“A STUDY ON TECHNICAL ANALYSIS OF S&PCNX NIFTY

INDEX IN INDIA”

D.Sugumar.,M.Com.,M.Phil.,MBA.,PGDPMIR., Vel Sri Ranga Sanku

College(Arts & Science) ,Avadi,Chennai-62.

1.1. INTRODUCTION :

The most fascinating word amongst the investors around the world is to

invest in Indian Sensex and nifty because of its exuberant growth. India, which

is now the fourth largest economy in terms of purchasing power parity, will

overtake Japan and become third major economic power within 10 years.

Indian Economy experienced a GDP growth of 9.0 percent during 2005-06 to

9.4 percent during 2006-07. By 2025 the India's economy is projected to be

about 60 per cent the size of the US economy. Despite of this glittering

feature we should not ignore the hidden side of the Indian economy. that is

India has the world's second largest labour force, with 509.3 million people,

60% of whom are employed in agriculture and related industries; 28% in

services and related industries; and 12% in industry. . The agricultural sector

accounts for 28% of GDP; the service and industrial sectors make up 54%

and 18% respectively. Among the service sectors stock market make more

contribution. we have 23 stock market among this two vital market that is

BSE(Bombay stock market) and NSE(National stock exchange) .The equity

market capitalization of the companies listed on the BSE was US$ 1.61 trillion,
making it the largest stock exchange in South Asia and the tenth largest in the

world. Equity market capitalization of the companies listed on the NSE was

US$ 1.46 trillion, making it the second largest stock exchange in [South

Asia].Which stand as a hub for the world investors, that is the reason why we

face lots of volatility in the market.

The interest in studying the movement of S&PCNX NIFTY Index

considerable momentum following the early study of Ms.Shalini Batia (2007)

Indicated that trader can profit from the discrepancy in the prices of NIFTY.

Mr.Saumitra N Bhaduri (2007) indicated hedging return gives better

performance in long time horizons only. Dr.Srinivas, S.S.Kumar (2005)

observed that the stock prices, on average increase and decrease significantly

on the effective day for the NIFTY Index. In this connection the researcher

would like to make on attempt to study on Technical Analysis on S&P CNX

NIFTY Index in India.

2
1.2. ABOUT STOCK EXCHANGE :

The National Stock Exchange of India Limited (NSE) is a Mumbai-based

stock exchange. It is the largest stock exchange in India and the third largest

in the world in terms of volume of transactions. Though a number of other

exchanges exist, NSE and the Bombay Stock Exchange are the two most

significant stock exchanges in India, and between them are responsible for the

vast majority of share transactions.NSE is mutually-owned by a set of leading

financial institutions, banks, insurance companies and other financial

intermediaries in India but its ownership and management operate as

separate entities. As of 2006, the NSE VSAT terminals, 2799 in total, cover

more than 1500 cities across India. In October 2007, the equity market

capitalization of the companies listed on the NSE was US$ 1.46 trillion,

making it the second largest stock exchange in [[South Asia]. NSE is the third

largest Stock Exchange in the world in terms of the number of trades in

equities. It is the second fastest growing stock exchange in the world with a

recorded growth of 16.6

3
S&P CNX NIFTY:

It reflects the price movement of 50 stocks selected on the basis of

market capitalization and liquidity (Impact cost)

The base period selected for NIFTY index is the close of price on

November 3, 1995, which markets the completion of one year of operation of

MSE’s capital market segment. The base value of the Index has been set at

1000. It is a value weighted Index.

1.3. SCOPE OF THE STUDY :

This study concerns with NIFTY Index only. Which is relates to National

Stock exchange. Scope of this study is not limited one because researcher

has taken five years price of the S&P CNX NIFTY Index for the purpose of this

study from 2003 to 2007. Especially researcher applied short term and long

term moving average to determine the movement of the price.

4
1.4. IMPORTANCE OF THE STUDY :

In the broad sense this study is quite relevant to the present scenario

the share market face more volatile. Because of this investors have lost their

confidence due to more ups and down in the market. Further most of the

domestic investors are unfamiliar with most technique used in predicting stock

price hence finally they lost, their hard earned money. In this context this study

exclusively focused on simple means to predicting market movement. The

researcher has used SMA and LMA which is also useful to learn how the

market trend is moving.

5
1.5. STATEMENT OF THE PROBLEM :

Globally, there are increased evidences to suggest that investor

confidence has assumed an important role in the economic development of a

country. The Economist (1998) indicated that a lost of issues need to be

addressed to make capital markets safer. David Bullard (1998) in Business

Times has indicated that the private investors are the big losers on listing

scars. Companies with no earning record and with inexperience directors got

listed on stock exchange. Their only objective is profit making out of inflated

market price. HsienLoong (2000) while addressing financial institution In

Bangkok. Stressed the importance of economic co-operation among ASEAW

corporate restructuring Dr.K.Santh Swarup, a factors analysis indicates that

Investment decision are based on personal analysis than brokers advices also

current market price is a better investment indicator for investors than analysis

recommendations Joseph J.Oliver (2002) in his presentation to the senate

standing committee on banking trade and commerce suggested that

regulations the accounting professionals analysis brokerage firms, public

companies, share holders and government must ensure good corporate

governance and reduce the corporate failures. Dr.S.Janakiraman (2007)

observed that under pricing and delays in IPO’s in India are altering the price

in the market. Ms.Shali Bhatia (2007) futures Index leading the Spot Index by

6
10 to 25 minutes suggests that for a short period of time the prices, resulting

in arbitrage opportunities.

Dr.Asjeet lamb has indicates that Indian Market is influenced by the

large developed equity markets including the US, UK and Japan and that this

influenced strengthened during more recent time.

This study is based on strengthened the early studies. On the basis of

the empirical study researcher cited the following question in the mind.

1. Why the Investors lost their confident in investment

2. How a layman investor can under stand market trend

3. What factors makes market volatile.

4. How an investors has to determine to purchase or sale the

securities.

These are the questions are crack down in the mind of the researches

that takes him to make an attempt to study the technical analysis on S&P CNX

NIFTY Index.

7
1.6. OBJECTIVES OF THE STUDY:

PRIMARY:

To study the price movement of S&P CNX NIFTY Index

SECONDARY:

• To compare the price of S&P CNX NIFTY Index during the year 2003-

2007.

• To analyse the SMA and LMA of S&P CNX NIFTY in India.

1.7. HYPOTHESIS :

1) H0 : There is a significant relationship between GDP and S&P CNX

NIFTY Index

H1 : There are no significant relationship between GDP and S&P CNX

NIFTY

2) H0 : There is a significant relationship between Inflation and S&P

CNX NIFTY Index.

H1: There are no significant relationship between Inflation and S&P

CNX NIFTY Index

8
1.8. METHODOLOGY:

This study is based on the analytical research approach. The

researcher used the information already released by the NSE, that should be

taken into further critical evaluation.

1.9. DATA :

This study is based on secondary method of data collection. Data have

been obtained from official website of National Stock exchange in India. The

researcher has collected only five years data from 2003-2007.

1.10. SAMPLE :

Non probability sampling techniques have been used in this research. In

which Judgement sampling method have observed. On this basis researcher

have selected 2003 to 2007 as sampling period for this research.

1.11. STATISTICAL TOOL :

Simple statistical tools have been employed for the study purpose like,

comparative analysis, trend analysis, moving average and short term and long

term moving average are used for this study. Further chi-square test and

correlation are employed for testing hypothesis.

9
1.12. PERIOD OF STUDY :

This study is conformed only the application of few technical analysis on

S&P CNX NIFTY during the period 2003-2007.

1.13. LIMITATION OF THE STUDY :

• The Researcher has taken into account only last five years, he could

not concentrate rest of the years.

• In sufficient time to get into deep study.

1.14. CHAPTER SCHEME :

CHAPTER I - Introduction

CHAPTER II - Review of Literature

CHAPTER III - Profile of NSE

CHAPTER IV - Analysis and Interpretation

CHAPTER V - Finding, Suggestion & Conclusion

10
 CHAPTER – II

2.1. REVIEW OF LITERATURE IN INDIA

“A study reveals that there are various features in India which contribute

to the under-pricing and are unique by World standards. For one, the delay

from issue date to listing date is enormous in India when compared with other

countries. Among the other features are the ways the offer price is fixed and

the availability of information to lay investors. The offer price is chosen by the

firm months before the issue opens and a lack of feedback mechanism means

that there is no channel through which the market demand can alter the price.

Coupled with the fact that IPO’s”1

“According to study undertaken by Ms.SHALINI BHATIA has reveals

that the futures market leads the spot market has important implications for

arbitrageurs, who take offsetting positions in the two markets to earn assured

risk free returns. Futures index leading the spot index by 10 to 25 minutes

suggests that for a short period of time the prices in the two markets could be

out of line, resulting in profitable arbitrage opportunities. Traders can profit

from the discrepancy in the prices of Nifty futures and Nifty spot, provided they

can react quickly. An arbitrageur is required to complete both legs of an index

arbitrage transaction within a short time span. The prior knowledge of index

1
1.Dr. S. Janakiramanan Under-Pricing and long run performance of Initial Public Offerings in Indian Stock
Market, Dec 2007

11
futures leading the spot index could likely influence his decision as to which

market should he react in first, which leads to the initial trade in the futures

market.”2

“A study undertaken by Roa and Bose depicted that use the fuzzy logic

approach to model the subjective characteristics of human nature in the

decision making process involved in assessing the corporate governance risk.

Mamadani inference along with the Center of Area method of defuzzification

allowed taking into consideration even the slightest influence of a rule. Further

research would be needed to conclude the effect of various other fuzzy

operators, input aggregation operators, result aggregation operators and

defuzzification methods on the final rating”.3

“An amazing finding of Ms.SAUMITRA tries to give an overview of the

competing models in calculating optimal hedge ratio. The effectiveness of

these strategies is compared with mean returns and average variance

reduction with respect to the un hedged position. Daily data on NSE Stock

Index Futures and S&P CNX Nifty Index for the time period from 4th

September 2000 to 4th August 2005 has been considered for developing the

optimal hedge ratio and the data from 5th August 2005 to 19th September 2005
2
Ms. Shalini Bhatia Do the S&P CNX Nifty Index and Nifty Futures Really
Lead/Lag? Error Correction Model: A Cointegration Approach ,Nov 2007
3
Ms. Sadhalaxmi Rao and Mr Sumit Kumar Bose Evaluating Corporate Governance Risk:
A Fuzzy logic approach, May 2007

12
has been considered for out of sample validation. The results clearly

establishes that the time varying hedge ratio derived from DVEC-GARCH

model gives a higher mean returns compared to other counterparts. On the

average variance reduction front the DVEC-GARCH model gives better

performance only in the long time horizons compared to the simple OLS

method that scores well in the short time horizons”4.

“The conclusion of G.P.SAMAMTHA is that a return series (which

possibly does not follow normal distribution) may first of all be transformed to

a (near) normal variable by applying suitable transformations to

normality/symmetry; required quantiles of this near-normal transformed

distribution would be estimated, and finally the value of the inverse function of

normality transformation at the estimated quantiles would produce required

quantiles for the original return and hence VaR for actual portfolio. Logically,

the performance of proposed strategy depends upon the efficiency of the

applied transformation to convert a non-normal distribution to a (near) normal

distribution. Unlike this, the efficiency of conventional strategies lie in their

capability in approximating unknown (true) distribution of portfolio return. The

performance of new VaR modelling strategy has been assessed with respect

to select stock price indices and exchange rates for Indian financial markets”5

4
Mr. Saumitra N Bhaduri / Mr. S. Raja Sethu Durai Optimal Hedge Ratio and
Hedging Effectiveness of Stock Index Futures : Evidence from India, May
2007
5
Dr. G. P. Samantha On The New Transformation-Based Approach To

13
 “In a accordance with the study of MUKHERJEE it may not be feasible

to make any strong generalization on the possible lead-lag relationship among

the spot and futures market in India by looking at these results. Though our

evidence proves that new market information disseminates (may not be

equally) in both the spot and futures market and therefore serve an important

role in the matter of price discovery, they can get some more strong and

reliable results through investigating such relationship for a longer period of

time within which the problem (if any) of any periodic effect will be

disappeared. Apart from this, a comparison among the results of two longer

(at lease one year) periods – one period just after the onset of index futures,

and the other is for the recent period, can also exhibit whether there is any

change in the informational efficiency of the markets over a period of time.

Therefore, a further research in those lines can strongly focus whether there is

any real change in the informational efficiency of Indian cash market after the

introduction of derivative trading”6

“In this study is an effort to understand whether the ‘index effects’ documented

for the indices abroad happen for the Nifty and Jr. Nifty indices. They find that

Measuring Value-At-Risk: An Application To Forex Market In India, Jul 2006

6
Kedar Mukherjee / Dr. R. K. Mishra Lead-Lag relationship between Equities and
Stock Index Futures Market and its variation around Information Release: Empirical
Evidence from India, Jul 2006

14
the stock prices, on average, increase (decrease) significantly on the effective

day for the Nifty index and no such effects were observed for Jr. Nifty index.

The prices revert after around a week’s time both for additions as well as for

elections. But no abnormal volumes were detected around the effective day.

Since no such reactions were observed for Jr. Nifty revisions we can possibly

doubt the certification effect and no significant changes in the liquidity were

observed. So they can’t attribute the price reactions to the expected increase

in liquidity”7

In the conclusion of Dr.BIDISHA & JAIN is that “For the first time, the

bid ask spread for stocks trading on the NSE, India. This allows, for the first

time, to compare the frictions to trading in an emerging market like India to the

developed western securities markets. They find that average (rupee) spread

for all stocks listed on the NSE is 2.17, which is about 3.2% of the average

price. This is much larger than the average percentage spreads observed for

NYSE and NASDAQ stocks. Comparing this to the tick size of Rs. 0.05 (same

across all stocks as per NSE regulations), the spread to tick ratio is 43.4,

which is also large by international standards. Variables that affect the bid-ask

spread, viz. trading volume, market capitalization and share price all show

extremely (right) skewed distributions”8

7
Dr. Srinivas S S Kumar Price and Volume Effects of S&P CNX Nifty Index Reorganization,
Dec 2005
8
Dr. Bidisha Chakrabarty & Dr. Pankaj Jain Understanding the Microstructure in
Indian Markets, Aug 2005

15
 “According to the study conducted By BADRINATH is reveals that “The

increasing integration of financial markets over the years has led to greater

movement of funds between these markets and also to return and volatility

spillovers. In this study, they have examined the stock market, the foreign

exchange market and the call money market in India for evidence of volatility

spillovers using multivariate EGARCH models which facilitate the study of

asymmetric responses. The results indicate the existence of asymmetric

volatility spillovers across these markets. The results also indicate that either

the information assimilation across markets was slow or that the spillovers

were on account of contagion”9

According to the study conducted SUBBA REDDY has reveals that

“Analysis of determinants of operating performance for debt and equity

seasoned issuers shows that free cash flow has positive impact on the change

in adjusted operating cash flow for both debt and equity issuers following the

seasoned issue, though only coefficients for equity issuers are statistically

significant. Performance run up prior to seasoned offering has negative impact

on the operating performance of equity issuers in the long run. These findings

are consistent with McLaughlin, Safieddine and Vasudevan (1998).

9
H.R. Badrinath & Prakash G. Apte Volatility Spillovers Across Stock, Call
Money And Foreign Exchange Markets, Aug 2005

16
Analysis of earnings management as proxied by discretionary component of

current accruals shows a significant negative impact “10

“Is the Findings of shows KSHAMA that index funds can effectively use

the index futures market to reduce tracking error arising out of buffer cash and

delays in dividend receipts. Due to basis risk of the index futures, funds would

not be able to obtain perfect replication and zero tracking error. Impact costs

and rollover costs would also reduce the effectiveness of the futures

implementation strategy. However, as against taking no action and suffering

tracking error, the benefits of using this strategy are clearly evident”11

“A Study reveal that, The fact that skimming and underreporting of

income was a common practice with separate sets of accounting systems

maintained to hide this finds credence in the literature. Some of this is

anecdotal and circumstantial in nature but generally accepted. Limited

empirical support is also available in case of large business groups where

tunneling of profits was observed (Bertrand et al 1999). The magnitude of

underreporting of corporate incomes can be gauged from the following figures.

According to Dutta (1997) in 1987-88, there were 40.302 taxable private

10
Dr. Y. Subba Reddy Seasoned Capital Offerings: Earnings Management and
Long-Run Operating Performance of Indian Firms, Sep 2004

11
Ms. Kshama Fernandes Improving Index Fund Implementation in India, Jul
2004

17
sector companies with profits of Rs.2317 Crore28 and a tax liability of Rs 1219

Crore. Of these, only 2440 companies declared taxable profits of over Rs. 10

lakh, with a total profit of Rs 1934 Crore. The remaining 37,862 companies

declared a total profit of Rs. 383 Crore with an average tax liability of just Rs.

56,500 per company. Taxable corporate profits according to a constant 1988

rupee rose from Rs. 2641 Crore in 1961-62 to Rs. 4235 Crore in 1966-67, and

have plummeted to Rs. 2317 Crore in 1987-88 (Dutta, 1997).”12

“In this paper we have defined corporate governance as a mechanism

for allocating resources efficiently in order to maximize social welfare. We

have shown that welfare costs are high if assets are not fairly priced.

Mispricing has been linked to corporate governance with an assumption that

most of the mispricing in the stock market is attributed to the information

disseminators or the corporate entities. We have devised a method to

measure mispricing during corporate announcements using DHS (1998)

theoretical framework. We find that mispricing is low on an average for good

governance companies compared to bad governance companies. Stock

prices of good governance companies are closer to their intrinsic value

compared to bad governance companies. However, during event

announcement periods, the results do not hold. We find that good governance

companies are highly mispriced during event announcements. We also find

12
Dr. B. V. Phani , Mr. V. N. Reddy,N.Ramachandran & Asish K Bhattacharyya
Insider Ownership , Corporate Governance and Corporate Performance, Jul 2004

18
that mis pricing varies based on the nature of event. Good governance

companies are highly overpriced during sale of assets and preferential

allotment events. On the other hand, bad governance companies are highly

under priced for the same events. The level of over/under pricing is not that

high for merger/takeover and dividend announcements. In support of this

evidence, we find that there is more private information before the

announcement of sale of assets and preferential allotment events for good

governance companies. We also find returns calculate with varying durations

will have a significant effect on the overall results. The volatility in the private

information period during sale of assets period is higher for good governance

companies. Thus, sale of assets, which is not a widely addressed event in the

literature, is an important event while measuring corporate governance. “13

13
Dr. Vijaya B Marisetty & Dr. Vedpuriswar A V Corporate Governance and Market
reactions- Mar 2004

19
2.2 Review of Literature in Abroad

“In the study of Susanne Leitterstorf,,Petronilla Nicolett,Christian

Winkler (2008) set out to explore whether super-equivalent Listing Rules,

which go beyond the requirements of EU Directives, can contribute to firm

valuation relative to the rules which apply to the AIM market, and whether

firms should be given a choice between different listing standards. Our aim

was to exploit data on changes in firm valuation following announcements of a

transfer between the LSE’s Main Market and AIM to draw conclusions about

the effects of the super-equivalent Listing Rules applicable on the Main Market

and the merits of granting issuers a choice between the different regulatory

regimes applicable on the Main Market and AIM. We find that firms that only

announce a transfer between markets do not experience any statistically or

economically significant abnormal returns. We observe abnormal returns only

for firms that announce equity issuance alongside their decision to transfer to

another market – positive returns for those switching from Aim to the Main

Market and negative for those switching the other way.

We cannot conclude from our results that the higher regulatory

standards on the Main Market do not affect the valuation of the many larger

issuers which would not contemplate switching regimes. However, for most of

the firms our study focuses on, the differences in regulation between the Main

20
Market and AIM do not appear to be a significant factor driving valuation or at

least not one which we can isolate empirically. Expectations about future

growth appear to matter more, at least for firms announcing an impending

equity issues alongside with their intention to transfer between markets. The

FSA is keen to promote academic research into issues of direct relevance to

its objectives. We welcome comments and questions from the academic

community that may further understanding of the issues discussed in this

paper. On the basis of comments we can make appropriate modifications to

this paper.”14

“In the study Sarah Smith concludes that the introduction posed three

questions:

• What drives persistency rates among different groups in the population?

• To what extent does non-persistency reflect poor sales and advice, rather

than unpredictable events in consumers’ lives that could not have been

anticipated at the time of sale?

• Are there any messages that could be given to providers, advisers or

consumers to help improve levels of persistency?

Of course, persistency is the outcome of consumers’ changing

circumstances and the sales and advice process, as well as the changing
14
Susanne Leitterstorf,,Petronilla Nicolett,Christian Winkler The UK Listing Rules and Firm
ValuationApril 2008 page-43

21
market for financial products. It is not always possible to draw a neat dividing

line between the different causes of lapses, but a number of preliminary

conclusions do emerge from the analysis of the BHPS and aggregate

persistency data. Approximately one-quarter of cases of lapses in personal

pensions appear to be related to changes in consumers’ financial

circumstances29. In 7% of cases, lapses appear to have been caused by a

change in marital or family circumstances. Some of these changes in family

and economic circumstances may be anticipated, in other cases they may be

hard to predict. Of possibly greater concern is that, in at least a further one-

quarter of cases of lapse, the individual reported financial difficulties at the

time they started making contributions, suggesting that the policy may have

been unaffordable at the time it was sold. The aggregate persistency data

reveal interesting differences in persistency rates across different products

and between the two main distribution channels. A key issue is whether there

is systematic variation by duration. Diacon and O’Brien’s argument would

suggest that higher lapse rates in year one indicate a sales/ advice effect. On

average (ie across all products and channels) lapse rates in the second and

subsequent years are not significantly different from those in the first year, but

they are lower in the tied channel and for pensions. With the introduction of

more flexible stakeholder products, the penalty for consumers of lapsing on a

long-term savings product is far less.”15

15
Sarah Smith, Stopping short: why do so many consumers stop contributing to long-term
savings policies? January 2004,Page32,OP21

22
 “We have developed what we hope is an intuitively simple measure of

market cleanliness. We also believe it is a useful measure. The measure was

developed following detailed consideration of alternative approaches, the full

details of which are not presented in this paper. For example, we considered

several ways of identifying those announcements which contain the most

significant news. We believe our approach avoids subjectivity involved in

reading and classifying announcements based on our own interpretation of the

information in those announcements. Our approach also avoids problems

associated with the overall increase in the number of announcements which

appears to have taken place in recent years. We welcome any comments

from interested parties on the methodology or results presented in this paper.

Measuring market cleanliness Analysis of this measure before and after the

introduction of FSMA in 2001 does not suggest that the level of insider trading

has fallen. Evidence from previous studies suggests that this could reflect the

fact that the first prosecutions under the new rules did not occur until 2004. It

may also be relevant that the fines imposed in those cases were relatively

small. The amount of work required to perform again the analysis in this paper

is minimal, as data on announcements and stock prices is easily available in

electronic form and we expect to continue to monitor this measure in future.”16

“In accordance with the study of Isaac Alfon,Isabel Argimon, have

argued that the amount of capital held by banks and building societies

16
Ben Dubow,Nuno Monteiro OP23 Measuring market cleanliness ,March 2006,Page26

23
depends on risk management, market discipline and regulatory environment.

Using both quantitative and qualitative approaches, we provide evidence on

which hypotheses hold in the UK. In particular, we analyzed prudential returns

for UK banks and building societies and the responses to a questionnaire sent

to a sample of firms that we later interviewed. Our findings are in line with the

results obtained with data from other countries (Ayuso et al. (2004) and

Lindquist (2004)). Even though all firms have a buffer over individual capital

requirements, our analysis indicates that changes in these individual capital

requirements are very likely to be accompanied by some response in the

capital ratio. For example, if a bank (building society) which is holding capital

at 15% of risk weighted assets has its individual required capital ratio

increased from 10% to 11%, it would on average increase its actual capital

ratio to 15.6% (15.4%). Our evidence indicates that the dependency of capital

ratios on capital requirements is somewhat greater for firms operating close to

their regulatory requirements than for those that hold a large amount of

excess capital. As the firms with smaller capital buffers are generally the

larger banks, it could be argued that capital policy changes introduced by the

regulator will affect large banks more than smaller ones. The firm’s degree of

risk aversion will determine the final impact. Adjustment costs affect the

amount that firms hold. They seem to be marginally larger for building

societies than for banks, maybe because of the formers’ limited access to

capital markets. Firms say that the difference between actual and desired

24
capital is mainly determined by the costs of raising further capital and by

provision for unexpected events in the economy and in the firm. We find that

the economic cycle is negatively associated with capital ratios, at least for

banks. Firms also say that their desired capital is mainly determined by the

need to finance their long term business strategy. Risk appetite and risk

management help determine capital holdings. Perhaps surprisingly, portfolios

with a higher proportion of assets falling into the high risk group category (in

our case, 100% weighted assets) are associated with lower capital ratios, a

result also obtained by Lindquist (2004).”17

“In the study of Malcolm Cook and Paul Johnson, Choosing the most

cost efficient and tax efficient way to save is a complex process. Yet the

pension policy, and increasingly the welfare policy generally, of successive

Governments have been built around the assumption that people must make

that choice. Governments have been particularly keen that people should

choose to save through a pension because only that provides the security (to

the government as well as to the individual) of an income in retirement. Saving

through a pension, though, means tying up one’s money for a long period. The

government must therefore provide incentives so that people can obtain a

better return from pension saving than from competing but more flexible

Isaac Alfon,Isabel Argimon,Patricia Bascuñana-Ambrós What determines

17

how much capital is held by UK banks and building societies?, July

2004,Page-32-33

25
savings products. The present approach of giving more generous tax

treatment to the pension lump sum at retirement than to pension income is

inconsistent with the aim of trying to encourage people to provide themselves

with an adequate income in retirement. Yet it is the existence of the tax free

lump sum that gives pensions their tax advantage over other products

currently available. However, this advantage is often more than offset

by charges, especially for basic rate taxpayers who stop contributing early on.

Indeed, for basic rate taxpayers the value of the additional tax relief is not very

substantial in itself. If there were no differences in charges, basic rate

taxpayers would only need to be willing to pay an extra 7% for the very

substantial flexibility of a CAT-standard ISA in order to make that the more

worthwhile choice. For an average level of contribution, the difference

between the charges on the median personal pension and those on a CAT-

standard ISA broadly cancel out the tax advantages of the former, even when

contributions are paid until retirement. For higher rate taxpayers, especially

those who expect to pay tax at the basic rate during retirement, the pension

tax relief is much more valuable. Given that the tax system itself is probably

an inadequate incentive for many people to save in a pension, the steps that

the government has taken in introducing stakeholder pensions with tightly

defined charging criteria could potentially be an important step in increasing

the relative attractiveness of pension saving. The announcement of the

stakeholder proposals has already caused many of the more expensive

26
providers to give better value when contributions are stopped early. But

whether stakeholder pensions will provide enough incentive for those who do

not want to save remains open to question”18

“Isaac Alfon and Peter Andrews study observed that the central

problem of CBA is to identify extremely complex (and to an extent

unknowable) interactions within an economy and reduce them to a set of

propositions that are simple enough to be readily understood and yet realistic

enough to be useful. Thus a successful CBA might be rather like an

impressionist painting – much less detailed than a photograph but much more

recognisable than an abstract image would be. The FSA is starting to use

CBA to help to deliver its objectives in the manner required by the draft FSMB.

The FSA’s CBA arrangements, described above, are intended to build on and

enhance the SIB’s initiative by making CBA an intrinsic part of the policy

making process. This reflects both the FSA’s own commitment to making

regulation cost-effective and the increased emphasis on CBA in the FSMB

compared with previous UK legislation on the regulation of financial services.

It is too early to determine exactly how successful all this will be but there are

grounds for optimism: the FSA’s approach is a pragmatic comparison of

regulatory options; it is reasonable to suppose that explicit analysis of the

18
Malcolm Cook and Paul Johnson,Saving for RetirementHow taxes and charges affect choice, May
2000,page-30.

27
likely impacts (costs and benefits) of proposed interventions in markets will

enable the FSA to formulate more proportionate measures than would

otherwise be the case; and there are already examples, some of which are

mentioned in this paper, of CBA providing the information needed to

determine and demonstrate whether or not specific policy options are likely to

be cost-effective. The FSA also plans to undertake specific projects, as part of

its work on the economics of financial regulation, to assess the overall costs

and benefits of financial regulation. In the longer term, it might be possible to

identify the genuinely incremental costs and benefits of the overlapping layers

of regulation and determine which layers are cost-effective and which of them

contribute little to correcting the market failures that exist in UK financial

services.”19

“According to the conclusion Clive Briault of The UK has not been

alone in establishing a single national financial services regulator. This

international trend has reflected in particular the increasing number of

institutions undertaking a range of different financial activities, the potential

economies of scale and scope from combining regulatory responsibilities

within one or two financial regulatory bodies, and a reappraisal in some

countries of the allocation of – and the accountability for – monetary stability,

19
Isaac Alfon and Peter Andrews, Cost-Benefit Analysis in Financial Regulation, How to do it and how it adds
value, September 1999,Page-25

28
financial stability and micro-regulatory responsibilities. This paper has set out

the theoretical advantages of a single national financial services regulator and

the way in which, in the UK in particular, these advantages can be delivered in

practice, while minimizing as far as possible any potential downsides from

such an approach. Good hart et al (1998, page 181) may well be correct in

stating that “there is no universal ideal model”, not least because financial

markets have developed – and will continue to develop – differently in different

countries. But, overall, a single national financial services regulator, covering a

broad range of financial services activities and spanning both prudential and

conduct of business regulation, is likely to be well placed to deliver effective,

efficient and properly differentiated regulation in today’s financial

environment.”20

“In the study of David Llewellyn point was that regulators are to be

viewed as supplying regulatory, monitoring and supervisory services for which

there is an evident consumer demand. The analysis of the rationale for

financial regulation suggests that the major potential benefits of efficiently

framed regulation are derived through six main routes:

(1) reduced transactions costs for consumers (e.g. information and monitoring

20
Clive Briault,The Rationale for a Single National Financial Services Regulator May 1999,Page-34

29
costs) to the extent that these are not offset by higher transactions costs of

firms and the regulatory agency;

(2) Efficiency gains through ameliorating market breakdown or grid lock;

(3) enhanced consumer confidence;

(4) The possible generation of positive externalities;

(5) Efficient authorization procedures which remove hazardous (solvency and

conduct of business) firms from the market; and

(6) Enforced disclosure which enhances the ability of consumers to make

informed judgements, and increases the transparency of contracts.

While the rationale for regulation has been outlined, and there is an

evident consumer demand for regulation, this does not mean that optimum

regulation has no bounds. There is a cost to regulation and, in one way or

another, the consumer pays the cost. Regulation is necessarily about trade-

offs and making judgements, particularly when considering costs and benefits.

If the potential for ‘over-regulation’ is to be avoided, it needs to be firmly

grounded on a clear basis of the rationale for regulation. The concept of

‘protecting the consumer’ is largely protection against the costs of externalities

and other market imperfections and failures. For all these reasons, occasional

regulatory lapses and failures are to be regarded as the necessary cost of

devising an effective, efficient and economic system of regulation. A degree of

regulatory intensity that removed all possibility of failure would certainly be

30
excessive, in that the costs would outweigh the benefits. We must also

consider a particular moral hazard of regulation. When a regulatory or

supervisory agency is created and establishes regulatory requirements on

financial firms, a danger arises that an ‘implicit contract’ is perceived as having

been created between the consumer and the regulator. This may arise

because the consumer assumes that, because there is an authorisation

procedure, specific regulatory requirements are established, and the suppliers

of financial services are authorised and supervised, institutions must

necessarily be safe. The moral hazard is that this ‘implicit contract’ creates the

impression that the consumer need not take care with respect to the firms with

which she deals in financial services or that, if something goes wrong,

compensation will automatically be paid. There are distinct limits to what

regulation and supervision can achieve in practice. There is no viable

alternative to placing the main responsibility for risk management and

compliant behaviour on the shoulders of the management of financial

institutions.”21

The present study defers from the early study of both domestic

country and aboard .In this study researchers has to concentrate S&P CNX

NIFTY in India which would be helpful to apply preliminary techniques to find

21
David Llewellyn,The Economic Rationale for Financial Regulation, April 1999,Page-50

31
the trend of the stock market in India which is greatly helpful to the layman

investors and non institutional investors in India

In this paper, I conduct a detailed, large sample analysis of the dynamic

relationships between the South Asian markets of India, Pakistan and Sri

Lanka and the major developed markets during July 1997 -February 2003.

Using a multivariate co integration framework and vector error-correction

modeling I find that the Indian market is influenced by the large developed

equity markets including the US, UK and Japan and that this influence has

strengthened during the more recent time period of January 2000 -February

2003. In addition, I do not find that the Indian market exerts any significant

influence on the Pakistani and Sri Lankan markets. For Pakistan and Sri

Lanka I find that these markets are relatively “22

CHAPTER – III
22
Dr. Asjeet S Lamba An Analysis of the Dynamic Relationships Between South
Asian and Developed Equity Markets, 31 Jan 2004

32
3.1 About the National Stock Exchange of India:

In the fast growing Indian financial market, there are 23 stock

exchanges trading securities. The National Stock Exchange of India (NSE)

situated in Mumbai - is the largest and most advanced exchange with 1016

companies listed and 726 trading members.

The NSE is owned by the group of leading financial institutions such as

Indian Bank or Life Insurance Corporation of India. However, in the totally

de-mutualised Exchange, the ownership as well as the management does not

have a right to trade on the Exchange. Only qualified traders can be involved

in the securities trading.

The NSE is one of the few exchanges in the world trading all types of

securities on a single platform, which is divided into three segments:

Wholesale Debt Market (WDM), Capital Market (CM), and Futures & Options

(F&O) Market. Each segment has experienced a significant growth throughout

a few years of their launch. While the WDM segment has accumulated the

annual growth of over 36% since its opening in 1994, the CM segment has

increased by even 61% during the same period.

33
 The National Stock Exchange of India has stringent requirements and

criteria for the companies listed on the Exchange. Minimum capital

requirements, project appraisal, and company's track record are just a few of

the criteria. In addition, listed companies pay variable listing fees based on

their corporate capital size.

The National Stock Exchange of India Ltd. provides its clients with a

single, fully electronic trading platform that is operated through a VSAT

network. Unlike most world exchanges, the NSE uses the satellite

communication system that connects traders from 345 Indian cities. The

advanced technologies enable unto 6 million trades to be operated daily on

the NSE trading platform.

3.2 History of the National Stock Exchange of India:

Capital market reforms in India and the launch of the Securities and

Exchange Board of India (SEBI) accelerated the incorporation of the second

Indian stock exchange called the National Stock Exchange (NSE) in 1992.

After a few years of operations, the NSE has become the largest stock

exchange in India.

34
 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 the 14th 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 and 1997) and CHIP Web Award by CHIP magazine (1999).

35
3.4 National Stock Exchange of India Profile:

National Stock Exchange of India Ltd.

Exchange Plaza,

Plot no. C/1, G Block,

Address
Bandra-Kurla Complex

Bandra (E)

Mumbai - 400 051

Telephone (022) 26598100 - 8114
Click here for the National Stock Exchange of India web
Web Site
site
Trading Hours 9.30 am - 4.30 pm.
Holidays Bakri Id (11 Jan), Republic Day (26 Jan), Moharram (9

Feb), Holi (15 Mar), Ram Navami (6 Apr), Mahavir Jayanti

(11 Apr), Ambedkar Jayanti (14 Apr), Maharashtra Day (1

May), Independence Day (15 Aug), Gandhi Jayanti (2 Oct),

Laxmi Puja (21 Oct), Bhaubeej (24 Oct), Ramzan Id (25

Oct), Christmas (25 Dec)

Securities Equities, bonds, CPs, CDs, warrants, mutual funds units,

ETFs, derivatives.
Trading System Fully automated screen based trading platform NEAT
Key Staff S.B. Mathur - Chairman

Ravi Narain - Managing Director and CEO

36
 The National Stock Exchange of India Limited (NSE), is a Mumbai-

based stock exchange. It is the largest stock exchange in India in terms daily

turnover and number of trades, for both equities and derivative trading.

Though a number of other exchanges exist, NSE and the Bombay Stock

Exchange are the two most significant stock exchanges in India and between

them are responsible for the vast majority of share transactions.

• NSE is mutually-owned by a set of leading financial institutions, banks,

insurance companies and other financial intermediaries in India but its

ownership and management operate as separate entities[. As of 2006, the

NSE VSAT terminals, 2799 in total, cover more than 1500 cities across

India . In October 2007, the equity market capitalization of the companies

listed on the NSE was US$ 1.46 trillion, making it the second largest stock

exchange in South Asia. NSE is the third largest Stock Exchange in the

world in terms of the number of trades in equities is the second fastest

growing stock exchange in the world with a recorded growth of 16.6%.

37
3.5 Innovations

NSE has remained in the forefront of modernization of India's capital and

financial markets, and its pioneering efforts include:

• Being the first national, anonymous, electronic limit order book (LOB)

exchange to trade securities in India. Since the success of the NSE,

existent market and new market structures have followed the "NSE"

model.

• Setting up the first clearing corporation "National Securities Clearing

Corporation Ltd." in India. NSCCL was a landmark in providing

innovation on all spot equity market (and later, derivatives market)

trades in India.

• Co-promoting and setting up of National Securities Depository Limited,

first depository in India.

• Setting up of S&P CNX Nifty.

• NSE pioneered commencement of Internet Trading in February 2000,

which led to the wide popularization of the NSE in the broker

community.

• Being the first exchange that, in 1996, proposed exchange traded

derivatives, particularly on an equity index, in India. After four years of

policy and regulatory debate and formulation, the NSE was permitted to

start trading equity derivatives

38
 • Being the first and the only exchange to trade GOLD ETFs (exchange

traded funds) in India.

• NSE has also launched the NSE-CNBC-TV18 media centre in

association with CNBC-TV18, a leading business news channel in India.

3.6 The Standard & Poor's CRISIL NSE Index 50 or S&P CNX

Nifty nicknamed Nifty 50 or simply Nifty (NSE: ^NSEI), is the leading index for

large companies on the National Stock Exchange of India. The Nifty is a well

diversified 50 stock index accounting for 21 sectors of the economy. It is used

for a variety of purposes such as benchmarking fund portfolios, index based

derivatives and index funds.

Nifty components

The list of constituents of S&P CNX Nifty as on September 27, 2007 along

with the Market capitalization details and weight ages is as follows:

Market Capitalization (Rs.

Company name Weighting
Crore)
RELIANCE INDUSTRIES LTD. 323057 11.69
OIL AND NATURAL GAS
208059 7.53
CORPORATION LTD.
BHARTI AIRTEL LIMITED 182208 6.59
NTPC LTD 159921 5.79
RELIANCE COMMUNICATIONS LTD. 119109 4.31
ICICI BANK LTD. 112542 4.07

39
INFOSYS TECHNOLOGIES LTD. 109435 3.96
TATA CONSULTANCY SERVICES LTD 103977 3.76
BHEL 99874 3.61
STATE BANK OF INDIA 98981 3.58
STEEL AUTHORITY OF INDIA 83042 3.01
LARSEN & TOUBRO LTD. 81216 2.94
ITC LTD 69786 2.53
RELIANCE PETROLEUM LTD. 67928 2.46
HDFC LTD 67878 2.46
WIPRO LTD 67183 2.43
STERLITE INDUSTRIES LTD. 53884 1.95
HDFC BANK LTD 50619 1.83
TATA STEEL LIMITED 48413 1.75
HINDUSTAN UNILEVER LTD. 48318 1.75
SUZLON ENERGY LIMITED 41746 1.51
GAIL (INDIA) LTD 32029 1.16
GRASIM INDUSTRIES LTD 31526 1.14
SATYAM COMPUTER SERVICES 29579 1.07
TATA MOTORS LIMITED 28960 1.05
MARUTI UDYOG LIMITED 28318 1.02
ABB LTD. 27244 0.99
POWER GRID CORPORATION OF

INDIA
RELIANCE ENERGY LTD 25530 0.92
SIEMENS LTD 22786 0.82
ACC LIMITED 22278 0.81
AMBUJA CEMENTS LTD 21995 0.80
HCL TECHNOLOGIES LTD 20340 0.74
HINDALCO INDUSTRIES LTD 20163 0.73
NATIONAL ALUMINIUM CO LTD 19896 0.72
SUN PHARMACEUTICALS IND. 18784 0.68
MAHINDRA & MAHINDRA LTD 18463 0.67
TATA POWER CO LTD 17494 0.63
PUNJAB NATIONAL BANK 16829 0.61
RANBAXY LABS LTD 15675 0.57
HERO HONDA MOTORS LTD 14877 0.54
ZEE ENTERTAINMENT LTD 14134 0.51
INDIAN PETROCHEMICALS 13879 0.50

40
CORPORATION LTD.
CIPLA LTD 13680 0.50
BHARAT PETROLEUM CORPORATION
13135 0.48
LTD.
VIDESH SANCHAR NIGAM LTD 12697 0.46
DR. REDDY'S LABORATORIES 10894 0.39
MAHANAGAR TELEPHONE NIGAM
10342 0.37
LTD
GLAXOSMITHKLINE PHARMA LTD. 9486 0.34
- 2763090

41
 CHAPTER – IV
DATA ANALYSIS & INTERPRETATION
TABLE – 4.1

COMPARISON OF S&PCNX NIFTY INDEX BETWEEN

2003 TO 2004

MONTHS 2003 2004 INC/DEC % OF INC /DEC

1041.8
JAN 5 1809.75 767.9 73.70542784
FEB 1063.4 1800.3 736.9 69.29659582
MAR 978.2 1771.9 793.7 81.13882642
APR 934.05 1796.1 862.05 92.29163321
MAY 1006.8 1483.6 476.8 47.35796583
1134.1
JUNE 5 1505.6 371.45 32.75139973
1185.8
JULY 5 1632.3 446.45 37.64810052
1356.5
AUG 5 1631.75 275.2 20.28675685
SEP 1417.1 1745.5 328.4 23.17408793
OCT 1555.9 1786.9 231 14.84671251
1615.2
NOV 5 1958.8 343.55 21.26915338
1879.7
DEC 5 2080.5 200.75 10.67961165

INC – INCREASE
DEC - DECREASE
In the table 4.1 depicted that S&P CNX NIFTY Index comparison
between 2003 and 2004 in which over all performance in the year 2004 is
better than 2003. In the month of April have registered highest growth i.e.
92.29% Lowest Index have registered in the month of December that is
10.67%.

42
43
 TABLE – 4.2
COMPRASION OF S&PCNX NIFTY INDEX BETWEEN
2004-05
MONTHS 2004 2005 INC/DEC % OF INC/DEC
JAN 1809.7 2057.6 247.85 13.69
5
FEB 1800.3 2103.2 302.95 16.82
5
MAR 1771.9 2035.6 263.75 14.88
5
APR 1796.1 1902.5 106.4 5.92
MAY 1483.6 2087.5 603.95 40.70
5
JUNE 1505.6 2220.6 715 47.48
JULY 1632.3 2312.3 680 41.65
AUG 1631.7 2384.6 752.9 46.14
5 5
SEP 1745.5 2601.4 855.9 49.03
OCT 1786.9 2370.9 584.05 32.68
5
NOV 1958.8 2652.2 693.45 35.40
5
DEC 2080.5 2836.5 756.05 36.39
5

INC – INCREASE
DEC - DECREASE

The above table 4.2 reveals that S&PCNX NIFTY comparison between
2004 and 2005 in which April month had registered lowest growth i.e. 5.92
highest growths had registered in the month of September that is 49.03. The
overall performance of 2003 and 04 is better than 2004 and 2005.

44
 TABLE – 4.3
COMPARSION OF S&P CNX NIFTY INDEX BETWEEN 2005-06
MONTHS 2005 2006 INC/DEC % OF INC/DEC
JAN 2057.6 3001.1 943.5 45.85439347
FEB 2103.25 3074.7 971.45 46.18804232
MAR 2035.65 3402.55 1366.9 67.14808538
APR 1902.5 3557.6 1655.1 86.99605782
MAY 2087.55 3071.05 983.5 47.11264401
JUNE 2220.6 3128.2 907.6 40.87183644
JULY 2312.3 3143.2 830.9 35.93391861
AUG 2384.65 3413.9 1029.25 43.16147024
SEP 2601.4 3588.4 987 37.94110863
OCT 2370.95 3744.1 1373.15 57.91560345
NOV 2652.25 3954.5 1302.25 49.09982091
DEC 2836.55 3966.4 1129.85 39.83183797

INC – INCREASE
DEC - DECREASE

The above 4.3 have disclosed that S&P CNX NIFTY had reached
highest growth in the month April i.e. 86.99% again it met lowest point in the
month September. It is interesting to note that if the current table the month
where it declines, which registered highest growth in the previous table.

45
 TABLE – 4.4
COMPARSION OF S&PCNX NIFTY BETWEEN 2006-07
MONTHS 2006 2007 INC/DEC % OF INC/DEC
JAN 3001.1 4082.7 1081.6 36.04011862
FEB 3074.7 3745.3 670.6 21.81025791
MAR 3402.5 3821.5 419 12.31429369
5 5
APR 3557.6 4087.9 530.3 14.90611648
MAY 3071.0 4295.8 1224.75 39.8804969
5
JUNE 3128.2 4318.3 1190.1 38.0442427
JULY 3143.2 4528.8 1385.65 44.08405447
5
AUG 3413.9 4464 1050.1 30.75954187
SEP 3588.4 5021.3 1432.95 39.93283915
5
OCT 3744.1 5900.6 2156.55 57.59862183
5
NOV 3954.5 5762.7 1808.25 45.72638766
5
DEC 3966.4 6138.6 2172.2 54.76502622

INC – INCREASE
DEC - DECREASE

The above tables 4.4 have described S&P CNX NIFTY comparison
between 2006 and 2007 in which 57.59% was the highest growth had
registered month of October 12.31% is the lower Index had registered in the
month of March. The highest and lowest Index had resembled to previous and
next month respectively when compare to previous higher and lower Index.

46
 TABLE – 4.5
TREND ANALYSIS FOR THE YEAR 2003
MONTHS 2003 TREND
JAN 1041.8 100
5
FEB 1063.4 102.068436
MAR 978.2 93.8906752
APR 934.05 89.6530211
MAY 1006.8 96.6357921
JUNE 1134.1 108.859241
5
JULY 1185.8 113.821567
5
AUG 1356.5 130.205884
5
SEP 1417.1 136.017661
OCT 1555.9 149.340116
NOV 1615.2 155.036714
5
DEC 1879.7 180.424245
5

The above table 4.5 have depicted that market had surged only twice in
the twelve month of 2003. Expects that two surge it shows road flow of growth
and reached highest growth in the month of December i.e. 180.42%

47
 TABLE – 4.6
TREND ANALYSIS FOR THE YEAR 2004
MONTHS 2004 TREND
JAN 1809.7 100
5
FEB 1800.3 99.4778284
MAR 1771.9 97.9085509
APR 1796.1 99.2457522
MAY 1483.6 81.9781738
JUNE 1505.6 83.1938113
JULY 1632.3 90.1947783
AUG 1631.7 90.1643873
5
SEP 1745.5 96.4497859
OCT 1786.9 98.7373947
NOV 1958.8 108.235944
DEC 2080.5 114.96063

The above table 4.6 described that for the first quarter of 2004 had
registered low decline and increase where as in rest of three quarters it shows
slow growth in the market. The highest point it reaches in the month of
December.

48
 TABLE – 4.7
TREND ANALYSIS FOR THE YEAR 2005
MONTHS 2005 TREND
JAN 2057.6 100
FEB 2103.2 102.218604
5
MAR 2035.6 98.9332232
5
APR 1902.5 92.4620918
MAY 2087.5 101.455579
5
JUNE 2220.6 107.921851
JULY 2312.3 112.378499
AUG 2384.6 115.894732
5
SEP 2601.4 126.428849
OCT 2370.9 115.228907
5
NOV 2652.2 128.900175
5
DEC 2836.5 137.857212
5

In the table 4.7 reveals that NIFTY surged only twice that is in the
month of April and March. Again NIFTY surged in the first month of last
quarter. It registered highest growth in the month of December i.e. 137.85%
where as lowest in the month of April i.e. 92.46%

49
 TABLE – 4.8
TREND ANALYSIS FOR THE YEAR 2006
MONTHS 2006 TREND
JAN 3001.1 100
FEB 3074.7 102.452434
MAR 3402.5 113.376762
5
APR 3557.6 118.543201
MAY 3071.0 102.330812
5
JUNE 3128.2 104.235114
JULY 3143.2 104.734931
AUG 3413.9 113.754957
SEP 3588.4 119.569491
OCT 3744.1 124.757589
NOV 3954.5 131.768352
DEC 3966.4 132.164873

In the above 4.8 the researcher have understood that NIFTY had
surged in the month of May and June the lowest point registered in the month
of May that is 102.33%. The highest growth had registered in the month of
December i.e. 132.161.

50
 TABLE – 9
TREND ANALYSIS FOR THE YEAR 2007
MONTHS 2007 TREND
JAN 4082.7 100
FEB 3745.3 91.7358611
MAR 3821.5 93.6034977
5
APR 4087.9 100.127367
MAY 4295.8 105.219585
JUNE 4318.3 105.770691
JULY 4528.8 110.927817
5
AUG 4464 109.339408
SEP 5021.3 122.990913
5
OCT 5900.6 144.528131
5
NOV 5762.7 141.150464
5
DEC 6138.6 150.356382

The above table 4.9 have disclosed that the lowest point registered in
the month of February i.e. 91.73%. It registered highest growth in the month of
December that is 150%.

51
 TABLE – 4.10

CONSOLIDATED TREND % FOR THE YEAR 2003-2007

MON 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
JAN 1041.85 1809.75 2057.6 3001.1 4082.7 100 173.7054 197.4948 288.0549 391.8702
FEB 1063.4 1800.3 2103.25 3074.7 3745.3 100 169.2966 197.7854 289.1386 352.2005
MAR 978.2 1771.9 2035.65 3402.55 3821.55 100 181.1388 208.1016 347.8379 390.6716
APR 934.05 1796.1 1902.5 3557.6 4087.9 100 192.2916 203.6829 380.879 437.6532
MAY 1006.8 1483.6 2087.55 3071.05 4295.8 100 147.358 207.3451 305.0308 426.6786
JUN 1134.15 1505.6 2220.6 3128.2 4318.3 100 132.7514 195.7942 275.8189 380.7521

E
JULY 1185.85 1632.3 2312.3 3143.2 4528.85 100 137.6481 194.9909 265.0588 381.9075
AUG 1356.55 1631.75 2384.65 3413.9 4464 100 120.2868 175.7878 251.6605 329.0701
SEP 1417.1 1745.5 2601.4 3588.4 5021.35 100 123.1741 183.5721 253.2214 354.3398
OCT 1555.9 1786.9 2370.95 3744.1 5900.65 100 114.8467 152.3845 240.6389 379.2435
NOV 1615.25 1958.8 2652.25 3954.5 5762.75 100 121.2692 164.2006 244.8228 356.7714
DEC 1879.75 2080.5 2836.55 3966.4 6138.6 100 110.6796 150.9004 211.0068 326.5647

In the table 4.10 the research understood that highest NIFTY Index
have registered in the month of January 2007 i.e. 391. 871 where as lowest in
the month of December 2004 i.e. 110.67%

52
 TABLE 4.11

Comparison of 15 Days and 50 Days moving average during

2003
15 DAYS SMA 5O DAYS LMA
1085.513333 1073.072
1052.17 971.462
1055.456667 1150.35
1013.503333 1390.752
983.52 1638.369
938.19
977.9033333
1057.143333
1135.91
1158.6
1252.35
1375.076667
1389.063333
1517.58
1578.5
1608.26
1776.77

53
 The above table 4.11 described short term and long term moving
average during the year 2003. In which we could understand one thing that
when short term moving average crosses above the long term average than
market shows upwards trend.

54
 C O M P A R A S IO N O F L O N G T E R M
T E R M M O V IN G A V E R A G E D U R IN

2000

1500
15 D A Y S S M A
1000
5O D A Y S LM A
% OF MOVING

500

0
1 3 5 7 9 1 1 1 31 51 7
D A YS

55
 TABLE 4.12

Comparison of 15 Days and 50 Days moving average during

2004
15 Days MA 50 Days MA
1936.13333 1893.594
1842.09333 1734.611
1852.11667 1584.508
1762.87 1694.02
1834.30333 1929.247
1814.26333
1565.10667
1512.20333
1522.52
1591.55333
1612.75333
1640.22667
1739.23667
1794.62333
1848.25667
1948.12333
2041.64667

56
 The above table 4.12 indicates that the short term moving average
crosses above long term moving average than the market is upwards. If it
cross below the long term moving average it is down wards.

57
 C O M P A R A S IO N O F 1 5 D A Y S A N
M O V IN G A V E R A G E D U R IN G 2

2500

2000
1500 15 D ays M A
1000 50 D ays M A
VALUES IN %

500
0
1 3 5 7 9 1 11 31 51 7
D A YS

58
 TABLE 4.13

Comparison of 15 Days and 50 Days moving average during

2005
2014.15 2091.865
2006.5 2001.647
2071.71 2241.294
2125.42333 2469.787
2027.32667 2631.826
1940.72667
2011.28667
2097.55667
2189.74
2244.87667
2361.07333
2401.18667
2564.77667
2493.48333
2487.09
2673.50667
2808.10667

59
 The above table 4.13 indicates that the when the market faces
downwards if the short term moving average crosses below the long term
average.

60
 C O M P A R S IO N O F 1 5 D A Y S A N D 5
M O V IN G A V E R A G E D U R IN G 2 0 0

3000
2500
2000
15 D ays M A
1500
50 D ays M A
VALUES IN %

1000
500
0
1 3 5 7 9 1 11 31 51 7
D A YS

61
 TABLE 4.14

Comparison of 15 Days and 50 Days moving average during

2006
2848.84 3050.026
2920.93333 3436.757
3032.47 3081.628
3190.05333 3463.084
3393.37 3858.772
3572.47
3408.1
2892.93333
3041.62
3071.47667
3249.21333
3418.88333
3516.59333
3639.78
3807.36
3953.15
3877.19667

62
 The above table 4.14 represents that market is upwards when sort term
moving averages cross above the long term moving average. Hence market
was showed minimum ups and downs during the year 2006.

C O M P A R IS IO N O F 1 5 D A Y S A N D
M O V IN G A V E R A G E D U R IN G 2 0

5000
4000

3000 S e r ie s 1
2000 S e r ie s 2
VALUES IN %

1000

0
1 2 3 4 5 6 7 8 9 1 10 1 12 13 14 15 16 7
D A YS

63
 TABLE 4.15

Comparison of 15 Days and 50 Days moving average during

2007
3949.987 4065.842
4118.653 3992.063
4057.27 4438.096
3694.403 4715.171
3803.243 5801.845
4086.06
4191.36
4202.243
4318.153
4522.477
4297.723
4408.247
4848.473
5411.973
5807.807
5756.48
5979.323

64
 The above table 4.15 described that short term averages is crosses
below the long term average than the market is downwards moving.

C O M P A R IS IO N O F 1 5 D A Y S A N D
M O V IN G A V E R A G E D U R IN G T H E

7 0 0 0
6 0 0 0
5 0 0 0
4 0 0 0 15 D ays M A
3 0 0 0 50 D ays M A
VALUES IN %

2 0 0 0
1 0 0 0
0
1 3 5 7 9 1 11 31 51 7
D A YS

65
66
 TABLE 4.16

THREE DAYS MOVING AVERAGE

FOR THE YEARS 2003

MONTHS 2003 CF 3 Days MA

JAN 1041.8
5
FEB 1063.4
MAR 978.2 3083.45 1027.81667
APR 934.05 2975.65 991.883333
MAY 1006.8 2919.05 973.016667
JUNE 1134.1 3075 1025
5
JULY 1185.8 3326.8 1108.93333
5
AUG 1356.5 3676.55 1225.51667
5
SEP 1417.1 3959.5 1319.83333
OCT 1555.9 4329.55 1443.18333
NOV 1615.2 4588.25 1529.41667
5
DEC 1879.7 5050.9 1683.63333
5

The above table 4.16 described 3 days moving average for the year
2003 in which it is clear that S&P CNX NIFTY had grown continuously except
two month. i.e. March and April which 997.88 and 973.01 respectively.

67
 TABLE 4.17

THREE DAYS MOVING AVERAGE

FOR THE YEARS 2004

MONTHS 2004 CF 3 Days MA

JAN 1809.7
5
FEB 1800.3
MAR 1771.9 5381.95 1793.98333
APR 1796.1 5368.3 1789.43333
MAY 1483.6 5051.6 1683.86667
JUNE 1505.6 4785.3 1595.1
JULY 1632.3 4621.5 1540.5
AUG 1631.7
4769.65 1589.88333
5
SEP 1745.5 5009.55 1669.85
OCT 1786.9 5164.15 1721.38333
NOV 1958.8 5491.2 1830.4
DEC 2080.5 5826.2 1942.06667

From the above table 4.17 indicates that market showed continuous
growth from March to December in the year 2004 which showed healthy
growth in the price of the S&P CNX NIFTY.

68
 TABLE 4.18

THREE DAYS MOVING AVERAGE

FOR THE YEARS 2005

MONTHS 2005 CF 3 Days MA

JAN 2057.6
FEB 2103.2
5
MAR 2035.6
6196.5 2065.5
5
APR 1902.5 6041.4 2013.8
MAY 2087.5
6025.7 2008.56667
5
JUNE 2220.6 6210.65 2070.21667
JULY 2312.3 6620.45 2206.81667
AUG 2384.6
6917.55 2305.85
5
SEP 2601.4 7298.35 2432.78333
OCT 2370.9
7357 2452.33333
5
NOV 2652.2
7624.6 2541.53333
5
DEC 2836.5
7859.75 2619.91667
5

The above table 41.8 shows 3 days moving average for the year 2005
in which showed in the month of March is 2065.5 points than ended with
2619.91 points averagely during the year 2005.

69
 TABLE 4.19

THREE DAYS MOVING AVERAGE

FOR THE YEARS 2006

MONTHS 2006 CF 3 Days MA

JAN 3001.1
FEB 3074.7
MAR 3402.5
9478.35 3159.45
5
APR 3557.6 10034.85 3344.95
MAY 3071.0
10031.2 3343.73333
5
JUNE 3128.2 9756.85 3252.28333
JULY 3143.2 9342.45 3114.15
AUG 3413.9 9685.3 3228.43333
SEP 3588.4 10145.5 3381.83333
OCT 3744.1 10746.4 3582.13333
NOV 3954.5 11287 3762.33333
DEC 3966.4 11665 3888.33333

The above table 4.19 depicted that 3159.45 point of growth in the first 3
months of 2006. 3888.33 point at the end of the year.

70
 TABLE 4.20

THREE DAYS MOVING AVERAGE

FOR THE YEARS 2006

MONTHS 2007 CF 3 Days MA

JAN 4082.7
FEB 3745.3
MAR 3821.5
11649.55 3883.18333
5
APR 4087.9 11654.75 3884.91667
MAY 4295.8 12205.25 4068.41667
JUNE 4318.3 12702 4234
JULY 4528.8
13142.95 4380.98333
5
AUG 4464 13311.15 4437.05
SEP 5021.3
14014.2 4671.4
5
OCT 5900.6
15386 5128.66667
5
NOV 5762.7
16684.75 5561.58333
5
DEC 6138.6 17802 5934

The above table 4.20 indicates that 3883.18 point of the growth to the
month of March which showed slow growth in the beginning of the year later
which showed rapid growth in the market.

71
1) H0 : There is a significant relationship between inflation and
NIFTY Index.
H1: There are no significant relationship between inflation and NIFTY
Index.

O E O-E O-E2 O-E2/E

4.2 2.715812 1.484188 2.202814 0.811106721
5.3 3.006789 2.293211 5.258815 1.748979954
4.8 4.095954 0.704046 0.49568 0.121017097
5.6 5.725845 -0.12585 0.015837 0.00276588
4.5 8.855599 -4.3556 18.97124 2.142287916
1879.7 1881.234 -1.48419 2.202814 0.001170941
5
2080.5 2082.793 -2.29321 5.258815 0.002524886
2836.5 2837.254 -0.70405 0.49568 0.000174704
5
3966.4 3966.274 0.125845 0.015837 3.99292E-06
6138.6 6134.244 4.355599 18.97124 0.003092678
4.833124769

X2 = Σ ( (O-E)2/E) = 4.83

v = (r-1) (c-1)

= (2-1) (5-1)

=1x4=4

For v = 4, X2 0.05 = 14.9

The calculated value of X2 is 4.83 less than the table value 14.9. The

hypothesis is accepted.

72
2) H0 : There is a significant relationship between GDP and
NIFTY Index.
H1: There are no significant relationship between GDP and NIFTY
Index.

O E O-E O-E2 O-E2/E

8.6 4.847552 3.752448 14.08087 2.904737
7.4 5.359814 2.040186 4.16236 0.776587
9.2 7.305278 1.894722 3.589972 0.491422
9.7 10.20698 -0.50698 0.257029 0.025182
8.6 15.78038 -7.18038 51.55779 3.26721
1879.7
5 1881.234 -1.48419 2.202814 0.001171
2080.5 2082.793 -2.29321 5.258815 0.002525
2836.5
5 2837.254 -0.70405 0.49568 0.000175
3966.4 3966.274 0.125845 0.015837 3.99E-06
6138.6 6134.244 4.355599 18.97124 0.003093
7.472104

X2 = Σ ( (O-E)2/E) = 7.47

v = (r-1) (c-1)

= (2-1) (5-1)

=1x4=4

For v = 4, X2 0.05 = 14.9

The calculated value of X2 is 7.47 less than the table value 14.9. The

hypothesis is accepted.

73
3) CORRELATION BETWEEN INFLATION AND S&P CNX NIFTY

Years X Y x=X-X x2 y=Y-Y y2 xy

1879.7 1879.7
2003 4.2 5 -0.68 0.4624 5 3533460 1633872
2004 5.3 2080.5 0.42 0.1764 2080.5 4328480 763543.9
2836.5 2836.5
2005 4.8 5 -0.08 0.0064 5 8046016 51494.5
1573232
2006 5.6 3966.4 0.72 0.5184 3966.4 9 8155639
3768241
2007 4.5 6138.6 -0.38 0.1444 6138.6 0 5441340
16901. 6932269
24.4 8 1.308 5 16045890

Σ X
x=------------
N
24.4
x =---------
5
x=4.88

Σ Y
y= ------------
N

16901.8
y= ------------
5
y= 3380.36 Σ xy
r = ----------------
√ Σ X2* Σ y2

16045890
r = ----------------------------
√ 1.308* 69322695

r= -0.0271

74
4) CORRELATION BETWEEN GDP AND S&P CNX NIFTY

Years X Y x=X-X x2 y=Y-Y y2 xy

2003 8.6 1879.7 -0.1 0.01 -1500.61 2251830 22518.3
5
2004 7.4 2080.5 -1.3 1.69 -1299.86 1689636 2855485
2005 9.2 2836.5 0.5 0.25 -543.81 295729.3 73932.33
5
2006 9.7 3966.4 1 1 586.04 343442.9 343442.9
2007 8.6 6138.6 -0.1 0.01 2758.24 7607888 76078.88
43.5 16901. 2.96 12188526.49 3371457
8

Σ X
x=------------
N
43.5
x =---------
5
x=8.7

Σ Y
y= ------------
N

16901.8
y= ------------
5
y= 3380.36 Σ xy
r = ----------------
√ Σ x2* Σ y2

3371457
r = ----------------------------
√ 2.96* 12188526.49

r= 0.312693

75
 CHAPTER – V

FINDINGS

1. The researcher has found that highest growth had recorded in the month of

April when compared 2003 and 2004 i.e. 92.29%

2. While researcher compared 2004 and 05, found that lowest growth had

registered in the month of April i.e. 5.92% where as highest growth

registered in the month of September i.e. 49.03%

3. It is interesting to note that NIFTY show lowest growth in the mo nth where

it shows highest growth in the previous year.

4. It is found that experience is repeating again market shows highest growth

in the month of April that is 86.99%

5. While the researcher has found that NIFTY had declined 10 months where

as it show increasing trend only in the two month during the year 2003.

6. In the year 2004 and 2005 market shows 8 months, increased trend and 4

months declined trends

76
7. It is another interesting fin ding is that for the last five years market expects

one year market stood peaked up only in the month of April.

8. It is found that market averagely gowned in the year 2006 to 2007.

9. While we are looking trend percentage the researcher found that in the

month of December market had registered highest growth for the last five

years.

10. NIFTY Index shows down wards when short term moving average

crosses below the long term moving average.

11. When short term moving average crosses above the long term average

than the market shows upwards trend.

12. GRP Growth has greater influence in the S&P CNX NIFTY Index

growth.

13. Inflation is also play an important role in the market growth.

77
 SUGGESTION

After completed the finding researcher has to make following

suggestion which is based only on this study and analysis.

• As far as Investors is concerned they can com use such analysis for

better understanding the market.

• Investors must be careful in the months where nifty prices gone up.

• Performance of the last five year from 2003 to 2007 market shows rapid

growth.

• Market surged at least twice in the year from 2003 to 2005 where as

last two years it is minimum than the previous years.

• The researcher suggest when the short term moving average crosses

above the long term moving average is the time to sold the stock.

• When the short term moving average crosses below the long term

moving average than the market shows down wards when one can

purchased.

• Inflation is also an important factor which determines the growth of the

stock market.

• Gross Domestic product is also play a vital role in the performance of

S&P CNX NIFTY Index.

78
 CONCLUSION

The researcher has concluded this study with the satisfaction of the

performance of NSE. The researcher fell that S&P CNX NIFTY Index

movement is clearly upwards from the 2003 to 2007. The researchers found

that the Journey of S&P CNX NIFTY from 2003 was starts with 1041.85 point

which is increased with 6138.6 points in the year 2007. The researcher hopes

that this market will surely reach 10k very soon. The researcher found mother

thing that this second largest market in Asia will have chance to come first

market due to it extraordinary performance. Further this study is on initial only;

the researcher recommended that there would be need for further research in

the same area which wills insight the many facts NSE Index showed rapid

growth the researcher felt that there would be close relationship between GDP

and NIFTY Index & between Inflation and NIFTY Index. Further researcher

concludes that market showed down trend where in the month it’s upwards in

the previous year in the same month. Short term moving average is crosses

the above the long term moving average than the market is growing.

The researcher recommended further study in the same area so that we

can better understand the market in future.

79
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14. Scholes, M. and J. Williams.1977, Estimating Betas from Non-

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 WEBLIOGRAPHY

1. www.nseindia.com

2. www.finance.indiamart.com

3. www.nsx.com

4. www.answers.oneindia.in/index.php?article

5. www.surfindia.com/finance/national-stock-exchange.html

6. www.nasscom.in/Nasscom

7. www.en.wikipedia.org

8. www.moneycontrol.com

9. www.economywatch.com

10. www.nationalstockexchange.com

11. www.sfa.gov.uk

83