A

SUMMER TRAINING PROJECT

REPORTON
“A STUDY OF INSTABILITY OF INDIAN
STOCK MARKET”
SUBMITTED TO

AWADHESH PRATAP SINGH UNIVERSITY,

REWA (M.P.) FOR THE AWARD OF
MASTER OF BUSINESS ADMINISTRATION
MBA (SEMESTER-III)

BY
MOHAMMAD BASIT
UNDER THE GUIDANCE OF

Dr. Sneha Singh Parihar

CO- GUIDANCE OF

Ms. Nivedita Mishra

VINDHYA INSTITUTE OF MANAGEMENT &

RESEARCH, SATNA (M.P.)
2023-2024
i
 SUMMER TRAINING REPORTON
“A STUDY OF INSTABILITY OF INDIAN
STOCK MARKET ”

AWADHESH PRATAP SINGH UNIVERSITY,

REWA (M.P.) FOR THE AWARD OF
MASTER OF BUSINESS ADMINISTRATION
MBA (SEMESTER-III)
Approval of Project
Name of Student Mr. MOHAMMAD BASIT
College Vindhya Institute of Management &
Research, Satna (M.P.)
Name of Guide Dr. Sneha Singh Parihar
Name of Co-Guide Ms. Nivedita Mishra
Name and Designation
of External Examiner
Name & Designation of
Internal Examiner
Date of
Presentation / Viva

Approved By: Signature:

1. Name of Guide Dr. Sneha Singh Parihar
2.Name of External
Examiner
3. Name of Internal
Examiner
4. HOD Dr. Preeti Dwivedi
5. Director /
Principal

ii
 VINDHYA INSTITUTE OF MANAGEMENT &
RESEARCHSATNA (M.P.)

GUIDE’SCERTIFICATE
This is to certify that MOHAMMAD BASIT has satisfactorily completed the
Project work on “A STUDY ON INSTABILITY IN INDIAN STOCK MARKET”
under my guidance for the partial fulfillment of MBA submitted to Awadhesh

Pratap Singh University, Rewa during the academic year 2023-24

To best of my knowledge and belief the matter presented by him is original work

and not copied from any source. Also this report has not been submitted earlier for

the award of any Degree of Awadhesh Pratap Singh University, Rewa.

Place:Satna PROF.DR.SNEHASINGH
Date:/ / /24 (Project Guide)

iii
 VINDHYAINSTITUTEOFMANAGEMENT&RESEARCH,
SATNA (M.P.)
2023-24

DECLARATION

I undersigned, hereby declare that this project report entitled “A

STUDY ON INSTABILITY IN INDIAN STOCK MARKET”
prescribed by AWADHESH PRATAP SINGH UNIVERSITY, REWA
during the academic year 2023-24 under the guidance of
DR.SNEHA SINGH PARIHAR is my original work.

The matter presented in this report has not been copied from any
source. I understand that any such copying is liable to be punishable
in any way the university authorities deem to befit. Also this report
has not been submitted earlier for the award of any Degree or
Diploma of Awadhesh Pratap Singh University, Rewa or any other
University.

This work humbly submitted to Awadhesh Pratap Singh University

for the partial fulfillment of Master of Business Administration.

MOHAMMADBASIT
PLACE:SATNA
DATE: / / 2024

iv
 VINDHYA INSTITUTE OF MANAGEMENT & RESEARCH
SATNA (M.P.)

ACKNOWLEDGEMENT

Whenever we are standing on most difficult step of the dream of our life, we
often remind about The Great God for His blessings & kind help and he always
helps us in tracking off the problems by some means in our lifetime. I feel great
pleasure to present this project entitled “A STUDY ON INSTABILITY IN INDIAN
STOCK MARKET”
I am very thankful to my mentor Mr. Neeraj Kumar Relationship Manager
of Motilal Oswal Financial Services Limited Indore, forgiving his kind support in
my learning skills, I would like to say Thanks to HONEY JAIN, Customer Support
Executive of Motilal Oswal Financial Services Limited for her support.
I am grateful to those people who help me a lot in preparation of this project
report. It is their support and blessings, which has brought me to write this project
report. I have a deep sense of gratitude in my heart for them.
I am very thankful to my project guide Prof. DR. SNEHA SINGH for his
wholehearted support and affectionate encouragement without which my
successful project would not have been possible.
Finally, I am very grateful to Mighty God and inspiring parents whose
loving & caring support contributed a major share in completion of my task.

MOHAMMAD BASIT

v
TRAINING CERTIFICATE

vi
 TABLE OF CONTENTS

S.N. Contents Page No.

1 Introduction of Project

2 Review of Literature

3 Objectives

4 Research Methodology

5 Data Analysis & Interpretation

6 Findings & Suggestions

7 Limitations

8 Conclusion

9 References

Annexure
10
Questionnaire

vii
 CHAPTER-I

INTRODUCTION OF PROJECT

1
INTRODUCTION:

Stock exchanges to some extent play an important role as indicators,

reflecting the performance of the country's economic state of health.
Stock market is a place where securities are bought and sold. It is
exposed to a high degree of volatility; prices fluctuate within minutes
and are determined by the demand and supply of stocks at a given
time. Stockbrokers are the ones who buy and sell securities on behalf
of individuals and institutions for some commission.

The Securities and Exchange Board of India (SEBI) is the authorized

body, which regulates the operations of stock exchanges, banks and
other financial institutions. The past performances in the capital
markets especially the securities scam by Harshad Mehta has led to
tightening of the operations by SEBI. In addition the international
trading and investment exposure has made it imperative to better
operational efficiency. With the view to improve, discipline and
bring greater transparency in this sector, constant efforts are being
made and to a certain extent improvements have been made.

As the condition of capital markets are constantly improving, it has

started drawing attention of lot more people than before. On the
career related aspects, professionals have opportunities to choose
from for a wide range of jobs available in a number of organizations
in this sector and one can expect to have good times ahead of him.

The price of a stock, in the perception of Fundamentalists, is

anchored by the discounted value of future cash flows attributable to
stockholders. Any changes in either the cash flows or the discount
rate will affect the fundamentals of stocks. The economic theories
have suggested strong relationship between money supply and stock
price movements. King (1966) reported that stock market is
influenced by the macroeconomic factors to the extent of 50 percent
on an average. Flannery & Protopapadakis (2002) have concluded
2
these factors to be the most important factors influencing the stock
returns.
Monetarists’ argument suggests that the changes in money supply
affect the real interest rates in the economy, thereby affecting the
economic activities via its Transmission Mechanisms. An alteration
in the economic activities of the companies represented by their
stocks listed in the stock exchanges, will affect the future expected
cash flows to the stockholders. Thus, a positive relationship between
money supply and stock prices are expected. Further, a change in the
interest rate also affects the discounting process and thus, accentuates
this positive relationship. However, the real side impact of any
demonetization move will also depend upon the relative share of
connected and unconnected sectors of the economy (Waknis (2017)).

However, Selling (2001) argues that the present stance of the

monetary authorities reflects the future expectations about the
monetary policy. People perceive a positive shock in the money
supply as a precursor to the tightened monetary policy in future. The
current rate of interest goes up in anticipation, leading to a fall in the
discounted future cash flows and thus the stock prices.

Maskay (2007) empirically examined the relationship between

money supply and stock prices and also analyzed the impact of
unanticipated and anticipated changes in money supply on the US
stock market using quarterly data from 1959 to 2006.Using
regression analysis; the author found that both anticipated and
unanticipated changes in money supply are positively related with
stock prices. Furthermore, it was concluded that anticipated changes
in money supply matter more than the unanticipated changes in
money supply in order to determine stock prices.

Bjornland & Leitemo (2009) examined the interdependence between

US monetary policy and the S&P 500. Using Structural VAR
(SVAR) methodology with monthly data spanning from Jan. 1983 to
Dec. 2002, they proposed a solution to the problem of identifying
monetary and stock prices shocks with the combination of short term
and long term relationships. They found great interdependence
3
between the interne stratesetting and real stock prices. More
specifically, they have suggested that the monetary policy shock,
which raises federal fund rate by 100 basis points, leads to an
immediate fall on stock prices by 7-9 percent and stock price shock,
I.e. one percent increase in stock prices, results in a rise in the
interest rate by 4 basis point.

Raymond (2009) investigated the interrelationship between stock

prices and monetary variables namely, money supply, interest rate,
inflation rate and exchange rate for Jamaican economy with a sample
of monthly data from Jan. 1990 to Mar. 2009. Using Johansen’s Co-
integration and Granger Causality, he confirmed the existence of a
long term relationship. The study found a significant long term
relationship between the JSE Index and the monetary variables.
Furthermore, the study found only money supply to be a consistent
predictor of the stock prices.

Naik & Padhi (2012) investigated the relationships between the

Indian stock market index and macroeconomic variables during1994-
2011. They used Johansen’s Co-integration and Vector Error
Correction model on the monthly data to explore a long run
equilibrium relationship between the variables. The study found that
macroeconomic variables and stock market index were co-integrated.
Stock prices were positively related with the money supply and
industrial production; and negatively related with inflation. The study
also found bidirectional causality between industrial production and
stock prices and unidirectional causality from money supply to stock
prices, stock prices to inflation and interest rates to stock prices.

Patel (2012) analyzed the impact of macroeconomic determinants on

the Indian stock market performance using monthly data from Jan.
1991 to Dec. 2011. He studied eight variables, namely, interest rate,
inflation, exchange rate, index of industrial production, money
supply, gold price, silver price & oil price and two stock market
indices. Using Johansen’s Co-integration, granger causality and
vector error correction method, a long run relationship between
macroeconomic variables and stock market indices was established.
4
The study also found unidirectional causality from exchange rate to
stock market to IIP and Oil prices. He emphatically list money
supply as a major factor affecting the stock market, and urged
monetary authority to actively control money supply through the
operations of repo and reverse repo rates.

Nisha (2015) analyzed the monthly data of various macroeconomic

variables, including Index of Industrial Production, Consumer Price
Index, Money Supply, Interest Rates, Exchange Rates, Gold Price,
and MSCI World Index, from January 2000 till December 2015. The
author concludes that BSE Sensex returns is considerably influenced
by the MSCI World Index, interest rate, gold price, exchange rate
and money supply in order of the intensity of their influence.
Agrawalla (2006) also reports causality running from economic
growth to share price index, and not other way round, using monthly
data from November 1965 to October 2000 making stock markets a
demand driven and industry led indicator. While Tripathi & Seth
(2014) concludes that only exchange rate granger cause BSE Sensex,
among the set of variables including T-Bill rate, wholesale price
index, money supply, index of industrial production and crude oil
price, from a comparatively shorter dataset ranging fromJuly1997 to
June 2011. However, they did established a long-run relationship
between stock market performance and money supply with weaker
relationships in the later part of the data series.

In the month of November 2016, Indian economy has experienced an

economic jolt from the current central government, in the form of
sudden reduction in the currency in circulation. On the evening of8th
November, the Prime Minister of India, announcement that from
Mid-night, the currency notes of denomination Rs. 500 and Rs. 1000
will not remain legal tender, barring for certain emergent & vital
transactions. The current central government announced the
withdrawal of these High Denomination Currency Notes (HDCNs)
from Indian currency in circulation, in a move to curb black money
circulating in Indian economy, clamp down the counterfeit notes for
terror financing & other illegal activities, and curtail the shadow
economy.
5
The Indian economy had observed such instances of withdrawal of
currencies in 1946 as well as in 1978. However, the impact of such
previous attempts of demonetization on Indian stock market was
mixed, inter alia. The withdrawal of 1000 and 10,000 rupees’
currency notes in January 1946 was in the back drop of Second
World War, and the stock market reacted negatively to this move.
Whereas, the withdrawal of 1,000, 5,000 and 10,000rupees’ currency
notes in January 1978 was with the similar motives as with the
current move of demonetization. However, Indian stock markets
shown the signs of positivism at that time, by this populist moves of
the Janata Party coalition government.

Such moves of demonetization, among others, affects the portfolios

of investors by altering the short term rates of interest, as well as
medium to long term availability of funds spared for investment in
stocks. By the time replenishment of new currency takes place, the
portfolios of the investors have been altered in significant way. The
following chart shows the availability of currency with public in
Indian economy and the stock of Reserve Money.

RBImaintains the Database of Indian Economy for various variables

of interest to their policy decisions. This online database was used to
collect weekly data of implicit yields at the auctions of 91-Day
government of India Treasury Bills (TBILL), daily data of foreign
exchange spot rate of the Indian Rupee with US Dollar (EXRATE),
fortnightly data of stocks of money (M3) and weekly data of Reserve
Money & its components. Daily data of the broad based Index of
BSE constituting top 200 stocks listed on BSE (BSE200) and which
have reasonable liquidity in the market was taken from the website of
BSE and ProwessIQ Database.

The data so collected was of different frequency, the lowest being the
stocks of money supply which was available fortnightly. The parity
in the data frequency was enforced by converting higher frequency
data into fortnightly frequency. The daily data of BSE 200 Index as
well as INR/USD exchange rate data was averaged by simple mean
of the values falling in the corresponding fortnight for which money
6
Supply data was available i.e. 12th January, 2001 – 17th February,
2017. Similarly, the daily data of T-Bill rate was averaged by taking
geometric mean of the principal amount values falling in the
corresponding fortnight used earlier. The following table shows the
descriptive statistics of the dataset in common frequency.

INDIANCAPITALMARKETOVERVIEW

Evolution
Indian Stock Markets are one of the oldest in Asia. Its history dates
back to nearly 200 years ago. The earliest records of security
dealings in India are meager and obscure. The East India Company
was the dominant institution in those days and business in its loan
securities used to be transacted towards the close of the eighteenth
century.

Thus, at present, there are totally twenty-one recognized stock

exchanges in India excluding the Over the Counter Exchange of
India Limited (OTCEI) and the National Stock Exchange of India
Limited (NSEIL).

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges is limited to listed securities of

public limited companies. They are broadly divided into two

7
categories, namely, specified securities (forward list) and non-
Specified securities (cash list). Equity shares of dividend paying,
growth-orientedcompanieswithapaid-upcapitalofatleastRs.50
million and a market capitalization of at least Rs.100 million and
having more than 20,000 shareholders are, normally, put in the
specified group and the balance in no specified group.

Two types of transactions can be carried out on the Indian stock

exchanges: (a) spot delivery transactions "for delivery and payment
within the time or on the date stipulated when entering into the
contract which shall not be more than 14 days following the date of
the contract”: and (b) forward transactions "delivery and payment
can be extended by further period of 14 days each so that the overall
period does not exceed 90 days from the date of the contract". The
latter is permitted only in the case of specified shares. The brokers
who carry over the outstanding pay carry over charges (can tango or
backwardation), which are usually determined by the rates of interest
prevailing A member broker in an Indian stock exchange can act as
an agent,buy and sell securities for his clients on a commission basis
and also can act as a trader or dealer as a principal, buy and sell
securities on his own account and risk, in contrast with the practice
prevailing on New York and London Stock Exchanges, where a
member can act as a jobber or a broker only.

8
Thenatureoftradingon IndianStockExchangesarethatofageold
conventionalstyleofface-to-facetradingwithbidsandoffersbeing
madebyopenoutcry.However,thereisagreatamountofeffortto
modernize the Indian stock exchanges in the very recent times.

OverTheCounterExchangeofIndia(OTCEI)

The traditional trading mechanism prevailed in the Indian stock

marketsgavewaytomanyfunctionalinefficiencies,suchas,absence
ofliquidity, lack oftransparency, undulylongsettlement periodsand
benami transactions, which affected the small investors to a great
extent. To provide improved services to investors, the country's first
ringless,scrip less,electronicstock exchange -OTCEI-wascreated in
1992 by country's premier financial institutions - Unit Trust of India,
Industrial Credit and Investment Corporation of India, Industrial
Development Bank of India, SBI Capital Markets, Industrial Finance
Corporation of India, General Insurance Corporation and its
subsidiaries and Can Bank Financial Services.

NationalStockExchange(NSE)

With the liberalization of the Indian economy, it was found

inevitable to lift the Indian stock market trading system on par with
the international standards. On the basis of the recommendations of

9
high-poweredPherwaniCommittee,IndustrialDevelopmentBankof
India, Industrial Credit and Investment Corporation of India,
Industrial Finance
Corporation of India, all Insurance Corporations, selected
commercialbanksandothersincorporatedtheNationalStock Exchange
in 1992.

BombayStockExchange(BSE)–Sensex

For the premier Stock Exchange that pioneered the stock broking
activity in India, 128 years of experience seems to be a proud
milestone. A lot has changed since 1875 when 318 persons became
membersofwhattodayiscalled"TheStockExchange,Mumbai"by paying
a princely amount of Re1.

Since then, the country's capital markets have passed through both
good andbadperiods.Thejourneyinthe20th centuryhasnotbeen an
easy one. Till the decade of eighties, there was no scale to measure
the ups and downs in the Indian stock market. The Stock
Exchange,Mumbai(BSE)in1986cameoutwith astockindexthat
subsequently became the barometer of the Indian stock market.

SENSEX is not only scientifically designed but also based on

10
globally accepted construction and review methodology. First
compiled in 1986, SENSEX is a basket of 30 constituent stocks
representing a sample of large, liquid and representative companies.
ThebaseyearofSENSEXis1978-79andthebasevalueis100.The
indexiswidelyreportedinbothdomesticandinternationalmarkets through
print as well as electronic media.

The Index was initially calculated based on the "Full Market

Capitalization" methodology but was shifted to the free-float
methodology with effect from September 1, 2003. The "Free-float
Market Capitalization" methodology of index construction is
regarded as an industry best practice globally. All major index
providerslikeMSCI,FTSE,STOXX, S&PandDowJonesusethe
Free-float methodology.

DuetoiswideacceptanceamongsttheIndianinvestors;SENSEXis
regarded to be the pulse of the Indian stock market. As the oldest
index in the country, it provides the time series data over a fairly
long period of time (From 1979 onwards). Small wonder, the
SENSEX has over the years become one of the most prominent
brands in the country.

The growth of equity markets in India has been phenomenal in the

decadegoneby.Right fromearlyninetiesthestockmarketwitnessed
heightened activity in terms of various bull and bear runs. The
11
SENSEX captured all these events in the most judicial manner. One
can identify the booms and busts of the Indian stock market through
SENSEX.

12
 CHAPTER – II

REVIEW OF LITERATURE

Review of Literature:-

Gupta (1972) in his book has studied the working of stock exchanges
in India and has given a number of suggestions to improve its
working. The study highlights the' need to regulate the volume of
speculation so as to serve the needs of liquidity and price continuity.
It suggests the enlistment of corporate securities in more than one
stock exchange at the same time to improve liquidity. The study also
wishes the cost of issues to be low, in order to protectsmall investors.

Panda (1980) has studied the role of stock exchanges in India before
and after independence. The study reveals that listed stocks covered
four-fifths of the joint stock sector companies. Investment in
securities was no longer the monopoly of any particular class or of a
small group of people. It attracted the attention of a large number of
small and middle class individuals. It was observed that a large
proportion of savings went in the first instance into purchase of
securities already issued.

Gupta (1981) in an extensive study titled `Return on New Equity

Issues' states that theinvestment performance of newissues of equity
shares, especially those of new companies, deserves separate
analysis. The factor significantly influencing the rate of returnon
newissues to the originalbuyers is the `fixed price' at which theyare
issued. The return on equities includes dividends and capital
appreciation. This study presents sound estimates of rates of returnon
equities, and examines the variabilityof such returns over time.

Jawahar Lal (1992) presents a profile of Indian investors and

13
evaluates their investment decisions. He made an effort to studytheir
familiaritywith, and comprehensionof financialinformation, and the
extent to which thisisput to use. Theinformation that the companies
provide generally fails to meet the needs of a variety of individual
investors and there is a general impression that thecompany'sAnnual
Report and other statements are not well received bythem.
L.C.Gupta (1992) revealed the findings of his study that there is
existence of wild speculation in the Indian stock market. The over
speculative character of the Indian stock market is reflected in
extremely high concentration of the market activity in a handful of
shares to the neglect of the remaining shares and absolutely high
trading velocities of the speculative counters. He opined that, short-
term speculation, if excessive, could lead to "artificial price". An
artificial price is one which is not justified by prospective earnings,
dividends, financial strength and assets or which is brought about by
speculators through rumours, manipulations, etc. He concluded that
such artificial prices are bound to crash sometime or other as history
has repeated and proved.

Nabhi Kumar Jain (1992) specified certain tips for buying shares for
holding and also for selling shares. He advised the investors to buy
shares of a growing company of a growing industry. Buy shares by
diversifying in a number of growth companies operating in different
but equally fast growing sector of the economy. He suggested selling
the shares the moment company has or almost reached the peak of its
growth. Also, sell the shares the moment you realise you have made
a mistake in the initial selection of the shares. The only option to
decide when to buy and sell high priced shares is to identifythe
individual merit or demerit of each of the shares in the portfolio and
arrive at a decision.

Pyare Lal Singh (1993) in the study titled, Indian Capital Market - A
Functional Analysis, depicts the primary market asaperennial source
of supply of funds. It mobilises the savings from the different sectors
of the economy like households, public and private corporate sectors.
The number of investors increased from 20 lakhs in 1980 to 150

14
lakhsin1990 (7. 5 times). In financing oftheproject costsof the
companies with different sources of financing,thecontribution of the
securities has risen from 35.01% in 1981 to 52.94% in 1989. In the
total volume of the securities issued, the contribution of debentures /
bonds in recent years has increased significantly from 16. 21% to
30.14%.
Sunil Damodar (1993) evaluated the 'Derivatives' especially the
'futures' as a tool for short-term risk control. He opined that
derivatives have become an indispensable tool for finance managers
whose prime objective is to manage or reduce the risk inherent in
their portfolios. He disclosed that the over-riding feature of 'financial
futures' in risk management is that these instruments tend to be most
valuable when risk control is needed for a short- term, i.e., for a year
or less. They tend to be cheapest and easily available for protecting
against orbenefitingfromshort termprice. Theirlowexecution costs
also make them very suitable for frequent and short term trading to
manage risk, more effectively.

R.Venkataramani (l994) disclosed the uses and dangers of

derivatives. The derivative products can lead us to a dangerous
position if its full implications are not clearly understood. Being off
balance sheet in nature, more and more derivativeproductsare traded
than the cash market products and they suffer heavily due to their
sensitive nature. He brought to the notice of the investors the 'Over
the counter product' (OTC) which are traded acrossthe counters of a
bank. OTC products (e.g. Options andfutures)are tailor made for the
particular need of a customer and serve as a perfect hedge. He
emphasised the use of futures as an instrument of hedge, for it is of
low cost.

Amanulla & Kamaiah (1995) conducted a study to examine the

Indian stock market efficiency by using Ravallion co integration and
error correction market integration approaches. The data used are the
RBI monthly aggregate share indices relating five regional stock
exchanges in India, viz Bombay, Calcutta, Madras, Delhi,
Ahmedabad during 1980-1983. According to the authors, the co

15
integration results exhibited a long-run equilibrium relation between
the price indices of five stock exchanges and error correction models
indicated short run deviation between the five regional stock
exchanges. The study found that there is no evidence in favour of
market efficiency of Bombay, Madras, and Calcutta stock exchanges
while contrary evidence is found in case of Delhi and Ahmedabad.
Pattabhi Ram.V. (1995) emphasised the need for doing fundamental
analysis and doing Equity Research (ER) before selecting shares for
investment. He opined that the investor should look for value with a
margin of safety in relation to price. The margin of safety is the gap
between price and value. He revealed that the Indian stock market is
an inefficient market because of the absence of good communication
network, rampant price rigging, and the absence of free and
instantaneous flow of information, professional broking andso on. He
concluded that in such inefficient market, equity research will
produce better results as there will be frequent mismatch between
price and value that provides opportunities to the long-term value
oriented investor. He added that in the Indian stock market
investment returns would improve only through quality equity
research.

Karajazyk (1995) investigated one measure of financial integration

between equity markets. He used a multifactor equilibrium Arbitrage
pricing theory to define risk and to measure deviations fromthe “Law
of one price”. He applied the integration measure to equities traded in
24 countries (four developed and 20 emerging). He found that the
measure of market segmentation tends to be much larger for
emerging markets than for developed markets, which flows into or
out of the emerging markets. The measure tends to decrease over
time, which is consistent with growing levels of integration. Large
values of adjusted mis-pricing occur around periods in which capital
controls change significantly. Finally, he found asymmetric
integration relationship; stock markets of developed nationsaremore
integrated than those of emerging nations.

16
Debjit Chakraborty (1997) in his study attempts to establish a
relationship between major economic indicators and stock market
behaviour. It also analyses the stock market reactions to changes in
the economic climate. The factors considered are inflation, money
supply, and growth in GDP, fiscal deficit and credit deposit ratio. To
find thetrend inthestock markets, theBSE National Index of Equity
Prices (Natex) which comprises 100 companies was taken as the
index. The study shows that stock market movements are largely
influenced by, broad money supply, inflation, C/D ratio and fiscal
deficit apart from political stability.

Redel (1997) concentrated on the capital market integration in

developing Asia during the period 1970 to 1994 taking into variables
such asnet capital flows, FDI, portfolio equityflows andbond flows.
He observed that capital market integration in Asian developing
countries in the 1990‟s was a consequence of broad-based economic
reforms, especially in the trade and financial sectors, which is the
critical reason for economic crises which followed the increased
capital market integration in the 1970s in many countries will not be
repeated in the 1990s. He concluded that deepening and
strengthening the process of economic liberalization in the Asian
developing countries is essential for minimizing the risks and
maximizing the benefits from increased international capital market
integration.

Avijit Banerjee (1998) reviewed Fundamental Analysis and

Technical Analysis to analyse the worthiness of the individual
securities needed to be acquired for portfolio construction. The
Fundamental Analysis aims to compare the IntrinsicValue (I.V.) with
the prevailing market price (M.P) and to take decisions whether to
buy, sell or hold the investments. The fundamentals of the economy,
industry and company determine the value of a security. If the 1.V is
greater than the M.P., the stock is under priced and should be
purchased. He observed that the Fundamental Analysis could never
forecast the M.P. of a stock at any particular point of time. Technical
Analysis removes this weakness. Technical Analysis detects the most
appropriate time to buy or sell the stock. It aims to avoid the pitfalls
17
of wrong timing in the investment decisions. He also stated that the
modern portfolio literature suggests 'beta' value p as the most
acceptable measure of risk of scrip. The securitieshaving low P
should be selected for constructing a portfolio in order to minimise
the risks.
Madhusudan (1998) found that BSE sensitivity and national indices
didnotfollowrandom walk byusingcorrelation analysis on monthly
stock returns data over the period January 1981 to December 1992.

Arun Jethmalani (1999) reviewed the existence and measurement of

risk involved in investing in corporate securities of shares and
debentures. He commended that risk is usually determined, based on
the likely variance of returns. It is more difficult to compare 80 risks
within the same class of investments. He is of the opinion that the
investors accept the risk measurement made by the credit rating
agencies, but it was questioned after the Asian crisis. Historically,
stocks have been considered the most risky of financial instruments.
Herevealed thatthestockshavealways outperformed bonds over the
long term. He also commented on the 'diversification theory'
concluding that holding a small number of non-correlated stocks can
provide adequate risk reduction. A debt-oriented portfoliomay reduce
short term uncertainty, but will definitely reduce long-term returns.
He argued that the 'safe debt related investments'would never make
an investor rich. He also revealed that too many diversifications tend
to reduce the chances of big gains, while doing little to reduce risk.
Equity investing is risky, if the money will be needed a few months
down the line. He concluded his article by commenting that risk is
not measurable or quantifiable. But risk is calculated on the basis of
historic volatility. Returns are proportional to the risks, and
investments should be based on the investors' ability to bear the risks,
he advised.

Suresh G Lalwani (1999) emphasised the need for risk management

in thesecuritiesmarket with particular emphasis on thepricerisk.He
commented that the securities market is a 'vicious animal' and thereis
more than a fair chance that far fromimproving, the situation could
deteriorate.
18
Bhanu Pant and Dr. T.R.Bishnoy (2001) analyzed the behaviour of
the daily and weekly returns of five Indian stock market indices for
random walk during April 1996 to June 2001.They found that Indian
Stock Market Indices did not follow random walk.
Nath and Verma (2003) examine the interdependence of the three
major stock markets in south Asia stock market indices namely India
(NSE-Nifty) Taiwan (Taiex) and Singapore (STI) by employing
bivariate and multivariate co integration analysis to model the
linkages among the stock markets, No co -integration was found for
the entire period (daily data from January 1994 to November
2002).They concluded that there is no long run equilibrium.

Debjiban Mukherjee (2007) made a comparative Analysis of Indian

stock market with International markets. His study covers New York
Stock Exchange (NYSE), Hong Kong Stock exchange (HSE), Tokyo
Stock exchange (TSE), Russian Stock exchange (RSE),Korean Stock
exchange (KSE) from various socio- politico-economic backgrounds.
Both the Bombay Stock exchange (BSE) and the National Stock
Exchange of Indian Limited (NSE) have been used in the studyasa
part of Indian Stock Market. Themain objective of this study is to
capture the trends, similarities and patternsinthe activities and
movements of the Indian Stock Market in comparison to its
international counterparts. The time period has been divided into
various eras to test the correlation between thevarious exchanges to
prove that the Indian markets have become more integrated with its
global counterparts and its reaction are in tandem with that are seen
globally. The various stock exchanges have been compared on the
basis of Market Capitalization, number of listed securities, listing
agreements, circuit filters, and settlement. It can safely be said that
the markets do react to global cues and any happening in the global
scenario be it macroeconomic or country specific (foreign trade
channel) affect the various markets.

19
 CHAPTER-IV
OBJECTIVES OF THE STUDY

Objectives:-

Every study based on some clearly defined objectives. Objectives

20
 decide the all over framework of any study. The main objective of
this study is to capture the trends, activities and movements of the
Indian Stock Market. The present study “ based on following
objectives:-

To Study the various aspect of Indian Stock Market in detail.

 To find out the views of different researcher and author in

relation to Indian StockMarket.

 To know the past and current movements in Indian Stock

Market

 ToknowthefutureprospectsofIndianstockmarket.

 To help the investors (current andpotential) tounderstand the

impact of importanthappenings on the Indian Stock
exchange.

 

21
 CHAPTER-IV
OBJECTIVES OF THE STUDY

CHAPTER III
RESEARCH METHODOLOGY

 

22
RESEARCH METHODOLOGY:
This research study examine the the case study of the securities and
exchange board of India [SEBI] with special reference to the capital
market reformation. The research design is based on the collection of
the primary and secondary data. As far as the collection of data and
use of techniques are concerned, the data will be gathered by the
secondary sources. The secondary data and research area will be
based on documentary sources, personal sources and library sources.
Data collected from official sources, National newspapers, SEBI,
publications will be included in the documentary sources. Data
collected from professionalpersonsinthefield and theinvestorswho
have knowledge and insight into the data desired will be covered
under personal resources. Lastly major publications like: - annual
reports, pamphlets, brochures, magazines and concerned published
material will work as a main reservoir of the library sources. Oncethe
objectives are defined clearly different techniques and methods are
adopted to achieve them. The step is calledresearch methodology.
Research methodology describes the research procedure. Research
Methodology play a very important role in any research work by
which can systematically solve the research problems. The Research
Methodology can be divided into two types. (Analysis of Data )

RELIABILITYSTATISTICS

To bring in the validity and reliability in the presentarduous exercise,

more and more information’s have been collected and later on
incorporated in the studyto make the research more workable and
authoritative.
SAMPLEMETHOD

Though thesecurities and exchangeboard of India was set up1988it

was given statutory status on 30.1.92 by promulgation of SEBI
ordinance which has since become an act of parliament. Thuspresent
study covers the period from1991-92 to 2005-08. This period has
23
been the most crucial period in the reformation of the Indian capital
market. Further, it may be stated at the very outset that the capital
reforms isa veryvast field for studywhich hastobebased on a large
volume of fast changing data in a realistic manner whenever the data
and other information have been available, they have been
incorporated up to 31 march 2006 and most of the places we tried to
take data upto 2008 to make the study up to date authoritative,
comprehensive and analytical.

TOOLSANDTECHNIQUESUSEDFORANALYSIS:

several methods will be adopted for analyzing the relevant data and
drawing some valuable results. for the purpose of analyzing the data,
appropriate statistical techniques are used in consultation with the
research supervisor. the analysis part of the present thesis will be
made by using the various parametric and non-parametric statistical
tests namely, percentage analysis, correlation analysis, and
comparative analysis

24
 CHAPTER-V

DATA ANALYSIS & INTERPRETATION

25
Data Analysis & Interpretation:-

STOCKMARKETANALYSIS

In this stock market analysis, Ihave taken data of Sensex and Nifty
for the period of 6 months from July 2006 to December 2006 After
takingintoconsiderationdata ofstockmarket,Icompared Niftywith
Sensex through graphical presentation and also did analysis of
fluctuations in stock market week wise.

ANALYSISOFSTOCKMARKETFLUCTUATIONSAND GLOBAL
MARKET

1 stweekendedon7thJuly2006

The market started July in negative fashion after having gained for
three consecutive weeks. The 30-share benchmark index lost 100
points amid volatile trade. Higher crude oil prices weighed on the
market sentiment and rumours that Prime Minister Manmohan Singh
may resign following a decision of not proceedingwith disinvestment
in state-run firms, leading to a sell off on Friday. The prime
minister’s office denied the rumour .
For the week ended Friday (7 July), the Sensex fell 100 points to
settle at 10,509.53 and the NSE Nifty lost 52.35 points, to close at
3,075.85.
The market started the week upbeat with the Sensexgaining 86 points
on Monday. On Tuesday, the Sensex witnessed some profit
bookingto lose 33points, while on Wednesdayit jumped 257 points.
On Thursday, it shed 152 points due to rising crude oil prices and
weakness in Asian markets. The Sensex fell sharplyby258 pointson
Friday.

FIIs resumed buyingthisweek and invested to thetuneofRs1,025.5

croreforthefirstthreedaysoftheweek.InJunetheyinvestedRs
479.50crore.
26
2 ndweekendedon14thJuly2006

The market edged higher on alternate bouts of buying and selling.

Asian markets dictated the trend on the domestic bourses for most
part of the week. On Wednesday, a strong Q1 showing by IT
bellwether Infosys Technologies helped the market shrug off the
impact of bomb blasts in Mumbai's local trains on Tuesday evening.

For the week ended Friday (14 July), the BSE Sensex jumped 169
points (1.6%), to settle at 10,678.22. The S&P CNX Nifty rose 47.5
points (1.5%), to settle at 3,123.35.

Trading for the week began on a firm note. The Sensex jumped 175
points on Monday (10 July) on the back of a recovery in Asian
markets, fall in crude oil price from a record high and a short-
covering in thederivatives segment after Friday(7 July)’s sharp 258-
point fall. Short-covering was witnessed in derivatives after a denial
by the Prime Minister’s Office (PMO), after trading hours on 7 July,
about rumours of Manmohan Singh's resignation.

The rumour had caused a sharp 258-point fall in the Sensex on7 July.
A section of the market had gone short in Nifty futures following the
rumour, in a bid to hedge their portfolio. On Tuesday 11 July, the
Sensex shed 70 points.

Software major Infosys Technologies rescued the market on

Wednesday (12 July), a day after a series of deadly bomb blasts
rocked the financial capital, Mumbai, on Tuesday evening. On the
back of strong Q1 results from the IT bellwether and its upward
revision of FY 2007 (year ending 31 March 2007) earnings and
revenueguidance, the30-shareBSESensexjumped316points on12
July.

27
 CHAPTER-VI
FINDINGS & SUGGESTIONS

28
FINDINGS & SUGGESTIONS

NCRD’s Sterling Institute of Management Studies

As most of investors are not clear with the investing decisions they
tend to take wrong investing decisions and finally they make huge loss.
Hence MOSL should come up with some strategy where they can give
free advice or seminar to their new customer so that they get trapped
into huge loss. MOSL can design such portfolio which can suit an
investor’s opinion.

29
 CHAPTER-VII
LIMITATIONS

Limitations:-

Sometimes, the market seems to react irrationally to economic

or financial news, even if that news is likely to have no real
effect on the fundamental value of securities itself. However,
this market behaviour may be more apparent than real, since
often such news was anticipated, and a counter reaction may
occur if the news is better (or worse)thanexpected. Therefore,
the stock market may be swayed in either direction by press
releases, rumors, euphoria and mass panic.

Over the short-term, stocks and other securities can be

battered or buoyed by any number of fast market-changing
events, making the stock market behavior difficult to predict.
Emotions can drive prices up and down, people are generally
not as rational as they think, and the reasons for buying and
selling are generally accepted.

Behavioristsarguethat investorsoftenbehave irrationally when

making investment decisions thereby incorrectly pricing
securities, which causes market inefficiencies, which, in turn,
are opportunities to make money. However, the whole notionof
EMH is that these non-rational reactions to information cancel
out, leaving the prices of stocks rationally determined.

30
 CHAPTER-VIII

Conclusion:-

This study tries to investigate the impact of recent move of

Demonetisation fortheinvestorsin Indian stocks. The studyemploys
Event Study methodology and Auto-Regressive Distributed Lag
(ARDL) models to visualise the impact of changes in money supply
for Indian stockholders. The results of event study, based on daily
data of BSE 200 stock index, reveals a 9 percent reduction in the
shareholders’ wealth during eight trading days immediately after the
announcement of the demonetisation. The market perceivedthemove
negatively. The study further utilises the fortnightly data of money
supply (M3), INR/USD exchange rate, 91 days Treasury Bill rate and
BSE 200 Index. This further analysis of the data using ARDL
regression reveals that the sudden change in themoney supply will
further pulls down stockholders’ wealth during intermediate term,
with fortnightly monetary elasticity of BSE200 Index being 0.09 i.e.
31
one percent fall in money stock will reduce the stock index value by
0.09 percent. In long-run, the elasticity of stock index with respect to
money stock is 1.9, thereby signifying an urge to replenish the money
supply in order not to reduce the availability of funds to invest in
stock market in the intermediate & long run. As the phenomenon of
Demonetisation is a short-run concept and does not signify a long-
run permanent reduction in money stock, the stock index will
eventually catch up with its long-run trajectory. The task before the
monetary authorities is to contain this revivalperiodwhich is
estimated to extend up to theend of the next fiscal 2017- 18 in the
event where no other measures, whether monetary or fiscal, is taken,
However, such monetary and fiscal measure are unavoidable, and
hence, such measures will contain the impact of demonetisation for
Indian stock investors within few months.

India has been witness to a four-year up and down cycle in the stock
markets. Since 1992, the Indian markets have peaked every fourth
year and then dropped 35-45% during the next three years. What is
surprisingthoughisthattheDalalStreethasbuckedthetrendthis
time around. Some of the major conclusions derived in the studyare
as under.

ƒ Declarationofany financialresultandotherinformationofthe
company has direct effect on its stock price.

ƒ Newsrelatedto any political andeconomical affair has alsothe

direct effect on stock market.

In short, the following hypothesis have been tested and proved

positive

ƒ Anyfluctuation in foreign market has more effect on Indian stock

market than that of domestic market.

In the given volatile economic conditions, the market is efficient

toany news and information.

32
AttheenditisconcludedthatfollowingareMajorfactors,which have
generally contributed to fall & rise in SENSEX & NIFTY:

1. Useconomicgrowth
2. Crudeoilprices
3. Emergingmarketvaluations
4. Foreigndirectinvestment(FDI)
5. Capitalspending
6. Equitysupply
7. Governmentpolicytowardforeignfirms
8. Politics
9. Domesticrisk
10. Foreigninstitutionalinvestors(FII)withdrawals
11. USFedinterestrates
12. Indianindustrygrowth
13. Budget2006-07andfinancebill
14. TaxcircularregardingtransactiontaxtoFII.

33
 CHAPTER-IX

REFERENCES

viii
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