market watch indian eq

8/8/2019 Market Watch Indian Eq

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Security Analysis and PortfolioManagement

An Assignment on:

Analysis of Indian share market sincelast two years.

(incl. the reasons for present slides)

Assignment submitted by:-

Jyoti verma

PGPM/07-09/23

ASBM, Bhubaneswar


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Introduction:

There was a time when India was discussed as the land of snake charmers, black magic

and epidemics but the revolutionary Indian growth story changed everything. Indian

economy at its height compelled the world to change its viewpoint towards India. Out ofthe several factors which changed the face of modern India, we are going to discuss the

most roaring of them i.e. our share market. The earlier reform procedures adopted by

India gave India the two most sought after world-class brands i.e. SENSEX and NIFTY.

The magical figures displayed by our market turned all the heads on India. And India

became one of the most favoured places for investment.

Now we are going to deal with the ups and downs in the share market since last two years

i.e. since year 2006.our share market has went through many phases in there 2 years. We

saw the investors getting overjoyed at 21K and we saw them crying too when it crashed.

We saw how the market rewarded the undervalued shares and how the overvalued shares

fell down to demonstrate the saying everything which rise more than expected, has to

fall.

So to analyze the saga of Indian share market, we had two indices to follow: BSE sensex

and NSE nifty. Though NSE nifty is a more advanced option and has left BSE sensex far

behind, still we call BSE sensex as the barometer of our economy. Thats why we have

followed the BSE sensex. It was not possible to track each and everyday figure of the

sensex since last two years. The performance of the sensex is analyzed with the help of

data and graphs collected from various sources and some of the most talked about

movements of sensex starting with the secondary market summary of each year, firstly

year 2006 and then year 2007.


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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


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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 sachins 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.

Sensexs surge to 11000 points on 21st march 2006 was prompted by PM Manmohan

Singhs 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 markets.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 Asias

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.


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After falling by 307 points on 12 th 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 30 th 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


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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.


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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, the 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 inan 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.


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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


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An overview of year 2007:

After touching 14K mark on December 5th 2006, sensex entered into 2007 with a

promising figure of 14000+, though the year started on a rather tentative note with a

marked slowdown being observed in the FII inflows into the country. The inflowsreceived from FIIs in January and February 2007 was 48 per cent less than what was

received during the same period in 2006. The return provided by the BSE Sensex for

2007 turned into negative territory following the 389-point tumble on Friday, February

23rd; the year-to-date return generated by the Sensex was negative 0.97 per cent.

FIIs have pressed substantial sales over those days in contrast to an intermittent

surge in inflow in February 2007. As a result, the sensex which closed at 14091 on

January 31st, closed at 12938 on February 28th.

As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2

March, the day when Sensex had lost 273 points. Their net outflow was worth Rs 3080.80

crore in four trading sessions from 26 February to 1 March 2007. Market continued to

reel under selling pressure on 5th march 2007 taking cue from weak global markets and

heavy FII sales as a result of fall over 400 points, all the indices were in red.

On April 24th, The Sensex again crossed the 14K mark and was trading at 14,150.18

having gained 221.85 points or 1.59%. The midcap and smallcap indices were rather

moving slow indicating that the actual movers are the large cap stocks but at the month

end it finally closed at 13872. Further we can see May and June having month end figures

at 14544 and 14651 respectively.

The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15,000-mark, to

reach a record high of 15007.22, for the first time intra-day on Friday, July 06 2007

before closing at 14964.12. Despite weak global cues, Indian stocks were in great

demand, especially auto, pharma, IT and metals stocks. On Friday, this lifted the

Bombay Stock Exchange's benchmark 30-share Sensex past the magical 15,000-mark.The Sensex took 146 sessions to cover the 1,000 point distance from 14,000 till 15,000.

This is the highest since the index took 371 trading sessions to move up from 6,000 to

7,000.

The sensex experienced its second bigger ever fall on 2nd august 2007. The fall came in

after the Fed Reserve cut its discount interest rate at an emergency meeting and


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JPMorgan Chase agreed to buy Bear Stearns for USD 2 a share. Sensex closed down

951.03 points or 6.03% at 14809.49,

When FIIs were pumping money in stock market and were Net Buyers of Equity worth

Crores; the Sensex was moving Up , Up and Up on weekly basis. Many thought that FIIs

were playing blind in Indian stock market. But when FIIs have turned Net Sellers of

Equity and have started booking profit backed by massive sell off of shares in global

markets; Sensex has to go down. As expected; the Sensex plunged by 600 Points in early

trading on 16th August and most of the shares were down by 4 to 5 per cent.

But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday,

September 19th, 2007 gave thumbs up to the decision of the U.S. Fed Reserve to

reduce the rates by 50 basis points, as the benchmark 30-share BSE Sensex moved up

sharply by 653.63 points or 4.17 per cent at 16322.75. By staying well above the 16000-mark, it outperformed most Asian peers and it was the biggest single day gain. This trend

shows that global cues had an influential effect on our market.

On the auspicious occasion of Ganesh chaturathi, India experienced a flow of good news.

The festive spirit did not end with the immersion of Ganapati. On Wednesday, it boiled

over to the streets of Mumbai and its financial district, the Sensex touched the magical

17,000 number. It took Dalal Street just 5 days to travel 1,000 points. Suddenly, tech

stocks, which were the whipping boys till Tuesday, became hot favourites. Why? Hopes

that the rupee will soften as a result of RBI's latest announcements to allow more

outflow sparked a rally in tech stocks, pushing the Sensex to a new high of 17,073.87

during the day. At the end of the day, RBI's measures may not be enough to rein in the

rupee. But there were no takers for this. The bellwether index finally settled at 16,921.39.

On October 9th, 2007, Sensex hits a record high of 18,280 on the back of eye-popping

rallies in Reliance & Reliance. At the height of the dotcom mania in 1999-00, the easiest

way to maximize returns was to buy into any stock with the suffix Software or

Technologies. Eight years on, the same seems to hold true for any stock with the prefix

Reliance, given their baffling run-up over the past one month. Eye-popping rallies in

Reliance Industries, Reliance Energy and Reliance Communications lifted the 30-share

Sensex to a record high of 18,327.42 intra-days.


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On October 15th 2007, amidst heavy buying by investors, the bull roared to breach the 19000

mark in just 4 sessions Sensex was up by 639.63 points or 3.47 per cent at 19058.67. This

rise came on the back of some strong sectors for which the macro picture is quite

bright power, capital goods, infrastructure and telecom.

Foreign Institutional Investors were pumping in huge money in the equity market and this

too was pushing up the index. Since September, they nearly pumped in more than Rs.

30,000 crore in the cash market. After the U.S. Federal Reserve cut interest rates by

50 basis points, a re-rating of the emerging markets had been seen wherein liquidity

flows were quite robust.

Then suddenly happened the second biggest crash the sensex ever experienced when the

sensex crashed by 1743 points on 17th October 2007 within minutes of opening,

prompting suspension of trade for hour fallout of regulator Sebi's move to curb Foreign

Institutional Investors. In a knee-jerk reaction to the cap proposed by the market

regulator for the Participatory Notes, an overseas derivative instrument (ODI), used

by foreign institutional investors (FIIs), the stock market crashed by 1743 points in

intra-day, but recovered substantially later to close with a loss of 336.04 points or 1.76

per cent at 18715.82. but it was followed by a huge one-day gain as on October 23 when

the BSE barometer rose 878.85 points after market regulator SEBI allowed sub-accounts

of Foreign Institutional Investors (FIIS) to trade

It took the index a little over 20 years to reach the first 10,000 mark, but just a little over

20 months to double that score and the sensex made history with touching the 20000

mark on October 29 2007. Significantly, it was the local institutions that were in the

drivers seat. As per BSE data, foreign funds have net sold over Rs 1,100 crore worth of

shares over the last three trading sessions while local funds have net bought over Rs

2,300 crore worth of shares. Sceptics point to the fact that there were only a handful

of stocks that was driving the market higher.

On 13th November, BSE Sensex registered its biggest ever gain in a single of 893.58

points to settle at the third-highest level ever on buying by investors in bank counters

and blue chip companies such as Reliance Industries.The market gain was becauseof global cues. Besides, the political development also gelled well with the sentiment.


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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.Its 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 Europe.

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 thelast 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


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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 present slowdown (Q1, 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 smallcap index that rose

16% and 18% respectively.

So April was the last month to close positive. Then after nobody saw a stable sensexeven. 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


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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, Bombays 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 theylook 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.


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An 800+ point surge was experienced in the market on the day following UPA gaining

vote of confidence but the very next day market couldnt 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.

Conclusion:

After going through all the analysis regarding the stock market in last 2 years, we can say

that stock market touched its peak at 21000 but then crashed badly. Now it is revolving

around a 14000-16000 figure. Though the sensex is a barometer and after seeing such

fluctuations one could be afraid of investing. Still we can say that people can play safe by

investing the blue-chips and undervalued shares.

During year 2006, if we keep aside that brief period of loss that the market witnessed

from may 10 2006 to June 14 2006, investors wealth seem to have grown double fold

with the Sensex touching the 10000, 11000, 12000, 13000 and 14000 levels in the same

calendar year. Investor wealth in terms of market capitalization has been growing in therange of 6.84-12.41%

And talking about year 2007, we can summarize the happenings of year 2007 as a year

which redefined the resistance levels at sensex. Strong economic data, heavy inflow of

funds from FIIs towards the close of previous calendar year and decent to highly

encouraging surge in earnings of top notch companies all pointed to a rosy 2007. The

rupee's rise against the US dollar the regulator's decision to restrict investments made

through participatory notes, rising crude oil prices, the sub-prime mortgage woes in US,

concerns over a slowing down US economy and The Left parties' opposition to the Indo-

US nuclear pact, did halt the market's progress at times. But the inherent strength of the

Indian economy, fairly buoyant results quarter after quarter, the various chops and

subsidies announced by the government and sustained efforts made by the market

regulator to keep investor confidence in the system alive kept the momentum going.


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Presently the hike and seek being played by crude prices, inflation and RBI is affecting

our market to a great extent. And adding to the worries are global slowdown, political

instability, serial bomb blasts, negative public sentiments etc. It is indeed surprising that

though the epicenter of the sub-prime crisis is the US, the tremors are being felt in India.

The loss of market cap in the US is only 14 per cent vis--vis 38 per cent in India.

But even after analyzing the causes for downturn, we can say that India story has not

ended; else $200 billion with institutional investors would have fled for safer waters.

Exports being 14 per cent of GDP, India is less vulnerable to external shocks than many

other Asian nations. Political uncertainties too have narrowed down. Savings in India

have risen at a historic rate of 35 per cent on the growing GDP base; 17 per cent of this is

in gold, commodities and real-estate while financial savings represent 18 per cent of

GDP. Even this is skewed towards deposits both banking and non-banking, while thepercentage of savings in shares and debentures is a mere 6.3 per cent. If this percentage

goes to 25 per cent, it would amount to $40 billion of incremental money being diverted

to capital markets. So even after such downturns, we can be hopeful for a positive market.

Jyoti Verma

PGPM/07-09/23

market watch indian eq

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