This project was created during my course at Indian Institute of Foreign Trade, New Delhi

1. A study on Indian
Automobile Industry - its
correlation with external
economic factors
Submitted by:
Mohit Gupta
Mohit Nigam
Nitin Sharma
Nitin Virmani
Payal Baloni

2. A Study
a) Role of BSE Auto, Crude Oil Prices, Exchange Rates & Repo Rate on
Bajaj Auto stock prices
Guidelines:
1. If P value is more than 5%, we accept NULL Hypothesis / reject Alternative.
It also means that Model is not a good fit. Model insignificantly explains the
variations between R square & P value.
Also particular independent variable is insignificant to influence the dependent
variable.
2. If P value is less than 5%, we reject NULL Hypothesis and accept Alternate
Hypothesis. It also means that Model is a good fit and is significant.

3. H0: NULL Hypothesis is : Homoscedasticity (which is desirable)
H1: ALTERNATIVE Hypothesis – Hetroscedasticity
We will reject H0 and accept H1, which means there is presence of Hetroscedasticity.
Next Steps: Convert all variables value into Log values
R = Pearson Correlation Coefficent
R Square = 71.28%. The variables taken could explain only 71.28% variations in Y.
“Model is said to be spurious when R-square value is greater than Durbin Watson
Statistic.
In our model, R-Square value (71.28%) is greater than Durbin Watson Statistic
(50.02). Hence our model is spurious. We cannot accept it”
Shows that variables has positive direct/perfect relationship. 71.% change in Bajaj
Auto can be explained by change in independent variables(BSE Auto, Crude Oil
Prices, Repo rates & Exchange Rates)
R Square tells how much change in Dependent Variable can be explained by
change in Independent Variables
R Square measures the intensity of the relationship among the variables.
There is a negative relationship between Bajaj Auto & Exchange Rate and also
between Bajaj Auto & Repo Rate.
IMPULSE RESPONSE
Impulse Response: Its function is to show the effects of the shocks on the
adjustment path of variables.
Response of Crude Oil Prices to Bajaj Auto.
When there is a shock of S.D is given then how Crude oil Prices is reacting to Bajaj
Auto.
Response will always be positive.
Response of Exchange Rate to Bajaj Auto.
When there is a shock of S.D is given then how Exchange Rate is reacting to Bajaj
Auto.
Initially response is negative but in future after 7 months response will be on the
slightly positive side.

4. Response of Repo Rate to Bajaj Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Bajaj Auto.
Initially response is positive. As we could see that in 3rd
& 4th
month response is
negligible and it again on the positive side after that.
Response of BSE Auto to Bajaj Auto.
When there is a shock of S.D is given then how BSE Auto is reacting to Bajaj Auto.
Response is positive and will remain on the positive side

5. Correlation between the variables
Correlation Matrix
From the above correlation matrix, we could say that:
Bajaj Auto stock prices are directly related to BSE Auto, Crude Oil prices and
Exchange Rates.
Bajaj Auto stock prices are inversely related to Repo Rates

6. b) Role of BSE Auto, Crude Oil Prices, Exchange Rates & Repo
Rate on Maruti Auto stock prices
“Model is said to be spurious when R-square value is greater than Durbin Watson
Statistic.
In our model, R-Square value (84.24%) is greater than Durbin Watson Statistic
(56.95%). Hence our model is spurious. We cannot accept it”
Shows that variables has positive direct/perfect relationship. 84.% change in Maruti
Auto can be explained by change in independent variables(BSE Auto, Crude Oil
Prices, Repo rates & Exchange Rates)
R Square tells how much change in Dependent Variable can be explained by
change in Independent Variables
R Square measures the intensity of the relationship among the variables.
There is a negative relationship between Maruti Auto & Exchange Rate and also
between Maruti Auto & Crude oil prices

7. Vector Autoregression Estimates
Date: 09/22/12 Time: 16:48
Sample (adjusted): 2008M07 2012M07
Included observations: 49 after adjustments
Standard errors in ( ) & t-statistics in [ ]
BSE_AUTO
CRUDE_OIL_PRI
CES
EXCHANGE_RAT
ES MARUTI_AUTO REPO_RATES
BSE_AUTO(-1) 0.849726 0.002496 1.56E-07 0.012101 5.86E-05
(0.26610) (0.00303) (2.2E-07) (0.05317) (0.00012)
[ 3.19327] [ 0.82477] [ 0.69665] [ 0.22759] [ 0.50879]
BSE_AUTO(-2) 0.197529 -0.000670 -7.78E-08 0.011856 7.90E-05
(0.25977) (0.00295) (2.2E-07) (0.05190) (0.00011)
[ 0.76041] [-0.22669] [-0.35554] [ 0.22841] [ 0.70309]
CRUDE_OIL_PRICES(-1) -4.166739 0.980706 4.43E-06 0.326316 0.009197
(14.2191) (0.16170) (1.2E-05) (2.84118) (0.00615)
[-0.29304] [ 6.06492] [ 0.36957] [ 0.11485] [ 1.49479]
CRUDE_OIL_PRICES(-2) 7.057676 -0.185432 6.47E-06 1.673105 0.000522
(15.0012) (0.17060) (1.3E-05) (2.99744) (0.00649)
[ 0.47047] [-1.08697] [ 0.51171] [ 0.55818] [ 0.08035]
EXCHANGE_RATES(-1) 107231.3 30.79185 0.986910 16157.90 70.90333
(201867.) (2295.65) (0.17008) (40335.8) (87.3530)
[ 0.53120] [ 0.01341] [ 5.80267] [ 0.40058] [ 0.81169]
EXCHANGE_RATES(-2) -280760.2 -1552.092 -0.144051 -60014.15 -26.63898
(199481.) (2268.52) (0.16807) (39859.0) (86.3205)
[-1.40745] [-0.68419] [-0.85710] [-1.50566] [-0.30861]
MARUTI_AUTO(-1) -0.586554 -0.000497 -4.15E-07 0.529931 -0.000231
(1.26267) (0.01436) (1.1E-06) (0.25230) (0.00055)
[-0.46454] [-0.03463] [-0.38970] [ 2.10042] [-0.42194]
MARUTI_AUTO(-2) -0.509581 -0.007734 -4.70E-07 0.013695 -0.000682
(1.19532) (0.01359) (1.0E-06) (0.23884) (0.00052)
[-0.42631] [-0.56896] [-0.46689] [ 0.05734] [-1.31917]
REPO_RATES(-1) 306.0976 7.533336 -0.000333 9.143978 0.772532
(387.786) (4.40994) (0.00033) (77.4849) (0.16780)
[ 0.78935] [ 1.70826] [-1.02041] [ 0.11801] [ 4.60375]
REPO_RATES(-2) -578.1399 -8.395376 -3.93E-05 -91.54433 -0.023142
(358.299) (4.07461) (0.00030) (71.5930) (0.15505)
[-1.61357] [-2.06041] [-0.13012] [-1.27868] [-0.14926]
C 6273.566 49.09450 0.005247 1674.945 0.024150

8. (2672.36) (30.3903) (0.00225) (533.974) (1.15640)
[ 2.34757] [ 1.61546] [ 2.33024] [ 3.13675] [ 0.02088]
R-squared 0.954091 0.917676 0.881132 0.876259 0.975294
Adj. R-squared 0.942010 0.896012 0.849851 0.843695 0.968793
Sum sq. resids 14123794 1826.552 1.00E-05 563899.0 2.644701
S.E. equation 609.6546 6.933048 0.000514 121.8173 0.263813
F-statistic 78.97247 42.35916 28.16826 26.90921 150.0110
Log likelihood -377.5310 -158.1779 307.8251 -298.6228 1.993937
Akaike AIC 15.85841 6.905222 -12.11531 12.63767 0.367594
Schwarz SC 16.28310 7.329916 -11.69062 13.06236 0.792289
Mean dependent 7232.724 76.33204 0.020869 1145.725 6.581633
S.D. dependent 2531.665 21.49971 0.001326 308.1219 1.493378
Determinant resid covariance (dof adj.) 1225.272
Determinant resid covariance 343.6924
Log likelihood -490.7137
Akaike information criterion 22.27403
Schwarz criterion 24.39750
t- Statistics value is calculated by: Coefficient value/Standard Error

9. IMPULSE RESPONSE

10. Impulse Response: Its function is to show the effects of the shocks on the
adjustment path of variables.
Response of Crude Oil Prices to Maruti Auto.
When there is a shock of S.D is given then how Crude oil Prices is reacting to Maruti
Auto.
Initially response is negative but in future it is heading towards positive trend.
Response of Exchange Rate to Maruti Auto.
When there is a shock of S.D is given then how Exchange Rate is reacting to Maruti
Auto.
Initially response is negative but in future 8 months from now, response will be on
the slightly positive side.
Response of Repo Rate to Maruti Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Maruti Auto.
Response will always be negative.
Response of BSE Auto to Maruti Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Maruti Auto.
Initially response is negative but in future it is heading towards positive trend.
CORRELATION
Correlation Matrix
From the above correlation matrix, we could say that:
Maruti Auto stock prices are directly related to BSE Auto, Crude Oil prices and
Exchange Rates.
Maruti Auto stock prices are inversely related to Repo Rates

11. c) Role of BSE Auto, Crude Oil Prices, Exchange Rates & Repo
Rate on Mahindra Auto stock prices
“Model is said to be spurious when R-square value is greater than Durbin Watson
Statistic.
In our model, R-Square value (46.70%) is greater than Durbin Watson Statistic
(14.76%). Hence our model is spurious. We cannot accept it”
Shows that variables has positive direct/perfect relationship. 46.% change in
Mahindra Auto can be explained by change in independent variables(BSE Auto,
Crude Oil Prices, Repo rates & Exchange Rates)
R Square tells how much change in Dependent Variable can be explained by
change in Independent Variables
R Square measures the intensity of the relationship among the variables.
There is a negative relationship between Mahindra Auto & Exchange Rate and also
between Mahindra Auto & Repo rate

12. Vector Autoregression Estimates
Date: 09/22/12 Time: 17:48
Sample (adjusted): 2008M07 2012M07
Included observations: 49 after adjustments
Standard errors in ( ) & t-statistics in [ ]
BSE_AUTO
CRUDE_OIL_PRI
CES
EXCHANGE_RAT
ES
MAHINDRA_AU
TO REPO_RATES
BSE_AUTO(-1) 0.752484 0.002379 1.66E-07 -0.028793 1.62E-05
(0.17918) (0.00202) (1.5E-07) (0.02592) (8.1E-05)
[ 4.19971] [ 1.17847] [ 1.10774] [-1.11085] [ 0.19972]
BSE_AUTO(-2) 0.203882 -0.001509 -1.60E-07 0.032154 3.72E-05
(0.17723) (0.00200) (1.5E-07) (0.02564) (8.0E-05)
[ 1.15039] [-0.75587] [-1.08318] [ 1.25417] [ 0.46349]
CRUDE_OIL_PRICES(-1) -2.813182 0.952006 5.51E-06 0.823385 0.008897
(14.3978) (0.16222) (1.2E-05) (2.08278) (0.00652)
[-0.19539] [ 5.86862] [ 0.45813] [ 0.39533] [ 1.36497]
CRUDE_OIL_PRICES(-2) 2.471440 -0.226069 2.23E-06 -0.550690 -0.003057
(14.1469) (0.15939) (1.2E-05) (2.04649) (0.00640)
[ 0.17470] [-1.41831] [ 0.18851] [-0.26909] [-0.47733]
EXCHANGE_RATES(-1) 126579.6 560.7451 0.983247 33831.35 95.65446
(205795.) (2318.68) (0.17178) (29770.2) (93.1641)
[ 0.61508] [ 0.24184] [ 5.72378] [ 1.13642] [ 1.02673]
EXCHANGE_RATES(-2) -290135.7 -1870.372 -0.134367 -51147.04 -40.95668
(203486.) (2292.66) (0.16986) (29436.1) (92.1188)
[-1.42583] [-0.81581] [-0.79106] [-1.73756] [-0.44461]
MAHINDRA_AUTO(-1) 0.204190 0.004538 -9.22E-07 1.041908 0.000320
(1.13477) (0.01279) (9.5E-07) (0.16415) (0.00051)
[ 0.17994] [ 0.35492] [-0.97334] [ 6.34710] [ 0.62339]
MAHINDRA_AUTO(-2) -0.565668 0.001025 5.98E-07 -0.311570 -0.000391
(1.12978) (0.01273) (9.4E-07) (0.16343) (0.00051)
[-0.50069] [ 0.08055] [ 0.63384] [-1.90640] [-0.76438]
REPO_RATES(-1) 417.3339 8.744368 -0.000229 37.06982 0.877481
(376.587) (4.24298) (0.00031) (54.4769) (0.17048)
[ 1.10820] [ 2.06090] [-0.72972] [ 0.68047] [ 5.14705]
REPO_RATES(-2) -532.7546 -7.563213 -1.66E-05 -52.93625 0.026091
(360.943) (4.06673) (0.00030) (52.2139) (0.16340)
[-1.47601] [-1.85978] [-0.05495] [-1.01383] [ 0.15967]
C 4935.249 30.33454 0.004261 616.7175 -1.295274

13. (2359.66) (26.5862) (0.00197) (341.347) (1.06823)
[ 2.09151] [ 1.14099] [ 2.16313] [ 1.80672] [-1.21255]
R-squared 0.952953 0.917187 0.880429 0.825033 0.972290
Adj. R-squared 0.940572 0.895395 0.848963 0.778989 0.964998
Sum sq. resids 14474026 1837.394 1.01E-05 302889.0 2.966323
S.E. equation 617.1673 6.953594 0.000515 89.27913 0.279394
F-statistic 76.96960 42.08679 27.98032 17.91837 133.3341
Log likelihood -378.1311 -158.3229 307.6807 -283.3959 -0.817810
Akaike AIC 15.88290 6.911140 -12.10942 12.01616 0.482360
Schwarz SC 16.30760 7.335834 -11.68472 12.44085 0.907054
Mean dependent 7232.724 76.33204 0.020869 673.8510 6.581633
S.D. dependent 2531.665 21.49971 0.001326 189.9079 1.493378
Determinant resid covariance (dof adj.) 1504.136
Determinant resid covariance 421.9147
Log likelihood -495.7376
Akaike information criterion 22.47909
Schwarz criterion 24.60256

14. IMPULSE RESPONSE
Impulse Response: Its function is to show the effects of the shocks on the
adjustment path of variables.
Response of Crude Oil Prices to Mahindra Auto.
When there is a shock of S.D is given then how Crude oil Prices is reacting to
Mahindra Auto.
Initially response is positive but in 2nd
month, it goes towards negative and then in
the 10th
month it would be pushing towards positive.
Response of Exchange Rate to Mahindra Auto.
When there is a shock of S.D is given then how Exchange Rate is reacting to
Mahindra Auto.
Initially response is negative but in future 8 months from now, response will be on
the slightly positive side.

15. Response of Repo Rate to Mahindra Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Mahindra
Auto.
Initially response is positive but in future it is heading towards negative trend
Response of BSE Auto to Mahindra Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Mahindra
Auto.
Initially response is positive but in 2nd
month, it goes towards negative and then in
the 10th
month it would be pushing towards positive.
CORRELATION
CORRELATION MATRIX
From the above correlation matrix, we could say that:
Mahindra Auto stock prices are directly related to BSE Auto, Crude Oil prices and
Exchange Rates.
Mahindra Auto stock prices are inversely related to Repo Rates

16. d) Role of BSE Auto, Crude Oil Prices, Exchange Rates & Repo
Rate on Apollo stock prices
“Model is said to be spurious when R-square value is greater than Durbin Watson
Statistic.
In our model, R-Square value (88.88%) is greater than Durbin Watson Statistic
(80.57%). Hence our model is spurious. We cannot accept it”
Shows that variables has positive direct/perfect relationship. 46.% change in
Mahindra Auto can be explained by change in independent variables(BSE Auto,
Crude Oil Prices, Repo rates & Exchange Rates)
R Square tells how much change in Dependent Variable can be explained by
change in Independent Variables
R Square measures the intensity of the relationship among the variables.

17. Vector Autoregression Estimates
Date: 09/22/12 Time: 18:54
Sample (adjusted): 2008M07 2012M07
Included observations: 49 after adjustments
Standard errors in ( ) & t-statistics in [ ]
APOLLO_AUTO BSE_AUTO
CRUDE_OIL_PRI
CES
EXCHANGE_RAT
ES REPO_RATES
APOLLO_AUTO(-1) 0.490266 -1.237661 -0.203257 -8.41E-06 -0.004733
(0.19211) (18.3974) (0.18984) (1.5E-05) (0.00834)
[ 2.55196] [-0.06727] [-1.07068] [-0.54980] [-0.56777]
APOLLO_AUTO(-2) -0.021790 6.315028 -0.251651 -5.88E-06 0.002133
(0.17659) (16.9113) (0.17450) (1.4E-05) (0.00766)
[-0.12339] [ 0.37342] [-1.44210] [-0.41859] [ 0.27833]
BSE_AUTO(-1) 0.004439 0.767992 0.004700 1.81E-07 7.07E-05
(0.00209) (0.20030) (0.00207) (1.7E-07) (9.1E-05)
[ 2.12209] [ 3.83420] [ 2.27397] [ 1.08654] [ 0.77916]
BSE_AUTO(-2) -0.001297 0.139326 -0.000328 -8.08E-08 -1.33E-06
(0.00191) (0.18321) (0.00189) (1.5E-07) (8.3E-05)
[-0.67789] [ 0.76045] [-0.17335] [-0.53074] [-0.01602]
CRUDE_OIL_PRICES(-1) -0.031818 -2.209903 0.808344 -7.65E-07 0.007786
(0.15991) (15.3137) (0.15802) (1.3E-05) (0.00694)
[-0.19897] [-0.14431] [ 5.11551] [-0.06007] [ 1.12214]
CRUDE_OIL_PRICES(-2) 0.301198 -0.624882 0.008845 9.47E-06 -0.001784
(0.17153) (16.4259) (0.16950) (1.4E-05) (0.00744)
[ 1.75599] [-0.03804] [ 0.05219] [ 0.69349] [-0.23971]
EXCHANGE_RATES(-1) -1056.806 145393.1 703.3200 1.034346 106.4620
(2155.85) (206451.) (2130.33) (0.17159) (93.5383)
[-0.49020] [ 0.70425] [ 0.33015] [ 6.02816] [ 1.13816]
EXCHANGE_RATES(-2) -2162.060 -300449.5 -2654.999 -0.197050 -58.49743
(2256.68) (216107.) (2229.96) (0.17961) (97.9130)
[-0.95807] [-1.39028] [-1.19061] [-1.09710] [-0.59744]
REPO_RATES(-1) 1.128783 427.1358 9.448858 -0.000200 0.891550
(3.94584) (377.867) (3.89912) (0.00031) (0.17120)
[ 0.28607] [ 1.13039] [ 2.42333] [-0.63573] [ 5.20757]
REPO_RATES(-2) -4.277137 -504.6461 -9.093812 -2.52E-05 0.015085
(3.77615) (361.617) (3.73144) (0.00030) (0.16384)
[-1.13267] [-1.39553] [-2.43708] [-0.08385] [ 0.09207]

18. C 74.67294 4535.913 45.36851 0.004174 -1.208000
(23.7834) (2277.58) (23.5018) (0.00189) (1.03192)
[ 3.13971] [ 1.99155] [ 1.93043] [ 2.20491] [-1.17064]
R-squared 0.924944 0.952712 0.930185 0.880856 0.972103
Adj. R-squared 0.905193 0.940268 0.911812 0.849502 0.964761
Sum sq. resids 1586.365 14547932 1549.021 1.00E-05 2.986378
S.E. equation 6.461149 618.7409 6.384647 0.000514 0.280337
F-statistic 46.82900 76.55928 50.62927 28.09412 132.4132
Log likelihood -154.7238 -378.2559 -154.1402 307.7683 -0.982887
Akaike AIC 6.764237 15.88800 6.740415 -12.11299 0.489097
Schwarz SC 7.188931 16.31269 7.165109 -11.68830 0.913792
Mean dependent 54.86347 7232.724 76.33204 0.020869 6.581633
S.D. dependent 20.98403 2531.665 21.49971 0.001326 1.493378
Determinant resid covariance (dof adj.) 4.531947
Determinant resid covariance 1.271225
Log likelihood -353.5195
Akaike information criterion 16.67426
Schwarz criterion 18.79774

19. IMPULSE RESPONSE
Impulse Response: Its function is to show the effects of the shocks on the
adjustment path of variables.
Response of Crude Oil Prices to Apollo Auto.
When there is a shock of S.D is given then how Crude oil Prices is reacting to Apollo
Auto.
Initially response is positive but it fluctuates and will go to at par level near 4th
month
and, it and then in the 10th
month it would be pushing towards positive.
Response of Exchange Rate to Mahindra Auto.
When there is a shock of S.D is given then how Exchange Rate is reacting to
Mahindra Auto.

20. Initially response is positive but in future 4th
months from now, response will be on
the negative side.
Response of Repo Rate to Apollo Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Apollo Auto.
Response is always positive
Response of BSE Auto to Apollo Auto.
When there is a shock of S.D is given then how Repo Rate is reacting to Apollo Auto.
Initially response is positive but in future response goes towards negative.
CORRELATION
Correlation Matrix
From the above correlation matrix, we could say that:
Apollo Auto stock prices are directly related to BSE Auto, Crude Oil prices and Repo
Rates.
Apollo Auto stock prices are inversely related to Exchange Rates