STOCK MARKET PRICE VOLATILITY

( BASED ON BSE )
THIS IS SUBMITTED TO
SAMBALPUR UNIVERSITY, IN PARTIAL FULLFILLMENT
OF THE REQUIREMENTS FOR THE DEGREE OF BACHELOR
OF COMMERCE

SUBMITTED BY :
AMAN AGARWAL
UNIVERSITY ROLL NO. – S03621COM046
COLLEGE ROLL NO. – BC-21-017

GUIDED BY :
Mrs. SWAGATIKA BARIK
LECTURER IN COMMERCE
Page 1 of 44
LAXMI NARAYAN COLLEGE,
JHARSUGUDA

Page 2 of 44
 DECLARATION
I, Aman Agarwal hereby declare that the project titled
"Stock Market Volatility and Foreign Institutional
Investors". submitted by me for Purpose of the
Buisness Research Project, is my original work. All
the information presented in this project is authentic
and has been gathered and analyzed by me. Any
external sources used for reference have been
properly cited and acknowledged within the project.

I affirm that the work presented in this project is free

from any form of plagiarism or unauthorized
collaboration. I have not submitted this project, or
any part of it, for any other purpose or assessment,
and it has not been previously submitted by me or
anyone else to obtain any academic or professional
qualification.
Yours Sincerely,
Aman Agarwal

Page 3 of 44
 CERTIFICATE
This is to certify that the project entitled “Stock Market
Volatility and Foreign Institutional Investors”. A Study in
Stock Market Submitted by Aman Agarwal Studying at
Laxmi Narayan College, Jharsuguda. This Project was an
Authentic work done under the guidance of Mrs.
Swagatika Barik

This certificate is presented as a testament to the

hard work, creativity, and Professionalism
demonstrated throughout the project duration .

NAME: Mrs. SWAGATIKA BARIK

(Lecturer In Commerce)
SIGNATURE: __________________
LAXMI NARAYAN COLLEGE JHARSUGUDA

Page 4 of 44
 ACKNOWLEDGEMENT
First of all, I would like to thank my project guide, Mrs.
SWAGATIKA BARIK (Lecturer in Commerce), for her
comments and suggestions which made this project
paper possible. I would also like to thank all the faculty
members of the commerce departments & student of
LAXMI NARAYAN COLLEGE, JHARSUGUDA for taking the
time out to fill the questionnaire for the project work. I
would like to extend my heartfelt gratitude to My project
guide, Mrs. SWAGATIKA BARIK , who have facilitated
students to fills the questionnaire. Last but not the least,
I would like to express my unending thanks to my family.
Who supported me financially and helped me in the
timely completion of the project.

NAME: AMAN AGARWAL.

UNIVERSITY ROLL NO.-S03621COM046.
COLLEGE ROLL NO.-BC-21-017.
SIGNATURE: __________________
LAXMI NARAYAN COLLEGE JHARSUGUDA

Page 5 of 44
 ABSTRACT
Volatility as a key characteristic of the Indian stock market,
influencing investor behavior, risk management strategies,
and market dynamics. It's important to acknowledge that
volatility can present both opportunities and challenges
for investors, impacting trading decisions, portfolio
performance, and market stability. Additionally, you may
want to highlight the various factors that contribute to
volatility in the Indian market, such as economic indicators,
corporate earnings, global market trends, geopolitical
events, and regulatory changes. Understanding and
managing volatility is essential for investors and
policymakers to navigate the complexities of the Indian
stock market effectively.

Volatility in the Indian stock market refers to the degree of

variation or fluctuation in the prices of stocks or the overall
market index over a certain period. It is a measure of the
uncertainty and risk present in the market. Higher volatility
implies greater price fluctuations, while lower volatility
suggests more stable and predictable price movements.

Page 6 of 44
 TABLE OF CONTENT
SL. PARTICULARS PAGE
NO. NO.
CHAPTER - 1
1.1 INTRODUCTION TO VOLATILITY.

1.2 DEVELOPMENT IN FOREIGN INSTITUTIONAL

INVESTORS REGULATION ACT.
1.3
CHAPTER - 2
2.1 THEORITICAL OVERVIEW ON VOLATILITY
IN STOCK MARKET.
2.2
2.3
CHAPTER - 3
3.1 VOLATILITY IN STOCK MARKET

3.2 OVERVIEW OF INDIAN STOCK MARKET (BSE)

3.3 Overview on foreign institution investors

CHAPTER - 4
4.1 DELVING MARKET INSIGHTS

4.2 MEASURING PERFORMANCE ANALYSIS (BSE)

4.3 LESSONS LEARNED FROM VOLATILITY :

INSIGHTS AND RECOMMENDATIONS

Page 7 of 44
Page 8 of 44
 CHAPTER – 1

INTRODUCTION TO VOLATILITY
IN STOCK MARKET AND
FINANCIAL INSTITUION
INVESTMENT

Page 9 of 44
 CHAPTER – 1.1
INTRODUCTION TO VOLATILITY
 What Is Volatility ?

Volatility refers to the degree of variation or fluctuation in the price of a

financial instrument, such as a stock, bond, currency pair, or commodity,
over a specific period of time. It is a statistical measure of the dispersion of
returns for a given security or market index.

Volatility is a fundamental concept in financial markets and is crucial for

investors, traders, and risk managers in assessing the potential risks and
rewards of various investment opportunities. It can be influenced by factors
such as economic indicators, corporate earnings, market sentiment,
geopolitical events, and changes in monetary or fiscal policies.
Understanding and managing volatility is essential for making informed
investment decisions and implementing effective risk management
strategies.

 Role of Volatility in Stock market

Volatility plays several important roles in the stock market:

1. Risk Assessment: Volatility is often used as a measure of risk. Higher

volatility implies greater uncertainty and potential price fluctuations, which
may increase the risk associated with an investment. Investors and traders
assess volatility to understand the potential downside risk of holding or
trading a particular stock or portfolio.
2. Investment Strategy: Volatility influences investment strategies and asset
allocation decisions. Investors may adjust their portfolios based on the level
of volatility in the market. For example, during periods of high volatility,
investors may seek safer assets or employ risk management strategies to
mitigate potential losses.

Page 10 of 44
3. Trading Opportunities: Volatility creates trading opportunities for investors
and traders. Price fluctuations driven by volatility can create opportunities
for short-term traders to profit from market movements. Volatile stocks
may experience rapid price changes, providing opportunities for traders to
buy low and sell high.
4. Option Pricing: Volatility is a key input in options pricing models, such as the
Black-Scholes model. Higher volatility increases the value of options because
it increases the likelihood of the underlying asset reaching a certain price
level before expiration. Options traders use volatility to assess the relative
attractiveness of different options strategies.
5. Market Sentiment: Volatility can reflect market sentiment and investor
emotions. Periods of high volatility often coincide with uncertainty and fear
among investors, while low volatility may signal complacency or confidence.
Changes in volatility levels can provide insights into shifts in market
sentiment and expectations.

Page 11 of 44
 CHAPTER: 1.2
DEVELOPMENT IN FOREIGN INSTITUTIONAL
INVESTORS REGULATION ACT

Many developing countries, including India, restricted the flow of foreign

capital till the early 1990s and depended on external aid and official
development assistance.

Later, most of the developing countries opened up their economies by

dismantling capital controls with a view to attracting foreign capital,
supplementing it with domestic capital to stimulate domestic growth and
output.

Since then, portfolio flows from foreign investors (FII) have emerged as a
major source of capital for emerging market economies (EMEs) such as
Brazil, Russia, India, China, and South Africa. Besides, the surge in foreign
portfolio flows since 1990s can be attributed to greater integration among
international financial markets, advancement in technology and growing
interest in EMEs among FIIs such as private equity funds and hedge funds so
as to achieve international diversification and reduce the risk in their
portfolios.

Economic growth is a function of, among things, capital formation. As FII

flows are a source of non-debt creating capital for the economy, many EMEs
have been competing with each other to attract such flows through flexible
investment norms/regulations or by offering fiscal sops. Further, FIIs have
been assured decent returns on their investments, enabling continuous and
sustainable investment flows.

FII flows into India registered substantial growth from a meager US$4
million in 1992-93 to over US$ 32 billion in 2010-11
Page 12 of 44
(SEBI, 2011:76). FII inflows underwent a sea-saw movement in India during
the last decade. They registered spectacular growth in India GDP, robust
corporate performance and an investment-friendly environment. Portfolio
investment flows into India turned negative (outflow of US$ 12 billion)
during 2008-9 (ibid). mainly due to the heightened risk aversion of foreign
investors , emanating from the global financial meltdown.

Ever since foreign portfolio investors were allowed to invest in Indian

financial markets in September 1992, there have been extensive
deliberations on the impact of such flows. It is said that portfolio flows from
FIIs inject global liquidity into the capital markets, raise the price- to-
earnings ratios, thereby reducing the cost of capital. This, in turn, leads to
further issues of equity capital and stimulates investment growth in the host
economy, apart from bringing in best international corporate governance
practices. Yet, Flls have been targets of criticism due to characteristics such
as return chasing behaviour, herd mentality, hot money flows, short-term
speculative gains and their influence on domestic policy-making.

Though numerous research studies have been conducted in respect of FII

flows into India, most of them have been confined to assessing the impact of
such flows on stock markets. Very few studies have focused on the overall
impact of FII flows on all segments of the Indian financial markets, viz., the
capital market, the foreign exchange market, the money market and other
macro-economic variables, such as inflation, money supply and Index of
Industrial Production (IIP). Given this background, it is all the more relevant
to undertake a cause and-effect study of FII flows into Indian financial
markets in a holistic manner, by considering various macro-economic
parameters, such as IIP, interest rates, inflation, exchange rates, apart from
the BSE Sensex, so as to enable policymakers to take informed decisions in
this regard. The present study examines the causes and effects of FII net
flows into Indian financial markets with the support of empirical data for the

Page 13 of 44
 period April 2003-March 2011, i.e., a time span of eight years, covering the
period before, during and after the eruption of the global financial crisis.

 What role did Foreign Investor’s plays in Indian

Stock Market ?
Foreign investors play a significant role in the Indian stock market. Their
participation can impact market movements, liquidity, and investor
sentiment. Here are some key roles foreign investors play:

1. Portfolio Investment: Foreign Institutional Investors (FIIs) and Foreign

Portfolio Investors (FPIs) invest in Indian stocks and bonds. They bring in
capital from overseas, which helps in funding various projects and activities
in India. Their investments also contribute to the liquidity of the stock
market.
2. Market Sentiment: Foreign investors' actions often reflect global market
sentiment towards the Indian economy. Positive or negative sentiments
from foreign investors can influence local investors and market participants,
leading to corresponding movements in stock prices.
3. Funding Source: Foreign investment provides an additional source of
funding for Indian companies. This funding can be crucial for companies
looking to expand operations, undertake new projects, or innovate.
4. Technology and Expertise Transfer: Apart from capital infusion, foreign
investors also bring in technology, expertise, and best practices. This can
contribute to the development and growth of Indian companies, especially
in sectors where advanced technology and know-how are crucial.
5. Diversification: Foreign investors often bring in diversified investment
portfolios, which can help reduce the overall risk in the Indian stock market.
Their presence allows local investors to access a wider range of investment
opportunities.
6. Impact on Exchange Rate: Large inflows or outflows of foreign investment
can impact the exchange rate of the Indian currency (rupee). This can have
implications for the economy as a whole, affecting trade balances and
inflation.

Page 14 of 44
7. Regulatory Compliance: Foreign investors need to comply with regulations
set by the Securities and Exchange Board of India (SEBI) and other relevant
authorities. Their participation helps in maintaining the integrity and
transparency of the Indian stock market.

SUMMARY:- Foreign investors play a crucial role in the Indian stock market,
contributing to its liquidity, efficiency, and integration with global financial
markets. However, their activities can also introduce volatility and risks,
which necessitate effective regulatory oversight and risk management
measures.

Page 15 of 44
 CHAPTER – 2

THEORITICAL OVERVIEW ON
VOLATILITY IN STOCK MARKET

Page 16 of 44
 CHAPTER – 2.1
THEORITICAL OVERVIEW ON VOLATILITY
IN STOCK MARKET
 OVERVIEW
Here's a theoretical overview of volatility in the stock market:
1. Types of Volatility:
 Historical Volatility: Calculated based on past price data, historical
volatility reflects the actual price fluctuations observed in the market.
 Implied Volatility: Derived from options pricing models, implied
volatility reflects market expectations of future price fluctuations. It is
inferred from the prices of options contracts and represents the
market's consensus on future volatility levels.
2. Causes of Volatility:
 Market Events: Volatility can be triggered by various factors such as
economic indicators, corporate earnings releases, geopolitical events,
changes in monetary policy, and global market trends.
 Investor Sentiment: Market sentiment, including fear, greed,
optimism, and pessimism, can significantly influence volatility. Shifts in
investor sentiment often lead to changes in buying and selling
pressure, contributing to price volatility.
 Liquidity Conditions: Market liquidity, or the ease of buying and selling
assets, can impact volatility. Lower liquidity tends to exacerbate price
fluctuations, especially during periods of market stress.
3. Role in Risk Management:
 Volatility is a key input in risk management models and helps investors
assess the potential downside risk of their portfolios. Higher volatility
implies greater risk, while lower volatility suggests lower risk.
 Risk managers use volatility measures to calculate risk metrics such as
value at risk (VaR) and conditional value at risk (CVaR), which estimate
the potential losses of investment portfolios under different scenarios.

Page 17 of 44
4. Impact on Investment Strategies:
 Volatility influences investment strategies and asset allocation
decisions. Investors may adjust their portfolios based on volatility
levels, seeking to balance risk and return.
 Some investment strategies, such as volatility trading and options
strategies, are specifically designed to capitalize on market volatility
and price fluctuations.

 CONSEQUENCES OF VOLATILITY IN STOCK MARKET

Volatility in the stock market can have several consequences, impacting
investors, traders, businesses, and the broader economy:

1. Investor Uncertainty: High volatility can create uncertainty among

investors, leading to increased anxiety and hesitation to invest.
Uncertainty about future price movements may prompt investors to
hold onto cash or seek safer investment alternatives, potentially
dampening market activity.
2. Increased Risk: Volatility is often associated with increased risk in the
stock market. Rapid price fluctuations can result in significant losses
for investors who are unprepared or unable to react quickly to
changing market conditions. Higher volatility may also lead to wider
bid-ask spreads and reduced liquidity, further increasing trading costs
and risks.
3. Market Instability: Excessive volatility can destabilize the stock
market, leading to wild swings in stock prices and undermining
investor confidence. Market instability may result in panic selling,
market crashes, or prolonged periods of market downturns, potentially
causing widespread economic damage.
4. Impact on Corporate Performance: Volatility can impact the
performance of businesses listed on the stock market. Sharp declines
in stock prices may erode the market capitalization of companies,
affecting their ability to raise capital, invest in growth opportunities, or

Page 18 of 44
 attract investors. Volatility may also affect corporate financing costs,
making it more expensive for companies to borrow funds.
5. Global Economic Impact: Volatility in one stock market can have
spillover effects on other financial markets and the broader economy,
particularly in an interconnected global financial system. Sharp
movements in stock prices may affect investor sentiment, consumer
confidence, and business investment decisions, potentially influencing
economic growth prospects worldwide.

 CAUSES OF VOLATILITY IN STOCK MARKET

Volatility in the stock market can be caused by various factors, including:

1. Economic Indicators: Economic data releases, such as GDP growth, inflation

rates, employment reports, and consumer confidence surveys, can influence
market volatility. Positive or negative surprises in economic indicators may
lead to changes in investor expectations about future economic conditions,
affecting stock prices.
2. Corporate Earnings: Earnings reports and corporate announcements,
including revenue growth, profit margins, and guidance for future
performance, can significantly impact stock prices. Positive earnings
surprises may lead to stock price increases, while negative earnings
surprises can result in sharp declines, contributing to market volatility.
3. Geopolitical Events: Geopolitical developments, such as wars, conflicts,
terrorist attacks, political instability, trade tensions, and diplomatic disputes,
can create uncertainty and volatility in the stock market. Geopolitical events
may affect investor sentiment, disrupt global supply chains, and influence
commodity prices, leading to market fluctuations.
4. Monetary Policy: Central bank policies, including interest rate decisions,
monetary stimulus programs, and quantitative easing measures, can impact
market volatility. Changes in monetary policy direction or unexpected
announcements by central banks may lead to volatility in bond yields,

Page 19 of 44
 currency exchange rates, and equity markets as investors adjust their
expectations.
5. Market Sentiment: Investor sentiment, including fear, greed, optimism, and
pessimism, plays a significant role in driving market volatility. Sentiment
indicators, such as the VIX (Volatility Index) or surveys of investor
confidence, reflect market participants' perceptions of risk and uncertainty,
influencing their trading decisions and contributing to market fluctuations.

CHAPTER – 2.2

Page 20 of 44
 CHAPTER – 3

Understanding the Indian

Stock Market Landscape

Page 21 of 44
 CHAPTER – 3.1
Volatility in stock market
MAJOR DOWNs IN INDIA STOCK MARKET (SENSEX)
There have been several major downturns in the Indian stock market,
resulting in significant declines in the Sensex points over the years. Some
notable downturns include :

1. Global Financial Crisis (2008): The Indian stock market witnessed a sharp
decline during the global financial crisis of 2008. The Sensex plummeted
from its peak of around 21,000 points in January 2008 to below 9,000 points
by October 2008, representing a substantial loss of over 50% of its value.
2. Eurozone Debt Crisis (2011): In 2011, concerns about sovereign debt issues
in several Eurozone countries, including Greece, Italy, and Spain, sparked a
sell-off in global financial markets, including India. The Sensex experienced a
significant decline, falling from around 20,000 points in January 2011 to
below 16,000 points by September 2011.
3. Taper Tantrum (2013): In 2013, the announcement of the U.S. Federal
Reserve's intention to taper its bond-buying program, known as the "taper
tantrum," triggered a sell-off in emerging markets, including India. The
Sensex experienced a sharp decline, dropping from around 20,000 points in
May 2013 to below 17,000 points by August 2013.
4. COVID-19 Pandemic (2020): The outbreak of the COVID-19 pandemic in
early 2020 led to widespread panic selling in global financial markets,
including India. The Sensex experienced a rapid decline, falling from around
41,000 points in February 2020 to below 26,000 points by March 2020,
marking one of the fastest and deepest market downturns in history.

 MAJOR DOWNs OF INDIA STOCK MARKET DUE TO SCAMS (SENSEX)

Page 22 of 44
 Several major scams have occurred in the Indian stock market over the
years, leading to significant declines in stock indices like the Sensex. Some
notable scams include:

1. Harshad Mehta Scam (1992): One of the most infamous stock market scams
in Indian history, the Harshad Mehta scam involved manipulation of the
stock market by stockbroker Harshad Mehta. Mehta exploited loopholes in
the banking system to carry out a massive securities fraud. The scam led to a
sharp decline in the stock market, with the Sensex falling from around 4,500
points in April 1992 to below 2,800 points by May 1992.
2. Ketan Parekh Scam (2001): Ketan Parekh, a prominent stockbroker, was
involved in a scam that revolved around price manipulation of certain stocks
using funds obtained through illegal means. The scam contributed to a
market downturn, with the Sensex falling from around 5,000 points in
February 2001 to below 3,500 points by May 2001.
3. Satyam Scandal (2009): The Satyam Computer Services scandal involved
accounting fraud perpetrated by the company's founder and chairman,
Ramalinga Raju. Raju inflated the company's revenues and profits through
fictitious transactions, leading to a significant decline in Satyam's stock price
and impacting investor confidence in the Indian stock market. The Sensex
fell from around 20,000 points in January 2009 to below 8,000 points by
March 2009, partly due to the fallout from the Satyam scandal amid the
global financial crisis.
4. NSEL Scam (2013): The National Spot Exchange Limited (NSEL) scam
involved irregularities in commodity trading contracts offered by the
exchange. The scam led to defaults on payments to investors and a crisis of
confidence in the commodities market. While the direct impact on the
Sensex was relatively limited, the scam contributed to broader concerns
about regulatory oversight and investor protection in India's financial
markets.

MAJOR Ups IN INDIA STOCK MARKET :

Page 23 of 44
 Several significant upswings or bull runs have occurred in the Indian stock
market, resulting in substantial increases in stock indices like the Sensex.
Some major upswings in the Indian stock market include:

1. 1991 Economic Reforms: Following economic liberalization and reforms

initiated in 1991, the Indian stock market experienced a significant uptrend.
Investor confidence surged, leading to a sustained bull run. The Sensex
witnessed substantial gains, reflecting optimism about the country's
economic prospects and potential for growth.
2. Technology Boom (Late 1990s - Early 2000s): The late 1990s and early
2000s witnessed a global technology boom, fueled by the rise of the internet
and advancements in information technology. The Indian IT sector, in
particular, experienced rapid growth, attracting significant investment and
driving up stock prices. The Sensex soared during this period, reaching new
highs as technology stocks rallied.
3. Infrastructure and Realty Boom (Mid-2000s): In the mid-2000s, India
experienced a boom in infrastructure and real estate sectors, driven by
robust economic growth and increased investment in infrastructure
projects. This led to a surge in stock prices of companies operating in sectors
such as construction, engineering, and real estate. The Sensex climbed to
record levels during this period.
4. Global Economic Expansion (2003-2007): The period from 2003 to 2007
witnessed a global economic expansion, with emerging markets, including
India, experiencing robust growth. Strong economic fundamentals, coupled
with favorable global conditions, propelled the Indian stock market to new
highs. The Sensex witnessed significant gains during this period, fueled by
optimism about India's growth prospects.
5. Post-Global Financial Crisis Recovery (2009-2010): Following the global
financial crisis of 2008, central banks around the world implemented
monetary stimulus measures to stimulate economic growth and stabilize
financial markets. The Indian stock market rebounded strongly from the
depths of the crisis, with the Sensex witnessing a sharp recovery and surging
to new highs.
6. Economic Reforms and Policy Measures: Periods of economic reforms,
policy announcements, and investor-friendly measures by the government
Page 24 of 44
often lead to optimism in the stock market, driving up stock prices. For
example, announcements of structural reforms, tax reforms, or initiatives to
boost infrastructure and manufacturing sectors have historically led to
positive market reactions and uptrends.

CHAPTER – 3.2
OVERVIEW Of INDIAN STOCK MARKET (BSE)
Page 25 of 44
  WHAT WE SHOULD LEARN FROM INDIA STOCK MARKET ?

Learning from the Indian stock market can provide several insights into
both local and global economic trends, as well as investment strategies.
Here are some key takeaways:

1. Global Trends: The Indian stock market is influenced by global economic

trends and geopolitical events. Observing how Indian stocks react to global
events can provide insight into the interconnectedness of the global
economy and how it impacts local markets.
2. Sector Performance: Different sectors perform differently under varying
economic conditions. Analyzing the performance of sectors within the Indian
stock market can help investors identify emerging trends and opportunities
for investment diversification.
3. Risk Management: The Indian stock market, like any other, carries inherent
risks. Learning from its fluctuations can help investors understand risk
management strategies such as diversification, asset allocation, and hedging
to protect their investments.
4. Investment Strategies: Studying the Indian stock market can provide
valuable lessons in investment strategies such as value investing, growth
investing, momentum trading, and more. Observing successful investors and
their strategies can offer insights into what works in the Indian market.
5. Behavioral Finance: Understanding investor behavior and market
psychology is crucial for successful investing. The Indian stock market often
reflects irrational exuberance during bull markets and panic selling during
bear markets. Learning from these behavioral patterns can help investors
make more informed decisions.
6. Long-Term Perspective: Despite short-term volatility, the Indian stock
market has demonstrated long-term growth potential. Learning to focus on
fundamental factors and taking a long-term perspective can help investors
navigate market fluctuations and achieve their financial goals.

 "Sensex Index Movement: A Visual Analysis"

Page 26 of 44
  The following graph encapsulates the dynamic movements of the
Sensex, India's premier stock market index, over the past decade. It
meticulously traces the opening points of the Sensex and the
subsequent fluctuations leading to the closing points, offering a
comprehensive portrayal of the market's ebbs and flows.
 Spanning a decade, this graphical representation serves as a
testament to the ever-changing landscape of the Indian stock
market. Each point on the graph signifies a day's trading session,
capturing the collective sentiment of investors, economic
developments, and global market influences that shape the
trajectory of the Sensex.

70000

60000

50000

40000
sensex points closing
sensex points opening
30000

20000

10000

0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

CHAPTER – 3.3
Page 27 of 44
 Overview on foreign institution investors

 The influx or exodus of foreign investors into or out of the Indian stock
market often has a significant impact on the Sensex points, reflecting
the sentiments and perceptions of international investors towards the
Indian economy. Let's break down what typically happens before and
after foreign investors enter or exit the Indian stock market:

 Before Foreign Investors Enter:

1. Market Expectations: Prior to the entry of foreign investors, there may be

anticipation or speculation in the market regarding potential inflows of
foreign capital. Positive economic indicators, favorable government policies,
or attractive valuations may attract foreign investors' interest.
2. Market Rally: As news of potential foreign investment circulates, it often
triggers a bullish sentiment in the market. Domestic investors may also
increase their buying activity in anticipation of foreign inflows, leading to a
surge in stock prices. The Sensex points may exhibit an upward trend during
this phase, reflecting the optimism surrounding the market.
3. Currency Impact: The expectation of foreign investment may also influence
the currency market. A surge in foreign capital inflows can strengthen the
domestic currency, which, in turn, impacts the competitiveness of exports
and influences corporate earnings of export-oriented companies.

 After Foreign Investors Enter:

1. Increased Liquidity: Upon foreign investors' entry into the market, there
is typically an increase in liquidity as a significant amount of capital flows
into the market. This liquidity injection can fuel further buying activity,
contributing to upward momentum in stock prices. As a result, the
Sensex points may continue to rise during this phase.
2. Sectoral Preferences: Foreign investors often have sectoral preferences
based on global trends, economic outlook, and investment strategies.
Their investment decisions may favor certain sectors over others, leading
to sector-specific rallies or corrections in the market. The Sensex

Page 28 of 44
 composition may reflect these sectoral preferences, with some sectors
outperforming others.
3. Market Stability: While foreign investment can bring liquidity and boost
market sentiment, it can also introduce volatility and risk. Sudden
changes in global economic conditions, geopolitical events, or shifts in
investor sentiment can prompt foreign investors to adjust their positions,
leading to fluctuations in stock prices. The Sensex points may experience
periods of volatility as a result of these factors.

 Before Foreign Investors Exit:

1. Changing Sentiment: Ahead of foreign investors' potential exit from the

market, there may be indications of changing sentiment or economic
conditions. Factors such as adverse regulatory changes, geopolitical
tensions, or global economic downturns may prompt foreign investors to
reassess their investments in India.
2. Market Correction: Anticipation of foreign investors' exit may trigger a
market correction, as investors adjust their portfolios in response to the
changing landscape. Stock prices may decline, and the Sensex points may
experience downward pressure as selling activity intensifies.

 After Foreign Investors Exit:

1. Market Volatility: Following the exit of foreign investors, the market may
experience heightened volatility as it adjusts to the reduced liquidity and
shifting investor sentiment. Sharp fluctuations in stock prices and the Sensex
points are common during this period as market participants reassess their
investment strategies.
2. Impact on Currency: Foreign investors' exit can also impact the currency
market, leading to depreciation of the domestic currency if significant
capital outflows occur. A weaker currency may have implications for
inflation, interest rates, and corporate profitability, further influencing the
stock market dynamics.
3. Investor Confidence: The exit of foreign investors may dent investor
confidence, especially if it is perceived as a signal of underlying weaknesses

Page 29 of 44
in the economy or financial markets. Restoring investor confidence becomes
crucial for stabilizing the market and preventing prolonged downturns in
stock prices.

 Understanding Foreign Investor Engagement in Indian Markets

The graph and table provided offer a comprehensive depiction of the activity
of foreign investors in the dynamic landscape of the Indian stock market. It
presents a detailed breakdown of the shares bought and sold by these
investors, elucidating their net gain or loss over a specified period.

The graphical representation encapsulates the ebb and flow of investment

activities, offering insights into the trends and patterns shaping foreign
investor behavior. Through visual analysis, one can discern fluctuations in
investment volumes and discern potential correlations with broader market
dynamics.

Meanwhile, the accompanying table serves as a quantitative supplement,

furnishing precise figures on shares bought, shares sold, and the resultant
net gain or loss. This tabulated data not only enhances our understanding of
foreign investor activity but also facilitates rigorous analysis and comparison
over time

TABULAR PRESENTATION OF FIs ACTIONS

Page 30 of 44
YEAR BUY’S OF FIIs SELL’S OF FIIs NET
(In Crs.) (In Crs.)
2023 75352.24 89816.46 -14464.3

2022 155263.3 162274.9 -7011.61

2021 140635.1 153222.1 -12587

2020 153735.8 100692.4 53043.42

2019 69502.92 62367.51 7135.42

2018 88700.26 95435.66 -6735.39

2017 155087.6 185611.9 -30524.3

2016 129944.9 126776.4 3168.45

2015 126452.1 130711.4 -4259.37

2014 174979 169162.6 5816.68

GRAPHICAL REPRESENTATION OF FIs ACTIONS

Page 31 of 44
400000

350000

300000

250000

200000 NET
SELLs OF FIIs (In Crs)
BUYs OF FIIs (In Crs)
150000

100000

50000

0
2023 2022 2021 2020 2019 2018 2017 2016 2015 2014

Page 32 of 44
 CHAPTER - 4

Underlying Mechanisms of
Stock Market Behavior

Page 33 of 44
 CHAPTER – 4.1

DELVING MARKET INSIGHTS

 TOP S&P BSE SENSEX 50
The provided table offers a comprehensive overview of the top 50
companies listed on the Bombay Stock Exchange (BSE) Sensex, reflecting
the diverse array of industries and sectors that contribute to the Indian
economy's vitality and growth. This compilation not only showcases the
market leaders but also provides valuable insights into the key players
driving the country's financial markets

BSE
SCRIP NSE PRICE(Rs)
PRICE(Rs)

ADANI PORTS &

1,271.10 2.05% 1,271.50 2.11%
SEZ

ASIAN PAINTS 2,952.15 0.76% 2,951.65 0.75%

AXIS BANK 1,051.05 1.39% 1,051.40 1.50%

BAJAJ AUTO 7,782.55 0.29% 7,784.85 0.36%

BAJAJ FINANCE 6,654.80 1.17% 6,654.50 1.20%

BAJAJ FINSERV 1,571.15 0.03% 1,570.95 0.03%

BHARTI AIRTEL 1,121.10 -1.88% 1,120.25 -1.92%

BPCL 614.00 -1.06% 614.30 -1.00%

Page 34 of 44
 BSE
SCRIP NSE PRICE(Rs)
PRICE(Rs)

BRITANNIA 4,970.35 2.04% 4,971.50 1.97%

CIPLA 1,438.80 1.32% 1,439.75 1.38%

COAL INDIA 455.70 -0.78% 456.20 -0.65%

DABUR 539.10 0.95% 539.20 0.98%

DR. REDDYS LAB 6,152.45 -0.15% 6,155.85 -0.07%

EICHER MOTORS 3,839.80 0.81% 3,840.95 0.88%

GAIL 173.00 -3.70% 173.10 -3.67%

GODREJ
1,219.40 0.16% 1,218.65 0.12%
CONSUMER

GRASIM 2,168.95 5.36% 2,168.50 5.41%

HCL
1,632.00 -0.15% 1,630.60 -0.20%
TECHNOLOGIES

HDFC 2,729.95 -0.62% 2,724.30 -0.84%

HDFC BANK 1,403.20 -0.03% 1,403.60 0.04%

HERO MOTOCORP 4,908.50 2.05% 4,908.85 2.10%

HINDALCO 591.60 -1.63% 591.30 -1.66%

HUL 2,424.20 0.26% 2,424.15 0.29%

ICICI BANK 1,010.75 2.14% 1,010.70 2.16%

Page 35 of 44
 BSE
SCRIP NSE PRICE(Rs)
PRICE(Rs)

INDUSIND BANK 1,485.60 0.55% 1,486.25 0.61%

INFOSYS 1,669.65 -1.39% 1,669.35 -1.34%

IOC 182.50 -5.22% 182.50 -5.15%

ITC 415.60 0.28% 415.50 0.23%

JSW STEEL 811.90 -1.27% 811.75 -1.26%

KOTAK
1,742.15 0.69% 1,742.45 0.74%
MAHINDRA BANK

L&T 3,324.95 -0.38% 3,324.55 -0.33%

M&M 1,646.85 -2.40% 1,646.40 -2.34%

10,730.35 -
MARUTI SUZUKI 10,732.85 -0.10%
0.18%

NESTLE 2,450.05 1.09% 2,450.10 1.12%

NTPC 324.90 -1.84% 324.90 -1.81%

ONGC 266.95 -2.32% 267.55 -2.05%

POWER GRID 273.10 -1.12% 273.00 -1.16%

RELIANCE IND. 2,922.30 0.67% 2,921.50 0.73%

S&P BSE SENSEX 71,595.49 0.23% Not Listed

Page 36 of 44
 BSE
SCRIP NSE PRICE(Rs)
PRICE(Rs)

S&P BSE SENSEX

18,107.29 1.84% Not Listed
50

SBI 724.25 3.55% 725.25 3.67%

SUN PHARMA 1,534.85 2.31% 1,534.80 2.35%

TATA MOTORS 914.95 -1.03% 915.00 -1.01%

TATA STEEL 141.30 -1.67% 141.30 -1.64%

TCS 4,134.25 -0.03% 4,133.70 -0.01%

TECH MAHINDRA 1,311.75 0.15% 1,311.05 0.14%

TITAN 3,590.60 1.17% 3,591.60 1.20%

ULTRATECH
9,946.80 -0.51% 9,945.75 -0.52%
CEMENT

UPL 457.30 -1.62% 457.95 -1.48%

VEDANTA 274.35 -1.61% 274.35 -1.53%

WIPRO 490.30 0.29% 490.45 0.33%

ZEE
203.15 5.01% 203.25 5.15%
ENTERTAINMENT

Page 37 of 44
 CHAPTER – 4.2
MEASURING PERFORMANCE ANALYSIS
As per the Global Financial Development Database, the average stock
market return for Indian indices stood at 21.5% in 2021. The lowest average
return was -37.02% in 2003, and the maximum average return was 119.03%
in 1992.

The depicted graph illustrates the fluctuating investments made by Category

A retail investors in the stock market over the years, particularly noting
significant shifts during the years 2018, 2019, and 2022. These fluctuations
are profoundly influenced by the unprecedented global events, notably the
COVID-19 pandemic, which disrupted financial markets worldwide.

In 2018 and 2019, the stock market experienced notable ups and downs,
mirroring the broader economic uncertainty prevailing during those years.
However, the most significant impact on investor behavior occurred in 2020,
as the COVID-19 pandemic wreaked havoc across the globe. The graph
reflects a substantial downturn in investments during this period, as retail
investors reacted to the uncertainty and volatility induced by the pandemic.

Page 38 of 44
Despite efforts to mitigate the effects of the pandemic, the year 2022 still
witnessed lingering repercussions, contributing to another dip in
investments. This phenomenon can be attributed to the continued
economic repercussions and uncertainties stemming from the prolonged
recovery period post-pandemic.

Moving forward, it is imperative for investors to remain vigilant and

adaptable in navigating the evolving landscape of financial markets. While
external events may continue to pose challenges and uncertainties,
maintaining a diversified investment portfolio and exercising prudence in
decision-making can help mitigate risks and capitalize on opportunities in an
ever-changing market environment.

AMOUNT INVESTED AT EQUITY SHARE MARKET

(In Crs)
1200000

1000000

800000

AMOUNT INVESTED AT EQUITY

600000 SHARE MARKET (In Crs)

400000

200000

0
2014- 2015- 2016- 2017- 2018- 2019- 2020- 2021- 2022- 2023-
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

 IMPACT OF MARKET VOLATILITY ON RETAIL INVESTORS

Volatility in the stock market can significantly impact retail investors in
various ways :
Page 39 of 44
1. Impact on Retirement Savings: Volatility in the stock market can have
significant implications for retail investors' retirement savings.
Fluctuations in portfolio values can affect the accumulation of retirement
assets and may necessitate reassessment of retirement goals and
timelines. For individuals nearing retirement, volatility can pose particular
challenges in terms of preserving capital and managing investment risk.
2. Emotional Decision-Making: Volatility can trigger emotional responses
among retail investors, such as fear, greed, or panic. Emotional decision-
making can lead investors to make impulsive choices, such as buying or
selling stocks based on short-term market movements rather than long-
term fundamentals. This behavior can result in suboptimal investment
outcomes and may exacerbate losses during periods of volatility.
3. Increased Trading Activity: Volatile markets often see an increase in
trading activity as investors attempt to capitalize on short-term price
movements. Retail investors may engage in frequent buying and selling in
an attempt to time the market or profit from volatility. However,
excessive trading can incur higher transaction costs and taxes, eroding
overall investment returns.
4. Portfolio Value Fluctuations: Volatility can cause significant fluctuations
in the value of retail investors' portfolios. Sharp declines in stock prices
can lead to sudden and substantial losses, while subsequent rebounds
can result in rapid gains. These fluctuations can have a psychological
impact on investors, affecting their confidence and overall financial well-
being.
5. Long-Term Planning Challenges: Volatility can pose challenges for retail
investors in terms of long-term financial planning. Uncertainty
surrounding future market conditions may make it difficult for investors
to set realistic investment goals or adhere to a predetermined
investment strategy. This can lead to a lack of confidence in the
achievement of long-term financial objectives and may necessitate
adjustments to investment plans.

 RESPOND OF RETAIL INVESTORS DURING STOCK MARKET VOLATILTY (BSE)

Page 40 of 44
 Retail investors respond to volatility in the stock market in various ways,
influenced by factors such as their risk tolerance, investment goals, and
market outlook. Here are some common responses:
1. Market Timing and Trading: Some retail investors attempt to time the
market by buying or selling stocks in response to short-term price
movements. During periods of volatility, they may actively trade stocks in an
effort to capitalize on price fluctuations and profit from market volatility.
However, this strategy can be risky and may result in losses if investors fail
to accurately predict market movements.
2. Long-Term Investing Perspective: Despite short-term market fluctuations,
many retail investors maintain a long-term perspective on their investments.
They recognize that volatility is a natural part of the market cycle and focus
on the fundamentals of the companies in which they invest. By staying
invested for the long term, they aim to ride out market volatility and benefit
from potential gains over time.
3. Diversification and Asset Allocation: Retail investors often respond to
volatility by diversifying their investment portfolios and adjusting their asset
allocation. Diversification involves spreading investments across different
asset classes, sectors, and geographic regions to reduce risk. By diversifying
their portfolios, investors aim to minimize the impact of volatility on their
overall investment performance.
4. Seeking Professional Advice: During periods of market volatility, some retail
investors seek guidance from financial advisors or investment professionals.
They may turn to experts for advice on portfolio management, risk
mitigation strategies, and investment opportunities. Professional advice can
help investors navigate volatile markets more effectively and make informed
decisions based on their individual financial goals and circumstances.
5. Staying Informed and Educated: Retail investors respond to volatility by
staying informed and educated about market trends, economic indicators,
and geopolitical events. They may actively monitor financial news, research
investment opportunities, and seek out educational resources to enhance
their understanding of the market. By staying informed, investors can make
more informed decisions and better navigate volatile market conditions.

Page 41 of 44
 CHAPTER – 4.3
LESSONS LEARNED FROM VOLATILITY :
INSIGHTS AND RECOMMENDATIONS

1. The Experienced Day Trader:

Raj is a seasoned day trader who has been active in the stock market
for over a decade. He thrives on market volatility, seeing it as an
opportunity rather than a risk. During periods of heightened volatility,
Raj employs various short-term trading strategies, such as scalping and
momentum trading. He closely monitors technical indicators and
market sentiment to make quick decisions. Raj's ability to adapt to
changing market conditions and capitalize on short-term price
movements has enabled him to consistently profit from volatility on
the BSE.
2. The Risk-Averse Investor:
Priya is a conservative investor who prefers to hold onto stocks for the
long term. She acknowledges the inherent volatility in the stock
market but chooses to mitigate risk through diversification and careful
research. During periods of market turbulence, Priya remains steadfast
in her investment approach, focusing on fundamentally sound
companies with strong balance sheets and steady earnings growth.
While she may experience temporary paper losses during market

Page 42 of 44
 downturns, Priya remains confident in the long-term prospects of her
investments on the BSE.
3. The Algorithmic Trader:
Arjun is a quantitative analyst who utilizes algorithmic trading
strategies to capitalize on market inefficiencies and exploit volatility on
the BSE. He has developed sophisticated trading algorithms that
automatically execute trades based on predefined criteria and market
signals. During periods of high volatility, Arjun's algorithms adjust their
trading parameters to adapt to changing market conditions, such as
increased price fluctuations and trading volumes. Through rigorous
backtesting and optimization, Arjun has been able to achieve
consistent returns while effectively managing risk in volatile market
environments.

4. The Opportunistic Speculator:

Neha is an opportunistic speculator who actively seeks out short-term
trading opportunities in volatile stocks on the BSE. She closely
monitors news events, earnings reports, and market rumors to
identify potential catalysts that could drive significant price
movements. During periods of heightened volatility, Neha takes
calculated risks by trading volatile stocks with high beta coefficients.
While her trading strategy carries inherent risks, Neha's ability to
capitalize on short-term market inefficiencies has enabled her to
generate substantial profits during volatile market conditions.

5. The Volatility Hedger:

Profile: Ramesh is an experienced trader who specializes in managing
volatility. He closely monitors the BSE Sensex movements and employs
various hedging strategies to mitigate risk. Case Study: When the Sensex
experiences a sudden drop of 1000 points due to global economic
concerns, Ramesh quickly identifies the volatility and executes put
options on his portfolio of blue-chip stocks. As a result, while his long
positions suffer losses, the gains from the put options help offset these
losses, resulting in minimal overall damage to his portfolio.
6. The Opportunistic Trader:
Page 43 of 44
 Profile: Priya is a seasoned day trader who thrives on market volatility.
She closely watches the intraday movements of the Sensex to identify
short-term opportunities. Case Study: On a particularly volatile day, the
Sensex swings wildly, initially dropping 800 points due to adverse
economic news but later rebounding by 1200 points on positive earnings
reports from key companies. Priya capitalizes on these fluctuations by
executing multiple intraday trades, profiting from both the downward
and upward movements of the market.
7. The Long-Term Investor:
Profile: Anil is a conservative investor who takes a long-term approach to
the stock market. He believes in the fundamental strength of the
companies he invests in and remains unfazed by short-term volatility.
Case Study: Despite a period of heightened volatility in the stock market,
including a series of days where the Sensex fluctuates by more than 500
points each day, Anil stays invested in fundamentally strong companies.
He views the market turbulence as an opportunity to gradually
accumulate more shares of his favorite companies at discounted prices,
confident that their value will appreciate over the long term.
8. The Momentum Trader:
Profile: Deepak is a momentum trader who seeks to profit from short-
term trends in the market. He relies on technical analysis and follows the
momentum of the Sensex closely. Case Study: During a period of high
volatility, the Sensex experiences a rapid upward surge of 1500 points
driven by positive economic indicators. Deepak identifies this momentum
early and quickly enters long positions in stocks with strong upward
momentum indicators. He rides the wave of optimism in the market,
closing his positions for significant profits as the Sensex reaches new
highs.

Page 44 of 44