A STUDY OF FACTORS AFFECTING INDIAN

STOCK MARKET – A COMPARATIVE STUDY

OF BANKING AND INFORMATION TECHNOLOGY
INDUSTRIES STOCKS IN INDIA

DISSERTATION

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR

THE AWARD OF THE DEGREE OF

MASTER OF ARTS IN ECONOMICS, PLANNING AND

DEVELOPMENT

BY

KAJAL BATRA

UNDER THE SUPERVISION OF

DR. SHAILENDRA BHUSHAN SHARMA

DEPARTMENT OF ECONOMICS, PLANNING AND

DEVELOPMENT

SCHOOL OF HUMANITIES AND SOCIAL SCIENCES

GAUTAM BUDDHA UNIVERSITY
Greater Noida UP-201310

i
 Department of Economics, Planning and Development

School of Humanities and Social Sciences

Declaration by the Candidate

I hereby declare that the dissertation entitled, “A STUDY OF FACTORS AFFECTING

INDIAN STOCK MARKET – A COMPARATIVE STUDY OF BANKING AND
INFORMATION TECHNOLOGY INDUSTRIES STOCKS IN INDIA” submitted in
partial fulfilment of the requirements for the award of the degree of Masters of Arts is a
record of bonafide research work carried out by me under the supervision of Dr. Shailendra
Bhushan Sharma. I, further declare that the work reported in this dissertation has not been
submitted either in part or in full for the award of any other degree or diploma of this
University or any other University.

Greater Noida Signature of the Candidate

Date: ………………. Kajal Batra

ii
 Department of Economics, Planning and Development

School of Humanities and Social Sciences

Certificate

This is to certify that the dissertation entitled “A STUDY OF FACTORS AFFECTING

INDIAN STOCK MARKET – A COMPARATIVE STUDY OF BANKING AND
INFORMATION TECHNOLOGY INDUSTRIES STOCKS IN INDIA’’ is submitted by
Kajal Batra in partial fulfilment of the requirement for the award of the degree of Masters of
Arts in Economics, Planning and Development under the supervision of Dr. Shailendra
Bhushan Sharma, Department of Economics, Planning and Development, School of
Humanities and Social Sciences, Gautam Buddha University, Greater Noida, U.P. (India).
This is an original work and the dissertation fulfils the requirement as per regulations of this
university and meets the necessary standards for submission. The contents of this dissertation
have not been submitted either in part or in full for the award of any degree or diploma in this
or any other University.

__________________________ __________________________
Dr. Neeti Rana Dr. Roopali Srivastava
Dean Program Coordinator
School of Humanities & Social Sciences Economics, Planning & Development

iii
 Department of Economics, Planning and Development

School of Humanities and Social Sciences

Certificate by the Supervisor

This is to certify that the dissertation entitled “A STUDY OF FACTORS AFFECTING

INDIAN STOCK MARKET – A COMPARATIVE STUDY OF BANKING AND
INFORMATION TECHNOLOGY INDUSTRIES STOCKS IN INDIA” submitted by
Kajal Batra in partial fulfilment of the requirements for the award of the degree of Masters of
Arts is a record of bonafide research work carried out by her under my supervision. This
dissertation fulfils the requirements as per the regulation of this university and meets the
necessary standard for submission. The content of this dissertation has not been submitted
either in part or full for the award of any other degree or diploma in this or any other
university.

Date: ………………… _______________________

Signature
Name of the Supervisor: Dr. Shailendra Bhushan Sharma

iv
 ACKNOWLEDGEMENT

This study has been carried out in the Department of Economics, Planning, and Development,
School of Humanities and Social Sciences, Gautam Buddha University, Greater Noida, Uttar
Pradesh, from Jan. 2021 to April 2021. I have received a great deal of help and assistance
from many people. It is difficult to acknowledge it adequately in a short and formal manner
here.
My teacher and guide, Dr. Shailendra Bhushan Sharma trained and exposed me to the vast
world of academics. His guidance and direction opened new avenues in my life. He taught me
how academic work can be a pleasure. I never felt that I was under any work pressure. I am
privileged to have worked under him and also grateful to him for the hospitality, affection and
concern bestowed.
I must thank all the teachers of my department for their valuable suggestions. I express my
sincere thanks to Dr. Roopali Srivastava, Coordinator of Department of Economics, Planning,
and Development, Gautam Buddha University for her advice and support during my research
work.
I am greatly indebted to my parents and grandparents who have been the source of constant
encouragement and support at all times. Some of my relatives also provided me all the
assistance in the completion of work.

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 ACRONYMS

Abbreviation Full Form

BSE Bombay Stock Exchange

BV Book Value
CDSL Central Depositories Services Ltd.
CM Capital Market
CRISIL Credit Rating Information Services of India Limited
DP Depository Participant
DPS Dividend Per Share
EPS Earning Per Share
FI Financial Institution
FII Foreign Institutional Investors
F&O Futures and Options
FOREX Foreign Exchange
GDP Gross Domestic Product
GOI Government of India
IPO Initial Public Offer
MF Mutual Funds
MNCs Multi-National Companies
NBFCs Non-Banking Financial Companies
NSDL National Securities Depository Ltd.
NSE National Stock Exchange
P/E Ratio Price Earnings Ratio
PSUs Public Sector Undertakings
RBI Reserve Bank of India
SEBI Securities and Exchange Board of India

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 LIST OF TABLES

Table No. 1.1 Major Crashes in Bombay Stock Exchange (From 2000 to 2020)

Table No. 1.2 Nifty50 Monthly Returns (%) (From 2000 to 2020)
Table No. 1.3 Comparison between Nifty50 Indexes (October 2008 and March
2020)
Table No. 5.1 Financial Indicators of Infosys Limited (From 2016 to 2020)
Table No. 5.2 Financial Indicators of Tata Consultancy Services Limited (From
2016 to 2020)
Table No. 5.3 Financial Indicators of State Bank of India (From 2016 to 2020)
Table No. 5.4 Financial Indicators of Punjab National Bank (From 2016 to 2020)

vii
 LIST OF FIGURES

Fig. 1.1 Major Crashes in Bombay Stock Exchange (From 2000 to 2020)
Fig. 5.1 Revenues of Infosys (in Rs. crore)
Fig. 5.2 Earnings Per Share of Infosys (in Rs.)
Fig. 5.3 Dividend Per Share of Infosys (in Rs.)
Fig. 5.4 Book Value of Infosys (in Rs.)
Fig. 5.5 Closing Price of Infosys (in Rs.)
Fig. 5.6 Revenues of Tata Consultancy Services (in Rs. crore)
Fig. 5.7 Earnings Per Share of Tata Consultancy Services (in Rs.)
Fig. 5.8 Dividend Per Share of Tata Consultancy Services (in Rs.)
Fig. 5.9 Book Value of Tata Consultancy Services (in Rs.)
Fig. 5.10 Closing Price of Tata Consultancy Services (in Rs.)
Fig. 5.11 Revenues of State Bank of India (in Rs. crore)
Fig. 5.12 Earnings Per Share of State Bank of India (in Rs.)
Fig. 5.13 Dividend Per Share of State Bank of India (in Rs.)
Fig. 5.14 Book Value of State Bank of India (in Rs.)
Fig. 5.15 Closing Price of State Bank of India (in Rs.)
Fig. 5.16 Revenues of Punjab National Bank (in Rs. crore)
Fig. 5.17 Earnings Per Share of Punjab National Bank (in Rs.)
Fig. 5.18 Dividend Per Share of Punjab National Bank (in Rs.)
Fig. 5.19 Book Value of Punjab National Bank (in Rs.)
Fig. 5.20 Closing Price of Punjab National Bank (in Rs.)

viii
 Abstract

The Stock Market is an imperative part of the economy of a country. The stock market plays
an essential role in the growth of the industry and commerce of the country that eventually
affects the economy of the country to an unlimited extent. That is why the government,
business, and even the country's central banks keep a close eye on what happens in the stock
market. The stock market is important from both the industry’s point of view as well as the
investor’s point of view. It plays an important function in helping corporations and
entrepreneurs to generate funds for their businesses and projects through public offerings.
Long-term investors nowadays choose to invest in the stock market rather than anywhere else.
The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are the large stock
exchanges of the Indian Stock Market.
The main objective of the present study is to present a review of literature related to the Indian
Stock Market to study Indian Stock Market in-depth. The study would facilitate the reader to
know the past, current, and future trends or prospects of the Indian Stock Market. This study
would provide guidelines to investors to maximize profit with minimal risk.
This study focuses on the Impact of Factors on the Indian Stock Market. The aim of the study
is to analyze the relationship between selected factors and the Indian Stock Market. This study
may also make investors capable to take better decisions by viewing the relationship between
the dependent (Sensex) and independent variables (factors).
Hence this study is an attempt to analyze the influencing factors which affect the movement
of stock price either upward or downtrend. For this purpose, two sample companies in the
Banking and IT Industry each (which are listed both in NSE and BSE for a minimum period
of five years i.e., from 2015-2020) have been selected. Four company-specific factors
Revenue, EPS, Dividend Per Share and Book value have chosen to compare the performance
of stock price movements in the market.

ix
 CONTENT

Sr. No. Title Page No.

1 Declaration by the candidate ii
2 Certificate iii
3 Certificate by the Supervisor iv
4 Acknowledgement v
5 Acronyms vi
6 List of Table vii
7 List of Figure viii
8 Abstract ix

Chapter - 1 An Overview of Indian Stock Market 1-11

Introduction 1
Investment Process 3
Role of Stock Exchanges 5
Bombay Stock Exchange (BSE) 5
National Stock Exchange (NSE) 7

Chapter - 2 Review of Literature 12-14

Review of Literature 12

Chapter - 3 Research Methodology 15

Objectives of the Study 15
Data Source 15
Research Methodology 15
Relevance for Study 15

Chapter - 4 Factors Affecting Indian Stock Market 16-23

Why is Stock Market Investment Risky? 16
Factors Affecting Indian Stock Market 16
Impact of all the Factors on Stock Market 19
Relationship of GDP and Stock Market 21
Relationship of Stock Market with Economy 21
Economic Effects of the Stock Market 21
Bullish and Bearish Trend 22

Chapter - 5 Analysis and Findings 24-43

Analysis and Findings 24
IT sector 26
Infosys Limited 26
Tata Consultancy Service 30
 Banking Sector 35
State Bank of India 35
Punjab National Bank 39

Chapter - 6 Conclusion and Suggestions 44-46

Conclusion 44
Suggestions 44

Bibliography 47-48
 Chapter – 1

An Overview of Indian Stock Market

Introduction

A stock exchange is a location or platform where investors can purchase and sell financial
items such as stocks and bonds. A stock market exchange, such as the BSE and the NSE, or
BSE and NSE in short, are stock exchange mediators that facilitate the purchase and sale of
shares. But what is the difference between a stock and a share? In the most basic sense, when
someone starts a business, it is either they or a group of people that enjoy working together.
Now, if they want to raise more money for the company, either to expand globally, or to
branch out, then one of the options they have is to make their company public. Making the
company public, in the simplest of terms, is to make the company available to the public in
the form of shares. Once the company is public, people buy shares in the company and
become part owners of the company.

The shares are the ownership units of a corporation that are traded on a stock exchange. A
stock exchange is where a company's stock is listed. A stock market is a collection of buyers
and sellers that can also be referred to as an economic transaction network. This does not
include the physical exchange of stocks (also known as shares) listed on a stock market or
privately exchanged. A stock exchange is a location or organization where stock traders (both
individuals and businesses) can trade equities. Other equities can be traded “over the counter,”
or without the use of a broker. The transfer of ownership units for money from a seller to a
buyer is referred to as a stock market trade. Small individual investors to huge traders based
everywhere in the world participate in the stock market.
In a stock market, a potential buyer usually fixes a price, called a bid price for a share of stock
and a potential seller asks for a specific price for it. Buying and selling in the market mean
that both buyer and seller will be agreed to the asking price or bid price respectively. When
the bid and ask price match, a transaction takes place. Hence valuation of stocks plays the
most critical role in everyday transactions in the stock exchange.

Securities valuation is a way of determining a stock's intrinsic worth based on its current
financial situation and forecasts of various economic and corporate aspects. Investors
typically decide whether to buy, hold, or sell a stock based on its intrinsic worth and its
comparison to the market price. Valuation procedures are significant because they establish a
relationship between the stock's market price and its fundamental financial status. Due to the
inclusion of various aspects, determining the best technique of valuation is a difficult task. In
the past, efforts were made to find the most appropriate method of valuation, which ranged
from a simple to a very complex process that took into account certain significant aspects at
the firm's level. Earnings, dividends, risk, cost of funds, future growth rate, and other factors
are taken into account. Furthermore, various macroeconomic variables such as the price level,
inflation, money supply, and interest rate are also monitored are also considered.

1
Stock valuation methods can be divided into three categories. The first is Discounted Cash
Flow Valuation, which compares a stock's value to the present value of predicted future cash
flows to stockholders. The second method, known as relative valuation, determines the value
of a stock at a given point in time by comparing the pricing of related companies in the same
industry to a common variable such as earnings, cash flows, book value, or sales. The third
model is the Option Pricing Model, which uses contingent claim valuation to determine the
value of a stock based on stock option characteristics.

Since the beginning of economic liberalization in 1991, India's stock market has gone through
a series of revolutionary developments. The adjustments were required in order to make the
Indian stock market more efficient. Previously, a developing country's stock market, such as
India's, was defined by substantial government supervision of its financial system and
investment activity. Furthermore, it was an underdeveloped capital market, influenced by
capital structure restrictions, fewer instruments, investment opportunities restrictions, a poorly
established securities market, input supply unpredictability, and extensive bureaucracy and
regulatory norms.

Since 1991, the Indian stock market has seen many changes as well as extraordinary
expansion. The government has taken a number of steps to improve the functioning of the
stock market. The following are some examples of such measures:

 Liberalization and globalization of Indian economy

 Formation of Securities Exchange Board of India (SEBI)
 Establishment of new stock exchange
 Advent of Foreign Institutional Investors
 Setting up of advisory panels for primary and secondary markets
 Inspection of affairs of the stock market
 Entry of private sector mutual fund
 Electronic linkage of stock exchanges
 Easy transferability of stocks
 Smaller marketable units of stocks

The shares or stocks are the units of ownership of a company, traded at a particular place
called the Stock Exchange. Companies get their stocks listed on a stock exchange. A stock
market is the aggregation of buyers and sellers, which can also be called the network of
economic transactions. This does not include the physical transaction of stocks (also called
shares) listed on the stock exchange as well as those traded privately. A stock exchange is a
place or organization in which stock traders (people and companies) can trade stocks. Other
stocks may be traded “over the counter”, that is, through a dealer. Trade-in the stock market
means the transfer of units of ownership for money from the seller to a buyer. This requires
the two parties to agree on a price, conferring the ownership interest of a particular company.
This price is determined by the demand and supply of the shares in the market, which in turn
are determined by factors such as the company’s fundamentals and expectation of its future
prospects. Banks, insurance firms, pension funds, and hedge funds are among the stock
market's participants, which vary from tiny individual investors to major dealers based

2
anywhere in the world. A potential buyer offers a bid price for a certain stock and a potential
seller gives an asking price of the same stock. Bidding and asking initiates the process of
buying and selling stocks in the market. A transaction takes place when the bid and ask prices
match. In the case of multiple bidders or askers, the transaction is done on a first-come, first-
served basis. Stock market activity is considered to be the mirror of a country’s economic
activity. It is also considered as the primary indicator of a country’s economic strength and
development. Raising share price tends to be accompanied by increased business investments
and vice versa. Increasing share prices affect the wealth of individuals and their consumption.
Exchanges, being the counterparty to the buyers and sellers, usually act as the clearinghouse
for each transaction. The smooth functioning of stock market operations facilitates economic
growth. The role of the stock market in creating employment is also very important. In this
way, the financial system is assumed to contribute to the increased prosperity of a country. In
a nutshell, the stock market is the heart of a country’s economy through which the savings of
individuals are channelized into effective long-term investments. A well-developed and
vibrant stock market will greatly contribute towards speedy economic growth and
development. With the continuous support of the Government, the Indian stock market has
now become well-organized, fairly integrated, mature, modernized, demographically well-
diversified and one of the best in the world in terms of technology.

Investment Process

An investment is a financial commitment to one or more assets that will be retained for a
period of time in the future. The term "investment" can also refer to the investment process.
The decision-making process for parking our funds in various investment channels is referred
to as the investing procedure. The process of picking the optimal alternative(s) in terms of risk
aversion and expected return on investment is known as investment decision making. We can
categorise investment avenues into two categories:
1. Purchasing marketable securities as a form of investment.
2. Non-marketable securities, i.e., non-securities.
Marketable Securities: Types

Following are marketable securities:

Equity Shares: These are company shares that can be traded on the secondary market.
Changes in share prices and dividends paid by firms benefit investors. Ownership capital is
represented through equity shares. A person who is an equity shareholder owns a portion of
the corporation. This simply indicates that the individual has a residual interest in the
company's revenues and wealth.

Bonds/Debentures: Bonds and debentures are investment instruments that are regarded to be
generally safe. Bonds/Debentures are debt instruments issued by the government or
government authority, as well as the public sector, businesses, and other entities.

Money Market Instrument: The phrase "Money Market" is commonly used to refer to the
market for short-term funding requirements and deployment. Instruments with a maturity of

3
less than one year are known as money market instruments. Governments, public sectors,
enterprises, and other entities issue these instruments to meet their short-term financial needs.

Mutual Funds: A mutual fund is an investment trust that pools the savings of a group of
people who share similar financial goals. Depending on the scheme's goal, the fund manager
invests this pool of money in securities ranging from shares to debentures to money market
instruments, or a combination of equity and debt. Balanced Funds, Index Funds, Sector
Funds, and Equity Oriented Funds are the various sorts of schemes.

Capital Market

The capital market is a market for long-term or indefinite-term financial assets. It mostly deals
with long-term securities having maturities of more than one year. The significance of the
capital market is as follows:

• It is a vital source for putting the economy's savings to constructive use. It mobilizes
people's savings for future investment, preventing them from being wasted for non-
productive purposes.
• It provides an avenue for investors, primarily the household sector, to invest in
financial assets that are more productive than physical assets by offering suitable
rates of interest as the price of capital.
• It facilitates a rise in economic production and productivity, hence improving
society's economic well-being. As a result, it allows "the migration of the stream of
command over the capital to the point of highest yield" to those who can use them
productively and profitably to raise overall national income.
• The activities of different institutions in the capital market contribute to economic
progress. They direct the flow of cash quantitatively and qualitatively, resulting in
sensible income in the aggregate.
• Furthermore, utilizing public funding, serves as a key source for technological
advancement in the industrial sector.
We need also to be familiar with the divisions of the capital market in order to gain a better
understanding of it. Three segments can be found in the capital market.
1. Industrial security market
2. Government security market
3. Long term loans market.
But this dissertation is restricted to industrial security market; hence here only industrial
security market is discussed below.

Industrial Securities Market

It is a market for different companies' securities. Equity shares, preference shares, and
debentures are examples of such securities. Investors put their money into this market by
purchasing these securities, while firms raise funds through various issues. This market can be
separated into two types: primary and secondary.

Primary Market

4
The primary market is where industrial securities are issued for the first time. The new issue
market is another name for this market. It is concerned with securities that were previously
unavailable to the general public. As a result, it deals with corporations issuing new capital for
cash or for payment other than cash. This capital can take many forms, including equity
shares, preference shares, and debentures.

Secondary Market

The stock market is a market for previously issued securities that have been listed on a stock
exchange. Without the involvement of companies, these securities are regularly purchased and
sold among investors. The stock exchange not only allows for the unrestricted transfer of
shares but also allows for the continual evaluation of securities traded on the market.

Non-Marketable Securities

As it is not traded on any of the major secondary market exchanges, it is a difficult asset to
buy or sell. Private transactions or the over-the-counter (OTC) market are usually the only
ways to buy and sell such products, which are common debt or fixed-income products.
Role of Stock Exchanges
Bombay Stock Exchange (BSE)
The Bombay stock market Ltd (BSE) is Asia’s first and fastest stock market. It was founded
in the year 1875. It's one of India’s leading exchanges, clocking a median reaction time of six
microseconds. Over the past 140 years, BSE has contributed immensely towards the
expansion of the Indian corporate sector. It provided a uniform platform for capital generation
and a busy marketplace for equity trading and trading for investment companies, derivatives
and debt instruments. In terms of listed companies, BSE ranks as the biggest exchange in the
world with over 5500 companies listed in its database. The entire market capitalisation of
companies listed on BSE is about US $2.8 trillion as of February 2021. It's one among the
most important exchanges for Index options trading, which is the 7 th largest in the world. BSE
also offers a variety of other services to capital market participants, like market data services,
settlement, clearing, risk management and education. The processes and systems of BSE are
designed to expand the New Delhi market, protect market integrity, encourage innovations
and stimulate market competition. BSE, also offers depository services through Central
Depository Services Ltd. (CDSL). BSE‟s equity index – the S & P BSE SENSEX – is just
like the barometer of Indian stock markets. It's the country’s most extensively tracked stock
exchange benchmark index. BSE Limited has been considered synonymous with the stock
exchange in India and its benchmark index S & P BSE SENSEX reflects the health of the
Indian economy. The S & P BSE SENSEX (also called BSE 30), may be a market-value-
weighted index of 30 well-established and blue-chip companies listed on the Bombay stock
market. The businesses included within the index are financially very sound and are the
foremost actively trading entities within the market. The businesses of SENSEX represent
various industrial sectors of the Indian economy. The bottom value of the S & P BSE
SENSEX is taken as 100 as on April 01, 1979 and therefore the base year is 1978-1979.

The following table shows the monthly data of the biggest hit year on a percentage basis:

5
 Table No. – 1.1

Major Crashes in Bombay Stock Exchange

(From 2000 to 2020)

Sr. No. Major Crashes Months Percentage Crash

1. 23rd March 2020 13.15

2. 24th October 2008 10.95

3. 12th March 2020 8.18

4. 16th March 2020 7.96

5. 21st January 2008 7.40

6. 18th May 2006 6.76

7. 17th March 2008 6.03

8. 24th August 2015 5.93

9. 9th November 2016 5.90

To analyze the above table, a graph has been plotted below which shows a line going
downwards having values of deep fall. It clearly shows that March 2020 was a very crucial
month in the past two decades of the Indian stock market.

6
 Major Crashes in Bombay Stock Exchange
(From 2000 to 2020)

14
13.15
12
10.38
10
8.18 07.96
8 07.40
6.76
6.03 5.93 5.9
6

4
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Fig. 1.1
The first major fall was on 23rd March 2020, it was all due to the Covid-19 pandemic and the
second biggest fall was on 24th October 2008 due to US Financial Crisis and then on 12th
March 2008, it fell down to 8.18%.
National Stock Exchange (NSE)
The report of the High Powered Study Group on ‘Establishment of New Stock Exchanges'
gave birth to the National Stock Exchange of India Limited. It made a decision on the
establishment of a National Stock Exchange by financial institutions in order to provide
access to investors from all over the world. Based on the suggestions and recommendations,
the NSE was founded in 1992 as a taxpaying corporation, distinguishing itself from other
Indian stock exchanges in terms of operational performance.
The National Stock Exchange (NSE) is India's largest stock exchange, with branches in
various parts of the world. For the first time in India, the NSE launched fully automated
screen-based trading. It employs a cutting-edge, completely computerized trading system that
provides investors around the country with a safe and clear way to invest. By making the
trading process more effective, clean, and well-integrated, the exchange increases trading
transparency and speed. Demutualization of stock exchange activities, screen-based trading,
electronic transfer of shares, lending and borrowing of securities, developing better risk
management systems, formation of clearing companies to assume counterparty risks,

7
marketing of derivative and debt instruments, and efficient use of new technology are just a
few of the developments it has implemented in trading.
The NSE is a national stock exchange that trades equities, equities-based derivatives, currency
derivatives, equity-based ETFs, Gold ETFs, and retail government securities. The NSE
network now covers more than 1,500 locations across the country, serving over 2,30,000
investor centres. As of April 2018, the NSE had a total market capitalization of over US $2.27
trillion, making it the world's 11th largest stock exchange. The CNX Nifty (NIFTY 50) is the
NSE's flagship index, and it is widely used as a benchmark of the Indian capital market by
investors in India and abroad.
The following table shows month-wise twenty years growth rate of Nifty50 Index from the
year 2000 to 2020:

8
 Table No. 1.2
Nifty50 Monthly Returns (%)
(From 2000 to 2020)

Years Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec
2000 4.4 7.0 -7.6 -8.0 -1.9 6.6 -9.4 4.6 -8.8 -7.8 8.1 -0.4
- -
2001 8.6 -1.5 -2.0 3.8 -5.1 -3.2 -1.8 6.4 9.8 -0.8
15.0 13.3
2002 1.5 6.2 -1.1 -4.0 -5.1 2.8 -9.3 5.4 -4.7 -1.2 10.4 4.1
2003 -4.7 2.1 -8.0 -4.5 7.8 12.6 4.6 14.4 4.5 9.8 3.8 16.4
-
2004 -3.7 -0.5 -1.6 1.4 1.5 8.4 0.0 7.0 2.4 9.6 6.2
17.4
2005 -1.1 2.2 -3.2 -6.5 9.7 6.4 4.1 3.1 9.1 -8.9 11.9 6.9
-
2006 5.8 2.5 10.7 4.6 1.9 0.5 8.6 5.1 4.3 5.6 0.3
13.7
2007 2.9 -8.3 2.0 7.0 5.1 0.5 4.9 -1.4 12.5 17.5 -2.3 6.5
- - - -
2008 1.7 -9.4 9.1 -5.7 7.2 0.6 -4.5 -7.4
16.3 17.0 10.1 26.4
2009 -2.9 -3.9 9.3 15.0 28.1 -3.5 8.0 0.6 9.0 -7.3 6.8 3.3
2010 -6.1 0.8 6.6 0.6 -3.6 4.4 1.0 0.6 11.6 -0.2 -2.6 4.6
-
2011 -3.1 9.4 -1.4 -3.3 1.6 -2.9 -8.8 -1.2 7.8 -9.3 -4.3
10.2
2012 12.4 3.6 -1.7 -0.9 -6.2 7.2 -0.9 0.6 8.5 -1.5 4.6 0.4
2013 2.2 -5.7 -0.2 4.4 0.9 -2.4 -1.7 -4.7 4.8 9.8 -2.0 2.1
2014 -3.4 3.1 6.8 -0.1 8.0 5.3 1.4 3.0 0.1 4.5 3.2 -3.6
2015 6.4 1.1 -4.6 -3.6 3.1 -0.8 2.0 -6.6 -0.3 1.5 -1.6 0.1
2016 -4.8 -7.6 10.8 1.4 4.0 1.6 4.2 1.7 -2.0 0.2 -4.7 -0.5
2017 4.6 3.7 3.3 1.4 3.4 -1.0 5.8 -1.6 -1.3 5.6 -1.1 3.0
2018 4.7 -4.9 -3.6 6.2 0.0 -0.2 6.0 2.9 -6.4 -5.0 4.7 -0.1
2019 -0.3 -0.4 7.7 1.1 1.5 -1.1 -5.7 -0.9 4.1 3.5 1.5 0.9
-
2020 -1.7 -6.4
23.2
Source: Niftyindices.com 
So, as it is clearly visible in the table above, March 2020 was the 2nd worst month of the last
20 years after October 2008 for most of the Indian markets. Through the above table, we can
easily analyze that October 2008 and March 2020 were the two worst months ever in the past
20 years.

9
Talking of the worst months, let’s see how March 2020 compares with the worst month ever –
October 2008. Table no. 1.2 shows a comparative study between these two worst months:

Table No. 1.3

Comparison between Nifty50 Indexes
(October 2008 and March 2020)

Nifty 50 MTD Nifty 50 MTD

Date Date
(Oct 2008) (Oct 2008) (Mar 2020) (Mar 2020)

30-Sep-08 3921.2 - 28-Feb-20 11201.75 -

01-Oct-08 3950.75 0.8% 02-Mar-20 11132.75 -0.8%
03-Oct-08 3818.3 -2.6% 03- Mar-20 11303.3 0.9%
06-Oct-08 3602.35 -8.1% 04- Mar-20 11251 0.4%
07-Oct-08 3606.6 -8.0% 05- Mar-20 11269 0.6%
08-Oct-08 3513.65 -10.4% 06- Mar-20 10989.45 -1.9%
10-Oct-08 3279.95 -16.4% 09- Mar-20 10451.45 -6.7%
13-Oct-08 3490.7 -11.0% 11- Mar-20 10458.4 -6.6%
14-Oct-08 3518.65 -10.3% 12- Mar-20 9590.15 -14.4%
15-Oct-08 3338.4 -14.9% 13- Mar-20 9955.2 -11.1%
16-Oct-08 3269.3 -16.6% 16- Mar-20 9197.4 -17.9%
17-Oct-08 3074.35 -21.6% 17- Mar-20 8967.05 -19.9%
20-Oct-08 3122.8 -20.4% 18- Mar-20 8468.8 -24.4%
21-Oct-08 3234.9 -17.5% 19- Mar-20 8263.45 -26.2%
22-Oct-08 3065.15 -21.8% 20- Mar-20 8745.45 -21.9%
23-Oct-08 2943.15 -24.9% 23- Mar-20 7610.25 -32.1%
24-Oct-08 2584 -34.1% 24- Mar-20 7801.05 -30.4%
27-Oct-08 2524.2 -35.6% 25- Mar-20 83147.85 -25.7%
28-Oct-08 2684.6 -31.5% 26- Mar-20 8641.45 -22.9%
29-Oct-08 2697.05 -31.2% 27- Mar-20 8660.25 -22.7%
31-Oct-08 2885.6 -26.4% 30- Mar-20 8281.1 -26.1%
31- Mar-20 8597.75 -23.2%

Source: Niftyindices.com 

10
The above table shows some scary red-coloured grids of deep fall. It also depicts that October
2008 and March 2020 were two very crucial and unforgettable Months in the last 20 years
history of the Indian stock market.

Chapter – 2
Review of Literature
Eminent Social Scientists and Economists have concluded number of studies related to Indian
Stock Market at macro and micro level. Main findings of these studies have been discussed in
the following paragraphs:

Schwert (1989) according to his research, volatility was higher in the nineteenth and early
twentieth centuries during recessions and around global banking panics. Negative returns

11
trigger greater volatility increases than positive returns. Stock market risk, where stock
volatility represents uncertainty about more fundamental economic aggregates, provides
information about the health of the economy. He also focused on the impact of a 20% decline
in stock prices on stock market return volatility was the subject of this study. It examines
whether the behaviour of daily returns before and after the 1987 crash was out of the ordinary
when compared to the experience of over a century of daily results. The 1987 stock market
crash was unprecedented in that it was the biggest one-day percentage change in prices in
over 29000 observations.

White Eugene (1990) discovered that the irrational behaviour of the investor was found to be
the primary cause of the 1929 stock market crash. The extension of the broker's loan
contributed to the investor's mania. It was backed by the fundamentals of those firms. Many
individuals joined the stock market for the first time. New investors, women, supplied
programs and articles in women’s magazines. Credit Policy, New Stock Issue, Authorities'
Decisions for Big Corporations, Changes in Dividend/Earning of Business, Changes in Tariff,
Duties and Charges, and International Effects such as Monitory Policy of Other Countries,
Interest Rates of Home and Other Countries were among the other causes.

Mukerjee (2007) has conducted a comparative study of the Indian industry in comparison to
the global market. He compared the BSE and NSE, Indian stock exchanges, to the New York
Stock Exchange (NYSE), the Hong Kong Stock Exchange (HSE), the Tokyo Stock Exchange
(TSE), the Russian Stock Exchange (RSE), and the Korean Stock Exchange (KSE) in his
research (KSE). He discovered in this study that markets do respond to global cues and any
global event.

Avadhani (2008) has observed that if FIIs purchases exceeding sales involving a net long

position, the market may turn Bullish, while if sales outperform involving a net short position,
the market may turn Bearish.

Desai (2009) has found that global production increased by 5% in 2007, but then slowed to
3.9 percent and 3 percent in 2008 and 2009, respectively. According to the IMF's World
Economic Outlook, India developed at a rate of 9.3 percent in 2007, 7.9 percent in 2008, and
6.9 percent in 2009. He's also focused on determining the impact on developed countries,
which can be determined by a drop in exports. The BSE Sensex has tended to bleed for a
longer period of time due to fear and psychological factors than to other causes. The BSE
Sensex has dropped nearly 15% in the last few weeks (3-4). It's also due to a lack of capital
from FIIs and FDIs, which has dried up.

Ahmed Gauher and Syed Abdul Malik (2009) have shown that, according to Indian

establishments, India would be relatively unaffected by the crisis if its growth rate of 8 to 9%
remains stable. However, based on the first or preliminary symptoms, the Indian economy
will be affected by the crisis, as there is already a liquidity crisis in the economy, and growth
forecasts are being lowered.

12
Kumar and Bakshi (2009) the 1.3 percent industrial growth rate is the lowest in ten years,
according to the IIP (Index of Industrial Production). Except for 1998 and 2001, April-August
growth is 4.9 percent, which is the lowest for the first five months of the financial year in 14
years. When compared to the same month in 2007, industrial growth in August 2008 was just
1.3 percent. This industrial slowdown has had an effect on transportation services as well. As
a result of the global recession, fewer tourists will visit India. This would have a negative
impact on the tour and travel industry. The global recession has had a negative impact on the
IT sector, the car industry, and export-oriented businesses.

Bhattacharya and Mukherjee (2002) they attempted to determine the existence and form of
relationship that occurs between the BSE Sensex and five macroeconomic factors in their
research. Economic factors included the Index of Industrial Production, national income,
money supply, inflation rate, and interest rate. They conducted their research using monthly
data from the previous eight years. They discovered a bidirectional relationship between stock
prices and inflation, a unidirectional relationship between IIP and stock prices in which IIP
influences stock prices, and no causal relationship between money supply, national income,
and interest rates and stock prices in their research.

Ahmed (2008) investigated the relationship between Indian stock prices and six
macroeconomic factors. As macroeconomic factors, he has chosen exports, the Index of
Industrial Production, FDI, the interest rate, the exchange rate, and the money supply. He ran
a number of tests before concluding that stock prices predict India's economic activity. He
also came to the conclusion that stock prices are one of the causes of movement in other
aspects of the national economy.

Singh (2010) in his research, looked into the causal relationship between the wholesale price
index, the exchange rate, and the Index of Industrial Production, with the stock market index,
the BSE Sensex. In his research, he used the Granger Causality Test and discovered that only
IIP has a bilateral causal relationship with the BSE Sensex. WPI only has a clear unilateral
relationship with the BSE Sensex, and no relationship with the exchange rate has been
discovered.

Pal and Mittal (2011) investigated the relationship between the Indian capital market and
macroeconomic variables such as the interest rate, gross domestic savings, exchange rate and
inflation.  Between January 1995 and December 2008, they used quarterly time series data.
Their research established that capital market indices are influenced by macroeconomic
variables, even though these variables are not statistically important in all cases.

Dhiman (2012) clarified the impact and scope of foreign institutional investments (FIIs) on
the Indian stock market in his study. Pension funds, hedge funds, mutual funds, and insurance
firms are among the FIIs. He concluded by stating that FIIs have an effect on stock price
efficiency, and that FII investments have resulted in both quantitative and qualitative
improvements in the stock market. They have expanded the Indian stock market's scope and
depth.

13
Joshi (2013) attempted to identify some major factors that influence the up and down
movement of stock prices in India in her research. She looked into things like foreign
institutional investors, political stability, the country's GDP growth, inflation, liquidity, and
interest rates. She has also attempted to identify some global factors that could have an effect
on the performance of stock prices in the Indian stock market.

K and Bhatia (2015) in their study, the effect of ten macroeconomic variables on the
functioning of the Indian stock market was examined. Crude oil prices, exchange rate, call
money rate, foreign exchange reserve, foreign institutional investment, gross fiscal deficit,
index of industrial output, inflation rate, and trade balance are among the macroeconomic
variables studied. They used BSE500 to achieve their research goals. Only foreign
institutional investments and the exchange rate are important, they discovered.

Velmurugan and Janardhanan (2016) The relationship between macroeconomic factors

and the output of two major Indian stock market indices, the BSE Sensex and the NSE nifty,
was empirically checked. Six macroeconomic variables, namely FIIs net investment, oil
prices, exchange rates, interest rates, gold rates, and inflation rates, were studied annually
from 1995-96 to 2014-15. The relationship between selected stock market indices and six
macroeconomic factors in the Indian economy was investigated using correlation analysis and
multiple regression techniques. According to the findings, macroeconomic conditions have an
impact on India's stock market indices.

Ms. Aanchal (2017) analysed the effect of five macroeconomic variables on the Indian stock
market. As macroeconomic variables, she has selected Gross Domestic Product, Exports,
Imports, Inflation, and Investment. The Nifty 50 market index was used as a proxy for stock
market results. They discovered no correlation between the Indian stock market and any of the
five variables they studied. However, it was also discovered that there is a strong positive
connection between the Indian stock market and a set of five variables.

Chapter – 3
Research Design and Methodology
Objectives of the Study

Literature Review enabled me to justify my observed problem for detailed study. It helped me
in determining my objectives of research.

The study has been undertaken with the following objectives:

1. To identify major factors affecting the Indian stock market.

14
 2. To analyse the impact of these factors on selected stock markets.
3. To make a comparative analysis of four companies selected from banking and IT
industries to determine their stocks growth in the stock market.
4. To recommend an action plan for sound investment decision in the Indian stock
market.

Data Source

The study is basically based on secondary data. The information was gathered from various
books, journals, manuals, and BSE and NSE websites. Data collected from secondary sources
has been interpreted with the help of statistical tools. The study has covered major factors
which affect the Indian stock market and various company data in respect of this during 2015-
2020, mainly focusing on fluctuations in the pandemic situation.

Research Methodology

The study examines secondary information and literature on the Indian stock market and the
major factors that influence it. To measure the impact of these factors, all the data has been
taken from published sources, especially BSE & NSE. Broadly, qualitative data has been used
but because of secondary data analysis by me, that's why the research is quantitative also.
With a view to accomplishing the aforesaid objective of the study, plans for investment have
also been recommended.

Relevance for Study

The stock market is one of the vital sources of investment to earn a good return, which could
be more than the real expected rate of return. (Real rate of return is = actual rate of return –
inflation rate). To earn in the stock market, knowledge related to it is very important. The
performance of the stock market is reflected by a number of factors related to a country’s
economy, industrial positions, companies’ performance and factors related to the globe. If an
investor wants smart movement in the stock market, he is required to understand the effect of
major factors in the stock market. Before understanding the effect of major factors, it is
important to be aware of these major factors.

Chapter - 4
Factors Affecting Indian Stock Market

Why is Stock Market Investment Risky?

Stock market investment is risky because markets react to various internal and external
factors. Also, most of these factors are beyond the control of investors. Volatility is an
integral part of stock market investment and if not managed well, one could end up making
losses. Investing in stock markets with proper research and understanding can help one make

15
meaningful gains. This means that the value of the stock you purchased will fluctuate for a
variety of reasons that can sometimes not be explained and other times they can be.
The stock market is regarded as a risky investment because of its predictability. You will,
however, reap the benefits if you research the market in depth and devote enough time to
market volatility.

Factors affecting Indian Stock Market

Factors that affect the market as a whole are difficult to identify. The stock exchange may be
a complicated, interconnected system of large and small investors making haphazard
decisions about a wide range of investments.

There are basic economic concepts that can help explain market ups and downs, and there are
more specific indicators that market analysts have identified as being relevant based on
experience and evidence.

Factors relating to the Company:

It is understood that if a company's shares are publicly traded, anything that occurs within the
company will have a direct impact on the share price. So, if the company is on the rise, with
successful product launches, increased sales, decreased debt and more influx of investor
money, the stock price is bound to rise, because everyone wants to purchase shares of a
company that is growing. If, on the other hand, the company is losing money, experiencing
product failures, or acquiring debt, a majority of shareholders will want to sell the company's
shares, lowering the stock price.

Supply and Demand

The demand is influenced by a variety of factors. But if you strip away all the frills and look
at the most fundamental element, it's simple: supply and demand. Stock prices can rise and
fall in response to supply and demand imbalances, as they do for all commodities. The
amount of shares people want to sell is known as supply, while the amount of shares people
want to buy is known as demand.

For instance, if there is a sudden shortage of potatoes and a growing number of people are
lining up to buy them, the price of potatoes will skyrocket. Similarly, if a company is doing
well and everybody wants to buy shares, there will be a shortage of shares, resulting
in shooting up the stock price of the company. When there are so many shares available but
no one wants to buy them, the situation is reversed. In that case, the stock price would plunge.

Investor Sentiments

Stock market values can also be influenced by the sentiments of individual investors. The way
investors invest capital has much to do with how the stock market works. Stock prices would
rise if investors take more chances and spend more aggressively. Stock prices, on the other

16
hand, would fall if investors become more prudent, preferring protection over risk. In this
regard, there are two things to consider:

 Bullish Market

A bullish market is one in which an investor is far more interested in taking risks and
investing aggressively. When more people are optimistic about investing, demand
rises, resulting in higher stock prices.

 Bearish Market

A bearish market is one in which the investor is concerned about taking risks and
losing money, and therefore invests with less trust and protection in mind. As a
result, the economy becomes stagnant, and the stock price eventually falls.

Rates of Interest

Interest rates are thought to play a significant role in the value of every stock or bond. There
are many explanations for this, and which is the most relevant is a source of debate. First,
interest rates influence the amount of money that investors, banks, companies, and
governments are able to borrow, thus influencing the amount of money spent in the economy.

Politics

The political climate in India is one of the most significant factors affecting the stock market.
If the political climate is bleak, with the government looking fragile, the threat of war
looming, or if public opinion of the new administration is negative, stock prices will fall.

Similarly, if the government seems to be powerful and has widespread public support, the
stock market would do better. Besides that, if the government has good developmental
policies, investors would be more enthusiastic to invest, while a government with a poor
developmental agenda will lead to a drop in stock prices.

Current Events

The stock market is also influenced by news and other current affairs. Any political unrest,
civil war or protests, or terrorist attacks are all current issues that impact the stock market.
Both of these events are likely to cause stock prices to drop and market volatility to increase.

Natural Calamities

Natural disasters such as earthquakes and floods have a major impact on stock market prices.
This happens for a variety of reasons, including the loss of property and other assets. As a

17
result, businesses suffer significant losses, resulting in a drop in stock prices. The failure of
production and transportation of products has a negative impact on company revenue. As a
result, stock prices are likely to crash when natural disasters strike.

Exchange Rate

One of the factors influencing share prices in India is the value of the Indian rupee in
comparison to the dollar or other foreign currency. A strong rupee indicates that our economy
is expanding, resulting in higher stock prices. When it comes to the success of our currency,
however, there are different repercussions for different people.

As the value of the rupee rises, the price of Indian goods abroad rises, resulting in lower
demand. Exporters suffer as a result, and their stock prices fall. Importers, on the other hand,
may purchase products at lower prices and their stock prices rise. When the value of the rupee
falls, the stock prices of exporters rise while those of importers fall.

Regulations of SEBI
The Securities and Exchange Board of India (SEBI) has set some regulatory standards on the
stock market. These rules have been in place since the beginning of the stock market. The
SEBI guidelines ensure that the number of stock market participants grows over time. A
circuit breaker is also incorporated in the market, which ensures that the money deposited is
not lost if the market crashes. It is the limit that is set for stock price fluctuations in both
positive and negative directions. The circuit breaker can be turned off for a set amount of
time. The circuit breaker has primarily two advantages that aid both traders and investors in
making future stock decisions. It also has an impact on the supply-demand graph.
Price Rigging
Price rigging is one of the most common stock market scams in India. This has a detrimental
impact on the stock market. The Ketan Parekh Scam and the Harshad Mehta Scam are two
notable scams that occurred and were well-known in Indian stock market news. Price rigging
has, however, lessened as a result of SEBI's better surveillance Scammers use circular trading
to influence the stock price of certain companies, which is known as price rigging.

Monetary Policy of RBI

The Reserve Bank of India's monetary policies have a significant impact on the Indian stock
market. The price of a company's shares and stocks are mostly affected by changes in the repo
rate. The stock market is automatically affected by changes in the Repo rate because the
major companies serve as market traders. Increases in the reverse repo and repo rate can have
a negative influence on stocks in all capital-intensive businesses, while decreases in both can
cause their stocks to rise.

18
Confidence in the stability of future investments plays a big role in whether markets go up or
down. Investors are more likely to get stocks if they're convinced their shares will increase in
value in the future. If, however, there's a reason to believe that shares will perform poorly,
there are often more investors looking to sell than to shop for.
As a result, when compared to other types of investments, investing in the stock market will
yield the highest returns. It does, however, come with major risks. Nobody can argue,
however, that if these risks are measured, the yield would almost certainly equal the risks. As
a result, when compared to other types of investments, stock market investing provides the
best returns. It does, however, carry significant hazards. Nobody can deny that if these risks
are assessed, the yield will almost certainly equal the risk.

Impact of all the Factors on Stock Market:

The stock market can be unpredictable, and the reasons why such stocks rise and fall can be
difficult to understand.  Stock prices are often influenced by a variety of causes and events,
some of which influence stock prices directly and others indirectly. According to stock market
guru Peter Lynch, a key point to remember when investing, is that "there is a company behind
every stock and a reason why companies-and their stocks-perform the way they do."

Impact of World Events on Stock Market

Global events such as war and civil unrest, natural disasters, and terrorism may have an effect
on company stock prices and the stock market in general. These factors may be direct or
indirect, and they often occur in series. The civil unrest and anxiety sparked by the September
11, 2001 terrorist attacks had a direct impact on markets, as it prompted many investors in the
United States to trade less and concentrate on lower-risk stocks and bonds.

The launch of a new military venture by a nation in response to the outbreak of civil unrest or
war abroad is an example of an indirect impact on markets.

Impact of Interest Rates on Stock Market

The projected sum of future cash flows would fall if a business is seen as cutting back on its
growth or is less profitable—either by higher debt costs or lower sales. All other factors
remain constant. This will result in a decrease in the companies' stock price.

If the stock prices of companies fall, the whole market, or the main indices that many people
associate with the market Sensex, Nifty and others will fall. Investors would not get as much
growth from stock price appreciation if they have lower expectations for a company's growth
and future cash flows. Stock ownership can become less desirable as a result of this.
Furthermore, as opposed to other investments, investing in equities may be seen as too risky.

Interest rate hikes, on the other hand, could help certain industries. The financial industry is
one of the sectors that benefit the most. As interest rates rise, banks, brokerages, mortgage
companies, and insurance companies' earnings also rise because they can charge more for
loans.

19
Impact of Inflation on the Stock Market

The price of a stock is determined by its demand and supply, which is influenced by a variety
of factors such as social, political, economic, and cultural factors. Inflation is no exception to
the rule that anything that affects the investor has an effect on stock demand and supply. Here
is a quick look at how inflation affects financial markets:

 The Purchasing Power of Investors

Inflation is a measure of the declining value of money since it is described as an

increase in the price of goods and services. So, if the inflation rate is 5%,
today's Rs.10,000 will be worth Rs.9,500 in a year's time. If the rate of inflation rises to
10%, the same amount would be worth less in the future. As a result, as inflation rises,
the buying power of investors decreases.

This could have a direct impact on the stock market, as investors would be able to buy
fewer stocks for the same amount of money.

 Interest Rates

When inflation rates rise, the Reserve Bank of India (RBI) raises interest rates for
deposits and loans. The aim is to encourage people to save money and reduce excessive
liquidity, lowering inflation. Companies' cost of capital rises as loans become more
expensive. As a result, the expected cash flows are discounted, resulting in lower stock
valuations.

 Impact on Stocks

As the rate of inflation increases, uncertainty about future prices of goods and services
creates a highly unpredictable business climate. Many investors believe that as costs
rise, businesses will suffer a decline in profitability. As a result, some investors may
decide to sell their shares, resulting in a decline in the stock's market price. At the same
time, investors who are optimistic about the company's future profitability can purchase
these stocks, resulting in a volatile market.

A change in the rate of inflation has a significant impact on the value of stocks. Value
stocks' market prices are generally proportional to the rate of inflation. As a result, when
the rate of inflation increases, value stocks appear to outperform.

 Long-term benefits of rising Inflation Rates on Stock Markets

Inflation is not the devil that many people believe it to be. In reality, a gradual increase
in inflation is a sign of a healthy economy. When you look back over history, you'll
notice that an increasing inflation rate is almost always associated with an increase in
the Gross Domestic Product (GDP). It's important to note that if inflation rates are too

20
 high, purchasing power will erode dramatically, causing economic instability. On the
other hand, if the inflation rates are too low, it can hinder economic growth.

As a result, investors must compare recent inflation rates to determine if the rise is sudden or
sustained. If inflation rates continue to rise slowly, it could be beneficial to businesses and the
economy, as well as a favourable environment for stocks.

Relationship of GDP and Stock Market

The stock market is often used as a sentiment measure and can have an effect on GDP (gross
domestic product). GDP is a measure that calculates an economy's total production of goods
and services. As the stock market rises and falls, so does economic sentiment. People's
spending shifts in response to changes in sentiment, which drives GDP growth. The stock
market, on the other hand, may have both positive and negative effects on GDP.

Relationship of Stock Market with Economy

Stock market fluctuations can have a significant economic influence on the economy and
individual customers. A drop in stock prices has the potential to affect the economy on a large
scale. The stock market crash of 1929, for example, was a major factor in the Great
Depression of the 1930s. However, frequent stock market fluctuations may have a smaller
effect on the economy than we would think. The stock market is not representative of the real
economy. Share prices can change for a variety of reasons, including correcting an
overvaluation, and significant falls in share prices do not always imply lower growth.

The argument is that a sharp drop in stock prices does not always imply that the economy is in
poor shape. For example, the stock market crash of 1987 did not result in any real-world
economic harm (Although it did have an effect on monetary policy). Fearing a recession as a
result of the stock market crash, the UK cut interest rates. Instead, low interest rates triggered
an economic boom with high growth rates.

The 1987 stock market crash (during which shares lost 25% of their value) did not signify
major economic issues, and the global economy grew at a reasonable pace.

Economic Effects of the Stock Market

1. Wealth Effect

The first effect would be a decrease in income for those who own stocks. If the drop is
important, it will have an effect on their financial situation. If they're losing money on stocks,
they'll be less likely to spend money, which might lead to a drop in consumer spending. This
influence, on the other hand, should not be overvalued. People who buy stocks are often
wealthy and willing to risk money; their spending habits are generally unaffected by stock
prices, particularly in the case of short-term losses. Furthermore, only about 10% of
households own shares, meaning the majority of customers would be unaffected by a drop in
stock prices. In the housing sector, the wealth effect is more pronounced. (For example,
falling house prices affect a larger number of people).

21
2. Effect on Pensions

The stock market would influence someone with a private pension or investment trust, at least
indirectly. A large portion of pension funds' assets are invested in the stock market. As a
result, if stock values fall sharply and for an extended period of time, pension funds lose
value. As a result, future pension payments will be reduced. If stock values fall too far,
pension funds will be unable to meet their obligations. The long-term fluctuations in share
prices are what matters. If stock prices continue to decline for an extended period of time, it
will have a significant impact on pension funds and future payouts. As a result, households'
pension income will be reduced, and they may feel the need to invest more in other ways.

3. Confidence

Share price fluctuations are often a reflection of what is going on in the economy. Fears of a
recession and a global slowdown, for example, may cause stock prices to fall. Consumer
optimism is influenced by the stock market. Another aspect that discourages people from
investing is negative news about dropping stock prices. The stock market declines of 2008/09,
for example, represented a loss of confidence. It may not have much of an impact on its own,
but when combined with falling house prices, share prices can be a depressing factor.
However, the stock market may seem to be out of touch with the rest of the economy at times.

4. Investment

Falling stock prices will make it difficult for companies to raise capital on the stock market.
Firms that are expanding and need to borrow money also issue more shares because it is a
low-cost way to do so. However, as stock prices fall, it becomes even more complicated.

5. Bond Market

When the stock market falls, other investments become more attractive. People can switch
from shares to government bonds or gold. In unpredictable times, these investments have a
better return. Though the stock market can sometimes decline due to concerns in government
bond markets (e.g., the Euro fiscal crisis).

Bullish and Bearish Trend:

How Bull Markets Affect GDP

When the stock market is growing, it is called a bull market. The stock market has a
significant impact on GDP because it influences financial conditions and consumer sentiment.
When stocks are rising–when they are in a bull market–there is a lot of hope for the economy
and the prospects of different stocks.

Companies that raise capital by issuing new shares of stock will use the funds to increase
operations, invest in new ventures, and recruit more employees. Both of these things
contribute to the growth of the economy. Since there is a strong demand for equities during a
bull market, it is easier for businesses to issue new shares.

22
Companies may collect additional funds by borrowing from banks or issuing new debt,
known as bonds, if GDP is increasing, indicating that the economy is doing well. Investors
buy the bonds, and the funds are used to expand and develop businesses, boosting GDP.

Investors–or consumers–have more wealth and hope for potential opportunities as stock prices
rise. This increased optimism leads to increased spending, which can lead to big purchases,
including homes and cars. As a result, companies' revenue and profits rise, raising GDP even
further.

How Bear Markets Affect GDP

In contrast, when the stock market is declining (a bear market), it means that stock prices are
going lower, which can have a negative impact on sentiment.

Investors rush to sell stocks in a bear market to avoid losses on their investments. Those
losses typically lead to a reduction in consumer spending, particularly if there is a fear of a
recession. A recession is typically characterised as two consecutive quarters of negative–or
contracting–GDP growth.

When customers start to cut back on their purchases, it can affect a company's profits and
revenues. As a result, businesses are forced to cut expenses and lay off employees. A rise in
unemployment and increased uncertainty about the future worsen the drop in consumer
spending.

Additionally, companies may find it difficult to find new sources of funding, and current debt
may become more difficult to handle as revenue declines.

All of these factors contribute to a decrease in consumer and company trust, which leads to
lower stock market investment. Lower trust leads to lower expenditure and investment, which
has a negative effect on GDP.

Chapter - 5
Analysis and Findings
Globalization and technological advancement have created a highly competitive market
within the stock and share market industry. The performance of the industry depends heavily
on the accuracy of the choices made at the performance level. The stock market is one of the
foremost popular investing places because of its expected high profit. For prediction, the

23
technical analysis approach, which predicts stock prices based on historical prices and
volume, basic concepts of trends, price patterns, and oscillators are commonly used by stock
investors to assist investment decisions.
Analysts and mutual fund organizations examine stocks all around the world to conduct
equity analysis in the current stock market environment. These analysts and mutual fund
organizations account for a significant portion of total stock market investment. Because of
these professionals, the role of individual investors has been diminished. Before investing in a
company's stock, these experts consider a number of aspects, including the company's
fundamental research. It's a quick and easy technique to figure out which stocks are
overvalued and which might be added to a portfolio. While a stock can be evaluated in a
variety of ways, comparing it against other stocks in the same industry is the most effective
technique to locate high-quality stocks to invest in.
Investors can use ratio analysis to examine a company's financial statements in terms of risk,
reward (profitability), solvency, and how well it works. Ratios are commonly used by
investors to analyze firms and compare companies within an industry. The procedure of
analyzing the financial accounts of multiple organizations is made easier through ratio
analysis. Financial ratios are divided into five categories:
• profitability ratios (for example, net profit margin and return on equity)
• liquidity ratios (e.g., working capital)
• debt-to-equity ratios (e.g., debt-to-equity and debt-to-asset ratios)
• ratios of operations (e.g., inventory turnover)
• market ratios (for instance, earnings per share) (EPS)
This research compares financial records for organizations that are primarily focused on
banking and IT production. After that, a comparison of banking and IT companies is
presented to help grasp the similarities and differences between the two sectors.
This dissertation is basically analytical in nature using secondary data for the purpose of
experiential evaluation of stock prices and related important variables. Financial analysis
techniques like Ratio analysis are performed by the mathematical formula a/b. Various Ratio
Techniques like Revenue, Earnings per share, Dividend per share, and Book value have been
used to study the empirical happenings in the data for the last five years.
For this purpose, two sample companies in the Banking and IT Industry, each (which are
listed both in NSE and BSE for a minimum period of five years i.e., from 2015-2020) have
been selected. These companies include Infosys Limited and Tata Consultancy Services
Limited from the IT industry and State Bank of India and Punjab National Bank from the
banking industry. The analysis of these companies’ financial indicators will definitely throw
light on the internal factors responsible for the selection of a particular company’s stock for
investment. 
Banking companies have the added hurdle of passing government regulations before
marketing their product. This might have a negative influence on their profit margin, which
might explain why the sector's net income is normally smaller.

24
Market Price (MP): The average of a share's high and low prices over the course of a fiscal
year is the market price. It is the cost of purchasing or selling an asset or service at the time of
purchase. Low Price denotes the lowest market price over the course of the fiscal year,
whereas High Price denotes the highest market price over the course of the fiscal year.

MP = (High Price of the share in a year + Low Price of the share in a year) / 2

Revenue: Revenue is the money generated by a company's operations. The price-to-sales

ratio, an alternative to the price-to-earnings ratio that uses revenue in the denominator, is
based on revenue. The link between a company's earnings and its stock price isn't always
clear. High gains do not usually imply high stock prices and large losses do not always imply
low stock prices. Current earnings and the potential of future earnings are two significant
elements that influence stock price.

Earnings Per Share (EPS): It is the ratio of a company's profit after tax for any financial
year after payment of a preferred dividend. After the preference shareholders have received
their dividends, the equity owners are the sole claimants to the corporation's net earnings. The
importance of this ratio arises from the fact that the greater the earnings per share, the more
opportunity there is for a larger dividend rate and also for retained earnings to enhance the
company's internal strength.

Dividend per share (DPS): Dividend is the part of profit after taxes that is delivered to
shareholders in exchange for their risky investment in the company. It has a substantial impact
on the stock's market price. The dividend payout ratio (DPS) reflects how much the
corporation has paid out in dividends. It refers to the amount of dividend (gross) per share that
has been declared. Shareholders own the net profit after taxes, but the income they actually
receive is the amount of earnings distributed and paid as a cash dividend.

Book Value (BV): It is also known as net asset value per share Because it represents the
number of assets that the corporation holds on behalf of each equity share. The BV indicates
the shareholder's net investment per share in the business. On a balance sheet, it is the value at
which an asset is carried. For decades, value investors have preferred the price-to-book (P/B)
ratio, which is commonly utilized by market analysts. Any P/B value less than 1.0 is
traditionally regarded as a good P/B value, indicating a potentially inexpensive company. In
terms of valuation, book value is significant since it provides a fair and accurate
representation of a company's worth.

Closing Price: The closing price is an average market price in a particular year. It's a key
measure used by investors, financial institutions and other organizations when making stock
and company decisions. Simply said, the closing price is the weighted average of all the prices
throughout the financial year.

Hypothesis

25
H0: there is no significant relationship between MP (market price) and independent variables
such as Revenue, EPS (earning per share), DPS (dividend per share) and Book value.
H1: there is a significant relation between MP (market price) and independent variables such
as Revenue, EPS (earning per share), DPS (dividend per share) and Book value.

IT Sector

Infosys Limited

Infosys Limited is an Indian IT firm that specialises in global business consulting and
information technology services. Infosys employs a variety of digital transformation
methodologies. Infosys assists organisations in renewing and improving existing
circumstances so that they can achieve higher efficiencies and remain competitive in today's
market. Infosys has more than 200,000 workers and a market capitalization of $39 billion,
making it a $10.9 billion corporation. As of March 31, 2020, the Company has presence in
220 sites throughout 46 countries. The IPO for Infosys Ltd was launched in February 1993,
and the company was listed in June 1993. Infosys' shares had a blockbuster debut on the stock
market, with the share price surging more than 50% to Rs 145 in the first hour of trading,
compared to an issue price of Rs 95 per equity share.
The following table displays the company's various financial indicators over the last five
years, which may be used to assess the company's financial achievements for the purpose of
evaluating its stock prices.

Table No. – 5.1

Financial Indicators of Infosys Limited

(From 2016 to 2020)

Financial Years
Ratios 2016 2017 2018 2019 2020

Revenue
62,441 68,484 70,552 82,675 90,791
(in ₹ Crores)

26
 EPS (Earning Per
29.51 31.40 35.33 35.44 38.97
Share) (in ₹)

DPS (Dividend
12.13 12.88 21.75 21.50 17.50
Per Share) (in ₹)

Book Value
266.04 296.24 290.76 143.96 146.16
(in ₹)

Closing Price
505.35 519.65 659.85 731.75 1255.85
(in ₹)

Source: Annual Reports of Infosys Limited from 2016 to 2020.

To analyse and understand the data of the past five years, diagrammatic presentations of all
the five indicators given in the above table have been drawn here:

Revenues of Infosys Limited

(in ₹ crore)
90,791
82,675
70,552
68,484
62,441

2016 Earning
2017 Per Share
2018 of Infosys
2019Limited 2020
Fig. 5.1 (in ₹)
38.97
35.53 35.44
31.40
29.51

27

2016 2017 2018 2019 2020

 Fig. 5.2

Divident Per Share of Infosys Limited

(in ₹)

21.75
21.50

17.50

12.88
12.13

2016 2017 2018 2019 2020

Book Value of Infosys Limited

Fig. 5.3
(in ₹)

296.24 290.76
266.04

143.96 146.16

28

2016 2017 2018 2019 2020

 Fig. 5.4

The revenues of the company showing upward trend during the last five years. The highest
value is in 2020. It shows the positive side of assets. As well as the earnings per share have a
consistent growth during this tenure from 2016 to 2020 except 2019, the lowest was in 2016
and the highest in 2020. Being stable in EPS helps the investors to retain in the market. The
dividend per share started with less growth during 2016-2017 but later escalated and stable for
the years 2018-2019 but declined in the year 2020 at Rs. 17.50 from Rs. 21.50 of the year
2019, it is a good indicator of maximization of the number of shareholders for a company.
The book value was increased from 2016 to 2017 after that it declined and reached at Rs.
143.96 but further rose to Rs. 146.16 in 2020.

Closing Price of Infosys Limited

(in ₹)

1255.8

731.75
659.85
505.35 519.65

29

2016 2017 2018 2019 2020

 Fig. 5.5

The closing price is an average market price in a particular year which is increasing over the
period of five years. The market price is very essential for the growth of a company in
financial markets.

Tata Consultancy Services Limited

Tata Consultancy Services is an IT services, consulting, and business solution company that
has been assisting many of the world's leading companies in their transformation efforts for
more than 50 years. TCS is a consulting-led company that offers a broad range of business,
technology, and engineering services and solutions. TCS, which is part of the Tata group,
India's largest global corporate enterprise, employs around 443,000 world-class consultants in
46 countries. In the fiscal year that ended March 31, 2020, the corporation achieved $22
billion in total revenues and it is listed on the BSE (formerly Bombay Stock Exchange) and
the NSE (National Stock Exchange) in India.

The table no. 5.2 on the next page shows the company's various financial indicators over the
last five years, which may be used to evaluate the company's financial successes and stock
prices.

Table No. – 5.2

Financial Indicators of Tata Consultancy Services Limited

(From 2016 to 2020)

30
 Financial Years
Ratios 2016 2017 2018 2019 2020

Revenue
108,646 117,966 123,104 146,463 156,949
(in ₹ Crores)

EPS (Earning Per

61.59 66.71 67.10 83.05 86.19
Share) (in ₹)

DPS (Dividend
43.50 47.00 50.00 30.00 73.00
Per Share) (in ₹)

Book Value
330.02 396.05 397.20 210.39 198.31
(in ₹)

Closing Price
1180.98 1350.20 1893.55 2161.30 2870.20
(in ₹)

Source: Annual Reports of Tata Consultancy Services Limited from 2016 to 2020.
Diagrammatic representations of all five indicators included in the above table have been
constructed here to help analyse and understand the data from the last five years.
Fig. 5.6

Revenues of TCS Limited

Earning Per(in ₹ crore)
Share of TCS Limited
(in ₹) 146,463
156,949

123,104
117,966 86.19
108,646
83.05

66.71 67.10
61.59
Dividend Per Share of TCS Limited
(in ₹)

73.00

2016 2017 2018 2019 2020

Fig. 5.7
50.00
47.00
43.50
2016 2017 2018 2019 2020

30.00

31

2016 2017 2018 2019 2020

 Fig. 5.8

Book Value of TCS Limited

(in ₹)
396.05 397.20

330.02

210.39
198.31

2016 2017 2018 2019 2020

Fig. 5.9

The revenues of the company showing rising trend during the past five years. The highest
value is in 2020. It shows the positive side of assets. As well as the earnings per share have a
continuous growth during this tenure from 2016 to 2020, the lowest was in 2016 and the
highest in 2020. As EPS is showing an increasing trend during this period, it may affect the
market price of the share in positive way. The dividend per share is inconsistent in terms of
performance during the five-year period because the allocation in profit after tax is not up to

32
the expectation of investors. The book value increased rapidly from the year 2016 then fall
down from 2018 and stood at Rs. 198.31 in the year 2020.

Closing Price of TCS Limited

(in ₹)
2870.30

2161.30
1893.55

1350.20
1180.98

2016 2017 2018 2019 2020

Fig.5.10

The closing price in Tata Consultancy Services Limited is increasing continuously over the
period of five years. Market price is very essential for the growth of company in financial
markets.

33
 Banking Sector
State Bank of India

The State Bank of India (SBI) is a public sector banking and financial services statutory entity
located in Mumbai, Maharashtra, India. SBI has a strong history and legacy dating back over
200 years, making it the most trusted bank among Indians. SBI is the world's 43rd largest
bank and the only Indian bank in the Fortune Global 500 list of the world's largest firms for
2020, ranked 221st. It is India's largest public sector bank, with a 23 percent asset market
share and a 25 percent share of the entire loan and deposit market. With almost 250,000
employees, it is India's sixth largest employer.

SBI has a wide network of over 22,000 branches, 58,500 ATMs, and 66,000 BC shops,
serving over 44 crore clients with an unwavering commitment on innovation and client
centricity, which originates from the Bank's fundamental principles of Service, Transparency,
Ethics, Politeness, and Sustainability.

SBI General Insurance, SBI Life Insurance, SBI Mutual Fund, SBI Card, and other
subsidiaries have effectively diversified the Bank's industries. It has a global presence, with
233 offices in 32 different countries operating across time zones. SBI now has an authorised
capital of Rs. 5000 crore and an issued capital of Rs. 892.5 crore, with a total of 8924611534
shares with a face value of Rs. 1.00.

On the next page, table no. 5.3 displays the bank's various financial indicators during the
previous five years, which may be used to assess the bank's financial success and stock prices.

Table No. – 5.3

Financial Indicators of State Bank of India

(From 2016 to 2020)

Financial Years
Ratios 2016 2017 2018 2019 2020

Revenue
191,843.67 210,979.17 265,100.00 279,643.54 302,545.07
(in ₹ Crores)

EPS (Earning Per

12.98 13.43 -7.67 0.97 16.23
Share) (in ₹)

DPS (Dividend
2.60 2.60 0.00 0.00 0.00
Per Share) (in ₹)

Book Value
185.85 196.53 217.69 247.53 233.34
(in ₹)

34
 Closing Price
249.75 309.50 295.65 333.70 274.75
(in ₹)

Source: Annual Reports of State Bank of India from 2016 to 2020.

For the analysis of the past five years data, diagrammatic presentations of all the five
indicators given in the above table have been drawn here:

Revenues of SBI
(in ₹ crores)

350,000.00 302,545.07
279,643.54
300,000.00 265,100.00

250,000.00 210,979.17
191,843.67
200,000.00

150,000.00

100,000.00

50,000.00

0.00
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Fig. 5.11

35
 Earning Per Share of SBI
(in ₹)
20 16.23

12.98 13.43
15

10

0.97000000000000
5 1

0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
-5

-10 -7.67

Fig. 5.12

Dividend Per Share of SBI

(in ₹)
3 2.6 2.6

2.5

1.5

0.5 0 0 0

0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Fig. 5.13

36
 Book Value of SBI
(in ₹)
247.53
233.34
250 217.69
196.53
185.85
200

150

100

50

0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Fig. 5.14

The revenue increased slightly from 2016 to 2017 then it showed a sharp rise in the year 2018
i.e., 26,51,000 ₹ crores which were high when compared to the other years but after that, it
declined and has slightly increased in 2020. The earning per share of the company showing an
upward trend during the first two years. Later it shows the negative trend but then it increased
to 16.23 ₹ and it was all high in the year 2020. The dividend per share graph shows the
direction of fall during the study phase i.e., 2016-2020. It was stable in the year 2016-2017
and after that, it stayed at zero value. The book value of the company shows incredible growth
over the period of first four years except in 2020. The highest value was in 2019, it shows the
positive side for assets.

37
 Closing Price of SBI
(in ₹)
333.7
350 309.5
Fig. 295.65 5.15
274.75
300
249.75
The
250

200

150

100

50

0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Closing price of the State Bank of India was very good during 2016, since then it is
fluctuating up to the year 2020.

Punjab National Bank

Punjab National Bank (PNB) is a government-owned bank in India. It is owned by the

Ministry of Finance of the Government of India, which is based in New Delhi, India. The
bank was established in 1894 and is India's second-largest government-owned bank in terms
of both activity and network. After merging with the United Bank of India and Oriental Bank
of Commerce on April 1, 2020, the bank now has over 180 million customers, 12,248
branches, and 13,000 ATMs.
PNB operates a banking subsidiary in the United Kingdom (PNB International Bank), as well
as branches in Hong Kong, Kowloon, Dubai, and Kabul. It has representative offices in
Kazakhstan, Dubai (UAE), Shanghai (China), Oslo (Norway), and Sydney (Australia)
(Australia). It owns 51% of Druk PNB Bank, which has five branches in Bhutan. PNB holds
20% of Everest Bank Limited, which has 50 branches in Nepal. Finally, PNB owns 41.64
percent of Kazakhstan's JSC (SB) PNB Bank, which has four branches.
For the year ending 31-Mar-2020, Punjab National Bank's primary products/revenue sectors
include interest and discount on advances and bills, income from investments, interest on
accounts with RBI and other inter-bank funds, and interest. It currently has a market
capitalization of Rs 46301.32 crore.
Table no. 5.4 shows the bank’s various financial indicators over the last five years, which may
be used to evaluate Bank’s financial successes and stock prices.

38
 Table No. – 5.4

Financial Indicators of Punjab National Bank

(From 2016 to 2020)

Financial Years
Ratios 2016 2017 2018 2019 2020

Revenue
2,699 3,908 5,489 7,683 8,490
(in ₹ Crores)

EPS (Earning Per

-20.82 6.45 -55.39 -30.94 0.62
Share) (in ₹)

DPS (Dividend
0.00 0.00 0.00 0.00 0.00
Per Share) (in ₹)

Book Value
180.61 179.03 135.44 89.50 85.49
(in ₹)

Closing Price
115.60 171.50 78.10 64.35 33.05
(in ₹)

Source: Annual Reports of Punjab National Bank from 2016 to 2020.

To analyse the past five years data, diagrammatic presentations of all the five indicators given
in the above table have been drawn here:

Revenues of PNB
(in ₹ crores)
8,490.00
9,000.00
7,683.00
8,000.00
7,000.00
5,489.00
6,000.00
Fig. 5.16
5,000.00 3,908.00
4,000.00 2,699.00
3,000.00
Fig. 5.17
2,000.00
1,000.00 39

0.00
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
 Dividend Per Share of PNB
(in ₹)
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1 0 0 0 0 0

0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Fig. 5.18

Book Value of PNB

(in ₹)

200 180.61 179.03

180
160
135.44
140
120
89.5 85.49
100
80
60
40
20
0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Fig. 5.19

40
The company's revenue increased significantly from 2016 to 2020, with the lowest level of
2,699 in 2016 and the highest level of 8,490 in 2020. Earnings per share have had an irregular
growth pattern; it began on a downward trend and has continued to fall; it was only good in
2017 when compared to previous years. In the last five years, no dividend has been
announced by the bank.

Closing Price of PNB

(in ₹)

171.5
180
160
140
115.6
120
100 78.1
80 64.35

60
33.05
40
20
0
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Fig. 5.20

The closing price has started with good growth and then slacked after the year 2017 and
continue to fall up to the year 2020 i.e., ₹ 33.05.

The current study evaluates how sales, earnings per share, and book value affect the stock's
market price and it finds a significant effect, so H 1 is accepted and H0 is denied. However, the
market price is unaffected by the dividend per share. In order to evaluate the system to the
next level, which can particularly explain the unsolvable factors, the scope for further study
can be expanded with other companies and different validating approaches.

Among all the factors affecting the Indian stock market stated in chapter number 4 of the
study, the first factor i.e., Factors relating to the Company, is very important from the point of
view of choosing a stock from the market. It has also shown through the comparison between
financial indicators of two IT companies and two banking companies that for the study period
the investment made in these two IT Companies has given a good return in comparison to
banking companies. Therefore, it can be said that the study of financial indicators plays an
important role in investment into a stock market.

41
 Chapter 6

Conclusion and Suggestions

Conclusion
The present study has been undertaken to review the factors responsible for the firms’ equity
share price. Findings from prior studies indicate that share price determinants are very much
diverse and conflicting areas of corporate finance. In the dissertation, I have studied how
various factors affect the Indian stock market using the eleven factors, i.e., Supply and
Demand, Factors relating to the Company, Investor Sentiments, Rates of Interest, Politics,
Current Events, Natural Calamities, Exchange Rate, Regulations of SEBI, Price Rigging and
Monetary Policy of RBI.

It can be concluded that all the factors that have been taken for the study have a relationship
with the Indian stock market and all the factors whether in a positive and negative way affect
the movement in the stock market prices. Both natural calamities and Price Rigging have an
inverse relationship with the SENSEX whereas all other factors show a positive relationship.

To analyze the role of internal financial factors, a comparative study of selected companies
from the Banking and Information Technology industries of India is also carried out. The
study examined the influence of revenue, earnings per share, and book value towards the
market price of the share and it shows a significant effect. But the dividend per share doesn’t
have a positive or negative effect on the market price.

In the study, it has also been founded the global recession in 2008 and 2020 hit the Indian
stock market. In 2008, the fall in the Indian stock market was due to the change in the global
investment climate and fears of the United States' economy going into a recession, and in
2020, it was all due to the corona pandemic due to which gross domestic product of India fell
down drastically and other variables are also get affected.

To support the factors which determine the growth of the Indian stock market, the government
and the policymakers need to make strategies and policies that complement the economic
framework and further support the Indian stock market.

Suggestions

Stock markets are unknown for their erratic and unpredictable achievements and failures. On
the basis of the current study and several tried-and-true concepts, the following
recommendations can be made to assist investors in increasing their prospects of long-term
and massive success:

Selling of Loser Stock

42
There is no guarantee that a stock market drop will result in a rebound or success. When it
comes to low-performing equities, investors should be realistic. Losing shares after
understanding a mistake can also lead to mental failure, but the investor should have no regret
for recognizing the error and selling investments to correct it.

Don't Follow a Hot Tip

Never take stock advice from someone who knows the sources. Always analyze before
buying any stock and putting valuable money into it. Before investing money, do proper
research. It's usually a good idea to look at stock market charts and indicators.

Set Long Term Goals

It's crucial to understand why an investor is investing and how long they want to keep their
money. The stock market is a volatile financial asset, and there is no guarantee that all of an
investor's funds will be available when he or she needs them. As a result, if one is willing to
invest for 3-5 years, he will get spectacular profits. Therefore, the stock market is a long-term
profitable investment asset.

Stop Looking for Small Stuff

Investing for a long-term objective is always preferable instead of working for short-term
benefits. It is usually preferable to have a long-term perspective. Have faith in your
investments and a big-picture attitude. The success of long-term investors is built on the
ability to plan ahead of time for years or even decades.

Annual Report

It would provide information on the company in which the investor wishes to invest. It
explains everything about the company, including how it has performed throughout the years
and all financial statistics such as losses, profits, and sales. The investor will gain a better
understanding of the company and its growth as a result of this. It is crucial to invest carefully
and thoroughly read all reports before making a decision so that a positive outcome may be
obtained.

Price on the Current Market

After knowing the yearly report, the current market price should be entered. When observing
patterns, traders frequently raise prices, and volatility may be observed clearly. When an
investor is ready to invest, he or she should wait for the chart to stabilize.

Dividends

According to the history of stock marketing, 75% of actual corporations pay dividends. It's
not so much in terms of numbers, but it may be pretty low at times. However, don't rely just

43
on capital appreciation. Dividends might provide investors with some relief. They'll serve as a
safety net for stocks as their value improves over time.

Be Open-Minded in the Market

The majority of businesses have well-known names, but many good businesses are unaware
of brands. Thousands of undervalued businesses have the potential to become tomorrow's
brightest stars. Small stocks have outperformed large stocks in terms of returns. It is not
recommended that you use small caps in your profile.

Tryout the P/E Ratio

The most common instrument for stock investing is the price ratio/earnings ratio. It analyses if
the value of a stock is undervalued or overvalued. It is determined by dividing the current
stock price by the earnings per share of the company. A higher P/E ratio indicates that
investors are more ready to pay for such earnings. A high rise P/E ratio, on the other hand,
implies that the company is overvalued and may face a hurdle. A low P/E ratio suggests that
the stock has attractive features and that the stock price has been pushed below its true value.

Avoid Stock Value Traps

The investor only needs to use simple rules, such as looking at the company's debt ratio and
current ratio, to determine whether a stock is a suitable long-term buy or not. The debt ratio
determines how many assets are tied to financial debt. Divide the company's total liabilities
by its total assets to arrive at the answer. The higher the debt, the more likely the company is
to become a value trap.

Another tool is the current ratio, which is computed by dividing the current assets by the
current liabilities of the organization. As the high rates rise, the corporation becomes more
liquid. The investor may get a fair understanding of whether the stock has good values or not
by using the debt ratio and current ratio.

When an investor wishes to invest in the stock market for the long term, patience and
discipline are required. It's OK to spot long-term investments when the firm or market isn't
performing well.

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Websites Used:
1. https://www.bseindia.com/
2. https://www.nseindia.com/
3. https://www.sebi.gov.in/
4. https://www.moneycontrol.com/
5. https://www.capitalmarket.com/

Annual Reports Used:

1. Infosys Limited
2. Tata Consultancy Services Limited
3. State Bank of India
4. Punjab National Bank

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