A SUMMER PROJECT REPORT ON
“VOLATILITY OF INDIAN STOCK MARKETS: A CASE OF
RELIANCE CAPITAL ”
Submitted to the
SCHOOL OF MANAGEMENT
In partial fulfillment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINSTRATION
Submitted By
VELUDANDI PRASHANTH
Reg. No. 3511210659
Under the guidance of
Mr.C.ARUN KUMAR
Assistant Professor
SRM SCHOOL OF MANAGEMENT
SRM UNIVERSITY
KATTANKULATHUR, KANCHIPURAM
TAMILNADU, 603203
August 2013
1
SRM School of Management
SRM University
SRMNagar,Kattankulathur-603203,
KancheepuramDistrict,TamilNadu.
Bonafide certificate
Certified that this project report titled “Volatility of Indian stock markets: A case of
Reliance Capital” is the Bonafide work of Mr. V.PRASHANTH with Register Number
3511210659 who carried out the research under my supervision. Certified further, that to the
best of my knowledge the work reported herein does not from part of any other project report
or dissertation on the basis of which a degree or award was conferred on an earlier occasion
on this or any other candidate.
Submitted for the viva-voce examination held on -----------------------
-------------------------------- ----------------------------
Mr.C.ARUN KUMAR Dr.JAYSHREE SURESH
(Project Guide) (Dean, MBA)
------------------------------------
External Examiner
2
V.PRASHANTH
Reg. No: 3511210659
SRM School of Management
SRM University
SRMNagar,Kattankulathur-603203,
Kancheepuram District, Tamil Nadu.
DECLARATION
I hereby declare that the project report entitled “Volatility of Indian stock markets: A case
of Reliance Capital ” submitted to SRM School of Management in partial fulfillment of the
requirement for the award of the Degree of Master of Business Administration, is a record of
the original research work done under the supervision and guidance of C.ARUN
KUMAR,Assistant.professor, SRM School of Management, SRM University, Chennai and
that it has not formed the basis for the award of any degree / associate ship / fellowship of
other similar title to any candidate of any university.
Signature: V PRASHANTH
Date: 3511210659
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ACKNOWLEDGEMENT
First and foremost, I sincerely thank to my industry guide Mr.Abhay Singh, Relationship
manager- Reliance Securities, Secunderabad, Andhra Pradesh for his guidance and
encouragement in carrying out this project work.
I would like to show my deep sense of gratitude to internal project guide C.ARUN KUMAR,
Assistant Professor, SRM School of Management for his constant encouragement and support
throughout this project, especially for the useful suggestions given during the course of the
project period. He inspired and motivated me tremendously whenever I had any hesitation.
Besides, I am also grateful to faculty members of SRM School of Management for their
assistance in data collection.
I take this opportunity to extend my deep appreciation to my family and friends, for all that
they meant to me during the crucial times of the completion of my project.
Apart from my efforts, the success of my project depends largely on the encouragement and
guidelines of many others. I take this opportunity to express my gratitude to all the people
who have been instrumental in the successful completion of this project.
.
4
ABSTRACT
In this project a study has been done on Volatility of Indian stock markets- volatility
refers to the amount of uncertainty or risk about the size of changes in a security's value. By
this the investor can assess the amount of risk taken by him. This can be done by considering
returns of particular benchmark Index as S&P CNX 500,CNX Finance Index in
NSE(National stock exchange) and compare it with the share of a particular
company(Reliance Capital).The study involves calculation of standard deviation, Beta values
to analyze the risk in markets.
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LIST OF CONTENTS
CONTENTS PAGE NO
1 CHAPTER-1 8
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1-9
Introduction
Industry profile
Organization profile
Review of Literature
Need and Importance of study
Objectives
Statement of problem
Methodology
Method Of analysis
9
11
14
19
20
20
21
21
22
2 CHAPTER-2 24
2.1 Integrated Perspective of functional area of
organization.
25
3 CHAPTER-3 28
3.1
3.2
SWOT analysis
Analysis and interpretation
29
31
4 CHAPTER-4 38
4.1 Findings and Suggestions 39
5 CHAPTER-5 40
5.1 Summary and Bibliography 41
6
LIST OF TABLES
Sl.NoDescription of the Table
Page No
3.12007-2008 Descriptive statistics
31
3.22007-2008 Beta calculations
31
3.3 2008-2009 Descriptive statistics 32
3.4 2008-2009 Beta calculations 33
3.5 2009-2010 Descriptive statistics 33
3.6 2009-2010 Beta calculations 34
3.7 2010-2011 Descriptive statistics 35
3.8 2010-2011 Beta calculations 35
3.9 2011-2012 Descriptive statistics 36
3.10 2011-2012 Beta calculations 37
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CHAPTER-1
8
1.1 INTRODUCTION
What is mean by Share market?
The market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.
How volatility reflects to share market?
Volatility of an asset is measured by the variability in the price over time measured as
the variance or the standard deviation of the returns on the asset. The more the standard
deviation the more volatile the asset is. This is also a measure of the riskiness of the asset
since the more variation it has the more unpredictability associated with its returns. There are
a lot of Market Models that measure the residual variances to measure volatility. The Market
Volatility Index (VIX) quoted at Chicago Board Options Exchange (CBOE) is constructed by
the weighted average of the implied volatility of Standard & Poor 100Index calls and puts. It
is a broad measure of the overall volatility in the market. There have been a lot of empirical
studies to test volatility in the stock markets globally. Research has proved that stock
markets have become more volatile in the recent times due to the emergence of "New
Economy" stocks. These stocks have been valued highly as compared to their "Old
Economy" counterparts on the expectations of giving very high returns in future. Thus this
high expectation has brought about wide fluctuations in the prices making the markets
turbulent.
BSE SENSEX
SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid
and representative companies. The base year of SENSEX is 1973-79 and the base value is
100. the index is widely reported in both domestic and international markets through
print as well as electronic media. The Index was initially calculated based on the “Full
market Capitalization” methodology but was shifted to the free-float methodology with
effect from september1, 2003. the “Free-float market Capitalization” methodology of index
construction is regarded as in industry best practice globally. All major index providers
like MSCI,FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.
9
SENSEX Calculation Methodology
SENSEX is calculated using the “Free-float market capitalization” methodology.
As per this methodology, as per this methodology, the level of index at any point of time
reflects the Free float market value of 30 component stocks relative to a base period. The
market capitalization of shares issued by the company. This market capitalization is further
multiplied by the free-float factor to determine the free-float market capitalization.
The base period of Sensex is 1973-79 and the base value is 100 index points.
The notation 1978-79=100 often indicates this. The calculation of SENSEX involves
dividing the Free-float market capitalization of 30 companies in the Index by a number
called the index divisor. The devisor is the only like to the original base period value of the
SENSEX. It keeps the index comparable over time and is the adjustment point for all Index
adjustments arising out of corporate actins, replacement of scrip’s etc. During market hours,
prices of the index scrip’s, at which latest trades are executed, are used by the trading system
to calculate SENSEX every 15 seconds and disseminated in real time.
NSE - A NEW IDEOLOGY
GENESIS
Capital market reforms in India have outstripped the process of liberalization in most
other sectors of the economy. However, the creation of an independent capital market
regulator was the initiation of this reform process. After the formation of the Securities
Market regulator, the Securities and Exchange Board of India (SEBI), attention were drawn
towards the inefficiencies of the bourses and the need was felt for better regulation, discipline
and accountability. A Committee recommended the creation of a2nd stock exchange in
Mumbai called the "National Stock Exchange". The Committee suggested the formation of
an exchange which would provide investors across the country a single, screen based trading
platform, operated through a VSAT network. It was on this recommendation that setting up
of NSE as a technology driven exchange was conceptualized. NSE has set up its trading
system as a nation-wide, fully automated screen based trading system. It has written for itself
the mandate to create a world-class exchange and use it as an instrument of change for the
industry as a whole through competitive pressure. NSE was incorporated in 1992 and was
given recognition as a stock exchange in April 1993. It started operations in June 1994, with
trading on the Wholesale Debt Market Segment. Subsequently it launched the Capital.
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NSE FAMILY
NSCCL
National Securities Clearing Corporation Ltd. (NSCCL),
IISL
India Index Services and Products Limited (IISL)
1.2 INDUSTRY PROFILE
1.2.1General Introduction about financial sector :
The financial sector is in a process of rapid transformation. Reforms are continuing as
part of the overall structural reforms aimed at improving the productivity and efficiency of
the economy. The role of an integrated financial infrastructure is to stimulate and sustain
economic growth. 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 no their 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. The financial sector has kept pace with the growing needs of
corporate and other 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. 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.
1.2.3 Capital Market
The Indian capital markets have witnessed a transformation over the last decade. India is now
placed among the mature markets of the world. Key progressive initiatives in recent years
include:
• The depository and share dematerialization systems that have enhanced the efficiency of the
transaction cycle
• Replacing the flexible, but often exploited, forward trading mechanism with rolling
settlement, to bring about transparency
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• The InfoTech-driven National Stock Exchange (NSE) with a national presence(for the
benefit of investors across locations) and other initiatives to enhance the quality of financial
disclosures.
• Corporatization of stock exchanges.
• The Securities and Exchange Board of India (SEBI) has effectively been functioning as an
independent regulator with statutory powers.
• Indian capital markets have rewarded Foreign Institutional Investors (FIIs) with attractive
valuations and increasing returns.
• The Mumbai Stock Exchange continues to be the premier exchange in the country with an
increase in market capitalization from US$ 40 billion in 1990-1991 to US$ 203 billion in
1999-2000. The stock exchange has about 6,000 listed companies and an average daily
volume of about a billion dollars
• Many new instruments have been introduced in the markets, including index futures, index
options, derivatives and options and futures in select stocks.
1.2.3 Origin and Development of the industry
The Bombay Stock Exchange (BSE) is known as the oldest exchange in Asia. It traces
its history to the 1850s, when stockbrokers would gather under banyan trees in front of
Mumbai’s Town Hall. The location of these meetings changed many times, as the number of
brokers constantly increased. The group eventually moved to Dalal Street in 1874and in 1875
became an official organization known as ‘The Native Share & Stock Brokers Association’.
In1956,the BSE became the first stock exchange to be recognized by the Indian
Government under the Securities Contracts Regulation Act.
The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to
measure overall performance of the exchange. In 2000 the BSE used this index to open
its derivatives market, trading Sensex futures contracts. The development of Sensex options
along with equity derivatives followed in 2001 and 2002, expanding the BSE’s trading
platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchanges
witched to an electronic trading system in 1995. It took the exchange only fifty days to make
this transition. Capital market reforms in India and the launch of the Securities and Exchange
Board of India (SEBI) accelerated the integration of the second Indian stock exchange called
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the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has
become the largest stock exchange in India. Three segments of the NSE trading platform
were established one after another. The Wholesale Debt Market (WDM) commenced
operations in June 1994 and the Capital Market (CM) segment was opened at the end of
1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE
takes the14th position in the top 40 futures exchanges in the world. In 1996, the National
Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up
100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25
different economy sectors. The Indices are owned and managed by India Index Services
and Products Ltd (IISL) that has a consulting and licensing agreement with Standard &
Poor’s. In 1998, the National Stock Exchange of India launched its web-site and was the first
exchange in India that started trading stock on the Internet in 2000. The NSE has also proved
its leadership in the Indian financial market by gaining many awards such as ‘Best IT Usage
Award’ by Computer Society in India (in 1996 and1997) and CHIP Web Award by CHIP
magazine (1999).
They had been following the development planning strategy of the former Soviet
Russia in a mixed economic framework. From July 1991, in the face of an unprecedented
foreign exchange crisis, Indian economy started experiencing an IMF-World Bank dictated
regime of liberalization.
1.2.4 Growth and Present Status of the industry
The ever-growing and fast-maturing 'India Market' is a profitable business destination
for developed countries. With 7-8% of GDP growth, huge analytical, young and English
speaking work force the 'pull' for opportunities are luring. The bandwidth of 'India Market' is
enviably wide and very deep. ‘Markets in India' are well protected by legal guidelines and
efficient administrators. With a liberal and proactive government at the center the road ahead
for 'Markets of India' is very rosy. 'Market India' has witnessed exponential growth over past
one and half decade. Foreseeing sure and substantial returns on investments (ROI) companies
are pro- actively listing on the stock market indexes. Government agencies once much hated
for red tape and bribes hashed its image. Professionalism is their new mantra. Public
Enterprises like IOC,ONGC, BHEL, NTPC, SAIL, MTNL, BPCL, HPCL and GAIL,SBI,
LIC, Hindustan Antibiotics Limited, Air India etc.to name a few, are giving Private Indian
companies a good run for their money. Private giants like Reliance Industries Limited,
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Infosys, Tata, Birla Corporation, Jet Airways, Ranbaxy, Biocon, Bajaj Auto, ICICI are
breaking their own records every financial years.Indian Equity Market at present is a
lucrative field for the investors and investing in Indian stocks are profitable for not only the
long and medium-term investors, but also the position traders, short-term swing traders and
also very short term intra-day traders. In terms of market capitalization, there are over
2500companies in the BSE chart list with the Reliance Industries Limited at the top.There are
about 22 stock exchanges in India which regulates the market trends of different stocks.
Generally the bigger companies are listed with the NSE and the BSE, but there is the OTCEI
or the Over the Counter Exchange of India, which lists the medium and small sized
companies. There is the SEBI or the Securities and Exchange Board of India which
supervises the functioning of the stock markets in India.
Thus, the growing financial capital markets of India being encouraged by domestic and
foreign investments is becoming a profitable business more with each day. If all the
economic parameters are unchanged Indian Equity Market will be conducive for the growth
of private equities and this will lead to an overall improvement in the Indian economy. Indian
Stock Market including both NSE-National Stock Exchange and the BSE-Bombay Stock
Exchange have certainly taken a tremendous beating in the past few weeks. We are sure most
of us here knew that the correction in the trading curve was round the corner which would be
healthy, and the markets would bounce back with the help of mutual fund investments &
buying of Indian stocks again. However the anticipation went wrong, and the US recession
story along with global and Indian commodity prices have added fuel to the global equity
market turmoil on a whole.
1.3 ORGANIZATIONAL PROFILE:
Reliance Securities comes from the house of Reliance Capital, one of India’s leading &
prominent financial houses.
Founded in 1986, Reliance Capital has come a long way from being into steady annuity
yielding businesses such as leasing, bill discounting, and inter-corporate deposits to
diversifying its activities in the areas of asset management and mutual fund; life and general
insurance; consumer finance and industrial finance; stock broking; depository services;
private equity and proprietary investments; exchanges, asset reconstruction; distribution of
financial products and other activities in financial services.
14
Reliance Capital has a net worth of Rs. 7,887 crore (US$ 2 billion) and total assets of Rs.
32,419 crore (US$ 7 billion) as on June 30, 2011.
RCL is registered as a depository participant with National Securities Depository Ltd (NSDL)
and Central Depository Services Ltd (CDSL) under the Securities and Exchange Board of
India (Depositories and Participants) Regulations, 1996. RCL has sponsored the Reliance
Mutual Fund within the framework of the Securities and Exchange Board of India (Mutual
Fund) Regulations, 1996.RCL primarily focuses on funding projects in the infrastructure
sector and supports the growth of its subsidiary companies, Reliance Capital Asset
Management Limited, Reliance Capital Trustee Co. Limited, Reliance General Insurance
Company Limited and Reliance Life Insurance Company Limited. As of March 31, 2005, the
company’s investment in infrastructure projects stood at Rs. 1071 Crores. The investment
portfolio of RCL is structured in a way that realizes the highest post-tax return on its
investments.
Vision
By 2015, be amongst the top 3 most valued Indian companies, providing Information, Communication & Entertainment services, and being the industry benchmark in Customer Experience, Employee Centricity and Innovation.
Mission
Meeting and exceeding Customer expectations with a segmented approach.
Establishing, re-engineering and automating Processes to make them customer centric, efficient and effective.
Continuios offering of Products and Services that are value for money and excite customers.
Providing a Network experience that is best in the industry. Building Reliance into an iconic Brand which is benchmarked by others and leads
industry in Intention to Purchase and Loyalty.
Awards & Achievements Reliance Securities has been rated no. 1 by Starcom Worldwide for online security
and cost effectiveness in 2007
'Debutant Franchisor of the Year' at the 5th International Franchisee & Retail show
2007
15
'Best in category Service Franchise' at the 6th International Franchise & Retail show
2008
'Best E-Brokerage Houser 2008' (runner's up) by Outlook Money NDTV Profit
Awards
'Largest E-Broking House & Best Equity Broking House for the year 2009' by Dun &
Bradstreet
'Largest E-Broking House 2010' by Dun & Bradstreet
'My FM Stars of the Industry 2011' for excellence in Online Demat
Reliance Securities Limited is now ISO 9001:2008 certified for Online Trading
Platform
'Brand Leadership Legacy Award' at the Asian Leadership Awards - Dubai, 2011
Products and services
1. Trading and Demat account
2. Mutual funds
3. Life insurance
4. General insurance.
5. Investments on gold
DELIVERY OF CASH
Delivery of cash can be done by using CNC,NRML.
CNC Stands for Cash-n-Collateral: You can take delivery positions using this product.
Buy transactions will require 100% margins (Cash plus Approved Collateral) and Sell
transactions will be allowed based on the Demat holdings available and limits will be
enhanced instantly for sale value.
Position Conversion: Use this feature to convert your CNC position to NRML / MIS
before specified cut off time subject to availability of required margins.
16
If CNC positions are taken against collateral, you are required to clear your debit by T+2
day or else Delayed payment Charges (DPC) will be levied from T+2 day onwards. If debits
are not cleared by T+6 day, RSL will liquidate the positions anytime on or after T+7 day.
If debits are not cleared by T+6 days, further exposure will not be allowed in that
particular exchange effective from T+7 day onwards.
NRML stands for Normal. You can take delivery buy positions in specified stocks
(Specified by Reliance Securities Limited on its website from time to time) by paying a
minimum margin (ranging 20% to 60% which would vary from stock to stock) and pay the
balance within T+2 or not later than T+6 day.
If debits are not cleared by T+6 day, RSL will liquidate the positions anytime on or
after T+7 day.
For Example: If your available limits is Rs. 20,000/- you can take exposure up to Rs.80,000/-
under NRML. You can make the balance payment within T+2 or not later than T+6 day.
If debits are not cleared by T+2 day, Delayed Payment Charges (DPC) will be levied
from T+2 day onwards.
At all times during the NRML term (i.e. T day to T+6 day), you need to maintain
minimum margin as required and defined by RSL from time to time.
If debits are not cleared by T+6 days, further exposure will not be allowed in that
particular exchange effective from T+7 day onwards.
AFTER MARKET ORDER (AMO)
As a customer, you can place AMO in Equity (NSE and BSE) and Derivatives (NSE) as per
below timing:
Online: From 5:30 P.M. IST onwards up-to 9:14 A.M IST next trading day
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Call & Trade: Daily from 8:30 A.M. IST onwards up to 9:14 A.M. IST
All accumulated orders will be sent to exchange on market open
Due to scheduled system maintenance process, AMO orders will not be accepted between
11:30 P.M. to 4:30 A.M. IST
You can place Limit order or Market order under AMO. However it is advisable to
place AMO as Limit order. Placing AMO order as market order might result in your order
getting executed at unfavorable price.
Example: on 5th December Infosys closes at Rs. 3400/-. Suppose a customer placed an AMO
market order to buy 50 shares of Infosys. On 6th December the AMO is pushed to the
exchange & if that particular order happens to be the first buy trade to hit the market & on the
other end first sell trade to hit the market is priced at Rs. 3600/- then the buy order would get
executed at Rs. 3600/- which would result in a high buy.
However you have to be very careful while placing the limit order as well. There are chances
of error such as Infosys closing rate is Rs. 3400/- where as you might place a buy order
erroneously at Rs. 4400/- and if in opening market such order happens to be first order then
shares could be purchased @ Rs. 4400/-.
You should ensure that price which you have entered is not too high or not too low then the
closing price. Hence it is advisable to enter limit orders in the range of +5% or -5% of closing
market price.
You can also place a F&O order under AMO.
AMO provides the convenience to place orders without having to wait for the market to open.
AMO order is subject to rejection / cancellation, In case sufficient margin is not available in
the ledger after the beginning of the day limit calculation process is run. To check the status
of your AMO, we request you to refer to order book during market hours.
EXPOSURE AGAINST STOCK
This product provides trading opportunities to clients by accepting Demat shares as collateral.
The client can pledge these share positions as collateral to gain additional margin.
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We provide an intraday limit on defined set of stocks based on a certain haircut percentage.
Who can avail this facility? Are there any charges for this facility?
This facility is activated for all Reliance Securities Limited (RSL) customers except NRI.
Delayed Payment Charges (DPC) will be levied on debits arising out of positions taken
against collateral
1.4 REVIEW OF LITERATURE :.
A study of Volatility in Indian Stock markets to understand the reasons for turbulence in the
last two years.Prepared By Piyush Kumar Chowhan MBA, Xavier Institute of Management,
Bhubaneswar and Vasant ShuklaMBA Xavier Institute of Management Bhubaneswar.
Estimating Volatility in the Indian Stock Markets: Some explorations S. Bordoloi1 and Shiv
Shankar.
Nabhi Kumar Jain (1992) specified certain tips for buying shares for holding and also for
selling shares. He advised the investors to buy shares of a growing company of a growing
industry. Buy shares by diversifying in a number of growth companies operating in a
different but equally fast growing sector of the economy.
He suggested selling the shares the moment company has oral most reached the peak of its
growth. Also, sell the shares the moment you realise you have made a mistake in the initial
selection of the shares. The only option to decide when to buy and sell high priced shares is
to identify the individual merit or demerit of each of the shares in the portfolio and arrive at a
decision.
Basudev Sen (1997) disclosed the implications of risk management in the changed
environment and the factors constraining the speed of risk management technology up-
gradation. He opined that the perception and management of risk is crucial for players and
regulators in a market oriented economy. Investment managers have started upgrading their
risk management practices and systems. They have strengthened the internal control systems
including internal audit and they are increasingly using equity research of better quality.
He observed that risk measurement and estimation problems constrain the speed of up-
gradation. Also, inadequate availability of skills in using quantitative risk management
models and lack of risk hedging investments for the domestic investors are major constraints.
19
He concluded that with the beginning of a derivative market, new instruments of risk hedging
would become available.
1.5 NEED AND IMPORTANCE OF STUDY
The stock market in India existed for a well over a century. Now its
importance in the mobilization, allocation and efficient use of scarce
investment recourses has not been recognized until the last decade. During
the l a s t d e c a d e bo t h s e c o n d a r y and primary markets have witnessed
phenomenal qualitative and quantitative developments. One of the important
characteristics of well functioning stock market is the stability of prices of
securities traded on it, which is price volatility.
Volatility of security price has important implications for firm’s
investment and financial decisions, valuations and investors sentiments. Price
volatility of securities has consequence for firm’s decisions on how much capital
to issue, type of instrument to be used when to use. Further high price volatility
provides opportunities for take away between various market players. There are
huge number of players existing in the market. Some of the main players have been
listed below
Religare
Angel Broking
Karvy
Motilal Oswal
Kotak Securities
India Infoline
1.6 OBJECTIVES OF STUDY
To study the volatility in Indian stock market while taking SENSEX and its sector
Index and stock of Bombay stock exchange as a source of secondary data.
To study the factors which are making Indian stock market volatile.
To assess risk and returns of the particular stock by comparing it with benchmark
Index.
20
To furnish institutional material relevant for understanding the Environment in which
stock market fluctuation are occurring.
1.7STATEMENT OF PROBLEM
Multiplicity of administration.
Investors faced problems of delays(refund, transfer etc)
No inspection of stock exchange undertaken.
Stock exchange management is dominated by brokers.
No prohibition for unfair trade practices.
Primary market not in the main stream of the financial market.
1.8Methodology
There are two type of research methodology
1) Exploratory Research
2) Descriptive Research
Exploratory research is research conducted in order to explain any behavior in the
market. It could be done through using questionnaires, group discussions,
interviews, random sampling.
Descriptive research is also called Statistical Research. The main goal of this type
of research is to describe the data and characteristics about what is being studied.
The idea behind this type of research is to study frequencies, averages, and other
statistical calculations. Although this research is highly accurate, it does not gather
the causes behind a situation. Descriptive research is mainly done when a
researcher wants to gain a better understanding of a topic.
21
For this study Type of Data here used is Secondary Data
Data used in this study is of secondary in nature. NSE site is taken as a source of
information which widely describes S&P CNX 500 and Sector Index stock market. Here
daily prices of both benchmark index as Sensex and Sector index are taken for the study
purpose.
Due to is wide acceptance amongst the Indian investors; S&P CNX 500 is regarded to be
the pulse of the Indian stock market. As the oldest index in the country, it provides the time
series data over a fairly long period of time (From 1979 onwards). Small wonder, the S&P
CNX 500 has over the years become one of the most prominent brands in the country. The
growth of equity markets in India has been phenomenal in the decade gone by right from
early nineties the stock market witnessed heightened activity in terms of various bull and bear
runs. The S&P CNX 500 captured all these events in the most judicial manner. One can
identify the booms and busts of the Indian stock market through S&P CNX 500.
1.9Method of analysis
The method of analysis used here is SWOT analysis
Tools used:
Standard Deviation: A measure of the dispersion of a set of data from its mean. The more
spread apart the data, the higher the deviation.
Standard Deviation (σ) = √ (R-Rbar)2/ N-1
Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM),
a model that calculates the expected return of an asset based on its beta and expected market
returns.
22
VARIANCE=S.D²
COVARIANCE=∑ (RA-ŔA)(RS –ŔS)/n-1
β=COVA,S/VARS-Squared: A statistical measure that represents the percentage of a fund or
security's movements that can be explained by movements in a benchmark index. For fixed-
income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500.
23
CHAPTER - 2
24
FUNCTIONAL AREAS
For an organization to perform its functions there should be functional areas working for the organization
Finance Marketing Hr Research
in reliance marketing department plays a crucial role all the time marketing the securities such that they will make all the business to the reliance
Working At Branch level
Fig Branch structure
25
Staff at Branch Level
At Reliance Money Hyderabad, the following hierarchy exists:-
Three Centre managers.
Eight to ten Business Development Executives under each Centre manager.
Business associates under each Centre Manager their number depending upon the area
allotted to each CM.
Remisars under each centre manager.
Team leader and PFCs under him for life insurance.
One Customer Support Executive and One Senior Finance executive.
Centre Manager
The Centre manager is the Heart of the office who acts as a connection between Head office
(Mumbai), National head, Zonal head, Regional head, Area head, Cluster head, The Clients,
Remises, Business associates and the Business development executives. The Centre manager
is responsible for the following functions;
1.Organizing all the BDE’s, Business Associates and Remisars under one banner.
2.Making sure that the BDE’s, Business Associates and Remisars are carrying out
their functions well i.e. expanding the business in form of selling the Share trading
A/c’s , mutual funds, selling general along with life insurance policies .
3.Planning strategies for increasing the business.
4. Interviewing and Selecting Business development executive for the organization.
5. Identifying the potential agents in the market and making them the business
associate or remisar of Reliance Money for good business prospects.
26
6. Assisting the new BDE’s or remisars in handling the clients.
7. Training the new BDE’s and the remisars about the product and how to approach
the clients.
8. Reporting the regional head on the daily basis about the daily business performed.
27
Chapter- 3
28
3.1 SWOT analysis has been defined as a conceptual framework for a systematic analysis that facilitates matching the external threats and opportunities with the internal weaknesses and strengths of the organization.
Why SWOT?
SWOT analysis is a tool for auditing an organization and its environment. It is the first Stage of planning and helps marketers to focus on key issues. Once key issues have been identified, they feed into marketing objectives; it can be used in conjunction with other tools for audit and analysis, such as PEST (Political, Economic, Social and Technological analysis) analysis and Porter's Five-Force analysis. It is a very popular tool, quick and easy learns.
SWOT stands for strengths, weaknesses, opportunities, and threats.
STRENGTHS:
One of India’s leading and fastest growing private sector financial services companies,
and ranks among the top 3 private sector financial services and banking companies, in
terms of net worth.
It has 200 branches across 171 cities and over 20,000 intermediaries. The setup
provides the company is very strong and very effective distribution network, and
consequently a strong penetration in the market.
Company issued 36.57 Lac policies during the year as compared to 14.60Lac in the
previous year thereby registering a growth of 150%.
RG has been able to give highest ROI of 11.27% in last five years. The net worth has
doubled to Rs.4.94 billion from last year’s Rs.2.59 billion.
Excellent outreach with a large distribution network.
Expert’s and research team to make strategies and products for company as well as
clients base to resolve the problem.
Reserves and Surplus has increased five times to Rs.4.998 billion fromRs.1.04 billion
previous year.
The Company has earned Rs.1034 crore of New Premium Business in Financial Year
2008 which is 41% share of the Private Sector Industry &33% of the Industry as
whole.
29
Company is ranked number one in the New Premium Business in Financial Year 2008.
Other than this, it maintains a good database of it existing and potential customer, has
a brand image and low pricing strategy .Reliance Money unlike other brokering houses
has introduced a new prepaid system of brokerage for the share trading in which it
provides the lowest form of brokerage charged from an investor.
WEAKNESSES
Dependence on fellow subsidiaries for various supplies.-Extra control or interference
from fellow subsidiaries.
Sudden expansion in year 2007-08 by establishing more than 125 branches has
increased operations and administration expenses due to which losses incurred.
Due to the emphasis on recruiting young people in the company, staff is in
experienced.
Clientage is not so loyal as compared to the clientage of other competing companies
in the same industry
The phenomenon of job hopping is very common in the company. So, the problem of
loyalty towards the company on behalf of the employees is a major problem
OPPORTUNITIES
Low retail penetration of financial services products in India
Tremendous brand strength hand extensive distribution reach Opportunity to
cross sell services
Increasing per-capita GDP
Changing demographic profile of the country in favor of the young
THREATS
o Competition from local and multinational players
o Execution risk
o Regulatory changes
o Attraction and retention of human, capital
30
3.2 DATA ANALYSIS & INTERPRETATIONS:
Period: Data is from September 2007- August 2012
Calculation of Returns=(P1-P0)/P0
September 2007-August 2008:
Reliance capital
returns
S&P CNX 500
returns
CNX Finance
Mean 0.001751987 -3.41243E-05 0.000153448
Standard
Deviation
0.051186674 0.022460085 0.029781501
Sample
Variance
0.002620076 0.000504455 0.000886938
Kurtosis 1.672568984 2.265718894 0.850923078
Skewness 0.089890285 -0.297151384 0.035659166
Table no.3.1:September 2007-August 2008 Descriptive statistics
Interpretation:
Standard deviation of the Reliance capital is high when compared to returns of S&P CNX
500 returns and CNX Finance Index. A large dispersion tells us how much the return on the
stock is deviating from the expected normal returns.
Reliance cap
and S&P
CNX 500
Reliance cap
and CNX
finance
CNX Finance
and S&P
CNX 500
COVARIANC
E
0.000937776 0.00120501 0.00060208
VARIANCE 0.000502421 0.000883361 0.000502421
BETA 1.866514033 1.364118467 1.19835753
R-SQUARE 0.670766719 0.629917275 0.816775051
Table no.3.2:2007-2008 Beta calculation
31
Interpretation:
In this analysis it is clear that beta of CNX Finance and S&P CNX 500 is 1.19 i.e these two
move in tandem with each other. Positive Covariance indicates two indices returns move
together.
The Beta of Reliance capital is 1.8 it means the stock is 86% more volatile than the market.
Since R-square is of Reliance capital stock is less than 70(<70),this represents the stock does
not move in line with the S&P CNX 500.Same applies to Reliance capital and CNX finance.
But, A high R-squared (between 85 and 100) indicates the equity performance patterns have
been in line with the index i.e is between CNX Finance and S&P CNX 500.
September 2008-August 2009
Reliance capital
returns
S &P CNX 500
returns
CNX Finance
Mean -0.000256426 0.000774115 0.001299152
Standard Deviation 0.056265167 0.027249058 0.035306097
Sample Variance 0.003165769 0.000742511 0.001246521
Kurtosis 2.396218481 5.252372171 3.509152065
Skewness 0.485996356 0.490370168 0.616451603
Table no.3.3:September 2008-August 2009 Descriptive statistics
Interpretation:
Standard deviation of the Reliance capital is high when compared to returns of S&P CNX
500 returns and CNX Finance Index. A large dispersion tells us how much the return on the
stock is deviating from the expected normal returns.
32
Reliance cap
and S&P
CNX 500
Reliance cap
and CNX
finance
CNX Finance
and S&P CNX
500
COVARIANC
E
0.001256 0.001639 0.000895
VARIANCE 0.000739 0.001241 0.000739
BETA 1.698905 1.320673 1.210307
R-SQUARE 0.676958 0.686769 0.872559
Table no.3.4:2008-2009 Beta calculation
Interpretation:
In this analysis it is clear that beta of Reliance capital and S&P CNX 500 is almost equal to
1,69 i.e Reliance capital stock is 69% more volatile than the market. Positive Covariance
indicates two indices returns move together.
The beta of Reliance capital and CNX Finance its index, Rcap is 32% more volatile than its
CCNX Finance. Whereas,CNX Finance is 21% more volatile than its benchmark index S&P
CNX 500.
Since R-square is of Reliance capital stock is less than 70(<70),this represents the stock does
not move in line with the S&P CNX 500.Same applies to Reliance capital and CNX finance.
But, A high R-squared (between 85 and 100) indicates the equity performance patterns have
been in line with the index i.e is between CNX Finance and S&P CNX 500.
September 2009-August 2010
Reliance
capital
returns
S &P CNX 500
returns
CNX
Finance
Mean -0.000288359 0.000764654 0.0015005
33
1
Standard
Deviation
0.021680551 0.010000081 0.0130895
2
Sample
Variance
0.000470046 0.000100002 0.0001713
4
Kurtosis 3.261554282 1.351534455 0.8575442
5
Skewness 0.3738604 -0.432581224 -
0.2822345
4
Table no.3.5:September 2009-August 2010 Descriptive statistics
Interpretation:
Standard deviation of the Reliance capital is high when compared to returns of S&P CNX
500 returns and CNX Finance Index. A large dispersion tells us how much the return on the
stock is deviating from the expected normal returns.
rcap and s&P CNX
500
rcap and cnx
finance
cnx finance
and s&P cnx
500
COVARIANCE 0.00015194 0.000175 0.000115
VARIANCE 9.95968E-05 0.000171 9.96E-05
BETA 1.525555395 1.023013 1.155555
R-SQUARE 0.495133624 0.381478 0.779365
Table no.3.6:2009-2010 Beta calculation
Interpretation:
34
In this analysis it is clear that beta of Reliance capital and S&P CNX 500 is almost equal to
1,69 i.e Reliance capital stock is 52% more volatile than the market. Positive Covariance
indicates two indices returns move together.
The beta of Reliance capital and CNX Finance its index, Rcap is 2% more volatile than its
CCNX Finance. Whereas,CNX Finance is 15% more volatile than its benchmark index S&P
CNX 500.
Since R-square is of Reliance capital stock is less than 70(<70),this represents the stock does
not move in line with the S&P CNX 500.Same applies to Reliance capital and CNX finance.
But, A high R-squared (between 85 and 100) indicates the equity performance patterns have
been in line with the index i.e is between CNX Finance and S&P CNX 500.
September 2010-August 2011
Reliance capital
returns
S &P CNX 500
returns
CNX
Finance
Mean -0.00046117 -0.000366865 -
0.00235287
4
Standard
Deviation
0.011209066 0.015423174 0.02707842
2
Sample
Variance
0.000125643 0.000237874 0.00073324
1
Kurtosis 0.065474718 -0.15350778 4.96654435
4
Skewness 0.079077378 0.24548106 -
0.47251811
6
Table no.3.7:September 2010-August 2011 Descriptive statistics
Interpretation:
35
Standard deviation of the Reliance capital is low when compared to returns of S&P CNX 500
returns and CNX Finance Index. A large dispersion tells us how much the return on the stock
is deviating from the expected normal returns.
Reliance cap
and S&P
CNX 500
Reliance cap
and CNX
finance
CNX Finance
and S&P CNX
500
COVARIANC
E
0.000129 0.000138 0.000157
VARIANCE 0.000125 0.000237 0.000125
BETA 1.033871 0.58289 1.255552
R-SQUARE 0.192321 0.115738 0.832646
Table no.3.8:2010-2011 Beta calculation
Interpretation:
In this analysis it is clear that beta of Reliance capital and S&P CNX 500 is almost equal to
1,69 i.e Reliance capital stock is 3% more volatile than the market. Positive Covariance
indicates two indices returns move together.
The beta of Reliance capital and CNX Finance its index, Rcap is 48% less volatile than its
CCNX Finance. Whereas,CNX Finance is 25% more volatile than its benchmark index S&P
CNX 500.
Since R-square is of Reliance capital stock is less than 70(<70),this represents the stock does
not move in line with the S&P CNX 500.Same applies to Reliance capital and CNX finance.
But, A high R-squared (between 85 and 100) indicates the equity performance patterns have
been in line with the index i.e is between CNX Finance and S&P CNX 500.
September 2011-August 2012
Reliance capital
returns
S &P CNX 500
returns
CNX Finance
Mean -0.000451586 0.000122662 0.000435381
Standard 0.032098853 0.011433531 0.01584683
36
Deviation
Sample Variance 0.001030336 0.000130726 0.000251122
Kurtosis 0.764073549 0.181640873 0.166903893
Skewness -0.020921618 0.000526085 0.134222717
Table no.3.9:September 2011-August 2012 Descriptive statistics
Interpretation:
Standard deviation of the Reliance capital is high when compared to returns of S&P CNX
500 returns and CNX Finance Index. A large dispersion tells us how much the return on the
stock is deviating from the expected normal returns.
Reliance cap
and S&P
CNX 500
Reliance cap
and CNX
finance
CNX Finance
and S&P CNX
500
COVARIANC
E
5.6792E-05 6.82E-05 0.00017
VARIANCE 0.000130203 0.00025 0.00013
BETA 0.43618145 0.272605 1.308904
R-SQUARE 0.024042291 0.01804 0.89185
Table no.3.10:2011-2012 Beta calculation
Interpretation:
In this analysis it is clear that beta of Reliance capital and S&P CNX 500 is almost equal to
1,69 i.e Reliance capital stock is 57% less volatile than the market. Positive Covariance
indicates two indices returns move together.
The beta of Reliance capital and CNX Finance its index, Rcap is 73% less volatile than its
CCNX Finance. Whereas,CNX Finance is 30% more volatile than its benchmark index S&P
CNX 500.
37
Since R-square is of Reliance capital stock is less than 70(<70),this represents the stock does
not move in line with the S&P CNX 500.Same applies to Reliance capital and CNX finance.
But, A high R-squared (between 85 and 100) indicates the equity performance patterns have
been in line with the index i.e is between CNX Finance and S&P CNX 500.
38
Chapter- 4
39
4. Findings :
September 2008-August 2013: In this study of 5 years market volatility there are many
factors which effect the markets like:
United States of America recession spread across the globe in 2008 which effected
many countries like India.
In the case of Reliance capital it was one of the best company in 2007 which provide
financial services which is trusted by many people as it is the market leader the stock
of Reliance capital was Rs.2770.Now the case is different as many competitors
emerged the stock gradually fell in time.
Reliance capital stock show high volatility as a whole when compared it with
benchmark index like CNX Finance and S&P CNX 500.
Suggestions
Awareness has to be increased about the trading.
They should reduce the brokerage charges because some investors are saying that
company charging more brokerage charges.
Company recommendations should has to be accurate.
The brokers has to contact regularly to know about the company services.
40
Chapter- 5
41
5.1 Summary :
There are many factors which leads to volatile markets like market sentiments.
Volatility is an important phenomenon in markets in general, and financial markets in
particular.
Among the various approaches used to measure volatility in financial time series, Beta
calculation is suited for finding the risk associated with particular stock or overall the index
characteristics of the financial time series. NSE,the premier Indian stock exchange are
growing in importance due to increased participation of institutional and individual investors
both from within the country and abroad. They have been the preferred destinations of
foreign
Institutional investment as they offer the benefits of diversification and strong growth
potential in the group of emerging markets. The analysis showed that there is risk involved in
investing as the beta value and standard deviation is very high.
42
5.2References & Bibliography:
Pattnayak,J.K(2006), “The Effect of Quarterly Earnings Announcements on Sensex:
A case with clustering of events,” Indian School of Mines, Dhanbad. Research
report.
Marisa Wilde (2005)., “Financial Reporting frequency and its Impact on Stock
Market – The case of Switzerland,” Research Assistant, Ph.D student. Research
report.
Santu Das(2008)., ISM University. ICFAI university journal of Accounting
Research.
Angela J. Black(2006), “US Stock Prices and Macroeconomic Fundamentals,”
University of Aberdeen- Business School. Finance and Mgmt.
Shruti Tripathi,(2008), “Comparison between BSE 100 and Sensex,” Indira Gandhi
Institute of Development Research.
Victor J,(2001), “An Empirical Investigation Of the speed of the Market Reaction
to Earning Announcements,” Ph.D student, Research paper, Aaizona university.
BOOKS :
Sudhindhra Bhat(2009)," Security Analysis and Portfolio Management",1st edn Publishing
by Excel Books.
WEBSITES :
economictimes.com, www.
http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/business-
practices-risk-management-quality-top-insurance-sector-risks-pwc/articleshow/21892595.cms,
Accessed on (18/08/2013).
www.nse-india.com ,
http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?
symbol=RELIANCE&illiquid=0,Accessed on (16/08/2013).
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