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Management Thesis –II



“A study on impact of stock market volatility on

individual investor’s investment decisions with

reference to Religare. Guntur”

Under the esteemed guidance of

Mr. D. Sudhir Babu
Faculty Supervisor
Icfai National College Guntur

Submitted by

“A study on impact of stock market volatility on individual

investor’s investment decisions with reference to Religare.


Under the supervision of

Mr. D. Sudhir Babu
Faculty supervisor

Submitted by
A report submitted in partial fulfillment of the requirements of


I hereby declare that this management thesis entitled “A study on impact of stock market volatility
on individual investor’s investment decisions with reference to Religare. Guntur” carried out under
the guidance of my Faculty guide Mr. D. Sudhir Babu is my original work. This final report, neither
in full nor in part has been submitted for award of any other degree of either this university or any
other university.




This is to certify that the management thesis entitled “A study on impact of stock market volatility
on individual investor’s investment decisions with reference to Religare. Guntur” a bona field work
of K.Srikanth is original and has been done under my supervision is partial fulfillment for the award
of Masters of Business Administration . I am pleased to say that his performance during the period
was extremely satisfactory.


Dr.M.SUDHA Mr. D. Sudhir

Center Head Faculty guide
ICFAI National College ICFAI National College


I wish to express my sincere gratitude to my Principal Dr. Sudha of INC GUNTUR for giving
me the opportunity to do Management thesis at super markets.
It gives me pleasure to express my most profound regards and sense of great indebtedness and
sincere gratitude to my faculty guide Mr. D. Sudhir Babu for coordinating the project work and
giving me all the valuable guidance and for his constant inspiration. This project could not have
been possible without his help.
I would also like to thank employees at Religare who gave guidance and support during the
completion of the project.



 INTRODUCTION ……………………………………………………7
• Nature and purpose of research/project
• The planned achievements
• Overview of research planned
 THESIS …………………………………………………………………..9
• Objectives
• Limitations
• Methodology
• Hypothesis
• Introduction
• Company profile
• Industry profile
• Review of literature
• Data analysis
 GLOSSARY ………………………………………………………………45
 REFERENCES ……………………………………………………………47
 QUESTIONNAIRE ……………………………………………………….48


The proposed topic is “A study on impact of stock market volatility on individual investors
investment decisions with reference to Religare in Guntur”.
This project would give the understanding of the reasons for the volatility in stock markets and
its impact on investment decisions of the individual customers. The study also focuses on the
various factors that play role in investment decisions of the individual investors in stock markets.
It also concentrates on how to forecast the price changes of shares and other securities so that it
will be helpful to investors to make sound decisions.


The main purpose of the research paper is to find and analyze the key factors that insist or
motivate individual investors to invest in stock markets and how their decisions are effected by
the volatility in stock prices. In the present day scenario investments in stock markets has
became a part of the individual investors portfolio. Especially for those investors who are ready
to take more risk but want higher returns stock market investments are the great sources. The
investment objectives of the investors are vary from one to other. A careful analysis and close
observation helps the investors to predict the future changes of the stock prices.


The project’s objective is to do an analysis on the factors that have an impact on stock price
changes and the other factors that individual investors consider while investing in stock markets.
In the first phase the study is carried out on the reasons for the price changes or volatility in stock
In the second phase various parameters that are considered by investors while investing in stock
markets are identified by preparing a questionnaire and collecting data from individual stock
market investors.
In the third phase data analysis and suggestions and conclusions benefiting the company.

The study would be based on information collected from individual stock market investors of
Religare stock broking firm and the other sources like companies records, internet etc. Further
required data would be collected with the help of questionnaire and its response by the
customers. The collected data would be analyzed to find the impact of stock market volatility on
investment decisions of individual investors. And the study also focuses to find out the various
strategies adopted by Religare to control the investors.



 To know the reasons for the stock market volatility.

 To find the various parameters that are taken into consideration by individual investors
while investing in stock markets.
 To study the various services provided by Religare to its customers.
 To find weather stock market volatility have an impact on investment decisions of the
individual investors or not.


• Secondary data can be general and vague and may not really help in getting the complete


• The data collected through interaction is prone to biased inputs by the person.

• This project is limited to only one geographical location that is Guntur which may lead to

less accuracy.


Primary Data:-
Primary data is collected from the investors of Religare financial services through a
questionnaire. Sample size is taken as 100 for more accuracy.
Secondary Data
Secondary data is collected from various sources which are listed below.
• Company records and reports
• Magazines, journals, pamphlets, advertisements.
• Standard reference textbooks
• Websites like and money
The purpose of using the secondary data is to increase the accuracy of analysis.
Sample size: 100
Sampling Units: 1. Customers of Religare stock broking firm.
Sampling Method: Non-probability sampling (convenience and judgment sampling)


Perception is defined as the process by which an individual selects, organizes, and
interprets stimuli into a meaningful and coherent picture of the world. It can be described as
“how we see the world around us.” Two individuals may be exposed to the same stimuli under
the same apparent conditions, but how each person recognizes, selects, organizes, and interprets
these stimuli is a highly individual process based on each person’s own needs, values, and
expectations. The influence that each of these variables has on the perceptual process and its
relevance to marketing will be explore later. First, however, we will examine some of the basic
concepts that underline the perceptual process. These will be discussed within the frame work of
consumer behavior.
Individuals act and react on the basis of their perceptions, not on the basis of objective
reality. For each individual, reality is a totally personal phenomenon, based on that person’s
needs, wants, values, and personal experiences. Thus, to the marketer, consumers’ perceptions
are much more important than their knowledge of objective reality. For if one thinks about it, it’s
not what actually so is, but what consumers think is so, that affects their actions, their buying
habits, their leisure habits and so forth. And, because individuals make decisions and take actions
based on what they perceive to be reality, it is important that marketers understand the whole
notion of perception and its related concepts to more readily determine what factors influence
consumers to buy. Before the introduction of low-calorie beer, consumers had no preconceived
view of the product. Because Miller understood the behavior of beer drinker, it provided the
company with a way to interpret the new offering in a manner congruent with their needs, which
Gablinger’s failed to do earlier for the same product.
The psychological and physiological bases of human perception and discusses the
principles that influence our perception and interpretation of the world we see. Knowledge of
these principles enables astute marketers to develop advertisements that have a better-than-
average chance of being seen and remembered by their target consumers.
Consumer’s selection of stimuli from the environment is based on the interaction of their
expectations and motives with the stimulus itself. The principles of selective perception include
the following concepts: selective exposure, selective attention, perceptual defense, and
perceptual blocking. People usually perceive things they need or want and block the perception
of unnecessary, unfavorable, or painful stimuli.

A consumer’s buying behavior refers to the response and reaction of the ultimate
consumer to various situations involved in purchasing and using various goods and services.
Generally, consumers buy products, which are capable of satisfying their needs. Thus a product
is anything that is offered to a market and is capable of satisfying the needs of the customer.
According to consumer perceptive products are divided into the following ways: -
a) Tangibility
b) Durability
c) Availability
Depending on the level of availability expected by the customers, products can be put in
three categories: -
a) Convenience products
b) Shopping products
c) Specialty products
The volume of goods and services that a consumer buys depends on his requirements and his
willingness and ability to products. Thus, the volume of business in a particular market depends
on the following: -
a) Consumer population
b) Consumer requirements
c) Consumer potential

The decision – making process of the customer takes place in six steps: -
• Stimulus
• Problem awareness
• Information search
• Evaluation of alternatives
• Purchase
• Post purchase behavior
Whenever a customer purchases a product, he goes through a process of decision-making.
He may or may not go through all the six steps mentioned above in the decision-making process.

Religare Securities Ltd.
Religare Securities Ltd is a Ranbaxy promoter group company, is one of India’s largest and
fastest growing integrated financial services institutions. The company offers a large and diverse
bouquet of services ranging from equities, commodities, insurance broking, to wealth advisory,
portfolio management services, personal finance services, Investment banking and institutional
broking services. The services are broadly clubbed across three key business verticals- Retail,
Wealth management and the Institutional spectrum. Religare Enterprises Limited is the holding
company for all its businesses, structured and being operated through various subsidiaries.
Religare’s retail network spreads across the length and breadth of the country with its
presence through more than 900 locations across more than 300 cities and towns. Having spread
itself fairly well across the country and with the promise of not resting on its laurels, it has also
aggressively started eyeing global geographies.
To build Religare as a globally trusted brand in the financial services domain and present it
as the ‘Investment Gateway of India’
Providing financial care driven by the core values of diligence and transparency.

Brand Essence
Religare is driven by ethical and dynamic processes for wealth creation
Religare Enterprises Limited (REL), is one of the leading integrated financial services groups of
India. The company offers a diverse bouquet of services ranging from equities, commodities ,
insurance broking to wealth management, portfolio management services, personal financial
services, investment banking and institutional broking services. The services are broadly clubbed
across three key business verticals- Retail, Wealth management and the Institutional spectrum.
Religare Enterprises Limited is the holding company for all its businesses, structured and being
operated through various subsidiaries.

Industry BSE Book

: Finance - General 532915 2/02/2009
Code : Closure :

NSE Market
Group : Religare RELIGARE Rs. 2,478.36 Cr.
Code : Cap :

ISIN Market Face

No : INE621H01010 1 Rs. 10.00
Lot : Value :

Registered & Corporate Office Registrar & Share Transfer Agent

19, Nehru Place, New Delhi, Delhi - 110019 Karvy Computershare Private Ltd
Plot No. 17-24,
Tel : 30815100, 66552200, Vittal Rao Nagar,
Fax : 30815288, Madhapur
Email : Hyderabad - 500086, Andhra Pradesh.
Website: Tel : 1-800-3454001

Key Officials
Name Designation

Malvinder Mohan Singh Non Executive Chairman

Sunil Godhwani Managing Director & CEO
Ravi Batra Vice President & Company Secretary

Other Details
Listings Incorporation Public Issue Date

BSE , NSE 30/01/1984 29/10/2007

Religare Enterprises Limited (REL), is one of the leading integrated financial services
groups of India. REL's businesses are broadly clubbed across three key verticals, the Retail,
Institutional and Wealth spectrums, catering to a diverse and wide base of clients.
The vision is to build Religare as a globally trusted brand in the financial services domain
and present it as the 'Investment Gateway of India'. All employees of the group guided by an

experienced and professional management team are committed to providing financial care,
backed by the core values of diligence and transparency.
REL offers a multitude of investment options and a diverse bouquet of financial services
with its pan India reach in more than 1550 locations across more than 460 cities and towns. REL
also currently operates from 10 countries globally following its acquisition of London's oldest
brokerage & investment firm, Hichens, Harrison & Co. plc.
With a view to expand, diversify and introduce offerings benchmarked against global best
practices, Religare operates its Life Insurance business in partnership with the global major –
Aegon. For its wealth management business, Religare has partnered with Australia based
financial services major-Macquarie. Religare has also partnered with Vistaar Entertainment to
launch India's first SEBI approved Film Fund offering a unique alternative asset class of



• It is the Ranbaxy promoter group company.

• It has a good research team.

• No Annual maintenance charges for their online broking services.


• It has changed its name from FORTIS to RELIGARE where the maximum

Customers don’t know about this.


• Financial services sector in India is growing by leaps and bounds.

• In the up coming days RELIGARE is coming up with their own mutual fund and


• Cut-throat competition from corporate big houses like Reliance and ICICI

• As they have changed the name of their company the customer still did not know about

Services rendered by religare securities ltd:

Equity & Derivative

Lending Services Institutional Distribution

Insurance Broking
Private Equity

Internet Broking
Trading Services

Investment International
Banking Wealth Equity &
Management Commodities

The term equity derivative describes a class of financial instruments whose value is at least
partly derived from one or more underlying equity securities. Market participants trade equity
derivatives in order to transfer or transform certain risks associated the underlying. Options are
by far the most common equity derivative, however there are many other types of equity
derivatives that are actively traded.


The Client Service Manager will be responsible for all aspects of client reporting for institutional
investment clients and industry organizations. The candidate will also be responsible for client
servicing which includes working with clients, internal groups and UK based portfolio

Depository is an organisation which holds your securities in electronic (also known as ‘book
entry’) form, in the same manner as a bank holds your money. Further, a depository also
transfers your securities without actually handling securities, in the same day as a bank transfers
funds without actually handling cash.


Commodity Broking Services specialises in offering online accounts to clients wishing to deal in
the Foreign Exchange, Bullion, Futures, Commodities, CFDs and International/Domestic
Equities markets all from the one account. Commodity Broking Services specialize in offering
commodity price risk management to agricultural producers and end users.


Wealth management services are provided by banks, professional trust companies, and
brokerages. For those with sizeable assets [usually over $500,000], professional wealth
management can help you plan your estate or invest your assets based on personal criteria and
financial goals.

Investment Banking is facing a strangle of challenges today – lower margins, compliance issues,
workflow disconnects and data redundancies. Investment banks need a partner who can work in
market-time to address all these business challenges.

The term Insurance Broker became a regulated term under the Insurance Brokers (Registration)
Act 1977which was designed to thwart the bogus practices of firms holding themselves as
brokers but in fact acting as representative of one or more favoured insurance companies.
Insurance brokerage is largely associated with general insurance (car, house etc.) rather than life
insurance, although some brokers continued to provide investment and life insurance brokerage
until the onset of more onerous Financial Services Authority regulation in 2001. Insurance

broking is carried out today by many types of organizations including traditional brokerages,
Independent Financial Advisers (IFAs) and telephone or web-based firms.

Backed by one of the largest retail networks in India with its presence in more than 1550
locations across more than 460 cities and towns, Religare caters to a large number of retail
clients by offering all products under one roof through the branch network and online mode.
Equity Trading
Trading in Equities with Religare truly empowers you for your investment needs. We ensure
you have a superlative trading experience through -
A highly process driven, diligent approach
Powerful Research & Analytics and
One of the "best-in-class" dealing rooms
Commodities Trading
Religare Commodities Limited (RCL), a wholly owned subsidiary of Religare Enterprises
Limited was initiated to spearhead Exchange based Commodity Trading. As a member of
NCDEX, MCX and NMCE, RCL, present in 529 locations provides options in both agri and
non-agri commodities for Exchange based commodity trading backed by incisive dedicated
Online Investment Portal
Religare Online is your single gateway for all your financial needs. Now you not just trade
online in Equities, Commodities, apply for IPOs, invest in Mutual Funds, buy Insurance, but also
get Trade Rewards each time you invest online with our 360 degree portal
Personal Financial Services
Today, more and more people look up to ways and means which can fulfill their financial
aspirations such as Savings, Retirement planning, Tax planning & Wealth planning, etc. All this
coupled with multiple and cut throat competitive offerings makes it very difficult for an
individual to come to a decision and this leads to the search of a partner who can help an

individual understand the complex investment instruments and make the best use of them to meet
his/her short-term and long-term financial objectives.

Consumer Finance
Religare's Consumer Finance business is operated through its NBFC arm, Religare Finvest
With the growing opportunities of Consumer Finance in India, Religare´s Capital Market &
Non-Capital Market Lending products offer "loans for all your needs".

Insurance Solutions
Religare with one of the largest retail networks in the country offers a complete range of
insurance solutions though its 100% subsidiary company, Religare Insurance Broking Limited
(RIBL). The company holds a composite broker's license operating in the Life, General and
Reinsurance domains.

To provide customized wealth advisory services to high net worth individuals (HNIs),
Religare offers an exceptional selection of investment opportunities, in every asset class. Our
market knowledge and formidable resources facilitate wealth acceleration, diversification and
capital preservation.

Wealth Management
Religare operates its wealth management business in partnership with Macquarie through the
joint venture - Religare Macquarie Wealth Management Limited (a 50:50 joint venture). The JV
is a combination of strengths - Macquarie´s strong global expertise with Religare´s strong local

Portfolio Management Services (PMS)

Religare offers PMS to address varying investment preferences. As a focused service, PMS
pays attention to details, and portfolios are customized to suit the unique requirements of

Religare PMS currently extends six portfolio management schemes, viz Monarque, Panther,
Tortoise, Elephant, Caterpillar and Leo. Each scheme is designed keeping in mind the varying
tastes, objectives and risk tolerance of our investors
The Panther portfolio aims to achieve higher returns by taking aggressive positions across
sectors and market capitalizations. It is suitable for the “High risk high return” investor with a
strategy to invest across sectors and take advantage of various market conditions.
The Tortoise portfolio aims to achieve growth in the portfolio value over a period of time by way
of careful and judicious investment in fundamentally sound companies having good prospects.
The scheme is suitable for the “Medium Risk Medium Return” investor with a strategy to invest
in companies which have consistency in earnings, growth and financial performances.
The Elephant portfolio aims to generate steady returns over a longer period by investing in
securities selected only from BSE 100 and NSE 100 index. This plan is suitable for the “Low
Risk Low Return” investor with a strategy to invest in blue chip companies, as these companies
have steady performance.
The Caterpillar portfolio aims to achieve capital appreciation over a long period of time by
investing in a diversified portfolio. The investment strategy would be to invest in scripts which
are poised to get a re-rating either because of change in business, potential fancy for a particular
sector in the coming years/months, business diversification leading to a better operating
performance, stocks in their early stages of an upturn or for those which are in sectors currently
ignored by the market.
Priority Client Group Services (PCGS)
Religare has structured a dedicated and specialist team to cater to the sophisticated
investment needs of high-end customers.
The Priority Client Group brings in a "multi asset class" based investment approach backed
by a team of dedicated relationship managers and best-in-class dealing capabilities. It strives to
encourage clients to think beyond equities.
Arts Initiative
Today's complex market structures have spun art out of the cocoon of mere aestheticism into
a more rooted role as a recognized financial asset, a derivative with immense powers of wealth
generation, equal to those of any brick and mortar industry. Given this base, it is now for the
greater public-driven organizations concerned with the well being of art, to ensure that all the
diverse dimensions of art are nurtured and given the right exposure, so that art permeates more
completely into the societal fabric and enriches a wider consciousness.

International Advisory Fund Management Services

Investing in international markets opens avenues for relatively stable investments and
We at Religare provide our clients an opportunity to invest in international equities to scale
up investment horizons and to enable them to gain from profits of global majors. An asset
allocation module is developed based on the risk-return criteria of the investor and on country
attractiveness, sector and industry strength, company strengths and global trends.
Financial Services Sector

Financial services are vital tools of machinery for economy and they lubricate the wheels of
economic development. In advanced nations, giant economies like USA,UK,Japan,etc..,.major
portion of the national income is accounted from the services sector and minimum from the
product sector.
Indian economy has undergone a sea change in its structure, policy and regulation, due to
liberalization and globalization, since 1991.Markets for services are no exception to this. The
contribution of service sector (including financial services sector) for GDP has increased to 51%
in 2003,from 36 % in 1980.The financial service sector include factoring, merchant banking,
venture capital ,etc.
Financial services like banking, merchant banking, factoring, Insurance, Venture capital ,act as
vital machinery of an economy. These financial services that facilitate, financial transactions of
individuals and institutional services resulting in their resources allocation activities through
time. The sector that deals with such financial services is known as “financial services sector”.
Once the economy crosses the subsistence level, financial services become more prominent and
important to that economy. Financial services in current days are emerging as a crucial industry
world over and is termed as a sun rise industry. The services offered by this sector not only raise
the required funds, but also lead to the efficient management of funds.Today,the financial service
products, as turned out to by financial services industry are innovative and paving ways for vivid
opportunities for further economic development.
Emergence of financial services industry in India
Services sector industry has started gaining large scale momentum since the process of
liberalization in 1991.Prior to its contribution to GDP was around 40 % ,but since 1992 it has
been grown rapidly and reached a value of 51 % GDP.Contribution of service sector to GNP in
advanced counties like USA is as high as 75%.In India many innovative financial products and
services like credit cards,ATMs,consumer finance, venture financing have been emerging since
1980s And these financial services have become an integral component of Indian financial
system. This integration is largely attributed to the liberalization of economic policies and
deregulation that led to economic changes ,development and contemporary evolution of capital
market and financial dis-intermediation.
The far-reaching change in the Indian economy since liberalization in the early 1990s have had a
deep impact on the Indian financial sector. The financial sector has gone through a complex and
sometimes painful process of restructuring, capitalizing on new opportunities as well as
responding to new Challenges. During the last decade, there has been a broadening and
deepening of financial markets. Several new instruments and products have been introduced.
Existing sectors have been opened to new private players. This has given a strong impetus to the
development and modernization of the financial sector. New players have adopted international
best practices and modern technology to offer a more sophisticated range of financial services to
corporate and retail customers. This process has clearly improved the range of financial services
and service providers available to Indian customers.
The entry of new players has led to even existing players upgrading their product offerings and
distribution channels. This continued to be witnessed in 2002-03 across key sectors like
commercial banking and insurance, where private players achieved significant success.

These changes have taken place against a wider systemic backdrop of easing of controls on
interest rates and their realignment with market rates, gradual reduction in resource pre-emption
by the government, relaxation of stipulations on concessional lending and removal of access to
concessional resources for financial institutions. Over the past few years, the sector has also
witnessed substantial progress in regulation and supervision. Financial intermediaries have
gradually moved to internationally acceptable norms for income recognition, asset classification,
and provisioning and capital adequacy.
This process continued in 2002-03, with RBI announcing guidelines for risk-based supervision
and consolidated supervision. While maintaining its soft interest rate stance, RBI cautioned
banks against taking large interest rate risks, and advocated a move towards a floating rate
interest rate structure. The past decade was also an eventful one for the Indian capital markets.
Reforms, particularly the establishment and empowerment of securities and Exchange Board of
India (SEBI), market-determined prices and allocation of resources, screen-based nation-wide
trading,dematerialisation and electronic transfer of securities, rolling settlement and derivatives
trading have greatly improved both the regulatory framework and efficiency of trading and
On account of the subdued global economic conditions and the impact on the Indian economy of
the drought conditions prevailing in the country, 2002-03 was a subdued year for equity markets.
Despite this, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) ranked
third and sixth respectively among all exchanges in the world with respect to the number of
transactions. The year also witnessed the grant of approval for setting up of a multicommodity
exchange for trading of various commodities.

The US$ 28 billion Indian financial sector has grown at around 15 per cent and has displayed
stability for the last several years, even when other markets in the Asian region were facing a
crisis. This stability was ensured through the resilience that has been built into the system over
time. The financial sector has kept pace with the growing needs of corporate and other
borrowers. Banks, capital market participants and insurers have developed a wide range of
products and services to suit varied customer requirements. The Reserve Bank of India (RBI) has
successfully introduced a regime where interest rates are more in line with market forces.

Financial institutions have combated the reduction in interest rates and pressure on their margins
by constantly innovating and targeting attractive consumer segments. Banks and trade financiers
have also played an important role in promoting foreign trade of the country. Here we will study
the three industries with respect to India.

Insurance And India

The insurance sector in India has become a full circle from being an open competitive market to
nationalization and back to a liberalized market again. Tracing the developments in the Indian
insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.

A brief history of the Insurance sector

The business of life insurance in India in its existing form started in India in the year 1818 with
the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important
milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life
insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of
protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a
capital contribution of Rs. 5 crore from the Government of India. The General insurance business
in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first
general insurance company established in the year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of
general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of
conduct for ensuring fair conduct and sound business practices.

1968: The Insurance Act amended to regulate investments and set minimum solvency margins
and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general
insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.

Key Players in insurance Sector of India

 Reliance General Insurance Company Ltd

 Life Insurance Corporation of India
 HDFC Insurance
 Kotak Mahindra
 ICICI Prudential
 SBI Life Insurance Company Ltd
 Oriental Insurance Company Ltd
 National Insurance Company Ltd
 Bajaj Allianz Life Insurance Company Ltd

Let us start the discussion of the performance of mutual funds in India from the day the concept
of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or
rather to those who believed in savings, to park their money in UTI Mutual Fund.

For 30 years it goaled without a single second player. Though the 1988 year saw some new
mutual fund companies, but UTI remained in a monopoly position.
The performance of mutual funds in India in the initial phase was not even closer to satisfactory
level. People rarely understood, and of course investing was out of question. But yes, some 24
million shareholders was accustomed with guaranteed high returns by the beginning of
liberalization of the industry in 1992. This good record of UTI became marketing tool for new
entrants. The expectations of investors touched the sky in profitability factor. However, people
were miles away from the preparedness of risks factor after the liberalization.

The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate
about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets
Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher
performance by April 2004. It rose as high as Rs.1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock prices started falling in
the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative
investments. There were rather no choice apart from holding the cash or to further continue
investing in shares. One more thing to be noted, since only closed-end funds were floated in the
market, the investors disinvested by selling at a loss in the secondary market.
The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal,
the losses by disinvestments and of course the lack of transparent rules in the whereabouts
rocked confidence among the investors. Partly owing to a relatively weak stock market
performance, mutual funds have not yet recovered, with funds trading at an average discount of
1020 percent of their net asset value.

The supervisory authority adopted a set of measures to create a transparent and competitive
environment in mutual funds. Some of them were like relaxing investment restrictions into the
market, introduction of open-ended funds, and paving the gateway for mutual funds to launch
pension schemes. The measure was taken to make mutual funds the key instrument for long-
term saving. The more the variety offered, the quantitative will be investors.
At last to mention, as long as mutual fund companies are performing with lower risks and higher
profitability within a short span of time, more and more people will be inclined to invest until
and unless they are fully educated with the dos and don’ts of mutual funds.

Key Players in Mutual Funds Sector in India

 ABN AMRO Mutual Fund.

 Birla Sun Life Mutual Fund.
 Bank of Baroda Mutual Fund (BOB Mutual Fund). .
 ING Vysya Mutual Fund.
 Prudential ICICI Mutual Fund.
 Sahara Mutual Fund.
 State Bank of India Mutual Fund.
 Tata Mutual Fund.

Demat Account And India

There are quite a few institutions that are directly and/or indirectly connected with
dematerialized operations of securities. Understanding the inter-linkages and functional
responsibilities of these institutions will help us to have correct and holistic perspective about
functioning of dematerialization. The institutions connected with demat operations include; a)
Depositories, b) Stock Exchanges (SEs), c) Clearing Corporations (CCs) / Clearing Houses
(CHs), d) Depository Participants (DPs), e) Registrars and Transfer Agents (RTAs). Both the
depositories NSDL and CDSL are primarily promoted by the two leading stock exchanges viz.,
National Stock Exchange of India Ltd (NSE) and The Stock Exchange, Mumbai (BSE)
respectively. Besides, there are many other institutional promoters in both the depositories. Both
are registered as organizations-for-profit and professionally managed. Inter-connectivity between
these two depositories has been established, thus DPs and investors can transfer smoothly their
shares from one account to another between the depositories. Most of the stock exchanges are
connected with the depositories to provide trading in dematerialization segment. Eventually, all
the exchanges will be connected to either of or both the depositories. Resultantly, functioning of
exchanges altered with the commencement of depositories; shorter trade cycles, negligible bad-
deliveries, immediate transfer of beneficial ownership and lower transaction costs. An in-depth
study on transaction cost for equity shares in India by Raju (2000) revealed substantial decrease
in transaction costs and observed that the dematerialization as one of the important factor for this

Functioning of clearing corporations / clearing houses materially changed after the entry of
depositories; reduced manpower requirements and faster clearing operations. It also helped them
to diversify into related businesses such as on-line stock lending. Depository participants are the
new commercial intermediaries that sprang up. They interpose between investor and depository.
It can be stated that they are the back-bone for the success of dematerialization. RTAs facilitate
dematerialisation and rematerialisation of shares.

Major Players In Online Trading Brokerage Houses in India

 ICICI Securities Ltd.
 Kotak Securities Ltd.
 India bulls Financial Services Limited
 India Infoline
 IL&FS investmart Limited
 SSKI Ltd.
 Motilal Oswal Securities
 Religare Securities Ltd.
 Geojit Securities
 HDFC Securities

Online Trading: Indian scenario

In the Indian context ,online trading can be rightly called as a recent phenomenon ,which took
root with the change of century i.e. April 2000,and even till day online trading is not much
popular among investors for which a list of factors can be blamed. This fact is more clear from
the information available that where number of stocks exchanges in India has grown from 7
exchanges in 1946 to total 23 exchanges till 2005,only 2 stock exchanges are providing online
share trading .Indian stock exchanges have started adopting technology because it provides the
necessary impetus for the organization to retain its competitive edge and ensure timeliness and
satisfaction in customer service.

Market share in Online Trading

ICICIdirect India Bulls
50% Others
India Bulls

Online trading has gained momentum from just 0.5% of total traded volumes 5 Yrs back,
which now account for 5% of total trading volume of approximately Rs 14000 Cr. On Once-
Over the past two years ,the value of all trades executed through internet on NSE has grown from
less than Rs 100 Cr in June 2003 to over Rs 700 Cr in June 2005.Online trading is growing by
150 % per annum.Now NSE has 108 registered brokers and 1.053 million internet trading

However mainly 5 companies control 90 % of the market in Internet

has around 50 % market share ,whereas India Bulls hold 26% share ,other dominant players are
Kotak securities and Share Khan .ICICI has been able to gain its dominant presence in Internet
trading because they have strong connectivity of stock trading,demat account, bank account
,etc.ICICIDirect has recorded 6,75,000 registered customers and has become 10th largest online
broker in US whereas share khan and 5paisa are loosing their way.

Today, BSE is the world’s number 1 exchange in terms of the number of listed companies
and the world’s 5th in transaction number.
Of the 23 stock exchanges in the India, Bombay Stock Exchange is the largest, with over
6,000 stocks listed. The BSE accounts for over two thirds of the total trading volume in the
country. Established in 1875, the exchange is also the oldest in Asia. Among the twenty-two
Stock Exchanges recognized by the Government of India under the Securities Contracts

(Regulation) Act, 1956, it was the first one to be recognized and it is the only one that had the
privilege of getting permanent recognition ab-initio.
Moreover, The BSE SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. The index is widely reported in both domestic
and international markets through print as well as electronic media.
The "Free-float Market Capitalization" methodology of BSE index construction is regarded
as an industry’s best practice globally. All major index providers like MSCI, FTSE, STOXX,
S&P and Dow Jones use the Free-float methodology. Due to its 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, the SENSEX has over the years become one of the most
prominent brands in the country.
The paper therefore emphasizes mainly on BSE sensex and major fluctuations related to it
from time period of 2006 to 2008. The paper also put the light on how various factors such as
inflation, investments made through participatory notes, rising crude oil prices, the sub-prime
mortgage woes in US, concerns over a slowing down US economy and big role of Foreign
Institutional Investors (FIIs) determines market’s situation and operate SENSEX.


The 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.

Objectives of SENSEX
To measure market movements
Benchmark for funds performance
For index based derivative products

Calculation of SENSEX
SENSEX is calculated using a "Market Capitalization-Weighted" methodology. As per this
methodology, the level of index at any point of time reflects the total 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.
An index of a set of a combined variables such as price and number of shares is commonly
referred as a 'Composite Index' by statisticians. A single indexed number is used to represent the
results of this calculation in order to make the value easier to work with and track over time.
The calculation of SENSEX involves dividing the total 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 maintenance adjustments.

Year 2006 at a glance:

In the secondary market, the uptrend continued in 2006-07 with BSE indices closing above
14000(14,015) for the first time on January 3, 2007. After a somewhat dull first half conditions
on the bourses turned buoyant during the later part of the year with large inflows from Foreign

Institutional Investors (FIIs) and larger participation of domestic investors. During 2006, on a
point-to-point basis, Sensex rose by 46.7%.

The pickup in the stock indices could be attributed to impressive growth in the profitability of
Indian corporate, overall higher growth in the economy, and other global factors such as
continuation of relatively soft interest rates and fall in the international crude prices.

BSE Sensex (top 30stocks) which was 9,398 at end-December 2005 and 10,399 at end- May
2006, after dropping to 8,929 on June 14, 2006, recovered soon thereafter to rise steadily to
13787 by end-December 2006.

According to the number of transactions, NSE continued to occupy the third position among the
world’s biggest exchanges in 2006, as in the previous three years. BSE occupied the ix th position
in 2006, slipping one position from 2005. In terms of listed companies, the BSE ranks first in the

In terms of volatility of weekly returns, uncertainties as depicted by Indian indices were higher
than those in outside India such as S&P 500 of United States of America and Kospi of South
Korea. The Indian indices recorded higher volatility on weekly returns during the two year
period. January 2005 to December 2006 as compared to January 2004 to December 2005 The
market valuation of Indian stocks at the end of December 2006, with the Sensex trading at a P/E
multiple of 22.76 and S&P CNX Nifty at 21.26, was higher than those in most emerging markets
of Asia, e.g. South Korea, Thailand, Malaysia and Taiwan; and was the second highest among
emerging markets. The better valuation could be on account of the good fundamentals and
expected future growth in earnings of Indian corporate Liquidity, which serves as a fuel for the
price discovery process, is one of the main criteria sought by the investor while investing in the
stock market. Market forces of demand and supply determine the price of any security at any
point of time. Impact cost quantifies the impact of a small change in such forces on prices.
Higher the liquidity, lower the impact cost.

SENSEX during 2006: (Economic Survey 2007-08)

2006 BSE

Jan 9920

Feb 10370

Mar 11280

Apr 12043

May 10399

Jun 10609

Jul 10744

Aug 11699

Sep 12454

Oct 12962

Nov 13696

Dec 13787



Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
BSE 9920 1037 1128 1204 1039 1060 1074 1169 1245 1296 1369 1378

An overview of year 2006:

During December 2005, the greatest demerger of Indian history between the Ambanis paved the
way for 9000. And the sensex entered the year 2006 with a 9000 + figure. On Feb. 10th 2006, we
saw two roaring figures, both sensex and sachin tendulkar crossing 10000 mark. But the reason
behind roaring sensex was not sachin’s records rather it was rallied by strong FII inflows and
robust data. The government forecasted a GDP growth of 8.1% in current year, with

manufacturing and the agriculture sectors estimated to grow at 9.4% and 2.3% respectively. The
238-point rally was contrary to expectations as it came despite negative news flow about a fresh
tussle between Ambani brothers over transfer of ownership of the four companies demerged
from erstwhile RIL.

Sensex’s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh’s
announcements on Capital Account Convertibility. On Saturday, Prime Minister Manmohan
Singh hinted at moving toward a free float of the rupee and on Tuesday, the BSE responded by
crossing the 11,000 mark in a lifetime intraday high. The new trading high was reached 29 days
after Sensex entered the elite 10,000 club on February 6. Only Nikkei, Hang Seng and Dow
Jones could boast of being above 10,000 at that time. Since full convertibility was expected to
attract more foreign money and also allow local companies to tap foreign debt markets more
easily, it was evident that the move will encourage investors and boost the confidence of the

RBI said it was constituting a panel to thrash out the contours for full convertibility. Although
the index later ended lower with investors wanting to book gains, participants said it was evident
the markets had sent out a message - that the growth story of Asia’s third largest economy is
intact and that liquidity flows into the bourses would continue to remain firm.

After hitting a high of 11,017.25 points in mid-afternoon trade, Sensex lost 35.91 points to close
at 10,905.20, fluctuating 153 points, with most of the volatility coming in the last hour of
Trading. The rise in share prices was partly attributed to a fall in oil price. The US April crude
oil prices plunged 3.7% or $2.35, to settle at $60.42 a barrel, on the New York Mercantile
Exchange due to ample US inventories.

After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both cash
and futures markets and a move by stock exchanges to raise margins on share transactions by
about 250 basis points, the 131-year-old BSE on Thursday, April 20, 2006 crossed yet another
milestone when it breached the 12,000-point mark, backed by strong corporate earnings,
higher liquidity and robust economic growth. The index was being driven by the strong flow
of liquidity. Earlier, it was based on the expectations that (corporate) results would be great...and
by the first few companies were more than matching those expectations Although, Sensex was

beaten to the 12,000 mark by various global indices, the time it took to breach this milestone has
been one of the fastest. Traders point to the fact that foreign investors, buoyed by a booming
economy, have chosen India as one of their top investment destinations.

Now, everything was going fine….perhaps it was the lull before the storm. Suddenly the Dalal
Street experienced its worst single day crash on Thursday, 18th may 2006 as an ambiguous
Government circular on taxing investment gains prompted foreign funds to book profits,
knocking the bottom off the jittery stock market. Opening amidst weak global markets and
reports of rising US interest rates, the BSE-30 Sensex went on to close 826.38. However the
Dealers said the fall was accentuated by large-scale selling of client positions by broking firms
due to margin calls or the lack of margins. The May crash saw the Sensex shedding its market
capitalization by as much as 14% in just one month.

Benchmark stock indices vaulted to new highs on Monday, oct 30th 2006 driven by a heady
cocktail of strong corporate earnings, a rapidly growing economy and relatively stable
crude oil prices. The Sensex ended at its highest closing level of 13024.26, a gain of 117.45
points or 0.9%. Marauding bulls defied the weak trend globally, which was sparked off by weak
US GDP growth figure, pointing to a slowdown.

Back home, the mood was upbeat even as some expect that the RBI may raise interest rates by
25 basis points in its mid-term credit policy on Tuesday. Market watchers said sentiment
could be affected only if the hike is more than 25 basis points, which is unlikely. Higher interest
rates drive up borrowing costs for corporate as well as the retail consumer, who could then cut
back on their investments and spending, in turn causing a slack in domestic demand.

The benchmark 30-share sensex briefly crossed the psychological 14,000-mark on Tuesday,
December 5, 2006. While foreign institutional investors have been aggressive buying stocks
over the past few months, the response of domestic mutual funds has been guarded. In the
last two months alone, FIIs bought net stocks worth Rs 17,001 crore while local mutual funds
have pumped in a net Rs 638.07 crore.

Year 2007 at a glance:

In the secondary market segment, the market activity expanded further during 2007-08 with BSE
and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2008. Although
the indices showed some intermittent fluctuations, reflecting change in the market sentiments, he
indices maintained their north-bound trend during the year. This could be attributed to the larger
inflows from Foreign Institutional Investors (FIIs) and wider participation of domestic investors,
particularly the institutional investors. During 2007, on a point-to-point basis, Sensex and Nifty
Indices rose by 47.1 and 54.8 per cent, respectively. The buoyant conditions in the Indian
bourses were aided by, among other things, India posting a relatively higher GDP growth
amongst the emerging economies, continued uptrend in the profitability of Indian corporate,
persistence of difference in domestic and international levels of interest rates, impressive returns
on equities and a strong Indian rupee on the back of larger capital inflows.

The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. The sell-off in Indian
bourses in August 2007 could partly be attributed to the concerns on the possible fallout of the
sub-prime crisis in the West. While the climb of BSE Sensex during 2007- 08 so far was the
fastest ever, the journey of BSE Sensex from 18,000 to 19,000 mark was achieved in just four
trading sessions during October 2007. It further crossed the 20,000 mark in December 2007 and
21,000 in an intra-day trading in January 2008. However, BSE and NSE indices declined
subsequently reflecting concerns on global developments. BSE Sensex yielded a Compounded
return of 36.5 per cent per year between 2003 and 2007. In terms of simple average, BSE Sensex
has given an annual return of more than 40 per cent during the last three years.

Sensex during 2007: (source: Economic Survey 2007-08)

2007 BSE

Jan 14091

Feb 12938

Mar 13072

Apr 13872

May 14544

Jun 14651

Jul 15551

Aug 15319

Sep 17251

Oct 19838

Nov 19363

Dec 20287


20000 198381936320287
15000 146511555115319
14091 1387214544
10000 BSE


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Sensex during year 2008

After scaling new heights of 20000+, sensex entered year 2008 with rosy pictures. The trade
pundits, brokers and even investors predicted new heights for the year. And they felt their
predictions coming true when sensex touched the 21000 mark on 8th January 2008. It’s
interesting if one sees in terms of flows; the journey from 20,000 to 21,000 is dominated by
domestic institutional investors; FIIs were negative sellers, they sold in the cash market to the

tune of USD 45 billion. So if one has to take out some pointers from this journey from 20,000 to
21,000, it is the longest journey which we have seen in the last 5,000 marks, the midcaps and
smallcaps have been outperformers and in terms of flows, it has been domestic institutional
investors which have been really putting the money.
But the rosy picture soon turned gloomy. The skyrocketing sensex suddenly started heading
south and Sensex saw the biggest absolute fall in history, shedding 2062 points intra-day. It
closed at 17,605.35, down 1408.35 points or 7.4 per cent. It fell to a low of 16,951.50. The fall
was triggered as a result of weakness in global markets, but the impact of the global rout was the
biggest in India. The market tumbled on account of a broad based sell-off that emerged in global
equity markets. Fears over the solvency of major Western banks rattled stocks in Asia and
After the worst January in the last 20 years for Indian equities, February turned out to be a flat
month with the BSE sensex down 0.4%. India finished the month as the second worst emerging
market. The underperformance can partly be attributed to the fact that Indian markets
outperformed global markets in the last two months of 2007and hence we were seeing the lagged
impact of that outperformance. In the shorter term, developments in the US economy and US
markets continued to dominate investor sentiments globally and we saw volatility move up
sharply across most markets.
The Bombay Stock Exchange (BSE) Sensex fell 4.44 percent on Monday, 31st march the last
day of the financial quarter, to end the quarter of March down 22.9 percent, its biggest quarterly
fall since the June 1992 quarter, as reports of rising inflation and global economic slowdown
dampened market sentiments. Financial stocks led the Sensex slide along with IT. According to
market analysts, IT stocks fell on worries about the health of the US economy. Indian IT firms
depend on the US clients for a major share of their revenues.

Reasons for the slowdown (FY 08-09)

The first month of the financial year 08-09 proved to be a good one for investors with the month
ending on a positive note. The BSE sensex showed a gain of 10.5% to close at 17287 points. A
combination of firming global markets and technical factors like short covering were the main
reasons for the up move in the markets. Though inflation touched a high of 7.57% against 6.68%

in march 2008 as a result RBI hiked CRR by 50 bps to take the figure to 8%, still emergence of
retail investors was also seen; a fact reinforced by the strong movement in the mid-cap and
small- cap index that rose 16% and 18% respectively.
So April was the last month to close positive. Then after nobody saw a stable sensex even.
Sometimes it surged by 600+ points, but very next day it plunged by some 800 odd points and
this story is still continuing. Every prediction, every forecasting has failed. The sensex is dancing
on the music of lifetime high inflation rates, historic crude prices, tightening RBI policies, weak
industrial production data, political uncertainties and obviously the sentiments of domestic as
well as FIIs. The only relief came in the form of weakening Indian rupees which enlightened the
IT sector and most recently the UPA gaining vote of confidence. Presently it is revolving around
the figures of 14000 and no one knows what next?
The 30-share BSE Sensex fell 117.89 points or 0.67% at 17,373.01 on Tuesday, 6 May 2008.
The key benchmark indices ended lower as investors resorted to profit booking due to lack of
positive triggers in the market. On 30th May an imminent hike in domestic retail fuel prices due
to soaring crude oil prices weighed on the market last week. Foreign institutional investors sold
close to Rs 2204 crore in the first three trading sessions of the week which accentuated the
downfall. However better than expected Q4 gross domestic product figures provided some relief
to the bourses on Friday. IT stocks gained on slipping rupee. BSE Sensex rose in two out of five
trading sessions. In May, Indian inflation stood at 8.2%.
The market declined sharply as a hike in fuel prices by about 10% announced by the Union
government on Wednesday, 4 June 2008, triggered possibility of a surge in inflation to double
digit level. The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 in the week ended 6
June 2008. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80 in the week.

On 6 June 2008, local benchmark indices underperformed their global peers, hit by rumours that
the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later in the
day to tame runaway inflation. The 30-share BSE Sensex declined 197.54 points or 1.25% to
settle at 15,572.18.

On 9th June 2008, Bombay’s Sensex index closed 506.08 points down at 15,066.10, having
earlier fallen 4.4% and slipped below 15,000 for the first time since March. Oil prices surged to
record levels, fanning fears that they will keep climbing and hurt world growth.

Central banks across the globe warned that interest rates may have to rise as they look to keep
inflation under control, despite the fact that economic growth is slowing in key nations such as
the US and UK.

On the week ending 27th June 2008 Sensex declined 769.07 points or 5.28% to 13,802.22. The
S&P CNX Nifty lost 210.90 points or 4.85% to 4136.65 in the week. Equities extended losses for
the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling below the
psychologically important 14,000 mark for the first time in 10 months since late August 2007.
On 25 June 2008, equities staged a solid rebound after touching fresh calendar 2008 lows in
early trade. The initial jolt was caused by the Reserve Bank of India's move to hike the key
lending rate. A setback to stocks in Asia and US, sharp spurt in crude oil prices and political
uncertainty due to Indo-US nuclear deal rattled bourses on 27 June 2008.

On July 15th 2008, Indian shares fell 4.9 per cent to their lowest close in 15 months, joining a
world equities rout as investors dumped financials on concerns about the fallout from worsening
global credit turmoil. Although Indian banks have no direct exposure to the US subprime
mortgage sector, the global financial sector turmoil impacts sentiment in the local market and
raises worries of more withdrawals by foreign funds.

An 800+ point surge was experienced in the market on the day following UPA gaining vote of
confidence but the very next day market couldn’t maintain the momentum and since then its in a
doldrums’ position.

Presently, we can saw market plunging after the RBI announced further hikes in Repo rate as
well as CRR both increased to 9%. Also, the serial blasts at Ahmadabad and Bangalore adding to
the worries and enhancing the negative sentiments. And above all we can't see any positive
trigger that can dilute the flow of negative news.

Current Situation of year 2008

With major financial crisis erupting in the U.S., Indian Stock Market benchmark index (Sensex)
fell by 469.54 points or 3.35 per cent on Monday to close at 13531.27. Realty stocks led the fall
with a loss of 7.65 per cent.
The National stock exchange, the NSE Nifty lost 155.55 points or 3.68 per cent. All sectoral
indices closed in the negative territory.
An eventful week of turmoil has begun in the global financial scenario as stock prices plunged
across much of the globe on news that investment bankers, Lehman Brothers Holdings filed for
bankruptcy and Merrill Lynch & Co’s forced sale to Bank of America.
Even American International Group (AIG), the world’s largest insurance company, asked the
U.S. Federal Reserve for an emergency funding before announcing a major restructuring plan.
The investments in Indian firms by these U.S. investment bankers are a major worry for Indian
investors. Investor confidence is at its lowest ebb. Investors are worried that all these are likely to
trigger another round of troubles for banks and financial institutions around the globe. Six
months ago, in March, Bear Stearns, the fifth biggest U.S. investment bank, witnessed a full
circle before its fall and sell-off to JP Morgan Chase & Co for a rock bottom price of $2 per


“A study of fund selection behavior of individual investors towards mutual funds - with
reference to Mumbai city”.

Ms. Kavitha Ranganathan (M.Phil – Commerce), Madurai Kamaraj University

Sadhak, H., Mutual Funds in India – Marketing Strategies and Investment Practices, Response
Books, New Delhi,1997, 63 – 64.
SEBI – NCAER, Survey of Indian Investors, SEBI, Mumbai, 2000.

Consumer behavior from the marketing world and financial economics has brought
together to the surface an exciting area for study and research: behavioral finance. The
realization that this is a serious subject is, however, barely dawning. Analysts seem to treat
financial markets as an aggregate of statistical observations, technical and fundamental analysis.
A rich view of research waits this sophisticated understanding of how financial markets are also
affected by the ‘financial behavior’ of investors. With the reforms of industrial policy, public
sector, financial sector and the many developments in the Indian money market and capital
market, Mutual Funds which has become an important portal for the small investors, is also
influenced by their financial behavior. Hence, this study has made an attempt to examine the
related aspects of the fund selection behavior of individual investors towards Mutual funds, in
the city of Mumbai. From the researchers and academicians point of view, such a study will help
in developing and expanding knowledge in this field.
Investment Strategies in Indian Stock Market
Dr. Vanita Tripathi
Senior Lecturer
Department of commerce
Delhi School of Economics
University of Delhi.
Basu, Sanjoy.1977.Investment Performance of Common Stocks in Relation to their Price-
Earnings Ratios: A Test of Efficient Market Hypothesis, Journal of Finance

This paper examines the perceptions, preferences and various investment strategies in
Indian stock market on the basis of a survey among 93 investment analysts, fund managers and
active equity investors based at Delhi and Mumbai during May-October, 2007. Survey findings
reveal that investors use both fundamental as well as technical analysis while investing in Indian
stock market. Most of the respondents strongly agree that various company fundamentals ( such
as size, book to market equity, price earnings ratio, leverage etc.) significantly influence stock
prices and hence addition of these factors in asset pricing model can better explain cross

sectional variations in equity returns in India. Five most widely used investment strategies in
Indian equity market are size based strategies, momentum strategies, following FIIs investment
behaviour, buying stocks on the basis of 30 days moving average and buying stocks on the basis
of relative strength index. There has been substantial change in investment strategies used by
active investors in Indian stock market over the past five years. In a nutshell there has been a
shift from purely technical analysis based strategies to the one which involves both fundamental
and technical analysis. Moreover the investment horizon of investors has also reduced due to
higher volatility.
Foreign Direct Investment from China, India and South Africa in sub-Saharan Africa: A New or
Old Phenomenon?
John Henley, Stefan Kratzsch, Mithat Külür, and Tamer Tandogan, JEL classification: D21, F23,
M16, O55, UNU-WIDER project on Southern Engines of Global Growth, ISSN 1810-2611
ISBN 978-92-9230-070-8, March 2008.

Wells, L. T. (1983). Third World Multinational: the Rise of Foreign Investment from
Developing Countries. Cambridge, MA: MIT Press.

The burgeoning literature on outward foreign direct investment from emerging markets has
largely focused on analysing the motives of investors as reported by parent companies.
This paper, instead, focuses on firm-level investments originating from China, India or
South Africa in fifteen host countries in sub-Saharan Africa (SSA). The analysis is based
on a sub-set of firms drawn from the overall sample of 1,216 foreign-owned firms
participating in the UNIDO Africa Foreign Investor Survey, carried out in 2005. The
sample of investments originating from China, India and South Africa is analysed in
terms of firm characteristics, past and forecast performance in SSA over three years and
management’s perception of ongoing business conditions. Comparisons are made with
foreign investors from the North. The paper concludes that while investors in SSA from
the three countries are primarily using their investment to target specific markets, they are
largely operating in different sub-sectors. While there appear to be specific features that
firms from a given country of origin share, there are no obvious operating-level features
they all share apart from market seeking. Active investment manager portfolios and
preferences for stock characteristics. School of Banking and Finance, The University of
New South Wales, Kensington, N.S.W. 2052
Securities Industry Research Centre of Asia-Pacific (SIRCA) Simone Brands, David R.
Gallagher, Adrian Looi
This paper investigates the stock characteristic preferences of active Australian equity
managers. We examine the following characteristics: stock price variance, momentum, size,
transaction costs, earnings yield, analyst coverage and the standard deviation of analyst forecasts.
In aggregate we find that active managers exhibit preferences for stocks exhibiting high price
variance, large market capitalization, low transaction costs, value-oriented stocks, greater levels
of analyst coverage, and stocks with less variability in analyst earnings forecasts. The study also
recognizes the importance of tracking error in portfolio management by examining stock
preferences with respect to both small and large stocks. We find evidence of momentum trading
in large stocks, and higher volatility and wider analyst coverage amongst small stocks. Active
managers are also evaluated on the basis of size and investment style. Small investment

managers exhibit a preference for stocks with higher volatility and analyst coverage (including
consensus of forecasts). Finally we find evidence of an industry effect, where GICS
classifications have an important impact on the stockholdings of Australian institutional
investment managers.


How do you come to know about the Company Religare?

Table: 1

Source of information No of Customers

Business Magazines 36
Friends 28
Electronic Media 20
Other sources 16


Inference: It is observed that 36% of Religare customers are coming to know about Religare
through business magazines. 28% investors are getting Religare information through friends
which is the next biggest source of information for the investors.

Have you ever invested in stock markets?

Response No of investors
Yes 78
No 22


Inference: 78% of the Religare customers are already invested in stock markets either directly
through shares or indirectly through mutual funds. But the remaining 22% are invested in
insurance policies.


Investors motivating factors to invest in stock markets

Motivating factors No of investors motivated

High returns 52
Tax benefits 37
Any other factors 11

Chart –3

Inference: It was found that 52% of the customers are motivated by the high returns that they
can gain by investing in shares. 37% of the customers are investing in stock markets because
they want tax exemptions in the form of long term capital gains.

Table showing the investors objectives of investing in stock markets

Objective No of investors
Regular income 22
Capital appreciation 45
Tax savings 24
Any other objective 9

Chart- 4

Inference: It was found that 22% of the investors are investing in stock markets because they
want regular income in the form of dividends. 45%of the investors are preferring capital
appreciation rather than short term regular income. And remaining investors have various
considerations like tax benefits.


Table showing customers perception of reasons for bearish market conditions.

Reasons for bearish market No of investors
Inflation 9
Sub-prime crisis 23
Rise in crude oil prices 7
All the above 61

Chart –5

Inference: 61% of the investors are opined that inflation, sub-prime crisis and crude oil prices
are the main reasons for the current bearish market conditions. Very few people said that they
are individually responsible for the present situation.


Investors response regarding negative effect of recession on investors investment decisions.

Investors response No of investors

Yes 72

No 0
Can’t say 28

Chart –6

Inference: it was found that 72% of the investors opined as present market conditions will
adversely affect the investors sentiment in the market. Only 28% of investors replied that
positive trend in the market will boost investors confidence once again.


Table showing Investors actions during the recession period

Actions during recession No of investors
Changes to portfolio 26
Taking experts advice 33
Complete disposal of equity 27
Other changes 14


Inference: It is observed that 33% of the investors are approached financial advisers to take
their valuable suggestions to minimize the risk. 26% of the investors made changes to their
portfolios. 27% of the investors completely sold of equity portion of their portfolio.

Table showing the changes taken place in the investors portfolios

Changes in portfolio No of investors

Decrease in equity portion 42
Investing in debt securities 24
Complete disposal of equity 27
Other changes 7


Inference: It is observed that 42% of the investors have decreased the equity portion of their
portfolios. 24% of the investors are investing in debt instruments rather equity.


Table showing investors response about role of portfolio management in minimizing risk.

Investors response No of investors

Yes 57
No 13
Can’t say 30


Inference: It is found that 57% of the investors opined that effective portfolio management will
help in minimizing the total risk of the portfolio. 13% of the investors said that risk which is
called as systematic risk cannot be eliminated through portfolio management.


Table showing investors response about role of financial experts in maximizing the returns.

Response No of investors
Yes 62
No 13
To some extent 25


Inference; 62% of the investors agreed that they got good returns by taking financial experts
advises. 25% of the investors said that experts advice will help only to some extent and luck
also plays a role in maximizing returns.


Table showing the ranks given by investors to Religare services.

Rank No of investors
1 23
2 18
3 46
4 11
5 2


Inference: 23% of the investors ranked Religare financial services as 1 which is showing their
satisfaction as well as long term relationships with the company. But majority of the people
ranked Religare services as 3.


Table showing suggestions given by investors to Religare to improve quality in their services.

Suggestions No of investors
Providing more quality information 27
Decrease in service charges 18
Timely changes to portfolio 21
All the above 34


Inference: 34% of the customers want Religare to provide them with more quality information,
decrease in service charges as well as they want to make timely changes to their portfolio which
will enhance their returns.


The following are the findings of the survey.

 It is observed that 36% of Religare customers are coming to know about Religare through
business magazines. 28% investors are getting Religare information through friends
which is the next biggest source of information for the investors.

 It is found that 78% of the Religare customers are already invested in stock markets
either directly through shares or indirectly through mutual funds. But the remaining 22%
are invested in insurance policies.

 It was found that 52% of the customers are motivated by the high returns that they can
gain by investing in shares. 37% of the customers are investing in stock markets because
they want tax exemptions in the form of long term capital gains.

 It was found that 22% of the investors are investing in stock markets because they want
regular income in the form of dividends. 45%of the investors are preferring capital
appreciation rather than short term regular income. And remaining investors have
various considerations like tax benefits.

 It is observed that 61% of the investors are opined that inflation, sub-prime crisis and
crude oil prices are the main reasons for the current bearish market conditions. Very few
people said that they are individually responsible for the present situation.

 It was found that 72% of the investors opined as present market conditions will adversely
affect the investors sentiment in the market. Only 28% of investors replied that positive
trend in the market will boost investors confidence once again.

 It is observed that 33% of the investors are approached financial advisers to take their
valuable suggestions to minimize the risk. 26% of the investors made changes to their
portfolios. 27% of the investors completely sold of equity portion of their portfolio.

 It is observed that 42% of the investors have decreased the equity portion of their
portfolios. 24% of the investors are investing in debt instruments rather equity.

 It is found that 57% of the investors opined that effective portfolio management will help
in minimizing the total risk of the portfolio. 13% of the investors said that risk which is
called as systematic risk cannot be eliminated through portfolio management.

 It is understood that 62% of the investors agreed that they got good returns by taking
financial experts advises. 25% of the investors said that experts advice will help only to
some extent and luck also plays a role in maximizing returns.

 It is observed that 23% of the investors ranked Religare financial services as 1 which is
showing their satisfaction as well as long term relationships with the company. But
majority of the people ranked Religare services as 3.

 It was found that 34% of the customers want Religare to provide them with more quality
information, decrease in service charges as well as they want to make timely changes to
their portfolio which will enhance their returns.


Name:- Age:-

1. How do you come to know about Religare financial services, Guntur?

a. Business magazines[ ] b. Electronic media [ ]

c. Friends [ ] d. Other sources [ ]
2. Have you ever invested in stock markets?
a. Yes [ ]
b. No [ ]
3. Which of the following factors have motivated you to invest in the stock markets?

a. High returns [ ] b. Tax benefits [ ]
c. Others [ ]

4. Which of the following is your objective of investing in stock market?

a) Regular income [ ] b) Capital appreciation [ ]

c) Tax savings [ ] d) Any others specify

5. According to you, which of the following is the reason for bearish market conditions?

a) Inflation [ ] b) Sub-prime crisis [ ]

c) Rise in crude oil prices [ ] d) All the above [ ]

6. Do you think the present recession economic conditions will adversely affect the
investor’s sentiment?

a) Yes [ ] b) No [ ] c) Can’t say [ ]

7. Which of the following actions have you taken during the recession?

a) Making changes to portfolio [ ]

b) Taking experts advice [ ]
c) Complete disposal of equity [ ]
d) Other changes specify
8. Which of the following changes have taken place in your portfolio during the recession

a) Decrease in equity portion [ ] b) Investing in debt securities [ ]

c) Complete disposal of equity [ ] d) All the above [ ]
e) No changes [ ]

9. Do you think that effective portfolio management will help you in minimizing the risk?

a) Yes [ ] b) No [ ] c) Can’t say [ ]

10. Do you agree with the statement of “Expert’s advice will maximize your returns”?

a) Yes [ ] b) No [ ]

c) To some extent [ ] d) Can’t say [ ]

11. Rank the services of “Religare financial services” on a scale of 1-5?

a) 1 [ ] b) 2 [ ] c) 3 [ ]
d) 4 [ ] e) 5 [ ]

12. According to you, in which of the following areas Religare needs to improve its services?

a) Providing more quality information [ ]

b) Decrease in service charges [ ]
c) Timely changes to portfolio [ ]
d) All the above [ ]


Market share: An organization’s portion of the total sales in a given market expressed as a

Dividend: Dividend is declared on the face value or par value of a share, and not on its market
price. For investors dividends contribute the returns on shares bought in addition to price

Brokerage: Commission payable to the stockbroker for arranging sale or purchase of securities.

Broker: A member of a Stock Exchange who acts as an agent for buying and selling shares for

Acquisition: An event when the control of a company changes hands from one set of people to

Intrinsic Value: This is the value that a person puts to the company based on what the earnings
potential of a company is.

Sensex: It is an index that represents the direction of the companies that are traded on the
Bombay Stock Exchange.

Bull: A particular kind of investor who purchases shares in the expectation that the market price
of that company's share will increase.