approximately 1.4 per cent up, and the Bank Index rising more than 4.5 per cent. The bond market also gave a thumbs-up to the policy, with 10-year yields falling more than 10 basis points. In an indication that it may hold back a policy rate cut tomorrow, the Reserve Bank of India (RBI) on Monday said inflation in India was artificially suppressed as higher international oil prices have not been passed on to domestic consumers. In its report on macro-economic and monetary developments a day before the third quarterly review of its 2007-08 monetary policy, RBI also said elevated international food prices also pose potential inflationary pressures in the period ahead.
MBA
Some of the volatile dates and events Caused by the RBI Policies on Indian Stock Market are: Monday, July 23, 2007 With derivative expiry and RBI credit policy are around the corner, Indian share markets will trade in extreme volatility in the coming sessions. Indian stocks are in unclear zone with Mutual funds and big domestic investors are waiting for correction, NRIs and FIIs are pumping money. My advice- does not take long positions and book profits immediately in high growth stocks. Correction is eminent Thursday, August 30, 2007 The RBI, for the first time, has given its views on the subprime. It has said that further deterioration will lead to reassessment of risk of investors. It added that the emerging markets may face further outflow of capital. The dominance of hedge funds will add fuel to fire, it feels. According to the RBI, global financial volatility will impact growth and stability. On the issue of inflows, the RBI said that a significant part of FII inflows is in the form of PNs & sub-accounts. The portfolio flows are volatile and can reverse direction, the RBI said. India is not immune to global volatility and risky flows. RBI has cautioned banks and corporates to be vigilant. It said that banks and corporates should keep risk strategies in place. They
MBA
should monitor exposures and hedge them to avoid shocks, the RBI said. Friday, October 26, 2007 Trend in inflow from foreign funds dictated the near term trend on the bourses. The market on Friday, 26 October 2007, shrugged off Securities & Exchange Board of India (Sebi) directive on restriction of participatory notes (PNs) that came into effect from 26 October 2007. Sebi has banned fresh issuance of PNs with derivatives as underlying and it has also ordered winding up such PNs in 18 months, besides putting curbs on such issue of PNs in the spot market. Saturday, November 10, 2007 The policies announced in the Mid-Term Review of the Reserve Bank of India (RBI) are on expected lines. The policy rates have been left unchanged. Only the Cash Reserve Ratio (CRR) has been raised by 50 basis points to 7.5 per cent, effective. Tuesday, January 29, 2008 RBI Credit Policy: Kept all the prime rates unchanged For the past few days, market participants and players are desperately waiting for the upcoming announcements among which RBIs monetary policy review and two-day Federal Reserve meeting schedules were in top priority. A positive rate was always present somewhere in everybodys mind, specially after a rate cut in US on 75bps to 3.50% and the down circuit of Indian stock market. Investors had an expectation towards a boost to the market on part of the Government. The investors having significant amount of losses were
MBA
more keen to see a rate cut. Fact: In realty, there was no rate cut on behalf of the RBI in its 4th quarter credit policy review. CRR, Repo rate and Reverse Repo rate were unchanged at 7.50%, 7.75% and 6% respectively. The initial repercussion reflected as Nifty gone down Negative and the Nifty bank index was around 300 points down. Monday, March 31, 2008 Inflation spiralled to 6.68 per cent, much beyond the RBI's comfort level of five per cent, prompting Finance Minister P Chidambaram to stress that the government would take all measures, monetary, fiscal and supply side, to combat it. The heavy inflow of foreign currency into the country and the sky-rocketing prices of international crude oil will pose a stiff challenge before the Reserve Bank of India (RBI)
Government Policies:The recent developments in the forex, money and stock markets suggest that the UPA Government and monetary authorities would have to recast their strategy and reformulate the fiscal and monetary policies for ensuring balanced economic growth with the gross domestic product (GDP) rising by 9-10 per cent. The heady forex inflows so far in the current financial year resulting in an addition of $ 62 billion in foreign exchange assets against $ 46.8 billion in the whole of 2006-07 has resulted in a steady appreciation of the rupee by 12.6 per cent vis--vis the dollar since the end of October last year.
MBA
This increase in the external parity of the Indian currency is due more to technical factors rather than improved competitive ability of the industrial and agricultural sectors of the economy. However, the impact of dearer rupee on select basic industries, which account for 40 per cent of total exports, has been such that Kamal Nath, Union Minister for Commerce and Industry has, for the first time, expressed serious apprehension about these industries being compelled to reduce exports sizably. It has been indicated that exports of textiles declined by 22 per cent, handicrafts 66 per cent, leather 9 per cent and marine products 20 per cent in April-October 2007. The shortfall under these heads have to be overcome with a step up in shipments of other items which are in peak demand in overseas markets. But the industries adversely affected by dearer rupee account for employment of millions of workers and it is imperative that their competitive ability should not be impaired unduly till such time new measures yield the desired results. The increase in exports up to September was only 18 per cent against 27.1 per cent in the corresponding period in 2006-07. The spurt in exports by 35.65 per cent in October may prove to be a flash in the pan as the ministrys spokesman has observed that forex earnings in 12 months may be only around $ 140-150 billion and the target of $ 160 billion may be difficult of achievement. As imports also will be increasing noticeably with larger outgo in respect of oil and non-oil imports, the trade gap may widen uncomfortably in 2007-08 and the current account deficit may be higher at $ 13-14 billion against $ 9.6 billion in 2006-07. This gap may be bridged as on former occasions with heavy forex inflows on capital account. Even though it may be argued that the future prospects are promising and there may not be deficit on current account after 2008-09, the monetary authorities have been obliged to intervene in the forex market and effect sizable purchases of U.S. dollars. The substantial purchase has resulted in disturbing increase in money supply and it has been necessary to hike the cash reserve ratio by 50 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
half a percentage point to 7 per cent effective from August 4 and also intensify market stabilisation operations. These measures have not been quite fruitful. While there has been a surge in the growth of deposits, credit expansion has slowed down significantly due to prevalence of higher lending rates and cost escalation in some directions. While the industries turning out capital goods, communication equipment, electronic and electrical components have been maximising their output, the average rise in industrial output was 9.2 per cent in April-September against 11.1 per cent comparably. The slower rise in industrial output cannot be allowed to persist even though it may be claimed from the national angle that the growth in the GDP may be even 9.2 per cent because of the better performance of the agricultural sector. Sharath Pawar, Union Minister for Agriculture, has stated that there will not be any further increase in wheat imports in the coming months apart from the commitment Railway Minister Lalu Prasad has already presented a populist budget which announced cuts in passenger fares and selective reduction in freight rates, while painting a rosy picture on its earnings. GOVERNMENT moves to impose curbs on PNs have in the past also resulted in wild fluctuations in the market. With FIIs having such a major presence in the Indian capital markets, the government has been cautious in dealing with these instruments, for any moves perceived by the markets as imposing curbs on international investors, could have a disastrous impact on the stock markets With steady open market prices for rice and a noticeable downtrend in prices for wheat and pulses, the monetary authorities have to worry only about the effects of upward adjustments in respect of the petroleum sector if world prices for crude fluctuate around $ 90 per barrel. As the UPA Government and the Reserve Bank of India can now expect that there will be an abatement of new inflationary pressures, it has become necessary to stimulate industrial growth in some directions. Towards 51 TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA
this end, the Governor of the Reserve Bank should take a decision about a reduction in interest rates even by controlling an uncomfortable rise in money supply. Selective credit expansion on a cheaper basis will have to be attempted if the slowdown in industrial output is to be reversed. The other side of the story is, if mid-term polls are inevitable, Government prefers people over companies. Popular policies will slow down momentum which will negatively impact investors sentiment towards India.
Some of the volatile dates and events Caused by Government policies and budgets on Indian Stock Market are: Feb 26, 2008,Tuesday Market choppy; Railway Budget 2008-09 lifts market higher in late afernoon trade Market started with moderate gains as stocks specific buying was seen across all sectors. Market surged higher only in the late trade backed by positive global cues and a favourable railway budget announcement. Reduced rail fares, lower freight charges, technology and rail infrastructure upgradation were the major highlights of the budget. Realty, power, capital goods stocks were the major gainers as all sectoral indices ended in green. Friday, February 29, 2008 Budget'08 tabled; Short term capital gain increased to 15% as market ends weak Market opened lower this morning and slipped sharply in the afternoon trade as the Finance presented the Union Budget 2008. Short term capital gain tax has been increased from 10% to 15%. Market had
MBA
a negative reaction to this announcement and made day's low at this point in time. However, market rose smartly and managed to recover some losses. Realty, IT, capital goods, power stocks were major losers while auto stocks were among the gainers. Fundamental Analysis is the cornerstone of Investing. In fact, some would say that you aren't really investing if you aren't performing fundamental analysis. During fundamental analysis we look at a stock from three aspects 1.Company At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. 2.Industry At the industry level, there might be an examination of supply and demand forces for the products offered. 3.Economy Fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. For instance, information regarding changes in the economy, which is reflected in macro level data, changes in policies, including industrial
MBA
policy, political situation and the social situation, influence of overall price behavior of the market. Industry-specific factors, such as industrial policies of the domestic as well as foreign governments, demand and supply factors, as also incentives and barriers for the movement of products of a specific industry or group of industries in international markets, seasonal factors that influence a particular industry or group of industries, entry and exit policies, labour relations etc., influence the prices of all securities of companies in an industry. Company-specific factors such as quality and credibility of promoters, competence and professionalism of management, policies with regard to financing, investment and dividend decisions influence the security prices of the company and thus the market volatility. But one positive thing though, if one looks at the index performance over the past three months, it has been getting better progressively. If one looks at Asia Ex- Japan index, Mays returns have been minus 1.7%, in June it came down to minus 1% and in July it was just 10 basis points negative return. So although all have been negative, what we see is a betterment of the returns over a three-month period.
MBA
Other Factors:Most of the investors and analysts are unable to cope with this unbelievable rise in Indian stocks especially capital goods and power stocks. Foreign investors and big financial institutions invested heavily in these stocks when markets were crashed in August but many retail investors missed to capitalize this rally. FIIs discounted all the negative news and poured money into Indian stocks after Fed rate cut in September. But will this euphoria last forever? 1. Political Instability: This is the single most major reason for stock market crash. Investors especially FIIs never like political instability and they will book profits and go to another country. Even though political turmoil will have no significant impact on the growth of companies, stock markets always negatively respond to political instability. 2. RBI decision: Dont expect positive news from RBI. Dont be fooled by inflation data which is released on every Friday. You will know real inflation in the routine life. No government will allow raising inflation by cutting interest rate cut just before elections. RBI will definitely raise CRR and is major negative news for markets. 3. Negative news: When markets rose too high within a short span, single negative news will create havoc in stock markets. Markets discounted negative news like Crude rise, rupee appreciation, inflation concerns in U.S after fed rate cut and slow down in economic growth etc. 4. Economic growth: There is a slow down in economic growth if you see the data but markets already discounted 2008-09 earnings especially for high growth sectors like power and capital goods. 5. Profit booking: Shrewd investor always book profits just before every crash whether it is in 2000 or 2006. Greedy investors always lose money in every crash. Decide yourself whether you are greedy or not?
MBA
FINDINGS AND SUGGESTIONS
Investors should trade carefully during volatility Investors should invest in Blue Chip Companies during volatile Market Conditions
Investors should not be very greedy and Book the partial profits even if it is small during the volatile
Investors should always trade discounting the market news Investors should always be aware of the news which affects market sentiment
Investors should avoid heavy exposure during long week ends Investors should always have an eye on global and other asian markets. Investors should always be informed about global and asian economy Investors and Traders should always enter market with stop loss option Always have a watch on various support and resistance levels Investors should entry and exit the market at the proper time
MBA
CONCLUSION
The expectations and foresight of investors as well as speculators determine the magnitude of price fluctuations to a larger extent. If market participants anticipate changes in either fundamental factors or any other 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 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 Volatility.
MBA
BIBLIOGRAPHY:
Textbooks: Financial Management, By Prasanna Chandra Security analysis and portfolio Management By Prasanna Chandra
Websites www.nseindia.com www.moneycontrol.com www.yahoofinance.com www.bseindia.com www.google.com www.wikipedia.com
Reference Journals: The ICFAI journals of applied finance. Banking finance Vikalpa

Study of Volatility and Its Factors On Indian Stock Market

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Study of Volatility and Its Factors On Indian Stock Market

Uploaded by

Copyright:

Available Formats

MBA

Volatility & Affecting Factors in Indian Stock Market

1 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

2 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

3 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

Indian Stock Market:

4 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

5 TMU New Satara College of Engg. & Mgmt. Pandharpur

MBA Bull and Bear Markets:

Volatility & Affecting Factors in Indian Stock Market

6 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

List of Stock Exchanges In India:

7 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

8 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

Volatility & Affecting Factors in Indian Stock Market

Volatility & Affecting Factors in Indian Stock Market

11 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

Volatility & Affecting Factors in Indian Stock Market

Volatility & Affecting Factors in Indian Stock Market

Scope of the study:

Volatility & Affecting Factors in Indian Stock Market

New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

18 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

4. Methodology of the study:

Volatility & Affecting Factors in Indian Stock Market

Data Collection tool:

Data Collection Methods:

Duration of the Project:

20 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

Presentation tools to be used:

6. Limitation of the Study:

21 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

8. Contribution from the Study:

Vision and Principles:

Volatility & Affecting Factors in Indian Stock Market

The guiding principles of Relax Investments are:

Volatility & Affecting Factors in Indian Stock Market

24 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

Strength Advantage inside the Company

Good and uninterrupted terminal set up and connection

Weakness Disadvantage inside the company

Opportunities Advantages outside the company

More no. of people opting for trading options

Volatility & Affecting Factors in Indian Stock Market

of trading in Stock Market trading

Threats Disadvantages outside the company

26 TMU New Satara College of Engg. & Mgmt. Pandharpur

Volatility & Affecting Factors in Indian Stock Market

Some cynics say volatility is a polite way of referring to investors nervousness.