Management Thesis –II A REPORT ON “A study on impact of stock market volatility on
individual investor’s investment decisions with reference to Religare. Guntur”
Under the esteemed guidance of Mr. D. Sudhir Babu Faculty Supervisor Icfai National College Guntur
Submitted by K.Srikanth 7NBGU003
1
MANAGEMENT THESIS -II A REPORT ON
“A study on impact of stock market volatility on individual investor’s investment decisions with reference to Religare. Guntur”
Under the supervision of Mr. D. Sudhir Babu Faculty supervisor ICFAI NATIONAL COLLEGE GUNTUR
Submitted by K.Srikanth 7NBGU003 A report submitted in partial fulfillment of the requirements requirements of THE MBA PROGRAM (THE CLASS OF 2009) INC, GUNTUR
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DECLARATION
I hereby declare that this management thesis entitled “A study on impact of stock market volatility on individual investor’s investment decisions with reference to Religare. Guntur” carried out under the guidance of my Faculty guide Mr. D. Sudhir Babu is my original work. This This final report, neither in full nor in part has been submitted submitted for award of any other degree of either this university university or any other university.
K.Srikanth 7NBGU003
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CERTIFICATE
This is to certify that the management thesis entitled “A study on impact of stock market volatility on individual investor’s investment decisions with reference to Religare. Guntur” a bona field work of K.Srikanth is original and has been done under my supervision is partial fulfillment for the award of Masters of Business Administration . I am pleased to say that his performance during the period was extremely satisfactory.
Date Place:
Dr.M.SUDHA
Mr. D. Sudhir
Babu Center Head ICFAI National College
Faculty guide ICFAI National College
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ACKNOWLEDGEMENTS
I wish to express my sincere gratitude to my Principal Dr. Sudha of INC GUNTUR for giving me the opportunity to do Management thesis at super markets. It gives me pleasure to express my most profound regards and sense of great indebtedness and sincere gratitude to my faculty faculty guide Mr. D. Sudhir Babu for coordinating the project work and giving me all the valuable guidance and for his constant inspiration. This project could not have been possible without his help. I would also like to thank employees at Religare who gave guidance and support during the completion of the project.
.
K.Srikanth 7NBGU003
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CONTENTS
INTRODUCTION •
……………………………………………………7
Nature and purpose of research/project
•
The planned achievements
•
Overview of research planned
THESIS …………………………………………………………………..9 •
Objectives
•
Limitations
•
Methodology
•
Hypothesis
•
Introduction
•
Company profile
•
Industry profile
•
Review of literature
•
Data analysis
SUGGESTIONS AND CONCLUSION ………………………………….43 ………………………………….43
GLOSSARY ………………………… …………………………………………………… ……………………………………45 …………45
REFERENCES ………………………… ……………………………………………………… …………………………………47 ……47
QUESTIONNAIRE ………………………… ……………………………………………………… …………………………….48 .48
1. INTRODUCTION 6
OVER ALL GOAL OF RESEARCH
The proposed topic is “A study on impact of stock market volatility on individual investors investment decisions with reference to Religare in Guntur”. This project would give the understanding of the reasons for the volatility in stock markets and its impact impact on investment decisions decisions of the individual individual customers. customers. The study also also focuses on the various factors that play role in investment decisions of the individual investors in stock markets. It also concentrates on how to forecast the price changes of shares and other securities so that it will be helpful to investors to make sound decisions.
NEED FOR STUDY
The main purpose of the research paper is to find and analyze the key factors that insist or motivate individual investors to invest in stock markets and how their decisions are effected by the volatility volatility in stock prices. prices. In the present day scenario scenario investment investmentss in stock markets has became a part of the individual investors investors portfolio. Especially for those investors who are ready to take more risk but want higher higher returns stock stock market investment investmentss are the great sources. The investment investment objectives objectives of the investors are vary from one to other. other. A careful analysis analysis and close observation helps the investors to predict the future chan ges of the stock prices.
FRAMEWORK OF THE THESIS
The project’s objective is to do an analysis on the factors that have an impact on stock price changes and the other factors that individual investors consider while investing in stock markets. In the first phase the study is carried out on the reasons for the price changes or volatility in stock markets. In the second phase various parameters that are considered by investors while investing in stock markets are identified by preparing a questionnaire and collecting data from individual stock market investors. In the third phase data analysis ana lysis and suggestions and conclusions benefiting the company. 7
The study would be based on information collected from individual stock market investors of Religare stock broking firm and the other sources like companies records, internet etc. Further requi require red d data data would would be colle collect cted ed with with the the help help of quest questio ionna nnair iree and its its resp respon onse se by the the customers. The collected data would be analyzed to find the impact of stock market volatility on investment decisions of individual individual investors. And the study also focuses to find out the various strategies adopted by Religare to control the investors.
THESIS- PROJECT RESEARCH WORK
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OBJECTIVES
To know the reasons for the stock market volatility.
To find the various parameters that are taken into consideration by individual investors while investing in stock markets.
To study the various services provided by Religare to its customers.
To find weather stock market volatility have an impact on investment decisions of the individual investors or not.
LIMITATIONS
•
Secondary data can be general and vague and may not really help in getting the complete picture.
•
The data collected through interaction is prone to biased inputs by the person. p erson.
•
This project is limited to only one geographical location that is Guntur which may lead to less accuracy.
METHODOLOGY
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Primary Data:-
Primary data is collected from the investors of Religare financial services through a questionnaire. Sample size is taken as 100 for more accuracy. Secondary Data
Secondary data is collected from various sources which are listed below. •
Company records and reports
•
Magazines, journals, pamphlets, advertisements.
•
Standard reference textbooks
•
Websites like nseindia.com and money control.com
The purpose of using the secondary second ary data is to increase the accuracy of analysis. Sample size: 100 Sampling Units: 1. Customers of Religare stock broking firm. Sampling Method: Non-probability sampling (convenience and judgment sampling)
INTRODUCTION
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Percep Perceptio tion n is define defined d as the proces processs by which which an indivi individua duall select selects, s, organi organizes zes,, and interprets stimuli into a meaningful and coherent picture of the world. It can be described as “how we see the world around us.” Two individuals may be exposed to the same stimuli under the same apparent conditions, but how each person recognizes, selects, organizes, and interprets these stimuli is a highly individual process based on each person’s own needs, values, and expectations. The influence that each of these variables has on the perceptual process and its relevance to marketing will be explore later. First, however, we will will examine some of the the basic concepts that underline the perceptual process. These will be discussed within the frame work of consumer behavior. Individuals act and react on the basis of their perceptions, not on the basis of objective reality. For each individual, reality is a totally personal phenomenon, based on that person’s needs, wants, values, and personal experiences. Thus, to the marketer, consumers’ perceptions are much more important than their knowledge of objective reality. For if one thinks about it, it’s not what actually so is, but what consumers think is so, that affects their actions, their buying habits, their leisure habits and so forth. And, becau se individuals make decisions and take actions based on what they perceive to be reality, it is important that marketers understand the whole notion of perception and its related concepts to more readily determine what factors influence consumers to buy. Before the introduction of low-calorie beer, consumers had no preconceived view of the product. Because Miller understood the behavior of beer drinker, it provided the company with a way to interpret the new offering in a manner congruent with their needs, which Gablinger’s failed to do earlier for the same product. The psychol psychologi ogical cal and phy physio siolog logica icall bases bases of human human percept perception ion and discus discusses ses the principles that influence our perception and interpretation of the world we see. Knowledge of these principles enables astute marketers to develop advertisements that have a better-thanaverage chance of being seen and remembered by their target consumers. Consumer’s selection of stimuli from the environment is based on the interaction of their expectations and motives with the stimulus itself. The principles of selective perception include the follow following ing concept concepts: s: select selective ive exposu exposure, re, select selective ive attent attention ion,, percep perceptua tuall defens defense, e, and perceptual blocking. People usually perceive things they need or want and block the perception of unnecessary, unfavorable, or painful stimuli.
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A consum consumer’ er’ss buy buying ing behavior behavior refers refers to the response response and reacti reaction on of the ultimate ultimate consumer to various situations involved in purchasing and using various goods and services. Generally, consumers buy products, which are capable of satisfying their needs. Thus a product is anything that is offered to a market and is capable of satisfying the needs of the customer. According to consumer perceptive products are divided into the following ways: a) Tang Tangib ibiilit lity b) b) Dura Durabi billity c) Avai Availlabil abiliity Depending on the level of availability expected by the customers, products can be put in three categories: a) Conve Conveni nienc encee prod product uctss b) Shopp Shoppin ing g prod product uctss c) Spec Specia ialt lty y prod produc ucts ts The volume of goods and services that a consumer buys depends on his requirements and his willingness and ability to products. Thus, the volume of business in a particular market depends on the following: a) Cons Consum umer er pop popul ulat atio ion n b) Cons Consum umer er requi require reme ment ntss c) Cons Consum umer er pote potent ntia iall
The decision – making process of the customer takes place in six steps: •
Stimulus
•
Problem awareness
•
Information search
•
Evaluation of alternatives
•
Purchase
•
Post purchase behavior
Whenever a customer purchases a product, he goes through a process of decision-making. He may or may not go through all the six steps mentioned above in the decision-making process.
COMPANY PROFILE
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Religare Securities Ltd .
Religare Securities Ltd is a Ranbaxy promoter group company, is one of India’s largest and fastest growing integrated financial services institutions. The company offers a large and diverse bouquet of services ranging from equities, commodities, insurance broking, to wealth advisory, portfolio management services, personal finance services, Investment banking and institutional broking services. The services are broadly clubbed across three key business verticals- Retail, Wealth management and the Institutional spectrum. Religare Enterprises Limited is the holding company for all its businesses, structured and being operated through various subsidiaries. Religare’s retail network spreads across the length and breadth of the country with its presence through more than 900 locations across more than 300 cities and towns. Having spread itself fairly well across the country and with the promise of not resting on its laurels, it has also aggressively started eyeing global geographies. Vision
To build Religare as a globally trusted brand in the financial services domain and present it as the ‘Investment Gateway of India’ Mission
Providing financial care driven by the core values of diligence and transparency.
Brand Essence
Religar gare
is
driven
by
ethic hical
and
dynamic
pro processes
for
wealth
creation
Religare Enterprises Limited (REL), is one of the leading integrated financial services groups of India. The company offers a diverse bouquet of services ranging from equities, commodities , insurance insurance broking broking to wealth wealth management, management, portfolio portfolio management management services, personal financial services, investment banking and institutional broking services. The services are broadly clubbed across three key business verticals- Retail, Wealth management and the Institutional spectrum. Religare Enterprises Limited is the holding company for all its businesses, structured and being operated through various subsidiaries.
Industry Finance - General :
BSE Code :
532915
Book Closure :
2/02/2009
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NSE
Group : Religare ISIN No :
Code : Market
INE621H01010
Lot :
Market
RELIGARE
Cap : Face
1
Value :
Rs. 2,478.36 Cr.
Rs. 10.00
Registered & Corporate Office
Registrar & Share Transfer Agent
19, Nehru Place, New Delhi, Delhi - 110019
Karvy Computershare Private Ltd Plot No. 17-24,
Tel : 30815100, 66552200,
Vittal Rao Nagar,
Fax : 30815288,
Madhapur
Email :
[email protected]
Hyderabad - 500086, Andhra Pradesh.
Website: www.religare.in
Tel : 1-800-3454001
Key Officials Name
Designation
Malvinder Mohan Singh
Non Executive Chairman
Sunil Godhwani
Managing Director & CEO
Ravi Batra
Vice President & Company Secretary
Other Details Listings
Incorporation
Public Issue Date
BSE , NSE
30/01/1984
29/10/2007
Religa Religare re Enterp Enterpris rises es Limite Limited d (REL), (REL), is one of the leadin leading g integr integrate ated d financ financial ial servic services es groups of India. REL's businesses are broadly clubbed across three key verticals, the Retail, Institutional and Wealth spectrums, catering to a diverse and wide base of clients. The vision is to build Religare as a globally trusted brand in the financial services domain and present it as the 'Investment Gateway of India'. All employees of the group guided by an 14
experi experience enced d and profes professio sional nal managem management ent team team are commit committed ted to provid providing ing financi financial al care, care, backed by the core values of diligence and transparency. REL offers a multitude of investment options and a diverse bouquet of financial services with its pan India reach in more than 1550 locations across more than 460 cities and towns. REL also currently operates from 10 countries globally following its acquisition of London's oldest brokerage & investment firm, Hichens, Harrison & Co. plc. With a view to expand, diversify and introduce offerings benchmarked against global best practices, Religare operates its Life Insurance business in partnership with the global major – Aegon. Aegon. For its its wealth wealth manage management ment busine business, ss, Religa Religare re has partne partnered red with with Austra Australi liaa based based financial services major-Macquarie. Religare has also partnered with Vistaar Entertainment to launch launch India' India'ss first first SEBI SEBI approved approved Film Film Fund Fund offeri offering ng a unique unique altern alternati ative ve asset asset class class of investments.
SWOT ANALYSIS OF RELIGARE
STRENGTHS •
It is the Ranbaxy promoter group company. compan y.
•
It has a good research team.
•
No Annual maintenance charges for their online broking services.
WEAKNESSES •
It has changed its name from FORTIS to RELIGARE where the maximum
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Customers don’t know about this.
OPPORTUNITIES •
•
Financial services sector in India is growing by leaps and bounds. In the up coming days da ys RELIGARE is coming up with their own mutual fund and Banking.
THREATS
•
•
Cut-throat competition from corporate big houses like Reliance and ICICI As they have changed the name of their company the customer still did not know about RELIGARE.
Services rendered by religare securities ltd:
Equity & Derivative Trading Lending Services Institutional Distribution Services Insurance Broking
Depository Services
Private Equity Commodities Broking Services
Internet Trading
Investment Banking
Wealth Management Services
International Equity & Commodities
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EQUITY AND DERIVATIVE TRADING: The term equity derivative describes a class of financial instruments whose value is at least partly derived from one or more underlying equity securities. Market participants trade equity derivatives in order to transfer or transform certain risks associated the underlying. Options are by far the most common equity derivative, however there are many other types of equity derivatives that are actively traded. INSTITUTIONAL DISTRIBUTON SERVICE The Client Service Manager will be responsible for all aspects of client reporting for institutional investment investment clients and industry industry organizatio organizations. ns. The candidate candidate will also be responsibl responsiblee for client serv servic icin ing g whic which h incl includ udes es worki working ng with with clie client nts, s, inte intern rnal al grou groups ps and and UK base based d portf portfol olio io management. DEPOSITORY SERVICES Depository is an organisation which holds your securities in electronic (also known as ‘book entry’) form, in the same manner as a bank holds your money. Further, a depository also transfers your securities without actually handling securities, in the same day as a bank transfers funds without actually handling cash.
COMMODITIES BROKING SERVICES Commodity Broking Services specialises in offering online accounts to clients wishing wishing to deal in the Foreig Foreign n Exchan Exchange, ge, Bullio Bullion, n, Future Futures, s, Commod Commodit ities ies,, CFDs CFDs and Intern Internati ational onal/Do /Domes mestic tic Equities markets all from the one account. Commodity Broking Services Services specialize in offering offering commodity price risk management to agricultural producers and end users. WEALTH MANAGEMENT SERVICES Weal Wealth th mana managem gement ent serv servic ices es are are provi provide ded d by banks banks,, prof profes essi siona onall trus trustt comp compan anie ies, s, and and broker brokerages ages.. For those those with with sizeab sizeable le assets assets [usual [usually ly over $500,000 $500,000], ], profes professio sional nal wealt wealth h management can help you plan your estate or invest your assets based on personal criteria and financial goals.
INVESTMENT BANKING Investment Banking is facing a strangle of challenges today – lower margins, compliance issues, workflow disconnects and data redundancies. redundancies. Investment banks need a partner partner who can work in market-time to address all these business challenges. INSURANCE BROKING The term Insurance Broker became a regulated term under the Insurance Brokers (Registration) Act 1977which was designed to thwart the bogus practices of firms holding themselves as brokers but in fact acting as representative of one or more favoured insurance companies. Insurance brokerage is largely associated with general insurance (car, house etc.) rather than life insurance, although some brokers continued to provide investment and life insurance brokerage until the onset of more onerous Financial Financial Services Services Authority Authority regulation regulation in 2001. Insurance Insurance
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broking is carried out today by many types of organizations including traditional brokerages, Independent Financial Advisers (IFAs) and telephone or o r web-based firms.
Backed by one of the largest retail networks in India with its presence in more than 1550 locations across more than 460 cities and towns, Religare caters to a large number of retail clients by offering all products under one roof through the branch network and online mode. Equity Trading
Trading in Equities with Religare truly empowers you for your investment needs. We ensure you have a superlative trading experience through A highly process driven, diligent approach Powerful Research & Analytics and One of the "best-in-class" dealing rooms Commodities Trading
Religare Commodities Limited (RCL), a wholly owned subsidiary of Religare Enterprises Limite Limited d was initiate initiated d to spearh spearhead ead Exchan Exchange ge based based Commod Commodit ity y Tradin Trading. g. As a member member of NCDEX, MCX and NMCE, RCL, present in 529 locations provides options in both agri and non-agri commodities for Exchange based commodity trading backed by incisive dedicated research. Online Investment Portal
Religare Online is your single gateway for all your financial needs. Now you not just trade online in Equities, Commodities, apply for IPOs, invest in Mutual Funds, buy Insurance, but also get
Trade
Rewards
each
time
you
invest
online
with
our
36 0
degree
portal
www.religareonline.com.. www.religareonline.com Personal Financial Services
Today, more and more people look up to ways and means which can fulfill their financial aspirations such as Savings, Retirement planning, Tax planning & Wealth planning, etc. All this couple coupled d with with multip multiple le and cut throat throat compet competiti itive ve offeri offerings ngs makes makes it very very diffi difficul cultt for an individual to come to a decision and this leads to the search of a partner who can help an
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individual understand the complex investment instruments and make the best use of them to meet his/her short-term and long-term financial objectives. o bjectives.
Consumer Finance
Religare's Consumer Finance business is operated through its NBFC arm, Religare Finvest Limited With the growing opportunities of Consumer Finance in India, Religare´s Capital Market & Non-Capital Market Lending products offer "loans for all your ne eds".
Insurance Solutions
Religare with one of the largest retail networks in the country offers a complete range of insurance solutions though its 100% subsidiary company, Religare Insurance Broking Limited (RIBL). The company holds a composite broker's license operating in the Life, General and Reinsurance domains.
To provid providee custom customize ized d wealth wealth adviso advisory ry servic services es to high high net worth worth indivi individual dualss (HNIs (HNIs), ), Religare offers an exceptional selection of investment opportunities, in every asset class. Our market knowledge and formidable resources facilitate wealth acceleration, diversification and capital preservation.
Wealth Management
Religare operates its wealth management business in partnership with Macquarie through the joint venture - Religare Macquarie Wealth Management Limited (a 50:50 joint venture). The JV is a combination of strengths - Macquarie´s strong global expertise with Religare´s strong local insights.
Portfolio Management Services (PMS)
Religare offers PMS to address varying investment preferences. As a focused service, PMS pays pays attent attention ion to detail details, s, and portfo portfolio lioss are custom customize ized d to suit suit the unique unique requir requireme ements nts of investors.
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Religare PMS currently extends six portfolio management schemes, viz Monarque, Panther, Tortoise, Elephant, Caterpillar and Leo. Each scheme is designed keeping in mind the varying tastes, objectives and risk tolerance of our investors SCHEMES: Panther
The Pan Panthe therr por portf tfoli olio o aim aimss to ach achiev ievee hig higher her ret return urnss by tak taking ing agg aggres ressiv sivee pos posit ition ionss acr across oss sectors and market capitalizations. It is suitable for the “High risk high return” investor with a strategy to invest across sectors and take advantage of various market conditions. Tortoise
The Tortoise portfolio aims to achieve growth in the portfolio value over a period of time by way of caref careful ul and judic judicious ious investment investment in fundamentally fundamentally sound companies having good prospects. The scheme is suitable for the “Medium Risk Medium Return” investor with a strategy to invest in companies which have consistency con sistency in earnings, growth and financial performances. Elephant
The Elephant portfolio aims to generate steady returns over a longer period by investing in securities selected only from BSE 100 and NSE 100 index. This plan is suitable for the “Low Risk Low Return” investor with a strategy to invest in blue chip companies, as these companies have steady performance. Caterpillar
The Caterpillar portfolio aims to achieve capital appreciation over a long period of time by investing in a diversified portfolio. The investment strategy would be to invest in scripts which are poised to get a re-rating either because of change in business, potential fancy for a particular sector sec tor in the com coming ing yea years/ rs/mon months ths,, bus busine iness ss div divers ersifi ificat cation ion lea leadin ding g to a bet better ter oper operati ating ng performance, stocks in their early stages of an upturn or for those which are in sectors currently ignored by the market. Priority Client Group Services (PCGS)
Religa Religare re has struct structure ured d a dedica dedicated ted and specia specialis listt team team to cater cater to the sophis sophistic ticate ated d investment needs of high-end customers. The Priority Client Group brings in a "multi asset class" based investment approach backed by a team of dedicated relationship managers and best-in-class dealing capabilities. It strives to encourage clients to think beyond equities. 20
Arts Initiative
Today's complex market structures have spun art out of the cocoon of mere aestheticism into a more rooted role as a recognized financial financial asset, asset, a derivative derivative with immense powers of wealth wealth generation, equal to those of any brick and mortar industry. Given this base, it is now for the greater public-driven organizations concerned with the well being of art, to ensure that all the diverse dimensions of art are nurtured and given the right exposure, so that art permeates more completely into the societal fabric and enriches a wider consciousness.
International Advisory Fund Management Services
Invest Investing ing in intern internati ational onal market marketss opens opens avenues avenues for relati relativel vely y stable stable invest investmen ments ts and diversification. We at Religare provide our clients an opportunity to invest in international equities to scale up investment horizons and to enable them to gain from profits of global majors. An asset allocation module is developed based on the risk-return criteria of the investor and on country attractiveness, sector and industry strength, company strengths and global trends.
INDUSTRY PROFILE Financial Services Sector
Financial services are vital tools of machinery for economy and they lubricate the wheels of economic development. In advanced nations, giant economies like USA,UK,Japan,etc..,.major portion of the national income is accounted from the services sector and minimum from the product sector. Indian economy has undergone a sea change in its structure, policy and regulation, due to liberalization and globalization, since 1991.Markets for services are no exception to this. The contribution of service sector (including financial services sector) for GDP has increased to 51% in 2003,from 36 % in 1980.The financial service sector include factoring, merchant banking, venture capital ,etc. Financial services like banking, merchant banking, factoring, Insurance, Venture capital ,act as vital machinery of an economy. These financial services that facilitate, financial transactions of individuals and institutional services resulting in their resources allocation activities through time. The sector that deals with such financial services is known as “financial services sector”. 21
Once the economy crosses the subsistence level, financial services become more prominent and important to that economy. Financial services in current days are emerging as a crucial industry world over and is termed as a sun rise industry. The services offered by this sector not only raise the required funds, but also lead to the efficient management of funds.Today,the financial service products, as turned out to by financial services industry are innovative and paving ways for vivid opportunities for further economic development. Emergence of financial services industry in India
Services sector industry has started gaining large scale momentum since the process of liberalization in 1991.Prior to its contribution to GDP was around 40 % ,but since 1992 it has been grown rapidly and reached a value of 51 % GDP.Contribution of service sector to GNP in advanced counties like USA is as high high as 75%.In India many innovative innovative financial products and services like credit cards,ATMs,consumer finance, venture financing have been emerging since since 1980s And these financial services have become an integral component of Indian financial system system.. This This integr integrati ation on is largel largely y attri attribut buted ed to the libera liberali lizati zation on of econom economic ic polici policies es and deregulatio deregulation n that led to economic economic changes ,development ,development and contemporary contemporary evolution evolution of capital capital market and financial dis-intermediation. The far-reaching change in the Indian economy since liberalization in the early 1990s have had a deep impact on the Indian financial sector. The financial sector has gone through a complex and someti sometimes mes painfu painfull proces processs of restru restructu cturi ring, ng, capital capitalizi izing ng on new opportu opportunit nities ies as well well as resp respond ondin ing g to new Chal Challe leng nges es.. Durin During g the the last last deca decade, de, ther theree has has been been a broa broade deni ning ng and deepening of financial markets. Several new instruments and products have been introduced. Existing sectors have been opened to new private players. This has given a strong impetus to the development and modernization of the financial sector. New players have adopted international best practices and modern technology to offer a more sophisticated range of financial services to corporate and retail customers. This process has clearly improved the range of financial services and service providers available to Indian customers. The entry of new players has led to even existing players upgrading their product offerings and distri distribut bution ion channel channels. s. This This continu continued ed to be witnes witnessed sed in 2002-03 2002-03 across across key sector sectorss like like commercial banking and insurance, where private players achieved significant success.
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These changes have taken place against a wider systemic backdrop of easing of controls on interest rates and their realignment with market rates, gradual reduction in resource pre-emption by the government, relaxation of stipulations on concessional lending and removal of access to concessional resources for financial institutions. Over the past few years, the sector has also witnessed witnessed substanti substantial al progress progress in regulation regulation and supervisio supervision. n. Financial Financial intermediar intermediaries ies have gradually moved to internationally acceptable norms for income recognition, asset classification, and provisioning and capital adequacy. This process continued in 2002-03, 2002-03, with RBI announcing announcing guidelines guidelines for risk-based risk-based supervision supervision and consolidated supervision. While maintaining its soft interest rate stance, RBI cautioned banks against taking large interest rate risks, and advocated a move towards a floating rate interest rate structure. The past decade was also a lso an eventful one for the Indian capital markets. Reforms, particularly the establishment and empowerment of securities and Exchange Board of India (SEBI), market-determined prices and allocation of resources, screen-based nation-wide trading,dematerialisation and electronic transfer of securities, rolling settlement and derivatives trading have greatly improved both the regulatory framework and efficiency of trading and settlement. On account of the subdued global economic conditions and the impact on the Indian economy of the drought conditions prevailing in the country, 2002-03 was a subdued year for equity markets. Despite this, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) ranked third and sixth respectively among all exchanges in the world with respect to the number of transacti transactions. ons. The year also witnessed the grant of approval for setting setting up of a multicommo multicommodity dity exchange for trading of various commodities. The US$ 28 billion Indian financial sector has grown at around 15 per cent and has displayed stability for the last several years, even when other markets in the Asian region were facing a crisis. This stability was ensured through the resilience that has been built into the system over time time.. Th Thee fina financ ncia iall sect sector or has kept kept pace pace with with the the grow growin ing g need needss of corp corpor orat atee and and othe other r borrowers. Banks, capital market participants and insurers have developed a wide range of products and services to suit varied customer requirements. The Reserve Bank of India (RBI) has successfully introduced a regime where interest rates are more in line with market forces.
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Financial institutions have combated the reduction in interest rates and pressure on their margins by constantly innovating and targeting attractive consumer segments. Banks and trade financiers have also played an important role in promoting foreign trade of the country. Here we will study the three industries with respect to India. Insurance And India
The insurance sector in India has become a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries. A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are: 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business. Thee Indi Indian an Insu Insura ranc ncee Comp Compan anie iess Act Act enact enacted ed to enabl enablee the the gove govern rnme ment nt to colle collect ct 1928: Th statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public. 245 Indi Indian an and and fore foreig ign n insu insure rers rs and and provi providen dentt soci societ etie iess taken taken over over by the the centr central al 1956: 245 government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general gene ral insurance business in India are: 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of
general insurance business. 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.
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1968: The Insurance Act amended to regulate investments and set minimum solvency margins
and the Tariff Advisory Committee set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company. Key Players in insurance Sector of India
Reliance General Insurance Company Ltd
Life Insurance Corporation of India
HDFC Insurance
Kotak Mahindra
ICICI Prudential
SBI Life Insurance Company Ltd
Oriental Insurance Company Ltd
National Insurance Company Ltd
Bajaj Allianz Life Insurance Company Ltd MUTUAL FUNDS AND INDIA Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual
fund
companies,
but
UTI
remained
in
a
monopoly
position.
The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 mill millio ion n shar shareh ehol olde ders rs was was accu accust stom omed ed with with guar guaran ante teed ed high high retu return rnss by the the begi beginn nnin ing g of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. entrants. The expectation expectationss of investors investors touched the sky in profitability profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization.
25
The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance
by
April
20 04 .
It
rose
as
high
as
Rs.1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There were rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value.
The supervisory authority adopted a set of measures to create a transparent and competitive environment environment in mutual funds. Some of them were like relaxing investment investment restrictions restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension pension schemes. The measure was taken taken to make mutual funds funds the key instrument instrument for longterm
savin ving.
T he
more
the
variety
offered,
the
quan uantitati ative
will
be
investors ors.
At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and don’ts of mutual funds. Key Players in Mutual Funds Sector in India
ABN AMRO Mutual Fund. Birla Sun Life Mutual Fund. Bank of Baroda Mutual Fund (BOB Mutual Fund). . 26
ING Vysya Mutual Fund. Prudential ICICI Mutual Fund. Sahara Mutual Fund. State Bank of India Mutual Fund. Tata Mutual Fund. Demat Account And India
Ther Th eree are are quit quitee a few few inst instit itut utio ions ns that that are are dire direct ctly ly and/ and/or or indi indire rect ctly ly conn connec ecte ted d with with demate demateria rializ lized ed operat operation ionss of securi securitie ties. s. Underst Understandi anding ng the interinter-li linkag nkages es and functi functional onal responsibilities of these institutions will help us to have correct and holistic perspective about functioning of dematerialization. The institutions connected with demat operations include; a) Depositories, b) Stock Exchanges (SEs), c) Clearing Corporations (CCs) / Clearing Houses (CHs), d) Depository Participants (DPs), e) Registrars and Transfer Agents (RTAs). Both the depositories NSDL and CDSL are primarily promoted by the two leading stock exchanges viz., Nat Natio iona nall Stoc Stock k Ex Excha chang ngee of Indi Indiaa Ltd Ltd (NSE) (NSE) and Th Thee Stoc Stock k Ex Excha chang nge, e, Mu Mumb mbai ai (BSE (BSE)) respectively. Besides, there are many other institutional promoters in both the depositories. Both are registered as organizations-for-profit and professionally managed. Inter-connectivity between these two depositories has been established, thus DPs and investors can transfer smoothly their shares from one account to another between the depositories. Most of the stock exchanges are connected with the depositories to provide trading in dematerialization segment. Eventually, all the exchanges will be connected to either of or both the depositories. Resultantly, functioning of exchanges altered with the commencement of depositories; shorter trade cycles, negligible baddeliveries, immediate transfer of beneficial ownership and lower transaction costs. An in-depth study on transaction cost for equity shares in India by Raju (2000) revealed substantial decrease in transaction costs and observed that the dematerialization as one of the important factor for this trend. Functioning of clearing corporations / clearing houses materially changed after the entry of depositories; reduced manpower requirements and faster clearing operations. It also helped them 27
to diversify into related businesses such as on-line stock lending. Depository participants are the new commercial intermediaries that sprang up. They interpose between investor and depository. It can be stated that they are the back-bone for the success of dematerialization. RTAs facilitate dematerialisation and rematerialisation of shares. Major Players In Online Trading Brokerage Houses in India
ICICI Securities Ltd.
Kotak Securities Ltd.
India bulls Financial Services Limited
India Infoline
IL&FS investmart Limited
SSKI Ltd.
Motilal Oswal Securities
Religare Securities Ltd.
Geojit Securities
HDFC Securities
Online Trading: Indian scenario
In the Indian context ,online trading can be rightly called as a recent phenomenon ,which took root with the change of century i.e. April 2000,and even till day online trading is not much popular among investors for which a list of factors can be blamed. This fact is more clear from the information available that where number of stocks exchanges in India has grown from 7 exchanges in 1946 to total 23 exchanges till 2005,only 2 stock exchanges are providing online share trading trading .Indian .Indian stock exchanges have started adopting technology because it provides provides the necessary necessary impetus for the organizatio organization n to retain its competitive competitive edge and ensure timeliness timeliness and satisfaction in customer service.
28
Market share in Online Trading
Others 24% ICICIdirect ICICIdirect 50%
India Bulls Others
India Bulls 26%
Online trading has gained momentum from just 0.5% of total traded volumes 5 Yrs back, which now account for 5% of total trading volume of approximately Rs 14000 Cr. On OnceOver the past two years ,the value of all trades executed through internet on NSE has grown from less than Rs 100 Cr in June 2003 to over Rs 700 Cr in June 2005.Online trading is growing by 150 % per annum.Now NSE has 108 registered brokers and 1.053 million internet trading subscribers. However mainly 5 companies control 90 % of the market in Internet trading.ICICIdirect.com has around 50 % market share ,whereas India Bulls hold 26% share ,other dominant players are Kotak securities securities and Share Khan .ICICI has been able to gain its dominant dominant presence in Internet Internet trading because they have strong connectivity of stock trading,demat account, bank account ,etc.ICICIDirect has recorded 6,75,000 registered customers and has become 10th largest online broker in US whereas share khan and 5paisa are loosing their way.
Today, BSE is the world’s number 1 exchange in terms of the number of listed companies and the world’s 5th in transaction number. Of the 23 stock exchanges in the India, Bombay Stock Exchange is the largest, with over 6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the country. Established in 1875, the exchange is also the oldest in Asia. Among the twenty-two Stock Stock Exchan Exchanges ges recogni recognized zed by the Governm Government ent of India India under under the Securi Securitie tiess Contrac Contracts ts 29
(Regulation) Act, 1956, it was the first one to be recognized and it is the only one that had the privilege of getting permanent recognition ab-initio. Moreover, The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. The index is widely reported in both domestic and international markets through print as well as electronic media. The "Free-float Market Capitalization" methodology of BSE index construction is regarded as an industry’s best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. Due to its wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, the SENSEX has over the years become one of the most prominent brands in the country. The paper therefore therefore emphasizes emphasizes mainly mainly on BSE sensex and major fluctuation fluctuationss related related to it from time period of 2006 to 2008. The paper also put the light on how various factors such as inflation, investments made through participatory notes, rising crude oil prices, the sub-prime mortgage woes in US, concerns over a slowing down US economy and big role of Foreign Institutional Investors (FIIs) determines market’s situation and operate SENSEX.
SENSEX: Thee SENS Th SENSEX EX,, shor shortt form form of the the BSEBSE-Sen Sensi siti tive ve Index Index,, is a "Mar "Marke kett Capit Capital aliz izat atio ionnWeighted" index of 30 stocks representing a sample of large, well-established and financially sound companies.
30
Objectives of SENSEX
To measure market movements Benchmark for funds performance For index based derivative products
Calculation of SENSEX
SENSEX is calculated using a "Market Capitalization-Weighted" methodology. As per this methodology, the level of index at any point of time reflects the total market value of 30 comp compon onent ent stock stockss rela relati tive ve to a base base peri period. od. Th Thee mark market et capit capital aliz izat atio ion n of a compan company y is determined by multiplying the price of its stock by the number of shares issued by the company. An index of a set of a combined variables such as price and number of shares is commonly referred as a 'Composite Index' by statisticians. A single indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over time. Thee calcu Th calcula lati tion on of SENS SENSEX EX invo involv lves es divi dividi ding ng the the tota totall mark market et capit capital aliz izat atio ion n of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index maintenance adjustments. ad justments.
Year 2006 at a glance:
In the secondary market, the uptrend continued in 2006-07 with BSE indices closing above 14000(14,015) for the first time on January 3, 2007. After a somewhat dull first half conditions on the bourses turned buoyant during the later part of the year with large inflows from Foreign
31
Institutional Investors (FIIs) and larger participation of domestic investors. During 2006, on a point-to-point basis, Sensex rose by 46.7%. The pickup in the stock indices could be attributed to impressive growth in the profitability of Indian Indian corpor corporate ate,, overall overall higher higher growth growth in the econom economy, y, and other other global global factor factorss such such as continuation of relatively soft interest rates and fall in the international crude p rices. BSE Sensex (top 30stocks) which was 9,398 at end-December 2005 and 10,399 at end- May 2006, after dropping to 8,929 on June 14, 2006, recovered soon thereafter to rise steadily to 13787 by end-December 2006. According to the number of transactions, NSE continued to occupy the third position among the world’s biggest exchanges in 2006, as in the previous previous three years. BSE occupied the ixth position in 2006, slipping one position from 2005. In terms of listed companies, the BSE ranks first in the world. In terms of volatility of weekly returns, uncertainties as depicted by Indian indices were higher than those in outside India such as S&P 500 of United States of America and Kospi of South Korea. The Indian indices recorded higher volatility on weekly returns during the two year period. January 2005 to December 2006 as compared to January 2004 to December 2005 The market valuation of Indian stocks at the end of December 2006, with the Sensex trading at a P/E multiple of 22.76 and S&P CNX Nifty at 21.26, was higher than those in most emerging markets of Asia, e.g. South Korea, Thailand, Malaysia and Taiwan; and was the second highest among emerging markets. The better valuation could be on account of the good fundamentals and expected future growth in earnings of Indian corporate Liquidity, which serves as a fuel for the price discovery process, is one of the main criteria sought by the investor while investing in the stock market. Market forces of demand and supply determine the price of any security at any point of time. Impact cost quantifies the impact of a small change in such forces on prices. Higher the liquidity, lower the impact cost.
32
SENSEX during 2006: (Economic Survey 2007-08)
20 0 6
BS E
Jan
99 2 0
Feb
10370
Mar
11 2 8 0
33
Apr
120 43
May
10 3 9 9
Jun
10 6 0 9
Jul
10 7 44
A ug
1 16 99
Sep
12 4 5 4
Oc t
12 9 6 2
N ov
13 6 96
De c
13 7 87
BSE 16000 14000 12000 10000 8000 A l t i T x 6000 s e
4000 2000 0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
De
BSE 992 920 0 103 037 7 11 1128 28 120 204 4 103 039 9 10 1060 60 107 074 4 11 116 69 12 1245 45 129 296 6 13 136 69 13 137 7
An overview of year 2006:
During December 2005, the greatest demerger of Indian history between the Ambanis paved the way for 9000. And the sensex entered the year 2006 with a 9000 + figure. On Feb. 10th 2006, we saw two roaring figures, both sensex and sachin tendulkar crossing 10000 mark. But the reason behind behind roaring roaring sensex sensex was not sachin’s sachin’s records rather it was rallied by strong strong FII inflows and Thee gove govern rnme ment nt fore forecas caste ted d a GDP GDP growt growth h of 8.1% 8.1% in curre current nt year year,, with with robust robust data. Th 34
manufacturing and the agriculture sectors estimated to grow at 9.4% and 2.3% respectively. The 238-point rally was contrary to expectations as it came despite negative news flow about a fresh tussle between Ambani brothers over transfer of ownership of the four companies demerged from erstwhile RIL. Sensex’s Sensex’s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh’s announcements announcements on Capital Account Convertibility Convertibility . On Saturday, Prime Minister Manmohan
Singh hinted at moving toward a free float of the rupee and on Tuesday, Tuesday, the BSE responded responded by crossing the 11,000 mark in a lifetime intraday high. The new trading high was reached 29 days after Sensex entered the elite 10,000 club on February 6. Only Nikkei, Hang Seng and Dow Jones could boast of being above 10,000 at that time. Since full convertibility was expected to attract more foreign money and also allow local companies to tap foreign debt markets more easily, it was evident that the move will encourage investors and boost the confidence of the markets. RBI said it was constituting a panel to thrash out the contours for full convertibility. Although the index later ended lower with investors wanting to book gains, participants said it was evident the markets had sent out a message - that the growth story of Asia’s third largest economy is intact and that liquidity flows into the bourses would continue to remain firm. After hitting a high of 11,017.25 points in mid-afternoon trade, Sensex lost 35.91 points to close at 10,905.20, fluctuating 153 points, with most of the volatility coming in the last hour of Trading. The rise in share prices was partly attributed to a fall in oil price. The US April crude oil prices plunged 3.7% or $2.35, to settle at $60.42 a barrel, on the New York Mercantile Exchange due to ample US inventories. After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both cash and futures markets and a move by stock exchanges to raise margins on share transactions by about 250 basis points , the 131-year-old BSE on Thursday, April 20, 2006 crossed yet another
milestone when it breached the 12,000- point mark, backed by strong corporate earnings, earnings, higher liquidity and robust economic growth. The index was being driven by the strong flow
of liquidity. Earlier, it was based on the expectations that (corporate) results would be great...and by the first first few companies were more than matching those expectations expectations Although, Sensex was 35
beaten to the 12,000 mark by various global indices, the time it took to breach this milestone has been one of the fastest. Traders point to the fact that foreign investors, buoyed by a booming economy, have chosen India as one of their top investment destinations.
Now, everything was going fine….perhaps it was the lull before the storm. Suddenly the Dalal Street experienced its worst single day crash on Thursday, 18th may 2006 as an ambiguous Government circular on taxing investment gains prompted foreign funds to book profits,
knocking the bottom off the jittery stock market. Opening amidst weak global markets and reports of rising US interest rates , the BSE-30 Sensex went on to close 826.38. However the
Dealers said the fall was accentuated by large-scale selling of client positions by broking firms due to margin calls or the lack of margins . The May crash saw the Sensex shedding its market
capitalization by as much as 14% in just one month. Benchmark stock indices vaulted to new highs on Monday, oct 30th 2006 driven by a heady cocktail of strong corporate earnings, a rapidly growing economy and relatively stable crude oil prices. The Sensex ended at its highest closing level of 13024.26, a gain of 117.45
points or 0.9%. Marauding bulls defied the weak trend globally, which was sparked off by weak US GDP growth figure , pointing to a slowdown.
Back home, the mood was upbeat even as some expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on Tuesday . Market watchers said sentiment
could be affected only if the hike is more than 25 basis points, which is unlikely. Higher interest rates drive up borrowing costs for corporate as well as the retail consumer, who could then cut back on their investments and spending, in turn causing a slack in domestic demand. The benchmark 30-share sensex briefly crossed the psychological 14,000-mark on Tuesday, December 5, 2006. While foreign institutional institutional investors investors have been aggressive aggressive buying stocks over the past few months, the response of domestic mutual funds has been guarded. In the
last two months alone, FIIs bought net stocks worth Rs 17,001 crore while local mutual funds have pumped in a net Rs 638.07 crore. Year 2007 at a glance:
36
In the secondary market segment, the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2008. Although the indices showed some intermittent fluctuations, reflecting change in the market sentiments, he indices maintained their north-bound trend during the year. This could be attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors, particularly the institutional investors. During 2007, on a point-to-point basis, Sensex and Nifty Indices rose by 47.1 and 54.8 per cent, respectively. The buoyant conditions in the Indian bours bourses es were were aided aided by, among among other other things things,, India India postin posting g a relati relativel vely y higher higher GDP growth growth amongst the emerging economies, continued uptrend in the profitability of Indian corporate, persistence of difference in domestic and international levels of interest rates, impressive returns on equities and a strong Indian rupee on the back of larger capital inflows. The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. nifty. The sell-off sell-off in Indian bourses in August 2007 could partly be attributed to the concerns on the possible fallout of the sub-prime crisis in the West. While the climb of BSE Sensex during 2007- 08 so far was the fastest ever, the journey of BSE Sensex from 18,000 to 19,000 mark was achieved in just four trading sessions during October 2007. It further crossed the 20,000 mark in December 2007 and 21,000 21,000 in an intraintra-day day trading trading in Januar January y 2008. 2008. However However,, BSE and NSE indices indices declin declined ed subsequently reflecting concerns on global developments. BSE Sensex yielded a Compounded return of 36.5 per cent per year between 2003 and 2007. In terms of simple average, BSE Sensex has given an annual return of more than 40 per cent during the last three years.
Sensex during 2007: (source: Economic Survey 2007-08) 2 007
BS E
Jan
14 09 1
Feb
12938
Mar
13 07 2 37
Apr
13 87 2
May
14 544
Jun
14 65 1
Jul
1 5 551
A ug
15 319
Sep
17 251
Oc t
19 838
N ov
19 363
De c
20 287
BSE 25000 20000 15000
198381936320287 17251 15551 15319 14091 138721454414651 1293813072
10000 5000 0 Ja Jan
Feb
Mar
Apr
May Ju Jun n
Jull Ju
Aug Sep
Oct
Nov
Dec
Sensex during year 2008
After scaling new heights of 20000+, sensex entered year 2008 with rosy pictures. The trade pundits, brokers and even investors predicted new heights for the year. And they felt their pre predi dict ctio ions ns comi coming ng true true when when sens sensex ex touc touche hed d the the 210 21000 00 mark mark on 8th 8th Janu Januar ary y 200 2008. 8. It’s It’s interesting if one sees in terms of flows; the journey from 20,000 to 21,000 is dominated by domestic institutional investors; FIIs were negative sellers, they sold in the cash market to the 38
tune of USD 45 billion. So if one has to take out some pointers from this journey from 20,000 to 21,000, it is the longest journey which we have seen in the last 5,000 marks, the midcaps and smallcaps have been outperformers and in terms of flows, it has been domestic institutional investors which have been really putting the money. But the rosy picture soon turned gloomy. The skyrocketing sensex suddenly started heading south and Sensex saw the biggest absolute fall in history, shedding 2062 points intra-day. It closed closed at 17,605.35, down 1408.35 points points or 7.4 per cent. It fell to a low of 16,951.50. 16,951.50. The fall was triggered as a result of weakness in global markets, but the impact of the global rout was the biggest in India. The market tumbled on account of a broad based sell-off that emerged in global equity markets. Fears over the solvency of major Western banks rattled stocks in Asia and Europe. After the worst January in the last 20 years for Indian equities, February turned out to be a flat month with the BSE sensex down 0.4%. India finished the month as the second worst emerging mark market et.. Th Thee under underpe perf rfor orma mance nce can can partl partly y be attr attrib ibute uted d to the the fact fact that that Indi Indian an mark market etss outperformed global markets in the last two months of 2007and hence we were seeing the lagged impact of that outperformance. In the shorter term, developments in the US economy and US markets continued to dominate investor sentiments globally and we saw volatility move up sharply across most markets. The Bombay Stock Stock Exchange (BSE) Sensex Sensex fell 4.44 percent percent on Monday, 31st march march the last day of the financial quarter, to end the quarter of March down 22.9 percent, its biggest quarterly fall since the June 1992 quarter, as reports of rising inflation and global economic slowdown dampened market sentiments. Financial stocks led the Sensex slide along with with IT. According to market analysts, IT stocks fell on worries about the health of the US economy. Indian IT firms depend on the US clients for a major share of their revenues.
Reasons for the slowdown (FY 08-09) The first month of the financial year 08-09 proved to be a good one for investors with the month ending on a positive positive note. The BSE sensex sensex showed a gain of 10.5% to close at 17287 points. A combination of firming global markets and technical factors like short covering were the main reasons for the up move in the markets. Though inflation touched a high of 7.57% against 6.68% 39
in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%, still emergence of retail investors was also seen; a fact reinforced by the strong movement in the mid-cap and small- cap index that rose 16% and 18% respectively. So April was the last month to close positive. Then after nobody saw a stable sensex even. Sometimes it surged by 600+ points, but very next day it plunged by some 800 odd points and this story is still continuing. Every prediction, every forecasting has failed. The sensex is dancing on the music of lifetime high inflation rates, historic crude prices, tightening RBI policies, weak industrial production data, political uncertainties and obviously the sentiments of domestic as well as FIIs. The only relief came in the form of weakening Indian rupees which enlightened the IT sector and most recently the UPA gaining vote of confidence. Presently it is revolving around the figures of 14000 and no one knows what next? The 30-share BSE Sensex fell 117.89 points or 0.67% at 17,373.01 on Tuesday, 6 May 2008. The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market. On 30th May an imminent hike in domestic retail fuel prices due to soaring crude oil prices weighed on the market last week. Foreign institutional investors sold close to Rs 2204 crore in the first three trading sessions of the week which accentuated the downfall. However better than expected Q4 gross domestic product figures provided some relief to the bourses on Friday. IT stocks gained on slipping rupee. BSE Sensex rose in two out of five trading sessions. In May, Indian inflation stood at 8.2%. The market declined sharply as a hike in fuel prices by about 10% announced by the Union government on Wednesday, 4 June 2008, triggered possibility of a surge in inflation to double digit level. level. The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 15,572.18 in the week ended 6 June 2008. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80 in the week. On 6 June 2008, local benchmark indices underperformed their global peers, hit by rumours that the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later in the day to tame runaway inflation. The 30-share BSE Sensex declined 197.54 points or 1.25% to settle at 15,572.18. On 9th June 2008, Bombay’s Sensex index closed 506.08 points down at 15,066.10, having earlier fallen 4.4% and slipped below 15,000 for the first time since March . Oil prices surged to record levels, fanning fears that they will keep climbing and hurt world growth. 40
Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control, despite the fact that economic growth is slowing in key nations such as the US and UK. On the week ending 27th June 2008 Sensex declined 769.07 points or 5.28% to 13,802.22. The S&P CNX Nifty lost 210.90 points or 4.85% to 4136.65 in the week. Equities extended losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important 14,000 mark for the first time in 10 months since late August 2007. On 25 June 2008, equities staged a solid rebound after touching fresh calendar 2008 lows in early trade. The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate. A setback to stocks in Asia and US, sharp spurt in crude oil prices and political uncertainty due to Indo-US nuclear deal rattled bourses on 27 June 2008. On July 15th 2008, Indian shares fell 4.9 per cent to their lowest close in 15 months, joining a world equities rout as investors dumped financials on concerns about the fallout from worsening global credit turmoil. Although Indian banks have no direct exposure to the US subprime mortgage sector, the global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds. An 800+ point surge was experienced in the market on the day following UPA gaining vote of confidence but the very next day market couldn’t maintain the momentum and since then its in a doldrums’ position. Presently, we can saw market plunging after the RBI announced further hikes in Repo rate as well as CRR both increased to 9%. Also, the serial blasts at Ahmadabad and Bangalore adding to the worries and enhancing the negative sentiments. And above all we can't see any positive trigger that can dilute the flow of negative news.
Current Situation of year 2008 With major financial crisis erupting in the U.S., Indian Stock Market benchmark index (Sensex) fell by 469.54 points or 3.35 per cent on Monday to close at 13531.27. Realty stocks led the fall with a loss of 7.65 per cent. cen t. 41
The National stock exchange, the NSE Nifty lost 155.55 points or 3.68 per cent. All sectoral indices closed in the negative territory. An eventful week of turmoil has begun in the global financial scenario as stock prices plunged across much of the globe on news that investment bankers, Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch & Co’s forced sale to Bank of America. Even American International Group (AIG), the world’s largest insurance company, asked the U.S. Federal Reserve for an emergency funding before announcing a major restructuring plan. The investments in Indian firms by these U.S. investment bankers are a major worry for Indian investors. Investor confidence is at its lowest ebb. Investors are worried that all these are likely to trigger another round of troubles for banks and financial institutions around the globe. Six months ago, in March, Bear Stearns, the fifth biggest U.S. investment bank, witnessed a full circle before its fall and sell-off to JP Morgan Chase & Co for a rock bottom price of $2 per share.
REVIEW OF LITERATURE “A study of fund selection behavior of individual investors towards mutual funds - with reference to Mumbai city”. Ms. Kavitha Ranganathan (M.Phil – Commerce), Co mmerce), Madurai Kamaraj University Sadhak, H., Mutual Funds in India – Marketing Strategies and Investment Practices, Respo nse Books, New Delhi,1997, 63 – 64. SEBI – NCAER, Survey of Indian Investors, SEBI, Mumbai, 2000.
42
Abstract
Consume Consumerr behavi behavior or from from the market marketing ing world world and financ financial ial econom economics ics has brought brought togeth together er to the surfac surfacee an exciti exciting ng area area for study and resear research: ch: behavi behaviora orall financ finance. e. The realization that this is a serious subject is, however, barely dawning. Analysts seem to treat financial markets as an aggregate of statistical observations, technical and fundamental analysis. A rich view of research waits this sophisticated understanding of how financial markets are also affected by the ‘financial behavior’ of investors. With the reforms of industrial policy, public sector, financial sector and the many developments in the Indian money market and capital market, Mutual Funds which has become an important portal for the small investors, is also influenced by their financial behavior. Hence, this study has made an attempt to examine the related aspects of the fund selection behavior of individual investors towards Mutual funds, in the city of Mumbai. From the researchers and academicians point of view, such a study will help in developing and expanding knowledge in this field. Investment Strategies in Indian Stock Market Author: Dr. Vanita Tripathi Senior Lecturer Department of commerce Delhi School of Economics University of Delhi. Basu, Sanjoy.1977.Investment Performance of Common Stocks in Relation to their PriceEarnings Ratios: A Test of Efficient Market Hypothesis, Journal of Finance
Abstract
This paper examines the perceptions, preferences and various investment strategies in Indian stock market on the basis of a survey among 93 investment analysts, fund managers and active equity investors based at Delhi and Mumbai during May-October, 2007. Survey findings reveal that investors use both fundamental as well as technical analysis while investing in Indian stock market. Most of the respondents strongly agree that various company fundamentals ( such as size, book to market equity, price earnings ratio, leverage etc.) significantly influence stock prices and hence addition of these factors in asset pricing model can better explain cross
43
sectional variations in equity returns in India. Five most widely used investment strategies in Indian equity market are size based strategies, momentum strategies, following FIIs investment behaviour, buying stocks on the basis of 30 days moving average and buying stocks on the basis of relative strength index. There has been substantial change in investment strategies used by active investors in Indian stock market over the past five years. In a nutshell there has been a shift from purely technical analysis based strategies to the one which involves both fundamental and technical analysis. Moreover the investment horizon of investors has also reduced due to higher volatility. Foreign Direct Investment from China, India and South S outh Africa in sub-Saharan Africa: A New or Old Phenomenon? John Henley, Stefan Kratzsch, Mithat Külür, and Tamer Tandogan, JEL classification: D21, F23, M16, O55, UNU-WIDER project on Southern Engines of Global Growth, ISSN 1810-2611 ISBN 978-92-9230-070-8, March 2008. Wells, L. T. (1983). Third World Multinational: the Rise of Foreign Investment from Developing Countries. Cambridge, MA: MIT Press.
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Abstract:-
The burgeoning literature on outward foreign direct investment from emerging markets has largely focused on analysing the motives of investors as reported by parent companies. This paper, instead, focuses on firm-level investments originating from China, India or South Africa in fifteen host countries in sub-Saharan Africa (SSA). The analysis is based on a sub-set of firms drawn from the overall sample of 1,216 foreign-owned firms participating in the UNIDO Africa Foreign Investor Survey, carried out in 2005. The sample of investments originating from China, India and South Africa is analysed in terms of firm characteristics, past and forecast performance in SSA over three years and management’s perception of ongoing business conditions. Comparisons are made with foreign investors from the North. The paper concludes that while investors in SSA from the three countries are primarily using their investment to target specific markets, they are largely operating in different sub-sectors. While there appear to be specific features that firms from a given country of origin share, there are no obvious operating-level features they all share apart from from market seeking. seeking. Active Active investment investment manager portfolios portfolios and preferences for stock stock characteristics. School of Banking and Finance, The University of New South Wales, Kensington, N.S.W. 2052 Securi Securitie tiess Indust Industry ry Resear Research ch Centre Centre of Asia-Pa Asia-Pacif cific ic (SIRCA (SIRCA)) Simone Simone Brands Brands,, David David R. Gallagher, Adrian Looi Abstract This paper investigates the stock characteristic preferences of active Australian equity managers. We examine the following characteristics: stock price variance, momentum, size, transaction costs, earnings yield, analyst coverage and the standard deviation of analyst an alyst forecasts. In aggregate we find that active managers exhibit preferences for stocks exhibiting high price variance, large market capitalization, low transaction costs, value-oriented stocks, greater levels of analyst coverage, and stocks with less variability va riability in analyst earnings forecasts. The study also recognizes the importance of tracking error in portfolio p ortfolio management by examining stock preferences with respect to both small and large stocks. We find evidence of momentum trading in large stocks, and higher volatility and wider analyst coverage amongst small stocks. Active managers are also evaluated on the basis of size and investment style. Small investment 45
managers exhibit a preference for stocks with higher volatility and analyst coverage (including consensus of forecasts). Finally we find evidence of an industry effect, where GICS classi classific ficati ations ons have an import important ant impact impact on the stockh stockhold olding ingss of Austra Australia lian n instit instituti utional onal investment managers.
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DATA ANALYSIS How do you come to know about the Company Religare? Table: 1
Source of information Business Magazines Friends Electronic Media Other sources
No of Customers 36 28 20 16 Chart-1
c ustomers are coming to know about Religare Inference: It is observed that 36% of Religare customers through business magazines. 28% investors are getting getting Religare information through through friends which is the next biggest source of information for the investors.
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Table-2
Have you ever invested in stock markets? Response
No of investors 78 22
Yes No Chart-2
Inference: 78% of the Religare customers are already invested in stock markets either directly through shares or indirectly indirectly through mutual funds. But the remaining 22% are invested in insurance policies.
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Table-3
Investors motivating factors to invest in stock markets Motivating factors
No of investors motivated 52 37 11
High returns Tax benefits Any other factors
Chart –3
Inference: It was found that 52% of the customers are motivated by the high returns that they can gain by investing in shares. shares. 37% of the customers are investing in stock markets because they want tax exemptions in the form of long term capital gains.
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Table-4 Table showing the investors objectives of investing in stock markets
Objective
No of investors 22 45 24 9
Regular income Capital appreciation Tax savings Any other objective Chart- 4
Inference: It was found that 22% of the investors are investing in stock markets because they want regular income in the form form of dividends. 45%of the investors are preferring preferring capital appreciation rather than short term term regular income. And remaining investors have various considerations like tax benefits.
Table-5
Table showing customers perception of reasons for bearish market conditions.
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Reasons for bearish market
No of investors 9 23 7 61
Inflation Sub-prime crisis Rise in crude oil prices All the above
Chart –5
Inference: 61% of the investors are opined that inflation, sub-prime crisis and crude oil prices are the main reasons for the current bearish market conditions. Very few people said that they are individually responsible for the present situation.
Table-6
Investors response regarding negative effect of recession on investors investment decisions. Investors response Yes
No of investors 72 51
No Can’t say
0 28
Chart –6
Inference: it was found that 72% of the investors opined as present market conditions will adversely affect the investors investors sentiment in the market. market. Only 28% of investors replied that positive trend in the market will boost investors confidence o nce again.
Table-7
Table showing Investors actions during the recession period
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Actions during recession Changes to portfolio Taking experts advice Complete disposal of equity Other changes
No of investors 26 33 27 14 Chart-7
Inference: It is observed that 33% of the investors are approached financial advisers to take their valuable suggestions to minimize minimize the risk. 26% of the investors made changes to their portfolios. 27% of the investors completely completely sold of equity portion of their portfolio. portfolio.
Table-8 Table showing the changes taken place in the investors portfolios
Changes in portfolio Decrease in equity portion Investing in debt securities Complete disposal of equity
No of investors 42 24 27 53
Other changes
7 Chart-8
Inference: It is observed that 42% of the investors have decreased the equity portion of their portfolios. 24% of the investors are are investing in debt instruments instruments rather equity.
Table-9
Table showing investors response about role of portfolio management in minimizing risk. Investors response Yes No Can’t say
No of investors 57 13 30
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Chart-9
Inference: It is found that 57% of the investors opined that effective portfolio management will help in minimizing the total risk of the portfolio. 13% of the investors said that risk which is called as systematic risk cannot be eliminated through p ortfolio management.
Table-10
Table showing investors response about role of financial experts in maximizing the returns. Response Yes No To some extent
No of investors 62 13 25 55
Chart-10
Inference; 62% of the investors agreed that they got good returns by taking financial experts advises. 25% of the investors investors said that experts advice will help only to some extent and luck also plays a role in maximizing returns.
Table-11
Table showing the ranks given by investors to Religare services. Ra nk
No of investors 23 18 46 11 2
1 2 3 4 5 Chart-11
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Inference: 23% of the investors ranked Religare financial services as 1 which is showing their satisfaction as well as long term relationships relationships with the company. But majority of the the people ranked Religare services as 3.
Table-12
Table showing suggestions given by investors to Religare to improve quality in their services. Suggestions Providing more quality information Decrease in service charges Timely changes to portfolio All the above
No of investors 27 18 21 34 Chart-12
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Inference: 34% of the customers want Religare to provide them with more quality information, decrease in service charges as well as they want to make timely changes to their portfolio which will enhance their returns.
FINDINGS The following are the findings of the survey.
It is observed that 36% of Religare customers are coming to know about Religare through business magazines. 28% investors investors are getting Religare Religare information information through friends which is the next biggest source of o f information for the investors.
It is found that 78% of the Religare customers are already invested in stock markets either directly through shares shares or indirectly through through mutual funds. But the remaining 22% are invested in insurance policies.
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It was found that 52% of the customers are motivated by the high returns that they can c an gain by investing in shares. 37% of the customers are are investing in stock markets markets because they want tax exemptions in the form of long term capital gains.
It was found that 22% of the investors are investing in stock markets because they wan t regular income in the form of dividends. 45%of the investors are preferring preferring capital appreciation rather than short term term regular income. And remaining investors have various considerations like tax benefits.
It is observed that 61% of the investors are opined that inflation, sub-prime crisis and crude oil prices are the main main reasons for the current current bearish market conditions. Very few people said that they are individually responsible for the p resent situation.
It was found that 72% of the investors opined as present market conditions will adversely affect the investors sentiment sentiment in the market. Only 28% of investors replied that positive trend in the market will boost investors confidence once again.
It is observed that 33% of the investors are approached financial advisers to take their valuable suggestions to minimize minimize the risk. 26% of the investors made made changes to their portfolios. 27% of the investors completely sold of equity portion of their portfolio. portfolio.
It is observed that 42% of the investors have decreased the equity portion of their portfolios. 24% of the investors are investing in debt instruments instruments rather equity.
It is found that 57% of the investors opined that effective portfolio management will help in minimizing the total risk of the portfolio. 13% of the investors said that risk which is called as systematic risk cannot be eliminated through portfolio management.
It is understood that 62% of the investors agreed that they got good returns by taking financial experts advises. 25% of the investors investors said that experts advice will help only to some extent and luck also plays a role in maximizing returns.
It is observed that 23% of the investors ranked Religare financial services as 1 which is showing their satisfaction satisfaction as well as long term term relationships with the the company. But majority of the people ranked Religare services as 3.
It was found that 34% of the customers want Religare to provide them with more quality information, decrease in service charges as well as they want to make timely changes to their portfolio which will enhance their returns.
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Questionnaire
Name:-
Age:-
1. How do you come come to know about about Religar Religaree financial financial services, services, Guntur? Guntur? a. Business magazi azines[ ]
b. Electr ctroni onic media dia
[ ]
c. Friends
d. Other sources
[ ]
[ ]
2. Have you you ever invested invested in in stock stock markets? a. Yes b . No
[ ] [ ]
3. Which of the the following following factors factors have have motivated motivated you to to invest in in the stock stock markets? markets? 60
a. High returns
[ ]
c. Others
[ ]
b. Tax benefits
[ ]
4. Which of of the followi following ng is your your objective objective of investing investing in in stock market market?? a) Regular income
[ ]
b) Capital appreciation
c) Tax savings
[ ]
d) Any others specify
[ ]
5. According According to you, you, which of the the following following is the the reason reason for bearish bearish market market conditions conditions?? a) Inflation
[ ]
b) Sub-prime crisis
[ ]
c) Rise in crude oil prices
[ ]
d) All the above
[ ]
6. Do you think think the present present recession recession economi economicc conditions conditions will will adversely adversely affect affect the investor’s sentiment? a) Yes
[ ]
b) No [ ]
c) Can’t say
[ ]
7. Which of of the followi following ng actions actions have you you taken taken during the recessi recession? on? a)
Making changes to portfolio [ ]
b)
Taking experts advice
[ ]
c)
Complete disposal of equity [ ]
d)
Other changes specify
8. Which of the the following following changes changes have taken taken place place in your portfol portfolio io during during the recessio recession n period? a) Dec Decrease in equity portion
[ ]
c) Complete disposal of equity [ ] e)
No changes
b) Inves vesting in debt securi urities [ ] d) All the above
[ ]
[ ]
9. Do you think think that effectiv effectivee portfolio portfolio management management will will help you you in minimizin minimizing g the risk? risk? a) Yes
[ ]
b) No [ ]
c) Can’t say [ ]
10. Do you agree with the statement statement of “Expert’s advice will will maximize your returns”? returns”? a) Yes
[ ]
b) No
[ ] 61
c) To some extent
[ ]
d) Ca C an’t say [ ]
11. Rank the services of “Religare “Religare financial services” on a scale of 1-5? a) 1
[ ]
b) 2
[ ]
d) 4
[ ]
e) 5
[ ]
c) 3
[ ]
12. According to you, in which of the the following areas Religare Religare needs to improve its services? services? a) b)
Providing more quality information [ ] Decrease in service charges
[ ]
c)
Timely changes to portfolio
[ ]
d)
All the above
[ ]
GLOSSARY Market share: An organization’s portion of the total sales in a given market expressed as a percentage. Dividend : Dividend is declared on the face value or par value of a share, and not on its market price price.. For invest investors ors divide dividends nds contrib contribute ute the return returnss on shares shares bought bought in additio addition n to price price appreciation. Brokerage : Commission payable to the stockbroker for arranging sale or purchase of securities.
Exchange who acts as an agent for buying and selling shares shares for Broker: A member of a Stock Exchange them.
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Acquisition : An event when the control of a company changes hands from one set of people to another. Intrinsic Value: This is the value that a person puts to the company based on what the earnings potential of a company is. Sensex : It is an index that represents the direction of the companies that are traded on the Bombay Stock Exchange. Bull: A particular kind of investor who purchases shares in the expectation that the market price of that company's share will increase.
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