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  • 1. Stock indices and Factors Affecting Share prices SUBMITTED BY (N.V.S Raghunath) Reg NO: 10P35F1271 Under The Guidance and Supervision Of Prof. Samanvi Bhograj BHAVAN - NIFTE SCHOOL OF BUSINESS NO 60, 60FT ROAD, OFF BELLARY ROAD, SAHAKAR NAGAR, BANGALORE-560092. 2010-121|Page
  • 2. DECLARATIONI hereby declare that this report titled “Stock indices and FactorsAffecting Share prices” is a record of independent work carried out byme under the guidance and supervision of Prof. Samanvi Bhograj,Project Guide, BNSB towards the partial fulfillment ofrequirements for the M.B.A. degree course of BharathiarUniversity at Bhavan – NIFTE School of business.I further declare that this Project is the result of my own effortsand that it has not been submitted to any other university orinstitute for the award of a degree or diploma or any other similartitle of recognition.PLACE: Bangalore N.V.S RaghunathDATE :2|Page
  • 3. GUIDE’S CERTIFICATEThis is to certify that the Dissertation Project Report entitled “Stock indicesand Factors Affecting Share prices”, done by N.V.S Raghunath (Reg No. -10P35F1271) is a bona fide work done carried under my guidance during theacademic year 2010-12 in a partial fulfilment of the requirement for theaward of MBA degree by Bharathiar University. To the best of myknowledge this report has not formed the basis for the award of any otherdegree. Prof. Samanvi Bhograj (GUIDE)3|Page
  • 4. ACKNOWLEDGEMENTAny successful work is always a product of many handscoming together in co-operation and assistance. Thiswork is no different. A number of people are responsiblefor accomplishment of this work. Their guidance andsuggestions were highly helpful during the course. I express my deep sense of gratitude to Prof.Samanvi Bhograj, my project guide, Bhavan – NIFTESchool of Business, Bangalore, for her most valuableguidance, inspiring supervision, periodical monitoringand sparing his precious time for this project.I also express my sincere gratitude to my friends for allthe inspirations and giving me an opportunity to carryout the project report. Without their help, the projectreport would not have been possible.Thanking you,N.V.S Raghunath4|Page
  • 5. CONTENTS Chapter No. Name of the concept Page No. Executive summary 6 7 Introduction Objectives of the study 9 Scope of the study 9 1 Methodology of the study 10 Limitations of the study 11 2 Review of Literature 12 3 Industry Profile 30 4 Data analysis and interpretation 41 5 Findings, Suggestions and Conclusion 63 6 Bibliography 685|Page
  • 6. Executive SummaryThe stock indices is used to measure a section of the stock market So, these indices werequoted by the news or financial service firms so they used to get a benchmarks thefinancial service firms were nothing but brokerage company . So to make in a properorder the stock indices had introduced S&P CNX Nifty junior, S&P CNX-500, CNXMidcap-200. These were the indices we will come over While coming to the Stock Prices it will be vary according to the factorsinfluenced so, here the factors influence it may be economic factor, demand and supply,geographical factor. So to understand the stock price variation here I had taken the 5companies of automobile sectorTo understand the concept of stock indices. Study the major companies those are part ofthe Indices. We have to study the volatility of stock prices and indices. And the impact ofDifferent economic, industry and company specific factors that affect the stock pricesand stock market indices The analysis and interpretation of various Companiesof Automobile sector were done because we will come to know which company is doingbetter Findings and suggestion .The various factors influencethe stock market prices it may be due to demand and supply; news, eps, fresh issue ofshares, etc… will be the causes of fluctuation of pricesSuggestion is that if the investor wants to invest in a particular company he/she has toanalyze the present scenario of the company there business profile, market share of thecompany, balance sheet. Conclusion-is process of constructing an index is tedious butvery useful for a normal investor who works on his own in his investment game. Theprocess of constructing market leader index in this present project work is given clearlyand any investor can follow this process to easily construct his own index6|Page
  • 7. CHAPTER 1 - INTRODUCTION7|Page
  • 8. INTRODUCTIONAn index is a number used to represent the changes in asset of values between a basetime period and another time period. A stock index is a number that helps measure thelevels of the market. Returns on the index thus are supposed to represent returns on themarket.Index means the statistical composite that measures changes in the economy or infinancial markets, often expressed in percentage changes from a base year or from theprevious month. Indexes measure the ups and downs of stock, bond, and somecommodities markets, in terms of market prices and weighting of companies in the index.An index is a statistical measure of change in an economy or a securities market. In thecase of financial markets, an index is essentially an imaginary portfolio of securitiesrepresenting a particular market or a portion of it. Each index has its own calculationmethodology and is usually expressed in terms of a change from a base value. Thus, thepercentage changes is more important that the actually numeric value. For example,knowing that a stock exchange is at, say, 5,000 don‘t tell you much. However, knowingthat the index has risen 30% over the last year to 5,000 gives a much betterdemonstration of performance.Index values are useful for investors to track changes in market values over long periodsof time. For example, the widely used Standard and Poors 500 Index is computed bycombining 500 large-cap and U.S. stocks together into one index value. Investors cantrack changes in the indexs value over time and use it as a benchmark to compare theirown portfolio returns. Technically, you cant actually invest in an index. Rather, youinvest in a security such as an index fund or ETF that attempts to track an index asclosely as possible called stock index. The plural of index can be spelled either indexes orindices.8|Page
  • 9. OBJECTIVES OF THE STUDYThe main objective of this project is to understand the composition and performanceNational Stock Exchange index NIFTY. And automobile sectorIt includes: 1. To understand the concept of stock indices. 2. To study the major companies those are part of the Automobile sector. 3. To study the volatility of stock prices and indices. 4. To study the impact of different economic, industry and company specific factors that effect the stock prices and stock market indices.SCOPE OF THE STUDY5 companies from Automobile sectors have been selected to study the market and toconstruct the NIFTY index. The market prices of all 5 companies from 2008-2011 weretaken for study. The market share is taken as base for the selection of index constructioni.e. companies have been selected on the basis of this market share.9|Page
  • 10. METHODOLOGYSources of data:Data collection is an actively in marketing research. The design of the data collectionmethod is the spine of research design. The sources of data are classified in totwo types  The Primary Data.  The Secondary Data.PRIMARY DATA: The primary data are fresh data collected directly from the field and thereforeconsist of original information gathered for the specific purpose. It is expensive,laborious, and time consuming. But it assures a greater degree of accuracy and reliabilityas it comes straight from the horse‘s month.SECONDARY DATA: The secondary data are the data, which the investigator borrows from other whohave collected it for various other purposes. Therefore it may not entirely be reliable. It isless expensive and involves less expensive and involves less time and labor than thecollection of primary data.The Sources of collecting Data: I. Websites of different online trading firms. II. Newspaper, magazines, trade journals.III. Publications of different online trading firms.IV. Interaction with managers and customers.10 | P a g e
  • 11. LIMITATIONS  Information is collected primarily from secondary sources and may not be accurate.  Index and stock prices moments are observed here for three years  Period is from 2008 -2011 to work on any study comprehension11 | P a g e
  • 12. CHAPTER 2 - REVIEW OF LITERATURE12 | P a g e
  • 13. The securities market achieves one of the most important functions of channeling idleresources to productive resources or from less productive resources to more productiveresources. Hence in the broader context the people who save and investors who investfocus more towards the economy‘s abilities to invest and save respectively. Thisenhances savings and investments in the economy, the two pillars for economic growth.The Indian Capital Market has come a long way in this process and with a strongregulator it has been able to usher an era of a modern capital market regime. The pastdecade in many ways has been remarkable for securities market in India. It has grownexponentially as measured in terms of amount raised from the market, the number oflisted stocks, market capitalization, trading volumes and turnover on stock exchanges,and investor population. The market has witnessed fundamental institutional changesresulting in drastic reduction in transaction costs and significant improvements inefficiency, transparency and safety.DEPENDENCE OF SECURITIES MARKET:Three main sets of entities depend on securities market- the corporate, the government &households. While the corporate and governments raise resources from the securitiesmarket to meet their obligations, the households invest their savings in securities.PRIMARY MARKET & SECONDARY MARKET:The securities market comprises two segments- primary market (new issues, offer forsale) & secondary market (trading of stocks). There are two major types of issuers whoissue securities. The corporate entities issue mainly debt and equity instruments (shares,debentures, etc.), while the governments (central and state governments) issue debtsecurities (dated Securities, treasury bills). The two major exchanges, namely the NSEand the BSE provide trading of securities.13 | P a g e
  • 14. LAWS GOVERNING CAPITAL MARKET:The four main legislations governing the securities market are:(a) The SEBI Act, 1992 which establishes SEBI to protect investors and develop andregulate securities market.(b) The Companies Act, 1956, which sets out the code of conduct for the corporatesector in relation to issue, allotment and transfer of securities, and disclosures to bemade in public issues.(c) The Securities Contracts (Regulation) Act, 1956, read with the Securities Contracts(Regulation) Rules, 1957 which provide for regulation of transactions in securitiesthrough control over stock exchanges; and(d) The Depositories Act, 1996 which provides for electronic maintenance and transfersof ownership of demat securities.REGULATORS:SEBI is the primary regulator of the Securities Market and the entities operating therein.The SEBI Act and the Depositories Act are mostly administered by SEBI. Governmentand regulations by SEBI frame the rules under the securities laws. All these areadministered by SEBI. The powers under the Companies Act relating to issue andtransfer of securities and non-payment of dividend are administered by SEBI in case oflisted public companies and public companies proposingTo get their securities listed.STOCK MARKET:When investors think of the stock market, they may imagine a specific place - such as astock exchange. In fact, the stock market is the abstract idea of stock trading and stockexchange. All selling of stocks - at stock exchanges and in other ways - affects themarket overall. Following stock market information in the news can help you make theright decisions about stock market investing.14 | P a g e
  • 15. Luckily, today you can get stock market data from a wide variety of sources. Knowingthe stock market price of your investments, being able to answer the question what is thestock market and watching the markets ups and downs can help you become a strongerinvestor.STOCK MARKET DEFINITIONS: 1. A market for the buying and selling of stocks, such as the Bombay Stock exchange. 2. An institution that facilitates the buying and selling of stocks. 3. Where stocks (shares) are bought and sold. A share is a portion of the total ownership of a corporation. The more shares you own in a corporation, the more ownership you have in that corporation. 4. Stocks are bought or sold. The ―market‖ refers to this activity. There are organized exchanges, such as The Bombay Stock exchange, that buyers and sellers go through to place the transactions (or trades). 5. Stock exchange: an exchange where professional stockbrokers conduct security trading. 6. A stock market is a market for the trading of company stock, and derivatives of it; both of these are securities listed on a stock exchange as well as those only traded privately. 7. The organized trading of stocks, bonds, or other securities, or the place where such trading occurs. 8. Where stocks (shares) are bought and sold. A share is a portion of the total ownership of a corporation. The more shares you own in a corporation, the more ownership you have in that corporation. 9. The set of institutions that facilitate the exchange of stocks between buyers and sellers. A stock market can be an actual place, but with the growth of electronic15 | P a g e
  • 16. transactions a large fraction of stock market transactions are not centrally located in a particular location. 10. Particulars market where stocks and bonds are traded. 11. Stock market may be a physical place, sometimes known as a stock exchange, where brokers gather to buy and sell stocks and other securities. The term is also used more broadly to include electronic trading that takes place over computer and telephone lines. 12. Is a market for the trading of publicly held company stocks or shares and associated financial instruments (including stock options, convertibles and stock index futures). Traditionally such markets were open-outcry where trading occurred on the floor of exchange. 13. in relation to a securities exchange or a stock exchange, includes, in the case of the Exchange, a stock market of a securities exchange or of a stock exchange, as the case may be, that is a subsidiary of the Exchange. 14. Stock exchange: an exchange where security trading is conducted by professional stockbrokers an organized marketplace where members gather to trade securities. Members may act either as agents for customers, or as principals for their own... 15. An organized marketplace for securities featured by the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors.16 | P a g e
  • 17. STOCK EXCHANGE: 1. A place where stocks, bonds, or other securities are bought and sold. 2. An association of stockbrokers who meet to buy and sell stocks and bonds according to fixed regulations. 3. A place where stocks, bonds, or other securities are bought and sold. 4. A place where stocks, bonds, or other securities are bought and sold. 5. An association of stockbrokers who meet to buy and sell stocks and bonds according to fixed regulations. 6. A place where stocks, bonds, or other securities are bought and sold. An association of stockbrokers who meet to buy and sell stocks and bonds according to fixed regulations.NEED OF STOCK MARKET:The stock market is simply a term for the overall market or industry that is concernedwith buying and selling company stock, both private and publicly traded securities. Thestock market does many things. It helps to set prices of stocks. The more a stock is tradedon the market and the more in demand the stock, the higher is its value. Having a stockmarket that is interconnected with stock markets around the world helps traders andinvestors to see how specific stocks are doing.Of course, the stock market is mainly present to create money. Through the market,investors - both companies and individuals - can buy stocks, which effectively makethem own a small part of a company. If the company prospers, investors are rewardedwith dividends and profits. Companies, by becoming public and offering stocks to thepublic, can raise money and improve their profile through business expansions which canhelp them make great profit.17 | P a g e
  • 18. NATIONAL STOCK EXCHANGE OF INDIA LIMITEDThe National Stock Exchange of India Limited has genesis in the report of the HighPowered Study Group on Establishment of New Stock Exchanges, which recommendedpromotion of a National Stock Exchange by financial institutions (FI‘s) to provide accessto investors from all across the country on an equal footing. Based on therecommendations, NSE was promoted by leading Financial Institutions at the behest ofthe Government of India and was incorporated in November 1992 as a tax-payingcompany unlike other stock Exchange in the country.On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)segment in June 1994. The Capital Market (Equities) segment commenced operations inNovember 1994 and operations in Derivatives segment commenced in June 2000.NSE GROUPNational Securities Clearing Corporation Ltd. (NSCCL)It is a wholly owned subsidiary, which was incorporated in August 1995 and commencedclearing operations in April 1996. It was formed to build confidence in clearing andsettlement of securities, to promote and maintain the short and consistent settlementcycles, to provide a counter-party risk guarantee and to operate a tight risk containmentsystem.18 | P a g e
  • 19. NSE.IT Ltd.It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE isuniquely positioned to provide products, services and solutions for the securitiesindustry. NSE.IT primarily focuses on in the area of trading, broker front-end and back-office, clearing and settlement, web-based, insurance, etc. Along with this, it alsoprovides consultancy and implementation services in Data Warehousing, BusinessContinuity Plans, Site Maintenance and Backups, Stratus Mainframe FacilityManagement, Real Time Market Analysis & Financial News.India Index Services & Products Ltd. (IISL)It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices andindex related services and products for the Indian Capital markets. It was set up in May1998. IISL has a consulting and licensing agreement with the Standard and Poors (S&P),worlds leading provider of investible equity indices, for co-branding equity indices.National Securities Depository Ltd. (NSDL)NSE joined hands with IDBI and UTI to promote dematerialization of securities. Thisstep was taken to solve problems related to trading in physical securities. It commencedoperations in November 1996.19 | P a g e
  • 20. NSE Facts  It uses satellite communication technology to energize participation from around 400 cities in India.  NSE can handle up to 1 million trades per day.  It is one of the largest interactive VSAT based stock exchanges in the world.  The NSE- network is the largest private wide area network in India and the first extended C- Band VSAT network in the world.  Presently more than 9000 users are trading on the real time-online NSE application.Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE,we are constantly working towards creating a more transparent, vibrant and innovativecapital market.AUTOMOBILE SECTOR Company Name Industry Last Price Mkt Cap(Cr) Weight Bajaj Auto Automobiles 1,342.70 42,341.63 1.15 Hero Honda Automobiles 1,731.70 31,739.33 1.02 Mah and Mah Automobiles 644.1 42,997.30 1.17 Maruti Suzuki Automobiles 1,165.00 36,464.78 0.99 Tata Motors Automobiles 980.95 67,070.30 1.8520 | P a g e
  • 21. DIFFERENCES BETWEEN THE INDICESThe indices are different from each other to a certain extent. Some time the sensex maymove up 100 point but NSE nifty may move up only 40 points. The main factors thatdifferentiate one index from the other are give below. 1. The number of the component stocks 2. The composition of the stocks 3. The weights 4. Base year1. The Number Of The Component Stocks: The number of stock in an index influences the behavior of index. If the number of component stocks is larger, it would be a representative sample capable of reflecting the market movement. The sensex has 30 scrips like the Dow Jones Industrial average in (338 stocks) and Nifty (50 stocks) are also widely used. BSE National Index is considered to be more representative than sensex because it has 100 stocks. Out of 100 stocks. Out of 100, 22 are quoted on the rest are listed on the BSE and the rest are listed on the BSE and other exchanges.2. The Composition of the stocks: The composition of the stocks in the index should reflect the market movement as well as the macroeconomic changes. The centre for monitoring Indian Economy maintains an index. It often changes the composition of the index so as to reflect the market movement in a better manner. Some of the scrip‘s traded volume may fall down and at the same time some other stock may attract the market interest. In such a case the scrip that has lost the market interest should be dropped and other must be added. Only then, the index would become more representative.21 | P a g e
  • 22. 3. The weight: The weight assigned to each company‘s scrip also influences the movement of the index. The indices may be weighted with the price or value. The Dow Jones industrial Average and Nikkei Stock Average of 225 scrips of Tokyo stock exchange are weighted with the price. A price weight index is computed by adding the current prices of the stocks exchange and dividing the sum by the total number of stocks. The stocks with high price influence the index more than the low priced stock in the sample. In the value weighted index the total market value of the share is the weight. In an un weighted index, all stocks carry equal carry equal weights. The price or market volume of the scrip does not affect the index. The movement of the price is based on the percentage change in the average price of the stocks in the particular index.4. The choice of base year also leads to variations among the index. The base year differs from each other in the various indices. The base year should be free from any unnatural fluctuations in the market. If the base year is close to the current year, the index would be more effective in reflecting the changes in the market movement. At the same time if it is too close, the investor cannot make historical comparison. The sensex has the base year as 1978-79 and the next oldest one is the RBI index of ordinary shares with 1980-81 as base year. The following table gives the summary of major stock market indices.Indian stock market Weighting Base No. of stock Base yearIndicesEconomic Time Unweighted 72 1984-85Index ofOrdinary share Market Value 30 1978-79PricesBSE sensex 100BSE National Index Market Value 1983-8422 | P a g e
  • 23. BSE-200 Market Value 200 1989-90Dollex Market Value 200 1989-90S&P Nifty (NSE-50)S &P CNX Nifty Market Value 50 Nov 1995JuniorS&P CNX-500 Market Value 50 -CNX Midcap-200 Market Value 500 1994International Stock IndicesNikkei Dow Jone Price weighted 225 1949AveS& P composite Market Value 500 1941-421. Industry representation: The Index should be able to capture the macro-industrial situation through price movement of individual scrips. The company‘s scrip should reflect the present state of the industry and its future prospects. Companies chosen should be representative of the industry. Care is taken in selecting scrips across all the major industries major industries to make the index act as a real barometer to the economy2. Market capitalization: The market capitalization of the stock indicates the true value of the stock, as the outstanding number of share is multiplied by the price. Price Indicate the demand and growth potential for the stock. The outstanding shares depend on the equity base. The selected scrip should have a wide equity base too23 | P a g e
  • 24. 3. Liquidity: The liquidity factor is based on the average number of deal of scrip. The average number of deal in the two previous years is taken in to account. The market fancy for the share can be found out by the trading volumes. The Financial Express Equity Index is weighted by trading volume and not by market capitalization. The market depth: the market depth factor is the average deal as a percentage of company‘s shares outstanding. The market depth depends upon the wide equity base. If the equity base is broad based then number of deals in the market would increase. For example Reliance Industries has a wide equity base and large number of outstanding shares.4. Floating stock depth: The floating stock depth factor is the average of deals as a percentage of floating stock. Low floating stock is able to command high price. Its sound finance and internal generation of funds led growth may be the reason for the low flotation. Trading volumes are directly liked to the public holding in the company. Wide public holding is a pre-requisite for high trading volume. Reliance industries are a good example. The free float of company is 45 percent and it has its positive effect on the trading volume. Revision of sensex scrips :INTRODUCTION & BRIEF ABOUT THE INDEX CONSTRUCTION:An index is a number used to represent the changes in asset of values between a basetime period and another time period. A stock index is a number that helps measure thelevels of the market. Returns on the index thus are supposed to represent returns on themarket.Index means the statistical composite that measures changes in the economy or infinancial markets, often expressed in percentage changes from a base year or from theprevious month. Indexes measure the ups and downs of stock, bond, and somecommodities markets, in terms of market prices and weighting of companies in the index.24 | P a g e
  • 25. A statistical measure of change in an economy or a securities market. In the case offinancial markets, an index is essentially an imaginary portfolio of securities representinga particular market or a portion of it. Each index has its own calculation methodologyand is usually expressed in terms of a change from a base value. Thus, the percentagechanges is more important that the actually numeric value. For example, knowing that astock exchange is at, say, 5,000 don‘t tell you much. However, knowing that the indexhas risen 30% over the last year to 5,000 gives a much better demonstration ofperformance.Index values are useful for investors to track changes in market values over long periodsof time. For example, the widely used Standard and Poors 500 Index is computed bycombining 500 large-cap U.S. stocks together into one index value. Investors can trackchanges in the indexs value over time and use it as a benchmark to compare their ownportfolio returns to. Technically, you cant actually invest in an index. Rather, you investin a security such as an index fund or ETF that attempts to track an index as closely aspossible o called stock index. See also base period. The plural of index can be spelledeither indexes or indices.NIFTY & SENSEX:The word Nifty is a combination of two words namely the ―N‖ from national and ―Nifty‖from fifty. It is an index of fifty companies listed on the National Stock Exchange inIndia. The fifty companies cover twenty two different sectors of the Indian economy. TheSensex on the other hand refers to the sensitivity Index of the Bombay Stock Exchange.The Sensex comprises of the traded stock of the thirty most traded and active types. It isalso representative and covers various sectors. The stock of the Nifty companies‘accounts for approximately sixty percent of the stock traded at the National stockexchange, the Sensex stock accounts for nearly twenty percent of the capitalization of theBombay Stock Exchange.25 | P a g e
  • 26. SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted"index of 30 stocks representing a sample of large, well-established and financially soundcompanies. The index is widely used to Measure the performance of the Indian stockmarkets.The NSE S&P CNX Nifty 50 indexes is a well diversified 50 Stock index accounting for24 sectors of the economy. It is used for a variety of purposes such as benchmarking fundportfolios, index based derivatives and index funds.MARKET INDEX:Market measure that consists of weighted values of the components that make up certainlist of companies. A stock market tracks the performance of certain stocks by weightingthem according to their prices and the number of outstanding shares by a particularformula.THE BASIC IDEA IN AN INDEX:Every stock price moves for two possible reasons: news about the company (e.g. aproduct launch, or the closure of a factory, etc.) or news about the country (e.g. nuclearbombs, or a budget announcement, etc.). The job of an index is to purely capture thesecond part, the movements of the stock market as a whole (i.e. news about the country).This is achieved by averaging. Each stock contains a mixture of these two elements -stock news and index news. When we take an average of returns on many stocks, theindividual stock news tends to cancel out. On any one day, there would be good stock-specific news for a few companies and bad stock-specific news for others. In a goodindex, these will cancel out, and the only thing left will be news that is common to allstocks. The news that is common to all stocks is news about India. That is what the indexwill capture.26 | P a g e
  • 27. REASONS FOR THE INDEX KEEP CHANGING FROM TIME TO TIME:S&P CNX Nifty: Think of a liquid stock as a good thermometer, one which givesaccurate data about the true price of the stock, because it trades actively with a tightspread. The prices observed for an illiquid stock are like readings from a low qualitythermometer, which reports noisy data about the phenomenon of interest (the true priceof the security). We try to find the fifty best thermometers in the country and averagetheir values to make the S&P CNX Nifty. As time passes, better thermometers becomeavailable (in the form of large, liquid stocks that are not in the S&P CNX Nifty). Wewould like that S&P CNX Nifty always uses the best thermometers possible. So weremove the weakest thermometer from inside the S&P CNX Nifty and accept the newstock into it. The world changes, so the index should change. Yet, the change should notbe sudden - for that would disrupt the character of the index. S&P CNX Nifty uses clearresearched and publicly documented rules for index revision. These rules are appliedregularly, to obtain changes to the index set. Index reviews are carried out every quarterto ensure that each security in the index fulfills all the laid down criteria. IDBI was oncenot listed; SBI was once illiquid; Infosys was once an obscure software startup. Theworld changes, and one by one, these stocks have come into the S&P CNX Nifty. Eachchange in the S&P CNX Nifty is small, so the continuity of the index is maintained. Yet,at all times, S&P CNX Nifty represents the 50 most important liquid stocks in the S&PCNX Defty is S&P CNX Nifty, measured in dollars. If the S&P CNX Nifty rises by 2%it means that the Indian stock market rose by 2%, measured in rupees. If the S&P CNXDefty rises by 2%, it means that the Indian stock market rose by 2%, measured in dollars.THE S&P CNX 500:The S&P CNX 500 is India‘s first broad based benchmark of the Indian capital market.The S&P CNX 500 represents about 96% of total market capitalization and about 93% ofthe total turnover on the NSE. The S&P CNX 500 companies are disaggregated into 72industries, each of which has an index – The S&P CNX Industry Index. Industry27 | P a g e
  • 28. weightages in the index dynamically reflect the industry weightages in the market. So fore.g. if the banking sector has a 5% weightage among the universe of stocks on the NSE,banking stocks in the index would have an approx. representation of 5% in the index.The S&P CNX 500 is a market capitalization weighted index. The base date for the indexis the calendar year 1994 with the base index value being 1000. Companies in the indexare selected based on their market capitalization, industry representation, trading interestand financial performance. The index is calculated and disseminated real-time.CNX NIFTY JUNIOR:S&P CNX Nifty is the first rung of the largest, highly liquid stocks in India. CNX NiftyJunior is an index built out of the next 50 large, liquid stocks in India. It is not as liquidas the S&P CNX Nifty, which implies that the information in the S&P CNX Nifty Junioris not as noise-free as that of the S&P CNX Nifty. It may be useful to think of the S&PCNX Nifty and the CNX Nifty Junior as making up the 100 most liquid stocks in India.S&P CNX Nifty is the front line blue chips, large and highly liquid stocks. The CNXNifty Junior is the second rung of growth stocks, which are not as established as thoseare in the S&P CNX Nifty. A stock like Satyam Computers, which recently graduatedinto the S&P CNX Nifty, was in the CNX Nifty Junior for a long time prior to this. CNXNifty Junior can be viewed as an incubator where young growth stocks are found. Aswith the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, sothey are the most liquid of the stocks excluded from the S&P CNX Nifty. Buying andselling the entire CNX Nifty Junior as a portfolio is feasible.The maintenance of the S&P CNX Nifty and the CNX Nifty Junior are synchronized sothat the two indices will always be disjoint sets; i.e. a stock will never appear in bothindices at the same time. Hence it is always meaningful to pool the S&P CNX Nifty andthe CNX Nifty Junior into a composite 100 stock index or portfolio.28 | P a g e
  • 29. CNX MIDCAP 200:The medium capitalized segment of the stock market is being increasingly perceived asan attractive investment segment with high growth potential. The primary objective ofthe CNX Madcap 200 Index is to capture the movement and be a benchmark of themadcap segment of the market. The CNX Madcap 200 Index is a market capitalizationweighted index with its base period of the index being the calendar year 1994 and basevalue as 1000. For inclusion in the index, the average market capitalization of a companymust range between Rs.0.75 billion to Rs.7.5 billion. The distribution of industries in theCNX Madcap 200 Index represents the industry distribution in the Madcap segment ofthe market. All companies are evaluated for trading interest and financial performance.IMPORTANCE OF NSE CLOSING PRICE:NSE has the best surveillance procedures in India, so the extent of market manipulationis minimum there. In NSE, the professional staff of the surveillance department has nopositions on the market. This elimination of conflicts of interest generates a more honestfocus upon eliminating market manipulation. On a day-to-day basis millions of shares gettraded on the NSE generating huge order flows. Due to the liquidity and order flow fromnumerous market players manipulation of the closing price becomes very hard. NSE isthe most liquid exchange in India. Hence, the prices observed there are the most reliable.NSE has the highest trading intensity (reducing stale prices) and their bid-ask spreads arethe tightest (reducing bid-ask bounce). This is assisted by the fact that the NSE tick sizeis Rs.0.05 for all stocks, which encourages tight bid-ask spreads.29 | P a g e
  • 30. CHAPTER 3 - INDUSTRY PROFILE30 | P a g e
  • 31. Introduction to the Capital Market The capital market is the market for securities, where companies and thegovernment can raise long term funds. The capital market includes the stock market andthe bond market. Financial regulators ensure that investors are protected against fraud.The capital markets consist of the primary market, where new issues are distributed toinvestors, and the secondary market, where existing securities are traded.Capital market thus plays a vital role in channelizing the savings of individuals forInvestment in the economic development of the country. As a result the investors are notconstrained by their individual abilities, but by the abilities of the companies, which inturn enhance the savings and investments in the country, liquidity of capital market is animportant factor affecting growth.Since projects require long term finance, but on the other hand, the investor may not liketo relinquish control over their savings for a long time. A liquid stock market ensures aquick exit without incurring heavy losses or costs. Thus development of efficient marketsystem is necessary for creating conductive climate for investment and economic growth.Capital Market Segment – Primary and Secondary Broadly , the comprises of two segments – the new issue market which iscommonly known as primary market and the stock market which is known as secondarymarket.31 | P a g e
  • 32. Primary A primary offering, such as with a corporate bond, means you are buyingit directly from the issuer, at par value, usually. A secondary market is where you sell orbuy existing issues. i.e.; if you bought a bond last year, now need to get your principal,you can sell it in the secondary market. You may not get par value. If rates are up sinceyou bought the bond, then you will likely have to sell it at a discount to be able to get ridof it. If rates have fallen since you bought it, you could get a premium for it.Secondary The market where securities are traded after they are initially offered in theprimary market. Most trading is done in the secondary market. To explain further, it istrading in previously issued financial instruments. An organized market for usedsecurities. Bombay Stock Exchange (BSE), National Stock Exchange NSE, bondmarkets, over-the-counter markets, residential mortgage loans, governmental guaranteedloans etc Secondary Market refers to a market where securities are traded after beinginitially offered to the public in the primary market and/or listed on the Stock Exchange.Majority of the trading is done in the secondary market. Secondary market comprises ofequity markets and the debt markets. For the general investor, the secondary marketprovides an efficient platform for trading of his securities.For the management of the company, Secondary equity markets serve as a monitoringand control conduit—by facilitating value-enhancing control activities, enablingimplementation of incentive-based management contracts, and aggregating information(via price discovery) that guides management decisions.32 | P a g e
  • 33. BRIEF ABOUT THE STOCK EXCHANGES Stock Exchange is a market like any other centralized market where both buyersand sellers come and conduct their business of purchase and sale of shares & securities.In other words, it is a market place for shares and securities where trading takes place ina controlled and protected environment.MEANING OF STOCK EXCHANGE A stock exchange, share market or bourse is a corporation or mutual organizationwhich provides "trading" facilities for stock brokers and traders, to trade stocks and othersecurities. Stock exchanges also provide facilities for the issue and redemption ofsecurities as well as other financial instruments and capital events including the paymentof income and dividends. The securities traded on a stock exchange include: sharesissued by companies, unit trusts and other pooled investment products and bonds. To beable to trade a security on a certain stock exchange, it has to be listed there. Usually thereis a central location at least for recordkeeping, but trade is less and less linked to such aphysical place, as modern markets are electronic networks, which gives them advantagesof speed and cost of transactions. Trade on an exchange is by members only. The initialoffering of stocks and bonds to investors is by definition done in the primary market andsubsequent trading is done in the secondary market. A stock exchange is often the mostimportant component of a stock market. Supply and demand in stock markets is drivenby various factors which, as in all free markets, affect the price of stocks (see stockvaluation). There is usually no compulsion to issue stock via the stock exchange itself, normust stock be subsequently traded on the exchange. Such trading is said to be off33 | P a g e
  • 34. exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly,stock exchanges are part of a global market for securities.Functions of Stock Exchange Stock exchange is established into the main purpose of providing a market placefor the members to deal in securities under well laid down regulations and to protect theinterest of the investors. The main functions of stock exchange are It brings the companies and investors together so that the investors can put risk capital into companies and thus, companies can use the capital. It provides an orderly regulated market for securities. It provides continuous, ready and open market for selling and buying securities. It promotes savings and investment in the economy by attracting funds from the Investors. It facilitates take overs by means of acquiring majority of shares traded on the stock market. It acts as a clearing house of business information. It motivates the managers of well reputed companies, to retain their shares in ‗A‘ group, to improve performance. It induces the managers to improve performance for converting non-specified shares into specified shares in the exchange. It enables the investors to evaluate the net worth of their holdings. It also allows the companies to float their shares in the market.34 | P a g e
  • 35. FINANCIAL MARKET REGULATIONSRegulations are an absolute necessity in the face of the growing importance of capitalmarkets throughout the world. The development of a market economy is dependent onthe development of the capital market. The regulation of a capital market involves theregulation of securities; these rules enable the capital market to function more efficientlyand impartially. A well regulated market has the potential to encourage additionalinvestors to partake, and contribute in, furthering the development of the economy. Thechief capital market regulatory authority is Securities and Exchange Board of India(SEBI).SEBI is the regulator for the securities market in India. It is the apex body to develop andregulate the stock market in India It was formed officially by the Government of India in1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquarteredin the popular business district of Bandra-Kurla complex in Mumbai, and has Northern,Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai andAhmedabad. In place of Government Control, a statutory and autonomous regulatoryboard with defined responsibilities, to cover both development & regulation of themarket, and independent powers has been set up.The basic objectives of the Board were identified as: to protect the interests of investors in securities; to promote the development of Securities Market; to regulate the securities market and35 | P a g e
  • 36.  For matters connected therewith or incidental thereto.Since its inception SEBI has been working targeting the securities and is attending to thefulfillment of its objectives with commendable zeal and dexterity. The improvements inthe securities markets like capitalization requirements, margining, establishment ofclearing corporations etc. reduced the risk of credit and also reduced the market.SEBI has introduced the comprehensive regulatory measures, prescribed registrationnorms, the eligibility criteria, the code of obligations and the code of conduct fordifferent intermediaries like, bankers to issue, merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters and others. Ithas framed bye-laws, risk identification and risk management systems for Clearinghouses of stock exchanges, surveillance system etc. which has made dealing in securitiesboth safe and transparent to the end investor.Another significant event is the approval of trading in stock indices (like S&P CNXNifty & Sensex) in 2000. A market Index is a convenient and effective product becauseof the following reasons: It acts as a barometer for market behavior; It is used to benchmark portfolio performance; It is used in derivative instruments like index futures and index options; It can be used for passive fund management as in case of Index Funds.36 | P a g e
  • 37. Two broad approaches of SEBI is to integrate the securities market at the national level,and also to diversify the trading products, so that there is an increase in number of tradersincluding banks, financial institutions, insurance companies, mutual funds, primarydealers etc. to transact through the Exchanges. In this context the introduction ofderivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is areal landmark.SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively andsuccessively (e.g. the quick movement towards making the markets electronic andpaperless rolling settlement on T+2 bases). SEBI has been active in setting up theregulations as required under law.EVOLUTION AND GROWTH OF INDIAN PRIMARY MARKETEarly Liberalization Phase: 1992-1995 (Fixed Pricing)The initiation of the process of reform in India also would not have been possible withoutchanges in the regulatory framework. The New Economic policy (1991) led to a majorchange in the regulatory framework of the capital market in India. The Capital Issues(Control) Act 1947 was repealed and the Office of the Controller of Capital Issues (CCI)was abolished. The Securities and Exchange Board of India (SEBI), established in 1988and armed with statutory powers in 1992, came to be established as the regulatory bodywith the necessary authority and powers to regulate and reform the capital market. SEBIcame to be recognized as a regulatory body for the capital market after the abolition ofthe CCI. The control on pricing of capital issue has been abolished and easy access isprovided to the capital market. Initial Public Issue caught the attention of general publiconly after the success of Reliance, when millions of small investors made huge returns37 | P a g e
  • 38. which were unheard of till then. Dhirubhai Ambani was the first promoter who raisedhuge amounts through the public issue route to finance large facilities.The issue process was smoothened, procedures were simplified and free pricing wasallowed, although with certain restrictions, The Indian market had the concept of parvalue of equity shares, and anything above par was considered premium. The onlycompanies that were allowed to come with premium issues were those, which had a threeyear profit-track record for the preceding five years. New companies without this recordcould float premium issues if their promoting companies had the same track record andthey had to hold 50% of the post issue capital. Any new company floated by firstgeneration entrepreneurs could only issue equity at par. There was no restriction aboutprices in a premium issue.The offer was always at a fixed price, whether premium or par. The companies had toappoint intermediaries like merchant bankers, registrars, bankers etc. Merchant bankershad the responsibility of fixing the prices, in consultation with the company, carrying outwith due diligence, preparing the prospectus (offer documents) etc. The prospectus had tobe submitted to SEBI for getting scrutiny.The trend continued in the early nineties as many large projects were launched after theeconomy was liberalized. Many of these companies came out with public issues and theretail participation increased dramatically. But many of the companies which raisedmoney during this period just disappeared without a trace.Late Liberalisation Period: 1996-2005 (Book Building)The late nineties and the first few years of the current decade did not see much activity inthe primary market even though we saw a huge bull run led by technology stocks at theturn of the decade. The bad experiences of retail investors kept them away from themarket and made it difficult for companies to launch successful issues. The corporate38 | P a g e
  • 39. sector was recovering from the damage caused by large capacity expansions and newprojects set up in the nineties.The dormant primary issues market came alive after 2003 mostly because of thedivestment programme of the government. The issue of Maruti Udyog, through whichthe government sold part of its stake in the company, rekindled retail investor interest inthe primary market. The issue was made at a very reasonable price and investors madevery good returns immediately.The year 2004 saw the primary market activity at its historic peak as some large privatecompanies also came out with issues. Further divestment by the government; includingthe largest ever issue by an Indian company from ONGC, attracted more retail investorsinto the market. The IPO market continues to buzz in the current year as well. Takingadvantage of the strength in the secondary market, many high profle companies are liningup to raise money from the market. The year started with the issue from Jet Airwayswhich attracted a lot of interest from investors. As a result of tougher regulations, thequality of the issues has gone up substantially.2006 onwards scenario:Indias IPO market emerged as the eighth largest with $7.23 billion (Rs 30,000 crore) innet proceeds through 78 public issues, global research and consultancy firm Ernst &Young said in its Global IPO report. Across the world, the companies raised $246 billion,up from $167 billion in 2005, through a total of 1,729 IPOs, led by Chinese companies atthe top with net proceeds of $56.6 billion. However, the biggest number of IPOs camefrom the United States with 187 offerings, followed by Japan with 185 and China with175 IPOs. According to the study, Indias increasing number of larger deals has beendriven by the growth of Indian corporations and their need for additional capital forpotential acquisitions. In 2007 Indian IPOs continue to surge in numbers. Continuedstrength is expected in the real estate and energy sector. "The rapid growth in emergingmarket economies has resulted in a migration of capital from the developed economiesinto the emerging markets," E&Y said.39 | P a g e
  • 40. The localization trend in India is evidenced by several billion-dollar IPOs hosted byIndian exchanges. In 2006, Indias largest IPO, Reliance Petroleum raised $1.8 billion,followed by the oil production and exploration company, Cairn Energy, which raised$1.3 billion with both companies listing on domestic exchanges.However, some Indian companies are also listing abroad, especially London, Singaporeand Luxembourg, primarily for higher valuations and visibility, the report noted.40 | P a g e
  • 41. CHAPTER 4 DATA ANALYSIS & INTERPRETATIONS41 | P a g e
  • 42. FACTORS INFLUENCING STOCK PRICES & INDICESThe main factors that include the movement of stock indices include: a. Economic Factors b. Industry Trends c. Company Performance d. Demand & Supply e. Other Factors1. ECONOMY ANALYSISEconomic analysis is the analysis of forces operating the overall economy a country.Economic analysis is a process whereby strengths and weaknesses of an economy areanalyzed. Economic analysis is important in order to understand exact condition of aneconomy.The Centre for Monitoring Indian Economy (CMIE) has estimated India‘s grossdomestic product (GDP) to expand at 9.2 per cent in 2010-11 as compared to the growthof 7.4 per cent in 2009-10. Overall growth in industrial output was 10.8 per cent year-on-year (y-o-y) in October 2010. The growth in the industrial sector is expected to increaseat 9.4 per cent in 2010-11, as compared to 9.2 per cent in 2009-10. According to a surveyby the Confederation of Indian Industry (CII) and ASCON, around 50 segments (out of127) in the manufacturing sector grew by 39 per cent, entering the excellent growthcategory, during April-December 2010-11 compared to 29 sectors (22.9 per cent) inApril-December 2009 which shows a marked improvement. Also, services sector isprojected to expand by 10 per cent as compared to 8.6 per cent last year, led by the tradeand transport segment. As per Use-based classification, the Sectorial growth rates inOctober 2010 over October 2009 are 7.7 per cent in Basic goods, 22 per cent in Capital42 | P a g e
  • 43. goods and 9.5 per cent in Intermediate goods. The Consumer durables and Consumernon-durables have expanded by 31 per cent and 0.1 per cent respectively in the reportedmonth.The industrial output registered a robust growth of 10.8 per cent year-on-year (y-o-y) inOctober 2010. Among the three major constituents of the IIP, manufacturing andelectricity recorded higher growth rates of 11.3 per cent and 8.8 per cent in October asagainst their corresponding levels of 10.8 per cent and 4 per cent for the correspondingmonth in 2009. The third constituent mining index registered 6.5 per cent in October2010.The Economic scenarioForeign injections amounted to US$ 6.4 billion in October 2010, which was almost 25per cent of the total inflows in the stock market registered so far in 2010 The net foreignfund investment crossed the US$ 100 billion mark on November 8 2010, since theliberalization policy was implemented in 1992.Even in 2011 the foreign investment inthe March month it was U.S$3.6 billion As per the data given by SEBI, the total figurestood at US$100.9 billion, wherein US$ 4.78 billion were infused in November itself.The humungous increase in investment mirrors the foreign investors‘ faith in the Indianmarkets. FIIs have made investments worth US$ 4.11 billion in equities and poured US$667.71 million into the debt market.Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 andnumber of registered sub-accounts rose to 5,592 as of November 10, 2010.As on December 17, 2010, Indias foreign exchange reserves totalled US$ 294.60 billion,an increase of US$ 11.13 billion over the same period last year, according to the ReserveBank of Indias (RBI) Weekly Statistical Supplement.Moreover, India received foreign direct investment (FDI) equity worth US$ 12.39 billionduring April-October, 2010-11, taking the cumulative amount of FDI inflows during43 | P a g e
  • 44. April 2000 - October 2010 to US$ 179.45 billion, according to the Department ofIndustrial Policy and Promotion (DIPP).The services sector comprising financial and non-financial services attracted 21 per centof the total FDI equity inflow into India, with FDI worth US$ 2,163 million during April-October 2010,. Metallurgical industries were the third highest sector attracting FDI worthUS$ 920 million.  Exports from India have increased by 26.8 per cent year-on-year (y-o-y) to touch US$ 18.9 billion in November 2010, urging the Government to exude confidence that overall shipments in 2010-11 may touch US$ 215 billion. For the April- November 2010 period, exports have grown by 26.7 per cent to US$ 140.3 billion, while imports totaled up to US$ 222 billion, expanding 24 per cent.  Indias logistics sector is witnessing increased activity. According to the Indian Shipping ministry, the countrys major ports handled 44.4 million tones of cargo during September 2010, 4.5 per cent higher as compared to 5.9 per cent growth in September 2009. Leading consultants Frost&Sullivan, as cited by The Economic Times, are expecting traffic to boost at Indian ports from 814.1 million tones (MT) to 1,373.1 MT from 2010 to 2015 at a CAGR of 11 per cent. The study group has underlined three key trends in the sector, namely, increase in containerized cargo, increased private sector participation and traffic diversion toward minor ports. .  The average assets under management of the mutual fund industry stood at US$ 160.44 billion for the month of September 2010, according to the data released by Association of Mutual Funds in India (AMFI).  The cumulative production of vehicles in India grew by 32.4 per cent upto August 2010 as compared to the same period in 2009, Mr B S Meena, Secretary, Ministry of Heavy Industry, reported. Passenger vehicles, commercial vehicles and two-wheeler segments had all recorded impressive growth rates of 32 per cent, 49 per cent and 31 per cent, respectively during the period upto August 2010. . .44 | P a g e
  • 45.  According to Ernst & Young (E&Y), a global consultancy firm, India is expected to receive more than US$ 7 billion in private equity (PE) investments in 2010, on the back of robust economic growth. According to research firm VCCEdge, mergers and acquisition (M&A) deals worth US$ 54.6 billion have been signed till December 15, 2010, significantly more than the previous high of US$ 42 billion achieved in 2007.  The HSBC Market Business Activity Index, which measures business activity among Indian services companies, based on a survey of 400 firms, rose to 60.1 in November 2010 from 56.2 in October 2010.  We had taken the stock prices from the 2008 -2011 the stock prices melt down very drastically in 2008 because of the Lehman brothers they were bankrupt in U.S it was nearly $600billions in assets it had taken credit from many of banks throughout the world it was unable to pay them so there was a drastic down fall of stocks in that periodGrowth potential story  The data centre services market in the country is forecast to grow at a compound annual growth rate (CAGR) of 22.7 per cent between 2009 and 2011, to touch close to US$ 2.2 billion by the end of 2011, according to research firm IDC India‘s report published in March 2010. The report further stated that the overall India data centre services market in 2009 was estimated at US$ 1.39 billion. .  The BMI India Retail Report Quarter 3, 2010 released in May 2010, forecasts that total retail sales will grow from US$ 353 billion in 2010 to US$ 543.2 billion by 2014.  According to a report titled India 2020: Seeing, Beyond, published by domestic broking major, Edelweiss Capital in March 2010, stated that Indias GDP is set to quadruple over the next ten years and the country is likely to become an over US$ 4 trillion economy by 2020.45 | P a g e
  • 46.  India will overtake China to become the worlds fastest growing economy by 2018, according to the Economist Intelligence Unit (EIU), the research arm of London-based Economist magazine.Economic Survey 2009-10 HighlightsAccording to the Economic Survey 2009-10, tabled in Parliament on February 25, 2010by the Union Finance Minister, Mr Pranab Mukherjee, the economy is expected to growat 7.2 per cent in 2009-10. The expected growth comes on the back of the growthmomentum witnessed in Q2 2009-10 estimates, when the economy recorded a GDPgrowth of 7.9 per cent as against 7.5 per cent in the corresponding quarter of 2008-09.The industrial and the service sectors are growing at 8.2 and 8.7 per cent respectively, asper the advance estimates of gross domestic product (GDP) for 2009-10, released by theCentral Statistical Organisation (CSO).The Economic Survey estimates:  Growth rate of GDP at factor cost expected to be 7.2 per cent.  Growth in the manufacturing sector has more than doubled from 3.2 per cent in 2008-09 to 8.9 per cent in 2009-10.  Growth of private investment demand picked up in 2009-10.  Savings rate as a percentage of GDP in 2008-09 stood at 32.5 per cent.  Growth rate of capital formation as a percentage of GDP in 2008-09 stood at 34.9 per cent.  Foreign Exchange Reserves in 2009-10 as of December 31, 2009 stood at US$ 283.5 billion.  Financing, insurance, real estate and business services have retained their growth momentum at around 10 per cent in 2009-10.46 | P a g e
  • 47. The main highlights of the survey are:  The recovery in GDP growth for 2009-10, as indicated in the advance estimates, is broad based. Seven out of eight sectors/sub-sectors show a growth rate of 6.5 per cent or higher. Sectors including mining and quarrying; manufacturing; and electricity, gas and water supply have significantly improved their growth rates at over 8 per cent in comparison with 2008-09. The construction sector and trade, hotels, transport and communication have also improved their growth rates over the preceding year.  Strong growth in automobiles, rubber and plastic products, wool and silk textiles, wood products, chemicals and miscellaneous manufacturing; modest growth in nonmetallic mineral products. .  There has been improvement in the balance of payments (BoP) situation during H1 of 2009-10 over H1 of 2008-09, reflected in higher net capital inflows and lower trade deficit.  Net capital flows to India at US$ 29.6 billion in April-September 2009 remained higher as compared to US$ 12 billion in April-September 2008.  During fiscal 2009-10, foreign exchange reserves increased by US$ 31.5 billion from US$ 252 billion in end March 2009 to US$ 283.5 billion in end December 2009.  Growth rate of gross fixed capital formation in 2009-10 has recovered, as per the revised National Accounts Statistics (NAS).  Turnaround in merchandise export growth witnessed in November 2009, which has been sustained in December 2009.Crisis of automobile sector in 2008-2010  The automotive crisis not only occurred in our Asian continent it was occurred all the parts of the world because of the rise of automotive fuels because of that the purchasing power of the consumers was drastically reduced47 | P a g e
  • 48.  Decline of BOP in 2009 – 2010 the BOP (Balance of payments) were been decreased before period of 2008 – 2009 it was good in exports 3.6% decline and in imports 2.6% declineHopes to the automotive sector in 2009 – 2010Because of the down fall of automotive sector the RBI has decreased the interest rates ofthe automotive sector so there was a slight increasing of the stock prices was increasedfall in EPS but it recovered the demand and supply of this company was much whencompare to other companies48 | P a g e
  • 49. INDUSTRY & COMPANY ANALYSIS OF AUTOMBILE SECTORAutomobilesDespite the fiscal slowdown worldwide, India had maintained its growth rate at a steady8-8.5 per cent and the automobile industry has also grown in excess of 13 per cent overthe last few years. With easy financing options and with the wide range of cars beinglaunched frequently, the Indian automobile enthusiasts have never seen it better.According to SIAM, the cumulative production data for April-January 2011 showsproduction growth of 27.45 per cent over same period in 2010. In March 2011 ascompared to March 2010, production grew at 20.62 per cent. The industry produced17,916,035 million vehicles of which share of two wheelers, passenger vehicles, threewheelers and commercial vehicles were 75 per cent, 17 per cent, 4 per cent and 4 percent respectively.The growth rate recorded for Domestic Sales for 2010-11 was 26.17 per cent amountingto 15,513,156 vehicles.49 | P a g e
  • 50. Passenger Vehicles segment grew at 29.16 per cent during April-March 2011 over sameperiod last year. Passenger Cars grew by 29.73 per cent, Utility Vehicles grew by 18.87per cent and Multi-Purpose Vehicles grew by 42.10 per cent in this period.The overall Commercial Vehicles segment registered growth of 26.97 per cent duringApril-March 2011 as compared to the same period last year. While Medium & HeavyCommercial Vehicles (M&HCVs) registered growth of 31.78 per cent, LightCommercial Vehicles grew at 22.88 per cent.Three Wheelers sales recorded a growth rate of 19.44 per cent in April-March 2011.While Passenger Carriers grew by 22.03 per cent during April-March 2011, GoodsCarriers registered growth of 9.45 per cent.Two Wheelers registered a growth of 25.82 per cent during April-March 2011. Mopeds,Motorcycles and Scooters grew by 23.53 per cent, 22.86 per cent and 41.79 per centrespectively.Maruti Suzuki posted a 14.7 per cent rise in January car sales while Mahindra &Mahindra reported a sales growth of 22 per cent in comparison to last year.Tata Motors posted a 15 per cent rise in January sales. Tata Motors has reported aconsolidated net profit of US$ 540.3 million for the quarter ended December 2010, up273 per cent as compared to US$ 144.89 in same quarter the previous year.Skoda Auto India has reported impressive sales growth for January 2011, with total salesfor January 2011 at 2825 units, as against 1881 units in January 2010.50 | P a g e
  • 51. Bajaj AutoFrom 2008 the data is taken into account . We see in the figure that the prices of stockshave fallen in 2008 due to recession but after that there is a continuous increase in theprices until it again falls in 2011 . But after that it has again increased .51 | P a g e
  • 52. The sales figure shows that the sales had decrease in 2008 and 2009 after which it hadincreased.The PAT figures show the same trend as the sales figure . It decreased in 2008 anddecreased little bit down in 2009 but again increased in 2010 .it went52 | P a g e
  • 53. Bajaj AutoThe Rahul Bajaj said that there was a highest ever sales, export, profits were increased in2009 -10 the sales were increased nearly 35% and there was the sale of 2.5 million motorcycle in 2009 – 2010. Sales were increased in 2010 – 2011 of 39% exports wereincreased 35% i.e. the company reached 1 million mark of sales Bajaj auto is nowfocusing on mostly on discover and pulsar only because more sales of those productsBajaj auto EPS:In 2008 the EPS was 52.25 because of high recession is going on in 2009 45.37 becauseof the automotive crisis there was a drastic increase in 2010 &2011 117.69 & 119.42Bajaj Auto market capitalization was 42341.63 in 2010-2011Hero Honda53 | P a g e
  • 54. Though in 2008 the increase was a little less as compared to other years it again pickedup the pace in 2009. From 2009 there was a drastic increase in sales .PAT was less in 2008 from next year has increased drastically and fallen in 201154 | P a g e
  • 55. Hero Honda :Before it was hero Honda now it was hero Motor Corporation it had come out from thejoint venture of the Honda and buy the share of the Honda so, in August 2011 thecompany was renamed as hero Motor CorporationHero Honda sales have increased to 4.6 million and in Economic Times ―The CompanyOf the Year‖ it got a record profits and record capitalization on 2009-2010. Whilecoming to 2010-2011.There was a good sales in 2010-2011 it was of 5.4millionHero Honda EPS:The hero Honda EPS was 48.47 in 2008 and drastically increased in 2009-2011 becauseof higher sales and profits that was 64.19 & 111.77 it was decline in 2011 because ofhero Honda came out of the joint venture and purchased the Honda shares so that theEPS of the year was 96.55Hero Honda market capitalization was 31739.3355 | P a g e
  • 56. Mahindra and MahindraThe above figure shows us a wide variation in the stock prices of Mahindra andMahindra... Due to recession in 2008 the prices fell down drastically. The prices startedrecovering in 2009 and reached at a very high level in 2010.56 | P a g e
  • 57. Sales of M&M sales shows that there is a decresae in sales after 2008 i.e; in 2009 butafter that it was increased drasticaly untill 2011.PAT of M&M has increased from 2001 to 2009 . In 2010 it has fallen drastically .Mahindra and MahindraThe Mahindra and Mahindra had taken over the Punjab tractors limited 1 st August 2008In the domestic sales the Mahindra and Mahindra had taken over growth of 47.8%spareparts sales reached to 514.96crores in that 27 Cr were exporting the spare parts thecompany had repaid it foreign currency loans of $94.5 million in 2009-2010. Thecompany had a growth in net income for the year of 2010-2011 26.60% domestic saleswas 39.8% when compared to previous year it was lessMahindra and Mahindra EPS:The EPS of Mahindra and Mahindra of 2008 was 46.15, 2009 there was a slight fall inEPS because of Automotive crisis, global financial meltdown, inflation touched at12% from 2010 & 2011 it had gained nice sales the EPS was 36.89 & 45.33Mahindra and Mahindra market capitalization was 42997.30 in 2010-201157 | P a g e
  • 58. Maruti SuzukiBefore 2008 the stock prices of the maruthi suzki was varying . All through out 2008 ithad decreased and started recovering in 2009. The end of 2009 and the beginning of 2010saw a very drastic increase in the share prices .58 | P a g e
  • 59. The sales were increaing and decreasing in year on year from 2008 to 2011 .Even in pat also the same thing will increase and decreasing occurred from 2008 to 2011Maruti Suzuki:During the period of the 2008-2009 there was a great fluctuation in the globally. TheIndian economy was less effected even the crisis is going on the company unit sales inthe domestic market it was 1.5% and 3.6% I exports market share had raised to 45.9% to46.5% So, because of the crisis the company has increased its R&D designed engineers398 to 730. From the crisis the company had recovered it sales by the R&D departmentand they strengthened the customer satisfaction so in 2009-2010 the domestic sales wasgrown up to 21% exports 111% it got highest ever income growth of 40%, net profitincreased to 105%Maruti Suzuki EPS:In 2008 the EPS was 59.91 and in 2009 42.15 it was because of automotive crisis whilecoming to 2010 it was of 86.45 here they had spent on R&D so the EPS was raised to86.45 but slight decrease in EPS it was 79.2159 | P a g e
  • 60. Maruti Suzuki market capitalization was 36464.78 in 2010-2011.Tata MotorsThe share prices of Tata Motors also showed a wide fluctuation over the 10 years . It hadgone down in 2008 but in 2009 it started recovering60 | P a g e
  • 61. The sales figures show there is a decrase after 2009 and it has increased from theredrasticaly.Here also there is a drastic decrease in after the 2008 and recovered fastly from there thepat was good when compared to the 2009Tata Motors growth in 2009For the first few months of the 2009 the Tata motors conducted widespread of campaignthe entrance of the new car TATA NANO as ―The People Car‖ so this part will make thepeople to buy the car for less cost without any credit crisis so it leads to grow in stocks ofthe Tata MotorsTata Motors Eps:The Tata motors EPS was in 2008 56.88 but when come to the 2009 the EPS wasreduced to 19.48 because of no proper demand as 1st two months of Tata sales it wasdeclined so by that the profits of the company also decreased. After that in 2010 & 11was increased to 39.26 & 43.20Tata motors capitalization was 67070.07 according to 2010-201161 | P a g e
  • 62. Final Analysis:After analyzing all the factors of each company I came to know that every company is doingbetter but among them Hero Honda is doing better because even after the automotive crisisalso It had recovered and it had increased the sales, Exports, EPS of the company is mostbetter when compare to others because of its huge profits. Even the company has come outfrom the Honda joint venture in August 2011 it had slight down62 | P a g e
  • 63. CHAPTER 5 FINDINGS, SUGGESTIONS & CONCLUSION63 | P a g e
  • 64. FINDINGSThe present project work has been undertaken to study the process of construction ofBSE Sensex of automobile sector and the various factors that influence the share pricemoments and Sensex. The construction of Index is very sensitive and complex.Like any other commodity, in the stock market, share prices are also dependent on somany factors. So, it is hard to point out just one or two factors that affect the price of thestocks. There are still some factors that are that directly influence the share prices.Demand and Supply - This fundamental rule of economics holds good for the equitymarket as well. The price is directly affected by the trend of stock market trading.When more people are buying a certain stock, the price of that stock increases and whenmore people are selling he stock, the price of that particular stock falls. Now it is difficultto predict the trend of the market but your stock broker can give you fair idea of theongoing trend of the market but be careful before you blindly follow the advice.News - News is undoubtedly a huge factor when it comes to stock price. Positive newsabout a company can increase buying interest in the market while a negative press releasecan ruin the prospect of a stock. Having said that, you must always remember that oftentimes, despite amazingly good news, a stock can show least movement. It is the overallperformance of the company that matters more than news. It is always wise to take a waitand watch policy in a volatile market or when there is mixed reaction about a particularstock.Market Cap - If you are trying to guess the worth of a company from the price of thestock, you are making a huge mistake. It is the market capitalization of the company,rather than the stock, that is more important when it comes to determining the worth ofthe company. You need to multiply the stock price with the total number of outstandingstocks in the market to get the market cap of a company and that is the worth of thecompany.64 | P a g e
  • 65. Earning Per Share - Earning per share is the profit that the company made per share onthe last quarter. It is mandatory for every public company to publish the quarterly reportthat states the earning per share of the company. This is perhaps the most importantfactor for deciding the health of any company and they influence the buying tendency inthe market resulting in the increase in the price of that particular stock. So, if you want tomake a profitable investment, you need to keep watch on the quarterly reports that thecompanies and scrutinize the possibilities before buying stocks of particular stock.Price/Earning Ratio - Price/Earning ratio or the P/E ratio gives you fair idea of how acompanys share price compares to its earnings. If the price of the share is too muchlower than the earning of the company, the stock is undervalued and it has the potentialto rise in the near future. On the other hand, if the price is way too much higher than theactual earning of the company and then the stock is said to overvalued and the price canfall at any point.Fresh Issue Of SharesIf a company is issuing the fresh shares, then share prices will come down because theprofit will be shared with more investors then before.BuyBackThis is when the company buys back its own shares. As the number of shares decline, thecompany‘s earnings will be distributed to fewer investors. As every investor is entitled toa larger share of company‘s future earnings, its share price increases.65 | P a g e
  • 66. SUGGESTIONSThere are three factors which an investor must consider for selecting the right stocks.  Business: An investor must look into what kind of business the company is doing, visibility of the business, its past track record, capital needs of the company for expansion etc.  Balance Sheet: The investor must focus on its key financial ratios such as earnings per share, price-earning ratio; debt-equity ratio, dividends per share etc and he must also check whether the company is generating cash flows.  Bargaining: This is the most important factor which shows the true worth of the company. An investor needs to choose valuation parameters which suit its business.Following are some of the investment rules to be considered before makinginvestments in stock markets:  Invest for long term in equity markets  Align your thought process with the business cycle of the company.  Set the purpose for investment.  Long term goals should be the objective of equity investment.  Disciplined investment during market volatility helps attains profits.  Planning, Knowledge and Discipline are very crucial for investment.66 | P a g e
  • 67. CONCLUSIONInvestment is a process, which starts from formulating objectives to construct a portfolioand regular review of it. BSE and NSE are two prominent exchanges on whichcompanies are listed and traded in secondary market. These two exchanges functionsaccording to the protection & surveillance of investors. In this concern, these exchangesconstruct indices so that market movements can be observed and valuable decisions canbe taken.The process of constructing an index is tedious but very useful for a normal investor whoworks on his own in his investment game. The process of constructing market leaderindex in this present project work is given clearly and any investor can follow thisprocess to easily construct his own index.67 | P a g e
  • 68. CHAPTER 6-BIBLIOGRAPHY68 | P a g e
  • 69. BOOK NAME AUTHOR1. Security analysis and portfolio management Punithavati Pandian2. Investment Management V.K. Bhalla3. Dalal StreetWEB SITES1. www.nseindia.com2. www.IndianCapitalMarket.com3. www.Bseindia.com4.www.Sify.com5.www.rediffmoney.com6.www.angelbroking.com7.www.stockmarketview.com69 | P a g e

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