- 1. Stock indices and Factors Affecting Share pricesSUBMITTED BY
(N.V.S Raghunath)Reg NO: 10P35F1271 Under The Guidance and
SupervisionOf Prof. Samanvi Bhograj BHAVAN - NIFTE SCHOOL OF
BUSINESSNO 60, 60FT ROAD, OFF BELLARY ROAD,SAHAKAR NAGAR,
BANGALORE-560092. 2010-121|Page
2. DECLARATIONI hereby declare that this report titled Stock
indices and FactorsAffecting Share prices is a record of
independent work carried out byme under the guidance and
supervision of Prof. Samanvi Bhograj,Project Guide, BNSB towards
the partial fulfillment ofrequirements for the M.B.A. degree course
of BharathiarUniversity at Bhavan NIFTE School of business.I
further declare that this Project is the result of my own
effortsand that it has not been submitted to any other university
orinstitute for the award of a degree or diploma or any other
similartitle of recognition.PLACE: BangaloreN.V.S RaghunathDATE
:2|Page 3. GUIDES CERTIFICATEThis is to certify that the
Dissertation Project Report entitled Stock indicesand Factors
Affecting Share prices, done by N.V.S Raghunath (Reg No.
-10P35F1271) is a bona fide work done carried under my guidance
during theacademic year 2010-12 in a partial fulfilment of the
requirement for theaward of MBA degree by Bharathiar University. To
the best of myknowledge this report has not formed the basis for
the award of any otherdegree. Prof. Samanvi Bhograj (GUIDE)3|Page
4. ACKNOWLEDGEMENTAny successful work is always a product of many
handscoming together in co-operation and assistance. Thiswork is no
different. A number of people are responsiblefor accomplishment of
this work. Their guidance andsuggestions were highly helpful during
the course. I express my deep sense of gratitude to Prof.Samanvi
Bhograj, my project guide, Bhavan NIFTESchool of Business,
Bangalore, for her most valuableguidance, inspiring supervision,
periodical monitoringand sparing his precious time for this
project.I also express my sincere gratitude to my friends for
allthe inspirations and giving me an opportunity to carryout the
project report. Without their help, the projectreport would not
have been possible.Thanking you,N.V.S Raghunath4|Page 5. CONTENTS
Chapter No. Name of the conceptPage No. Executive summary 6 7
IntroductionObjectives of the study9Scope of the study 91
Methodology of the study10 Limitations of the study 112Review of
Literature 123 Industry Profile304 Data analysis and
interpretation415Findings, Suggestions and Conclusion
636Bibliography 685|Page 6. Executive SummaryThe stock indices is
used to measure a section of the stock market So, these indices
werequoted by the news or financial service firms so they used to
get a benchmarks thefinancial service firms were nothing but
brokerage company . So to make in a properorder the stock indices
had introduced S&P CNX Nifty junior, S&P CNX-500,
CNXMidcap-200. These were the indices we will come over While
coming to the Stock Prices it will be vary according to the
factorsinfluenced so, here the factors influence it may be economic
factor, demand and supply,geographical factor. So to understand the
stock price variation here I had taken the 5companies of automobile
sectorTo understand the concept of stock indices. Study the major
companies those are part ofthe Indices. We have to study the
volatility of stock prices and indices. And the impact ofDifferent
economic, industry and company specific factors that affect the
stock pricesand stock market indicesThe analysis and interpretation
of various Companiesof Automobile sector were done because we will
come to know which company is doingbetterFindings and suggestion
.The various factors influencethe stock market prices it may be due
to demand and supply; news, eps, fresh issue ofshares, etc will be
the causes of fluctuation of pricesSuggestion is that if the
investor wants to invest in a particular company he/she has
toanalyze the present scenario of the company there business
profile, market share of thecompany, balance sheet. Conclusion-is
process of constructing an index is tedious butvery useful for a
normal investor who works on his own in his investment game.
Theprocess of constructing market leader index in this present
project work is given clearlyand any investor can follow this
process to easily construct his own index6|Page 7. CHAPTER 1 -
INTRODUCTION7|Page 8. INTRODUCTIONAn index is a number used to
represent the changes in asset of values between a basetime period
and another time period. A stock index is a number that helps
measure thelevels of the market. Returns on the index thus are
supposed to represent returns on themarket.Index means the
statistical composite that measures changes in the economy or
infinancial markets, often expressed in percentage changes from a
base year or from theprevious month. Indexes measure the ups and
downs of stock, bond, and somecommodities markets, in terms of
market prices and weighting of companies in the index.An index is a
statistical measure of change in an economy or a securities market.
In thecase of financial markets, an index is essentially an
imaginary portfolio of securitiesrepresenting a particular market
or a portion of it. Each index has its own calculationmethodology
and is usually expressed in terms of a change from a base value.
Thus, thepercentage changes is more important that the actually
numeric value. For example,knowing that a stock exchange is at,
say, 5,000 dont tell you much. However, knowingthat the index has
risen 30% over the last year to 5,000 gives a much
betterdemonstration of performance.Index values are useful for
investors to track changes in market values over long periodsof
time. For example, the widely used Standard and Poors 500 Index is
computed bycombining 500 large-cap and U.S. stocks together into
one index value. Investors cantrack changes in the indexs value
over time and use it as a benchmark to compare theirown portfolio
returns. Technically, you cant actually invest in an index. Rather,
youinvest in a security such as an index fund or ETF that attempts
to track an index asclosely as possible called stock index. The
plural of index can be spelled either indexes orindices.8|Page 9.
OBJECTIVES OF THE STUDYThe main objective of this project is to
understand the composition and performanceNational Stock Exchange
index NIFTY. And automobile sectorIt includes:1. To understand the
concept of stock indices.2. To study the major companies those are
part of the Automobile sector.3. To study the volatility of stock
prices and indices.4. To study the impact of different economic,
industry and company specific factorsthat effect the stock prices
and stock market indices.SCOPE OF THE STUDY5 companies from
Automobile sectors have been selected to study the market and
toconstruct the NIFTY index. The market prices of all 5 companies
from 2008-2011 weretaken for study. The market share is taken as
base for the selection of index constructioni.e. companies have
been selected on the basis of this market share.9|Page 10.
METHODOLOGYSources of data:Data collection is an actively in
marketing research. The design of the data collectionmethod is the
spine of research design. The sources of data are classified in
totwo types The Primary Data. The Secondary Data.PRIMARY DATA:The
primary data are fresh data collected directly from the field and
thereforeconsist of original information gathered for the specific
purpose. It is expensive,laborious, and time consuming. But it
assures a greater degree of accuracy and reliabilityas it comes
straight from the horses month.SECONDARY DATA:The secondary data
are the data, which the investigator borrows from other whohave
collected it for various other purposes. Therefore it may not
entirely be reliable. It isless expensive and involves less
expensive and involves less time and labor than thecollection of
primary data.The Sources of collecting Data:I.Websites of different
online trading firms. II.Newspaper, magazines, trade
journals.III.Publications of different online trading firms.IV.
Interaction with managers and customers.10 | P a g e 11.
LIMITATIONS Information is collected primarily from secondary
sources and may not beaccurate. Index and stock prices moments are
observed here for three years Period is from 2008 -2011 to work on
any study comprehension11 | P a g e 12. CHAPTER 2 - REVIEW OF
LITERATURE12 | P a g e 13. The securities market achieves one of
the most important functions of channeling idleresources to
productive resources or from less productive resources to more
productiveresources. Hence in the broader context the people who
save and investors who investfocus more towards the economys
abilities to invest and save respectively. Thisenhances savings and
investments in the economy, the two pillars for economic growth.The
Indian Capital Market has come a long way in this process and with
a strongregulator it has been able to usher an era of a modern
capital market regime. The pastdecade in many ways has been
remarkable for securities market in India. It has
grownexponentially as measured in terms of amount raised from the
market, the number oflisted stocks, market capitalization, trading
volumes and turnover on stock exchanges,and investor population.
The market has witnessed fundamental institutional changesresulting
in drastic reduction in transaction costs and significant
improvements inefficiency, transparency and safety.DEPENDENCE OF
SECURITIES MARKET:Three main sets of entities depend on securities
market- the corporate, the government &households. While the
corporate and governments raise resources from the securitiesmarket
to meet their obligations, the households invest their savings in
securities.PRIMARY MARKET & SECONDARY MARKET:The securities
market comprises two segments- primary market (new issues, offer
forsale) & secondary market (trading of stocks). There are two
major types of issuers whoissue securities. The corporate entities
issue mainly debt and equity instruments (shares,debentures, etc.),
while the governments (central and state governments) issue
debtsecurities (dated Securities, treasury bills). The two major
exchanges, namely the NSEand the BSE provide trading of
securities.13 | P a g e 14. LAWS GOVERNING CAPITAL MARKET:The four
main legislations governing the securities market are:(a) The SEBI
Act, 1992 which establishes SEBI to protect investors and develop
andregulate securities market.(b) The Companies Act, 1956, which
sets out the code of conduct for the corporatesector in relation to
issue, allotment and transfer of securities, and disclosures to
bemade in public issues.(c) The Securities Contracts (Regulation)
Act, 1956, read with the Securities Contracts(Regulation) Rules,
1957 which provide for regulation of transactions in
securitiesthrough control over stock exchanges; and(d) The
Depositories Act, 1996 which provides for electronic maintenance
and transfersof ownership of demat securities.REGULATORS:SEBI is
the primary regulator of the Securities Market and the entities
operating therein.The SEBI Act and the Depositories Act are mostly
administered by SEBI. Governmentand regulations by SEBI frame the
rules under the securities laws. All these areadministered by SEBI.
The powers under the Companies Act relating to issue andtransfer of
securities and non-payment of dividend are administered by SEBI in
case oflisted public companies and public companies proposingTo get
their securities listed.STOCK MARKET:When investors think of the
stock market, they may imagine a specific place - such as astock
exchange. In fact, the stock market is the abstract idea of stock
trading and stockexchange. All selling of stocks - at stock
exchanges and in other ways - affects themarket overall. Following
stock market information in the news can help you make theright
decisions about stock market investing.14 | P a g e 15. Luckily,
today you can get stock market data from a wide variety of sources.
Knowingthe stock market price of your investments, being able to
answer the question what is thestock market and watching the
markets ups and downs can help you become a strongerinvestor.STOCK
MARKET DEFINITIONS:1. A market for the buying and selling of
stocks, such as the Bombay Stock exchange.2. An institution that
facilitates the buying and selling of stocks.3. Where stocks
(shares) are bought and sold. A share is a portion of the total
ownership of a corporation. The more shares you own in a
corporation, the more ownership you have in that corporation.4.
Stocks are bought or sold. The market refers to this activity.
There are organized exchanges, such as The Bombay Stock exchange,
that buyers and sellersgo through to placethe transactions
(ortrades).5. Stock exchange: an exchange where professional
stockbrokers conduct security trading.6. A stock market is a market
for the trading of company stock, and derivatives of it; both of
these are securities listed on a stock exchange as well as those
only traded privately.7. The organized trading of stocks, bonds, or
other securities, or the place where suchtrading occurs.8. Where
stocks (shares) are bought and sold. A share is a portion of the
totalownership of a corporation. The more shares you own in a
corporation, the moreownership you have in that corporation.9. The
set of institutions that facilitate the exchange of stocks between
buyers andsellers. A stock market can be an actual place, but with
the growth of electronic15 | P a g e 16. transactions a large
fraction of stock market transactions are not centrally located in
aparticular location.10. Particulars market where stocks and bonds
are traded.11. Stock market may be a physical place, sometimes
known as a stock exchange,where brokers gather to buy and sell
stocks and other securities. The term is also usedmore broadly to
include electronic trading that takes place over computer
andtelephone lines.12. Is a market for the trading of publicly held
company stocks or shares andassociated financial instruments
(including stock options, convertibles and stockindex futures).
Traditionally such markets were open-outcry where trading
occurredon the floor of exchange.13. in relation to a securities
exchange or a stock exchange, includes, in the case ofthe Exchange,
a stock market of a securities exchange or of a stock exchange, as
thecase may be, that is a subsidiary of the Exchange.14. Stock
exchange: an exchange where security trading is conducted by
professionalstockbrokers an organized marketplace where members
gather to trade securities.Members may act either as agents for
customers, or as principals for their own...15. An organized
marketplace for securities featured by the centralization of
supplyand demand for the transaction of orders by member brokers
for institutional andindividual investors.16 | P a g e 17. STOCK
EXCHANGE:1. A place where stocks, bonds, or other securities are
bought and sold.2. An association of stockbrokers who meet to buy
and sell stocks and bondsaccording to fixed regulations.3. A place
where stocks, bonds, or other securities are bought and sold.4. A
place where stocks, bonds, or other securities are bought and
sold.5. An association of stockbrokers who meet to buy and sell
stocks and bondsaccording to fixed regulations.6. A place where
stocks, bonds, or other securities are bought and sold.An
association of stockbrokers who meet to buy and sell stocks and
bonds accordingto fixed regulations.NEED OF STOCK MARKET:The stock
market is simply a term for the overall market or industry that is
concernedwith buying and selling company stock, both private and
publicly traded securities. Thestock market does many things. It
helps to set prices of stocks. The more a stock is tradedon the
market and the more in demand the stock, the higher is its value.
Having a stockmarket that is interconnected with stock markets
around the world helps traders andinvestors to see how specific
stocks are doing.Of course, the stock market is mainly present to
create money. Through the market,investors - both companies and
individuals - can buy stocks, which effectively makethem own a
small part of a company. If the company prospers, investors are
rewardedwith dividends and profits. Companies, by becoming public
and offering stocks to thepublic, can raise money and improve their
profile through business expansions which canhelp them make great
profit.17 | P a g e 18. NATIONAL STOCK EXCHANGE OF INDIA LIMITEDThe
National Stock Exchange of India Limited has genesis in the report
of the HighPowered Study Group on Establishment of New Stock
Exchanges, which recommendedpromotion of a National Stock Exchange
by financial institutions (FIs) to provide accessto investors from
all across the country on an equal footing. Based on
therecommendations, NSE was promoted by leading Financial
Institutions at the behest ofthe Government of India and was
incorporated in November 1992 as a tax-payingcompany unlike other
stock Exchange 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 inNovember 1994 and operations in Derivatives
segment commenced in June 2000.NSE GROUPNational Securities
Clearing Corporation Ltd. (NSCCL)It is a wholly owned subsidiary,
which was incorporated in August 1995 and commencedclearing
operations in April 1996. It was formed to build confidence in
clearing andsettlement of securities, to promote and maintain the
short and consistent settlementcycles, to provide a counter-party
risk guarantee and to operate a tight risk containmentsystem.18 | P
a g e 19. NSE.IT Ltd.It is also a wholly owned subsidiary of NSE
and is its IT arm. This arm of the NSE isuniquely positioned to
provide products, services and solutions for the
securitiesindustry. NSE.IT primarily focuses on in the area of
trading, broker front-end and back-office, clearing and settlement,
web-based, insurance, etc. Along with this, it alsoprovides
consultancy and implementation services in Data Warehousing,
BusinessContinuity Plans, Site Maintenance and Backups, Stratus
Mainframe FacilityManagement, Real Time Market Analysis &
Financial News.India Index Services & Products Ltd. (IISL)It is
a joint venture between NSE and CRISIL Ltd. to provide a variety of
indices andindex related services and products for the Indian
Capital markets. It was set up in May1998. IISL has a consulting
and licensing agreement with the Standard and Poors
(S&P),worlds leading provider of investible equity indices, for
co-branding equity indices.National Securities Depository Ltd.
(NSDL)NSE joined hands with IDBI and UTI to promote
dematerialization of securities. Thisstep was taken to solve
problems related to trading in physical securities. It
commencedoperations in November 1996.19 | P a g e 20. NSE Facts It
uses satellite communication technology to energize participation
from around400 cities in India. NSE can handle up to 1 million
trades per day. It is one of the largest interactive VSAT based
stock exchanges in the world. The NSE- network is the largest
private wide area network in India and the firstextended C- Band
VSAT network in the world. Presently more than 9000 users are
trading on the real time-online NSEapplication.Today, NSE is one of
the largest exchanges in the world and still forging ahead. At
NSE,we are constantly working towards creating a more transparent,
vibrant and innovativecapital market.AUTOMOBILE SECTOR Company Name
IndustryLast Price Mkt Cap(Cr)Weight Bajaj Auto Automobiles
1,342.7042,341.631.15 Hero Honda Automobiles 1,731.7031,739.331.02
Mah and MahAutomobiles644.142,997.301.17 Maruti SuzukiAutomobiles
1,165.0036,464.780.99 Tata MotorsAutomobiles 980.9567,070.301.8520
| P a g e 21. DIFFERENCES BETWEEN THE INDICESThe indices are
different from each other to a certain extent. Some time the sensex
maymove up 100 point but NSE nifty may move up only 40 points. The
main factors thatdifferentiate one index from the other are give
below.1. The number of the component stocks2. The composition of
the stocks3. The weights4. Base year1. The Number Of The Component
Stocks: The number of stock in an indexinfluences the behavior of
index. If the number of component stocks is larger, itwould be a
representative sample capable of reflecting the market movement.
Thesensex has 30 scrips like the Dow Jones Industrial average
in(338 stocks) andNifty (50 stocks) are also widely used. BSE
National Index is considered to be morerepresentative than sensex
because it has 100 stocks. Out of 100 stocks. Out of 100,22 are
quoted on the rest are listed on the BSE and the rest are listed on
the BSE andother exchanges.2. The Composition of the stocks: The
composition of the stocks in the index shouldreflect the market
movement as well as the macroeconomic changes. The centre
formonitoring Indian Economy maintains an index. It often changes
the composition ofthe index so as to reflect the market movement in
a better manner. Some of thescrips traded volume may fall down and
at the same time some other stock mayattract the market interest.
In such a case the scrip that has lost the market interestshould be
dropped and other must be added. Only then, the index would
becomemore representative.21 | P a g e 22. 3. The weight: The
weight assigned to each companys scrip also influences the movement
of the index. The indices may be weighted with the price or value.
The Dow Jones industrial Average and Nikkei Stock Average of 225
scrips of Tokyo stock exchange are weighted with the price. A price
weight index is computed by adding the current prices of the stocks
exchange and dividing the sum by the total number of stocks. The
stocks with high price influence the index more than the low priced
stock in the sample. In the value weighted index the total market
value of the share is the weight. In an un weighted index, all
stocks carry equal carry equal weights. The price or market volume
of the scrip does not affect the index. The movement of the price
is based on the percentage change in the average price of the
stocks in the particular index.4. The choice of base year also
leads to variations among the index. The base year differs from
each other in the various indices. The base year should be free
from any unnatural fluctuations in the market. If the base year is
close to the current year, the index would be more effective in
reflecting the changes in the market movement. At the same time if
it is too close, the investor cannot make historical comparison.
The sensex has the base year as 1978-79 and the next oldest one is
the RBI index of ordinary shares with 1980-81 as base year. The
following table gives the summary of major stock market
indices.Indian stock market WeightingBase No. of stock Base
yearIndicesEconomic Time Unweighted 721984-85Index ofOrdinary share
Market Value301978-79PricesBSE sensex 100BSE National Index Market
Value1983-8422 | P a g e 23. BSE-200Market Value 200 1989-90Dollex
Market Value 200 1989-90S&P Nifty (NSE-50)S &P CNX Nifty
Market Value 50Nov 1995JuniorS&P CNX-500Market Value 50-CNX
Midcap-200 Market Value 500 1994International Stock IndicesNikkei
Dow Jone Price weighted 2251949AveS& P composite Market
Value5001941-421. Industry representation: The Index should be able
to capture the macro-industrialsituation through price movement of
individual scrips. The companys scrip shouldreflect the present
state of the industry and its future prospects. Companies
chosenshould be representative of the industry. Care is taken in
selecting scrips across allthe major industries major industries to
make the index act as a real barometer to theeconomy2. Market
capitalization: The market capitalization of the stock indicates
the truevalue of the stock, as the outstanding number of share is
multiplied by the price. PriceIndicate the demand and growth
potential for the stock. The outstanding sharesdepend on the equity
base. The selected scrip should have a wide equity base too23 | P a
g e 24. 3. Liquidity: The liquidity factor is based on the average
number of deal of scrip. Theaverage number of deal in the two
previous years is taken in to account. The marketfancy for the
share can be found out by the trading volumes. The Financial
ExpressEquity Index is weighted by trading volume and not by market
capitalization. Themarket depth: the market depth factor is the
average deal as a percentage ofcompanys shares outstanding. The
market depth depends upon the wide equity base.If the equity base
is broad based then number of deals in the market would
increase.For example Reliance Industries has a wide equity base and
large number ofoutstanding shares.4. Floating stock depth: The
floating stock depth factor is the average of deals as apercentage
of floating stock. Low floating stock is able to command high
price. Itssound finance and internal generation of funds led growth
may be the reason for thelow flotation. Trading volumes are
directly liked to the public holding in thecompany. Wide public
holding is a pre-requisite for high trading volume.
Relianceindustries are a good example. The free float of company is
45 percent and it has itspositive effect on the trading volume.
Revision of sensex scrips :INTRODUCTION & BRIEF ABOUT THE INDEX
CONSTRUCTION:An index is a number used to represent the changes in
asset of values between a basetime period and another time period.
A stock index is a number that helps measure thelevels of the
market. Returns on the index thus are supposed to represent returns
on themarket.Index means the statistical composite that measures
changes in the economy or infinancial markets, often expressed in
percentage changes from a base year or from theprevious month.
Indexes measure the ups and downs of stock, bond, and
somecommodities markets, in terms of market prices and weighting of
companies in the index.24 | P a g e 25. A statistical measure of
change in an economy or a securities market. In the case
offinancial markets, an index is essentially an imaginary portfolio
of securities representinga particular market or a portion of it.
Each index has its own calculation methodologyand is usually
expressed in terms of a change from a base value. Thus, the
percentagechanges is more important that the actually numeric
value. For example, knowing that astock exchange is at, say, 5,000
dont tell you much. However, knowing that the indexhas risen 30%
over the last year to 5,000 gives a much better demonstration
ofperformance.Index values are useful for investors to track
changes in market values over long periodsof time. For example, the
widely used Standard and Poors 500 Index is computed bycombining
500 large-cap U.S. stocks together into one index value. Investors
can trackchanges in the indexs value over time and use it as a
benchmark to compare their ownportfolio returns to. Technically,
you cant actually invest in an index. Rather, you investin a
security such as an index fund or ETF that attempts to track an
index as closely aspossible o called stock index. See also base
period. The plural of index can be spelledeither indexes or
indices.NIFTY & SENSEX:The word Nifty is a combination of two
words namely the N from national and Niftyfrom fifty. It is an
index of fifty companies listed on the National Stock Exchange
inIndia. The fifty companies cover twenty two different sectors of
the Indian economy. TheSensex on the other hand refers to the
sensitivity Index of the Bombay Stock Exchange.The Sensex comprises
of the traded stock of the thirty most traded and active types. It
isalso representative and covers various sectors. The stock of the
Nifty companiesaccounts for approximately sixty percent of the
stock traded at the National stockexchange, the Sensex stock
accounts for nearly twenty percent of the capitalization of
theBombay Stock Exchange.25 | P a g e 26. SENSEX, short form of the
BSE-Sensitive Index, is a "Market Capitalization-Weighted"index of
30 stocks representing a sample of large, well-established and
financially soundcompanies. The index is widely used to Measure the
performance of the Indian stockmarkets.The NSE S&P CNX Nifty 50
indexes is a well diversified 50 Stock index accounting for24
sectors of the economy. It is used for a variety of purposes such
as benchmarking fundportfolios, index based derivatives and index
funds.MARKET INDEX:Market measure that consists of weighted values
of the components that make up certainlist of companies. A stock
market tracks the performance of certain stocks by weightingthem
according to their prices and the number of outstanding shares by a
particularformula.THE BASIC IDEA IN AN INDEX:Every stock price
moves for two possible reasons: news about the company (e.g.
aproduct launch, or the closure of a factory, etc.) or news about
the country (e.g. nuclearbombs, or a budget announcement, etc.).
The job of an index is to purely capture thesecond part, the
movements of the stock market as a whole (i.e. news about the
country).This is achieved by averaging. Each stock contains a
mixture of these two elements -stock news and index news. When we
take an average of returns on many stocks, theindividual stock news
tends to cancel out. On any one day, there would be good
stock-specific news for a few companies and bad stock-specific news
for others. In a goodindex, these will cancel out, and the only
thing left will be news that is common to allstocks. The news that
is common to all stocks is news about India. That is what the
indexwill capture.26 | P a g e 27. REASONS FOR THE INDEX KEEP
CHANGING FROM TIME TO TIME:S&P CNX Nifty: Think of a liquid
stock as a good thermometer, one which givesaccurate data about the
true price of the stock, because it trades actively with a
tightspread. The prices observed for an illiquid stock are like
readings from a low qualitythermometer, which reports noisy data
about the phenomenon of interest (the true priceof the security).
We try to find the fifty best thermometers in the country and
averagetheir values to make the S&P CNX Nifty. As time passes,
better thermometers becomeavailable (in the form of large, liquid
stocks that are not in the S&P CNX Nifty). Wewould like that
S&P CNX Nifty always uses the best thermometers possible. So
weremove the weakest thermometer from inside the S&P CNX Nifty
and accept the newstock into it. The world changes, so the index
should change. Yet, the change should notbe sudden - for that would
disrupt the character of the index. S&P CNX Nifty uses
clearresearched and publicly documented rules for index revision.
These rules are appliedregularly, to obtain changes to the index
set. Index reviews are carried out every quarterto ensure that each
security in the index fulfills all the laid down criteria. IDBI was
oncenot listed; SBI was once illiquid; Infosys was once an obscure
software startup. Theworld changes, and one by one, these stocks
have come into the S&P CNX Nifty. Eachchange in the S&P CNX
Nifty is small, so the continuity of the index is maintained.
Yet,at all times, S&P CNX Nifty represents the 50 most
important liquid stocks in the S&PCNX Defty is S&P CNX
Nifty, measured in dollars. If the S&P CNX Nifty rises by 2%it
means that the Indian stock market rose by 2%, measured in rupees.
If the S&P CNXDefty rises by 2%, it means that the Indian stock
market rose by 2%, measured in dollars.THE S&P CNX 500:The
S&P CNX 500 is Indias first broad based benchmark of the Indian
capital market.The S&P CNX 500 represents about 96% of total
market capitalization and about 93% ofthe total turnover on the
NSE. The S&P CNX 500 companies are disaggregated into
72industries, each of which has an index The S&P CNX Industry
Index. Industry27 | P a g e 28. weightages in the index dynamically
reflect the industry weightages in the market. So fore.g. if the
banking sector has a 5% weightage among the universe of stocks on
the NSE,banking stocks in the index would have an approx.
representation of 5% in the index.The S&P CNX 500 is a market
capitalization weighted index. The base date for the indexis the
calendar year 1994 with the base index value being 1000. Companies
in the indexare selected based on their market capitalization,
industry representation, trading interestand financial performance.
The index is calculated and disseminated real-time.CNX NIFTY
JUNIOR:S&P CNX Nifty is the first rung of the largest, highly
liquid stocks in India. CNX NiftyJunior is an index built out of
the next 50 large, liquid stocks in India. It is not as liquidas
the S&P CNX Nifty, which implies that the information in the
S&P CNX Nifty Junioris not as noise-free as that of the S&P
CNX Nifty. It may be useful to think of the S&PCNX Nifty and
the CNX Nifty Junior as making up the 100 most liquid stocks in
India.S&P CNX Nifty is the front line blue chips, large and
highly liquid stocks. The CNXNifty Junior is the second rung of
growth stocks, which are not as established as thoseare in the
S&P CNX Nifty. A stock like Satyam Computers, which recently
graduatedinto the S&P CNX Nifty, was in the CNX Nifty Junior
for a long time prior to this. CNXNifty Junior can be viewed as an
incubator where young growth stocks are found. Aswith the S&P
CNX Nifty, stocks in the CNX Nifty Junior are filtered for
liquidity, sothey are the most liquid of the stocks excluded from
the S&P CNX Nifty. Buying andselling the entire CNX Nifty
Junior as a portfolio is feasible.The maintenance of the S&P
CNX Nifty and the CNX Nifty Junior are synchronized sothat the two
indices will always be disjoint sets; i.e. a stock will never
appear in bothindices at the same time. Hence it is always
meaningful to pool the S&P CNX Nifty andthe CNX Nifty Junior
into a composite 100 stock index or portfolio.28 | P a g e 29. CNX
MIDCAP 200:The medium capitalized segment of the stock market is
being increasingly perceived asan attractive investment segment
with high growth potential. The primary objective ofthe CNX Madcap
200 Index is to capture the movement and be a benchmark of
themadcap segment of the market. The CNX Madcap 200 Index is a
market capitalizationweighted index with its base period of the
index being the calendar year 1994 and basevalue as 1000. For
inclusion in the index, the average market capitalization of a
companymust range between Rs.0.75 billion to Rs.7.5 billion. The
distribution of industries in theCNX Madcap 200 Index represents
the industry distribution in the Madcap segment ofthe market. All
companies are evaluated for trading interest and financial
performance.IMPORTANCE OF NSE CLOSING PRICE:NSE has the best
surveillance procedures in India, so the extent of market
manipulationis minimum there. In NSE, the professional staff of the
surveillance department has nopositions on the market. This
elimination of conflicts of interest generates a more honestfocus
upon eliminating market manipulation. On a day-to-day basis
millions of shares gettraded on the NSE generating huge order
flows. Due to the liquidity and order flow fromnumerous market
players manipulation of the closing price becomes very hard. NSE
isthe most liquid exchange in India. Hence, the prices observed
there are the most reliable.NSE has the highest trading intensity
(reducing stale prices) and their bid-ask spreads arethe tightest
(reducing bid-ask bounce). This is assisted by the fact that the
NSE tick sizeis Rs.0.05 for all stocks, which encourages tight
bid-ask spreads.29 | P a g e 30. CHAPTER 3 - INDUSTRY PROFILE30 | P
a g e 31. Introduction to the Capital MarketThe capital market is
the market for securities, where companies and thegovernment can
raise long term funds. The capital market includes the stock market
andthe bond market. Financial regulators ensure that investors are
protected against fraud.The capital markets consist of the primary
market, where new issues are distributed toinvestors, and the
secondary market, where existing securities are traded.Capital
market thus plays a vital role in channelizing the savings of
individuals forInvestment in the economic development of the
country. As a result the investors are notconstrained by their
individual abilities, but by the abilities of the companies, which
inturn enhance the savings and investments in the country,
liquidity of capital market is animportant factor affecting
growth.Since projects require long term finance, but on the other
hand, the investor may not liketo relinquish control over their
savings for a long time. A liquid stock market ensures aquick exit
without incurring heavy losses or costs. Thus development of
efficient marketsystem is necessary for creating conductive climate
for investment and economic growth.Capital Market Segment Primary
and SecondaryBroadly , the comprises of two segments the new issue
market which iscommonly known as primary market and the stock
market which is known as secondarymarket.31 | P a g e 32. Primary A
primary offering, such as with a corporate bond, means you are
buyingit directly from the issuer, at par value, usually. A
secondary market is where you sell orbuy existing issues. i.e.; if
you bought a bond last year, now need to get your principal,you can
sell it in the secondary market. You may not get par value. If
rates are up sinceyou bought the bond, then you will likely have to
sell it at a discount to be able to get ridof it. If rates have
fallen since you bought it, you could get a premium for
it.SecondaryThe market where securities are traded after they are
initially offered in theprimary market. Most trading is done in the
secondary market. To explain further, it istrading in previously
issued financial instruments. An organized market for
usedsecurities. Bombay Stock Exchange (BSE), National Stock
Exchange NSE, bondmarkets, over-the-counter markets, residential
mortgage loans, governmental guaranteedloans etcSecondary Market
refers to a market where securities are traded after beinginitially
offered to the public in the primary market and/or listed on the
Stock Exchange.Majority of the trading is done in the secondary
market. Secondary market comprises ofequity markets and the debt
markets. For the general investor, the secondary marketprovides an
efficient platform for trading of his securities.For the management
of the company, Secondary equity markets serve as a monitoringand
control conduitby facilitating value-enhancing control activities,
enablingimplementation of incentive-based management contracts, and
aggregating information(via price discovery) that guides management
decisions.32 | P a g e 33. BRIEF ABOUT THE STOCK EXCHANGESStock
Exchange is a market like any other centralized market where both
buyersand sellers come and conduct their business of purchase and
sale of shares & securities.In other words, it is a market
place for shares and securities where trading takes place ina
controlled and protected environment.MEANING OF STOCK EXCHANGEA
stock exchange, share market or bourse is a corporation or mutual
organizationwhich provides "trading" facilities for stock brokers
and traders, to trade stocks and othersecurities. Stock exchanges
also provide facilities for the issue and redemption ofsecurities
as well as other financial instruments and capital events including
the paymentof income and dividends. The securities traded on a
stock exchange include: sharesissued by companies, unit trusts and
other pooled investment products and bonds. To beable to trade a
security on a certain stock exchange, it has to be listed there.
Usually thereis a central location at least for recordkeeping, but
trade is less and less linked to such aphysical place, as modern
markets are electronic networks, which gives them advantagesof
speed and cost of transactions. Trade on an exchange is by members
only. The initialoffering of stocks and bonds to investors is by
definition done in the primary market andsubsequent trading is done
in the secondary market. A stock exchange is often the
mostimportant component of a stock market. Supply and demand in
stock markets is drivenby various factors which, as in all free
markets, affect the price of stocks (see stockvaluation).There is
usually no compulsion to issue stock via the stock exchange itself,
normust stock be subsequently traded on the exchange. Such trading
is said to be off33 | P a g e 34. exchange or over-the-counter.
This is the usual way that bonds are traded. Increasingly,stock
exchanges are part of a global market for securities.Functions of
Stock ExchangeStock exchange is established into the main purpose
of providing a market placefor the members to deal in securities
under well laid down regulations and to protect theinterest of the
investors. The main functions of stock exchange are It brings the
companies and investors together so that the investors can put
riskcapital into companies and thus, companies can use the capital.
It provides an orderly regulated market for securities. It provides
continuous, ready and open market for selling and buying
securities. It promotes savings and investment in the economy by
attracting funds from theInvestors. It facilitates take overs by
means of acquiring majority of shares traded on the stockmarket. It
acts as a clearing house of business information. It motivates the
managers of well reputed companies, to retain their shares in
Agroup, to improve performance. It induces the managers to improve
performance for converting non-specified sharesinto specified
shares in the exchange. It enables the investors to evaluate the
net worth of their holdings. It also allows the companies to float
their shares in the market.34 | P a g e 35. FINANCIAL MARKET
REGULATIONSRegulations are an absolute necessity in the face of the
growing importance of capitalmarkets throughout the world. The
development of a market economy is dependent onthe development of
the capital market. The regulation of a capital market involves
theregulation of securities; these rules enable the capital market
to function more efficientlyand impartially. A well regulated
market has the potential to encourage additionalinvestors to
partake, and contribute in, furthering the development of the
economy. Thechief capital market regulatory authority is Securities
and Exchange Board of India(SEBI).SEBI is the regulator for the
securities market in India. It is the apex body to develop
andregulate the stock market in India It was formed officially by
the Government of India in1992 with SEBI Act 1992 being passed by
the Indian Parliament. SEBI is headquarteredin the popular business
district of Bandra-Kurla complex in Mumbai, and has
Northern,Eastern, Southern and Western regional offices in New
Delhi, Kolkata, Chennai andAhmedabad. In place of Government
Control, a statutory and autonomous regulatoryboard with defined
responsibilities, to cover both development & regulation of
themarket, and independent powers has been set up.The basic
objectives of the Board were identified as: to protect the
interests of investors in securities; to promote the development of
Securities Market; to regulate the securities market and35 | P a g
e 36. For matters connected therewith or incidental thereto.Since
its inception SEBI has been working targeting the securities and is
attending to thefulfillment of its objectives with commendable zeal
and dexterity. The improvements inthe securities markets like
capitalization requirements, margining, establishment ofclearing
corporations etc. reduced the risk of credit and also reduced the
market.SEBI has introduced the comprehensive regulatory measures,
prescribed registrationnorms, the eligibility criteria, the code of
obligations and the code of conduct fordifferent intermediaries
like, bankers to issue, merchant bankers, brokers and sub-brokers,
registrars, portfolio managers, credit rating agencies,
underwriters and others. Ithas framed bye-laws, risk identification
and risk management systems for Clearinghouses of stock exchanges,
surveillance system etc. which has made dealing in securitiesboth
safe and transparent to the end investor.Another significant event
is the approval of trading in stock indices (like S&P CNXNifty
& Sensex) in 2000. A market Index is a convenient and effective
product becauseof the following reasons: It acts as a barometer for
market behavior; It is used to benchmark portfolio performance; It
is used in derivative instruments like index futures and index
options; It can be used for passive fund management as in case of
Index Funds.36 | P a g e 37. Two broad approaches of SEBI is to
integrate the securities market at the national level,and also to
diversify the trading products, so that there is an increase in
number of tradersincluding banks, financial institutions, insurance
companies, mutual funds, primarydealers etc. to transact through
the Exchanges. In this context the introduction ofderivatives
trading through Indian Stock Exchanges permitted by SEBI in 2000 AD
is areal landmark.SEBI has enjoyed success as a regulator by
pushing systemic reforms aggressively andsuccessively (e.g. the
quick movement towards making the markets electronic andpaperless
rolling settlement on T+2 bases). SEBI has been active in setting
up theregulations as required under law.EVOLUTION AND GROWTH OF
INDIAN PRIMARY MARKETEarly Liberalization Phase: 1992-1995 (Fixed
Pricing)The initiation of the process of reform in India also would
not have been possible withoutchanges in the regulatory framework.
The New Economic policy (1991) led to a majorchange in the
regulatory framework of the capital market in India. The Capital
Issues(Control) Act 1947 was repealed and the Office of the
Controller of Capital Issues (CCI)was abolished. The Securities and
Exchange Board of India (SEBI), established in 1988and armed with
statutory powers in 1992, came to be established as the regulatory
bodywith the necessary authority and powers to regulate and reform
the capital market. SEBIcame to be recognized as a regulatory body
for the capital market after the abolition ofthe CCI. The control
on pricing of capital issue has been abolished and easy access
isprovided to the capital market. Initial Public Issue caught the
attention of general publiconly after the success of Reliance, when
millions of small investors made huge returns37 | P a g e 38. which
were unheard of till then. Dhirubhai Ambani was the first promoter
who raisedhuge amounts through the public issue route to finance
large facilities.The issue process was smoothened, procedures were
simplified and free pricing wasallowed, although with certain
restrictions, The Indian market had the concept of parvalue of
equity shares, and anything above par was considered premium. The
onlycompanies that were allowed to come with premium issues were
those, which had a threeyear profit-track record for the preceding
five years. New companies without this recordcould float premium
issues if their promoting companies had the same track record
andthey had to hold 50% of the post issue capital. Any new company
floated by firstgeneration entrepreneurs could only issue equity at
par. There was no restriction aboutprices in a premium issue.The
offer was always at a fixed price, whether premium or par. The
companies had toappoint intermediaries like merchant bankers,
registrars, bankers etc. Merchant bankershad the responsibility of
fixing the prices, in consultation with the company, carrying
outwith due diligence, preparing the prospectus (offer documents)
etc. The prospectus had tobe submitted to SEBI for getting
scrutiny.The trend continued in the early nineties as many large
projects were launched after theeconomy was liberalized. Many of
these companies came out with public issues and theretail
participation increased dramatically. But many of the companies
which raisedmoney during this period just disappeared without a
trace.Late Liberalisation Period: 1996-2005 (Book Building)The late
nineties and the first few years of the current decade did not see
much activity inthe primary market even though we saw a huge bull
run led by technology stocks at theturn of the decade. The bad
experiences of retail investors kept them away from themarket and
made it difficult for companies to launch successful issues. The
corporate38 | P a g e 39. sector was recovering from the damage
caused by large capacity expansions and newprojects set up in the
nineties.The dormant primary issues market came alive after 2003
mostly because of thedivestment programme of the government. The
issue of Maruti Udyog, through whichthe government sold part of its
stake in the company, rekindled retail investor interest inthe
primary market. The issue was made at a very reasonable price and
investors madevery good returns immediately.The year 2004 saw the
primary market activity at its historic peak as some large
privatecompanies also came out with issues. Further divestment by
the government; includingthe largest ever issue by an Indian
company from ONGC, attracted more retail investorsinto the market.
The IPO market continues to buzz in the current year as well.
Takingadvantage of the strength in the secondary market, many high
profle companies are liningup to raise money from the market. The
year started with the issue from Jet Airwayswhich attracted a lot
of interest from investors. As a result of tougher regulations,
thequality of the issues has gone up substantially.2006 onwards
scenario:Indias IPO market emerged as the eighth largest with $7.23
billion (Rs 30,000 crore) innet proceeds through 78 public issues,
global research and consultancy firm Ernst &Young said in its
Global IPO report. Across the world, the companies raised $246
billion,up from $167 billion in 2005, through a total of 1,729
IPOs, led by Chinese companies atthe top with net proceeds of $56.6
billion. However, the biggest number of IPOs camefrom the United
States with 187 offerings, followed by Japan with 185 and China
with175 IPOs. According to the study, Indias increasing number of
larger deals has beendriven by the growth of Indian corporations
and their need for additional capital forpotential acquisitions. In
2007 Indian IPOs continue to surge in numbers. Continuedstrength is
expected in the real estate and energy sector. "The rapid growth in
emergingmarket economies has resulted in a migration of capital
from the developed economiesinto the emerging markets," E&Y
said.39 | P a g e 40. The localization trend in India is evidenced
by several billion-dollar IPOs hosted byIndian exchanges. In 2006,
Indias largest IPO, Reliance Petroleum raised $1.8 billion,followed
by the oil production and exploration company, Cairn Energy, which
raised$1.3 billion with both companies listing on domestic
exchanges.However, some Indian companies are also listing abroad,
especially London, Singaporeand Luxembourg, primarily for higher
valuations and visibility, the report noted.40 | P a g e 41.
CHAPTER 4DATA ANALYSIS & INTERPRETATIONS41 | P a g e 42.
FACTORS INFLUENCING STOCK PRICES & INDICESThe main factors that
include the movement of stock indices include: a. Economic Factors
b. Industry Trends c. Company Performance d. Demand & Supply e.
Other Factors1. ECONOMY ANALYSISEconomic analysis is the analysis
of forces operating the overall economy a country.Economic analysis
is a process whereby strengths and weaknesses of an economy
areanalyzed. Economic analysis is important in order to understand
exact condition of aneconomy.The Centre for Monitoring Indian
Economy (CMIE) has estimated Indias grossdomestic product (GDP) to
expand at 9.2 per cent in 2010-11 as compared to the growthof 7.4
per cent in 2009-10. Overall growth in industrial output was 10.8
per cent year-on-year (y-o-y) in October 2010. The growth in the
industrial sector is expected to increaseat 9.4 per cent in
2010-11, as compared to 9.2 per cent in 2009-10. According to a
surveyby the Confederation of Indian Industry (CII) and ASCON,
around 50 segments (out of127) in the manufacturing sector grew by
39 per cent, entering the excellent growthcategory, during
April-December 2010-11 compared to 29 sectors (22.9 per cent)
inApril-December 2009 which shows a marked improvement. Also,
services sector isprojected to expand by 10 per cent as compared to
8.6 per cent last year, led by the tradeand transport segment. As
per Use-based classification, the Sectorial growth rates inOctober
2010 over October 2009 are 7.7 per cent in Basic goods, 22 per cent
in Capital42 | P a g e 43. goods and 9.5 per cent in Intermediate
goods. The Consumer durables and Consumernon-durables have expanded
by 31 per cent and 0.1 per cent respectively in the
reportedmonth.The industrial output registered a robust growth of
10.8 per cent year-on-year (y-o-y) inOctober 2010. Among the three
major constituents of the IIP, manufacturing andelectricity
recorded higher growth rates of 11.3 per cent and 8.8 per cent in
October asagainst their corresponding levels of 10.8 per cent and 4
per cent for the correspondingmonth in 2009. The third constituent
mining index registered 6.5 per cent in October2010.The Economic
scenarioForeign injections amounted to US$ 6.4 billion in October
2010, which was almost 25per cent of the total inflows in the stock
market registered so far in 2010 The net foreignfund investment
crossed the US$ 100 billion mark on November 8 2010, since
theliberalization policy was implemented in 1992.Even in 2011 the
foreign investment inthe March month it was U.S$3.6 billion As per
the data given by SEBI, the total figurestood at US$100.9 billion,
wherein US$ 4.78 billion were infused in November itself.The
humungous increase in investment mirrors the foreign investors
faith in the Indianmarkets. FIIs have made investments worth US$
4.11 billion in equities and poured US$667.71 million into the debt
market.Data sourced from SEBI shows that the number of registered
FIIs stood at 1,738 andnumber of registered sub-accounts rose to
5,592 as of November 10, 2010.As on December 17, 2010, Indias
foreign exchange reserves totalled US$ 294.60 billion,an increase
of US$ 11.13 billion over the same period last year, according to
the ReserveBank of Indias (RBI) Weekly Statistical
Supplement.Moreover, India received foreign direct investment (FDI)
equity worth US$ 12.39 billionduring April-October, 2010-11, taking
the cumulative amount of FDI inflows during43 | P a g e 44. April
2000 - October 2010 to US$ 179.45 billion, according to the
Department ofIndustrial Policy and Promotion (DIPP).The services
sector comprising financial and non-financial services attracted 21
per centof the total FDI equity inflow into India, with FDI worth
US$ 2,163 million during April-October 2010,. Metallurgical
industries were the third highest sector attracting FDI worthUS$
920 million. Exports from India have increased by 26.8 per cent
year-on-year (y-o-y) to touchUS$ 18.9 billion in November 2010,
urging the Government to exude confidencethat overall shipments in
2010-11 may touch US$ 215 billion. For the April-November 2010
period, exports have grown by 26.7 per cent to US$ 140.3billion,
while imports totaled up to US$ 222 billion, expanding 24 per cent.
Indias logistics sector is witnessing increased activity. According
to the IndianShipping ministry, the countrys major ports handled
44.4 million tones of cargoduring September 2010, 4.5 per cent
higher as compared to 5.9 per cent growth inSeptember 2009. Leading
consultants Frost&Sullivan, as cited by The EconomicTimes, are
expecting traffic to boost at Indian ports from 814.1 million
tones(MT) to 1,373.1 MT from 2010 to 2015 at a CAGR of 11 per cent.
The studygroup has underlined three key trends in the sector,
namely, increase incontainerized cargo, increased private sector
participation and traffic diversiontoward minor ports. . The
average assets under management of the mutual fund industry stood
at US$160.44 billion for the month of September 2010, according to
the data released byAssociation of Mutual Funds in India (AMFI).
The cumulative production of vehicles in India grew by 32.4 per
cent uptoAugust 2010 as compared to the same period in 2009, Mr B S
Meena, Secretary,Ministry of Heavy Industry, reported. Passenger
vehicles, commercial vehiclesand two-wheeler segments had all
recorded impressive growth rates of 32 percent, 49 per cent and 31
per cent, respectively during the period upto August2010. . .44 | P
a g e 45. According to Ernst & Young (E&Y), a global
consultancy firm, India is expectedto receive more than US$ 7
billion in private equity (PE) investments in 2010, onthe back of
robust economic growth. According to research firm VCCEdge,mergers
and acquisition (M&A) deals worth US$ 54.6 billion have been
signedtill December 15, 2010, significantly more than the previous
high of US$ 42billion achieved in 2007. The HSBC Market Business
Activity Index, which measures business activityamong Indian
services companies, based on a survey of 400 firms, rose to 60.1
inNovember 2010 from 56.2 in October 2010. We had taken the stock
prices from the 2008 -2011 the stock prices melt downvery
drastically in 2008 because of the Lehman brothers they were
bankrupt inU.S it was nearly $600billions in assets it had taken
credit from many of banksthroughout the world it was unable to pay
them so there was a drastic down fallof stocks in that periodGrowth
potential story The data centre services market in the country is
forecast to grow at a compoundannual growth rate (CAGR) of 22.7 per
cent between 2009 and 2011, to touchclose to US$ 2.2 billion by the
end of 2011, according to research firm IDCIndias report published
in March 2010. The report further stated that the overallIndia data
centre services market in 2009 was estimated at US$ 1.39 billion. .
The BMI India Retail Report Quarter 3, 2010 released in May 2010,
forecasts thattotal retail sales will grow from US$ 353 billion in
2010 to US$ 543.2 billion by2014. According to a report titled
India 2020: Seeing, Beyond, published by domesticbroking major,
Edelweiss Capital in March 2010, stated that Indias GDP is set
toquadruple over the next ten years and the country is likely to
become an over US$4 trillion economy by 2020.45 | P a g e 46. India
will overtake China to become the worlds fastest growing economy
by2018, according to the Economist Intelligence Unit (EIU), the
research arm ofLondon-based Economist magazine.Economic Survey
2009-10 HighlightsAccording to the Economic Survey 2009-10, tabled
in Parliament on February 25, 2010by the Union Finance Minister, Mr
Pranab Mukherjee, the economy is expected to growat 7.2 per cent in
2009-10. The expected growth comes on the back of the
growthmomentum witnessed in Q2 2009-10 estimates, when the economy
recorded a GDPgrowth of 7.9 per cent as against 7.5 per cent in the
corresponding quarter of 2008-09.The industrial and the service
sectors are growing at 8.2 and 8.7 per cent respectively, asper the
advance estimates of gross domestic product (GDP) for 2009-10,
released by theCentral Statistical Organisation (CSO).The Economic
Survey estimates: Growth rate of GDP at factor cost expected to be
7.2 per cent. Growth in the manufacturing sector has more than
doubled from 3.2 per cent in2008-09 to 8.9 per cent in 2009-10.
Growth of private investment demand picked up in 2009-10. Savings
rate as a percentage of GDP in 2008-09 stood at 32.5 per cent.
Growth rate of capital formation as a percentage of GDP in 2008-09
stood at 34.9per cent. Foreign Exchange Reserves in 2009-10 as of
December 31, 2009 stood at US$283.5 billion. Financing, insurance,
real estate and business services have retained their
growthmomentum at around 10 per cent in 2009-10.46 | P a g e 47.
The main highlights of the survey are: The recovery in GDP growth
for 2009-10, as indicated in the advance estimates,is broad based.
Seven out of eight sectors/sub-sectors show a growth rate of 6.5per
cent or higher. Sectors including mining and quarrying;
manufacturing; andelectricity, gas and water supply have
significantly improved their growth rates atover 8 per cent in
comparison with 2008-09. The construction sector and trade,hotels,
transport and communication have also improved their growth rates
overthe preceding year. Strong growth in automobiles, rubber and
plastic products, wool and silk textiles,wood products, chemicals
and miscellaneous manufacturing; modest growth innonmetallic
mineral products. . There has been improvement in the balance of
payments (BoP) situation duringH1 of 2009-10 over H1 of 2008-09,
reflected in higher net capital inflows andlower trade deficit. Net
capital flows to India at US$ 29.6 billion in April-September 2009
remainedhigher as compared to US$ 12 billion in April-September
2008. During fiscal 2009-10, foreign exchange reserves increased by
US$ 31.5 billionfrom US$ 252 billion in end March 2009 to US$ 283.5
billion in end December2009. Growth rate of gross fixed capital
formation in 2009-10 has recovered, as per therevised National
Accounts Statistics (NAS). Turnaround in merchandise export growth
witnessed in November 2009, whichhas been sustained in December
2009.Crisis of automobile sector in 2008-2010 The automotive crisis
not only occurred in our Asian continent it was occurred allthe
parts of the world because of the rise of automotive fuels because
of that thepurchasing power of the consumers was drastically
reduced47 | P a g e 48. Decline of BOP in 2009 2010 the BOP
(Balance of payments) were beendecreased before period of 2008 2009
it was good in exports 3.6% decline andin imports 2.6% declineHopes
to the automotive sector in 2009 2010Because of the down fall of
automotive sector the RBI has decreased the interest rates ofthe
automotive sector so there was a slight increasing of the stock
prices was increasedfall in EPS but it recovered the demand and
supply of this company was much whencompare to other companies48 |
P a g e 49. INDUSTRY & COMPANY ANALYSIS OF AUTOMBILE
SECTORAutomobilesDespite the fiscal slowdown worldwide, India had
maintained its growth rate at a steady8-8.5 per cent and the
automobile industry has also grown in excess of 13 per cent overthe
last few years. With easy financing options and with the wide range
of cars beinglaunched frequently, the Indian automobile enthusiasts
have never seen it better.According to SIAM, the cumulative
production data for April-January 2011 showsproduction growth of
27.45 per cent over same period in 2010. In March 2011 ascompared
to March 2010, production grew at 20.62 per cent. The industry
produced17,916,035 million vehicles of which share of two wheelers,
passenger vehicles, threewheelers and commercial vehicles were 75
per cent, 17 per cent, 4 per cent and 4 percent respectively.The
growth rate recorded for Domestic Sales for 2010-11 was 26.17 per
cent amountingto 15,513,156 vehicles.49 | P a g e 50. Passenger
Vehicles segment grew at 29.16 per cent during April-March 2011
over sameperiod last year. Passenger Cars grew by 29.73 per cent,
Utility Vehicles grew by 18.87per cent and Multi-Purpose Vehicles
grew by 42.10 per cent in this period.The overall Commercial
Vehicles segment registered growth of 26.97 per cent
duringApril-March 2011 as compared to the same period last year.
While Medium & HeavyCommercial Vehicles (M&HCVs) registered
growth of 31.78 per cent, LightCommercial Vehicles grew at 22.88
per cent.Three Wheelers sales recorded a growth rate of 19.44 per
cent in April-March 2011.While Passenger Carriers grew by 22.03 per
cent during April-March 2011, GoodsCarriers registered growth of
9.45 per cent.Two Wheelers registered a growth of 25.82 per cent
during April-March 2011. Mopeds,Motorcycles and Scooters grew by
23.53 per cent, 22.86 per cent and 41.79 per
centrespectively.Maruti Suzuki posted a 14.7 per cent rise in
January car sales while Mahindra &Mahindra reported a sales
growth of 22 per cent in comparison to last year.Tata Motors posted
a 15 per cent rise in January sales. Tata Motors has reported
aconsolidated net profit of US$ 540.3 million for the quarter ended
December 2010, up273 per cent as compared to US$ 144.89 in same
quarter the previous year.Skoda Auto India has reported impressive
sales growth for January 2011, with total salesfor January 2011 at
2825 units, as against 1881 units in January 2010.50 | P a g e 51.
Bajaj AutoFrom 2008 the data is taken into account . We see in the
figure that the prices of stockshave fallen in 2008 due to
recession but after that there is a continuous increase in
theprices until it again falls in 2011 . But after that it has
again increased .51 | P a g e 52. The sales figure shows that the
sales had decrease in 2008 and 2009 after which it hadincreased.The
PAT figures show the same trend as the sales figure . It decreased
in 2008 anddecreased little bit down in 2009 but again increased in
2010 .it went52 | P a g e 53. Bajaj AutoThe Rahul Bajaj said that
there was a highest ever sales, export, profits were increased
in2009 -10 the sales were increased nearly 35% and there was the
sale of 2.5 million motorcycle in 2009 2010. Sales were increased
in 2010 2011 of 39% exports wereincreased 35% i.e. the company
reached 1 million mark of sales Bajaj auto is nowfocusing on mostly
on discover and pulsar only because more sales of those
productsBajaj auto EPS:In 2008 the EPS was 52.25 because of high
recession is going on in 2009 45.37 becauseof the automotive crisis
there was a drastic increase in 2010 &2011 117.69 &
119.42Bajaj Auto market capitalization was 42341.63 in
2010-2011Hero Honda53 | P a g e 54. Though in 2008 the increase was
a little less as compared to other years it again pickedup the pace
in 2009. From 2009 there was a drastic increase in sales .PAT was
less in 2008 from next year has increased drastically and fallen in
201154 | P a g e 55. Hero Honda :Before it was hero Honda now it
was hero Motor Corporation it had come out from thejoint venture of
the Honda and buy the share of the Honda so, in August 2011
thecompany was renamed as hero Motor CorporationHero Honda sales
have increased to 4.6 million and in Economic Times The CompanyOf
the Year it got a record profits and record capitalization on
2009-2010. Whilecoming to 2010-2011.There was a good sales in
2010-2011 it was of 5.4millionHero Honda EPS:The hero Honda EPS was
48.47 in 2008 and drastically increased in 2009-2011 becauseof
higher sales and profits that was 64.19 & 111.77 it was decline
in 2011 because ofhero Honda came out of the joint venture and
purchased the Honda shares so that theEPS of the year was 96.55Hero
Honda market capitalization was 31739.3355 | P a g e 56. Mahindra
and MahindraThe above figure shows us a wide variation in the stock
prices of Mahindra andMahindra... Due to recession in 2008 the
prices fell down drastically. The prices startedrecovering in 2009
and reached at a very high level in 2010.56 | P a g e 57. Sales of
M&M sales shows that there is a decresae in sales after 2008
i.e; in 2009 butafter that it was increased drasticaly untill
2011.PAT of M&M has increased from 2001 to 2009 . In 2010 it
has fallen drastically .Mahindra and MahindraThe Mahindra and
Mahindra had taken over the Punjab tractors limited 1 st August
2008In the domestic sales the Mahindra and Mahindra had taken over
growth of 47.8%spareparts sales reached to 514.96crores in that 27
Cr were exporting the spare parts thecompany had repaid it foreign
currency loans of $94.5 million in 2009-2010. Thecompany had a
growth in net income for the year of 2010-2011 26.60% domestic
saleswas 39.8% when compared to previous year it was lessMahindra
and Mahindra EPS:The EPS of Mahindra and Mahindra of 2008 was
46.15, 2009 there was a slight fall inEPS because of Automotive
crisis, global financial meltdown, inflation touched at12% from
2010 & 2011 it had gained nice sales the EPS was 36.89 &
45.33Mahindra and Mahindra market capitalization was 42997.30 in
2010-201157 | P a g e 58. Maruti SuzukiBefore 2008 the stock prices
of the maruthi suzki was varying . All through out 2008 ithad
decreased and started recovering in 2009. The end of 2009 and the
beginning of 2010saw a very drastic increase in the share prices
.58 | P a g e 59. The sales were increaing and decreasing in year
on year from 2008 to 2011 .Even in pat also the same thing will
increase and decreasing occurred from 2008 to 2011Maruti
Suzuki:During the period of the 2008-2009 there was a great
fluctuation in the globally. TheIndian economy was less effected
even the crisis is going on the company unit sales inthe domestic
market it was 1.5% and 3.6% I exports market share had raised to
45.9% to46.5% So, because of the crisis the company has increased
its R&D designed engineers398 to 730. From the crisis the
company had recovered it sales by the R&D departmentand they
strengthened the customer satisfaction so in 2009-2010 the domestic
sales wasgrown up to 21% exports 111% it got highest ever income
growth of 40%, net profitincreased to 105%Maruti Suzuki EPS:In 2008
the EPS was 59.91 and in 2009 42.15 it was because of automotive
crisis whilecoming to 2010 it was of 86.45 here they had spent on
R&D so the EPS was raised to86.45 but slight decrease in EPS it
was 79.2159 | P a g e 60. Maruti Suzuki market capitalization was
36464.78 in 2010-2011.TataMotorsThe share prices of Tata Motors
also showed a wide fluctuation over the 10 years . It hadgone down
in 2008 but in 2009 it started recovering60 | P a g e 61. The sales
figures show there is a decrase after 2009 and it has increased
from theredrasticaly.Here also there is a drastic decrease in after
the 2008 and recovered fastly from there thepat was good when
compared to the 2009Tata Motors growth in 2009For the first few
months of the 2009 the Tata motors conducted widespread of
campaignthe entrance of the new car TATA NANO as The People Car so
this part will make thepeople to buy the car for less cost without
any credit crisis so it leads to grow in stocks ofthe Tata
MotorsTata Motors Eps:The Tata motors EPS was in 2008 56.88 but
when come to the 2009 the EPS wasreduced to 19.48 because of no
proper demand as 1st two months of Tata sales it wasdeclined so by
that the profits of the company also decreased. After that in 2010
& 11was increased to 39.26 & 43.20Tata motors
capitalization was 67070.07 according to 2010-201161 | P a g e 62.
Final Analysis:After analyzing all the factors of each company I
came to know that every company is doingbetter but among them Hero
Honda is doing better because even after the automotive crisisalso
It had recovered and it had increased the sales, Exports, EPS of
the company is mostbetter when compare to others because of its
huge profits. Even the company has come outfrom the Honda joint
venture in August 2011 it had slight down62 | P a g e 63. CHAPTER
5FINDINGS, SUGGESTIONS & CONCLUSION63 | P a g e 64. FINDINGSThe
present project work has been undertaken to study the process of
construction ofBSE Sensex of automobile sector and the various
factors that influence the share pricemoments and Sensex. The
construction of Index is very sensitive and complex.Like any other
commodity, in the stock market, share prices are also dependent on
somany factors. So, it is hard to point out just one or two factors
that affect the price of thestocks. There are still some factors
that are that directly influence the share prices.Demand and Supply
- This fundamental rule of economics holds good for the
equitymarket as well. The price is directly affected by the trend
of stock market trading.When more people are buying a certain
stock, the price of that stock increases and whenmore people are
selling he stock, the price of that particular stock falls. Now it
is difficultto predict the trend of the market but your stock
broker can give you fair idea of theongoing trend of the market but
be careful before you blindly follow the advice.News - News is
undoubtedly a huge factor when it comes to stock price. Positive
newsabout a company can increase buying interest in the market
while a negative press releasecan ruin the prospect of a stock.
Having said that, you must always remember that oftentimes, despite
amazingly good news, a stock can show least movement. It is the
overallperformance of the company that matters more than news. It
is always wise to take a waitand watch policy in a volatile market
or when there is mixed reaction about a particularstock.Market Cap
- If you are trying to guess the worth of a company from the price
of thestock, you are making a huge mistake. It is the market
capitalization of the company,rather than the stock, that is more
important when it comes to determining the worth ofthe company. You
need to multiply the stock price with the total number of
outstandingstocks in the market to get the market cap of a company
and that is the worth of thecompany.64 | P a g e 65. Earning Per
Share - Earning per share is the profit that the company made per
share onthe last quarter. It is mandatory for every public company
to publish the quarterly reportthat states the earning per share of
the company. This is perhaps the most importantfactor for deciding
the health of any company and they influence the buying tendency
inthe market resulting in the increase in the price of that
particular stock. So, if you want tomake a profitable investment,
you need to keep watch on the quarterly reports that thecompanies
and scrutinize the possibilities before buying stocks of particular
stock.Price/Earning Ratio - Price/Earning ratio or the P/E ratio
gives you fair idea of how acompanys share price compares to its
earnings. If the price of the share is too muchlower than the
earning of the company, the stock is undervalued and it has the
potentialto rise in the near future. On the other hand, if the
price is way too much higher than theactual earning of the company
and then the stock is said to overvalued and the price canfall at
any point.Fresh Issue Of SharesIf a company is issuing the fresh
shares, then share prices will come down because theprofit will be
shared with more investors then before.BuyBackThis is when the
company buys back its own shares. As the number of shares decline,
thecompanys earnings will be distributed to fewer investors. As
every investor is entitled toa larger share of companys future
earnings, its share price increases.65 | P a g e 66.
SUGGESTIONSThere are three factors which an investor must consider
for selecting the right stocks. Business: An investor must look
into what kind of business the company isdoing, visibility of the
business, its past track record, capital needs of thecompany for
expansion etc. Balance Sheet: The investor must focus on its key
financial ratios such asearnings per share, price-earning ratio;
debt-equity ratio, dividends per share etcand he must also check
whether the company is generating cash flows. Bargaining: This is
the most important factor which shows the true worth of thecompany.
An investor needs to choose valuation parameters which suit
itsbusiness.Following are some of the investment rules to be
considered before makinginvestments in stock markets: Invest for
long term in equity markets Align your thought process with the
business cycle of the company. Set the purpose for investment. Long
term goals should be the objective of equity investment.
Disciplined investment during market volatility helps attains
profits. Planning, Knowledge and Discipline are very crucial for
investment.66 | P a g e 67. CONCLUSIONInvestment is a process,
which starts from formulating objectives to construct a
portfolioand regular review of it. BSE and NSE are two prominent
exchanges on whichcompanies are listed and traded in secondary
market. These two exchanges functionsaccording to the protection
& surveillance of investors. In this concern, these
exchangesconstruct indices so that market movements can be observed
and valuable decisions canbe taken.The process of constructing an
index is tedious but very useful for a normal investor whoworks on
his own in his investment game. The process of constructing market
leaderindex in this present project work is given clearly and any
investor can follow thisprocess to easily construct his own
index.67 | P a g e 68. CHAPTER 6-BIBLIOGRAPHY68 | P a g e 69. BOOK
NAME AUTHOR1. Security analysis and portfolio management
Punithavati Pandian2. Investment Management V.K. Bhalla3. Dalal
StreetWEB SITES1. www.nseindia.com2. www.IndianCapitalMarket.com3.
www.Bseindia.com4.www.Sify.com5.www.rediffmoney.com6.www.angelbroking.com7.www.stockmarketview.com69
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