Professional Documents
Culture Documents
SHARE PRICE
BEHAVIOUR
3.1 INTRODUCTION
impact in terms of general risen the stock exchange indices. How ever,
in the race to make the most of the ups and downs in the stock market
important milestones.
shares.
The purpose of this chapter is the equity share prices have been
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market participants take quick cognizance of ail information relating to
security prices and that the security prices quickly adjust to such
past price behaviour will tend to recur in future. Elite wave theory,
random walk theory and trend analyst, widely used to predict share
price trends and price movement have continued to prove wrong as the
The market participants often seem worried over the price line
there is no logic in share price movement. This is due to the fact that
market does not depend only on the information from one source but it
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price. Henry Theil (1967)3 considers investors expectation as the key
Foster (1981)8 observed that early earnings releases affect the share
prices.
Ojha (1976)1® argues that the effect of dividend is almost two times
besides dividend and price dividend multiplier. His study supported that
returns, growth and size have positive influence on share price while
risk and leverage have no influence at all. Zahir (1982)12 employed five
variables such as dividend per share (DPS), earning per share (EPS),
Book Value Per Share (BPS) cover and yield. His study supported the
the empirical relationship between equity price and DPS, EPS, BPS
yield and cover. He concluded that EPS and cover are not important
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determinants of share price. However, DPS and BPS turned out to be
positive, whereas growth and leverage did not affect the price at all, he
Mahapatra and Sahu (1993)17 contented that both dividend per share
significantly associated with the share prices. Their study results don’t
support the view point that in general size, ROI (Return on Investment)
EPS (Earning per Share) BPS (Book Value per Share) are significant
studies.
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3.4 RECENT TREND IN EQUITY SHARE PRICE MOVEMENT IN INDIA
ahead of the “the events. This belief is naturally built on premise that all
(especially the individual investors) had to quit the market. But are
these security price movements are rational? After all there should be a
reason why the market is swinging. There is a general belief that stock
Over the past several years the events in the stock market have
unabashedly bared it’s many bizarre and the primitive behaviour and
the buccaneer culture. The notion that share price behaviour has been
raging gulf war depressed share prices across the world, Indian equities
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There is much misunderstanding about the causes of such irrational
reviewed the ‘badla system’ blamed the ban on carry forward deals to
not just the market decline but also the irrational rises. This leads the
one to the general problem of why the share price movement is often
not efficient.
question arises, who controls the share price behaviour? Indian stock
informed and ignorant participants and the like. As the stock market
What counts most is the element, which dominates the market. The
makes the market behave erratically. The punters are mostly uniformed
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current, thereby, reinforcing it. Their actions are based not on
the whole market. The seriousness of the problem can be gauged from
the fact that the Reliance Industries lodged a formal complaint with
have been at least four significant spurts and equal number of crashes
in the price index. From each crash to boom there has not been a time
lag of more than one and half year on an average. But these spurts and
the Indian stock market behaviour and closely analyze share price
movements we find that there are host of factors both internal and
external and even global factors which bring about ups and downs to
make price line zig zag. These factors may be summarized as under -
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1. Regulatory measures undertaken by SEBI (Securities Exchange
Budget proposals.
4. Political Stability/Instability.
markets.
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To sum up, looking closely at the India’s changing scenario you can
guarantee that the stock market prices will rise even if the coming year
The fact is that but for the entry of the Fils (Foreign Institutional
Investors) the stock market during the year 1995-96 was, for all the
Indian players a dead market. The irony is, never did the Indian
state of such gloom. The budget (1995-96) was supposed to solve this
confidence if the Indian players in the stock market are unable to show
The year 1995 proved to be turbulent period for equity price fluctuated
afraid to invest in the down trend market and adopted a policy of wait
and watch. The Lucklustre capital market has taken its toll on several
public and right issues. Most of the issues especially those made at a
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reason for the dooming market remains unattended - the continuing and
or future prospects but the liquidity of the shares. This is destroying the
entire marker the OTCEI (Over the Counter Exchange of India) market
is a tragic proof of it. A recent World Bank study shows if the developing
The study of several emerging stock markets from 1976 to 1993 shows
that countries, which had the most liquid stock market, had the lowest
share soon after it is listed. The decline in returns after listing indicates
data to get higher listing price. Hence the newly listed scripts are very
volatile in the first ten (10) days and volatility drops to mere 25 per cent
of this level by the end of the second week from the date of listing.
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CHART 3.1 SENSEX VOLATILITY
SI. No. Date Sensex New Base Points grained (+) Percentage changes
Points down (-) (Moving base year) in %
1 31.03.1987 500 100 ■'
2 31.03.1988 435 79.9 -115 -20.91
3 31.03.1989 670 121.81 235 54.02
4 31.03.1990 783 142.36 113 16.87
5 31.03.1991 1168 212.36 385 49.17
6 01.01.1992 1957 355.82 789 67.55
7 31.03.1992 4285 779.09 2328 118.96
8 23.04.1992 4467 812.18 182 4.25
9 06.08.1992 2530 460 -1937 -43.36
10 15.09.1992 3410 620 880 34.78
11 31.03.1992 2280 414.55 -1130 -33.14
12 19.07.1993 2098 381.45 -182 -7.98
13 29.09.1994 4286 779.27 2188 104.29
14 31.03.1994 3779 680.09 -507 -11.83
15 12.09.1994 4631 842 852 22.55
16 31.03.1995 3269 594.36 -1362 -29.41
17 05.05.1995 3069 558 -200 -6.12
18 08.10.1995 3567 648.55 498 16.23
19 25.01.1996 2826 513.82 -742 20.67
20 17.03.1997 4067 739.45 1241 43.91
21 31.03.1998 2821 512.91 -1246 31
22 04.03.1999 3945 717.27 1124 39.84
Source: Daily Official List - BSE
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Therefore, the most important assumption about tracking equity price
on. Hence the important piece of news may be known to only a few
price variations. The above table gives an over all view of sensex
fluctuations for last 10 years from which we can infer the stock price
movements.
What is more stunning that stock market (price) has been defying
even the dictates more soften, from the various factors which are
Above graph clearly shows that over the last three years the
prices (Sensex) has stayed close to its long-term trend line. This trend
line is giving support to the sensex at the level of 2800. Almost every
one is wondering what magic potion to give the stock market to get it
Exchange Board of India) have tried their level best to boost the stock
market through various measures. The first one being the finance
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financial institutions to take commercial risk by investing in the stock
Board of India) has moved a few steps back to ease controls over
concept whereby shares are traded, taken delivery and paid for through
computers. Right now some of the top scripts have been put in to this
short the preconditions to stock market boom are there yet the bull run
is elusive, despite the Dow Jones industrials setting record after record
revive the market, the year 1997 could be a turn around year. The Asia-
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on the market as the bad news already discounted. After two dull years
(MAT) with exemption from its preview for exporters etc. has provided
per cent or 448 points over a period of week and once again crossed
the 4000 mark during intra-day trading on 5th March, 1997 but couldn’t
investors. Despite the wide acclaims after fine budget from all quarters,
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There will be a need to assess the gains and losses of the far
reaching proposals in the budget and it’s impact on the capital market in
the long-run. Let us wait and watch how the price line behaves’? Surely
it is bound to cross 4500 with in a year and 5000 mark within three
year.
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REFERENCES
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12. Zahir, M.A., "Determinants of Stock Prices in India”, The
Chartered Accountant,Vol.30, No.8,(1982)
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