equity analyais of macro economic factor

1. EQUITY ANALYSISONMACRO-
ECONOMICFACTORSOFSELECTEDSECURITY
A SYNOPSIS
Submitted to the Uttaranchal University in partial fulfillment ofthe
requirements for the award of the Degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by
Research ScholarName :Sangita Chaudhary
(Enrollment No.: UU171900683)
Under the guidance of
Mr. Farman Ali (Assistant Professor)
Faculty of Management
FACULTY OF MANAGEMENT & BUSINESS
STUDIESUTTARANCHAL UNIVERSITY,
DEHRADUN

2. (Year: 2018)
INTRODUCTION
Equityanalysisthe processof analyzingsectorsandcompanies,togive advice toprofessional fund
managersand private clientsonwhichsharestobuy.Sell-sideanalystsworkforbrokerswhosell shares
to the investors(mainlyfundmanagementfirmsand private clients).Buy-sideanalystsworkforfund
managementfirms.
Whenstudyingfinancial statements,animportantconceptisthe balance sheetidentity. Itstatesthat
assetsminusliabilitiesequalsstockholders'equity. Theoretically,stockholders' equity(alsoknownas
shareholders'equity,orbookvalue),isthe value leftoverforshareholdersif acompany(or any entity)
wouldutilizeitsassetstomeetisliabilityobligations. The restisequity.
The accounting equationis:Assets - Liabilities =Equity.
Thisaccountingequationhasapplicationsbeyondcompanies. One canthinkof equityasone'sdegree
of ownershipinanyassetaftersubtractingall debtsassociatedwiththatasset.Anyloanthatrequiresa
downpayment,there isanasset,liability,andequity. Forexample,acar or house withnodebtcontains
a componentof owner'sequity.
Indiaisa developingcountry.Nowadaysmanypeople are interestedtoinvestinfinancial markets
especiallyonequitiestogethighreturns,andto save tax in honestway.Equitiesare playingamajorrole
incontributionof capital tothe businessfromthe beginning.Since the introductionof sharesconcept,
large numbersof investorsare showinginteresttoinvestinstockmarket.Inanindustryplaguedwith
skepticismandastock marketincreasinglydifficulttopredictandcontendwith,if one lookshard
enoughthere maystill be a genuine aidforthe DayTrader and ShortTerm Investor.The price of a
securityrepresentsaconsensus.Itisthe price atwhichone personagreesto buyand anotheragreesto
sell.The price at whichaninvestoriswillingtobuyor sell dependsprimarilyonhisexpectations.If he
expectsthe security'sprice torise,he will buyit;if the investorexpectsthe price tofall,he will sell it.
These simple statementsare the cause of a majorchallenge inforecastingsecurityprices,because they
referto humanexpectations.Aswe all know firsthand,humansexpectationsare neithereasily
quantifiable norpredictable.If pricesare basedoninvestorexpectations,thenknowingwhatasecurity
shouldsell for(i.e.,fundamental analysis) becomeslessimportantthanknowingwhatotherinvestors
expectitto sell for.That'snot to say thatknowingwhatsecurityshouldsell forisn'timportant--itis.But
there isusuallyafairlystrongconsensusof a stock'sfuture earningsthatthe average investorcannot
disprove Fundamental analysisandtechnical analysiscanco-existinpeace andcomplementeachother.

3. Since all the investors inthe stockmarketwantto make the maximumprofitspossible,theyjustcannot
affordto ignore eitherfundamentalortechnical analysis.
ECONOMIC ANALYSIS
The level of economicactivityhasanimpacton investmentinmanyways.If the economygrowsrapidly,
the industrycan alsobe expectedtoshow rapidgrowthadvice versa.Whenthe level of economic
activityislow,stockpricesare low,and whenthe level of economicactivityishigh,stockpricesare high
reflectingthe prosperousoutlookforsales andprofitsof the firms.The analysisof macroeconomic
environmentsessential tounderstandthe behaviorof the stockprices.The commonlyanalyzedmacro
economicfactorsare as follows:
1. GrossDomestic Product (GDP):
GDP indicatesthe rate of growthof the economy.Itrepresentsthe aggregate value of the goodsand
servicesproducedinthe economy.Itconsistsof personal consumptionexpenditure,grossprivate
domesticinvestmentandgovernmentexpenditureongoodsandservicesandnetexportsof goodsand
services.The growthrate of economypointsoutthe prospectsforthe industrial sectorandthere turn
investorscanexpectfrominvestmentinshares.The highergrowthrate ismore favorable tothe stock
market.
2. Savingsand investment:
It isobvious thatgrowthrequiresinvestmentwhichinturnrequiressubstantial amountof domestic
savings.Stockmarketisa channel throughwhichthe savingsare made availabletothe corporate bodies.
Savingsare variousassetslike equityshares,deposits,mutual funds,real estateandbullion.The savings
and investmentpatternsof the publicstocktoa great extent.
3. Inflation:
Alongwiththe growthof GDP, if the inflationrate alsoincreases,thenthermalgrowthwouldbe very
little.The effectsof inflationoncapital marketsare numerous.Anincrease inthe expectedrate of
inflationisexpectedtocause anominal rise ininterestrates.Also,itincreasesuncertaintyof future
businessandinvestmentdecisions.Asinflationincreases,itresultsinextracoststo businesses,thereby
squeezingtheirprofitmarginsandleadingtoreal declinesinprofitability.
4. Interestrates:
The interestrate affectsthe costof financingtothe firms.A decrease ininterestrate implieslowercost
of finance forfirmsand more profitability.More moneyavailableata lowerinterestrate forthe brokers
whoare doingbusinesswithborrowedmoney.Availabilityof cheapfundsencouragesspeculationand
rise inthe price of shares.
5 .Tax structure:

4. Everyyear inMarch, the businesscommunityeagerlyawaitsthe Government’sannouncement
regardingthe tax policy.Concessionsandincentivesgiventoacertainindustryencourage investmentin
that particularindustry.Tax relief’sgiventosavingsencourage savings.The type of tax exemptionhas
impacton the profitabilityof the industries.
6. Infrastructure facilities:
Infrastructure facilitiesare essential forthe growthof industrial andagricultural sector.A wide network
of communicationsystemisamust forthe growth of the economy.Regularsupplyof powerwithoutany
powercut would boostthe production.Bankingandfinancial sectorsalsoshouldbe soundenoughto
provide adequate supporttothe industry.Goodinfrastructure facilitiesaffectthe stockmarket
favorably.
Rationale of the study
In Indiamostof the industriesrequire huge amountof investments.Fundsare raisedmostlythroughthe
issue of share.Aninvestorissatisfiedfromthe reasonablereturnfrominvestmentinshares.
Speculationinvolveshigherrisks togetreturnon the otherhandinvestmentinvolvesnosuchrisksand
returnswill be fair.Aninvestorcansucceedinhisinvestmentonlywhenhe isable toselectthe right
shares.The investorsshouldkeenlywatchthe situationslike marketprice,economy,companyprogress,
returns,andthe riskinvolvedinashare before takingdecisiononaparticularshare.Thisstudymade
will helpthe investorsknowthe behaviorof share pricesandthuscan succeed.
The Indiancapital Market has witnessedatremendousgrowth.There wasanexplosionof investor
interestduringthe ninetiesandanEquityGuiltemergedinstatutorylegislationshashelpedthe capital
market.ForeignExchange regulationactisone such legislationinthisdirection.
An importantrecent developmenthasbeenthe Entryof ForeignInstitutional investorsare participants
to the primaryand secondarymarketsforthe securities.Inthe pastseveral years,investmentsin
developingcountrieshave increasedremarkably.Amongthe developingcountriesIndiahasreceived
considerable capital inflowsinrecentyears.liberalizationpolicyof the governmentof Indiahasnow
startedfieldingresultsandthe countryispoisedforabig leapinthe industrial andeconomicgrowth.
Literature survey
1. ValerianoGarcia& Lin Liu(1999) examinedthe pooleddataof fifteendevelopingandindustrial
countries to study the macroeconomic determinants of stock market developmentand market
capitalization in particular. The paper concluded that the real income, saving rate, financial
intermediarydevelopmentand stockmarketliquidityare importantdeterminantsof stockmarket
capitalization.
2. Roa&Radjeswari (2000) conducted study incorporating a big number of macro variablesin order
to predict the asset returns. The studyconcluded that the factors that influence the returns of

5. assetsare industrial production,agricultural production,moneysupply,interestrate,exchange
reservesandinflation.
3. Flanneryand Protopapadakis(2001) studiedseventeenmacroeconomic riskfactorsby analysing
the impactof those economicvariable announcementsonthe level andthe conditional volatility of
the daily stock returns. They identifiedthat six of them for price factors in nominal and real
terms. The nominal category includedthree elementsCPI,PPI and moneyaggregate while real
categoryincludedthe employmentreport,housingstartsandthe balance trade.
4. The studyconductedby Engsted and Tanggaard (2002) concludeda moderatelypositive
relationshipbetween expectedstock returns and expected inflationfor the US and a strong
positive relationshipforDenmark.Share (2002) suggeststhat rise in expectedinflationreduces
equitypricesinthe US.
5. Shahid Ahmed(2003) empiricallyinvestigatedon SENSEX index price affects and concluded that
the real and financial sectorperformance inIndianeconomyhasinfluenceinperformanceof the
index using the data from the period1997 to 2007. The study considered export,foreign
exchange rate and foreigndirect investmentasvariables.Granger causalitytest isused to findout
the causal relationshipbetweenthe variables.All the variablesare Grangercause to stock prices.
6. Dr. Nishat (2004) studiedthe long term association among macroeconomic variables, stock
pricesand employedmoneysupply,CPI,IPI,andforeignexchange rate as explanatoryvariable
usingKarachi stock exchange 100 index pricesfrom1974 to 2004. The resultindicatedthatthere
existsa causal relationshipamongthe stock price and macroeconomics variables.Most of the
time seriesdata is non-stationary hence unit root technique was employedto make data into
stationary. Further, the result also indicates that industrial production significantlyaffects to
macroeconomic variables. Granger causality test was used to find the correlation among the
variablesthe resultsindicatedthatthe interestrate isnotgranger cause by stockprice.
7. Lambrick (2005) examinedthe relationshipbetweensixteenmacroeconomic variables and the
equity returns in Australian stock market. The sixteen variables were classified under five
different heads namely real, monetary, labour variables, price level variables and external
variables.The US dollarexchange rate and the composite leadingindicatorpossiblydecide the
pricesinstock market.Further,the impactof variablesretail salesandindustrial productionhold
true for the entire periodof the study.
8. The study conducted by Robert D. Gay (2008) examinedthe relationshipbetween the stock
pricesand macroeconomicvariablesinBrazil,China,IndiaandRussiausingOil price,exchange rate
and moving average lag values as independentvariables.The study concluded that the domestic
factors have significantinfluence on the in emerging economies than the external factors.
9. DubravkaBenaković& Petra Posedel (2010) analyzedthe returns on fourteen stocks of the
Croatiancapital markettakinginflation,industrial production,interestrates,marketindexandoil
price as factors. The resultsindicatedthat the index was positivelyrelatedtothe stock returns and
had the largest statistical significance for all the stocks. Further, interest rates, industrial
productionandoil price waspositivelyrelatedwhile the inflationwasotherwise.

6. 10. The study conductedby Yu Hsing(2011) examinedthe relationshipbetweenstockmarketindex of
Hungary and relevantmacro-economicvariables.The study concludedthat the stock market index
of Hungary has a positive relationship with the real GDP, ratio of government debt to GDP,
nominal effective exchange rate and German stock market index.Further, the evidence showed
that the market index of Hungary was negativelyrelatedtoreal interestrate,expected inflation
rate andgovernmentbondyieldinEuroregion.
Objective of the study
* To analyze the share price behaviorof the selectedindustries.
* To predictthe dayto day Fluctuationsinthe stockmarketusingTechnical Analysis
* To studythe price movementsinthe stockexchange
* To studythe currenttrend andstrengthof the trendof selectedindustry
* To recapitulate the keyfindingsandoffersuggestionstoinvestors.
SCOPE OF THE STUDY
A betterunderstandingof the stockmarkettrendwill facilitate allocationof financial sourcestothe
mostprofitable investmentopportunity.The behaviorof stockreturnswill enablethe investorstomake
appropriate investmentdecisions.The fluctuationsof stockreturnsare due to several economicand
non-economicfactors.The studyisaimedat ascertaining the behaviorof share returns.
The study onfluctuationsinequitymarkethelpsinunderstandingthe behaviorof equitymarket.It
helpsthe investorstobe aware aboutdeviationsinthe returnsof the stocks.The simple movingaverage
model indicatesthe buyandsell signal tothe investors.Thishelpsthe investorsistakinggooddecisions
wheninvestinginequityshares.The studyalsohelpsthe customerstoascertainthe riskandreturnof
the stocks.This will helpthe investorsviz,individuals,Files inidentifyingthe stockswhichwouldyield
themhigherreturnandlesserrisk.
RESERARCH METHODOLOGY

7. Research Design
Thisprojectanalysesthe equityshare fluctuationsinIndiaSelectedIndustry.Italsomeasuresthe
strengthof the trendand the moneyinvolvedininvestinginthe stocks.Simplemovingaverage modelis
appliedforselectedcompanieswhichwouldgive the investorasell signal orbuysignal.
Data and Sources of Data
Secondarydata wasusedfor the analysisprintmediaandinternethas beenusedfordatacollection.
The data also obtainedbythe national stockexchange website(www.nscindia.com).Forthe purpose of
thisstudythe dailyclosingpricesof 15 companiesincludedinNational stockexchange were takenand
theirprice movement are computedandstudied.The sectorsselectedare asfollows:
1. Automobile
2. Banking
3. IT
4. Oil ExplorationandRefinery
5. Tele communication
* Automobile
* Tata Motors Ltd.
* Maruti Suzuki IndiaLtd.
* Bank
* State Bank of India
* ICICIBankLtd.
* Oil Exploration and Refineries
* Oil & Natural Gas CorporationLtd.
* Reliance PetroleumLtd.

8. *InformationTechnologySector
* InfosysTechnologyLtd.
* TATA ConsultancyServicesLtd.
* Telecom
* Bharati Airtel Ltd
* Reliance CommunicationsLtd.
Price fluctuationisastatistical measure of the tendencyof marketorsecuritytorise or fall sharply
withinashort periodof time.Generallyhigherthe fluctuationof asecuritygreaterisit price swings
largerfluctuationsmeansreturnsfluctuate inawide range.Alsoall securitiesdoesnotbehaveinthe
same manner.It isthe expertise of the researcherandinvestorasof to identifywhichindicatorproves
the best.
AUTOMOBILE SECTOR
TATA MOTORS LTD.
The dailyclosingprice of TATA motors ltd.isfoundto be lesserthanthe movingaverage whichindicates
the stock isproceedinginadowntrendand the bearishtrendwouldcontinue untilthere isabuyor sell
signal.The MFI value liesbelowthe centre linewhich confirmsthe trendbutindexismovingupwards
againstthe trendwhichindicatesacertainmarketchange in the trendinthe nearfuture.The RSI
indicatorlieswellbelowthe 30 markswhichshowsthe stock isobviouslyoversoldandthere woulda
definitebullishtrend.
To conclude thisisa bettertime forthe stock to be boughtas soon as the indicatorshowsabuy signal.
MARUTI UDYOG LTD.

9. The dailyclosingprice of marutiudyogltd.isfoundtobe lesserthanthat of the movingaverage which
indicates thatthe stockis ina downtrendandbearishsignal wouldcontinueuntil thereisadefinite buy
signal.The MFI value liesbelowthe centerlinewhichconfirmsthe trendbutindexismovingupwards
againstthe trendwhichindicatesacertainchange in the trendinthe nearfuture the RSI indicatorhas
startedto slowthe oversoldconditionandthisconfirmsthere wouldbe atrendreversal.
To conclude itisbetterto waitfor the indicatorstoshow some definite signal before makinganybuying
decisions withthe stock.
BANKING SECTOR:
STATE BANK OF INDIA
The dailyclosingprice of state bankof Indiaisfoundto be lesserthanthat of the movingaverage which
indicatesthatthe stockis ina downtrendandbearishsignal wouldcontinue The MFIindicatesa
opposite signal asittrendsina directionoppositetothatof the stocksdirectionandthusthere would
definitelybe atrendreversal.The RSIindicatesthe securityisinoversoldconditionandwouldnottake
much longertoreverse its trend.
To conclude the indicatorsshowthatthere wouldbe adefinite buysignal inthe immediatefuture and
hence investinginthisstockwouldbe a betteroption.
ICICI BANK LTD.
The dailyclosingprice of ICICIbankltd.is foundtolie below the movingaverage whichindicatesthatthe
stock isina downtrendand bearishsignal wouldcontinue.The MFIindicatorshowsthe moneythe
moneyflowsiscreepingverylowandbearishtrendisconfirmedsince itiswell belowthe centerline.
The RSI has juststartedto pledge intothe over soldregionanditis seenthatthe trendwouldcontrite
To conclude withthe stockhas not shownanydefinitesignal henceitisadvisable toholdthe stockand
not make anyfurtherbuydecisionsunlessthe trendreversal signal appears.
INFORMATION TECHNOLOGY SECTOR

10. INFOSYSTECHNOLOGIES LTD
The dailyclosingprice of infosystechnologieslitisfoundtolie below the movingaveragewhich
indicatesthatthe stockis ina downtrendandbearishsignal wouldcontinue.The stockhasshowna sell
signal inthe recentpast andhas continuedtotrenddownfromthenon the MFI isbelow the 50 mark
but thenthe directionof the indicatorisinpositive directionandthuscontinuesthere wouldbe atrend
reversal since the indicatorhassignaledtobe ina positive direction.The RSIiswell belowthe centre
line andthusthe stock isconfirmedtobe in the downtrend.
To conclude thatthe stockhas showna sell signal atrecenttime andwill certainlytake time toshow
anothersignal.
TATA CONSULTANCYSERVICESLTD
The dailyclosingprice of TATA consultancyservicesltdisfoundtolie below the movingaverage which
indicatesthatthe stockis ina downtrendandbearishsignal wouldcontinue.The MFIindicateswell
belowthe 50 marks confirmingthe trend.The RSIindicatesadowntrendas the gain islesserthanloss
thusstrengtheningthe bearishtrend.
To conclude the stockis initsdowntrendbutthe trendmightreverse asthe moneyflowsisbeen
measuredpositive soitisbettertoholdthe stock and not make anyfurtherbuydecision.
OIL SECTOR:
ONGCLTD.
The dailyclosingprice of ONGCLtd. is foundtolie below the movingaverage aftershowingarecentsell
signal whichindicatesthatthe stockisina downtrend.The MFI indicatesthe readingabove the centre
line anditis movingina positive directionwhichshowsthatmoneyflowingintothe stockisincreasing
whichindicatesthere wouldbe acertaintrendreversal.The RSIindicatorcreepswell nearthe 30 mark
and hence the strengthof the trendisveryweak.

11. To conclude the stockis havinga weakdowntrendwhichwouldreverseaftershowingasignal
confirmation.Hence itagoodtime to make an investmentdecisionsinthisstock.
RELIANCE PETROLEUM LTD.
The daily closingprice of Reliance petroleumltd.isfoundtolie below the movingaverage aftershowing
a recentsell signal whichindicatesthatthe stockisin a downtrendThe MFI indicatesthe readingabove
the centre line andit ismovinginthe same direction asthat of the stockis increasingwhichindicates
there wouldbe a certaintrendreversal,The RSIindicatorcreepswellnearthe 30 mark and hence the
strengthof the herd isveryweak
To conclude the stockis havinga weakdowntrendwhichwouldreverseaftershowingasignal the stock
ishavinga weakdowntrendwhichwouldreverse aftershowingasignal confirmation.Hence itagood
time to make a investmentdecisionsinthisstock.
TELECOMMUNICATIONSECTOR:
BHARTI AIRTEL LTD
The dailyclosingprice of Bharti Airtel isfoundtolie below the movingaverage aftershowingarecent
sell signal whichindicatesthatthe stockisin a downtrend.The MFIindicatesthe readingonthe centre
line anditis movinginthe directionoppositetothatof the stock and hence there wouldbe atrend
reversal because of heavyinflows.The RSIindicatorisjustnearthe 30 mark and hence the strengthis
the downtrendissoweakand wouldreverse.
To conclude the stockis havinga trendwhichisveryweakand a trendreversal isconfirmedbythe
indicators.Hence the stockinvestmentwouldbe betterchoice assoonas the trendreverses.
RELIANCE COMMUNICATIONSLTD.
The dailyclosingprice of Reliance communicationsLtd.isfoundtolie below the movingaverage after
showingarecentsell signal whichindicatesthatthe stockisin a downtrend.The MFI indicatesthe
readingbelowthe centerline itismovinginthe same directionasthatof the stock and hence trendis
confirmed.The RSIindicatorisjustplugginginto the 30 mark and hence the strengthof the trendisso
weakand there wouldbe atrendreversal fromthe oversoldcondition.

12. METHODS OF DATA COLLECTION
The study basicallydependson:
1. PrimaryData
2. SecondaryData
PRIMARY DATA COLLECTION:
The informationcollecteddirectlywithoutanyreference isprimarydata.Inthe studyitis mainly
throughconservationwithoutconcernedofficersorstaff membereitherindividuallyorcollectively.The
data includes.
1.Conductingpersonal interviewwiththe personwhoare actuallyworkinginshare market
2.Individual observationandinferences.
3.From the people whoare directlyinvolvedwiththe transaction.
SECONDARY DATA COLLECTION
Whenthe data are collectedbysomeone else forapurpose otherthanthe researcher’scurrent
projectand hasalreadyundergone the statistical analysisiscalledsecondarydata.The researchercan
obtaindata fromthe sourcesboth internal andexternal tothe organisation.Studyhasbeentakenfrom
secondarysourcesi.e.publishedannual reportof the company.
Internal sources:- financial statements,companyinformation,managementinformationsystem.
External sources:- businessjournals,social books,businessmagazines,internet
Secondarydata wasusedfor the analysisprintmediaandinternethasbeenusedfordatacollection.
The data also obtainedbythe national stockexchange website(www.nscindia.com)

13. LIMITATIONS
 Thisstudyhas beenconductedpurely tounderstandEquityanalysisforinvestors.
 The study isrestrictedtothree companiesbasedonFundamentalinequity
 The study islimitedtothe companieshavingequities.
 Detailedstudyof the topicwasnot possible due tolimitedsizeof the project.
 There wasa constraintwithregardto time allocationforthe researchstudyi.e.foraperiodof 45
days.
 Suggestionsandconclusionsare basedonthe limiteddataof five years.

14. CHAPTER SCHEME
Chapter1 -Introduction
Chapter 2 -Rationale of the study
Chapter 3 – Review of Literature
Chapter 4 - Objective of the study
Chapter 5 -Research Methodology and conclusion
Chapter 6-limitation
chapter 7- Bibliography

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