AN EVALUATING STUDY OF INDIAN STOCK MARKET SCENARIO WITH REFERENCE TO ITS GROWTH AND INCEPTION TREND ATTEMPTED BY INDIAN INVESTORS: RELATION WITH LPG MADHVI ASSISTANT PROFESSOR, S.D INSTITUTE OF MANAGEMENT AND TECHNOLOGY, JAGADHRI. ABSTRACT Stock market is most promising sector in an Indian economy for raising the level of Indian financial system. After liberalization phase stock market has proven as a weapon of fighting with the foreign economies. After its inception in 1875 stock market has been played a challenging role for savers as well as for investors. Directions of an economy can be measured by movement of volatility index.stock Index has been a barometer for measuring the performance of Indian economy with its development. Micro and macro economic factors have continuously affected the industrial growth. Our financial industry has been affected by financial crisis frequently that has proven the stock market full of risk and uncertainty. That was already an unsolved problem for the investors. But CAPM, APT, Portfolio diversification has proven a very effective risk management tools. Nifty and sensex always have been in the mind of active investors which have changed the life as miracle. Indian stock market has gained new milestones and its volatility has surprised our economy with the expansion in equity, debentures, bonds, real estate, Options, Futures, and Derivatives. Our Indian economy will be the third largest economy after 2035 according to a survey. After getting freedom from Britishers, Indian economy has survived with rebuilding their stand through monetary policies, fiscal policies, five year plans etc. Efficient and effective stock market is that place where prices of the security are showing all related information about that with its true worth. Working on Indian stock market has become interesting job for various researchers. Already appreciable studies have been conducted in this area. This paper is an attempt to analyze stock market conditions with all related measure to check on risk management tools with their respective return. With the help of Secondary sources like current research studies, Reports of BSE, NSE this study has been taken further to exploring some new highlights. KEY WORDS: Stock market, NSE, BSE, Risk Management, FII, Capital Market Indian Economy. INDIAN STOCK MARKET: After the process of economic liberalization, Privatization and Globalization, the Indian capital market has been assigned very dominating place in financing and loaning industry. The leading role of stock market is financing corporate industry, encourage entrepreneurship, mobilizing resources, allocation of resources with respect of economic growth. Development phase has taken place after 1991 the capital market with innovative strategies and policies. In 1875 Bombay stock exchange was established with the view to expand and regenerate finance industry. At that time International standards were confronting with the Indian economy. 23 stock exchanges were operating with great infrastructure. BSE, NSE, Calcutta stock exchange were leading exchanges at that time. Sub Indexes through performance of 172
stock market is evaluated are BSEIT, BSEFMCG, BSEHC, TECH, BANKEX, BSECG, AUTO, METAL and OILGAS. After liberalization BSE has become the indicator for economy growth its trends and its variation. Suresh Chandra das (2011) in his paper has propounded that efficient market theory is really effective in real situation. Its weak form hypothesis has been the issue of research for all the researchers. That is the valid reason that past occurrence in stock market cannot be related with the current and future one. Anju Bala (2013) has studied that listing of corporate on various stock exchanges impact the liquidity in the market. Risk in the stock market cannot be eliminated but that can be measured with help of volatility and variability of previous trends. Stock market is always related with the demand and supply forces, fiscal deficit and political stability. Jatinder Loombe (2012) explores that FII brings foreign capital and reserve in the country with the aim of getting return. India is lacking in foreign capital and surplus which needed to be raised and FII is doing favorable job for the same. Naresh Chandra sahu (2011) have studied that stock market is not that much strong that it can affect the real GDP growth of the country. Because only 2% of population in India involved with the stock market investment. Investment Alternatives: Bank deposits Treasury bills Commercial papers Bills of Exchange Fixed deposit Equity Shares Preference shares Debentures Bonds Gold FII Saving schemes Foreign currency Financial derivatives Motivation for investing in stock market: Obtaining return Minimizing risk Fulfillment of future objectives Liquidity Solvency Profitability Marketability Types of risk: Systematic Risk: Market Risk Government Policies Interest rate Risk Currency Risk Liquidity Risk Marketability Risk Solvency Risk 173
Unsystematic Risk: Financial Risk Labor Problem Business Risk Management Problems Public Relation Competitor Strategy Objectives of the study: The main motive for this research is to analyze the conditions of stock market with relation to its financial factors impacting it. Under this study affects of globalization, risk and return conditions and risk management techniques has been studied. 1. To know the trend of Indian stock market. 2. To study the volatile trends for securities on Indian stock market after globalization 3. To analyze risk management measures adopted for securing safe return. Research Methodology: Secondary data has been used in the form of reports of RBI Bulletin, Journals, websites of BSE and NSE, various news channels. Links for all the sources has been given in the references. After globalization in 1980 many financial reforms were introduced in the Indian economy that attracts foreign equity in form of investment. Indian stock market became more important part of economic growth as well channel for mobilization of surplus fund. That became very essential for the underdeveloped and developing countries to implement LPG weapon. Graph: 1.1 40 35 30 25 20 15 10 5 0 Fluctuation ingdp 1975 1980 1985 1990 1995 2000 Gross domestic capital formation for the year 1975-2005 India (in%) US(in%) China(in%) It was been studied in graph 1.1 that Fixed capital formation was having the increasing trend since concept of globalization was introduced in the economy. India was showing positive trend, beside than that china shows rise in their GDP growth rate that was definitely due to their trade policies.indian stock market surely get impacted by globalization strategies because graph is showing rising trend after implication of LPG. 174
Volatility of stock market after globalization Indices: S&P BSE SENSEX Period : Year 2009 to Year 2013 Year Open High Low Close 2009 9,720.55 17,530.94 8,047.17 17,464.81 2010 17,473.45 21,108.64 15,651.99 20,509.09 2011 20,621.61 20,664.80 15,135.86 15,454.92 2012 15,534.67 19,612.18 15,358.02 19,426.71 2013 19,513.45 21,321.53 17,448.71 20,957.81 Graph 1.2 Stock market shows growing trend with relevance to different years since 1991 when whole economy was treated as a small village. In 2008 it was found extreme point of sensex after that it reached at its lowest with the extent. That automatically shows that recession having very strong impact on our economy and our economy gets affected very easily with other countries investment trend. 175
Year 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 GALAXY International Interdisciplinary Research Journal ISSN 2347-6915 Growth of registered companies in SEBI Till 2005 Graph 1.3 7000 6000 5000 4000 3000 2000 1000 0 Growth of registered companies in SEBI Year 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Number of registered companies in SEBI It was studied that year by year number of registered companies were increasing in SEBI, Which was very high in the period of 1996 that is duration of globalization. That is clear indication of positive results of LPG policies because of that listed companies were doubled in short mean time Amount involved through primary market in stock market Graph 1.4 30000 25000 20000 15000 10000 Amount involved through Primary market 5000 0 It was observed in the graph that amount of capital flows in primary market to secondary market and secondary to economic growth has been fluctuating since initializing policies of the Liberalization /privatization/globalization. Measures adopted by Indian government, RBI, SEBI time by time in order to stabilize the Indian capital market and movement of funds resulted in very effective manner. New RBI Governor Raghuram Rajan has announced very 176
good condition of stock market in the coming years, which has surely impacted on capital investment in the stock market. CAGR return of stock market from 2002-2012(S&P500) Graph 1.5 CAGR OF STOCK MARKET(S&P500) 28.72 21.11 15.74 14.87 15.88 10.82 4.79 5.46 0 2.07 Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-22.27-37.22 Above graph shows Compound annual growth rate with relation to the stock market which reveal that after reforms policies return from stock market started increasing but in the 2008 stock market return goes down to -37.22% which was due to recession effect in the same year and that took long years to get recovered. Risk Management Techniques: Indian Stock market is full of risk and uncertainties. Capital market consists of lending and borrowing options. Lending options are considered very safe and risk free whereas borrowing options are considered risky. The line which originates both lending and borrowing alternatives is called capital market line. By choosing investment alternatives from capital market line for investment option is considered very safe and rational decision, which is also known as diversification of risk or portfolio. Proper planning for trading Portfolio management Diversification of risk Experts Advice Knowledge of stop loss Knowledge of support and resistance level Long term trends Knowledge of position size how much to invest. Defining Risk Awareness of Emotional Trading Asset Allocation 177
Conclusion: The Behavior of the stock market is always matter of study and which have created a interest in researchers to explores more and more affecting areas towards it. Related study found stock market very volatile and fluctuating with respect to risk and return relationship. In stock market incomplete information leads to bad return whereas perfection and alertness leads to good and stable return. It was found that higher the risk higher the return and vice versa. LPG and steps taken by the government, RBI has surely given the direction as well as motivation to investor to invest more and more in capital market which has definitely improved the growth of Indian economy. There are a lot of risk management alternatives available to the investors with which help risk can be minimized and return can be increase. Future of stock market is found very bright in upcoming years due to competitive strength. References: 1. Suresh. Chandra. Das and Bishnupriya Mishra, Testing Random Walk Hypothesis: A Study on Indian Stock Market, Tirpude s National Journal of Business Research (TNBJR), Vol.3 Issue 2. 2. Bala. Anju, Indian Stock Market Review of Literature Trans Asian journal of Marketing & Management, vol.2 Issue 7, July 2013. 3. Loomba. Jatiner, Do FIIS Impact Volatility of Indian stock market? International Journal of Marketing, Financial Services & Management Research, Vol.1 Issue 7, July 2012. 4. Ramaratnam.S.M, Jayaraman. R and Krishnamoorthy. V, Impact of FII on Indian Stock Market: Study with special Reference to BSE- Sensex National Monthly Refereed Journal of Research Commerce & Management, Vol. 2, Issue 4. 5. Sahu. Chandra. Naresh and Dhiman. H. Deepinder Correlation and causality between Stock Market and Macro Economic Variables in India: An Empirical Study International Conference on E- Business, Management and Economics, Vol. 3, 2011. 6. Agrawal. Shikha, Effect of Share Market I Indian Economy: A Critical Analysis, International Indexed, Referred Research Journal, January 2013. 7. Bhunia. Amalendu, Stock Market Efficiency in India: Evidence from NSE, Universal Journal of Marketing and Business Research, Vol. 1, Issue 2, June 2012. 8. Aurengzeb, Factors Affecting Performance of Stock Market: Evidence from South Asian Countries International Journal of Academic Research and Social Sciences, Vol. 2, No. 9, September 2012. 9. Bandivadekar. Snehal and Ghosh. Saurabh, Derivatives and Volatility on Indian Stock Market Reserve Bank of India Occasional Paper, Vol. 24, No. 3. 10. Ali. Rafaqet and Afzal.Muhammad, Impact of global financial crisis on stock markets: Evidence from Pakistan and India, Journal of Business Management and Economics Vol. 3(7), June 2012. 178
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