Research Paper Management

A STUDY OF INDIAN STOCK MARKET

INTRODUCTION regime of financial repression came into being and the stock
As a part of the process of economic liberalization, the stock market market stagnated.
has been assigned an important place in nancing the Indian
corporate sector. Besides enabling mobilizing resources for The period from 1984 to 1992 was in some ways the high water
investment directly from the investors, providing liquidity for the mark of the Indian capital markets. As the markets responded
investors and monitoring and disciplining company managements enthusiastically to the first whiff of reforms in the mid 1980s and to
are the principal functions of the stock markets. The main the major reform initiative of 1991, the stock market soared
attraction of the stock markets is that they provide entrepreneurs through the roof. From October 1984 to September 1992, the stock
and governments a means of mobilizing resources directly from the market index went up more than ten times representing an annual
investors, and to the investors they offer liquidity. It has also been compound return of 34per cent.
suggested that liquid markets improve the allocation of resources
and enhance prospects of long term economic growth. REVIEW OF LITERATURE
According to “Madhusudan” (1998) found that BSE sensitivity and
Stock markets are also expected to play a major role in disciplining national indices did not follow random walk by using correlation
company's managements. In India, Equity market development analysis on monthly stock returns data over the period January
received emphasis since the very firstt phase of liberalization in the 1981 to December 1992.
early 'eighties. Additional emphasis followed after the liberalization
process got deepened and widened in 1991 as development of According to “Suresh G Lalwani”(1999) emphasized the need for
capital markets was made an integral part of the restructuring risk management in the securities market with particular emphasis
strategy. Today, Indian markets confirm to international standards on the price risk. He commented that the securities market is a
both in terms of structure and in terms of operating efficiency. 'vicious animal' and there is more than a fair chance that far from
improving, the situation could deteriorate.
STOCK MARKET - AT INDIAN PERSPECTIVE
The concept of stock markets came to India in 1875, when Bombay According to “Nath and Varma” (2003) examine the
Stock Exchange (BSE) was established as 'The Native Share and interdependence of the three major stock markets in south Asia
Stockbrokers Association' a voluntary Non-profit making stock market indices namely India (NSE-Nifty) Taiwan (Taiex) and
association. We all know it, the Bhaji (Sabji) market in your Singapore (STI) by employing bivariate and multivariate co
neighborhood is a place where vegetables are bought and sold. Like integration analysis to model the linkages among the stock markets,
Bhaji (Sabji) market, a stock market as a place where stocks shares non co-integration was found for the entire period (daily data from
are bought and sold. The stock market determines the day's price January 1994 to November 2002).They concluded that there is no
for a stock through a process of bid and offer. You have right to bid long run equilibrium.
and buy a stock shares and offer to sell the stock shares at a
valuable price. Buyers compete with each other for the best bid According to “Bhanu Pant and Dr. T.R.Bishnoy” (2001) analyzed
and got their highest price quoted to purchase a particular Stock the behaviour of the daily and weekly returns of the Indian stock
Market Shares. Similarly, sellers compete with each other for the market indices for random walk during April 1996 to June
lowest price quoted to sell the stock. When a match is made 2001.They found that Indian Stock Market Indices did not follow
between the best bid and the best offer a trade is executed. In random walk.
automated exchanges highspeed computers do this entire job.
Stocks of various companies are listed on stock exchanges.
Presently there are 23 stock markets In India. The Bombay Stock
Exchange (BSE), the National Stock Exchange (NSE) and the Calcutta OBJECTIVES OF THE STUDY
Stock Exchange (CSE) are the three large stock exchanges. There are 1. To study the causes of volatility in Indian Stock Market.
many small regional exchanges located in state capitals and other 2. To study the various aspects of Indian Stock Market in detail.
major cities. RESEARCH METHODOLOGY
Data Collection: This study is based on secondary data. The
HISTORICAL EVOLUTION OF INDIAN STOCK MARKET required data related to Indian Stock Market, Bombay Stock Market
As already stated, the Indian Stock markets have played a (BSE), National Stock Market (NSE) have been collected from
significant role in the early attempts at industrialization in India in various sources i.e. Bulletins of Reserve Bank of India, publications
the late nineteenth and early twentieth century's. The early textile from Ministry of Commerce, SEBI Handbook of Statistics, Govt. of
mills and the other steel plants were funded in the stock market. India. CNX Nifty data is down loaded from the websites of NSE
Some of these capital raising exercises were large in relation to the
size of the financial sector in those days. CONCLUSION
Stock Market is the mitigation of risk through the spreading of
Beginning in the late fifties, the country embarked on an inward investments across multiple entities, which is achieved by the
looking socialistic model of development that bought to put the pooling of a number of small investments into a large bucket. Stock
commanding heights of the economy in the hands of the public Market is the most suitable investment for the common man as it
sector. The state took control of the allocation of resources in the offers an opportunity to invest in a diversified, professionally
economy as the banks and insurance companies were nationalized managed portfolio at a relatively low cost. The review of literature
and development financial institutions grew in importance. A has brought to light that:
Ÿ Enlistment of corporate securities in more than one stock bull phases is higher and the volatility in bull phases is also higher.
exchange at the same time improves liquidity of securities and The gains during expansions are larger than the losses during the
functioning of stock exchange. bear phases of the stock market cycles. The bull phase in
Ÿ There is existence of wild speculation in the Indian stock comparison with its pre liberalization character is more stable in
market. the post liberalization phase. The results of our analysis also show
Ÿ Risk is not measurable or quantiable. But risk is calculated on that the stock market cycles have dampened in the recent past.
the basis of historic volatility. Volatility has declined in the post liberalization phase for both the
Ÿ Stock market movements are largely in uenced by, broad bull and bear phase of the stock market cycle.
money supply, in auction, C/D ratio and scalping apart from
political stability. REFERENCE
Ÿ Low execution costs make the derivatives especially futures, 1. Narashima Committee Report (1992) on financial system.
2. L. C. Gupta Committee Report (1997) In India, derivatives was introduced in a phased
very suitable for frequent and short term trading to manage manner after the recommendations.
risk, more effectively. 3. www.nseindia.com
4. Damodar N. Gujarati (2007), “Basic Econometrics”, Tata Mc. Graw Hill publishers, 4e,
pp. 1-396.
The analysis of the stock market cycles shows that in general over
5. John Hanke (2009), “Business Forecasting”, Prentice Hall of India, Eastern Economy
the reference period the bull phases are longer, the amplitude of edition, pp. 381-457.
6. Peijie Wang ( 2009), “ Financial Econometrics”, Roultledge Publishers, 2e, pp. 66-74.