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Impact of Policy Initiatives on Stock Returns
1. PRESTIGE INSTITUTE OF MANAGEMENT GWALIOR
MINOR RESEARCH PROJECT
ON
“IMPACT OF POLICY INITIATIVES ON STOCK RETURNS”
SUBMITTED TO PIMG
Towards Partial Fulfillment of Requirement For Master of Business
Administration Degree
Prestige Institute of Management, Gwalior
Opp. Deen Dayal Nagar, Gwalior
Website: www.prestigegwl.org
FACULTY GUIDE:
DR. GARIMA MATHUR
SUBMITTED BY:
CHETAN GHADGE (13)
GARIMA LAKHOTIYA (22)
PRAGATI SAXENA (40)
MBA 2ND
SEM ‘B’
(FINANCE)
2. DECLARATION
We Chetan Ghadge, Garima Lakhotiya and Pragati Saxena student of MBA 2nd
Semester of Prestige Institute of Management Gwalior, hereby declare that the
Research report on the topic Impact of Policy Initiatives on Stock Returns is
submitted by me in the line of partial fulfilment of course objectives for the
Masters of Business Administration Degree.
I assure that this report is the result of my own efforts and that any other institute
for the award of any degree or diploma has not submitted it.
Date:
Place:
Chetan Ghadge
Garima Lakhotiya
Pragati Saxena
3. CERTIFICATE
This is to certify that Chetan Ghadge, Garima Lakhotiya and Pragati Saxena
Student of MBA 2nd
Semester ‘B’ of Prestige Institute of Management Gwalior has
successfully completed her Research Report. They have prepared this report on the
topic “Impact of Policy Initiatives on Stock Returns” under my direct
supervision and guidance.
Dr. Garima Mathur
4. ACKNOWLEDGEMENT
We Chetan Ghadge, Garima Lakhotiya and Pragati Saxena express my sincere
gratitude to Dr. Garima Mathur for giving me the opportunity to work under her
guidance on the report entitled “Impact of Policy Initiatives on Stock Returns”.
I am grateful to my Director Dr. S. S.Bhakar, Faculty Member and other friends
for their valuable suggestions in the execution of report preparation.
I am also thankful to other staff that guided and helped us very kindly at each and
every step whenever I required.
I also acknowledge & convey thanks to the library staff, computer department of
PIMG for their kind and valuable support.
Chetan Ghadge
Garima Lakhotiya
Pragati Saxena
5. TABLE OF CONTENTS
S.NO PARTICULAR PAGE
NO.
1 Introduction
1.1Conceptual framework
1.2Review of literature
1.3Objective
1.4Hypothesis
1
2
3
3
2 Research methodology
2.1The study
2.2Sampling design
2.3Tools used for data collection
2.4Tools used for data analysis
4
4
4
5
7. 1
1. INTRODUCTION
1.1CONCEPTUAL FRAMEWORK
In the current economy most of the individuals are directly or indirectly involved in stock
market. In the year 2020, COVID 19 has highly effect on the market economy.
Such policies include all the procedures and decisions that are related to managing the
expansion, contraction and control of the money supply. Such policies are set to control the
impact of the economic variables.
Monetary policies affect the economic activity. For example, these policies aim at maintaining
the economic stability of such an activity and reducing its economic fluctuations. There are also
expansionary monetary policies that aim at fighting against recession and unemployment through
reducing the interest rates and raising the money supplies.
There are also contractionary monetary policies which aim at reducing inflation through raising
the interest rates and reducing the money supplies.
Monetary policy is formulated by Reserve Bank of India (RBI) to facilitate economic growth.
Every year RBI changes the Cash reserve ratio (CRR), Statutory liquidity ratio (SLR), repo rate,
reverse repo rate to control the economic conditions.
The macro economic data with the GDP growth rate falling to 5% in the first quarter of 2019-
2020(April-June).
Fiscal policy involves the government changing tax rates and levels of government spending to
influence aggregate demand into the economy.
Monetary Policy involves changing the interest rates and influencing the money supply.
Repo Rate: - Repo rate is the rate at which RBI lends to his clients generally against government
securities.
Reverse Repo Rate: - Reverse repo rate is the rate at which the central bank of a country (RBI)
borrows money from commercial banks within the country.
Cash Reserve Ratio: - It refers to the proportion of total deposits of the commercial banks
which they must have keep as cash reserves with the central banks.
Statutory Liquidity Ratio: - It refers to liquid assets that the commercial banks must hold on
daily basis as a percentage of their total deposits.
8. 2
1.2 REVIEW OF LITERATURE
As with the advancement of technology whole world come under same roof which makes the
economic structure complex. So, there is need to develop a new economic model which can help
to minimize the complexities up to some extent.
Due to these complexities several times financial crisis takes place in 1929 as well in 2007 –
2008. Which guides them to restructured the economy in terms of monetary and fiscal policies.
Government Expenditure tends to form around 10-11% of the Indian Economy (in current terms
without adjusting for inflation).
In the last two years, the growth of government expenditure is 19.1%
Singh Anamika (2014) In this it has been analysis that impact of monetary policy of stock market
is volatility in nature whenever the monetary policy is announced by the RBI governor.
According to Anyanwu et al (1997), the stock exchange is the market where to buy or sell shares,
stocks, government bonds, debentures, and other securities. The impact of the stock market on
the macro economy comes through two channels. The first, as suggested by Greenspan (1996) is
that movements in stock prices influence aggregate consumption through the wealth channel.
Second, stock price movements also affect the cost of financing to businesses.
The purpose of the study is to examine the impact of monetary policies on stock markets. “The
RBI on expected line slashes repo rates by 25 basis points and maintained an accommodative
stance. The stock market reacted sharply with the benchmark indices losing close to 1% in a
hurry soon after the policy announcement”.
The impact of monetary policies on investment is direct as well as indirect. The direct impact is
through the level and direction of interest rates while the indirect effect is through expectations
about where inflation is headed. The relationship between monetary policy and stock markets
can be viewed in two folds: the effects of monetary policy on stock markets and the effects of
stock markets on monetary policy.
9. 3
1.3 OBJECTIVE OF THE STUDY
1. To Study Policy under NSE (National Stock Exchange).
2. To Study Policy initiative on Before or After change in Stock Exchange.
1.4 HYPOTHESIS
1. There is no significant impact of policy initiatives on stock returns.
11. 4
2. RESEARCH METHODOLOGY
2.1 The Study
The study is causal in nature and secondary data is used to complete the study.
2.2 Sampling Design
2.2.1 Population: All the Listed Companies
2.2.2 Sampling Frame: 2010 to 2019 data quarterly
2.2.3 Sample Size: Companies Listed under NSE
2.2.4 Sample Element: Individual company
2.2.5 Sampling Technique: Least squares
2.3 Tools of Data Collection: Secondary data collected through official site of RBI and NSE
website.
12. 2.4 Tools Used for Data Analysis
Dependent Variable: NIFTY
Method: Least Squares
Date: 06/23/20 Time: 15:30
Sample: 2010Q2 2019Q1
Included observations: 36
Variable Coefficient Std. Error t-Statistic Prob.
C 16643.12 2324.609 7.159534 0.0000
REPO -1285.212 328.0269 -3.918008 0.0004
R-squared 0.311055 Mean dependent var 7602.008
Adjusted R-squared 0.290791 S.D. dependent var 2001.133
S.E. of regression 1685.244 Akaike info criterion 17.75116
Sum squared resid 96561649 Schwarz criterion 17.83913
Log likelihood -317.5209 Hannan-Quinn criter. 17.78187
F-statistic 15.35079 Durbin-Watson stat 0.139991
Prob(F-statistic) 0.000409
R -square is 0.32 that means 32% variance in dependent variable is explained by independent
variable .
In case of reverse , P value is less than 0.05 Since, there is no effect as p value is not significant,
so hypothesis is not rejected.
For F-statistic we can reject the null hypothesis as p value is smaller.
Dependent Variable: NIFTY
Method: Least Squares
Date: 06/23/20 Time: 15:22
Sample: 2010Q2 2019Q1
Included observations: 36
Variable Coefficient Std. Error t-Statistic Prob.
C 11798.42 2765.612 4.266116 0.0002
REVERSE -672.1725 439.8762 -1.528095 0.1357
13. R-squared 0.064265 Mean dependent var 7602.008
Adjusted R-squared 0.036743 S.D. dependent var 2001.133
S.E. of regression 1964.024 Akaike info criterion 18.05733
Sum squared resid 1.31E+08 Schwarz criterion 18.14530
Log likelihood -323.0320 Hannan-Quinn criter. 18.08804
F-statistic 2.335074 Durbin-Watson stat 0.079675
Prob(F-statistic) 0.135740
R-square value is 0.06 which means value is significant and hypothesis is rejected.
In case of reverse, P value is lessthan 0.05 , so there is no effect as p value is not significant, so
hypothesis is not rejected.
For F-statistic we can reject the null hypothesis as p value is smaller.
Dependent Variable: NIFTY
Method: Least Squares
Date: 06/23/20 Time: 15:25
Sample: 2010Q2 2019Q1
Included observations: 36
Variable Coefficient Std. Error t-Statistic Prob.
C 14494.37 1539.377 9.415741 0.0000
CRR -1548.362 340.5832 -4.546209 0.0001
R-squared 0.378064 Mean dependent var 7602.008
Adjusted R-squared 0.359772 S.D. dependent var 2001.133
S.E. of regression 1601.191 Akaike info criterion 17.64884
Sum squared resid 87169678 Schwarz criterion 17.73681
Log likelihood -315.6791 Hannan-Quinn criter. 17.67954
F-statistic 20.66801 Durbin-Watson stat 0.098351
Prob(F-statistic) 0.000066
R- square is 0.37 that means 37% variance in dependent variable is explained by independent
variable.
In case of reverse, P value is less than 0.05 Since, there is no effect as p value is not significant,
so hypothesis is not rejected.
For F-statistic we can reject the null hypothesis as p value is smaller.
14. Dependent Variable: NIFTY
Method: Least Squares
Date: 06/23/20 Time: 15:25
Sample: 2010Q2 2019Q1
Included observations: 36
Variable Coefficient Std. Error t-Statistic Prob.
C 31736.77 1282.993 24.73652 0.0000
SLR -1095.306 58.04914 -18.86860 0.0000
R-squared 0.912826 Mean dependent var 7602.008
Adjusted R-squared 0.910262 S.D. dependent var 2001.133
S.E. of regression 599.4655 Akaike info criterion 15.68391
Sum squared resid 12218202 Schwarz criterion 15.77188
Log likelihood -280.3103 Hannan-Quinn criter. 15.71461
F-statistic 356.0241 Durbin-Watson stat 0.523707
Prob(F-statistic) 0.000000
R -square is 0.91 that means 91% variance in dependent variable is explained by independent
variable .
In case of reverse, P value is less than 0.05 Since, there is no effect as p value is not significant,
so hypothesis is not rejected.
For F-statistic we can reject the null hypothesis as p value is smaller.
15. CONCLUSION
In the words of Chetan, Garima and Pragati there are many theories which describe the impact of
stock returns in monetary and fiscal policies, but then the major theory is modern portfolio
theory which describe equilibrium level of risk under different constraints. We have taken two
major policies (monetary and fiscal) in this study, There is no significant impact of fiscal &
monetary policies on stock returns. We have taken the important tool of monetary policy like
Repo rate , Reverse repo rate, Cash reserve ratio, Statutory liquidity ratio. Impact of all these
tools on stock market may be direct or indirect. Apart from monetary and fiscal policies, many
other factors also impact the fluctuation on stock market like COVID-19, emergency in the
country, merger and acquisition etc. we can see the changes in stock market whenever Repo rate
and reverse repo rate revised by Reserve bank of India.
In this research, we find out some
elements of monetary policy to determine the impact of those elements on stock market. We
have put more emphasis on certain tools and try to find out the significant impact of tools on
stock market.
