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STOCK MARKET VOLATILITY AND ITS

IMPACT ON ECONOMY

(Submitted in partial fulfillment of the requirements for PGDM)

BY

SHUBHAM SHUKLA

DM1214181

BATCH OF 2012-14

ACCURATE INSTITUTE OF MANAGEMENT & TECHNOLOGY, PLOT NO 49,

Knowledge Park 3, GREATER NOIDA-201306 (UP)

August 2013

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TO WHOM IT MAY CONCERN

This is to certify that Mr. Shubham Shukla student of PGDM of Accurate Institute of

Management & Technology , Greater Noida, has undertaken the project titled

STOCK MARKET VOLATILITY AND ITS IMPACT ON INDIAN ECONOMY at Axis

Capital from 10th june to 10th of August and has completed the project

successfully.

I wish him a success in all his future career endeavors.

Industry Guide

Name: Varun Kumar

Designation: H.R & T.L

Organizations Seal

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___________________

Signature with Date


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1 CERTIFICATE OF ORIGINALITY

2

34 I Roll No of 2013,is a fulltime bonafide

student of first year of PGDM Program of Accurate Institute of Management &Technology, Greater Noida. I hereby certify that this project work carried out by me atAxis Capital the report submitted in partial fulfillment of the requirements of the programis an original work of mine under the guidance of the industry mentor andthe faculty mentor s and is not based or reproduced from any

existing work of any other person or on any earlier work undertaken at any other time orfor any other purpose, and has not been submitted anywhere else at any time

56789 (Student's Signature)10 Date: August, 2013

1112

131415 (Faculty Mentor's Signature)16 Date: August, 2013

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ACKNOWLEDGEMENT

I express my sincere respect to Varun Kumar H.R and Team Leader of Axis Capital

Dematerialized Account department , for his valuable guidance , suggestion and encouragement

for fulfillment of my project.

I would like to express my gratitude to Accurate Institute Management & Technolpgy, for

providing me this opportunity where I could learn and experience a lot of things that will benefit

me in the future.

I would like to thank my respected faculty guide, Prof. Pradeep Verma for providing me the

opportunity to prepare a report which has helped me in developing my Knowledge and for his

kind guidance and constant support while developing the report without whose guidance the

report would not have taken the shape.

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Executive Summary

With globalization, India has been coming in contact with other economies and all economies

when come together; they are called as global market. Not only one economy gets benefit of the

opportunities that it may foresee but also get affected when there are changes in other economy.

There are variations in the Indian economy as well which is due to various factors such as sub

prime lending, FII taking their money back to their countries, change in inflation rate etc. Due to

such factors, the prices of the stocks have been fluctuating and as a result there are too many

fluctuations or variations in Indian stock market.

Wide price fluctuations are a daily occurrence on worlds stock markets as investors react to

economy, business and political events. Of late, the markets have been showing extremely erratic

movements, which are in no way tandem to the information being fed to the markets. This chaos

prevails in the markets with investor optimism at unexpected levels and they have been losing

their money due to this. Irrational exuberance has substituted financial prudence. The stock

market was at 21000 mark and has crashed down to 9000 mark in recent times and is still

struggling to manage and find the stabilizing hold. This has affected the Indian economy as well

and various sectors have been badly hit and the demand for goods and services has reduced.

The project firstly involves the introduction of Indian economy, stock market and its variations.

Then it is followed by the market research in order to find out whether there is any impact of

such variations on the Indian economy. The research is conducted in order to find out the

sentiments of investors based on the demographic pattern as well as their habit change of

investors. The analysis is done on the basis of the data collected and suggestions are made

thereof.

This will help not only in understanding the movement of stock market but also help in finding

to what extent has the Indian economy been affected and what policies have been implemented

by the government and the central bank of India, RBI to stabilize the economy. And what should

be done in the hour of crisis so as to revive back from the current situation. It will help not only

the investors but the market regulators as well to make the markets more efficient.

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CONTENTS

S.No. Chapter Name Page No.

1 Introduction 7

2 Literature Review 16

3 Research Methodology 19

4 Data Findings & Analysis 22

5 Suggestions & Conclusion 62

References 67

Annexure 68

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INTRODUCTION

Introduction

There was a time when India was treated as the land of snake charmers, black magic and

epidemics but the revolutionary Indian growth story changed everything. Indian economy at its

height compelled the world to change its viewpoint towards India. Now India is considered to be

one of the strongest economies not only in Asia but around the world too. Its GDP has been

growing on a steady rate. All the sectors, be it manufacturing or industrial sectors have been

doing a great job. The exports of our country have risen phenomenally. Out of the several factors

which changed the face of modern India; we are going to discuss the most thriving of them i.e.

our share market. The earlier reform procedures adopted by India gave India the two most sought

after world-class brands i.e. SENSEX and NIFTY. So to analyze the saga of Indian share market,

we had two indices to follow: BSE sensex and NSE nifty and we call BSE sensex as the

barometer of our economy. Thats why we have followed the BSE sensex. The magical figures

displayed by our market turned all the heads on India. And India became one of the most favored

places for investment.

Indian economy is increasingly exposed to global markets post liberalization in early 90s. As a

result we have seen large fund inflows into Indian market from across the world. Most of these

foreign funds are large momentum players and their activity in the market results in large

volatility in stock markets. Investment decisions of these funds are driven and depend on the

development in foreign markets, or their own local markets. As a result, we are seeing our

markets are getting more and more integrated with movement in global, especially American,

stock markets. Market analysts track these global events and global market movements very

closely. So the volatility in US and other economies have badly affected our economy.

In the current scenario, we are dealing with the ups and downs in the share market. It has

trembled down tremendously which was really not expected. We saw the investors getting

overjoyed at 21000 and we saw them crying too when it crashed. They have lost all their money

and are running into losses. We saw how the market rewarded the undervalued shares and how

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the overvalued shares fell down to demonstrate the saying everything which rise more than

expected, has to fall. Now the stock market is hovering around 9000 and all the sectors of our

economy are suffering specially the manufacturing and financial sector and exports have fallen

down. Moreover the stock prices of all the companies have fallen down.

The project is aimed at understanding the stock market and its functioning in a descriptive

manner. Since there is a global financial crisis, there variations or we can say there is volatility in

the stock market and the money of the investors at large is at risk. It really makes it imperative to

find out the reasons as to why there is volatility i.e. what really affects the stock market and what

are the factors which can help the stock market stabilize.

In the project, we will understand Indian economy, stock market, its variations and its

aftereffects. We will not only understand about the stock market but will also find out its trend

for over a period of 3 years to find out what changes have occurred and what have been the

repercussions of the volatility of the stock market. Also, we will try to find out whether the

Indian economy is affected by the stock market volatility and what its effect on the economy is.

The main objective is to understand about stock market and its trend so as to ascertain what

effects that imposes on the Indian economy and by what extent.

Stock Market

A stock market, or equity market, is a private or public market for the trading of company stock

and derivatives at an agreed price; these are securities listed on a stock exchange as well as those

only traded privately. The world derivative market size in 2013 $1.2 quadrillion is the so-

called notional value of the worldwide derivatives market. To put that in

perspective, the worlds annual gross domestic product is between $50 trillion and

$60 trillion Participants in the stock market range from small individual stock investors to large

hedge fund traders, who can be based anywhere. Their orders usually end up with a professional

at a stock exchange, who executes the order. The purpose of a stock exchange is to facilitate the

exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real).

The exchanges provide real-time trading information on the listed securities, facilitating price

discovery.

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The stock market is one of the most important sources for companies to raise money. This allows

businesses to be publicly traded, or raise additional capital for expansion by selling shares of

ownership of the company in a public market. The liquidity that an exchange provides affords

investors the ability to quickly and easily sell securities. The stock market is often considered the

primary indicator of a country's economic strength and development. Exchanges also act as the

clearinghouse for each transaction, meaning that they collect and deliver the shares, and

guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or

seller that the counterparty could default on the transaction. The smooth functioning of all these

activities facilitates economic growth in that lower costs and enterprise risks promote the

production of goods and services as well as employment. In this way the financial system

contributes to increased prosperity.

Stock prices fluctuate widely, in contrast to the stability of (government insured) bank deposits

or bonds which makes an individual to possess an ability to manage to risks associated. This is

something that could affect not only the individual investor or household, but also the economy

on a large scale. Therefore, the risk and return factor holds a key point in ones decision for

investment in the stock market.

Success factors, challenges and opportunities in each market:

It has also become apparent that each exchange has experienced a unique mixture of success

factors and challenges, and faces different opportunities for future growth:

Educational emphasis: The education of market participants has been a critical ingredient

powering an exchange's growth trajectory. As the senior personnel of one participating exchange

have stated, it is important to take a "free of charge, anywhere at any time" approach. Education

is key not just to increasing usage from a wider range of participants, but is also important in

ensuring the sustainability of increased participation through responsible user behavior grounded

in a thorough understanding of how the markets can work for mutual gain to hedgers, speculators

and arbitrageurs alike.

Infrastructural challenge: There is a contrast between those markets which have developed in

situations where good physical infrastructure is in place and those which have operated in sub-

optimal conditions (India in particular). In the case of the latter, but also even to a certain extent

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in the former, the exchange has shown itself to be a catalyst for rapidly stimulating the condition

of the enabling infrastructure in which the market functions.

Political environment: The political-regulatory environment in which an exchange operates has

a large bearing on the range of impacts that it can offer. The government has an important

enabling role to play, through the regulatory framework, the wider legal-economic environment

and the physical infrastructure. Government can further boost the markets by directly using them

for its own agricultural policy interventions or being committed to upholding the integrity of the

exchange pricing mechanism Government can also impose a tight set of political and regulatory

restrictions which constrain an exchange's potential scope for impact. Whilst this may be

necessary and beneficial, it may also on occasion yield sub-optimal or even adverse

consequences for an exchange looking to increase its utility to the underlying commodity sector.

Indian stock market

Indian stock market is a marketplace like other stock markets where the securities can be

exchanged between the buyers and sellers. It is a volatile market where the shares of the

companies are subjected to changes at any point of time. The major stock indices used in the

Indian Stock Market Analysis are NSE S&P CNX Nifty 50 index, BSE SENSEX, and others.

From an analysis of the share market of India, investors and traders can decide whether the

market is a Bull Market or a Bear Market before investing on the shares of their desired

companies.

There are about 22 stock exchanges in India which regulates the market trends of different

stocks. Generally the bigger companies are listed with the NSE and the BSE, but there is the

OTCEI or the Over the Counter Exchange of India, which lists the medium and small sized

companies. There is the SEBI or the Securities and Exchange Board of India which supervises

the functioning of the stock markets in India.

Other than some restricted industries, foreign investment in general enjoys a majority share in

the Indian stock market. Foreign Institutional Investors (FII) need to register themselves with the

SEBI and the RBI for operating in stock exchanges of India. In the Asset Management

Companies and Merchant Banking Companies also foreign investments are welcomed. In fact

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from the Indian Stock Market Analysis it is known that in some specific industries foreigners can

have even 100% shares.

They can invest in Euro issues of the Indian companies and also in the Indian funds that is

floated abroad. In the last few years with the facility of the Online Stock Market Trading in

India, it has been very convenient for the FIIs to trade in the Indian stock market. Reliance

Money, Geojit, Sharekhan, Kotak Securities, ICICI Direct are some of them. From an Indian

Stock Market Analysis it can be said that the increase in the foreign investments over the years

no doubt have accentuated the dynamism of the Indian stock market. Indian Stock Market

Analysis is about the correct measurement of the trends of various stocks of the leading

companies topping the BSE and NSE stock charts. The Indian Stock Market Analysis reports the

most heavyweight company to be the Reliance Industries, followed by, the IT majors like Wipro,

Infosys Technologies, Tata Consultancy Services etc.

In India, market efficiency has an influence on the investment strategy of an investor because if

market is efficient, trying to pickup winners will be a waste of time. In an efficient market there

will be no undervalued securities offering higher than deserved expected returns, given their risk.

On the other hand if markets are not efficient, excess returns can be made by correctly picking

the winners.

Monthly turnover at BSE

This shows that the people associated with the stock market like investors, brokers etc earn good

amount provided the market is going good in the upward direction. It can be seen that in both

BSE and NSE the income keeps fluctuating but there are chances of making profits as well.

Stock Market Variations

Variations is an inherent part of stock market investing which indicates there are wide

fluctuations in the market and investors need to keep in mind that market gyrations tend to be

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more pronounced over the short term. Increased or variations over the near term could be due to

a plethora of factors liquidity, earnings expectations, speculation, etc.

A stock market variation is an important concept for understanding the investors' responsiveness,

and thereby it facilitates to work on investment strategy. If it is not considered while taking

investment decisions, it may prove fatal for the investors as they may loose all their savings and

run into losses.

The stock market variations and volatility in the market reached nauseating levels in 2012. As it

is said that everything that goes up eventually goes down -- especially in the stock market, where

investors throughout the world recently saw their portfolios suffer a major blow after registering

strong performances for several months. The appetite for risk that players in the market had

acquired in a risk-free environment wound up leading to indigestion because of uncertainties

created largely in the United States, China and Japan. It is believed that these shocks have given

investors a chance to take some profits after enjoying a period of continuous price increases.

They also contend that the recent plunge is merely a healthy correction, and that the market will

once again provide attractive opportunities. It is seen that the volatility and the change in the

market trend would be beneficial for the economy.

The background for the current global volatility and variations lies in the fact that a majority of

investors across the globe were hoping for a goldilocks economic scenario and this was

reflected in historically low volatility levels as measured by various indices. History is replete

with examples of such hubris leading to painful reality checks. As sub-prime mortgage problems

in the US and fears of a sharp unwinding of yen carry-trade came to the fore, investor sentiment

took a turn for the worse and global markets witnessed a synchronous sell off. While markets

have bounced back after the correction, it is too early to rule out further volatility.

The rise and fall of share prices depend on various market forces and the factors that affect stock

markets have increased significantly over the last one decade due to globalization and

technological advancements. Variations and volatility is treated as a synonym with risk.

Volatility is an important consideration while computing risk, and hence the returns expectation

from investments in the market. These are some market forces that directly or indirectly drive the

stock market variations.

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Global factors

A major factor that is driving market volatility globally over the last few months is the US sub-

prime crisis. Recently, the credit issues again triggered negative sentiments in the US market and

the fear percolated down to markets worldwide. According to analysts, there is a growing

concern that the depth of credit issues is still unknown and not quantified.

Many leading financial services companies in the US have revised their top line forecasts

downwards. There is a strong feeling in the market that the US economy will go through a

recession phase in 2012. Since the US is the largest economy in the world, people are not clear

about its impact on world economy and markets.

The US dollar is weakening against all major currencies in the world. Crude oil prices have

reached around USD 100 per barrel. This is another sentiment dampener in the global markets.

Domestic factors

Domestic markets have been the biggest out-performers as compared to other Asian markets.

Even during the recent fall in global markets - most foreign markets have already corrected by 10

to 15 percent from their peaks - the domestic markets were still quoting around their peak levels.

Foreign institutional investors (FII) have been net sellers in the last couple of weeks. Currently, it

looks like FIIs are sitting on huge profits and are booking profits to reward their investors. The

rupee has seen sharp appreciation of 12 percent in last one year or so. This has made exports

uncompetitive with respect to other global competitors.

Market announcements like SEBI's proposal on restriction of further investments through the

participatory notes (PN) route created panic in domestic stock markets last month. The Sensex

crashed heavily after this announcement, but later recovered after a clarification by SEBI. The

stock markets are quoting at very high levels (the Sensex is around 19,000 and Nifty around

5,700). Even a one percent rise or fall shows up as a 200 point movement in the Sensex.

Domestic Political Scenario

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The political scenario has been volatile due to the coalition government. However, looking at the

market trends over the last few years, the large market players are not very concerned with the

political situation. The large investors believe in the long-term India growth story.

The recent fall in the Indian markets has come about after a strong rally and in that sense, it was

to be expected. Apart from the global factors, domestic developments such as sector-specific

measures in the Union budget also had an impact on investor sentiment. Also weighing on the

markets could be tightening liquidity as the Reserve Bank of India looks to stem inflation

through various monetary measures and the rising risk premium due to the rising yields in the

debt markets.

Fundamental factors

Macroeconomic stability there is volatility of GDP growth and whether there should be

policies meant for stabilizing or destabilizing monetary policy or the fiscal policy.

Competition on markets higher the competition means more uncertain earnings so there are

chances of variations. Leverage of firms may also bring about variations. Indian firms that

graduate into MNCs and crises such as currency crisis, political crises may occur.

Factors internal to the securities markets

Liquidity of the market whereby we should be able to absorb shocks to the order flow or

securities trading issues: means there should be adequate supply of rational traders i.e.

individuals, hedge funds, arbitrageurs. Crises such as payments crisis, scandal on the market,

regulatory crackdown giving adverse shocks to liquidity may occur.

Managing Variations

In order to contain excessive variations, the stock exchanges adopt various measures as part of their

market surveillance mechanism. Historically, two measures have been taken specifically with the aim of

reducing variations: banning badla in 1994 which did result in reduced volatility and banning short sales

for a few days in 1992; this was a temporary measure as it was empirically observed that this did notdestabilize volatility. Further, SEBI has been imposing volatility margins and concentration margins

whenever volatility has been excessive. Apart form these measures; there are three important tools that

are being widely used by most markets, including India, for managing market volatility.

Price Bands

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Circuit Filters

Trading Halts

Price bands: In India, the price limits were first introduced by NSE in 1995 and were

subsequently enforced on all stock exchanges by SEBI. Initially, the price of any scrip

was not allowed to move beyond 0% in a day and 25% in the weekly trading cycle.

These were revised to 8% in a day and the weekly band was abolished. With effect form

May 2002, SEBI has amended guidelines to allow for price movement in either

direction to the extent of 16% in a day for select 200 scripts.

Trading Halts: suspend trading in individual securities during normal market hours to

allow for dissemination of information, news of an extraordinary corporate action, or in

case of excess volatility.

Circuit Filters: are a market wide approach to managing variations by stopping trading

in the entire market during normal business hours. Generally, investor protection is the

main concern behind imposition of the last two measures.

The trading halts and circuit filters are mainly of two types:

Information based halts that are used to release information to the investors, clarify

rumours regarding a company, suspend trading in a security that has broken rules, or

to communicate any other price sensitive information.

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LITERATURE REVIEW

Literature Review:

This study investigates volatility in Indian stock markets. Specifically, it looks for the possible

volatility transmission channel for Indian stock market from the Indian sectoral developments as

well as developments in the global market. SENSEX is used as the Indian market index and its

response to overseas market indices like Dow Jones, FTSE, BVSP, MerVal, JKSE; further the

relationship between SENSEX and domestic sectoral indices have also been

explained.

In Past the following work has been done related to my project.

1.Economic Growth and Volatility in Indian Stock Market: A Critical Analysis by South

Asian Journal of Management

Stock market volatility is an important concept for understanding the investors' responsiveness,

and thereby it facilitates to work on investment strategy. This paper examines the volatility in

Indian stock market of daily and monthly return for the period from January 1996 to December

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2011 with three different points of views - volatility of daily return in a year, volatility of daily

return in a month, and volatility of monthly return in a year with respect to economic growth. For

the analysis, adjusted opening and closing price of the Bombay Stock Exchange listed index BSE

100 have been examined. The study period exhibits a mixed set of economic environment and

gives an inside view of Indian economy.

2.Understanding Stock Market Volatility by Sam Hopkins

This paper helps us understand market volatility and how its measured and looks at beta which

is an individual stock volatility stat. It helps us use it to determine the effects of stock market

volatility in the market. Also it explains the measures that should be taken so as to combat the

volatility present in the economy.

3.Measuring Stock Market Volatility in an Emerging Economy by International Research

Journal of Finance and Economics

It is seen that volatility of returns in financial markets can be a major stumbling block for

attracting investment in small developing economies. In this study, Autoregressive Conditional

Heteroskedasticity (ARCH) models and its extension, the Generalized ARCH model was used to

find out the presence of the stock market volatility on Fijis stock market. The analysis was done

using a time series data for the period 2001-2011 on specific firms and found out that seven out

of the sixteen firms listed on Fijis stock market is volatile. The volatility of stock returns then

regresses against the interest rates and the results shows that the interest rates changes have a

significant effect on stock market volatility. Using a priori theory and knowledge, the impact of

factors like government regulations, low levels of liquidity on volatility are also derived.

4.Stock Market Volatility in US Bull and Bear Markets, Journal of Money, Investment and

Banking

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In this paper we test whether the stock market volatility presents a different behavior in bull and

bear phases. Using long range dependence techniques we estimate the order of integration in the

squared returns in the US stock market (S&P 500) over the sample period August, 1928 to

December, 2012. The results suggest that squared returns present long memory behavior. In

general, the estimates of d are above 0 and below 0.5 implying long memory stationary for the

volatility processes. The results also show that in many cases the volatility is more persistent in

the bear market than in the bull market.

5.Macroeconomic Volatility and Stock Market Volatility, World-Wide

The paper says that notwithstanding its impressive contributions to empirical financial

economics, there remains a significant gap in the volatility literature, namely its relative neglect

of the connection between macroeconomic fundamentals and asset return volatility. We progress

by analyzing a broad international cross section of stock markets. We find a clear link between

macroeconomic fundamentals and stock market volatilities, with volatile fundamentals

translating into volatile stock markets.

6.Analyzing stock market volatility using extreme-day measures in Journal of Financial

Research

This paper talks about development of a simple measure of volatility based on extreme-day

returns and apply it to market returns from 1885 to 2002. Because returns are not normally

distributed, the extreme-day measure, which is distribution free, might provide a better measure

of stock market risk than the traditional standard deviation. The extreme-day measure more

accurately explains investor behavior relative to standard deviation as shown by equity fund

flows, and we find evidence that large negative changes appear to influence investor behavior

more than large positive changes.

7. Breaks and Persistency: Macroeconomic Causes of Stock Market Volatility, Journal of

Econometrics.

In the paper we study the relationship between macroeconomic and stock market volatility, using

S&P 500 data for the period 1970-2001. We find evidence of a twofold linkage between stock

market and macroeconomic volatility. Firstly, the break process in the volatility of stock returns

is associated with the break process in the volatility of the Federal funds rate and M1 growth.

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Secondly, two common long memory factors, mainly associated with output and inflation

volatility, drive the break-free volatility series. While stock market volatility also affects

macroeconomic volatility, the causality direction is stronger from macroeconomic to stock

market volatility.

Research Problem

Research Problem:

1.The prices of stocks of various companies have fallen down.

2.The investors have been losing their investments and the companies are not able to raise funds

from the market which is making their capacity utilization as well as expansion plans on hold.

Moreover the banks have become strict with giving out of loans.

3. The economy has been badly hit so with this topic, I will be able be able to get new insights

about various policies introduced to fight the situation and this research may help the investors

and the market regulators to make market more proficient.

The objectives of the research are:

1. To understand the volatility of stock market of India.

2. To Analyze the trend of Indian stock market.

3. To study the effect of the variations of the stock market on the Indian economy.

RESEARCH METHODOLOGY

DATA COLLECTION

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DATA ANALYSIS

The responses of the respondents were codified and checked for the consistency of the

codification. The data analysis was carried on by using the excel and SPSS. The data was

represented graphically or in tabular form wherever thought to be appropriate. The

interpretations of the graphs were carried to figure out the result.

TYPE OF RESEACH

The research is mainly descriptive research. It includes a questionnaire survey and it is a fact

finding survey where by the focus is on finding the sentiments of investors and their investment

pattern in current situation.

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DATA FINDINGS AND ANALYSIS

Data Analysis

Result of Primary Research

Questionnaire Analysis

The majority of the respondents that were surveyed were from the age group 20-30 years i.e.

about 36%. There were 26% respondents from the 30-40 years age group and 20% each from the

age group 40-50 years and 50 & above years.

Duration of the investment of the respondents

The graph shows that the

majority of the age group

20-30 years has been

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investing for a short duration than other age groups. About 18% of the age group 20-30 years has

been investing for a period of up to 3 years. Both age group 20-30 years and 30-40 years did not

invest in for more than a period of 9 years. About 12 % of the age group 30-40 invested for a

period of 6-9 years. The age group 40-50 years and 50& above years have been investing for a

longer period of time i.e. more than 6 years.

Change of purchase decision for investment age wise in recent times

purchase decision

noyes

Percent

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

50 and above

40-50

30-40

20-30

age

This shows that the purchase decisions of most of the respondents regarding their investments

have changed recently. More than 90% of the respondents of the age group 50 & above years

believe that their investments decisions have changed in recent times. About 70% and 56% of the

age group 30-40 years and 20-30 years respectively agree that their investments decisions have

changed recently whereas about 50% of the age group 40-50 years thinks that there decisions

have not changed.

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Preference for product of investment by different age groups

This graph shows that about 60% of the respondents of the age group 40-50 would like to invest

in shares even in the current times and say that there investment decisions have not changed. The

majority of the respondents of the age groups 20-30 years and 30-40 years believe that there

investment decision has changed and would like to invest in fixed deposits. The age group 50 &

above years would like to play safe so they would like to invest in fixed deposits and bonds as

well.

Preference for taking risk age wise

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preference for risk

noyes

Percent

80.0%

60.0%

40.0%

20.0%

0.0%

50 and above

40-50

30-40

20-30

age

The graph depicts that the majority of respondents of all the age groups would not like to take

risk in the current scenario. They would either invest in safe products such as fixed deposits,

bonds etc or would like to retain cash in their portfolio than invest in shares and other risk

bearing products. About 60% of the age group 50 & above years said that they would not like to

take risk while making investments. About 70% of the age group 30-40 years agreed to it that

they will not like to take risk. The age group 20-30 years was willing to take risk and about 50%

of the respondents of this age group were willing to take risk and invest in such products in the

current scenario. Even the age group 40-50 years agreed to it and the majority of this age groupi.e. about 60% was willing to take risk and said they would like to invest in risk bearing

instruments as there investment decision have not changed in the current times.

Change of saving pattern by different age groups in current scenario

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change in saving

noyes

Percent

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

50 and above

40-50

30-40

20-30

age

This graph shows that almost all the respondents echoed that there saving pattern have changed

in recent times. About 85% of the respondents of the age group 30-40 years said that there

savings have changed and they would rather retain cash and save money rather than making

investments in the market. The age group 40-50 years followed them and about 80% of the

respondents said that there savings have increased. About 45% respondents of the 20-30 age

group said that they will not like to change their saving pattern and will continue to invest in the

stock market. About 30% of the age group 50& above years said that their savings have also not

changed as they have been investing in safer products like FD, bonds etc.

Saving preference by different age groups out of income of Rs.100

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savings

45 and above30-4515-30up to 15

Percent

40.0%

30.0%

20.0%

10.0%

0.0%

50 and above

40-50

30-40

20-30

age

When asked about the preference of people for saving what amount of money out of income of

Rs. 100, 30% of the people from age group 20-30 said that they will save Rs.45 and above

whereas about 25% people from the same age group said that they will save up to Rs 15 only.

People from age group 40-50 i.e. about 40% said they will save only up to Rs. 15 only whereas

30% people of the same age group said they will save more than Rs.45. About 30% respondents

of the age group 30-40 years said that they save Rs.30-45 and 30% said they will save more than

Rs.45. About 40% from the age group 50& above years said that they will save up Rs. 30-45 and

invest rest of the money in safe and risk free products of investment.

Preference of equity percentage in current portfolio

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equity

60 and above40-60%20-40%up to 20%

Percent

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

50 and above

40-50

30-40

20-30

age

When asked what percentage of equity will the people hold in their portfolio, about 50% of both

age groups 40-50 years and 50& above years said that they will keep a risk free portfolio as far

as possible and would keep equity up to 20% only. The people from age group 20-30 years i.e.

about 52% think that they would like to keep about 20-40% equity in their portfolio and about

7% said that they will like to hold equity of about 60% and above of their portfolio. The age

group 30-40 years respondents i.e. about 40% were bold enough to say that they would like to

hold 40-60% of equity in their portfolio in the current times. But about 38% of the people from

the same group were cautious and said that they will hold equity in the least percentage possible

i.e. up to 20%.

Preference of different age groups for retaining cash

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retain in cash

noyes

Percent

60.0%

40.0%

20.0%

0.0%

50 and above

40-50

30-40

20-30

age

When asked if they will keep more cash in their current portfolio, about 70% of the respondents

of age group 40-50 years said that they will not keep more cash in their portfolio and would like

to be cautious investors while investing in the market. About 65% of the respondents of the age

group 20-30 years said that they will like to retain more cash in their current portfolio. About

60% of the people from the age group 30-40 years also agreed and said that they will like to

retain cash in their portfolio so as to be on the safe side in the volatile and uncertain market.

About 60% of the people from the age group 50& above years also said that they will invest

some part of the money in products like FD and keep the major part of their portfolio as cash so

that they do not lose any money in the volatile market in current scenario.

Change in net worth of investors of different age groups

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net worth

noyes

Percent

80.0%

60.0%

40.0%

20.0%

0.0%

50 and above

40-50

30-40

20-30

age

When asked whether volatility had affected their net worth, about 78% of the respondents from

age group 30-40 said that there net worth has been affected and have lost their money in the

current market situation. About 50% of the people of the age group 50& above years said that

their net worth has also been affected since the interest rates have been fluctuating of late. 55%

people of the age group 20-30 years said that there net worth has not been affected as they have

been investing cautiously. About 60% of the respondents from the age group 40-50 years have

also been affected by the changes in prices of various stocks and commodities that they have

been investing in but the rest of them feel that there net worth is not affected and they will

continue to invest in the market.

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Rate of return expected

__

When asked about the rate of return the respondents expect from their current investments, 30%

from all the age groups echoed that they expect up to 10% return in the current scenario as most

of them believed that their net worth has been reduced. About 50% from the age group 50&

above years and 30% from the age group 30-40 years declared that they are expecting about 20-

30% rate of return on their investments since they have been investing in safer products of

investment. 42% of the age group 20-30 years and 23% of the age group 30-40 years was

confident that they will be earning about 30-40% rate of return on their decent decisions about

their investments. As the age group 40-50 years thought of investing money rather than holding

it have high expectations as far as the rate of return is concerned as about 30% of the same age

group think that they will be getting 40% and above return on their investments.

Safety of Investments in current scenario

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safe to invest

noyes

Percent

80.0%

60.0%

40.0%

20.0%

0.0%

50 and above

40-50

30-40

20-30

age

The majority of respondents of age group 20-30 years i.e. about 70% pronounced that it is safe to

invest in the market but the only thing that has to be taken into account is that money should be

invested cautiously with proper study of the market and the company of which an individual is

buying shares. But about 40% of both the age groups i.e. 30-40 years and 40-50 years believe

that recession is the best time to invest as the prices are low and once the market recovers, they

will gain profits. About 70% of the people from the age group 50& above years said that it is not

the time to invest in the market or rather invest in some fixed tenure and interest rate products

like FD. People from both age groups namely 30-40 years and 40-50 years also believed that it is

not safe to invest in the market at this time.

Reasons for Variations for different age groups

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reasons of volatility

othersregulationsFIIglobal recession

Percent

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

50 and above

40-50

30-40

20-30

age

Most of the respondents held global recession responsible for the wide fluctuations in the

economy. About 45%, 41%, 40% of the age group 30-40 years, 20-30 years and 50& above

years respectively confirmed that it is due to global recession that the Indian economy has been

facing such wide fluctuations. About 40% of the age group 40-50 years declared that it is due to

the FIIs that the economy has been suffering. About 30% of the respondents of the age group

50& above years said that it is due to other factors like oil prices, shortage of demand etc that is

responsible for the variations experienced by the Indian economy. About 25% and 20% of the

age group 20-30 years and 50& above years believe that is due to the regulations introduced by

the government as well as by RBI that has affected our economy.

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Result of Secondary Research

Trend of Indian stock market

Year 2012 at a glance

In the secondary market, the uptrend continued in 2012-12 with BSE indices closing above

14000(14,015) for the firsttime on January 3, 2012. After a somewhat dull first half conditions

on the bourses turned buoyant during the later part of the year with large inflows from Foreign

Institutional Investors (FIIs) and larger participation of domestic investors. During 2012, on a

point-to-point basis, Sensex rose by 46.7%.

The pickup in the stock indices could be attributed to impressive growth in the profitability of

Indian corporate, overall higher growth in the economy, and other global factors such as

continuation of relatively soft interest rates and fall in the international crude prices.

BSE Sensex (top 30stocks) which was 9,398 at end-December 2012 and 10,399 at end-May

2012, after dropping to 8,929 on June 14, 2012, stabilized soon thereafter to rise steadily to

13787 by end-December 2012.

According to the number of transactions, NSE continued to occupy the third position among the

worlds biggest exchanges in 2012, as in the previous three years. BSE occupied the sixth

position in 2012, slipping one position from 2011. In terms of listed companies, the BSE ranks

first in the world.

In terms of volatility of weekly returns, uncertainties as depicted by Indian indices were higher

than those in outside India such as S&P 500 of United States of America and Kospi of South

Korea. The Indian indices recorded higher volatility on weekly returns during the two-year

period. January 2011 to December 2012 as compared to January 2004 to December 2011

The market valuation of Indian stocks at the end of December 2012, with the Sensex trading at a

P/E multiple of 22.76 and S&P CNX Nifty at 21.26, was higher than those in most emerging

markets of Asia, e.g. South Korea, Thailand, Malaysia and Taiwan; and was the second highest

among emerging markets. The better valuation could be on account of the good fundamentals

and expected future growth in earnings of Indian corporate

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Liquidity, which serves as a fuel for the price discovery process, is one of the main criteria

sought by the investor while investing in the stock market. Market forces of demand and supply

determine the price of any security at any point of time. Impact cost quantifies the impact of a

small change in such forces on prices. Higher the liquidity, lower the impact cost will be.

An overview of year 2012

During December 2011, the greatest demerger of Indian history between the Ambanis paved the

way for 9000. And the sensex entered the year 2012 with a 9000 + figure on Feb. 10 th 2012, we

saw two roaring figures, both sensex and sachin tendulkar crossing 10000 mark. But the reason

behind roaring sensex was not Sachins records in cricket rather it was rallied by strong FII

inflows and robust data. The government forecasted a GDP growth of 8.1% in current year, with

manufacturing and the agriculture sectors estimated to grow at 9.4% and 2.3% respectively. The

238-point rally was contrary to expectations as it came despite negative news flow about a fresh

tussle between Ambani brothers over transfer of ownership of the four companies demerged

from erstwhile RIL.

Sensexs surge to 11000 points on 21 st march 2012 was prompted by PM Manmohan Singhs

announcements on Capital Account Convertibility. On Saturday, Prime Minister Manmohan

Singh hinted at moving toward a free float of the rupee and on Tuesday, the BSE responded by

crossing the 11,000 mark in a lifetime intraday high. The new trading high was reached 29 days

after Sensex entered the elite 10,000 club on February 6. Only Nikkei, Hang Seng and Dow

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Jones could boast of being above 10,000 at that time. Since full convertibility was expected to

attract more foreign money and also allow local companies to tap foreign debt markets more

easily, it was evident that the move will encourage investors and boost the confidence of the

markets.

RBI said it constituted a panel to thrash out the contours for full convertibility. Although the

index later ended lower with investors wanting to book gains, participants said it was evident the

markets had sent out a message - that the growth story of Asias third largest economy is intact

and that liquidity flows into the bourses would continue to remain firm.

After hitting a high of 11,017.25 points in mid-afternoon trade, Sensex lost 35.91 points to close

at 10,905.20, fluctuating 153 points, with most of the volatility coming in the last hour of

trading. The rise in share prices was partly attributed to a fall in oil price. The US April crude oil

prices plunged 3.7% or $2.35, to settle at $60.42 a barrel, on the New York Mercantile Exchange

due to ample US inventories.

After falling by 307 points on 12 th April 2012 on account of Heavy selling by FIIs in both cash

and futures markets and a move by stock exchanges to raise margins on share transactions by

about 250 basis points, the 131-year-old BSE on Thursday, April 20, 2012 crossed yet another

milestone when it breached the 12,000-point mark, backed by strong corporate earnings, higher

liquidity and robust economic growth. The index was being driven by the strong flow of

liquidity. Earlier, it was based on the expectations that (corporate) results would be great...and by

the first few companies were more than matching those expectations. Although, Sensex was

beaten to the 12,000 mark by various global indices, the time it took to breach this milestone has

been one of the fastest. Traders point to the fact that foreign investors, buoyed by a booming

economy, have chosen India as one of their top investment destinations.

Now, everything was going fine. Perhaps it was the lull before the storm. Suddenly the DalalStreet experienced its worst single day crash on Thursday, 18th may 2012 as an ambiguous

Government circular on taxing investment gains prompted foreign funds to book profits,

knocking the bottom off the jittery stock market. Opening amidst weak global markets and

reports of rising US interest rates, the BSE-30 Sensex went on to close 826.38. However the

Dealers said the fall was accentuated by large-scale selling of client positions by broking firms

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due to margin calls or the lack of margins. The May crash saw the Sensex shedding its market

capitalization by as much as 14% in just one month.

Benchmark stock indices vaulted to new highs on Monday, Oct 30 th 2012 driven by a heady

cocktail of strong corporate earnings, a rapidly growing economy and relatively stable crude oil

prices. The Sensex ended at its highest closing level of 13024.26, a gain of 117.45 points or

0.9%. Marauding bulls defied the weak trend globally, which was sparked off by weak US GDP

growth figure, pointing to a slowdown.

Back home, the mood was upbeat even as some expect that the RBI may raise interest rates by

25 basis points in its mid-term credit policy on Tuesday. Market watchers said sentiment could

be affected only if the hike is more than 25 basis points, which is unlikely. Higher interest rates

drive up borrowing costs for corporate as well as the retail consumer, who could then cut back on

their investments and spending, in turn causing a slack in domestic demand.

The benchmark 30-share sensex briefly crossed the psychological 14,000-mark on Tuesday,

December 5, 2012. While foreign institutional investors have been aggressive buying stocks over

the past few months, the response of domestic mutual funds has been guarded. In the last two

months alone, FIIs bought net stocks worth Rs 17,001 crore while local mutual funds have

pumped in a net Rs 638.07 crore.

Year 2012 at a glance

In the secondary market segment, the market activity expanded further during 2012-2012 with

BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2012.

Although the indices showed some intermittent fluctuations, reflecting change in the market

sentiments, the indices maintained their north-bound trend during the year. This could be

attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation

of domestic investors, particularly the institutional investors. During 2012, on a point-to-point

basis, Sensex and Nifty Indices rose by 47.1 and 54.8 per cent, respectively. The buoyant

conditions in the Indian bourses were aided by, among other things, India posting a relatively

higher GDP growth amongst the emerging economies, continued uptrend in the profitability of

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Indian corporate, persistence of difference in domestic and international levels of interest rates,

impressive returns on equities and a strong Indian rupee on the back of larger capital inflows.

The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. The sell-off in Indian

bourses in August 2012 could partly be attributed to the concerns on the possible fallout of the

sub-prime crisis in the West. While the climb of BSE Sensex during 2012-2012 so far was the

fastest ever, the journey of

BSE Sensex from 18,000 to 19,000 mark was achieved in just four trading sessions during

October 2012. It further crossed the 20,000 mark in December 2012 and 21,000 in an intra-day

trading in January 2012. However, BSE and NSE indices declined subsequently reflecting

concerns on global developments. BSE Sensex yielded a Compounded return of 36.5 per cent per

year between 2002 and 2012. In terms of simple average, BSE Sensex has given an annual return

of more than 40 per cent during the last three years.

An overview of year 2012

After touching 14000 mark on December 5 th 2012, sensex entered into 2012 with a promising

figure of 14000+, though the year started on a rather tentative note with a marked slowdown

being observed in the FII inflows into the country. The inflows received from FIIs in January and

February 2012 was 48 per cent less than what was received during the same period in 2012. The

return provided by the BSE Sensex for 2012 turned into negative territory following the 389-

point tumble on Friday, February 23rd; the year-to-date return generated by the Sensex was

negative 0.97 per cent.

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FIIs have pressed substantial sales over those days in contrast to an intermittent surge in inflowin February 2012. As a result, the sensex which closed at 14201 on January 31 st closed at 12938

on February 28th.

As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March, the

day when Sensex had lost 273 points. Their net outflow was worth Rs 320120.80 crore in four

trading sessions from 26 February to 1 March 2012. Market continued to reel under selling

pressure on 5th march 2012 taking cue from weak global markets and heavy FII sales as a result

of fall over 400 points, all the indices were in red.

On April 24th, The Sensex again crossed the 14000 mark and was trading at 14,150.18 having

gained 221.85 points or 1.59%. The midcap and smallcap indices were rather moving slow

indicating that the actual movers are the large cap stocks but at the month end it finally closed at

13872. Further we can see May and June having month end figures at 14544 and 14651

respectively.

The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15,000-mark, to reach a

record high of 15007.22, for the first time intra-day on Friday, July 06 2012 before closing at

14964.12. Despite weak global cues, Indian stocks were in great demand, especially auto,

pharma, IT and metals stocks. On Friday, this lifted the Bombay Stock Exchange's benchmark

30-share Sensex past the magical 15,000-mark. The Sensex took 146 sessions to cover the 1,000

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point distance from 14,000 till 15,000. This is the highest since the index took 371 trading

sessions to move up from 6,000 to 7,000.

The sensex experienced its second bigger ever fall on 2 nd august 2012. The fall came in after the

Fed Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase agreed

to buy Bear Stearns for USD 2 a share. Sensex closed down 951.03 points or 6.03% at

1482012.49,

When FIIs were pumping money in stock market and were Net Buyers of Equity worth Crores;

the Sensex was moving Up , Up and Up on weekly basis. Many thought that FIIs were playing

blind in Indian stock market. But when FIIs have turned Net Sellers of Equity and have started

booking profit backed by massive sell off of shares in global markets; Sensex has to go down. As

expected; the Sensex plunged by 600 Points in early trading on 16th August and most of the

shares were down by 4 to 5 per cent.

But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday,

September 19th, 2012 gave thumbs up to the decision of the U.S. Fed Reserve to reduce the rates

by 50 basis points, as the benchmark 30-share BSE Sensex moved up sharply by 653.63 points or

4.17 per cent at 16322.75. By staying well above the 16000-mark, it outperformed most Asian

peers and it was the biggest single day gain. This trend shows that global cues had an influential

effect on our market.

On the auspicious occasion of Ganesh chaturathi, India experienced a flow of good news. The

festive spirit did not end with the immersion of Ganapati. On Wednesday, it boiled over to the

streets of Mumbai and its financial district, the Sensex touched the magical 17,000 number. It

took Dalal Street just 5 days to travel 1,000 points. Suddenly, tech stocks, which were the

whipping boys till Tuesday, became hot favourites. Why? Hopes that the rupee will soften as a

result of RBI's latest announcements to allow more outflow sparked a rally in tech stocks,

pushing the Sensex to a new high of 17,073.87 during the day. At the end of the day, RBI's

measures may not be enough to rein in the rupee. But there were no takers for this. The

bellwether index finally settled at 16,921.39.

On October 9th, 2012, Sensex hits a record high of 18,280 on the back of eye-popping rallies in

Reliance & Reliance. At the height of the dotcom mania in 1999-00, the easiest way to maximize

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returns was to buy into any stock with the suffix Software or Technologies. Eight years on,

the same seems to hold true for any stock with the prefix Reliance, given their baffling run-up

over the past one month. Eye-popping rallies in Reliance Industries, Reliance Energy and

Reliance Communications lifted the 30-share Sensex to a record high of 18,327.42 intra-days.

On October 15th 2012, amidst heavy buying by investors, the bull roared to breach the 19000

mark in just 4 sessions Sensex was up by 639.63 points or 3.47 per cent at 19058.67. This rise

came on the back of some strong sectors for which the macro picture is quite bright power,

capital goods, infrastructure and telecom.

Foreign Institutional Investors were pumping in huge money in the equity market and this too

was pushing up the index. Since September, they nearly pumped in more than Rs. 30,000 crore

in the cash market. After the U.S. Federal Reserve cut interest rates by 50 basis points, a re-

rating of the emerging markets had been seen wherein liquidity flows were quite robust.

Then suddenly happened the second biggest crash the sensex ever experienced when the sensex

crashed by 1743 points on 17th October 2012 within minutes of opening, prompting suspension

of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional Investors. In a

knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes, an

overseas derivative instrument (ODI), used by foreign institutional investors (FIIs), the stock

market crashed by 1743 points in intra-day, but recovered substantially later to close with a loss

of 336.04 points or 1.76 per cent at 18715.82. But it was followed by a huge one-day gain as on

October 23 when the BSE barometer rose 878.85 points after market regulator SEBI allowed

sub-accounts of Foreign Institutional Investors (FIIS) to trade

It took the index a little over 20 years to reach the first 10,000 mark, but just a little over 20

months to double that score and the sensex made history with touching the 20000 mark on

October 29 2012. Significantly, it was the local institutions that were in the drivers seat. As per

BSE data, foreign funds have net sold over Rs 1,100 crore worth of shares over the last threetrading sessions while local funds have net bought over Rs 2,300 crore worth of shares. Sceptics

point to the fact that there were only a handful of stocks that was driving the market higher.

On 13th November, BSE Sensex registered its biggest ever gain in a single of 893.58 points to

settle at the third-highest level ever on buying by investors in bank counters and blue chip

companies such as Reliance Industries. The market gain was because of global cues. Besides, the

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political development also gelled well with the sentiment. The rally was driven by short

covering, strong buying by domestic investors. However, there was not much involvement of

foreign investors.

But in December 2012, sensex again experienced a black Monday on 17 th December. The market

succumbed to profit booking, that came in due to weak global cues as well as profit booking by

FIIs in the holiday season. The Sensex ended losing 769 points from the previous close, at

19,261.

Sensex during year 2012

After scaling new heights of 20000+, sensex entered year 2012 with rosy pictures. The trade

pundits, brokers and even investors predicted new heights for the year. And they felt their

predictions coming true when sensex touched the 21000 mark on 8th January 2012. Its

interesting if one sees in terms of flows; the journey from 20,000 to 21,000 is dominated by

domestic institutional investors; FIIs were negative sellers, they sold in the cash market to the

tune of USD 45 billion. So if one has to take out some pointers from this journey from 20,000 to

21,000, it is the longest journey which we have seen in the last 5,000 marks, the midcaps and

smallcaps have been outperformers and in terms of flows, it has been domestic institutional

investors which have been really putting the money.

But the rosy picture soon turned gloomy. The skyrocketing sensex suddenly started heading

south and Sensex saw the biggest absolute fall in history, shedding 2062 points intra-day. It

closed at 17,605.35, down 142012.35 points or 7.4 per cent. It fell to a low of 16,951.50. The

fall was triggered as a result of weakness in global markets, but the impact of the global rout was

the biggest in India. The market tumbled on account of a broad based sell-off that emerged in

global equity markets. Fears over the solvency of major Western banks rattled stocks in Asia and

Europe.

After the worst January in the last 20 years for Indian equities, February turned out to be a flat

month with the BSE sensex down 0.4%. India finished the month as the second worst emerging

market. The underperformance can partly be attributed to the fact that Indian markets

outperformed global markets in the last two months of 2012and hence we were seeing the lagged

impact of that outperformance. In the shorter term, developments in the US economy and US

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markets continued to dominate investor sentiments globally and we saw volatility move up

sharply across most markets.

The Bombay Stock Exchange (BSE) Sensex fell 4.44 percent on Monday, 31 st march the last

day of the financial quarter, to end the quarter of March down 22.9 percent, its biggest quarterly

fall since the June 1992 quarter, as reports of rising inflation and global economic slowdown

dampened market sentiments. Financial stocks led the Sensex slide along with IT. According to

market analysts, IT stocks fell on worries about the health of the US economy. Indian IT firms

depend on the US clients for a major share of their revenues.

Year BSE2012

Jan 17,648.71

Feb. 17,578.72

Mar 15,644.44

Apr 17,287.31

May 16,415.57

June 15,461.60

July 16,355.7

5Aug 17,564.5

3

Sep 18,860.43

Oct 17,788.06

Nov 18,092.72

Dec 18,647.31

Reasons for the slowdown (Q1, FY 2011-12)

The first month of the financial year 2011-12 proved to be a good one for investors with the

month ending on a positive note. The BSE sensex showed a gain of 10.5% to close at 17287

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points. A combination of firming global markets and technical factors like short covering were

the main reasons for the up move in the markets. Though inflation touched a high of 7.57%

against 6.68% in march 2012 as a result RBI hiked CRR by 50 bps to take the figure to 8%, still

emergence of retail investors was also seen; a fact reinforced by the strong movement in the mid-

cap and smallcap index that rose 16% and 18% respectively.

So April was the last month to close positive. Then after that nobody saw a stable sensex even.

Sometimes it surged by 600+ points, but very next day it plunged by some 800 odd points and

this story is still continuing. Every prediction, every forecasting has failed. The sensex is dancing

on the music of lifetime high inflation rates, historic crude prices, tightening RBI policies, weak

industrial production data, political uncertainties and obviously the sentiments of domestic as

well as FIIs. The only relief came in the form of weakening Indian rupees which enlightened the

IT sector and most recently the UPA gaining vote of confidence. Presently it is revolving around

the figures of 14000 and no one knows what next?

The 30-share BSE Sensex fell 117.89 points or 0.67% at 17,373.01 on Tuesday, 6 May 2012.

The key benchmark indices ended lower as investors resorted to profit booking due to lack of

positive triggers in the market. On 30th May an imminent hike in domestic retail fuel prices due

to soaring crude oil prices weighed on the market last week. Foreign institutional investors sold

close to Rs 2204 crore in the first three trading sessions of the week which accentuated the

downfall. However better than expected Q4 gross domestic product figures provided some relief

to the bourses on Friday. IT stocks gained on slipping rupee. BSE Sensex rose in two out of five

trading sessions. In May, Indian inflation stood at 8.2%.

The market declined sharply as a hike in fuel prices by about 10% announced by the Union

government on Wednesday, 4 June 2012, triggered possibility of a surge in inflation to double

digit level. The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 in the week ended 6

June 2012. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80 in the week.On 6 June 2012, local benchmark indices underperformed their global peers , hit by rumours that

the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later in the

day to tame runaway inflation. The 30-share BSE Sensex declined 197.54 points or 1.25% to

settle at 15,572.18.

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On 9th June 2012, Bombays Sensex index closed 506.2012 points down at 15,066.10, having

earlier fallen 4.4% and slipped below 15,000 for the first time since March. Oil prices surged to

record levels, fanning fears that they will keep climbing and hurt world growth.

Central banks across the globe warned that interest rates may have to rise as they look to keep

inflation under control, despite the fact that economic growth is slowing in key nations such as

the US and UK.

On the week ending 27th June 2012 Sensex declined 769.07 points or 5.28% to 13,802.22. The

S&P CNX Nifty lost 210.90 points or 4.85% to 4136.65 in the week. Equities extended losses for

the fifth straight day on 24 June 2012 with the barometer index BSE Sensex falling below the

psychologically important 14,000 mark for the first time in 10 months since late August 2012.

On 25 June 2012, equities staged a solid rebound after touching fresh calendar 2012 lows in

early trade. The initial jolt was caused by the Reserve Bank of India's move to hike the key

lending rate. A setback to stocks in Asia and US, sharp spurt in crude oil prices and political

uncertainty due to Indo-US nuclear deal rattled bourses on 27 June 2012.

On July 15th 2012, Indian shares fell 4.9 per cent to their lowest close in 15 months, joining a

world equities rout as investors dumped financials on concerns about the fallout from worsening

global credit turmoil. Although Indian banks have no direct exposure to the US subprime

mortgage sector, the global financial sector turmoil impacts sentiment in the local market and

raises worries of more withdrawals by foreign funds.

An 800+ point surge was experienced in the market on the day following UPA gaining vote of

confidence but the very next day market couldnt maintain the momentum and since then its in a

doldrums position.

Presently, we can see market plunging after the RBI announced further hikes in Repo rate as well

as CRR both increased to 9%. Also, the serial blasts at Ahmadabad and Bangalore adding to the

worries and enhancing the negative sentiments. And above all we can't see any positive triggerthat can dilute the flow of negative news.

Three year composite trend

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This graph where three year BSE sensex data is shown in a composite line graph clearly shows

that there has been wide fluctuation in the market in the recent times. There has been rise and fall

in prices of the stocks in quick succession since couple of years. The year 2012 had been slightlybetter where the market was steady and at the same time was moving towards 13000 mark from

10000 mark as it can be seen that in January sensex was at 10000 and it started increasing in the

latter half of the year i.e. since July the market has been improving. And the market reached

about 14000 in quick succession which added to the joy of investors.

In the year 2012, the rising of the stock market continued and it reached the record breaking

20000 mark in the month of December. But since then it continued to fall down. Everyone was

overjoyed be it the investors or the sectors as they had been registering profits and flourished. Inthe year 2012, the market reached 17000 mark and it kept falling since then. First market reached

15000 in mid year and then it fell down to around 10000 in the month of October. The market

just could not be stabilized and crashed down below 10000 in November. Now the stock market

has been struggling to maintain itself even at this level which is a depressing sign for investors,

corporate and all the sectors as they have been showing negative outcome.

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This shows that there has been volatility in the stock market in recent times. As the market was

at 9000 mark at one time and then shifted to 15000 mark and then reached its pinnacle and

touched 20000 mark much to the surprise of the market. It was a delightful experience for

everyone and everything was moving in the right direction. But then in the year 2012, everything

was moving in the wrong direction and the investors were losing their money. Strict policies

were undertaken so as to fight the rising inflation. The market crashed down to 9000 mark after

reaching the highest level of 20000 and since then has been struggling to maintain at this level

too. This has been a sign of worry for the government and RBI as they have to take various steps

to keep the economy moving at a positive growth rate.

Current scenario

After so many endeavors, the economy is on its path to be stable but still a lot of efforts have to

be made for that. The year till date has not been particularly encouraging for equity investors

with the Sensex down about 14% and the mid and small cap indices by a steeper 20% or

thereabouts. Various strict policies have been implemented by RBI to stabilize the economy and

bring in adequate liquidity so as to make the economy function better. The inflation reached to

double figure and the prices of all the commodities, products and services rose convincingly

where as the real income of people remained same. All the sectors have been affected badly.

Financial and manufacturing sector specially have been badly hit. The exports have reduced

tremendously. Hence, the common man suffered the most and had to make lot of amendments as

to make his budget sufficient to feed himself and his family.

Inflation

The official inflation now has been brought down to 0.44% which indicates that India may be

staring at deflation. It is the lowest rate since 1977. Other countries like Japan, China etc have

already registered negative inflation rates. Fall in prices means ominous sign of a collapse in

demand in the economy. This indicates that the productivity has not gone down but the demand

has gone down and there are no takers in the economy for the products and services. So the

companies are badly affected. This may weaken economic activity as there is no growth. The

investments are discouraged which affects the economy in the longer term.

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The fear about investments not materializing is aggravated by the fact that nominal interest rates

are at relatively high levels. When the prices are falling, it means the real interest rates which is

the difference between nominal rate and rate of inflation are becoming very high for producers

making it impossible for them to raise funds which makes the funds costlier.

Though the prices are falling down, there are sectors which have been getting expensive

irrespective of the inflation. The food bills have gone up by 15% since 2012. The food articles

inflation rate is 7.4% from 8.3%. Though it is 1% less than the last year, but rise in the prices of

food items affects the poor more than the rich people since they spend all or majority of their

income on the food consumption only as food items are meant for survival and are the basic

needs that one wants to fulfill whereas the rich people are not affected by the rise in price of food

articles since they spend more on the luxurious items of which prices have gone down. The price

rise have put the consumers in a tight spot as it becomes difficult to manage the budget which is

fixed in a middle class family. Prices of sugar, dal and various other food items have gone up.

The prices of sugar and dal (arhar) have raised up to 11% and 15-17% respectively. The

agricultural output in Asias third largest economy fell 2.2% last quarter as compared to last

fiscal year.

The other sectors which are badly affected are financial, manufacturing sector etc. as the

productivity has gone down and there is no demand in the economy. Moreover they are not able

to raise funds from the market and there are no chances of capacity utilization or expansion. The

other sector which is among the worst hit is real estate sector as the loans were given against

property and there was subprime lending. There are no purchasers in the market and no one is

willing to take loans. The prices of the property have crashed down due to subprime lending.

Indias $1.2 trillion economy is faltering as worst financial crisis to hit the global economy since

the Great Depression saps demand for nations export. Poor harvest may further weaken growth

that is already at a 6 year low.

Policies by RBI

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Cash reserve ratio which is the percentage of deposits that banks have to maintain with RBI was

changed accordingly seeing the liquidity situation of the market. Earlier it was raised to about

9% but now it has been reduced to 5% since mid- October seeing the current situation of

economy. Repo rate is the rate at which banks borrow from RBI has also been reduced to 5%

since march 202012 and reverse repo rate is a risk-free rate at which banks park their surplus

funds with RBI which has also been brought down to 4%.

The lending rates have not been reduced as other rates. It is due to the slowness of credit

demand, high credit risk and expectations of increase in non performing loans make banks take

such action. The largest lender, SBI, has reduced its benchmark lending rate only by 150 basis

points from 13.75% to 12.25% between October and now. While the countrys largest private

bank, ICICI Bank, has reduced its prime lending rate (PLR) only by 50 bps from 17.25% to

16.75%. Other PSU banks such as Union Bank, BoB and Bank of India have announced their

plans to lower the PLR to 12% from April 1, 202012. But as of now, their PLR stands at 12.5%,

which indicates a reduction of 150 bps from 14% PLR that was prevailing in October. Currently,

PNB charges the lowest rate in the industry at 11.5%, indicating a reduction of 250 bps since

October. It is being noticed that the banks are giving loans only after following strict covenants.

The banks have been giving loans to builders especially with strict loan covenants seeing the real

estate sector crashing down.

But recently banks have come up with a policy that if the investors have problem of repayment

of home loan because of salary cut or losing of job, they will be willing to help the borrowers by

reducing the EMI or extend loan tenure. Banks plan to restructure the loans if the borrower has

been a regular with payment but faces problems now. Even the students who have taken

educational loan may also get relief. The date from which repayment must begin may be

extended or duration over which the loan has to be repaid may be expanded.

Moreover in the current interim budget announced in February 20 2012, the government hasannounced some measures and policies. These policies have been brought about just to stabilize

the economy. Policies like reducing of service tax will help in reducing the cost of goods and

services. For example, the reduction of service tax in the telecom sector means that the

consumers will be able to have more talk time on every easy recharge. The petrol and LPG prices

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have also been reduced which will help the middle class people to have a control over their

budget and are able to satisfy their basic needs.

Rupee and FIIs

The rupee is down another 6% year to date and the foreign institutional investor has continued

the selling spree with around $2 billion of net sales in 20 2012 till date following the $13 billion

of sales in 2012. Now the rupee has been depreciating as compared to dollar and is hovering

around Rs.51 which means that rupee has reached to the lowest level of value in the recent areas.

Due to which the exports have been falling down. Also the FIIs have been withdrawing money

and taking into their own country. This means that there needs to be a careful monitoring of the

assessment made by the fund managers about the Indian economy in the days ahead. But it is

believed that the currency depreciation should not be a major cause for concern in the short run

for it provides an opportunity to the exporters to become more price-competitive.

At the same time, the weakening of the currency would provide an added dose of protection to

the domestic enterprises, especially at a time when these enterprises are smarting under the

growing threat of imports from some of Indias major trading partners.

It is a fact that currency depreciation would increase the cost of debt servicing. This dimension

needs attention particularly since Indias external debt, which has been creeping up since 2012,

has increased by more than a quarter in the first six months of the current fiscal.

Merger and acquisitions

With the variations in the markets, the merger and acquisition (M&A) deals have been affected

too especially the deals done by listed Indian companies over the last three years. The report

submitted by SMC Capitals have shown that M&A deals have been hit and are running at the

collective loss of over USD 25 million. It is believed that the deals struck since 2011 have been

halved in value.

Over this period, India Inc finalized 54 M&A deals, together worth 45 billion dollars. The

notional value of these deals has now fallen by a whopping USD 25 billion to just USD 20

billion. The report says that 85 percent of the USD 100-million plus' M&A deals by listed

companies are currently sitting on huge notional valuation losses. Only eight of the 54 deals are

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currently 'in-the-money'. Of these, three are in the energy sector, two in manufacturing, two in oil

& gas, and one in telecom.

The 54 deals studied include some high-profile cases: The TATA-Corus deal, which was sealed

for USD 12 billion, has a current Mark-to-Market value of just over USD 3.7 billion. The value

of the Kingfisher-Air Deccan deal has fallen over 60% to USD 89 million. The USD 345 million

Jet Airways-Air Sahara deal is now worth just USD 86 million. The Suzlon- RePower deal now

worth USD 1.7 billion dollars is down 85% from its original valuation.

However, the silver lining is that most M&A deals deliver synergies only over the long term, and

so, this fall in valuation may not be as bad as it looks. So in the short term perspective, such

deals may have been hit and may be valued half due to the current market situation but over a

long period of time with collective efforts and the better position of the economy, such deals will

be worth and will start earning profits and try to fulfill the objective with which such deals are

struck.

Credit Card Business

Since the purchasing power of people has gone down and the investment has also reduced, there

are possibilities of credit card default i.e. the customers may not be in a position to pay for the

credit card and arrears may rise. Therefore the customers themselves surrender the credit card

saying that they do not want it. They have a fear of loosing job as well so they have made up

their minds and it is a psychological effect that they surrender their cards saying they do not want

it.

Though credit card business is a vital constituent of Indian banks growth but now it has been

losing its shine in recent months thanks to prudence by customers and banks themselves. 22 lakh

credit card have gone out of circulation from april 2012 to December 2012 either due to

cancellation or non- renewal, therefore the growth in this segment have gone down for Indianbanks in the near term. Also it has been found that credit card spends have reduced in this period

when subprime inferno was in full blast. The withering spend is more sharp after subprime crisis

deepened since last October. Before the crisis descended, spending had grown by around 30% on

a compounded basis.

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While many factors have b

axis capital1

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