SECTORIAL ANALYSIS OF SHARE PRICE MOVEMENTS IN NSE by iaemedu

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									 INTERNATIONAL JOURNAL OF MANAGEMENT (IJM)
  International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
  6510(Online), Volume 4, Issue 3, May- June (2013)

ISSN 0976-6502 (Print)
ISSN 0976-6510 (Online)                                                           IJM
Volume 4, Issue 3, (May - June 2013), pp. 96-104
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     SECTORIAL ANALYSIS OF SHARE PRICE MOVEMENTS IN NSE
        DURING THE PERIOD FROM 1st April 2007-31st March 2012

                                     Author: M.Pushpalatha,
             Ph.D Research scholar, Department of commerce, Sri Vasavi college, Erode
                                Co-Author: Dr K. Balasubramani,
                     Associate Professor in commerce, Sri Vasavi college, Erode



  ABSTRACT

          The presence of Investment or investing is a term with several closely-related meanings in
  business management, finance and economics, related to saving or deferring consumption.
  Investment is the choice by the individual to risk his savings with the hope of gain. Rather
  than store the good produced, or its money equivalent, the investor chooses to use that good
  either to create a durable consumer or producer good, or to lend the original saved good to
  another in exchange for either interest or a share of the profits. The objective of this paper is
  to explore the sectorial Analysis of share price movements in NSE. The data used in this
  study is daily closing price of the market index(NSE-Index) over the period from 1st April
  2007 to 31st March 2012.The study uses Moving Average, Beta and Correlation Analysis to
  assess the Sectorial Analysis of share price movements. It is found that there was the
  constant growth in these five years period of the study there is no peak or decline. The
  analysis of Sectorial Analysis Results proved that in the Indian stock market conditions GDP
  and inflation might be impact the future returns of equity shares.

  Keywords: Investment, Sectorial Analysis, share price movements

  I.INTRODUCTION

         Investment or investing is a term with several closely-related meanings in business
  management, finance and economics, related to saving or deferring consumption. Investment is
  the choice by the individual to risk his savings with the hope of gain. Rather than store the
  good produced, or its money equivalent, the investor chooses to use that good either to create

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a durable consumer or producer good, or to lend the original saved good to another in
exchange for either interest or a share of the profits. In the first case, the individual creates
durable consumer goods, hoping the services from the good will make his life better. In the
second, the individual becomes an entrepreneur using the resource to produce goods and
services for others in the hope of a profitable sale. The third case describes a lender, and the
fourth describes an investor in a share of the business. In each case, the consumer obtains a
durable asset or investment, and accounts for that asset by recording an equivalent liability.
As time passes, and both prices and interest rates change, the value of the asset and liability
also change. An asset is usually purchased, or equivalently a deposit is made in a bank, in
hopes of getting a future return or interest from it. The word originates in the Latin "vestis",
meaning garment, and refers to the act of putting things (money or other claims to resources)
into others' pockets. The basic meaning of the term being an asset held to have some
recurring or capital gains. It is an asset that is expected to give returns without any work on
the asset per share.

II.REVIWE OF LITERATURE

        McInish showed that propensity to seek novelty and avoid ill-defined and risky
situations differed between investors who currently either owned or did not own each of a
wide variety of types of assets. These results gave additional support to the findings of
McInish (1982), Shefrin and Statman (1984) and Harlow and Brown (1990) that
psychological approaches would be useful in explaining investor behavior.
Lease, et al., examined the disappearance of the individual investor from direct participation
in the equity securities market place. Certainly, until there was a decent body of evidence on
the small investors’ personal situation, his self perceptions, the portfolio returns he had
experienced, and the nature of his investment strategy deliberations, neither the financial
community nor the regulatory authorities would be a position to contemplate actions with
which to counteract his withdrawal or otherwise would be able to beneficially influence his
behavior
        Baker and Haslem interpreted informational needs of the investors. The results
suggested that individual used many different factors for analysis but exceptional factors
dominated. The user information differed, and attached minor importance to financial
statement and depended on stock brokers and advisory services for their investment
information. Findings supported action which permits companies to include voluntary sales
and earnings forecasts in their report filed with SEC.
        Winsen stated that the association between publicly available information and stock-
market activity was almost exclusively concerned with the behavior of stock prices. This
emphasis on stock-price behavior obscured the effect of publicly available information on the
investor. Such research that has been concerned with investor behavior had made no attempt
to evaluate the efficiency of such behavior or the association between any inefficiency in
such behavior and publicly available information.
        Pettengill, et al., examined the stock selections of two groups of investors,
professional analysts and individual investors. They found that both groups exhibited a strong
preference to select momentum securities, but individual investors concentrated on securities
with extreme momentum. The professional analysts were successful with the momentum
strategy but the individual investors were not. They concluded that momentum investing was
not a viable strategy for individual investors.

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         Waweru, et al., investigated the role of behavioural finance and investor psychology
in investment decision-making at the Nairobi Stock Exchange with special reference to
institutional investors. Using a sample of 23 institutional investors, the study established that
behavioural factors such as representativeness, overconfidence, anchoring, gamblers’ fallacy,
availability bias, loss aversion, regret aversion and mental accounting affected the decisions
of the institutional investors operating at the NSE. Moreover, these investors made reference
to the trading activity of the other institutional investors and often exhibited an institutional-
herding behaviour in their investment decision-making.

III. STATEMENT OF THE PROBLEM

         Any investment is the postponement present consumption and the same will be consumed
in later period expecting more return or make available of more value for the future consumption.
But there are so many avenues for the investors among which the recently popular and the widely
accepted option of investment are corporate shares. In this, the investors indirectly participating in
the profit of the organization. The investors investing in stocks not only for the share in profit but
also capital appreciation. But in a stock investment there are two types of factors affecting the share
price movements. One is fundamentals of the economy and the corporate, another technical
movements or market psychology.

IV. SCOPE OF THE STUDY

        Index movement of the stock exchange is the clear indicator of the fluctuation which acts as
guideline for the investors. The movement of index can be captured by the nature of relationship
between beta, returns and volatility. This study has been attempted to find out how far the beta will
act as an indicator for the investors to take decision. The study was also helpful for the new
investors, researchers, brokers etc., for decision making.

V. OBJECTIVES OF THE STUDY

         To study the share price movements of the selected nifty shares.
         To study the volatility in the NIFTY shares.
         To study the relation between GDP and Inflation on the Share Price movements

VI. RESEARCH METHODOLOGY

1. Sampling Technique
Sampling is the process of selecting a sufficient number of elements from the population, so
that a study of the sample and an understanding of its properties or characteristics would
make it possible for us to generalizing such properties or characteristics.
2. Source of Data
All the data are collected from various websites like nseindia.com and bseindia.com for the
share prices and SENSEX, indiainfoline.com and corresponding websites of each company.
3. Period of Study
 The period of study is five years from 1st April 2007-31st March 2012.




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VII TOOLS USED FOR ANALYSIS

   •    Moving Average
        The market indices do not rise or fall in a straight line. The upward and downward
movements are interrupted by counter moves. The underlying trend can be studied by
smoothening the data. To smooth the data moving average technique is used.
        The word moving average means that the body of the data moves ahead to include the
recent observations. If it is a five day moving average on the sixth day the body of the data
moves to include the sixth day observation. Likewise it continues. In the moving average
calculation closing price of the stock is used.
        Yearly moving average is used for the closing price of the stocks. Since this is a
comparative study we have to compare the share price movements of the companies. Since
the share prices of each company differ a lot from others it is not possible to compare them
using their share prices. It must be classified on a comparable mean with common base.

    • Beta Analysis Result
Almost all the company has less than one this indicates the stock of automobile industry are
less volatile. banking industry are less volatile, cement & construction industry are less
volatile except DLF, electrical industry are less volatile except ABB. Gas & oil industry are
less volatile, metal & steel industry are less volatile, pharmaceutical industry are less volatile,
power industry are less volatile except SUZLON, telecommunication industry are high
volatile, automobile industry are less volatile except M & M, retail industry are less volatile.
Other industry are high volatile except IDFC and RELINFRA.

    • Correlation analysis Result
Hypothesis: there is a relationship between economic indicators (GDP, WPI & CPI) and
share price movements.
        To check this hypothesis GDP, WPI and CPI is taken for the five years of the study
and correlated with the average share price of the NIFTY companies. The correlation is
calculated for the different industries and presented sector wise in the following tables.
        Correlation analysis is done to compare the relationship between the share price
movements and economic indicators (GDP, WPI & CPI).
        This analysis is individually done with economic indicators X and share price
movements as Y and grouped industry wise.

Correlation of Share Price Movements of all Sectors and Economic Indicators
        Correlation of Share Price Movements of Automobile Sector, Banking Sector, Cement &
Construction Sector, Electrical Sector, Gas & Oil Sector, Metal & Steel Sector, Pharmaceutical
Sector ,Power Sector, Telecommunication Sector, IT Sector, Retail Sector. Other Sector,
positive correlative with GDP, inflation and share price movements. From the analysis it can
be infer that share price movements positively correlated with GDP & WPI. It shows that
when there is a increase in GDP & WPI, the share market is also moves up. When CPI is
taken and correlated it gives negative result. It can be infer that investors do not consider CPI
movements.




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                                       Table 1
          Moving Average of Share Price of selected company Name the period
                                     2007 -2012
                                                                      (Values in Rs.)

 Company/Year         2007-2008     2008-2009       2009-2010       2010-2011   2011-2012

  AXIS BANK            274.33        490.91           864.9           800        995.71

     HDFC              718.91        1022.05         1251.13         1527.9      1749.5

 HDFC BANK             825.89        1297.98         2628.65         1478.68     2647.81

  ICICI BANK           554.55        893.11          873.63          731.97      864.46

 KOTAK BANK            343.77        339.69          1067.79         368.07      780.42

      PNB              415.59        516.75          598.42           509.5      937.84

      SBIN          682.77  874.49                   2034.32         1129.36     2186.75
Source: Computed from PROWESS



                                      Graph-1
          Moving Average of Share Price of selected company Name the period
                                     2007 -2012

  10000
   9000
   8000
   7000
   6000                                                                           2011-2012
   5000                                                                           2010-2011
   4000                                                                           2009-2010
   3000
                                                                                  2008-2009
   2000
                                                                                  2007-2008
   1000
      0
          AXIS BANK   HDFC   HDFC    ICICI BANK KOTAK         PNB      SBIN
                             BANK               BANK


Sources: Computed from Table-1




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                                          Table-2

 Beta Calculation of Banking industry
        The following table shows the beta values of companies under the automobile sector.
The NIFTY movements and individual companies share price movements and beta value is
calculated.
                 Table 4.14: Table Showing Beta Value of Banking Sector
                  Company                                        Beta
                AXIS BANK                                          0.97
                HDFC BANK                                          0.98
                     HDFC                                          0.99
                ICICI BANK                                         0.98
               KOTAK BANK                                          0.98
                      PNB                                          0.96
                     SBIN                                           0.98
        Almost all the company has less than one this indicates the stock of banking industry
are less volatile.
Source:Computed from PROWESS


                                         Table-3
                     Showing Correlation Coefficient of Banking sector
     COMPANY                AXISBANK          HDFC        HDFCBANK            ICICIBANK

 Correlation (GDP)           0.909791       0.893428         0.906944             0.4104

  Correlation (WPI)           0.85961       0.825799         0.854319           0.376688

  Correlation (CPI)          0.876364       0.851807         0.870971           0.416325


      KOTAKBANK                             PNB                            SBIN

          0.668565                       0.817341                         0.848422

          0.580512                       0.830434                         0.789456

          0.609674                       0.813473                         0.807788

Source:Computed from BROWESS




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VIII .SUMMERY OF FINDINGS AND SUGGESTIONS OF THE STUDY

The following are important findings and suggestions of the study:

       It shows a constant growth in these five years period of the study there is no peak or
       decline.
       Except HERO HONDA rest of the companies shows high net gain.
       The entire companies share has grown during the period of the study except
       HINDALCO
       All the company’s share price moves with the market in banking industry.
       The companies in an electrical industry having good share price values.
       The volatility in shares in Gas &Oil industries is less.
       The SUNPHARMA alone shows a constant growth.
       The SUZLON have slow growth.
       TATAPOWER shows a constant increase in this industry.
       Metal & Steel industries net gain is high.
       The BHARTIARTL has a rapid growth among all the companies.
       All the company’s in cement & construction industries is now gradually growing.
       Investors in IT industries are getting minimum profit.
       Retail industries is booming the study period
       All companies are having high volatility except IDFC & LT.
       In today’s fluctuating market banking industry and computer software industry are
       highly sensitive
       So if investor wishes to get high return they can invest in banking industry especially
       in SBIN.
       It is also to be noted that the risk is also in investing these stocks since it depends on
       societal variation.
       Except reliance petroleum all the NIFTY company performing well, due to innovation
       & technology advancement. So we can expect a increase in share price as well stable
       income in the form of dividend.
       So for this reason if the investor wishes to get high returns he can well invest in these
       scrip’s of either pharmacy industry or power.

IX. CONCLUSION

        The present study attempted to find whether GDP and inflation influence the return of
equity shares. The analysis proved that in the Indian stock market conditions GDP and
inflation might be impact the future returns of equity shares. Through the results were
carefully obtained, it is mandatory necessary to mention here that the result is subject to the
limitations as mentioned earlier in this study. It would be better if an analysis is carried out
with a large sample to throw better light in the field. However it is conclude that GDP and
inflation cannot be the only factor which affects the future returns of the equity shares in the
Indian environment, as there are many parameters and indicators which shake the near
fundamental of a stock market, like P/E ratio, market capitalization, flow of funds has
domestic as well as international investors.




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