COMMUNICATION AND ITS EFFECT ON CAPITAL MARKETS

GROUP-0008
MBA EXE-2017-19

Neha Malhotra H 010

Pooja Nishad N 043

Pravesh Kumar N 049

Pankaj Kumar N 040

Praveen Kumar N 047

Puneet Munjal N 051

 BACKGROUND – INDIAN STOCK MARKET
Asia’s first Stock Market was established in 1875.

Earlier stock market used to follow hue cry methodology

Broker used to act a Single Point of Contact for buyer & seller of the stocks

With the series of scams raking Stock Markets in 1992, led to regularization of the Market.

World over Stock Market is classified as Weak, Semi Strong & Strong .

These categories entirely depends on how ‘quickly & symmetrically’ the news gets communicated to all the market
participants .

Indian Markets falls under ‘Semi-Strong & Efficient’ categories implying that the stock market communications' in India
has "even and symmetrical“ flow.
The capital market is a key element of a free market economy.

Access to the capital market cannot be taken for granted – it is subject to tremendous volatility. Markets and the
wishes of consumers are changing at an ever-increasing speed.

Market players and investors need to feel particularly convinced when it comes to investments, transactions as
well as purchasing and merging .

Communication with its key stakeholders has historically been seen to have impacted the global markets on
numerous occasions.

The speeches of Alan Greenspan, former Chairman of the Federal Reserve Board of the USA, “one-line
statement averted a market panic” in 1987,

On another occasion in 1996 , the use of the term “irrational exuberance” in a speech had dramatic “ripple
effects.”
 “Price Discounts Everything”
Price efficiency is the belief that asset prices reflect the possession of all available information about those assets by all
market participants.

So why do prices change ?

How are prices effected ?
What makes stock markets so volatile?

Communication by different sources affects prices of stocks to a great extent.

 COMMUNICATIONS IN STOCK MARKETS’

FIVE PILLARS
CORPORATES PUBLIC
EMINENT PEOPLE CENTRAL BANK
MEDIA

• Investors- HNI , • Print

FPI • Sellers
• Economic
• Digital Journals • Buyers
• Research
• Big Corporate Analysts Like • Internet • Board Meetings • Speculators
Houses. Ram Deo
Agrawal. • Viral • Press releases • Hedgers
Communication
• Eminent People s like FB, Flickr,
Like You Tube
Jhunhunwala

Media is Central to all financial communications

 COMMUNICATIONS BY CORPORATES …1

Financial communication

Effective financial communication of a company’s performance can affect its share price performance
and cost of capital.

The effectiveness of corporate management is commonly assessed by how a company’s share price
performs. However, if share prices do not perform in line with performance and peer companies’ share
prices, management should review its financial communications effectiveness and strategy.

Excellence in financial communication depends on the external and internal effectiveness of the IR
function
COMMUNICATIONS BY CORPORATES …2
 SEVEN EFFECTIVENESS PILLARS
1 Compliance with all regulatory requirements Are there clear internal processes and communication, and reporting lines and
responsibilities, in place to ensure regulatory compliance to help maintain investors’ confidence?

2 Good corporate governance Can the best practices of your peer group be matched in delivering financial communication in
response to day-to-day investor requests? Are the structures and organization appropriate?

3 Providing transparency Are all internal departments aware of disclosure obligations and periods, as well as regulatory changes, at
all times? Are they supported by the IR calendar? Who monitors the IR function?

4 Compelling equity story Is the equity story both attractive and up to date, reflecting the key performance indicators, segment
reporting and business strategy?

5 Delivering on promises Are you meeting the expectations regarding your forecasts based on relevant analyst guidance?

6 Facilitate share liquidity What is the best method for keeping pace in the competition for capital and maintaining share liquidity as
a listed company, especially if internal awareness and external attention has waned?

7 Investor communication Does the capital market communication follow international standards, and does it have a presence in all
relevant media channels?

COMMUNICATIONS BY CORPORATES …3
PC Jewellers EOD Chart

PCJEWELLER (370.000, 377.450, 365.000, 369.800, -12.3500)

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The Delhi-headquartered jeweller, which has a chain of over 80 showrooms across the country, had a particularly
harrowing start to Friday on the bourses.

Sanjeev Bhatia, the Chief Financial Officer of PC Jeweller, stepped in to fight the fires. "This is more of a panic
reaction. The company remains very strong on fundamentals and our expansion plans are on track as planned.
Further, we have no business agreement with Vakrangee and none of our promoters have sold any stake in the
firm," he told CNBC-TV18.

His statement seems to have helped. PC Jeweller shares have bounced back and they ended down only 24.40%
at Rs 365.60
 BY CENTRAL BANK

The central bank has the natural function of stabilizing the financial market

Central Bank communication is defined as a process of central bank providing Information to the public including
monetary policy objectives, the monetary strategy and economic outlook for future policy decision.

Increased communication and transparency by central bank improve economic welfare by reducing information
asymmetries among market participants.

The two functions of central bank communication

financial stability communication Financial stability communication talks about emergence of financial
risk in the economy.
monetary policy-related communication a monetary policy-related communication acts on the market by
guiding the public’s long-term expectations of future policy, which leads to adjustments in investment and
consumption decisions and ultimately the market consequences

financial stability communication is more aimed at “creating news” and monetary policy-related communication is
more at “reducing noise
 BY EMINENT PEOPLE

The power of words to trigger changes in society or the political landscape is evident in the
fact that leaders have managed to spark action and inspire multitudes of people by well-
written, well-delivered speeches. The famous “I have a dream” speech by Dr Martin Luther
King Jr. continues to inspire over fifty years on, for example.
Jhunjhunwala

Communication by leaders and influencers seems to affect the economy, although these
impacts may be difficult to measure

There is propensity of individuals to trade on ‘noise’ and emotions rather than facts.” If
“noise” affects sentiment, then whatever noise is created in the marketplace (via
communication by market leaders or business owners) becomes important

Warren Buffet
 COMMUNICATION AMONGST PEOPLE…1

Information asymmetry in the financial market is object of great discussions.

also known as information failure, occurs when one party to an

economic transaction possesses greater material knowledge than the other party. This
normally manifests when the seller of a good or service has greater knowledge than the
buyer, although the reverse is possible. Almost all economic transactions involve inform

The emergence of rumours in the stock market is favoured by uncertainty and little time to
make decisions.

Investing in stocks is a bet on the future, so people consult experts, talk and ask hints and tips
from friends and acquaintances in order to seek ways to dilute that uncertainty.

Rumor’, in general usage, refers to an unverified account or explanation of events, circulating from person to person and
pertaining to an object, event, or issue of public concern”. May be observed from these definitions that rumor is
unverified information that interests the public that spreads it
 AMONGST PEOPLE… 2

Rumours often arises to fill the knowledge gap experienced by investors eager for more information to make
decisions.

Many investors try to “[...] get information before it becomes official or public domain, otherwise it does not give
any gain to those who holds it” .

The stock market is very dynamic, in a matter of seconds the price trend may change. So, the need for speed in
the negotiations causes a wild search for information and there is not enough time to check its origin and
accuracy.

“BUY ON RUMOURS SELL ON NEWS”

Communication By Regulatory
Authority (SEBI)
– Securities Exchange Board of India (SEBI) was established in 1988 to regulate the
functions of securities market.
– SEBI promotes orderly development in the stock market.
– SEBI was set up with the main idea to keep a check on malpractices and protect the
interest of investors.
– Functions of SEBI
– The three main functions of SEBI are as follows:
– Protective function
– Developmental function
– Regulatory function
Protective functions are performed by SEBI to protect interest of investors and provide safe investments. This
entails:
Checks on prices rigging
Prevents insider trading
Prohibits fraudulent and unfair practices

Developmental functions are performed by the SEBI to develop activities in stock exchange to increase the business
in stock exchange
Promoting training of intermediaries of the securities market
Promote activities of stock exchange by adopting flexible methods such as internet trading
Initial public offer of primary market is permitted through stock exchange

Regulatory functions are performed by SEBI to regulate the business in stock exchange.
SEBI registers and regulates the working of mutual funds and other investment options.
SEBI regulates takeover of the companies.
SEBI conducts inquiries and audit of stock exchanges
Shares of Vakrangee declined 4.5 percent intraday Monday as company come under SEBI scanner for alleged share
price, volume manipulation.

"The company has come under Securities Exchange Board of India’s (SEBI) investigation for alleged price and volume
manipulation of its own scrip at Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE)," as
per Mumbai Mirror report.

Vakrangee scrip was analysed by both the exchanges from January 1, 2016, to June 30, 2016, and September 1,
2016, to June 15, 2017, after it was suspected that certain entities were trading the scrip and increasing its market
gross
 VAKRANGEE (182.500, 201.700, 182.500, 201.700, +9.59999)

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 COMMUNICATIONS BY MEDIA

Media and the financial markets: following the consensus opinion

Contradicting the efficient market hypothesis (EMH) multiple scholars have found news media, and
particularly financial news, to influence the stock market to various extents

stakeholder theory, media have no financial stake in a company, but play a crucial role in disseminating
information and influence stakeholders, such as investors, and their decision-making processes

the media have been identified to play a significant role in shaping the consensus market opinion and evoking
this “herd like” behaviour

company’s media visibility affects its stock price to a greater extent than financial information on firm
fundamentals disseminated by the company itself

the financial markets are not efficient in a way that all available information is instantaneously integrated in
prices as assumed by proponents of the EMH
 CONCLUSION

Don’t Trust others opinion Its your money at stake, not theirs. Do your own analysis regardless of the
information source.

Don’t chase the crowd By the time the crowd acts you are probably too late or too early.

Don’t trade the obvious the prettiest pattern set up the most painful losses. If it looks too good to be true, it
probably is.

Don’t join a group Trading/Investing is not a team sport. Avoid acting on messages, flashes and financial TV.
Your judgement may be more correct than all of them put together.