http:// A COMPARATIVE STUDY ON SHARE PRICE MOVEMENTS OF PUBLIC AND PRIVATE COMPANIES IN SELECTED SECTORS J.SOPHIA 1 N.C.VIJAYAKUMAR 2 1 Head / Assistant Professor, Department of International Business, SNR Sons College, Coimbatore 6. 2 Assistant Professor, Department of International Business, SNR Sons College, Coimbatore 6. ABSTRACT Investing in financial securities is now considered to be one of the best avenues for investing ones savings while it is acknowledged to be one of the most risky avenues of investment. Stock exchange provides the form to ensure liquidity of investment by providing market ability. An investor may be interested in managing his/her portfolio mix, depending on their changing liquidity needs. The element of marketability of investment in the secondary market helps not only the investor but companies as a whole. An efficient secondary market is important to the investor corporate sector and the economy as a whole. Keywords: Capital Formation, Public and Private Companies, Trading. INTRODUCTION Capital formation through savings and investments is a necessary precondition for economic development of a country. The capital market plays an important role in the capital formation process. Indian capital markets have played a major role over the years in mobilizing and channelizing private capital for the economic development of the country. In the process, the functioning of capital markets has become efficient and transparent. The market has also undergone a functional transformation with the introduction of derivatives trading. Even as investment in securities gathered momentum in the country, security analysis and portfolio management emerged as a separate academic discipline in India. Investing in financial securities is now considered to be one of the best avenues for investing ones savings while it is acknowledged to be one of the most risky avenues of investment. Stock exchange provides the form to ensure liquidity of investment by providing market ability. An investor may be interested in managing his/her portfolio mix, depending on their changing liquidity needs. The element of marketability of investment in the secondary market helps not only the investor but companies as a whole. An efficient secondary market is important to the investor corporate sector and the economy as a whole. ABOUT THE STUDY The interaction of demand and supply, and other related factors determine the price of a listed security. The informational efficiency of the secondary market will determine the security price. An efficient stock exchange helps bring about stability in prices. In the present project, it is attempted to test the share price movement of selected public and private companies in India listed at NSE, The investors invest in stocks to yield high return. The market will not be same at all times, there will fluctuations accordingly, the market is said to be volatile when there is wide price fluctuations and heavy trading. The investment will be attractive only when the investors are being offered with return and with minimum risk which is combined with the investments. This study will be useful to the investors in identifying the behavior of stocks and to predict the timing of purchase and sale of stocks. The security prices reflect the performance of a company. If a particular company s annual report is good, that particular share will be 1
http:// profitable to the investors. Both the economic and the non-economic factors invariably affect the stock price behavior. As Cootner says that the prices of securities are typically very sensitive responsive to all events, both real and imagined. ABOUT THE INDUSTRY A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds, to be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives those advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors that, as in all free markets, affect the price of stocks. The list of industries taken up for study are 1) FMCG SECTOR IN INDIA A) DABUR INDIA LTD B) ITC (Indian Tobacco Company) 2)TELECOM SECTOR IN INDIA A) MTNL (Mahanagar Telecom Nigam Ltd.) B) IDEA CELLULAR LTD. 3) POWER SECTOR IN INDIA A) NTPC (National Thermal Power Corporation) B) TATA POWER LTD. 4) PETROLEUM SECTOR IN INDIA A) BHARATH PETROLEUM CORPORATION LTD.(BPCL) B) RELIANCE PETROLEUM 5) BANKING SECTOR IN INDIA A) SBI (State Bank of India) B) HDFC (Housing Development Finance Corporation) OBJECTIVES OF THE STUDY 1) To study the performance of stock prices of public & private companies in selected five sectors in Indian Stock Market. 2) To analyze the return & risk involved in investing shares in the public & private companies. 3) To analyze the relationship between the companies return and market index return. 4) To identify the monthly fluctuations of share prices of public & private companies in five sectors. SCOPE OF THE STUDY: The scope of the study is listed public and private companies in India. In this study, there are five sectors are selected such as telecom sector, IT sector, petroleum sector, FMCG sector and banking sector. 2
http:// Hence, out of these five sectors, only two companies one is private and one is public ltd. Company were selected. The study on share fluctuations helps to investors to understanding the share price behavior of the stock market which is helpful for investors to be aware about the trends in the return of share market securities. The return and risk characteristics of individual securities indicates investment decisions for investors, The investor tries to choose the optimal portfolio taking into consideration the risk-return characteristics of all possible portfolios. And EMA (Exponential Moving Average) of securities indicates buying and selling opportunities for securities. REVIEW OF LITERATURE 1. Cootner (1962) studied the behaviour of Banking share prices. According to him the stock prices appear to move at random when studied at one week interval. The data for his study was weekend prices of forty-five stocks from Newyork stock exchange. The random mess of shares was tested by means of mean square successive difference test. The irregularities should disappear when weekly and monthly returns are used. The departures from the random walk get less significance with increasing time intervals. 2. Dixit framed four objectives in his share price behavior analysis. And he aimed to find out the major development and trends in the securities market and investment climate in India. To study the trends in the movement of share price, in the light of the accepted norms and relevant criteria was also made as one of his objective. He also analyzed the impact of environment and external factors on share price behavior. The required data for the study was textiles share activity book value, Dividend Per Share, Earnings Per Share, total asset and returns on investments, coverage and growth were chosen as the variables to explain the variations in share price. 3. O.P.Gupta (1984) in his doctoral dissertation analyzed the random behavior of stock price by using serial correlation and runs test. He took the economic Time Index, financial Express index and further thirty-nine individuals shares from January 1971 to March 1976 were taken for his study. He conducted that the share prices follow randomness. 4. Roll (1981) examined a possible explanation of the small firm effect. He analyzed the data on S&P 500 index and equally weighted index on NYSE and Amex listed common stocks for the period July 1962 through December 1977. He asserts that miss- assessment of risks has the potential to explain why small firms display large excess returns than large firms. 5. Fraser (1996) the study revealed the risk return relationship of a small company portfolio and broadly based market portfolio on U.K. data over a period January 1970 through June 1994. Fraser tests the hypothesis that the expected excess returns of companies with low market capitalization display similar risk returns characteristics as a whole and observed that small company investors may have greater risk than the average market investor. 3
http:// ANALYSIS AND INTERPRETATION 1) CALCULATION OF RETURN & RISK Comparison Between Risk & Return of Banking Sector for the year 2012 Month Return of HDFC Return of SBI January -0.033-6.760 February -4.044 1.199 March 6.210 0.149 April 6.857 5.873 May -3.770-12.454 June 4.550-8.142 July -42.209 8.200 August -65.968-12.355 September 1.473-9.211 October -0.561-4.522 November -2.475-3.723 December -4.353-3.125 Total Return -104.324-44.873 Beta (β) HDFC = 2.25 Beta (β) SBI = 0.88 2) Comparison of Exponential Moving Average of Petroleum Sector for the year 2012 Month EMA of BPCL EMA of RELIANCE January 613.49 1008.27 February 609.17 997.72 March 603.67 999.10 April 604.46 1002.26 May 609.78 992.47 June 612.42 978.91 July 620.26 961.27 August 630.01 932.41 September 635.12 913.87 October 638.23 901.85 November 624.98 890.52 December 609.47 869.6 4
http:// 3) Trend Analysis of Telecom Sector for the year 2012 Month Return of MTNL Trend Ratio Increase/ Decrease Return of IDEA Trend Ratio Increase/ Decrease January 52.74 100 68.97 100 February 43.82 83.08-16.91 64.04 92.85-7.14 March 43.93 83.29-16.70 61.87 89.70-10.29 April 48.51 91.97-8.02 67.83 98.34-1.65 May 45.14 85.58-14.41 66.43 96.31-3.68 June 44.04 83.50-16.49 74 107.29 7.29 July 44.82 84.98-15.01 82.64 119.82 19.82 August 39.53 74.95-25.04 95.11 137.90 37.9 September 34.78 65.94-34.05 98.1 142.23 42.23 October 30.49 57.81-42.18 94.26 136.66 36.66 November 27.89 52.88-47.11 96.43 139.81 39.81 December 25 47.40-52.59 85.27 123.63 23.63 4) Correlation Co-efficient of Bharat Petroleum for the year 2013 Month BPCL Return NSE Index Y2 X2 XY (Y) Return(X) January -9.715160301 1.96793099 94.38434 3.87275-19.119 February -4.575461703-6.7165229 20.93485 45.1117 30.7312 March -2.053226743 2.1888738 4.21574 4.79117-4.4943 April 6.177188699 5.6674411 38.15766 32.1199 35.0089 May 4.965342794-5.8635479 24.65463 34.3812-29.115 June -1.887176277-0.5381554 3.561434 0.28961 1.01559 July 5.808705083 2.42547802 33.74105 5.88294 14.0889 August 3.049396301-9.2553065 9.298818 85.6607-28.223 September -2.988414955-1.3388815 8.930624 1.7926 4.00113 October -1.185144977 0.86335666 1.404569 0.74538-1.0232 November -15.7503624-0.9493653 248.0739 0.90129 14.9528 December -5.073080615-4.4355031 25.73615 19.6737 22.5017 Total -23.22739509-15.98420203 513.0938 235.223 40.3263 Correlation Coefficient = 0.04 Standard deviation of NSE Index Return= 4.22 Standard Deviation of BPCL Return = 6.25 FINDINGS: 1) The return and risk shows for the companies like SBI,BPCL and IDEA for the year 2011 has maximum return with minimum risk compare to other companies like HDFC,Reliance and MTNL respectively. For 5
http:// the companies TATA(-148.87) and ITC(18.78) its return has high and also its risk(tata 0.62,ITC 0.84) is high compare to the companies NTPC(Return -15.52, Risk 0.87) and Dabur India Ltd.(Return 0.28, Risk 0.36). 2) Analysis on Exponential Moving Average shows(ema) that EMA value of the month January 2011 keeps same. For the companies like IDEA,ITC and Dabur India Ltd. It shows an increasing trend throughout the year. Other companies like SBI,HDFC,Reliance,BPCL,TATA,NTPC and MTNL shows decreasing trend. 3) Trend Analysis represents the share value of the month December for the year 2011 indicates decreasing trend for all the companies. NTPC,BPCL,IDEA and ITC indicates increasing trend till August,October and November 2011 respectively. 4) The analysis of Correlation Coefficient shows positive correlation for all the companies. Thus, all the companies are related with stock market index return. NSE return is to be changed upward or downward company s stock price also changes in the same direction. 5) The analysis of Standard Deviation indicates the value of Standard Deviation of all the companies are higher than that of Standard Deviation of Market Index Return. Thus all the companies having higher risk than that of Market Index Return. SUGGESTIONS: 1. The investors should analyze the market before an investment 2. State Bank of India(SBI),Bharat Petroleum Corporation Ltd.(BPCL),Idea and ITC are the profitable concerns to investors for investing their securities. 3. Investors should understand the external factors like Government policies, Inflation rate etc before an investment. 4. The Public Ltd. concerns in Banking Sector ie., State Bank of India (SBI) and in Petroleum Sector Bharat Petroleum Corporation Ltd. (BPCL) is suitable for long term and short term investment for investors. 5. The Public Ltd. Companies like State Bank of India (SBI), Bharat Petroleum Corporation Ltd. (BPCL) and private concerns like Idea and Indian Tobacco Company (ITC) gives guaranteed or steady return for investors. 6. The companies like Housing Development Finance Corporation (HDFC) and Mahanagar Telecom Nigam Ltd.(MTNL) are exposed to higher risk, hence the investors must think twice before acquiring this companies shares. 7. The public Ltd. Bank and Petroleum concerns like SBI and BPCL respectively is idle for portfolio investment. Because public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately held companies 8. The investors should consider increasing trend as a selling opportunity and decreasing trend should be consider as a buying opportunity of company s shares. Thus, investors should consider buying underpriced securities and selling overpriced securities for profit making in trading. 9. Both casual and professional stock investors, as large as institutional investors or as small as an ordinary middle class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses. Unprofitable and troubled businesses may result in capital losses for shareholders. 6
http:// 10. Investors should understand the share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy. CONCLUSION An investor considering investment in securities is faced with the problem of choosing from among a large number of securities. Their choice depends upon the risk-return characteristics of individual securities. The risk and return characteristics of portfolios differ from those of individual securities combining to form a portfolio. This study of share price movements will help to investors to identify the profitable securities for their investment. A basic strategy in securities investment is to buy underpriced securities and sell overpriced securities. The results obtained from this study are; For the companies IDEA, BPCL and SBI has maximum return with minimum risk. These companies are profitable to investors for investing their securities and also these companies were showing an increasing trend throughout the year. And all the company has positive correlation which represented the relationship between stock market index return and company s return. 7