volatality of indian stock market ,case of reliance capita

A SUMMER PROJECT REPORT ON

“VOLATILITY OF INDIAN STOCK MARKETS: A CASE OF

RELIANCE CAPITAL ”

Submitted to the

SCHOOL OF MANAGEMENT

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINSTRATION

Submitted By

VELUDANDI PRASHANTH

Reg. No. 3511210659

Under the guidance of

Mr.C.ARUN KUMAR

Assistant Professor

SRM SCHOOL OF MANAGEMENT

SRM UNIVERSITY

KATTANKULATHUR, KANCHIPURAM

TAMILNADU, 603203

August 2013

1

SRM School of Management

SRM University

SRMNagar,Kattankulathur-603203,

KancheepuramDistrict,TamilNadu.

Bonafide certificate

Certified that this project report titled “Volatility of Indian stock markets: A case of

Reliance Capital” is the Bonafide work of Mr. V.PRASHANTH with Register Number

3511210659 who carried out the research under my supervision. Certified further, that to the

best of my knowledge the work reported herein does not from part of any other project report

or dissertation on the basis of which a degree or award was conferred on an earlier occasion

on this or any other candidate.

Submitted for the viva-voce examination held on -----------------------

-------------------------------- ----------------------------

Mr.C.ARUN KUMAR Dr.JAYSHREE SURESH

(Project Guide) (Dean, MBA)

------------------------------------

External Examiner

2

V.PRASHANTH

Reg. No: 3511210659

SRM School of Management

SRM University

SRMNagar,Kattankulathur-603203,

Kancheepuram District, Tamil Nadu.

DECLARATION

I hereby declare that the project report entitled “Volatility of Indian stock markets: A case

of Reliance Capital ” submitted to SRM School of Management in partial fulfillment of the

requirement for the award of the Degree of Master of Business Administration, is a record of

the original research work done under the supervision and guidance of C.ARUN

KUMAR,Assistant.professor, SRM School of Management, SRM University, Chennai and

that it has not formed the basis for the award of any degree / associate ship / fellowship of

other similar title to any candidate of any university.

Signature: V PRASHANTH

Date: 3511210659

3

ACKNOWLEDGEMENT

First and foremost, I sincerely thank to my industry guide Mr.Abhay Singh, Relationship

manager- Reliance Securities, Secunderabad, Andhra Pradesh for his guidance and

encouragement in carrying out this project work.

I would like to show my deep sense of gratitude to internal project guide C.ARUN KUMAR,

Assistant Professor, SRM School of Management for his constant encouragement and support

throughout this project, especially for the useful suggestions given during the course of the

project period. He inspired and motivated me tremendously whenever I had any hesitation.

Besides, I am also grateful to faculty members of SRM School of Management for their

assistance in data collection.

I take this opportunity to extend my deep appreciation to my family and friends, for all that

they meant to me during the crucial times of the completion of my project.

Apart from my efforts, the success of my project depends largely on the encouragement and

guidelines of many others. I take this opportunity to express my gratitude to all the people

who have been instrumental in the successful completion of this project.

.

4

ABSTRACT

In this project a study has been done on Volatility of Indian stock markets- volatility

refers to the amount of uncertainty or risk about the size of changes in a security's value. By

this the investor can assess the amount of risk taken by him. This can be done by considering

returns of particular benchmark Index as S&P CNX 500,CNX Finance Index in

NSE(National stock exchange) and compare it with the share of a particular

company(Reliance Capital).The study involves calculation of standard deviation, Beta values

to analyze the risk in markets.

5

LIST OF CONTENTS

CONTENTS PAGE NO

1 CHAPTER-1 8

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1-9

Introduction

Industry profile

Organization profile

Review of Literature

Need and Importance of study

Objectives

Statement of problem

Methodology

Method Of analysis

9

11

14

19

20

20

21

21

22

2 CHAPTER-2 24

2.1 Integrated Perspective of functional area of

organization.

25

3 CHAPTER-3 28

3.1

3.2

SWOT analysis

Analysis and interpretation

29

31

4 CHAPTER-4 38

4.1 Findings and Suggestions 39

5 CHAPTER-5 40

5.1 Summary and Bibliography 41

6

LIST OF TABLES

Sl.NoDescription of the Table

Page No

3.12007-2008 Descriptive statistics

31

3.22007-2008 Beta calculations

31

3.3 2008-2009 Descriptive statistics 32

3.4 2008-2009 Beta calculations 33







7

CHAPTER-1

8

1.1 INTRODUCTION

What is mean by Share market?

The market in which shares are issued and traded either through exchanges or over-the-counter markets. Also known as the equity market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance.

How volatility reflects to share market?

Volatility of an asset is measured by the variability in the price over time measured as

the variance or the standard deviation of the returns on the asset. The more the standard

deviation the more volatile the asset is. This is also a measure of the riskiness of the asset

since the more variation it has the more unpredictability associated with its returns. There are

a lot of Market Models that measure the residual variances to measure volatility. The Market

Volatility Index (VIX) quoted at Chicago Board Options Exchange (CBOE) is constructed by

the weighted average of the implied volatility of Standard & Poor 100Index calls and puts. It

is a broad measure of the overall volatility in the market. There have been a lot of empirical

studies to test volatility in the stock markets globally. Research has proved that stock

markets have become more volatile in the recent times due to the emergence of "New

Economy" stocks. These stocks have been valued highly as compared to their "Old

Economy" counterparts on the expectations of giving very high returns in future. Thus this

high expectation has brought about wide fluctuations in the prices making the markets

turbulent.

BSE SENSEX

SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid

and representative companies. The base year of SENSEX is 1973-79 and the base value is

100. the index is widely reported in both domestic and international markets through

print as well as electronic media. The Index was initially calculated based on the “Full

market Capitalization” methodology but was shifted to the free-float methodology with

effect from september1, 2003. the “Free-float market Capitalization” methodology of index

construction is regarded as in industry best practice globally. All major index providers

like MSCI,FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

9

SENSEX Calculation Methodology

SENSEX is calculated using the “Free-float market capitalization” methodology.

As per this methodology, as per this methodology, the level of index at any point of time

reflects the Free float market value of 30 component stocks relative to a base period. The

market capitalization of shares issued by the company. This market capitalization is further

multiplied by the free-float factor to determine the free-float market capitalization.

The base period of Sensex is 1973-79 and the base value is 100 index points.

The notation 1978-79=100 often indicates this. The calculation of SENSEX involves

dividing the Free-float market capitalization of 30 companies in the Index by a number

called the index divisor. The devisor is the only like to the original base period value of the

SENSEX. It keeps the index comparable over time and is the adjustment point for all Index

adjustments arising out of corporate actins, replacement of scrip’s etc. During market hours,

prices of the index scrip’s, at which latest trades are executed, are used by the trading system

to calculate SENSEX every 15 seconds and disseminated in real time.

NSE - A NEW IDEOLOGY

GENESIS

Capital market reforms in India have outstripped the process of liberalization in most

other sectors of the economy. However, the creation of an independent capital market

regulator was the initiation of this reform process. After the formation of the Securities

Market regulator, the Securities and Exchange Board of India (SEBI), attention were drawn

towards the inefficiencies of the bourses and the need was felt for better regulation, discipline

and accountability. A Committee recommended the creation of a2nd stock exchange in

Mumbai called the "National Stock Exchange". The Committee suggested the formation of

an exchange which would provide investors across the country a single, screen based trading

platform, operated through a VSAT network. It was on this recommendation that setting up

of NSE as a technology driven exchange was conceptualized. NSE has set up its trading

system as a nation-wide, fully automated screen based trading system. It has written for itself

the mandate to create a world-class exchange and use it as an instrument of change for the

industry as a whole through competitive pressure. NSE was incorporated in 1992 and was

given recognition as a stock exchange in April 1993. It started operations in June 1994, with

trading on the Wholesale Debt Market Segment. Subsequently it launched the Capital.

10

NSE FAMILY

NSCCL

National Securities Clearing Corporation Ltd. (NSCCL),

IISL

India Index Services and Products Limited (IISL)

1.2 INDUSTRY PROFILE

1.2.1General Introduction about financial sector :

The financial sector is in a process of rapid transformation. Reforms are continuing as

part of the overall structural reforms aimed at improving the productivity and efficiency of

the economy. The role of an integrated financial infrastructure is to stimulate and sustain

economic growth. 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 no their 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.

1.2.3 Capital Market

The Indian capital markets have witnessed a transformation over the last decade. India is now

placed among the mature markets of the world. Key progressive initiatives in recent years

include:

• The depository and share dematerialization systems that have enhanced the efficiency of the

transaction cycle

• Replacing the flexible, but often exploited, forward trading mechanism with rolling

settlement, to bring about transparency

11

• The InfoTech-driven National Stock Exchange (NSE) with a national presence(for the

benefit of investors across locations) and other initiatives to enhance the quality of financial

disclosures.

• Corporatization of stock exchanges.

• The Securities and Exchange Board of India (SEBI) has effectively been functioning as an

independent regulator with statutory powers.

• Indian capital markets have rewarded Foreign Institutional Investors (FIIs) with attractive

valuations and increasing returns.

• The Mumbai Stock Exchange continues to be the premier exchange in the country with an

increase in market capitalization from US$ 40 billion in 1990-1991 to US$ 203 billion in

1999-2000. The stock exchange has about 6,000 listed companies and an average daily

volume of about a billion dollars

• Many new instruments have been introduced in the markets, including index futures, index

options, derivatives and options and futures in select stocks.

1.2.3 Origin and Development of the industry

The Bombay Stock Exchange (BSE) is known as the oldest exchange in Asia. It traces

its history to the 1850s, when stockbrokers would gather under banyan trees in front of

Mumbai’s Town Hall. The location of these meetings changed many times, as the number of

brokers constantly increased. The group eventually moved to Dalal Street in 1874and in 1875

became an official organization known as ‘The Native Share & Stock Brokers Association’.

In1956,the BSE became the first stock exchange to be recognized by the Indian

Government under the Securities Contracts Regulation Act.

The Bombay Stock Exchange developed the BSE Sensex in 1986, giving the BSE a means to

measure overall performance of the exchange. In 2000 the BSE used this index to open

its derivatives market, trading Sensex futures contracts. The development of Sensex options

along with equity derivatives followed in 2001 and 2002, expanding the BSE’s trading

platform. Historically an open-cry floor trading exchange, the Bombay Stock Exchanges

witched to an electronic trading system in 1995. It took the exchange only fifty days to make

this transition. Capital market reforms in India and the launch of the Securities and Exchange

Board of India (SEBI) accelerated the integration of the second Indian stock exchange called

12

the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has

become the largest stock exchange in India. Three segments of the NSE trading platform

were established one after another. The Wholesale Debt Market (WDM) commenced

operations in June 1994 and the Capital Market (CM) segment was opened at the end of

1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE

takes the14th position in the top 40 futures exchanges in the world. In 1996, the National

Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up

100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25

different economy sectors. The Indices are owned and managed by India Index Services

and Products Ltd (IISL) that has a consulting and licensing agreement with Standard &

Poor’s. In 1998, the National Stock Exchange of India launched its web-site and was the first

exchange in India that started trading stock on the Internet in 2000. The NSE has also proved

its leadership in the Indian financial market by gaining many awards such as ‘Best IT Usage

Award’ by Computer Society in India (in 1996 and1997) and CHIP Web Award by CHIP

magazine (1999).

They had been following the development planning strategy of the former Soviet

Russia in a mixed economic framework. From July 1991, in the face of an unprecedented

foreign exchange crisis, Indian economy started experiencing an IMF-World Bank dictated

regime of liberalization.

1.2.4 Growth and Present Status of the industry

The ever-growing and fast-maturing 'India Market' is a profitable business destination

for developed countries. With 7-8% of GDP growth, huge analytical, young and English

speaking work force the 'pull' for opportunities are luring. The bandwidth of 'India Market' is

enviably wide and very deep. ‘Markets in India' are well protected by legal guidelines and

efficient administrators. With a liberal and proactive government at the center the road ahead

for 'Markets of India' is very rosy. 'Market India' has witnessed exponential growth over past

one and half decade. Foreseeing sure and substantial returns on investments (ROI) companies

are pro- actively listing on the stock market indexes. Government agencies once much hated

for red tape and bribes hashed its image. Professionalism is their new mantra. Public

Enterprises like IOC,ONGC, BHEL, NTPC, SAIL, MTNL, BPCL, HPCL and GAIL,SBI,

LIC, Hindustan Antibiotics Limited, Air India etc.to name a few, are giving Private Indian

companies a good run for their money. Private giants like Reliance Industries Limited,

13

Infosys, Tata, Birla Corporation, Jet Airways, Ranbaxy, Biocon, Bajaj Auto, ICICI are

breaking their own records every financial years.Indian Equity Market at present is a

lucrative field for the investors and investing in Indian stocks are profitable for not only the

long and medium-term investors, but also the position traders, short-term swing traders and

also very short term intra-day traders. In terms of market capitalization, there are over

2500companies in the BSE chart list with the Reliance Industries Limited at the top.There are

about 22 stock exchanges in India which regulates the market trends of different stocks.

Generally the bigger companies are listed with the NSE and the BSE, but there is the OTCEI

or the Over the Counter Exchange of India, which lists the medium and small sized

companies. There is the SEBI or the Securities and Exchange Board of India which

supervises the functioning of the stock markets in India.

Thus, the growing financial capital markets of India being encouraged by domestic and

foreign investments is becoming a profitable business more with each day. If all the

economic parameters are unchanged Indian Equity Market will be conducive for the growth

of private equities and this will lead to an overall improvement in the Indian economy. Indian

Stock Market including both NSE-National Stock Exchange and the BSE-Bombay Stock

Exchange have certainly taken a tremendous beating in the past few weeks. We are sure most

of us here knew that the correction in the trading curve was round the corner which would be

healthy, and the markets would bounce back with the help of mutual fund investments &

buying of Indian stocks again. However the anticipation went wrong, and the US recession

story along with global and Indian commodity prices have added fuel to the global equity

market turmoil on a whole.

1.3 ORGANIZATIONAL PROFILE:

Reliance Securities comes from the house of Reliance Capital, one of India’s leading &

prominent financial houses.

Founded in 1986, Reliance Capital has come a long way from being into steady annuity

yielding businesses such as leasing, bill discounting, and inter-corporate deposits to

diversifying its activities in the areas of asset management and mutual fund; life and general

insurance; consumer finance and industrial finance; stock broking; depository services;

private equity and proprietary investments; exchanges, asset reconstruction; distribution of

financial products and other activities in financial services.

14

Reliance Capital has a net worth of Rs. 7,887 crore (US$ 2 billion) and total assets of Rs.

32,419 crore (US$ 7 billion) as on June 30, 2011.

RCL is registered as a depository participant with National Securities Depository Ltd (NSDL)

and Central Depository Services Ltd (CDSL) under the Securities and Exchange Board of

India (Depositories and Participants) Regulations, 1996. RCL has sponsored the Reliance

Mutual Fund within the framework of the Securities and Exchange Board of India (Mutual

Fund) Regulations, 1996.RCL primarily focuses on funding projects in the infrastructure

sector and supports the growth of its subsidiary companies, Reliance Capital Asset

Management Limited, Reliance Capital Trustee Co. Limited, Reliance General Insurance

Company Limited and Reliance Life Insurance Company Limited. As of March 31, 2005, the

company’s investment in infrastructure projects stood at Rs. 1071 Crores. The investment

portfolio of RCL is structured in a way that realizes the highest post-tax return on its

investments.

Vision

By 2015, be amongst the top 3 most valued Indian companies, providing Information, Communication & Entertainment services, and being the industry benchmark in Customer Experience, Employee Centricity and Innovation.

Mission

Meeting and exceeding Customer expectations with a segmented approach.

Establishing, re-engineering and automating Processes to make them customer centric, efficient and effective.

Continuios offering of Products and Services that are value for money and excite customers.

Providing a Network experience that is best in the industry. Building Reliance into an iconic Brand which is benchmarked by others and leads

industry in Intention to Purchase and Loyalty.

Awards & Achievements Reliance Securities has been rated no. 1 by Starcom Worldwide for online security

and cost effectiveness in 2007

'Debutant Franchisor of the Year' at the 5th International Franchisee & Retail show

2007

15

'Best in category Service Franchise' at the 6th International Franchise & Retail show

2008

'Best E-Brokerage Houser 2008' (runner's up) by Outlook Money NDTV Profit

Awards

'Largest E-Broking House & Best Equity Broking House for the year 2009' by Dun &

Bradstreet

'Largest E-Broking House 2010' by Dun & Bradstreet

'My FM Stars of the Industry 2011' for excellence in Online Demat

Reliance Securities Limited is now ISO 9001:2008 certified for Online Trading

Platform

'Brand Leadership Legacy Award' at the Asian Leadership Awards - Dubai, 2011

Products and services

1. Trading and Demat account

2. Mutual funds

3. Life insurance

4. General insurance.

5. Investments on gold

DELIVERY OF CASH

Delivery of cash can be done by using CNC,NRML.

CNC Stands for Cash-n-Collateral: You can take delivery positions using this product.

Buy transactions will require 100% margins (Cash plus Approved Collateral) and Sell

transactions will be allowed based on the Demat holdings available and limits will be

enhanced instantly for sale value.

Position Conversion: Use this feature to convert your CNC position to NRML / MIS

before specified cut off time subject to availability of required margins.

16

If CNC positions are taken against collateral, you are required to clear your debit by T+2

day or else Delayed payment Charges (DPC) will be levied from T+2 day onwards. If debits

are not cleared by T+6 day, RSL will liquidate the positions anytime on or after T+7 day.

If debits are not cleared by T+6 days, further exposure will not be allowed in that

particular exchange effective from T+7 day onwards.

NRML stands for Normal. You can take delivery buy positions in specified stocks

(Specified by Reliance Securities Limited on its website from time to time) by paying a

minimum margin (ranging 20% to 60% which would vary from stock to stock) and pay the

balance within T+2 or not later than T+6 day.

If debits are not cleared by T+6 day, RSL will liquidate the positions anytime on or

after T+7 day.

For Example: If your available limits is Rs. 20,000/- you can take exposure up to Rs.80,000/-

under NRML. You can make the balance payment within T+2 or not later than T+6 day.

If debits are not cleared by T+2 day, Delayed Payment Charges (DPC) will be levied

from T+2 day onwards.

At all times during the NRML term (i.e. T day to T+6 day), you need to maintain

minimum margin as required and defined by RSL from time to time.

If debits are not cleared by T+6 days, further exposure will not be allowed in that

particular exchange effective from T+7 day onwards.

AFTER MARKET ORDER (AMO)

As a customer, you can place AMO in Equity (NSE and BSE) and Derivatives (NSE) as per

below timing:

Online: From 5:30 P.M. IST onwards up-to 9:14 A.M IST next trading day

17

Call & Trade: Daily from 8:30 A.M. IST onwards up to 9:14 A.M. IST

All accumulated orders will be sent to exchange on market open

Due to scheduled system maintenance process, AMO orders will not be accepted between

11:30 P.M. to 4:30 A.M. IST

You can place Limit order or Market order under AMO. However it is advisable to

place AMO as Limit order. Placing AMO order as market order might result in your order

getting executed at unfavorable price.

Example: on 5th December Infosys closes at Rs. 3400/-. Suppose a customer placed an AMO

market order to buy 50 shares of Infosys. On 6th December the AMO is pushed to the

exchange & if that particular order happens to be the first buy trade to hit the market & on the

other end first sell trade to hit the market is priced at Rs. 3600/- then the buy order would get

executed at Rs. 3600/- which would result in a high buy.

However you have to be very careful while placing the limit order as well. There are chances

of error such as Infosys closing rate is Rs. 3400/- where as you might place a buy order

erroneously at Rs. 4400/- and if in opening market such order happens to be first order then

shares could be purchased @ Rs. 4400/-.

You should ensure that price which you have entered is not too high or not too low then the

closing price. Hence it is advisable to enter limit orders in the range of +5% or -5% of closing

market price.

You can also place a F&O order under AMO.

AMO provides the convenience to place orders without having to wait for the market to open.

AMO order is subject to rejection / cancellation, In case sufficient margin is not available in

the ledger after the beginning of the day limit calculation process is run. To check the status

of your AMO, we request you to refer to order book during market hours.

EXPOSURE AGAINST STOCK

This product provides trading opportunities to clients by accepting Demat shares as collateral.

The client can pledge these share positions as collateral to gain additional margin.

18

We provide an intraday limit on defined set of stocks based on a certain haircut percentage.

Who can avail this facility? Are there any charges for this facility?

This facility is activated for all Reliance Securities Limited (RSL) customers except NRI.

Delayed Payment Charges (DPC) will be levied on debits arising out of positions taken

against collateral

1.4 REVIEW OF LITERATURE :.

A study of Volatility in Indian Stock markets to understand the reasons for turbulence in the

last two years.Prepared By Piyush Kumar Chowhan MBA, Xavier Institute of Management,

Bhubaneswar and Vasant ShuklaMBA Xavier Institute of Management Bhubaneswar.

Estimating Volatility in the Indian Stock Markets: Some explorations S. Bordoloi1 and Shiv

Shankar.

Nabhi Kumar Jain (1992) specified certain tips for buying shares for holding and also for

selling shares. He advised the investors to buy shares of a growing company of a growing

industry. Buy shares by diversifying in a number of growth companies operating in a

different but equally fast growing sector of the economy.

He suggested selling the shares the moment company has oral most reached the peak of its

growth. Also, sell the shares the moment you realise you have made a mistake in the initial

selection of the shares. The only option to decide when to buy and sell high priced shares is

to identify the individual merit or demerit of each of the shares in the portfolio and arrive at a

decision.

Basudev Sen (1997) disclosed the implications of risk management in the changed

environment and the factors constraining the speed of risk management technology up-

gradation. He opined that the perception and management of risk is crucial for players and

regulators in a market oriented economy. Investment managers have started upgrading their

risk management practices and systems. They have strengthened the internal control systems

including internal audit and they are increasingly using equity research of better quality.

He observed that risk measurement and estimation problems constrain the speed of up-

gradation. Also, inadequate availability of skills in using quantitative risk management

models and lack of risk hedging investments for the domestic investors are major constraints.

19

http://www.rsec.co.in/products-and-services/financial-Services/equity/exposure-against-stocks

He concluded that with the beginning of a derivative market, new instruments of risk hedging

would become available.

1.5 NEED AND IMPORTANCE OF STUDY

The stock market in India existed for a well over a century. Now its

importance in the mobilization, allocation and efficient use of scarce

investment recourses has not been recognized until the last decade. During

the l a s t d e c a d e bo t h s e c o n d a r y and primary markets have witnessed

phenomenal qualitative and quantitative developments. One of the important

characteristics of well functioning stock market is the stability of prices of

securities traded on it, which is price volatility.

Volatility of security price has important implications for firm’s

investment and financial decisions, valuations and investors sentiments. Price

volatility of securities has consequence for firm’s decisions on how much capital

to issue, type of instrument to be used when to use. Further high price volatility

provides opportunities for take away between various market players. There are

huge number of players existing in the market. Some of the main players have been

listed below

Religare

Angel Broking

Karvy

Motilal Oswal

Kotak Securities

India Infoline

1.6 OBJECTIVES OF STUDY

To study the volatility in Indian stock market while taking SENSEX and its sector

Index and stock of Bombay stock exchange as a source of secondary data.

To study the factors which are making Indian stock market volatile.

To assess risk and returns of the particular stock by comparing it with benchmark

Index.

20

To furnish institutional material relevant for understanding the Environment in which

stock market fluctuation are occurring.

1.7STATEMENT OF PROBLEM

Multiplicity of administration.

Investors faced problems of delays(refund, transfer etc)

No inspection of stock exchange undertaken.

Stock exchange management is dominated by brokers.

No prohibition for unfair trade practices.

Primary market not in the main stream of the financial market.

1.8Methodology

There are two type of research methodology

1) Exploratory Research

2) Descriptive Research

Exploratory research is research conducted in order to explain any behavior in the

market. It could be done through using questionnaires, group discussions,

interviews, random sampling.

Descriptive research is also called Statistical Research. The main goal of this type

of research is to describe the data and characteristics about what is being studied.

The idea behind this type of research is to study frequencies, averages, and other

statistical calculations. Although this research is highly accurate, it does not gather

the causes behind a situation. Descriptive research is mainly done when a

researcher wants to gain a better understanding of a topic.

21

For this study Type of Data here used is Secondary Data

Data used in this study is of secondary in nature. NSE site is taken as a source of

information which widely describes S&P CNX 500 and Sector Index stock market. Here

daily prices of both benchmark index as Sensex and Sector index are taken for the study

purpose.

Due to is wide acceptance amongst the Indian investors; S&P CNX 500 is regarded to be

the pulse of the Indian stock market. As the oldest index in the country, it provides the time

series data over a fairly long period of time (From 1979 onwards). Small wonder, the S&P

CNX 500 has over the years become one of the most prominent brands in the country. The

growth of equity markets in India has been phenomenal in the decade gone by right from

early nineties the stock market witnessed heightened activity in terms of various bull and bear

runs. The S&P CNX 500 captured all these events in the most judicial manner. One can

identify the booms and busts of the Indian stock market through S&P CNX 500.

1.9Method of analysis

The method of analysis used here is SWOT analysis

Tools used:

Standard Deviation: A measure of the dispersion of a set of data from its mean. The more

spread apart the data, the higher the deviation.

Standard Deviation (σ) = √ (R-Rbar)2/ N-1

Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in

comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM),

a model that calculates the expected return of an asset based on its beta and expected market

returns.

22

VARIANCE=S.D²

COVARIANCE=∑ (RA-ŔA)(RS –ŔS)/n-1

β=COVA,S/VARS-Squared: A statistical measure that represents the percentage of a fund or

security's movements that can be explained by movements in a benchmark index. For fixed-

income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500.

23

CHAPTER - 2

24

FUNCTIONAL AREAS

For an organization to perform its functions there should be functional areas working for the organization

Finance Marketing Hr Research

in reliance marketing department plays a crucial role all the time marketing the securities such that they will make all the business to the reliance

Working At Branch level

Fig Branch structure

25

Staff at Branch Level

At Reliance Money Hyderabad, the following hierarchy exists:-

Three Centre managers.

Eight to ten Business Development Executives under each Centre manager.

Business associates under each Centre Manager their number depending upon the area

allotted to each CM.

Remisars under each centre manager.

Team leader and PFCs under him for life insurance.

One Customer Support Executive and One Senior Finance executive.

Centre Manager

The Centre manager is the Heart of the office who acts as a connection between Head office

(Mumbai), National head, Zonal head, Regional head, Area head, Cluster head, The Clients,

Remises, Business associates and the Business development executives. The Centre manager

is responsible for the following functions;

1.Organizing all the BDE’s, Business Associates and Remisars under one banner.

2.Making sure that the BDE’s, Business Associates and Remisars are carrying out

their functions well i.e. expanding the business in form of selling the Share trading

A/c’s , mutual funds, selling general along with life insurance policies .

3.Planning strategies for increasing the business.

4. Interviewing and Selecting Business development executive for the organization.

5. Identifying the potential agents in the market and making them the business

associate or remisar of Reliance Money for good business prospects.

26

6. Assisting the new BDE’s or remisars in handling the clients.

7. Training the new BDE’s and the remisars about the product and how to approach

the clients.

8. Reporting the regional head on the daily basis about the daily business performed.

27

Chapter- 3

28

3.1 SWOT analysis has been defined as a conceptual framework for a systematic analysis that facilitates matching the external threats and opportunities with the internal weaknesses and strengths of the organization.

Why SWOT?

SWOT analysis is a tool for auditing an organization and its environment. It is the first Stage of planning and helps marketers to focus on key issues. Once key issues have been identified, they feed into marketing objectives; it can be used in conjunction with other tools for audit and analysis, such as PEST (Political, Economic, Social and Technological analysis) analysis and Porter's Five-Force analysis. It is a very popular tool, quick and easy learns.

SWOT stands for strengths, weaknesses, opportunities, and threats.

STRENGTHS:

One of India’s leading and fastest growing private sector financial services companies,

and ranks among the top 3 private sector financial services and banking companies, in

terms of net worth.

It has 200 branches across 171 cities and over 20,000 intermediaries. The setup

provides the company is very strong and very effective distribution network, and

consequently a strong penetration in the market.

Company issued 36.57 Lac policies during the year as compared to 14.60Lac in the

previous year thereby registering a growth of 150%.

RG has been able to give highest ROI of 11.27% in last five years. The net worth has

doubled to Rs.4.94 billion from last year’s Rs.2.59 billion.

Excellent outreach with a large distribution network.

Expert’s and research team to make strategies and products for company as well as

clients base to resolve the problem.

Reserves and Surplus has increased five times to Rs.4.998 billion fromRs.1.04 billion

previous year.

The Company has earned Rs.1034 crore of New Premium Business in Financial Year

2008 which is 41% share of the Private Sector Industry &33% of the Industry as

whole.

29

Company is ranked number one in the New Premium Business in Financial Year 2008.

Other than this, it maintains a good database of it existing and potential customer, has

a brand image and low pricing strategy .Reliance Money unlike other brokering houses

has introduced a new prepaid system of brokerage for the share trading in which it

provides the lowest form of brokerage charged from an investor.

WEAKNESSES

Dependence on fellow subsidiaries for various supplies.-Extra control or interference

from fellow subsidiaries.

Sudden expansion in year 2007-08 by establishing more than 125 branches has

increased operations and administration expenses due to which losses incurred.

Due to the emphasis on recruiting young people in the company, staff is in

experienced.

Clientage is not so loyal as compared to the clientage of other competing companies

in the same industry

The phenomenon of job hopping is very common in the company. So, the problem of

loyalty towards the company on behalf of the employees is a major problem

OPPORTUNITIES

Low retail penetration of financial services products in India

Tremendous brand strength hand extensive distribution reach Opportunity to

cross sell services

Increasing per-capita GDP

Changing demographic profile of the country in favor of the young

THREATS

o Competition from local and multinational players

o Execution risk

o Regulatory changes

o Attraction and retention of human, capital

30

3.2 DATA ANALYSIS & INTERPRETATIONS:

Period: Data is from September 2007- August 2012

Calculation of Returns=(P1-P0)/P0

September 2007-August 2008:

Reliance capital

returns

S&P CNX 500

returns

CNX Finance

Mean 0.001751987 -3.41243E-05 0.000153448

Standard

Deviation

0.051186674 0.022460085 0.029781501

Sample

Variance

0.002620076 0.000504455 0.000886938

Kurtosis 1.672568984 2.265718894 0.850923078

Skewness 0.089890285 -0.297151384 0.035659166

Table no.3.1:September 2007-August 2008 Descriptive statistics

Interpretation:

Standard deviation of the Reliance capital is high when compared to returns of S&P CNX

500 returns and CNX Finance Index. A large dispersion tells us how much the return on the

stock is deviating from the expected normal returns.

Reliance cap

and S&P

CNX 500

Reliance cap

and CNX

finance

CNX Finance

and S&P

CNX 500

COVARIANC

E

0.000937776 0.00120501 0.00060208

VARIANCE 0.000502421 0.000883361 0.000502421

BETA 1.866514033 1.364118467 1.19835753

R-SQUARE 0.670766719 0.629917275 0.816775051

Table no.3.2:2007-2008 Beta calculation

31

Interpretation:

In this analysis it is clear that beta of CNX Finance and S&P CNX 500 is 1.19 i.e these two

move in tandem with each other. Positive Covariance indicates two indices returns move

together.

The Beta of Reliance capital is 1.8 it means the stock is 86% more volatile than the market.

Since R-square is of Reliance capital stock is less than 70(<70),this represents the stock does

not move in line with the S&P CNX 500.Same applies to Reliance capital and CNX finance.

But, A high R-squared (between 85 and 100) indicates the equity performance patterns have

been in line with the index i.e is between CNX Finance and S&P CNX 500.

September 2008-August 2009

Reliance capital

returns

S &P CNX 500

returns

CNX Finance

Mean -0.000256426 0.000774115 0.001299152

Standard Deviation 0.056265167 0.027249058 0.035306097

Sample Variance 0.003165769 0.000742511 0.001246521

Kurtosis 2.396218481 5.252372171 3.509152065

Skewness 0.485996356 0.490370168 0.616451603


Interpretation:




32

Reliance cap

and S&P

CNX 500

Reliance cap

and CNX

finance

CNX Finance

and S&P CNX

500

COVARIANC

E

0.001256 0.001639 0.000895

VARIANCE 0.000739 0.001241 0.000739

BETA 1.698905 1.320673 1.210307

R-SQUARE 0.676958 0.686769 0.872559


Interpretation:

In this analysis it is clear that beta of Reliance capital and S&P CNX 500 is almost equal to

1,69 i.e Reliance capital stock is 69% more volatile than the market. Positive Covariance

indicates two indices returns move together.

The beta of Reliance capital and CNX Finance its index, Rcap is 32% more volatile than its

CCNX Finance. Whereas,CNX Finance is 21% more volatile than its benchmark index S&P

CNX 500.






Reliance

capital

returns

S &P CNX 500

returns

CNX

Finance

Mean -0.000288359 0.000764654 0.0015005

33

1

Standard

Deviation

0.021680551 0.010000081 0.0130895

2

Sample

Variance

0.000470046 0.000100002 0.0001713

4

Kurtosis 3.261554282 1.351534455 0.8575442

5

Skewness 0.3738604 -0.432581224 -

0.2822345

4


Interpretation:




rcap and s&P CNX

500

rcap and cnx

finance

cnx finance

and s&P cnx

500

COVARIANCE 0.00015194 0.000175 0.000115

VARIANCE 9.95968E-05 0.000171 9.96E-05

BETA 1.525555395 1.023013 1.155555

R-SQUARE 0.495133624 0.381478 0.779365


Interpretation:

34




The beta of Reliance capital and CNX Finance its index, Rcap is 2% more volatile than its


CNX 500.






Reliance capital

returns

S &P CNX 500

returns

CNX

Finance

Mean -0.00046117 -0.000366865 -

0.00235287

4

Standard

Deviation

0.011209066 0.015423174 0.02707842

2

Sample

Variance

0.000125643 0.000237874 0.00073324

1

Kurtosis 0.065474718 -0.15350778 4.96654435

4

Skewness 0.079077378 0.24548106 -

0.47251811

6


Interpretation:

35

Standard deviation of the Reliance capital is low when compared to returns of S&P CNX 500

returns and CNX Finance Index. A large dispersion tells us how much the return on the stock

is deviating from the expected normal returns.

Reliance cap

and S&P

CNX 500

Reliance cap

and CNX

finance

CNX Finance

and S&P CNX

500

COVARIANC

E

0.000129 0.000138 0.000157

VARIANCE 0.000125 0.000237 0.000125

BETA 1.033871 0.58289 1.255552

R-SQUARE 0.192321 0.115738 0.832646


Interpretation:




The beta of Reliance capital and CNX Finance its index, Rcap is 48% less volatile than its


CNX 500.






Reliance capital

returns

S &P CNX 500

returns

CNX Finance

Mean -0.000451586 0.000122662 0.000435381

Standard 0.032098853 0.011433531 0.01584683

36

Deviation

Sample Variance 0.001030336 0.000130726 0.000251122

Kurtosis 0.764073549 0.181640873 0.166903893

Skewness -0.020921618 0.000526085 0.134222717


Interpretation:




Reliance cap

and S&P

CNX 500

Reliance cap

and CNX

finance

CNX Finance

and S&P CNX

500

COVARIANC

E

5.6792E-05 6.82E-05 0.00017

VARIANCE 0.000130203 0.00025 0.00013

BETA 0.43618145 0.272605 1.308904

R-SQUARE 0.024042291 0.01804 0.89185


Interpretation:


1,69 i.e Reliance capital stock is 57% less volatile than the market. Positive Covariance


The beta of Reliance capital and CNX Finance its index, Rcap is 73% less volatile than its


CNX 500.

37





38

Chapter- 4

39

4. Findings :

September 2008-August 2013: In this study of 5 years market volatility there are many

factors which effect the markets like:

United States of America recession spread across the globe in 2008 which effected

many countries like India.

In the case of Reliance capital it was one of the best company in 2007 which provide

financial services which is trusted by many people as it is the market leader the stock

of Reliance capital was Rs.2770.Now the case is different as many competitors

emerged the stock gradually fell in time.

Reliance capital stock show high volatility as a whole when compared it with

benchmark index like CNX Finance and S&P CNX 500.

Suggestions

Awareness has to be increased about the trading.

They should reduce the brokerage charges because some investors are saying that

company charging more brokerage charges.

Company recommendations should has to be accurate.

The brokers has to contact regularly to know about the company services.

40

Chapter- 5

41

5.1 Summary :

There are many factors which leads to volatile markets like market sentiments.

Volatility is an important phenomenon in markets in general, and financial markets in

particular.

Among the various approaches used to measure volatility in financial time series, Beta

calculation is suited for finding the risk associated with particular stock or overall the index

characteristics of the financial time series. NSE,the premier Indian stock exchange are

growing in importance due to increased participation of institutional and individual investors

both from within the country and abroad. They have been the preferred destinations of

foreign

Institutional investment as they offer the benefits of diversification and strong growth

potential in the group of emerging markets. The analysis showed that there is risk involved in

investing as the beta value and standard deviation is very high.

42

5.2References & Bibliography:

Pattnayak,J.K(2006), “The Effect of Quarterly Earnings Announcements on Sensex:

A case with clustering of events,” Indian School of Mines, Dhanbad. Research

report.

Marisa Wilde (2005)., “Financial Reporting frequency and its Impact on Stock

Market – The case of Switzerland,” Research Assistant, Ph.D student. Research

report.

Santu Das(2008)., ISM University. ICFAI university journal of Accounting

Research.

Angela J. Black(2006), “US Stock Prices and Macroeconomic Fundamentals,”

University of Aberdeen- Business School. Finance and Mgmt.

Shruti Tripathi,(2008), “Comparison between BSE 100 and Sensex,” Indira Gandhi

Institute of Development Research.

Victor J,(2001), “An Empirical Investigation Of the speed of the Market Reaction

to Earning Announcements,” Ph.D student, Research paper, Aaizona university.

BOOKS :

Sudhindhra Bhat(2009)," Security Analysis and Portfolio Management",1st edn Publishing

by Excel Books.

WEBSITES :

economictimes.com, www.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/business-

practices-risk-management-quality-top-insurance-sector-risks-pwc/articleshow/21892595.cms,

Accessed on (18/08/2013).

www.nse-india.com ,

http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?

symbol=RELIANCE&illiquid=0,Accessed on (16/08/2013).

43

http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=RELIANCE&illiquid=0

http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=RELIANCE&illiquid=0

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/business-practices-risk-management-quality-top-insurance-sector-risks-pwc/articleshow/21892595.cms

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/business-practices-risk-management-quality-top-insurance-sector-risks-pwc/articleshow/21892595.cms

volatality of indian stock market ,case of reliance capita

Documents