“Crude oil price and stock market movement”

Prepared By Mr. Dilip Kumar Gorai Roll No. – 08FC075 Batch - 2008-10 Guide by
Prof.(Dr.) S. Dev IMIS

As a Partial Fulfillment of PGDFC of IMIS

Institute of Management & Information Science Bhubaneswar


TABLE OF CONTENTS 1. ACKNOWLEDGMENT……………………………………………………………..1 2. ABSTRACT...……..………………………………………………………………...2 3. EXECUTIVE SUMMERY…………………………………………………………...3 4. INTRODUCTION…………………………………………………………………..47 5. LITERATURE REVIEW……………………………………………………………...7 6. EVENT ANALYSIS (2006-2009)……………………………………………….…8-17 7. OBJECTIVE…….………………………………………………………………….17 8. LIMITATIONS OF STUDY……………………………………………………..17-18 9. METHODOLOGY...…………………………………………………………….1819 10. OBSERVATION & CONCLUSION ………………………………………...…1925

Dev.) S. inflation. and FDI. We are also very thankful to Prof. Last but not least I would like to thank my group members for their equal distribution and good group coordination while working on this project. (Dr. For providing us a good project and his valuable advice and encouragement while we were working on this project. FII. who introduced us to many insightful ideas on this topic and offered us great help with data collection. And we could learn many things while doing this project that how the market (sensex) fluctuate with the movement of other variables like crude oil price. S. Sahoo. .3 Acknowledgment We would like to express our sincere thanks to prof.

positive shocks to the global demand for industrial commodities cause both higher crude oil prices and higher stock prices.4 Abstract: While there is a strong presumption in the financial press that oil prices drive the stock market. which helps explain the resilience of the Indian stock market to the recent surge in the price of oil. The conventional wisdom that higher oil prices necessarily cause lower stock prices is shown to apply only to oil-market specific demand shocks such as increases in the precautionary demand for crude oil that reflect concerns about future oil supply shortfalls. This study shows that the response of aggregate Indian stock market returns or movement may differ greatly depending on whether the increase in the price of crude oil is driven by demand or supply shocks in the crude oil market. . In contrast. the empirical evidence on the impact of oil price shocks on stock prices has been mixed.

FTSE. Established in 1875. The index is widely reported in both domestic and international markets through print as well as electronic media. in this project we emphasizes mainly on BSE-30 sensex and major Fluctuations related to it from time period of 1st April 2006 to 31st march 2009 . As the oldest index in the country. SENSEX is regarded to be the pulse of the Indian stock market. 1956. Of the 23 stock exchanges in the India.5 Executive Summery: Today. So. inflation. it was the first one to be recognized and it is the only one that had the privilege of getting permanent recognition abinitio. The BSE accounts for over two thirds of the total trading volume in the country. concerns over a slowing down US economy and big role of Foreign . Moreover. the SENSEX has over the years become one of the most prominent brands in the country. All major index providers like MSCI. the exchange is also the oldest in Asia. Bombay Stock Exchange is the largest.in this study also we have put light on how various factors such as rising crude oil prices. Due to its wide acceptance amongst the Indian investors. STOXX. S&P and Dow Jones use the Free-float methodology. Among the twenty-two Stock Exchanges recognized by the Government of India under the Securities Contracts (Regulation) Act. with over 6. BSE is the world’s number one exchange in terms of the number of listed companies and the world’s 5th in transaction number.000 stocks listed. The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. The "Free-float Market Capitalization" methodology of BSE index construction is regarded as an industry’s best practice globally.

Crude Oil has been traded in throughout the world and there prices are behaving like any other commodity as swinging more during shortage and excessiveness. Crude oil prices act like any other product cost with more variation taken place during shortage and excess supply. In the short term. Therefore. Any fluctuation in crude oil affects the other industrial segments also. The stock exchanges of every country keep a close eye on any up and downward movement of the crude oil price. whereas from medium to long run it is influenced by the fundamentals of demand and supply which thus results into self price correction mechanism. Many times it has been recorded that prices of essential products like crude also acts as a prime driver in becoming reason of up and down movement of price. which in turns negatively affects other trading practices that are directly or indirectly depends on it. Studies have conducted to analyze the impact of rise in crude oil price to the economic growth in the OPEC (Organization of Petroleum Exporting Countries) countries. any upward and downward motion of prices are closely tracked in the domestic marketplace. India meets more than 80% of its requirement by importing process. Introduction Crude Oil Industry Crude oil is one of the most necessitated worldwide required commodities. Higher crude oil price implies to the higher price of energy. India fulfills its major crude oil requirements by importing it from oil producing nations. The volatility of crude oil prices drove many companies away and its impact the stock market also. status of financial markets. price of crude oil is influenced by many factors like socio and political events.6 Institutional Investors (FIIs) and FDI determines market’s situation and operate SENSEX. Any slightest fluctuation in crude oil prices can have both direct and indirect influence on the economy of the countries. . Any massive increase or decrease in crude oil has its impact on the condition of stock markets in throughout the world.

. every policy made by such countries related to the crude oil prices have their influence on crude oil prices. Like hurricane katrina and other type of tropical cyclone have hit the major portion of globe. Like methods and technology using for increase the oil production. social and political issues. storing up of crude oil. Demand & supply: With a sharp rise in economic demand.7 There are innumerable factors which influence the price movement of crude oil in throughout the world. demand & supply etc. Natural Causes: In prevent years. which generates lot of changing movement in sensex. Any upward or downward movement in inventory level shoots up volatility in price index of crude oil. global community have witnessed many events which in turns have volatility effects on the price level of crude oil. which as a result driven the crude oil prices to reach at its peak. The crude oil prices have been buffeted by many factors. changes introduced in tax policy. oil producers and consumers get stock their crude oil for their future requirements. Inventory: In throughout the world. Any decision taken by OPEC nations for increasing or decreasing production of crude oil impacts the price level of crude oil in international commodity markets. This gives rise to speculation on price expectations and sale chances in case any unexpected thing cracks during supply and demand equations. requirement of crude oil is increasing to manifold in context to the limited supply. which are summarized as below • • • • Production: The OPEC nations are the major producer of world's crude oil. Therefore.

which has been perpetually running at a deficit and possibly wipe out our current account surplus. . which is Trade Balance minus Net Invisibles.8 Price of Crude oil The high demand economies of crude oil are putting undue pressure on the available fixed resources. The Impact Analysis The crude oil price impacts two key aspects of our economy (1) The import bill Since. the stock market is impacted P2 P1 2.. defined as Exports minus Imports... The increasing import bill will widen our Trade Balance.resulting in a higher price. we are a net importer of oil. Higher trade balance will adversely impact the fiscal deficit. The major gap created between demand and supply of crude oil is forcing the price curve of crude oil to rise in upward direction.. which in turn will impact the interest rates Hence. . which has turned from deficit into surplus over the last few years.

Jones and Kaul (1996) reported a stable negative relationship between oil price changes and aggregate stock returns. Wei (2003) concluded that the decline of U. stock prices in 1974 cannot be explained by the 1973/74 oil price increase. Kling (1985). All these factors individually and collectively could have a negative impact on the stock market. These factors obviously affect our GDP growth rates. Higher import bill directly and indirectly impacts the rupee. for example. suggested that oil price changes have no effect on asset pricing. and hence even the rupee. and Stoll (1996). Huang. Roll and Ross (1986). while inflation impacts interest rates. found no negative relationship between stock returns and changes in the price of oil futures. . Chen.S. Masulis.9 (2) Inflation Since petroleum products are key constituents of Wholesale and Consumer Price Inflation Index. however. LITERATURE REVIEW Although changes in the price of crude oil are often considered an important factor for understanding fluctuations in stock prices. there is no consensus about the relation between stock prices and the price of oil among economists. concluded that crude oil price increases are associated with stock market declines. in contrast.

Market forces of demand and supply determine the price of any security at any point of time. the BSE ranks first in the world. The Indian indices recorded higher volatility on weekly returns during the two-year period. In terms of volatility of weekly returns. 2007.015) for the first time on January 3. is one of the main criteria sought by the investor while investing in the stock market. . with the Sensex trading at a P/E multiple of 22. overall higher growth in the economy.7%. and other global factors such as continuation of relatively soft interest rates and fall in the international crude prices. on a point-to-point basis. In terms of listed companies. Higher the liquidity. Thailand. uncertainties as depicted by Indian indices were higher than those in outside India such as S&P 500 of United States of America and Kospi of South Korea.929 on June 14. Sensex rose by 46.g. The better valuation could be on account of the good fundamentals and expected future growth in earnings of Indian corporate Liquidity. and was the second highest among emerging markets.76 and S&P CNX Nifty at 21. slipping one position from 2005. South Korea. According to the number of transactions. BSE occupied the sixth position in 2006. was higher than those in most emerging markets of Asia.399 at end.May 2006. January 2005 to December 2006 as compared to January 2004 to December 2005 The market valuation of Indian stocks at the end of December 2006. after dropping to 8. Impact cost quantifies the impact of a small change in such forces on prices.10 EVENT ANALYSIS (2006-2009) Year 2006 at a glance In the secondary market. Malaysia and Taiwan. During 2006. BSE Sensex (top 30stocks) which was 9. as in the previous three years. NSE continued to occupy the third position among the world’s biggest exchanges in 2006.398 at end-December 2005 and 10. 2006. the uptrend continued in 2006-07 with BSE indices closing above 14000(14. recovered soon thereafter to rise steadily to 13787 by end-December 2006. lower the impact cost. which serves as a fuel for the price discovery process. After a somewhat dull first half conditions on the bourses turned buoyant during the later part of the year with large inflows from Foreign Institutional Investors (FIIs) and larger participation of domestic investors. The pickup in the stock indices could be attributed to impressive growth in the profitability of Indian corporate. e.26.

The US April crude oil prices plunged 3.017.11 An overview of year 2006 During December 2005. Prime Minister Manmohan Singh hinted at moving toward a free float of the rupee and on Tuesday. we saw two roaring figures. to settle at $60. And the sensex entered the year 2006 with a 9000 + figure.000 at that time.905. Sensex’s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh’s announcements on Capital Account Convertibility.7% or $2. On Feb. with most of the volatility coming in the last hour of trading. it was evident that the move will encourage investors and boost the confidence of the markets.42 a barrel. Only Nikkei. But the reason behind roaring sensex was not sachin’s records rather it was rallied by strong FII inflows and robust data. The 238-point rally was contrary to expectations as it came despite negative news flow about a fresh tussle between Ambani brothers over transfer of ownership of the four companies demerged from erstwhile RIL. both sensex and sachin tendulkar crossing 10000 mark.35. 10th 2006.91 points to close at 10. Hang Seng and Dow Jones could boast of being above 10.000 club on February 6. On Saturday.20. participants said it was evident the markets had sent out a message . After hitting a high of 11. the BSE responded by crossing the 11. Sensex lost 35. Since full convertibility was expected to attract more foreign money and also allow local companies to tap foreign debt markets more easily. The government forecasted a GDP growth of 8. Although the index later ended lower with investors wanting to book gains. The new trading high was reached 29 days after Sensex entered the elite 10. the greatest demerger of Indian history between the Ambanis paved the way for 9000. with manufacturing and the agriculture sectors estimated to grow at 9.4% and 2. on the New York Mercantile Exchange due to ample US inventories.3% respectively.1% in current year. The rise in share prices was partly attributed to a fall in oil price.25 points in mid-afternoon trade. RBI said it was constituting a panel to thrash out the contours for full convertibility. After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both cash and futures markets and a move by stock exchanges to raise margins on . fluctuating 153 points.000 mark in a lifetime intraday high.that the growth story of Asia’s third largest economy is intact and that liquidity flows into the bourses would continue to remain firm.

The Sensex ended at its highest closing level of 13024. Traders point to the fact that foreign investors. a gain of 117.perhaps it was the lull before the storm. The May crash saw the Sensex shedding its market capitalization by as much as 14% in just one month. Earlier. 2006. oct 30th 2006 driven by a heady cocktail of strong corporate earnings. in turn causing a slack in domestic demand. pointing to a slowdown. 18th may 2006 as an ambiguous Government circular on taxing investment gains prompted foreign funds to book profits. the response of domestic mutual funds has been guarded. backed by strong corporate earnings. 2006 crossed yet another milestone when it breached the 12. which was sparked off by weak US GDP growth figure. Back home.and by the first few companies were more than matching those expectations Although. the time it took to breach this milestone has been one of the fastest. knocking the bottom off the jittery stock market. While foreign institutional investors have been aggressive buying stocks over the past few months. the BSE-30 Sensex went on to close 826.. higher liquidity and robust economic growth.07 crore. . Benchmark stock indices vaulted to new highs on Monday.000mark on Tuesday. In the last two months alone. have chosen India as one of their top investment destinations. FIIs bought net stocks worth Rs 17. The index was being driven by the strong flow of liquidity. which is unlikely.. Opening amidst weak global markets and reports of rising US interest rates. Higher interest rates drive up borrowing costs for corporate as well as the retail consumer.45 points or 0. Marauding bulls defied the weak trend globally.38. Market watchers said sentiment could be affected only if the hike is more than 25 basis points. the 131-year-old BSE on Thursday. who could then cut back on their investments and spending.000-point mark.001 crore while local mutual funds have pumped in a net Rs 638. a rapidly growing economy and relatively stable crude oil prices.000 mark by various global indices. April 20. The benchmark 30-share sensex briefly crossed the psychological 14.12 share transactions by about 250 basis points. buoyed by a booming economy. it was based on the expectations that (corporate) results would be great. Now. December 5. However the Dealers said the fall was accentuated by large-scale selling of client positions by broking firms due to margin calls or the lack of margins. Suddenly the Dalal Street experienced its worst single day crash on Thursday.26. everything was going fine….9%. the mood was upbeat even as some expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on Tuesday. Sensex was beaten to the 12.

000 mark was achieved in just four trading sessions during October 2007. continued uptrend in the profitability of Indian corporate. However.000 and 6. in January 2008. India posting a relatively higher GDP growth amongst the emerging economies. particularly the institutional investors. Sensex and Nifty Indices rose by 47. respectively.000 in an intra-day trading in January 2008.000 to 19.1 and 54. Although the indices showed some intermittent fluctuations. . This could be attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors. reflecting change in the market sentiments. The buoyant conditions in the Indian bourses were aided by.000 mark in December 2007 and 21. An overview of year 2007 After touching 14K mark on December 5th 2006.8 per cent. persistence of difference in domestic and international levels of interest rates. the yearto-date return generated by the Sensex was negative 0. impressive returns on equities and a strong Indian rupee on the back of larger capital inflows.13 Year 2007 at a glance In the secondary market segment. the journey of BSE Sensex from 18.300. BSE and NSE indices declined subsequently reflecting concerns on global developments. on a point-to-point basis. sensex entered into 2007 with a promising figure of 14000+.97 per cent. February 23rd.5 per cent per year between 2003 and 2007. The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. During 2007. BSE Sensex has given an annual return of more than 40 per cent during the last three years. the indices maintained their north-bound trend during the year. The inflows received from FIIs in January and February 2007 was 48 per cent less than what was received during the same period in 2006. The return provided by the BSE Sensex for 2007 turned into negative territory following the 389-point tumble on Friday. The sell-off in Indian bourses in August 2007 could partly be attributed to the concerns on the possible fallout of the sub-prime crisis in the West. BSE Sensex yielded a Compounded return of 36. It further crossed the 20. respectively. While the climb of BSE Sensex during 200708 so far was the fastest ever. In terms of simple average. among other things. though the year started on a rather tentative note with a marked slowdown being observed in the FII inflows into the country. the market activity expanded further during 2007-08 with BSE and NSE indices scaling new peaks of 21.

Many thought that FIIs were playing blind in Indian stock market. On Friday. Sensex closed down 951. all the indices were in red.000 till 15.18 having gained 221. July 06 2007 before closing at 14964. By staying well above the 16000. it outperformed most . especially auto.75. for the first time intra-day on Friday.59%.14 FIIs have pressed substantial sales over those days in contrast to an intermittent surge in inflow in February 2007. 2007 gave thumbs up to the decision of the U. closed at 12938 on February 28th.000. this lifted the Bombay Stock Exchange's benchmark 30-share Sensex past the magical 15. The Sensex took 146 sessions to cover the 1.80 crore in four trading sessions from 26 February to 1 March 2007. The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15.17 per cent at 16322. Further we can see May and June having month end figures at 14544 and 14651 respectively.150. IT and metals stocks.S.85 points or 1. the sensex which closed at 14091 on January 31st.mark. the Sensex was moving Up . September 19th. the Sensex plunged by 600 Points in early trading on 16th August and most of the shares were down by 4 to 5 per cent. This is the highest since the index took 371 trading sessions to move up from 6.63 points or 4. Despite weak global cues. But when FIIs have turned Net Sellers of Equity and have started booking profit backed by massive sell off of shares in global markets.22. As a result. Sensex has to go down. pharma. The fall came in after the Fed Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase agreed to buy Bear Stearns for USD 2 a share. Their net outflow was worth Rs 3080. Indian stocks were in great demand. Market continued to reel under selling pressure on 5th march 2007 taking cue from weak global markets and heavy FII sales as a result of fall over 400 points. As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March. On April 24th. As expected.03 points or 6.12. as the benchmark 30-share BSE Sensex moved up sharply by 653.000 point distance from 14. The sensex experienced its second bigger ever fall on 2nd august 2007.49. The midcap and smallcap indices were rather moving slow indicating that the actual movers are the large cap stocks but at the month end it finally closed at 13872. The Sensex again crossed the 14K mark and was trading at 14. When FIIs were pumping money in stock market and were Net Buyers of Equity worth Crores. But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday.000-mark.000 to 7.000-mark. to reach a record high of 15007. Fed Reserve to reduce the rates by 50 basis points. the day when Sensex had lost 273 points.000.03% at 14809. Up and Up on weekly basis.

given their baffling run-up over the past one month. the same seems to hold true for any stock with the prefix ‘Reliance’.47 per cent at 19058. On October 9th. the bull roared to breach the 19000 mark in just 4 sessions Sensex was up by 639. The bellwether index finally settled at 16. Then suddenly happened the second biggest crash the sensex ever experienced when the sensex crashed by 1743 points on 17th October 2007 within minutes of opening. Since September. In a knee-jerk reaction to the cap proposed by the market regulator for the Participatory Notes.42 intra-days.000 number. Why? Hopes that the rupee will soften as a result of RBI's latest announcements to allow more outflow sparked a rally in tech stocks.15 Asian peers and it was the biggest single day gain. capital goods. At the end of the day. On the auspicious occasion of Ganesh chaturathi.073. they nearly pumped in more than Rs. Eye-popping rallies in Reliance Industries. On Wednesday.921. which were the whipping boys till Tuesday.63 points or 3. amidst heavy buying by investors. At the height of the dotcom mania in 199900. an overseas derivative instrument (ODI). This rise came on the back of some strong sectors for which the macro picture is quite bright — power. became hot favourites. RBI's measures may not be enough to rein in the rupee. On October 15th 2007. It took Dalal Street just 5 days to travel 1. but it was followed . it boiled over to the streets of Mumbai and its financial district.280 on the back of eye-popping rallies in Reliance & Reliance.04 points or 1. India experienced a flow of good news.327. The festive spirit did not end with the immersion of Ganapati. 30. Foreign Institutional Investors were pumping in huge money in the equity market and this too was pushing up the index. pushing the Sensex to a new high of 17.76 per cent at 18715. But there were no takers for this. Sensex hits a record high of 18. Suddenly. tech stocks. 2007.S.67. the easiest way to maximize returns was to buy into any stock with the suffix ‘Software’ or ‘Technologies’. Federal Reserve cut interest rates by 50 basis points. Reliance Energy and Reliance Communications lifted the 30-share Sensex to a record high of 18.000 crore in the cash market. prompting suspension of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional Investors. Eight years on.87 during the day.82.39. This trend shows that global cues had an influential effect on our market. After the U. infrastructure and telecom. the stock market crashed by 1743 points in intra-day.000 points. the Sensex touched the magical 17. but recovered substantially later to close with a loss of 336. used by foreign institutional investors (FIIs). a re-rating of the emerging markets had been seen wherein liquidity flows were quite robust.

261. at 19. but the impact of the global rout was the biggest in India. The skyrocketing sensex suddenly started heading south and Sensex saw the biggest absolute fall in history.000 to 21. The market gain was because of global cues. Sceptics point to the fact that there were only a handful of stocks that was driving the market higher.100 crore worth of shares over the last three trading sessions while local funds have net bought over Rs 2. it was the local institutions that were in the driver’s seat. The rally was driven by short covering. The fall was triggered as a result of weakness in global markets.58 points to settle at the third-highest level ever on buying by investors in bank counters and blue chip companies such as Reliance Industries. shedding 2062 points intra-day. the political development also gelled well with the sentiment. down 1408.951.000 marks.000 mark. there was not much involvement of foreign investors. It fell to a low of 16. foreign funds have net sold over Rs 1.16 by a huge one-day gain as on October 23 when the BSE barometer rose 878.605. On 13th November.000 to 21.4 per cent. And they felt their predictions coming true when sensex touched the 21000 mark on 8th January 2008. they sold in the cash market to the tune of USD 45 billion.85 points after market regulator SEBI allowed sub-accounts of Foreign Institutional Investors (FIIS) to trade It took the index a little over 20 years to reach the first 10.000 is dominated by domestic institutional investors. As per BSE data. But the rosy picture soon turned gloomy. the journey from 20. the midcaps and smallcaps have been outperformers and in terms of flows. But in December 2007. However.300 crore worth of shares. it is the longest journey which we have seen in the last 5.000. So if one has to take out some pointers from this journey from 20. It’s interesting if one sees in terms of flows.35. but just a little over 20 months to double that score and the sensex made history with touching the 20000 mark on October 29 2007. The trade pundits. Significantly. brokers and even investors predicted new heights for the year. sensex again experienced a black Monday on 17th December. BSE Sensex registered its biggest ever gain in a single of 893. that came in due to weak global cues as well as profit booking by FIIs in the holiday season. strong buying by domestic investors. sensex entered year 2008 with rosy pictures. Besides. Sensex during year 2008 After scaling new heights of 20000+.35 points or 7. The market .50. FIIs were negative sellers. It closed at 17. it has been domestic institutional investors which have been really putting the money. The market succumbed to profit booking. The Sensex ended losing 769 points from the previous close.

17 tumbled on account of a broad based sell-off that emerged in global equity markets. . The sensex is dancing on the music of lifetime high inflation rates. every forecasting has failed. historic crude prices. as reports of rising inflation and global economic slowdown dampened market sentiments. The underperformance can partly be attributed to the fact that Indian markets outperformed global markets in the last two months of 2007and hence we were seeing the lagged impact of that outperformance. developments in the US economy and US markets continued to dominate investor sentiments globally and we saw volatility move up sharply across most markets. Then after nobody saw a stable sensex even. The BSE sensex showed a gain of 10. Though inflation touched a high of 7. 31st march the last day of the financial quarter. tightening RBI policies. weak industrial production data. a fact reinforced by the strong movement in the mid-cap and small. The Bombay Stock Exchange (BSE) Sensex fell 4. Every prediction. In the shorter term. Financial stocks led the Sensex slide along with IT. A combination of firming global markets and technical factors like short covering were the main reasons for the up move in the markets. So April was the last month to close positive.68% in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%. still emergence of retail investors was also seen. to end the quarter of March down 22. According to market analysts. Fears over the solvency of major Western banks rattled stocks in Asia and Europe. but very next day it plunged by some 800 odd points and this story is still continuing.44 percent on Monday. IT stocks fell on worries about the health of the US economy. Reasoning for the slowdown (FY 08-09) The first month of the financial year 08-09 proved to be a good one for investors with the month ending on a positive note.cap index that rose 16% and 18% respectively. its biggest quarterly fall since the June 1992 quarter. February turned out to be a flat month with the BSE sensex down 0. India finished the month as the second worst emerging market. Indian IT firms depend on the US clients for amajor share of their revenues.5% to close at 17287 points. Sometimes it surged by 600+ points. The only relief came in the form of weakening Indian rupees which enlightened the IT sector and most recently the UPA gaining vote of confidence. After the worst January in the last 20 years for Indian equities.4%.9 percent. political uncertainties and obviously the sentiments of domestic as well as FIIs.57% against 6.

sharp spurt in crude oil prices and political uncertainty due to Indo.066.39 points or 5.25% to settle at 15. Bombay’s Sensex index closed 506. having earlier fallen 4.80 in the week. local benchmark indices underperformed their global peers. Oil prices surged to record levels. Indian inflation stood at 8.802. Equities extended losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the psychologically important 14.28% to 13. A setback to stocks in Asia and US. 6 May 2008. On 25 June 2008. despite the fact that economic growth is slowing in key nations such as the US and UK.54 points or 1. .07 points or 5. The market declined sharply as a hike in fuel prices by about 10% announced by the Union government on Wednesday.373. However better than expected Q4 gross domestic product figures provided some relief to the bourses on Friday.572. The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market. Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control.10. 4 June 2008.000 mark for the first time in 10 months since late August 2007. On 6 June 2008.90 points or 4.2%. Foreign institutional investors sold close to Rs 2204 crore in the first three trading sessions of the week which accentuated the downfall. On 30th May an imminent hike in domestic retail fuel prices due to soaring crude oil prices weighed on the market last week.000 for the first time since March. BSE Sensex rose in two out of five trading sessions.89 points or 0. The BSE Sensex declined 843.85% to 4136.22.67% at 17. On 9th June 2008.65 in the week.18 in the week ended 6 June 2008.18. triggered possibility of a surge in inflation to double digit level. The S&P CNX Nifty fell 242.97% to 4627. IT stocks gained on slipping rupee. The 30-share BSE Sensex declined 197. hit by rumours that the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later in the day to tame runaway inflation. equities staged a solid rebound after touching fresh calendar 2008 lows in early trade.4% and slipped below 15. On the week ending 27th June 2008 Sensex declined 769. The S&P CNX Nifty lost 210. The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate.18 Presently it is revolving around the figures of 14000 and no one knows what next? The 30-share BSE Sensex fell 117.14% to 15.08 points down at 15. In May.US nuclear deal rattled bourses on 27 June 2008.01 on Tuesday.572.3 points or 4. fanning fears that they will keep climbing and hurt world growth.

oil prices are treated as strictly exogenous with respect to the global economy. we can saw market plunging after the RBI announced further hikes in Repo rate as well as CRR both increased to 9%. (2) Many previous empirical and theoretical models of the link between oil prices and stock prices have been constructed under the premise that one can think of varying the price of crude oil. An 800+ point surge was experienced in the market on the day following UPA gaining vote of confidence but the very next day market couldn’t maintain the momentum and since then its in a doldrums’ position. the global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds. This premise is not credible (see. Indian shares fell 4.FDI. joining a world equities rout as investors dumped financials on concerns about the fallout from worsening global credit turmoil. And above all we can't see any positive trigger that can dilute the flow of negative news. Presently. Although Indian banks have no direct exposure to the US subprime mortgage sector. In other words. government monetary polices etc which are also Influence the stock market. political issues . FII FDI. . the serial blasts at Ahmadabad and Bangalore adding to the worries and enhancing the negative sentiments.19 On July 15th 2008. Also. • To study the major Episodes of volatility in Indian stock market and analyzing the factors or variables like FII .9 per cent to their lowest close in 15 months. while holding all other variables in the model constant . INFLATION etc and their impact on sensex • LIMITATIONS OF STUDY Existing studies of the relationship between crude oil prices and market returns suffer from three limitations. There are many variables like inflation . OBJECTIVE OF THE PROJECT To Study the relation between crude oil price and movement of Indian stock market. (1) We can’t conclude that the crude oil price is the only variable which impacts the stock market.

to the extent that exogenous demand shocks in the crude oil market have direct effects on the indian economy in addition to their indirect effects through the real price of oil. depending on whether the oil price increase is driven by oil production shortfalls. RESEARCH METHODOLOGY In order to does the research on movement of stock market (Sensex) with the movement of crude oil price. existing models postulate that the effect of an exogenous increase in the price of oil is the same. For example. There are good theoretical reasons and there is strong empirical evidence that global macroeconomic fluctuations have influenced the price of crude oil since the 1970s (see Kilian 2008a.. The fact that the same economic shocks that drive macroeconomic aggregates (and thus stock returns) may also drive the price of crude oil makes it difficult to separate cause and effect in studying the relationship between oil prices and stock returns. We have study the last three year 1st April 2006 to 31st March 2009.20 e.c). It is quite natural to expect similar differences in the effect of these shocks on stock returns. Barsky and Kilian 2002.g. Inflation. Data Description . FII. Hamilton 2003). Recent work by Kilian (2008c) has shown that the effects of demand and supply shocks in the crude oil market on indian stock market. it is widely accepted that a global business cycle expansion (as in recent years) tends to raise the price of crude oil. by a booming world economy. their effect on stock returns is bound to be different from one episode to the next. and to the extent that they affect other industrial commodity prices. (3) Even if we were to control for reverse causality. Since major oil price shocks historically have been driven by varying combinations of these demand and supply shocks. 2004. it is not possible to think of an innovation to the real price of oil while holding everything else constant. regardless of which underlying shock in the oil market is responsible for driving up the price of crude oil. FDI. or by shifts in precautionary demand for crude oil that reflect increased concerns about future oil supply shortfalls. Moreover. macroeconomic aggregates are qualitatively and quantitatively different.

and as well as past Sensex closing price as independent variable. coefficient of variation and T-test by using these statistical tools we will prove whether all the independent variable impact the dependent variable or not. And the monthly wise crude oil closing data from the BSE and the monthly wise crude oil price from the energy information administration year (2006-2009) and we have taken the monthly wise FII movement from RBI. FII. journal. in the present study we have taken the last three year (20062009) BSE-30 (sensex) monthly wise closing data from the BSE. . To find out the relation between dependent variable and independent variable. and websites. magazines. And Alternative hypothesis is H1=µ= All the independent variable have impact on stock market (Sensex).21 To study the market movement we have collected the secondary data from various sources. And the past event the stock market information has been taken from various news bulletins. Method In this study we have taken the BSE-30 (Sensex) as dependent variable and crude oil price. HYPOTHESIS TESTING Let the null hypotheses is Ho=µ= All the independent variable doesn’t have any impact on stock market (Sensex). we have run the regression model with the help of SPSS software and also we find the correlation between dependent variable and independent variable.

07 a A r.00 20.00 15000.000.000.8 a 0 Juy-08 n 8 J -0 A ul-0 8 u S g.000.8 e 0 O p.00 5000.7 a 0 Juy-07 n 7 J -0 A ul-0 7 u S g.08 M pr.0 p 7 O .000.09 pr 9 -0 9 Ap M r-0 ay 6 Ju -06 n Ju -0 6 Au l-0 g 6 Se .00 COMPARATIVE ANALYSIS From the above graph we can see that as the crude oil price increases the sensex decline.06 c N t.000.0 p 6 O -06 ct No -06 De v-0 c 6 Ja -0 6 nFe 0 7 b M -07 ar Ap -07 M r-0 ay 7 Ju -07 n Ju -0 7 Au l-0 g 7 Se .00 20.00 -10000.00 5.00 15.SENSEX INDEX CLOSING 10.00 20 40 60 80 -20000.00 0.0 ay 8 Ju -08 n Ju -0 8 Au l-0 g 8 Se .08 c N t.09 r-0 9 -5000.7 e 0 O p.09 a A r.00 0 A M pra 0 Juy -06 n 6 J -0 A ul-0 6 ug 6 S e 0 O p.00 25.00 25.0 6 D o v.8 O 08 c No t.0 7 D o v. • Comparative analysis between FII and SENSEX comparative analyse months MONTHS 0.7 e 0 J ac-0 7 Fen-07 M b.00 15.0 p.00 25000.00 20000.07 M pr.08 a A r.07 c N t.6 e 0 Jac-0 6 Fen-06 M b. De v-0 c 8 Ja -0 8 nFe 0 b 9 M -09 ar Ap .00 10000.000.00 sensex 10.00 FII FII SENSEX -15000.07 ct No -07 De v-0 c 7 Ja -0 7 nFe 0 b 8 M -08 ar Ap -08 M r.00 Observations 0.00 5.00 crude oil price 100 SENSEX 120 140 160 22 CRUDE OIL .8 e 0 J ac-0 8 Fen-08 M b.0 8 D o v.

CRUDEOIL.882(a) . CRUDEOIL. ii) R² = co-efficient of determination = explained variable/total variable. we can know the following things about our research model.757 1518. Model 1 Method Enter a All requested variables entered. FII b Dependent Variable: SENSEX Model 1 From the model summary table.Sensex price. FII(a) Variables Removed .23 After run the regression model the taking consideration dependent variable and independent variable we have found the following observation if we refer the table-1 Variables Entered/Removed(b) Variables Entered SENPRICE. Error of R R Square Square the Estimate . which show that correlation coefficient which is positive correlation it means in this model all the independent variables have positive correlation collectively .Sensex price (closing). b Dependent Variable: SENSEX Table-1 Variables entered /removed In the table 1. i) Here R=.779 . R² signified the strength of the model and strength of the relationship between dependent variable and independent variables.23119 a Predictors: (Constant).882 =88. crude oil and FII. . Note:. we can see that the dependent variable is Sensex and independent variables and Sensex price. Table-2 –Model summary Model Summary(b) Adjusted R Std.2% . SENPRICE.

332.332 Sig.V> T. SENPRICE.779 =77. Hence 22.1% is not explained by our dependent variables.1% and the other factor which influence the stock market.01% =99% level of confident.31 & C.7% explained by the independent variable with perfect.24 Here. iii) here the adjusted R square = 75. it shows that the independent variables (crude oil price.31. The degree of freedom for variables = (n-1)=(4-1)=3 The degree of freedom for observation (sample)=n-1 =35-1=34 Now if we refer the F table with degree of freedom=3 and degree of freedom of observation = 34 with pre-determinant level of significant =0.9%.000(a) If we look to the ANOVA table means analysis of variance the ANOVA table signifies the statistical validity of the model. means all the independent variable have impact on the dependent variable up to 77.V>T.9% . T.9%. Table-3(ANOVA) ANOVA(b) Sum of Squares df Mean Square Regressio 251237908 3 83745969. R² = . index closing) are explained the model or dependent variable 77.424 n . 31 2305025.332 Hence.V=4. C. And rest of 22. C.332>4. FII. . In this table F value(calculated value) = 36. FII b Dependent Variable: SENSEX Model 1 F 36.347 a Predictors: (Constant).273 Residual 71455804.938 075 Total 322693712 34 . where no error means the real strength of the model.7% which means the 75. Since. CRUDEOIL.V Null hypothesis =Ho=µ is rejected Accept the alternative hypothesis =H1 .V =>36.V=36.

.000 . Dev = .041 .001 .394 .069 .355 4.00 Frequency If we refer to the co-efficient table from this table we can know which and the most important variable which have impact on the dependent variable and which are the variable who have no impact on the dependent Regression Standardized Residual .00 .515 .162 48.609 E a Dependent Variable: SENSEX Histogram Dependent Variable: SENSEX 12 10 8 6 4 2 0 -2.027 SENPRIC .659 5.00 Std.50 -2.230 12.95 Mean = 0.429 Sig. all the independent variables have impact on the stock market Table-4(coefficient table) Coefficients(a) Unstandardized Coefficients Model 1 B (Constant ) CRUDEOI L FII 1822. Error 1345.50 2.00 -1.171 .50 -1.50 1.50 0.00 N = 35.000 .619 Standardized Coefficients Beta t 1.25 Hence.00 -.185 .112 .00 1.690 Std.

812(**) . b2.002 35 1 .034 37 .716 37 1 . * Correlation is significant at the 0.509(**) .V crude oil price.423 Now we have to take these T.609(INDEX) Now.812(**) .716 37 .659(**) .4% Conclusion Correlations SENSEX SENSEX Pearson Correlation Sig.002 35 SENPRICE .01 level (2-tailed).350(*) . 37 . . T table value explains the statistical validity or significant of the variables value.402(*) . and index closing are . index closing price explain Maximum Variation in the D. crude oil price and BSE – index closing. index).V will have higher impact on the D.V with I. Hence. (2-tailed) N 1 . (2-tailed) N CRUDEOIL Pearson Correlation Sig.017 35 .062 . Hence.26 variables by referring T-Table.034 37 -.05 level (2-tailed). 37 -.659(**) . model is Sensex=1822.812 . 35 35 ** Correlation is significant at the 0.V= T-value=2. (1) In the correlation table correlation between sensex D.9% and followed by crude oil price= 39.029(FII)+.000 37 1 . Sensex= f(crude oil. 37 .017 35 FII .062 .350 and ..509(**) . if we move to T column T value for 99% of pre-determinant level of confident T. (2-tailed) N FII Pearson Correlation Sig.000 35 . FII. So.350(*) .V.69(crude oil)+.402(*) .b3 …….and the regression co-efficient between DV and IV. where.000 CRUDEOIL . Model= a+bı(crude oil)+b2(FII)+b3(index)+ε. (2-tailed) N SENPRICE Pearson Correlation Sig.000 37 .659.V Sensex = 61.b1. Are statistically insufficient Here.162+48.

www.bse. References 1.eia.doe. So crude oil price impact the sensex.com 2.gov/dnav/pet/hist/wtotworldw.01 level of significant. www. Hence.org.htm .in 3 http://tonto.rbi. we can conclude that here is positive relation between the movement of crude oil price on the stock market.27 respectively at the 0. This shows the positive correlation among the variables.

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