MBA Volatility & Affecting Factors in Indian Stock Market

An investor with a heavy concentration of stocks in an investment portfolio might

be feeling some unease these days. The market is behaving a lot different now then
over recent years.

Stock market volatility is all about uncertainty. How macroeconomic events and
trends will affect the future profitability (dividends, cash flows) of listed companies
and hence their market valuations?. Typical examples of such variables in the
current environment are: geo-political tensions, energy prices, inflation
expectations, interest rate policies, instability of exchange rates, p-notes, RBI and
Government policies, sub prime crises, investors sentiment etc. These uncertainties
in some form or another are always present and some times it is much higher than in
other periods. Furthermore, volatility increases with the financial leverage (debt) of
companies. In addition, volatility is correlated with interest rate movements and
increases during economic recessions.

Stock markets in general have treated investors well over the past few years with no
major setbacks. In general markets followed one direction only, namely upwards
(in the long run). However, during this year (FY 2007-2008) volatility once again
has come to the fore as more investors and traders were piling into the markets.

The main objective of this study is to analyse the causes of

stock market volatility. This report approaches to study:
 the various causes that results in volatility in stock market
 the reactions of stock market to these causes
 using the above information to manage the future volatility in the stock
market

This study makes a detailed analysis of various issues causing volatility in stock
market there by reflecting it on the market movements i.e., response and behaviour
of market.

1
TMU New Satara College of Engg. & Mgmt. Pandharpur
MBA Volatility & Affecting Factors in Indian Stock Market

During the past years, Indian Capital Market has undergone metamorphic reforms.
Every segment of Indian Capital Market viz primary and secondary markets,
derivatives, institutional investment and market intermediation has experienced
impact of these changes. Our market, today, is being recognized as one of the most
transparent, efficient and clean markets. Several techniques /instruments are used by
academicians, policy makers, practitioners and investors to test the extent of
efficiency of the market. An attempt has been made to analyse characteristics of
stock indices in India and compare them with some of the mature as well as
emerging capital markets around the globe.

In the recent past there have been perceptions that volatility in the market has gone
up; Inter and Intra-day volatility. News items and some clinical research papers also
provided figures to evidence this argument. SEBI undertook a comprehensive and
deep analysis of volatility by using several statistical techniques to measure and
analyse it. 18 countries covering almost all continents- developed as well as
emerging markets and young and old markets- have been analysed. The results
show that the volatility has gone up in the recent past as it has been perceived.

Indian stock market provides a very high rate of return and comparatively high
volatility. Efficiency of Indian market appear to have improved in the past few
years owing to contraction in settlement cycles, introduction of derivative products,
improvement in corporate governance practices etc.

Financial markets play an important role in the process of economic growth and
development by facilitating savings and channeling funds from savers to investors.
While there have been numerous attempts to develop the financial sector, growing
economies are also facing the problem of high volatility in numerous fronts
including volatility of its financial sector.

2
TMU New Satara College of Engg. & Mgmt. Pandharpur
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