Factors Affecting Stock Index and Share Prices

A STUDY ON STOCK INDEX AND FACTTORS AFFECTING SHARE PRICES
CHAPTER-1
INTRODUCTION AND RESERCH DESIGN
1.1 Introduction
1.2 Review of literature
1.3 Need for the study
1.4 Statement of the problem
1.5 Objective of the study
1.6 Scope of the study
1.7 Research methodology
1.8 Limitations of the study
1.9 Chapter schema
K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

CHIKODI-591 201 Page 1
1.1 Introduction
An index is a number used to represent the changes in values of assets between a base
time period and another time period. A stock index is a number that helps measure the
levels of the market. Returns on the index thus are supposed to represent returns on the
market.
Index means the statistical composite that measures changes in the economy or in
financial markets, often expressed in percentage changes from a base year or from the
previous month. Indexes measure the ups and downs of stock, bond, and some
commodities markets, in terms of market prices and weighting of companies in the index.
An index is a statistical measure of change in an economy or a securities market. In the
case of financial markets, an index is essentially an imaginary portfolio of securities
representing a particular market or a portion of it. Each index has its own calculation
methodology and is usually expressed in terms of a change from a base value. Thus, the
percentage changes is more important that the actually numeric value. For example,
knowing that a stock exchange is at, say, 5,000 don’t tell you much. However, knowing
that the index has raised 30% over the last year to 5,000 gives a much better
demonstration of performance.
Index values are useful for investors to track changes in market values over long periods
of time. For example, the widely used Standard and Poor's 500 Index is computed by
combining 500 large-cap and U.S. stocks together into one index value. Investors can
track changes in the index's value over time and use it as a benchmark to compare their
own portfolio returns. Technically, you can't actually invest in an index. Rather, you
invest in a security such as an index fund or ETF that attempts to track an index as
closely as possible called stock index. The plural of index can be spelled either indexes or
indices.

1.2 Review of Literature
 The study by Gautam (2017)
Reveals a positive relationship between leverage, market capitalization, dividend payout

and dividend yield with stock return which indicates that higher the capitalization,
leverage, dividend payout and dividend yield ratio, higher would be the stock return.
 Saini (2016)
Post liberalization the Indian stock market has been plagued by high volatility. The
study suggest that economic environment, GDP and government policies, foreign trade
and investment, disclosure, seasonal effects, asymmetry of information and liberalization
policies of the government are major factors effecting stock prices.
 Geetha and Swaminathan (2015)
Stock market is an imperative part of economy of a country. The stock market plays a
essential role in the growth of the industry and commerce of the country that eventually
affects the economy of the country to a unlimited extent.
 Zutter and Gitman (2012)
Return on Assets is also one of the important factors affecting share prices. ROA is
defined as the proportion of annual net income of the average total assets of business
during the financial year. It identifies the business efficiency when using its assets for net
income.
 Juhi Ahuja (2012)
Presents a review of Indian Capital market and its structure. In last decade or so, it has
been observed that there has been a paradigm shift in Indian capital market. Now, the
market features a developed regulatory mechanism and a modern market liquidity, and
mobilization of resources.

 Kieso (2010)
Stock prices are directly related to the assets of the company. Asset is an entity that
derives the economic interest or a series of benefits in the feature accounting period of
contract.
 Nath and Verma (2013)
Examine the interdependence of the three major stock markets in south Asia stock
market indices namely ( NSE – Nifty), Taiwan (taiex), and Singapore (STI) by
employing bivariate and multivariate co integration analysis to model the linkages among
the stock markets. No co-integration found for the entire period (daily data from January
1994 to November 2002).
 Debjiban Mukharjee (2007)
Made a comparative Analysis of Indian stock market with International markets. His
study covers New York Stock Exchange (NYSE), Hong Kong Exchange (HSE), Tokyo
Stock Exchange (TSE), Russian Stock Exchange (RSE), Korean Stock Exchange (KSE)
from various socio- politico- economic backgrounds. Both the Bombay Stock Exchange
(BSE) and National Stock Exchange of India Limited (NSE) have been used in the study
as a part of Indian Stock Market. The main objective of this study is to capture the trends,
similarities and patterns in the activities and movements of the Indian Stock Market in
comparison to its international counterparts.
 Bhanu Pant and Dr. T. R. Bishnoy (2001)
Analyzed the behavior of the daily and weekly returns of five Indian stock markets
indices for random walk during April 1996 to June 2001. They found that Indian stock
market Indices did not follow random walk.
1.3 Need for the study

A STOCK INDEX OR STOCK MARKET INDEX is a method of measuring the values
of a section of the stock market. It is computed from the price of selected stocks
(typically a weighted average). It is a tool used by Investors and Financial managers to
describe the market, and to compare the return on specific investments. Many mutual
funds and exchange – traded funds attempt to “track’’ an index, and those funds that do
not may be judged against those that do.

Every day, financial professionals across the world look to index tools to help them
manage their investment portfolios. Inclusion in world- class indices bring major benefits
for companies listed on the Main Market. Indices are crucial for comparing performance
against a peer group and support liquidity and capital-raising.
The indices are designed to represent the performance of premium listed Main Market
companies, providing investors with a set of indices that measure the performance of the
equity markets.
1.4 Statement of the Problem

Any investors would like to know the trend of the stock markets before investing in the
stocks. An analysis of different factors influencing stock indices and stock prices would
help the potential investors in making wise decision of purchasing the profitable stocks.
1.5 Objectives of the study

The main objective of this project is to understand the composition and performance of
SENSEX.
1. To understand the concept of stock indices.

2. To study the major companies those are part of the indices.
3. To study the volatility of stock prices and indices.
4. To study the impact of different economies, industries and companies specific
factors that affects the stock prices and stock market indices.
1.6 Scope of the study
 The study dose an analysis of different factors that influence the individual stock
prices and stock indices.
 The data for the last five years is studied for the purpose of analysis.

1.7 Research Methodology

Sources of data:
Data collection is an actively in marketing research. The design of the data collection
method is the spine of research design. The sources of data are classified in to two types
 PRIMARY DATA:
The primary data are fresh data collected directly from the field and therefore
consist of original information gathered for the specific purpose. It is expensive,
laborious, and time consuming. But it assures a greater degree of accuracy and reliability
as it comes straight from the horse’s month. The information is collected with the help of
questionnaires a set of 15 questions
 SECONDARY DATA:
The secondary data are the data, which the investigator borrows from other who have
collected it for various other purposes. Therefore it may not entirely be reliable. It is less
expensive and involves less expensive and involves less time and labor than the
collection of primary data.
The Sources of collecting Data:
I. Websites of different online trading firms(such as Angel broking, Sherkhan etc..,)
II. Newspaper, magazines, and trade journals.
III. Publications of different online trading firms.
IV. Interaction with managers and customers.

1.8 Limitations of the study
 Information is collected primarily from secondary sources and may not be

accurate.
 Financial Information is dynamic in nature and is subject to change frequently.
 Index and stock prices moments are observed only for limited period with which
long term analysis is not possible.
 Period of only 4 Months which is short to work on any study comprehension
1.9 Chapter Schema

Chapter 1 : This chapter deals with the introduction, review of literature, need of the
study, scope of study, research methodology, limitations of the study and chapter scheme.
Chapter 2 : In this chapter is viewed on various concept related to the study which are
dependence of security market, primary market and secondary market, stock market
definitions, stock market, need of stock market, introduction to BSE, the journey of BSE,
visions, the BSE sensitive index, introduction and brief about the index construction,
features of stock index, nifty and Sensex, difference between the indices, Sensex- the
barometer of Indian capital market, Sensex calculation methodology, definition of free-
float, Sensex to shift to free-float methodology, maintenance of Sensex, market index, the
basic idea in an index.
Chapter 3: This chapter deals with the Industrial profile of stock or share market which
includes capital market (primary market and secondary market), money market,
derivatives market,(forward, future, option, swaps), foreign exchange market,
commodities market.
Chapter 4: In this chapter data has been analyzed as per the information available
through the various web-sites in the forms of table and graphs.
Chapter 5:
In this chapter finding, suggestions and conclusion are presented and also this chapter
includes bibliography.

CHAPTER-2 THEORETICAL FRAMWORK

2.1 Dependence of securities market
2.2 Stock market
2.3 Stock market definition
2.4 Need of stock market
2.5 Index
2.6 Introduction and brief about the index construction
2.7 Market index
2.8 Introduction to Bombay stock exchange
2.9 The BSE sensitive index
2.10 Nifty and Sensex
2.11 Sensex calculation methodology
2.12 Feature of stock index
2. 13 Difference between the indices
2.14 Definition of free-float
2.15 Sensex to shift to free-float methodology
2.16 Major advantage of a free-float
2.17 Sensex- the barometer of Indian capital market
2.18 Maintenance of Sensex
2.19 The basic idea in an index

The securities market achieves one of the most important functions of channeling idle
resources to productive resources or from less productive resources to more productive
resources. Hence in the broader context the people who save and investors who invest
focus more towards the economy’s abilities to invest and save respectively. This
enhances savings and investments in the economy, the two pillars for economic growth.
The Indian Capital Market has come a long way in this process and with a strong
regulator it has been able to usher an era of a modern capital market regime. The past
decade in many ways has been remarkable for securities market in India. It has grown
exponentially as measured in terms of amount raised from the market, the number of
listed stocks, market capitalization, trading volumes and turnover on stock exchanges,
and investor population. The market has witnessed fundamental institutional changes
resulting in drastic reduction in transaction costs and significant improvements in
efficiency, transparency and safety.
2.1 DEPENDENCE OF SECURITIES MARKET:
Three main sets of entities depend on securities market- the corporate, the government &
households. While the corporate and governments raise resources from the securities
market to meet their obligations, the households invest their savings in securities.
PRIMARY MARKET & SECONDARY MARKET:

The securities market comprises two segments- primary market (new issues, offer for
sale) & secondary market (trading of stocks). There are two major types of issuers who
issue securities. The corporate entities issue mainly debt and equity instruments (shares,
debentures, etc.), while the governments (central and state governments) issue debt
securities (dated Securities, treasury bills). The two major exchanges, namely the NSE
and the BSE provide trading of securities.

2.2 STOCK MARKET:

Table 2.1
When investors think of the stock market, they may imagine a specific place - such as a
stock exchange. In fact, the stock market is the abstract idea of stock trading and stock
exchange. All selling of stocks - at stock exchanges and in other ways - affects the market
overall. Following stock market information in the news can help you make the right
decisions about stock market investing.
Luckily, today you can get stock market data from a wide variety of sources. Knowing
the stock market price of your investments, being able to answer the question what is the
stock market and watching the market's ups and downs can help you become a stronger
investor.
The stock market is having its own market names as per its conditions.
 Bull Market:- It often lead to the overvaluation of the stocks as the investors are
highly optimistic and believes that the stock will always go up.
 Bear Market:-The opposite of a bull market is bear market, which is

characterized with bad economy, less jobs, recession and falling share prices.
2.3 STOCK MARKET DEFINITIONS:
1. A market for the buying and selling of stocks, such as the Bombay Stock exchange.
2. An institution that facilitates the buying and selling of stocks.
3. Where stocks (shares) are bought and sold. A share is a portion of the total
ownership of a corporation. The more shares you own in a corporation, the more
ownership you have in that corporation.
4. A stock market is a market for the trading of company stock, and derivatives of it;
both of these are securities listed on a stock exchange as well as those only traded
privately.
5. The organized trading of stocks, bonds, or other securities, or the place where such
trading occurs.
6. Where stocks (shares) are bought and sold. A share is a portion of the total
ownership of a corporation. The more shares you own in a corporation, the more
ownership you have in that corporation.
7. Particulars market where stocks and bonds are traded.
8. Is a market for the trading of publicly held company stocks or shares and associated
financial instruments (including stock options, convertibles and stock index futures).
Traditionally such markets were open-outcry where trading occurred on the floor of
exchange.
9. In relation to a securities exchange or a stock exchange, includes, in the case of the

Exchange, a stock market of a securities exchange or of a stock exchange, as the
case may be, that is a subsidiary of the Exchange.
2.4 NEED OF STOCK MARKET:

Stock market is an important part of the economy of a country. ... To issue shares for
the investors to invest in the stocks a company needs to get listed to a stocks exchange
and through the primary market of the stock exchange they can issue the shares and get
the funds for business requirements.
Stock exchanges were originally conceived for the public interest and had a clear public
purpose: to allow companies to raise equity from a large pool of investors and to provide
a market for investors to later sell their shares in those companies.
The stock market is simply a term for the overall market or industry that is concerned
with buying and selling company stock, both private and publicly traded securities. The
stock market does many things. It helps to set prices of stocks. The more a stock is traded
on the market and the more in demand the stock, the higher is its value. Having a stock
market that is interconnected with stock markets around the world helps traders and
investors to see how specific stocks are doing.
Of course, the stock market is mainly present to create money. Through the market,
investors - both companies and individuals - can buy stocks, which effectively make them
own a small part of a company. If the company prospers, investors are rewarded with
dividends and profits. Companies, by becoming public and offering stocks to the public,
can raise money and improve their profile through business expansions which can help
them make great profit.
2.5INDEX:
A stock index or stock market index is a measurement of a section of the stock

market. It is computed from the prices of selected stock (typically a weighted average).
It is a tool used by investors and financial managers to describe the market, and to
compare the return on specific investment.
Figure 1 above table shows the indices of world market, S&P/TSX Composite, DOW, IPC, CAC40,
IBOVESPA, FTSE 100, DAX, SENSEX, Shanghai Composite, Nikkei 225, Hang Seng.
Every day, financial professionals across the world look to index tools to help them
manage their investment portfolios. Inclusion in world- class indices bring major benefits
for companies listed on the Main Market. Indices are crucial for comparing performance
against a peer group and support liquidity and capital-raising.
The indices are designed to represent the performance of premium listed Main Market
companies, providing investors with a set of indices that measure the performance of the
equity markets.
2.6 INTRODUCTION AND BRIEF ABOUT THE INDEX

CONSTRUCTION:
An index is a number used to represent the changes in asset of values between a base
market.
A statistical measure of change in an economy or a securities market. In the case of

financial markets, an index is essentially an imaginary portfolio of securities representing
a particular market or a portion of it. Each index has its own calculation methodology and
is usually expressed in terms of a change from a base value. Thus, the percentage changes
is more important that the actually numeric value. For example, knowing that a stock
exchange is at, say, 5,000 don’t tell you much. However, knowing that the index has risen
30% over the last year to 5,000 gives a much better demonstration of performance.
combining 500 large-cap U.S. stocks together into one index value. Investors can track
changes in the index's value over time and use it as a benchmark to compare their own
portfolio returns to. Technically, you can't actually invest in an index. Rather, you invest
in a security such as an index fund or ETF that attempts to track an index as closely as
possible o called stock index. See also base period. The plural of index can be spelled
either indexes or indices.
2.7 MARKET INDEX:
Market measure that consists of weighted values of the components that make up certain
list of companies. A stock market tracks the performance of certain stocks by weighting
them according to their prices and the number of outstanding shares by a particular
formula.

2.8 INTRODUCTION TO BSE:
Bombay Stock Exchange Limited (the

Exchange) is the oldest stock exchange in Asia
with a rich heritage. Popularly known as
"BSE", it was established as "The Native Share
& Stock Brokers Association" in 1875. It is the
first stock exchange in the country to obtain
permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index, SENSEX, is
tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualized and corporative entity incorporated under the provisions of the Companies
Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005
notified by the Securities and Exchange Board of India (SEBI).
Bombay Stock Exchange Limited received its Certificate of Incorporation on 8th August,
2005 and Certificate of Commencement of Business on 12th August, 2005. The 'Due
Date' for taking over the business and operations of the BSE, by the Exchange was fixed
for 19th August, 2005, under the Scheme. The Exchange has succeeded the business and
operations of BSE on going concern basis and its recognition as an Exchange has been
continued by SEBI. With demutualization, the trading rights and ownership rights have
been de-linked effectively addressing concerns regarding perceived and real conflicts of
interest. The Exchange is professionally managed under the overall direction of the Board
of Directors. The Board comprises eminent professionals, representatives of Trading
Members and the Managing Director of the Exchange. The Board is inclusive and is
designed to benefit from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues and exercises
over-all control. The committees constituted by the Board are broad-based. The
Managing Director & CEO and a management team of professionals manage the day-to-
day operations of the Exchange.
The Exchange has a nation-wide reach with a presence in 417 cities and towns of India.
The systems and processes of the Exchange are designed to safeguard market integrity
and enhance transparency in operations. During the year 2004-2005, the trading volumes
on the Exchange showed robust growth.
The Exchange provides an efficient and transparent market for trading in equity, debt
instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary
system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing &
settlement functions of the Exchange are ISO 9001:2000 certified.
Bombay Stock Exchange Limited (BSE), which was founded in 1875 with six brokers,
has now grown into a giant institution with over 874 registered Broker-Members spread
over 380 cities across the country. Today, BSE’s Wide Area Network (WAN) connecting
over 8000 BSE Online Trading (BOLT) System Trader workstations (TWS) is one of the
largest of its kind in the country.
With a view to provide efficient and integrated services to the investing public through
the members and their associates in the operations pertaining to the Exchange, Bombay
Stock Exchange Limited (BSE) has set up a unique Member Services and Development
to attend to the problems of the Broker-Members.
The Journey of BSE is as eventful and interesting as the history of India’s securities
markets. India’s biggest bourse, in terms of listed companies and market capitalization,
BSE has played a pioneering role in the Indian Securities Market - one of the oldest in the
world. Much before actual legislations were enacted, BSE had formulated comprehensive
set of Rules and Regulations for the Indian Capital Markets. It also laid down best
practices adopted by the Indian Capital Markets after India gained its Independence.

Perhaps, there would not be any leading corporate in India, which has not sourced BSE’s
services in resource mobilization. BSE as a brand is synonymous with capital markets in
India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the
economy and finance. At par with international standards, BSE has been a pioneer in
several areas. It has several firsts to its credit even in an intensely competitive
environment.
 First in India to introduce Equity Derivatives

 First in India to launch a Free Float Index
 First in India to launch US$ version of BSE Sensex
 First in India to launch Exchange Enabled Internet Trading Platform
 First in India to obtain ISO certification for Surveillance, Clearing & Settlement
 'BSE On-Line Trading System’ (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2: 2002.
 First to have an exclusive facility for financial training
Moved from Open Outcry to Electronic Trading within just 50 days
An equally important accomplishment of BSE is the launch of a nationwide investor

awareness campaign - Safe Investing in the Stock Market - under which nationwide
awareness campaigns and dissemination of information through print and electronic
medium was undertaken. BSE also actively promoted the securities market awareness
campaign of the Securities and Exchange Board of India.
In 2002, the name The Stock Exchange, Mumbai, was changed to BSE. BSE, which had
introduced securities trading in India, replaced its open outcry system of trading in 1995,
when the totally automated trading through the BSE Online trading (BOLT) system was
put into practice. The BOLT network was expanded, nationwide, in 1997. It was at the

BSE's International Convention Hall that India’s 1st Bell ringing ceremony in the history
Capital Markets was held on February 18th, 2002. It was the listing ceremony of Bharti
Tele ventures Ltd. BSE with its long history of capital market development is fully
geared to continue its contributions to further the growth of the securities markets of the
country, thus helping India increase its sphere of influence in international financial
markets.
VISION:
"Emerge as the premier Indian stock exchange by establishing global benchmarks"
Listing means admission of the securities to dealings on a recognized stock exchange.

The securities may be of any public limited company, Central or State Government,
quasi-governmental and other financial institutions/corporations, municipalities, etc.
The objective of listing are mainly to:
 Provide liquidity to securities;

 Mobilize savings for economic development ;
 Protect interest of investors by ensuring full disclosures.
2.9 THE BSE SENSITIVE INDEX
The BSE Sensitive Index has long been known as the barometer of the daily temperature
Indian bourses. In 1978-79 stock market contained only private sector complies and they
were mostly geared to commodity production. Hence, a sample 30 was draw from them.
With the passage of time more and more companies private as well as public came in to
the An index is a number used to represent the changes in asset of values between a base

market.
An index is a statistical measure of change in an economy or a securities market. In the
case of financial markets, an index is essentially an imaginary portfolio of securities
representing a particular market or a portion of it. Each index has its own calculation
methodology and is usually expressed in terms of a change from a base value. Thus, the
percentage changes is more important that the actually numeric value. For example,
knowing that a stock exchange is at, say, 5,000 don’t tell you much. However, knowing
that the index has risen 30% over the last year to 5,000 gives a much better demonstration
of performance.
combining 500 large-cap and U.S. stocks together into one index value. Investors can
track changes in the index's value over time and use it as a benchmark to compare their
own portfolio returns.
Technically, you can't actually invest in an index. Rather, you invest in a security such as
an index fund or ETF that attempts to track an index as closely as possible called stock
index. The plural of index can be spelled either indexes or indices. The Standard & Poor's
500 is one of the world's best known indexes, and is the most commonly used benchmark
for the stock market.

Index is a barometer for market behavior and benchmark portfolio performance. By

looking at an index, we know how the market is performing. A general investor invests in
the market on the basis of index movements. Thus there is a need to perform Index
Construction.
An index is number, which measures the change in asset of values over a period of time.
Index is a barometer for market behavior and benchmark portfolio performance. A stock
index represents the change in value of a set of stocks, which constitute the index. More
specifically, a stock index number is the current relative value of a weighted average of
the prices of a pre- defined group of equities. It relative value because it is expressed
relative to the weighted average of prices at some arbitrarily chosen starting date or base
period. The starting value or base of the index is usually set to a number such as 100 or
1000. For example the base value of the nifty was set as to 1000 on the start date of
November 3, 1995.
A good stock market index is one, which captures the behavior of the overall equity
market. It should represent the market; it should be well diversified and yet highly liquid.
Movements of the index should represent the returns obtained by “typical” portfolios in
the country. By looking at an index, we know how the market is faring. In recent years
index have come to the forefront owing to direct applications in finance in the form of
index funds and index derivatives.
Hedging using index derivatives has become a central part of risk management in the
modern economy. A good index is a trade-off between diversification and liquidity. A
well-diversified index is more representative of the market/economy. However there are
diminishing returns to diversification. Most of the commonly followed stock market
Indexes are of the following two types, they are Market capitalization weighted index
and price weighted index. In a market

2.10 NIFTY & SENSEX:
The word Nifty is a combination of two words namely the “N” from national and “Nifty”
from fifty. It is an index of fifty companies listed on the National Stock Exchange in
India. The fifty companies cover twenty two different sectors of the Indian economy. The
Sensex on the other hand refers to the sensitivity Index of the Bombay Stock Exchange.
The Sensex comprises of the traded stock of the thirty most traded and active types. It is
also representative and covers various sectors. The stock of the Nifty companies’
accounts for approximately sixty percent of the stock traded at the National stock
exchange, the Sensex stock accounts for nearly twenty percent of the capitalization of the
Bombay Stock Exchange.
SENSEX, short form of the BSE-Sensitive Index, is a "Market Capitalization-Weighted"

index of 30 stocks representing a sample of large, well-established and financially sound
companies. The index is widely used to Measure the performance of the Indian stock
markets.
The NSE S&P CNX Nifty 50 indexes is a well diversified 50 Stock index accounting for
24 sectors of the economy. It is used for a variety of purposes such as benchmarking fund
portfolios, index based derivatives and index funds.
2.11 SENSEX Calculation Methodology:
SENSEX is calculated using the "Free-float Market Capitalization" 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 a
company is determined by multiplying the price of its stock by the number 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
1978-79 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
Divisor is the only link 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 actions, 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.
Sensex is a measure of how the entire economy is performing as a whole. Sensex is the
BSE Sensitive Index. It was established in 1875 and oldest stock exchange in Asia In
1956 it obtained the permanent recognition from Government of India under the
securities contract (regulation) act 1956.
Sensex is made of 30 stocks of different companies belonging to 13 sectors. These

stocks are the representatives of the overall stock market performance vibe. These shares
are not selected arbitrarily but by the Index Committee applying varied conditions e.g.
the stock must have been traded on each & every trading day on stock exchange for past
one year. The numbers of stocks are 30 only but they portray about 40 or 50% of market
capitalization. Sensex captures price movements on the basis of stock specific
information e.g. new product launch, take over made by the company etc. Or information
regarding the economy as a whole e.g. Stability of the govt., budget announcement,
taxation policy etc. There are different methods of calculating Sensex e.g. Market
Capitalization method, free- float market capitalization etc. The later one is
internationally followed by MSCI, FTSE, Dow Jones s&p etc.
Sensex has 1978- 79 as its base year with base value being 100 which is depicted in
notational form as 1978- 79= 100. But you must not opine about the economic

performance of the country as a whole on the basis of Sensex value, with closed eyes.
This is because, if a sun rise stock is doing well in the market but is not in the list of 30
stocks, its vibrant performance will not be reflected in the Sensex value. On the other
hand if there is a south ward movement in Bankex but a spurt in FMCG Index,
outweighing the effect of negative impact of ebbing Bankex, Sensex will reflect an
exquisite buoyancy of the stock market. We must consider the scrotal indices for more
specific idea about
2.12 Features of Stock Index
A good market index should have three attributes they are
1. It should capture the behavior of a large variety of different portfolios in the market.
2. The stocks included in the index should be highly liquid.
3. It should be professionally maintained.
A good market index should accurately reflect the behavior of the overall market as well
as of different portfolios. This is achieved by diversification in such a manner that a
portfolio is not vulnerable to any individual stock or industry risk. A well-diversified
index is more representative of the market. However there are diminishing returns from
diversification. There is very little gain by diversifying beyond a point. The more serious
problem lies in the stocks that are included in the index. Since an illiquid stock does not
reflect the current price behavior of the market, its inclusion in index results in an index,
which reflects, delayed or stale price behavior rather than current price behavior of the
market.

Liquidity is much more than trading frequency. It is about ability to transact at a price,
which is very close to the current market price. The securities market comprises two
segments- primary market (new issues, offer for sale) & secondary market (trading of
stocks). There are two major types of issuers who issue securities. The corporate entities
issue mainly debt and equity instruments (shares, debentures, etc.), while the
governments (central and state governments) issue debt securities (dated Securities,
treasury bills). The two major exchanges, namely the NSE and the BSE provide trading
of securities.
2.13 DIFFERENCES BETWEEN THE INDICES
The indices are different from each other to a certain extent. Sometime the Sensex may
move up 100 point but NSE nifty may move up only 40 points. The main factors that
differentiate one index from the other are given below.
1. The number of the component stocks
2. The composition of the stocks
3. The weights
4. Base year
1. The Number Of The Component Stocks: The number of stock in an index
influences the behavior of index. If the number of component stocks is larger, it
would be a representative sample capable of reflecting the market movement. The
Sensex has 30 scrip’s like the Dow Jones Industrial average in (338 stocks) and

Nifty (50 stocks) are also widely used. BSE National Index is considered to be more
representative than Sensex because it has 100 stocks. Out of 100 stocks. Out of 100,
22 are quoted on the rest are listed on the BSE and the rest are listed on the BSE and
other exchanges.
2. The Composition of the stocks: The composition of the stocks in the index should
reflect the market movement as well as the macroeconomic changes. The center for
monitoring Indian Economy maintains an index. It often changes the composition of
the index so as to reflect the market movement in a better manner. Some of the scrip’s
traded volume may fall down and at the same time some other stock may attract the
market interest. In such a case the scrip that has lost the market interest should be
dropped and other must be added. Only then, the index would become more
representative.
3. The weight: The weight assigned to each company’s scrip also influences the
movement of the index. The indices may be weighted with the price or value. The
Dow Jones industrial Average and Nikkei Stock Average of 225 scrips of Tokyo
stock exchange are weighted with the price. A price weight index is computed by
adding the current prices of the stocks exchange and dividing the sum by the total
number of stocks. The stocks with high price influence the index more than the low
priced stock in the sample. In the value weighted index the total market value of the
share is the weight. In an un weighted index, all stocks carry equal carry equal
weights. The price or market volume of the scrip does not affect the index. The
movement of the price is based on the percentage change in the average price of the
stocks in the particular index.
4. The Base year: The choice of it also leads to variations among the index. The base
year differs from each other in the various indices. The base year should be free from
any unnatural fluctuations in the market. If the base year is close to the current year,
the index would be more effective in reflecting the changes in the market movement.
At the same time if it is too close, the investor cannot make historical comparison.

The Sensex has the base year as 1978-79 and the next oldest one is the RBI index of
ordinary shares with 1980-81 as base year.
2.14 DEFINITION OF FREE- FLOAT:
Free-float may be defined as that portion of equity capital of a company that is
Available for trading in the normal course, the remaining being held by promoters and
other interested and special categories of investors. Generally, free-float market
capitalization excludes promoters’ holding, government holding, strategic holding and
other locked-in shares. The most general category of stock price indices are based on
market capitalization of companies. The full market capitalization methodology takes
into account the total number of shares issued by a company for computing the INDEX
Free-float market capitalization, on the other hand, includes only the free-float shares that
is, shares available in the market for Trading. Thus, the market capitalization of a closely
held company would be significantly reduced in a free-float based INDEX.
From 1st September 2003, the country's equity benchmark SENSEX will be calculated
based on the Free-float methodology. Currently, the SENSEX is calculated based on the
full market capitalization methodology.
Globally, the Free-float methodology of index construction is considered to be an

industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX
have adopted the same. The MSCI India Standard Index is also based on the Free-float
methodology.
In India, BSE pioneered the concept of Free-float with the launch of the country's first
Free-float based index- BSE TECk in July 2001 and BANKEX in June 2003. The
shifting of SENSEX to this methodology is a culmination of successful experiences with

these two indices and a series of debates and discussions in the last few years. It may be
recalled
that in order to generate a nationwide debate on the issue of Free-float, BSE had
organized a "Roundtable on Free-float Index" in March 2002, which was chaired by Mr.
Mark Makepeace, President and CEO - FTSE Group. The Roundtable was followed with
a series of discussions with a cross section of market participants. The feedback was
overwhelming for shifting benchmark indices to the Free-float methodology.
The new methodology would align the SENSEX with the best global practice in index
construction. A smooth transition from Full market capitalization to Free-float market
capitalization methodology would ensure that the basic characteristics of SENSEX are
retained. Importantly, the Free-float methodology will further improve the benchmarking
qualities of SENSEX while maintaining its historical continuity. Currently all equity
indices in India, except the BSE-TECk Index and BANKEX, are calculated using the
'full-market capitalization' methodology. Under the 'full-market capitalization'
methodology, the total market capitalization of a company, irrespective of who is holding
the shares, is taken into consideration for computation of an index. However, if instead of
taking the total market capitalization, only the Free-float market capitalization of a
company is considered for index calculation, it is called the Free-float methodology.
Free-float market capitalization is defined as that proportion of total shares issued by the
company, which are readily available for trading in the market. It generally excludes
promoters' holding, government holding, strategic holding and other locked-in shares,
which will not come to the market for trading in the normal course. . Thus, the market
capitalization of each company in a Free-float index is reduced to the extent of its Free-
float available in the market.
A Free-float based index is regarded as a better benchmark in comparison to a full market

capitalization weighted index. It not only reflects the market trends in a more rational
manner, but also aids both active and passive investing styles. It aids active managers by

enabling them to benchmark their fund returns vis-à-vis an ingestible index. This enables
an apple-to-apple comparison thereby facilitating better evaluation of performance of
active managers. Being a perfectly replicable portfolio of stocks, a Free-float adjusted
index is best suited for the passive managers as it enables them to track the index with the
least tracking error.
2.15 SENSEX to shift to Free-float methodology:
From 1st September 2003, the country's equity benchmark SENSEX will be calculated
based on the Free-float methodology. Currently, the SENSEX is calculated based on the
full market capitalization methodology.
Globally, the Free-float methodology of index construction is considered to be an

industry best practice and all major index providers like MSCI, FTSE, S&P and STOXX
have adopted the same. The MSCI
India Standard Index is also based on the Free-float methodology. In India, BSE
pioneered the concept of Free-float with the launch of the country's first Free-float based
index- BSE TECk in July 2001 and BANKEX in June 2003. The shifting of SENSEX to
this methodology is a culmination of successful experiences with these two indices and a
series of debates and discussions in the last few years.
It may be recalled that in order to generate a nationwide debate on the issue of Free-float,
BSE had organized a "Roundtable on Free-float Index" in March 2002, which was
chaired by Mr. Mark Makepeace, President and CEO - FTSE Group. The Roundtable was
followed with a series of discussions with a cross section of market participants. The
feedback was overwhelming for shifting benchmark indices to the Free-float
methodology. The new methodology would align the SENSEX with the best global
practice in index construction. A smooth transition from Full market capitalization to

Free-float market capitalization methodology would ensure that the basic characteristics
of SENSEX are retained. Importantly, the Free-float methodology will further improve
the benchmarking qualities of SENSEX while maintaining its historical continuity.
2.16 Major advantages of a Free-float are:
 A Free-float Index reflects the market movements better.
 It aids passive investment because a Free-float index is easily replicable
 It improves index flexibility and the resultant market coverage and sector
coverage
 It avoids the undue influence of any closely-held large-capitalization stock on

the index movement
 It is considered as a global best practice in index construction.
Currently there are two indices based on the Free-float methodology. BSE TECk Index,
launched in July 2001, was the country's first Free-float index. Recently on 16th June
2003, BSE launched BANKEX, a benchmark for the banking sector stocks
combining 500 large-cap U.S. stocks together into one index value. Investors can track
changes in the index's value over time and use it as a benchmark to compare their own
portfolio returns to.
2.17 SENSEX - THE BAROMETER OF INDIAN CAPITAL Markets:
Introduction:

For the premier Stock Exchange that pioneered the stock broking activity in India, 128
years of experience seems to be a proud milestone. A lot has changed since 1875 when
318 persons became members of what today is called "The Stock Exchange, Mumbai" by
paying a princely amount of Re1.
Since then, the country's capital markets have passed through both good and bad periods.
The journey in the 20th century has not been an easy one.
Till the decade of eighties, there was no scale to measure the ups and downs in the Indian
stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index
that subsequently became the barometer of the Indian stock market.
SENSEX is not only scientifically designed but also based on globally accepted
construction and review methodology. First compiled in 1986, SENSEX is a basket of 30
constituent stocks representing a sample of large, liquid and representative companies.
The base year of SENSEX is 1978-79 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 September 1, 2003. The
"Free-float Market Capitalization" methodology of index construction is regarded as an
industry best practice globally. All major index providers like MSCI, FTSE, STOXX,
S&P and Dow Jones use the Free-float methodology.
Due to is wide acceptance amongst the Indian investors; SENSEX 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
SENSEX 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 SENSEX captured all these events in the most judicial manner.
One can identify the booms and busts of the Indian stock market through SENSEX.
2.18 MAINTENANCE OF SENSEX:
One of the important aspects of maintaining continuity with the past is to update the base
year average. The base year value adjustment ensures that replacement of stocks in Index,
additional issue of capital and other corporate announcements like 'rights issue' etc. do
not destroy the historical value of the index. The beauty of maintenance lies in the fact
that adjustments for corporate actions in the Index should not per se affect the index
values.
The Index Cell of the exchange does the day-to-day maintenance of the index within the
broad index policy framework set by the Index Committee. The Index Cell ensures that
SENSEX and all the other BSE indices maintain their benchmark properties by striking a
delicate balance between frequent replacements in index and maintaining its historical
continuity. The Index Committee of the Exchange comprises of experts on capital
markets from all major market segments. They include Academicians, Fund-managers
from leading Mutual Funds, Finance-Journalists, Market Participants, Independent
Governing Board members, and Exchange administration.
2.19 THE BASIC IDEA IN AN INDEX:

Every stock price moves for two possible reasons: news about the company (e.g. a
product launch, or the closure of a factory, etc.) or news about the country (e.g. nuclear
bombs, or a budget announcement, etc.). The job of an index is to purely capture the
second part, the movements of the stock market as a whole (i.e. news about the country).
This is achieved by averaging. Each stock contains a mixture of these two elements -
stock news and index news. When we take an average of returns on many stocks, the
individual stock news tends to cancel out. On any one day, there would be good stock-
specific news for a few companies and bad stock-specific news for others. In a good
index, these will cancel out, and the only thing left will be news that is common to all
stocks. The news that is common to all stocks is news about India. That is what the index
will capture.

CHAPTER - 3
INDUSTRIAL PROFILE
3.1 History of Stock exchange
3.2 Technology
3.3 Participants
3.4 The BSE and NSE
3.5 BSE indices
3.6 NSE- NEFTY
3.7 Trading mechanism
3.8 Financial market
3.9 Capital market
3.10 Money market
3.11 Derivation market
3.12 Foreign Exchange market
3.13 Commodity market
Stock exchanges often function as "continuous auction" markets, with buyers and
sellers consummating transactions at a central location, such as the floor of the exchange.
... Securities traded on a stock exchange include shares issued by companies, unit trusts,
derivatives, pooled investment products and bonds
A stock exchange does not own shares. Instead, it acts as a market where stock buyers
connect with stock sellers. Stocks can be traded on one or more of several possible
exchanges such as the New York Stock Exchange (NYSE), Bombay Stock Exchange
(BSE).
3.1 HISTORY OF STOCK MARKET

In 1602, the Dutch East India Company officially became the world's first publically
traded company when it released shares of the company on the Amsterdam Stock
Exchange. Stocks and bonds were issued to investors and each investor was entitled to a
fixed percentage of East India Company's profits.
Figure 2:- This is a picture of the Amsterdam Bourse, first stock market in the world (founded
in 1602).
3.2 TECHONOLOGY IN STOCK EXCHANGE
Technology has had a massive impact on our lives and is generally regarded to have
improved our social lives, businesses, governments and education. Unless you are a
broker or an investor not much thought is given as to the impact technology has had on
the productivity of The Stock Market.

National Stock Exchange of India is one of the leading exchanges in the world on
several key parameters. Number of contracts traded relate directly to the technology and
liquidity of the exchange.
 Electronic-trading
nearly thirty years ago in 1986 The London Stock Exchange changed over to
trading by computer rather than face to face on the market floor. Not since the
introduction of the telephone had there been such great changes at the LSE.
Information Technology is all about calculations and data and so is Stock
Trading, it was an inevitable match that increased efficiency and organization.
Today the high speed computers used by traders can broker a deal in
nanoseconds much quicker than a human. The introduction of Algorithms into
the markets has revolutionized the way stock brokers decide what stocks to buy
and sell. Algorithm Trading uses computer programmes that follow certain instructions to
calculate chart patterns in order to make safe investments.
Electronic trading has encouraged the phenomenon of high-frequency trading. ... Though
this gave rise to what is commonly called "day trading" for individuals, the true impact
comes from institutional investors who initiate trades in millions of shares in a matter of
moments.
3.3 PARTICIPANTS IN ATOCK EXCHANGE MARKET
They execute orders in the market to the greatest possible advantage of their customers,
by buying at the lowest possible price or by selling at the highest possible price. Listed
companies, also called “issuers”, are those whose shares of stock are traded on the
Exchange.
3.4 The BSE and NSE
The Bombay stock exchange (BSE) is a stock exchange located on Dalal street, Mumbai
and is the oldest stock exchange in Asia.

The NSE was incorporated in Now 1992 with an equity capital of Rs. 25 crores. The
international securities consultancy (ISC) of Hong Kong has helped in setting up NSE.
Most of the trading in the Indian stock market takes place on its two stock exchanges: the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has
been in existence since 1875. The NSE, on the other hand, was founded in 1992 and
started trading in 1994. However, both exchanges follow the same trading mechanism,
trading hours, settlement process, etc. At the last count the BSE had about 4,700 listed
firms, whereas the rival NSE had about 1,200. Out of all the listed firms on the BSE, only
about 500 firms constitute more than 90% of its market capitalization; the rest of the
crowd consists of highly illiquid shares.
3.5 BSE indices
In order to enable the market participants, analysts etc..,to track the various ups and
downs in the Indian stock market, the exchange has introduced in 1986an equity stock
index called BSE-SENSEX that subsequently become the barometer of the movement of
the share prices in the Indian stock market. “It is market capitalization weighted’’ index
of 30 companies stock representing a sample of large, well- established and leading
companies. The base year of Sensex is 1978-79.
3.6 NSE- NIFTY
The NSE on April 22,1996 launched a new equity index. The NSE-50. The new index,
which replaces the existing-100 index, is expected to serve as on appropriate Index for
the segment of future and “Nifty’’.

The base period for the index is the close of prices on NOV 3, 1995, which makes one
year of completion of NSE’s capital market segment. The base value of the index has
been set at 1000.
3.7TRADING MECHANISUM
Trading at both the exchanges takes place through an open electronic limit order book, in
which order matching is done by the trading computer. There are no market or specialist
and the entire process order-driven, which means that market orders placed by investors
are automatically matched with the best limit orders. As a result, buyers and sellers
remains anonymous. the advantage of an order driven market is that it brings more
transparency, by displaying all buy and sell orders in the sell orders in the trading system.
3.8 FINANCIAL MARKETS
Finance is the pre-requisite for modern business and financial institutions play a vital role
in the economic system. It is through financial markets and institutions that the financial
system of an economy works. Financial markets refer to the institutional arrangements
for dealing in financial assets and credit instruments of different types such as currency,
cheques, bank deposits, bills, bonds, equities, etc.
Financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. They
are typically defined by having transparent pricing, basic regulations on trading, costs and
fees and market forces determining the prices of securities that trade.

Generally, there is no specific place or location to indicate a financial market. Wherever a
financial transaction takes place, it is deemed to have taken place in the financial market.
Hence financial markets are pervasive in nature since financial transactions are
themselves very pervasive throughout the economic system. For instance, issue of equity
shares, granting of loan by term lending institutions, deposit of money into a bank,
purchase of debentures, sale of shares and so on.
In a nutshell, financial markets are the credit markets catering to the various needs of the
individuals, firms and institutions by facilitating buying and selling of financial assets,
claims and services.
3.9 Capital Market
The capital market is a market for financial assets which have a long or indefinite
maturity. Generally, it deals with long term securities which have a period of above one
year. In the widest sense, it consists of a series of channels through which the savings of
the community are made available for industrial and commercial enterprises and public
authorities. As a whole, capital market facilitates raising of capital. The major functions
performed by a capital market are:
1. Mobilization of financial resources on a nation-wide scale.
2. Securing the foreign capital and know-how to fill up deficit in the required
resources for economic growth at a faster rate.

3. Effective allocation of the mobilized financial resources, by directing the same to
projects yielding highest yield or to the projects needed to promote balanced
economic development.
Capital market consists of primary market and secondary market.
 Primary market
Primary market is a market for new issues or new financial claims. Hence it is also called
as New Issue Market. It basically deals with those securities which are issued to the
public for the first time. The market, therefore, makes available a new block of securities
for public subscription. In other words, it deals with raising of fresh capital by companies
either for cash or for consideration other than cash. The best example could be Initial
Public Offering (IPO) where a firm offers shares to the public for the first time.
 Secondary market:
Secondary market is a market where existing securities are traded. In other words,
securities which have already passed through new issue market are traded in this market.
Generally, such securities are quoted in the stock exchange and it provides a continuous
and regular market for buying and selling of securities. This market consists of all stock
exchanges recognized by the government of India.
3.10 Money Market

Money Market Share the markets for short-term, highly liquid debt securities. Money
market securities are generally very safe investments which return relatively low interest
rate that is most appropriate for temporary cash storage or short term time needs. It
consists of a number of sub-markets which collectively constitute the money market
namely call money market, commercial bills market, acceptance market, and Treasury
bill market.
3.11 Derivatives Market
The derivatives market is the financial market for derivatives, financial instruments like
futures contracts or options, which are derived from other forms of assets. A derivative is
a security whose price is dependent upon or derived from one or more underlying
assets. The derivative itself is merely a contract between two or more parties. Its value is
determined by fluctuations in the underlying asset. The most common underlying assets
include stocks, bonds, commodities, currencies, interest rates and market indexes.
The important financial derivatives are the following:
 Forwards: Forwards are the oldest of all the derivatives. A forward contract refers
to an agreement between two parties to exchange an agreed quantity of an asset for
cash at a certain date in future at a predetermined price specified in that agreement.
The promised asset may be currency, commodity, instrument etc.

 Futures: Future contract is very similar to a forward contract in all respects
excepting the fact that it is completely a standardized one. It is nothing but a
standardized forward contract which is legally enforceable and always traded on
an organized exchange.
 Options: A financial derivative that represents a contract sold by one party (option
writer) to another party (option holder). The contract offers the buyer the right, but
not the obligation, to buy (call) or sell (put) a security or other financial asset at an
agreed-upon price (the strike price) during a certain period of time or on a specific
date (exercise date). Call options give the option to buy at certain price, so the
buyer would want the stock to go up. Put options give the option to sell at a certain
price, so the buyer would want the stock to go down.
 Swaps: It is yet another exciting trading instrument. In fact, it is the combination
of forwards by two counterparties. It is arranged to reap the benefits arising from
the fluctuations in the market – either currency market or interest rate market or
any other market for that matter.
3.12 Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on
currencies. Foreign exchange markets are made up of banks, commercial companies,
central banks, investment management firms, hedge funds, and retail forex brokers and
investors. The forex market is considered to be the largest financial market in the world.
It is a worldwide decentralized over-the-counter financial market for the trading of
currencies. Because the currency markets are large and liquid, they are believed to be the
most efficient financial markets. It is important to realize that the foreign exchange
market is not a single exchange, but is constructed of a global network of computers that
connects participants from all parts of the world.
3.13 Commodities Market
It is a physical or virtual marketplace for buying, selling and trading raw or primary
products. For investors' purposes there are currently about 50 major commodity markets
worldwide that facilitate investment trade in nearly 100 primary
commodities. Commodities are split into two types: hard and soft commodities. Hard
commodities are typically natural resources that must be mined or extracted (gold,
rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,
wheat, coffee, sugar, soybeans, pork, etc.)

CHAPTER 4
DATA ANALYSIS & INTERPRETATION
4.1 Factors affecting stock market

4.1 FACTORS INFLUENCING STOCK MARKETS
The main factors that include the movement of stock indices include:
 Growth Number (GDP)
 Interest Rates
 Inflation
 Exchange Rates
 Demand & Supply of Shares
 Impact of News
 Crude Oil Prices
 Monsoon
 IIP (Index of Industrial Production)
 Government Regulations
 Government Subsidies
 Global Markets
 Global Environment
 Gold Prices
 Diseases such as Swine Flu

1. Growth Numbers (GDP) the Gross Domestic Product growth rate measures the
increase in value of the goods and services produced by an economy. Economic growth is
usually calculated in real terms or inflation-adjusted terms, in order to net out the effect
of changes on the price of the goods and services produced. The Gross Domestic Product
can be determined using three different approaches, which should give the same result.
These different methods are the product technique, the income technique, and the
expenditure technique. In sum, the product technique sums the outputs of every class of
enterprise to arrive at the total. The expenditure technique works on the principle that
every product must be bought by somebody, therefore the value of the total product must
be equal to people's total expenditures in buying products and services.
The Indian economy expanded 6.3 percent year-on-year in the third quarter of 2017,
above a 5.7 percent in the previous quarter which was the lowest in near three years, but
below market expectations of a 6.4 percent. Investment and inventories growth
rebounded, offsetting a slowdown in both private and public spending. During 2016-17
fiscal year, the economy expanded 7.1 unrevised from the preliminary estimate and
below 8.2 percent in the previous fiscal year. Output growth eased for both tertiary (7.5
percent vs 9.6 percent in 2015-16) and secondary sectors (6.1 percent vs 9.4 percent). By
contrast, the primary sector, which includes agriculture, forestry, fishing and mining,
surged 7.4 percent, after a 2.6 percent growth in 2015-16. GDP Annual Growth Rate in
India averaged 6.12 percent from 1951 until 2017, reaching an all-time high of 11.40
percent in the first quarter of 2010 and a record low of -5.20 percent in the fourth quarter

of 1979. GDP Annual Growth Rate in India is reported by the Ministry of Statistics and
Programme Implementation (MOSPI).
By industry, the most important and the fastest growing sector of Indian economy are
services. Trade, hotels, transport and communication; financing, insurance, real estate
and business services and community, social and personal services account for more than
60 percent of GDP. Agriculture, forestry and fishing constitute around 12 percent of the
output, but employs more than 50 percent of the labor force. Manufacturing accounts for
15 percent of GDP, construction for another 8 percent and mining, quarrying, electricity,
gas and water supply for the remaining 5 percent. This page provides - India GDP Annual
Growth Rate - actual values, historical data, forecast, chart, statistics, economic calendar
and news. India GDP Annual Growth Rate - actual data, historical chart and calendar of
releases - was last updated on February of 2018.

Table 4.1 shows the GDP growth rate of India
The Indian economy expanded 5.7 percent year-on-year in the second quarter of 2017,
below 6.1 percent in the previous period and market expectations of 6.6 percent. It
remains the weakest growth rate since the first quarter of 2014 due to a slowdown in
consumer spending and exports. On the production side, manufacturing and agriculture
eased. Figures for the second quarter of 2017 mark the third consecutive period of
slowing growth, following the demonetization program started in November of 2016 that
removed 86 percent of India's currency in circulation.
Private consumption growth accelerated to 7.6 percent from 6.7 percent in the previous
quarter while government spending rose at a slower 15.2 percent (+18.8 percent in Q2).
Gross fixed capital formation shrank at a faster 5.6 percent, following a 3.1 percent
contraction in the previous period.

Exports increased 0.3 percent, following a 3.2 percent growth in the second quarter; while
imports declined 9 percent after falling 5.8 percent in the precedent period.
On the production side, the gross value added for public administration, defiance and other
services expanded the most (+12.5 percent vs +12.3 percent in Q2), followed by: financial,
insurance, real estate and professional services (+8.2 percent vs +9.4 percent); manufacturing
(+7.1 percent vs +9.1 percent); trade, hotel, transport, communication and services related to
broadcasting (+7.1 percent vs +8.1 percent); electricity, gas, water supply and other utility
services (+3.5 percent vs +9.4 percent); agriculture, forestry and fishery (+3.3 percent vs
+1.8 percent) and construction (+3.5 percent vs +1.5 percent). By contrast, mining and
quarrying contracted 1.5 percent (-0.4 percent in Q2).
2. Interest Rates
Interest rates will have an effect on stocks. If interest rates decrease then borrowing
capacity of a company increases so company can go for further expansion and generates
more profits. So demand for stock increases and stock price will rise.

Table 4.2 Shows interest rate
The Reserve Bank of India kept its benchmark interest rate steady at 6 percent on
February 7th 2018, matching market expectations. Policymakers reinforced the decision
is consistent with a neutral stance of monetary policy aiming to reach the medium-term
inflation target of 4 percent +/- 2 percent, while supporting growth. The central bank
raised inflation forecasts to 5.1 percent for Q4 of the current fiscal year (January to
March 2018) from 4.3-4.7 percent and GVA growth expectations were lowered to 6.6
percent for 2017-2018 from 6.7 percent. The reverse repo rate was also left on hold at
5.75 percent and the marginal standing facility rate and the Bank Rate at 6.25 percent.
India Interest Rate Forecasts are projected using an autoregressive integrated moving
average (ARIMA) model calibrated using our analysts’ expectations. We model the past
behavior of India Interest Rate using vast amounts of historical data and we adjust the
coefficients of the econometric model by taking into account our analyst’s assessments

and future expectations. The forecast for - India Interest Rate - was last predicted on
Thursday, February 8, 2018.
3. Inflation
In 2013, the consumer price index replaced the wholesale price index (WPI) as a main
measure of inflation. In India, the most important category in the consumer price index is
Food and beverages (45.86 percent of total weight). Housing accounts for 10 percent;
Transport and communication for 8.6 percent; Fuel and light for 6.84 percent; Clothing
and footwear for 6.5 percent; Medical care for 5.9 percent and education for 4.5 percent.
Consumer price changes in India can be very volatile due to dependence on energy
imports, the uncertain impact of monsoon rains on its large farm sector, difficulties
transporting food items to market because of its poor roads and infrastructure and high
fiscal deficit. This page provides - India Inflation Rate - actual values, historical data,
forecast, chart, statistics, economic calendar and news. India Inflation Rate - actual data,
historical chart and calendar of releases - was last updated on February of 2018.

Table 4.3 Shows Inflation rate of India
India Inflation Rate
Source: Primary Data, Tradeconomics.com
Consumer prices in India increased 5.07 percent year-on-year in January of 2018, below
a 17 month high of 5.21 percent in December and market expectations of 5.14 percent.
Still, the inflation remained above 4.8 percent for the third month, the level not seen since
July of 2016 and above 4 percent medium-term target of the Reserve Bank of India.
Cost went up at a slower pace for food and beverages (4.58 percent from 4.85 percent in
December). The food index alone rose 4.7 percent, below 4.96 percent in the previous
month. Inflation eased for vegetables (26.97 percent from 29.13 percent) and fruits (6.24
percent from 6.63 percent) while prices of pulses fell slightly less (-20.19 percent from
-23.47 percent). Inflation was also slightly lower for fuel and light (7.73 percent from 7.9
percent).

4 Exchange Rates
It will also have an impact on stock. If exchange rates decrease then company can
import at lower rates which leads to increase in profits and causes an increase in
profits. The USD-INR decreased 0.2487 or 0.39% to 63.8463 on Friday February
16, 2018 from 64.0950 in the previous trading session. Historically, the Indian
Rupee reached an all-time high of 68.80 in February of 2016 and a record low of
7.19 in March of 1973.
Table 4.4 shows Exchange rate of India
India Exchange Rate
Source: Secondary Data, Tradeconomics.com
The USDINR spot exchange rate specifies how much one currency, the USD, is currently
worth in terms of the other, the INR. While the USDINR spot exchange rate is quoted
and exchanged in the same day, the USDINR forward rate is quoted today but for
delivery and payment on a specific future date. This page provides - Indian Rupee -
actual values, historical data, forecast, chart, statistics, economic calendar and news.
Indian Rupee - actual data, historical chart and calendar of releases - was last updated on
February of 2018.

5 Crude Oil Imports / Prices
India is heavily dependent on crude oil imports, with petroleum crude accounting for
about 34 percent of the total inward shipments. The country also imports: gold and silver
(12 percent of the total imports), machinery (10 percent), electronic goods (7 percent) and
pearls, precious and semi-precious stones (5 percent). India’s main import partners are
China (10.7 percent of the total shipments), United Arab Emirates (8 percent), Saudi
Arabia (7 percent), Switzerland (7 percent) and the United States (5 percent).
Table 4.4 Shows Indian crude oil import

Source: Secondary Data
This page provides the latest reported value for - India Imports - plus previous releases,
historical high and low, short-term forecast and long-term prediction, economic calendar,
survey consensus and news. India Imports - actual data, historical chart and calendar of
releases - was last updated on February of 2018.
6 IIP (Index of Industrial Production)
Industrial Production is an economic report that measures changes in output for the
industrial sector of the economy. The industrial sector includes manufacturing, mining,
and utilities. Although these sectors contribute only a small portion of GDP (Gross
Domestic Product), they are highly sensitive to interest rates and consumer demand. This
makes Industrial Production an important tool for forecasting future GDP and economic
performance. Industrial Production figures are also used by central banks to measure
inflation, as high levels of industrial production can lead to uncontrolled levels of
consumption and rapid inflation.

Table 4.6 Shows Indian industrial production
India's industrial production rose by 7.1 percent year-on-year in December 2017,

following an upwardly revised 8.8 percent gain in the previous month and beating market
expectations of 6.2 percent. Manufacturing production growth slowed to 8.4 percent in
December from 10.7 percent in November, while output rose at a faster pace for both
electricity (4.4 percent vs 3.9 percent) and mining (1.2 percent vs 1.1 percent).
Considering April to December, industrial production increased by 3.7 percent, compared
with a 5.1 percent expansion in the same period of the previous fiscal year. Industrial
Production in India averaged 6.55 percent from 1994 until 2017, reaching an all time high
of 20 percent in November of 2006 and a record low of -7.20 percent in February of 2009
6 Gold & Silver Prices

Table 4.7 shows Gold prices
Gold prices have given very good returns in the last two years.
Table 4. Shows silver prices

8. Monsoon
Agriculture contributes about 16% to India’s GDP and employs around 50% of the labour
force. With a population of over 1.4 billion, agricultural production and its contribution to
the economy becomes critical.
The problem is that more than half of India’s farmers still depend on rainfall for meeting
their irrigation needs. While the share of irrigated land has increased significantly over
the years, deficient rainfall in most years has resulted in water tables dropping
significantly, thereby depleting the availability of groundwater in areas where tube wells
have been laid.
The situation has become even more critical due to poor rainfall over the last two years.
This has resulted in severe drought and drought-like situation in parts of Telangana,
Andhra Pradesh, Karnataka as well as the Marathwada and Vidarbha regions in
Maharashtra.

India’s rural economy is highly dependent on the monsoons and a good monsoon has a
direct impact on rural incomes, which in turn increases rural spending leading to an
overall GDP growth.
This year the Indian Meteorological Department has announced that monsoon rain is
expected to be 106% of the long period average. This is positive news for the Indian
economy, and especially rural India, given its high dependence on rainfall. This in turn
will trigger demand for agri-related goods and services, consumer durables and textiles.
It’s not just rural India that will be impacted by good monsoons but the overall economy.
Industries like fertilizers, food processing, two and four wheeler automobiles, agro
machinery and tools, financial services including insurance, are all likely to get a boost.
GDP from Agriculture in India decreased to 3245.21 INR Billion in the third quarter of
2017 from 3897.32 INR Billion in the second quarter of 2017. GDP From Agriculture in
India averaged 3949.63 INR Billion from 2011 until 2017, reaching an all-time high of
5468.54 INR Billion in the fourth quarter of 2016 and a record low of 2690.55 INR
Billion in the third quarter of 2011.
The weakness in monsoon has led to a delay in sowing of summer crops like paddy,
cereals, oilseeds and pulses in central and southern India. This is likely to have
adverse impact on commodities dependent on rain in the coming months.
Stocks of consumer goods companies, especially those exposed to rural demand, may
witness some pressure in sales growth since a bad monsoon will mean lower rural
incomes and, thus, lower rural spend.

Already, prices of agricultural commodities rose sharply last month as expectations

that the output will be badly hit this kharif season due to scanty rainfall in major
producing areas gained ground.
From 12 June till now, prices of soybean have risen by 30 per cent, castor seed by 18 per
cent, rape mustard seed by 12 per cent, jeera by 17 per cent, turmeric by 30 per cent,
wheat by 12 per cent, corn by 19 per cent and soya oil by 9 per cent. If the rains
disappoint further, prices of these commodities can be expected to spiral upwards from
their current levels.
This run-up in prices of Agri-products has much larger ramifications than just agri-
inflation. A rise in agri-inflation leads to a cascading effect on manufactured goods
inflation and in turn an increase in the overall headline inflation.
Since the Reserve Bank of India, or RBI, is glued to how wholesale price inflation is
behaving, any major run-up in this number will result in the RBI further abstaining from
cutting interest rates.
As we all know, India is facing a sharp slowdown in economic activity, with GDP (Gross
Domestic Product) growth as well as IIP or Index of Industrial Production witnessing
deceleration. At this point in time, it is crucial that we have more rate cuts to spur
investment activity in the economy.
Thus, a weak monsoon will have a sharp negative effect on equities as growth may then
continue to suffer. Further, stocks of consumer goods companies, especially those
exposed to rural demand, may witness some pressure in sales growth since a bad
monsoon will mean lower rural incomes and, thus, lower rural spend.

9. Impact of News
News is another factor that affects the share price. When there is positive news about a
particular stock or company, people try to invest all their money in that particular stock or
market. This leads to increase in the interest of buying the stock. But there are many
circumstances where news could also bring a negative effect where it could ruin the
prospect of the particular stock. So it is very important to know the overall news of a
stock or company where you can invest your money so that it grows within a very short
period of time.
There are many things that you need to consider when you go for investing your hard
earned money in the stock market. You should never be in a haste to invest your money
in the stock market. You should always get in touch with a good stock market
consultancy where it can give you some share tips. They are the one who can give you
advice where to invest your money and where not to. They know to distinguish the good
stock from the bad ones.
News drives the market. Good news lifts the market. Bad news dampens growth. The
effect, however, is not symmetric: good news does not lift the market as much as bad
news depresses it; good (bad) news does not lift (depress) a bull market as much as a bear
market. Positive and negative stock return innovations have different impact on the
volatility. Volatility following bad news is found to be higher than following good news.
Besides that good and bad news influences volatility differently, good news in a bull
market may not lift up the market as much as in a bear market or vice versa.
Intuitively, given a continuous downward market movement, bad news may drag down
the market more than if there has been upward market movement. In other words, in a
bear market, the market is waiting for bad news and bad news shakes market confidence

more than if it has been a bull market. Given information up to current time, the news
impact curve examines the relationship between the news and future volatility.
10. Demand& Supply of Shares
This is an important factor that affects share prices. When you get to see that more people
are buying stocks, then there is an increase in the price of that particular stock. On the
other hand price of stock falls when more people are selling their stocks. So it is very
difficult to predict the Indian stock market. This is the main reason why you need to get
in touch with a good stock market consultant. There is consultancy for you which can
help you a lot on choosing the right stocks for you.
In the stock market, prices are driven by supply and demand. Supply equals the willing
sellers and demand equals the willing buyers. Where their mutual interests intersect, is
the current price.
That intersection is a moving target so at one moment there is more supply than demand
and at some other moment the balance has shifted to more demand than supply. This is
especially true of heavily-traded stocks, but it applies to all.
12 Government Regulations & Subsidies
Government policies are unpredictable and can change at short notice. To tackle
shortages in essential commodities, government may resort to imports to cool commodity
prices in the domestic market. This affects the profitability of domestic companies and
has a direct bearing on their share prices at least in the short term.

12 Global Markets & Environment
Indian stocks rose to their highest levels in 11 months in 2016, amid a global rally,
buoyed by strong US jobs data and speculation that global central banks will take steps to
contain the Brigit fallout.

CHAPTER V
FINDINGS, SUGGESTIONS AND CONCLUSION
5.1 FINDINGS
5.2 SUGGESIONS
5.3 CONCLUSION
5.1 Findings

The present project work has been carried out to study the various factors that influence
the share prices movement. Like any other commodity, in the stock market, share prices
are also depended on so many factors. So, is hard to point out just one or two factors that
affects the prices of the stock.
Gross Domestic Product - GDP Growth Rate in India is expected to be 1.70 The present
project work has been carried out to study the various factors that influence the share
price moments. Like any other commodity, in the stock market, share prices are also
dependent on so many factors. So, it is hard to point out just one or two factors that affect
the price of the stocks.
 percent by the end of this quarter, according to Trading Economics global macro
models and analysts’ expectations. Looking forward, we estimate GDP Growth
Rate in India to stand at 1.50 in 12 months’ time. In the long-term, the India GDP
Growth Rate is projected to trend around 1.30 percent in 2020. Latest data for the
rabi season suggests that net sown area is lower than for the corresponding period
of last year; this combined with the likely adverse productivity effects from four
consecutive seasons of weak rainfall create downside risks to agricultural
production for this fiscal year.
 Initial Public Offerings

BSE reported derivatives (F&O in index and equities) turnover of Rs. 3,258.42 crore for
the year 2017-18, against Rs. 9,939.29 crore reported on the BSE. The S&P BSE
SENSEX finished November at a high for 2017, completing the best quarter since the
general election of 2014.
 Interest Rates
Public sector Indian Bank has revised the interest rates on Foreign Currency Non-
Resident (banking) term deposits with immediate effect.

For FCNR (B) deposits, in US Dollar terms, the interest rates have been revised to 3.09
per cent for deposits of one year and above, but less than two years from the existing 2.89
per cent.
For deposits of two years and above but less than three years, the interest rates were
revised to 3.31 per cent from 3.08 per cent, the city-headquartered bank said in a press
release.
Interest rates were revised to 3.49 per cent on deposits of three years and above, but less
than four years from the current 3.22 per cent.
For deposits of four years and above but less than five years, the interest rates were
revised to 3.56 per cent from current 3.25 per cent.
For deposits of up to five years, the interest rates were fixed at 3.62 per cent from 3.29
per cent, the release added.
 Demand and Supply - This fundamental rule of economics holds good for the
equity market as well. The price is directly affected by the trend of stock market
trading. When more people are buying a certain stock, the price of that stock
increases and when more people are selling the stock, the price of that particular
stock falls. Now it is difficult to predict the trend of the market but your stock
broker can give you fair idea of the ongoing trend of the market but be careful
before you blindly follow the advice.
 News - News is undoubtedly a huge factor when it comes to stock price. Positive
news about a company can increase buying interest in the market while a negative
press release can ruin the prospect of a stock. Having said that, you must always
remember that often times, despite amazingly good news, a stock can show least
movement. It is the overall performance of the company that matters more than
news. It is always wise to take a wait and watch policy in a volatile market or
when there is mixed reaction about a particular stock.
 Inflation Rate -Inflation has continued to moderate steabily. Consumer prices in

India increased 5.21 percent year-on-year in December of 2017, above 4.88
percent in November and market expectations of 5.1 percent. It is the highest
inflation rate since July of 2016 amid faster rises in cost of food and housing. The
central bank targets inflation at 4 percent with a tolerance band of ± 2 percent. It
expects inflation to be between 4.3 percent-4.7 percent during the second half of
the current fiscal year that ends in March
 Exchange Rate - It said the India rupee (INR) has outperformed most of the
emerging market pack as, in addition to global ones, domestic factors like strong
political mandate for BJP in UP elections, passage of GST Bill and a hawkish RBI
stance have boosted the rupee. INR averaged 66.2 against the USD in 2017-2018
within a range of 62.5-67.5. Several factors like tightening of global financial
conditions, political and financial uncertainties and geopolitical risks would
continue to shape the emerging market forex outlook, even amid relatively weaker
dollar
 Crude Oil Prices – Indian oil consumption in 2017 grew at its slowest in four
years, hit by the government’s demonetization move and a tax increase that
knocked the gain in fuel use back to a modest 2.3 percent. The low growth also
coincided with another year of weak, albeit improving, new vehicle sales. Last
year’s oil demand was held back “by headwinds from demonetization and a new
goods and services tax,” U.S. bank Morgan Stanley said in a note to clients. India
imports almost all of its oil, shipping in around 4.2 million barrels per day (bpd) of
crude in 2017.
 Industrial Production - India's industrial production rose by 7.1 percent year-on-

year in December 2017, following an upwardly revised 8.8 percent gain in the
previous month and beating market expectations of 6.2 percent. Manufacturing
production growth slowed to 8.4 percent in December from 10.7 percent in

November, while output rose at a faster pace for both electricity (4.4 percent vs 3.9
percent) and mining (1.2 percent vs 1.1 percent). Considering April to December,
industrial production increased by 3.7 percent, compared with a 5.1 percent
expansion in the same period of the previous fiscal year. Industrial Production in
India averaged 6.55 percent from 1994 until 2017.
 Gold & Silver Prices - Gold and Silver prices have given very good returns in the
last two years.
 Monsoon - 2017 Monsoon ended with below normal rains. The country recorded
below normal rainfall to the tune of 95% of the long period average (LPA). The
countrywide cumulative rainfall for the overall season from June 1 till September
30, 2017 was recorded at 841.3 mm against the normal rains of 887.5 mm. The
month of June 2017 saw exceptionally good spells of rain across most parts of the
country including Northwest India. As a result, the actual rains in the month
settled at 104% of LPA. Active Monsoon conditions continued during July as well
and the month too ended with surplus rains at 102% of LPA. July and August
witnessed some of the worst floods in Gujarat, South Rajasthan and Mumbai.
Assam, Bihar and parts of Uttar Pradesh and Odisha also reeled under the fury of
floods. Owing to these incessant rains, cumulative countrywide Monsoon rains
had reached 106% for briefly. But, Sky met Weather was confident that the
approaching break-Monsoon conditions due to oscillation of the axis of Monsoon
trough (AMT) to the foothills would once again reduce the Monsoon.

5.2 Suggestions
 Decreasing growth rate of GDP is most likely to bring down the stock prices.
Investors should show caution before investing in the stock markets.
 Interest rates have also been over the average in the last few years which is a cause
for worry and investors should keep this in mind.
 When more people are buying a certain stock, the price of that stock increases and
when more people are selling he stock, the price of that particular stock falls. Now
it is difficult to predict the trend of the market but your stock broker can give you
fair idea of the ongoing trend of the market but be careful before you blindly
follow the advice.
 You must always remember that often times, despite amazingly good news, a
stock can show least movement. It is the overall performance of the company that
matters more than news. It is always wise to take a wait and watch policy in a
volatile market or when there is mixed reaction about a particular stock.
 Falling rupee value will have a negative impact on import oriented businesses and
positive impact on export oriented businesses. Investors should take their
investment decisions accordingly.
 The cost of imported crude has been steadily going up of late which is a bad news
for the country's economy as India relies mostly on Crude Oil Imports.
 Gold and silver prices have been continuously increasing in the recent years and
can attract investors to move away from stocks.
 Investors should act cautiously and not in haste before making investments. He
should do a thorough study of all the factors before making any investments.

5.3 Conclusion
Economic liberalization has accelerated the pace of development in the securities market.
In India, the role of securities market has undergone structural transformation with the
introduction of computerized online trading and interconnected market system.
Investment in securities such as shares, debentures and bonds is profitable, but also
involves great deal of risk. Even Indian Government wants to encourage Equity
Investment. While analyzing stock, investor should consider Demand & Supply of
Shares, Impact of News, Initial Public Offerings, Interest Rates, Inflation, Crude Oil
Prices, Monsoon, Growth Number (GDP), IIP(Index of Industrial Production), Exchange
Rates, Government Regulations, Government Subsidies, Global Markets, Global
Environment, Gold Prices and other factors.
Following are some of the investment rules to be considered before making
investments in stock markets:
 Invest for long term in equity markets
 Align your thought process with the business cycle of the company.
 Set the purpose for investment.
 Long term goals should be the objective of equity investment.

 Disciplined investment during market volatility helps attains profits.
Planning, Knowledge and Discipline are very crucial for investment.

BIBLIOGRAPHY

BOOK NAME AUTHOR
1. Security analysis and portfolio management Punithavati Pandian
2. Investment Management V.K. Bhalla
WEB SITES
1. www.indiancapitalmarket.com
2. www.bseindia.com
3. www.rediffmoney.com
4. www.indiainfoline.com
5. www.moneycontrol.com


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A STUDY ON STOCK INDEX AND FACTTORS AFFECTING SHARE PRICES

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

1.2 Review of Literature

 The study by Gautam (2017)

Reveals a positive relationship between leverage, market capitalization, dividend payout

 Geetha and Swaminathan (2015)

 Zutter and Gitman (2012)

 Juhi Ahuja (2012)

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

 Nath and Verma (2013)

 Debjiban Mukharjee (2007)

 Bhanu Pant and Dr. T. R. Bishnoy (2001)

1.3 Need for the study

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

1.4 Statement of the Problem

1.5 Objectives of the study

1. To understand the concept of stock indices.

1.6 Scope of the study

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

1.7 Research Methodology

The Sources of collecting Data:

I. Websites of different online trading firms(such as Angel broking, Sherkhan etc..,)

II. Newspaper, magazines, and trade journals.

III. Publications of different online trading firms.

IV. Interaction with managers and customers.

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

1.8 Limitations of the study

 Information is collected primarily from secondary sources and may not be

 Period of only 4 Months which is short to work on any study comprehension

1.9 Chapter Schema

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

CHAPTER-2 THEORETICAL FRAMWORK

2.2 Stock market

2.3 Stock market definition

2.4 Need of stock market

2.6 Introduction and brief about the index construction

2.7 Market index

2.8 Introduction to Bombay stock exchange

2.9 The BSE sensitive index

2.10 Nifty and Sensex

2.11 Sensex calculation methodology

2.12 Feature of stock index

2. 13 Difference between the indices

2.14 Definition of free-float

2.15 Sensex to shift to free-float methodology

2.16 Major advantage of a free-float

2.17 Sensex- the barometer of Indian capital market

2.18 Maintenance of Sensex

2.19 The basic idea in an index

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

2.1 DEPENDENCE OF SECURITIES MARKET:

PRIMARY MARKET & SECONDARY MARKET:

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

2.2 STOCK MARKET:

 Bear Market:-The opposite of a bull market is bear market, which is

2.3 STOCK MARKET DEFINITIONS:

2. An institution that facilitates the buying and selling of stocks.

7. Particulars market where stocks and bonds are traded.

9. In relation to a securities exchange or a stock exchange, includes, in the case of the

2.4 NEED OF STOCK MARKET:

K.L.E SOCIETY’S P G DEPARTMENT OF COMMERCE AND MANAGEMENT, BK COLLEGE,

A stock index or stock market index is a measurement of a section of the stock