1.

1 INTRODUCTION ABOUT THE TOPIC

1.1.1 Indian economy - overview
The Economy of India is the tenth largest in the world by nominal GDP and the fourth largest by
purchasing power parity (PPP). The country's per capita GDP (PPP) is $3,339 (IMF, 129th) in
2010. Following strong economic reforms from the post-independence socialist economy, the
country's economic growth progressed at a rapid pace, as free market principles were initiated in
1991 for international competition and foreign investment. Despite fast economic growth India
continues to face massive income inequalities, high unemployment and malnutrition.

1.1.2GDP contribution of stock market to the economy

However, as a result of the financial crisis of 20072010, coupled with a poor monsoon, India's
gross domestic product (GDP) growth rate significantly slowed to 6.7% in 200809, but
subsequently recovered to 7.4% in 200910, while the fiscal deficit rose from 5.9% to a high
6.5% during the same period. Indiascurrent account deficit surged to 4.1% of GDP during Q2
FY11 against 3.2% the previous quarter. The unemployment rate for 20092010, according to the
state Labour Bureau, was 9.4% nationwide, rising to 10.1% in rural areas, where two-thirds of
the 1.2 billion populations live.
India's large service industry accounts for 57.2% of the country's GDP while the industrial and
agricultural sectors contribute 28.6% and 14.6% respectively. Agriculture is the predominant
occupation in India, accounting for about 52% of employment. The service sector makes up a
further 34%, and industrial sector around 14%.However, statistics from a 2009-10 government
survey, which used a smaller sample size than earlier surveys, suggested that the share of
agriculture in employment had dropped .

1.1.3Stock market
The Indian Equity market is divided in to two parts Primary market - where the share is first
issued in the form of IPO (Initial Public Offering) and after issuing the share it is listed on
exchange and share is traded on exchange where shares can be bought and sold this is secondary
market. In India mainly there are two exchanges -NSE (National Stock Exchange) BSE-Bombay
1

Stock Exchange. The BSE is the oldest exchange in India(started in 1875).NSE started operation
on 1994.Before 2000 shares was held in Physical form But the main difficulty with Physical
shares is method of transaction which is open outcry system and process is not transparent to
investor also Physical shares were prone to duplication and fraud. So in 2000 NSE introduced the
electronic screen based trading system further the introduction of Dematerialization(Conversion
of physical share in to electronic form) and depository(where the electronic form of share is
kept) revolutionized the Indian Stock market. Currently there are mainly two Depository (DP)
-NSDL and CDSL and these DP are like bank of share. Individual/Firm can deal through Broker
(who is registered and having membership in Exchanges and Depository) for buying and selling
securities. Today NSE outpaced BSE in volume of trade. Then what is the purpose of stock
market? Stock market serves the company by providing company the finance for long term needs
and for investor an opportunity to park their savings in corporate world and in turn give their
hand in Nation's development so stock exchange have a very vital role in country's economic
development.

1.1.4The behavior of the stock market

Investors may 'temporarily' move financial prices away from their long term aggregate price
'trends'. (Positive or up trends are referred to as bull markets; negative or down trends are
referred to as bear markets.) Over-reactions may occurso that excessive optimism (euphoria)
may drive prices unduly high or excessive pessimism may drive prices unduly low. Economists
continue to debate whether financial markets are 'generally' efficient.

1.2 INTRODUCTION ABOUT THE STOCK MARKET AND SCRIPT

2

1.2.1 The Bombay stock exchange

Bombay Stock Exchange (BSE) SENSEXis the benchmark index for the Indian stock market. It is
the most frequently used indictor while reporting on the state of the market. Sensex is not only
scientifically designed but also based on globally accepted construction and review methodology.
First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of
large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base
value is 100. The index is widely reported in both domestic and international markets through
print as well as electronic media.
1.2.2 Technology of Bombay stock exchange
The Index was initially calculated based on the Full Market Capitalization methodology but
was shifted to the free-float methodology with effect from September 1, 2003. The Free-float
Market Capitalization methodology of index construction is regarded as an industry best
practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use
the Free-float methodology.

1.2.3 Indices
The launch of SENSEX in 1986 was later followed up in January 1989 by introduction of BSE
National Index (Base: 1983-84 = 100). It comprised 100 stocks listed at five major stock
exchanges in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Index
was renamed BSE-100 Index from October 14, 1996 and since then, it is being calculated taking
into consideration only the prices of stocks listed at BSE. BSE launched the dollar-linked version
of BSE-100 index on May 22, 2006. BSE launched two new index series on 27 May 1994: The
'BSE-200' and the 'DOLLEX-200'. BSE-500 Index and 5 sectorial indices were launched in
1999. In 2001, BSE launched BSE-PSU Index, DOLLEX-30 and the country's first free-float
based index - the BSE TECk Index. Over the years, BSE shifted all its indices to the free-float
methodology (except BSE-PSU index).BSE disseminates information on the PriceEarningsRatio, the Price to Book Value Ratio and the Dividend Yield Percentage on day-to-day
basis of all its major indices. The values of all BSE indices are updated on real time basis during
3

market hours and displayed through the BOLT system, BSE website and news wire agencies. All
BSE Indices are reviewed periodically by the BSE Index Committee. This Committee which
comprises eminent independent finance professionals frames the broad policy guidelines for the
development and maintenance of all BSE indices. The BSE Index Cell carries out the day-to-day
maintenance of all indices and conduct researchon development of new indices.

1.2.4 The National Stock Exchange

The National Stock Exchange (NSE) is a stock exchange located at Mumbai, India. It is the 9th
largest stock exchange in the world by market capitalization and largest in India by daily
turnover and number of trades, for both equities and derivative trading. NSE has a market
capitalization of around US$1.59 trillion and over 1,552 listings as of December 2010. Though a
number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most
significant stock exchanges in India, and between them are responsible for the vast majority of
share transactions. The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY
(National Stock Exchange Fifty), an index of fifty major stocks weighted by market
capitalization.
NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies
and other financial intermediaries in India but its ownership and management operate as separate
entities. There are at least 2 foreign investors NYSE Euro next and Goldman Sachs who have
taken a stake in the NSE.As of 2006, the NSE VSAT terminals, 2799 in total, cover more than
1500 cities across India. NSE is the third largest Stock Exchange in the world in terms of the
number of trades in equities. It is the second fastest growing stock exchange in the world with a
recorded growth of 16.6%.

1.2.5 Indices
4

NSE also set up as index services firm known as India Index Services & Products Limited (IISL)
and has launched several stock indices, including:

S&P CNX Nifty(Standard & Poor's CRISIL NSE Index)

CNX Nifty Junior

CNX 100 (= S&P CNX Nifty + CNX Nifty Junior)

S&P CNX 500 (= CNX 100 + 400 major players across 72 industries)

CNX Midcap (introduced on 18 July 2005 replacing CNX Midcap 200)

CNX it

Bank Nifty

India Vix

S&P CNX Defty

Nifty Midcap 50

CNX Infra

CNX Realty

1.2.6 CNX Nifty Junior

The CNX Nifty Junioris an index for companies on the National Stock Exchange of India. It
represents the next rung of liquid securities after S&P CNX Nifty. It consists of 50 companies
representing approximately 10% of the traded value of all stocks on the National Stock Exchange
of India. The CNX Nifty Junior is owned and operated by India Index Services and Products Ltd.
It is quoted using the symbol NSMIDCP.
As with the S&P CNX Nifty, stocks in the CNX Nifty Junior are filtered for liquidity, so they are
the most liquid of the stocks excluded from the S&P CNX Nifty. The maintenance of the S&P
5

CNX Nifty and the CNX Nifty Junior are synchronized so that the two indices will always be
disjoint sets; i.e. a stock will never appear in both indices at the same time. Hence it is always
meaningful to pool the S&P CNX Nifty and the CNX Nifty Junior into a composite 100 stock
indexes.

CNX Nifty Junior represents about 11.99 % of the Free Float Market Capitalization as on
Mar 31, 2011.
The traded value for the last six months of all Junior Nifty stocks is approximately
14.37% of the traded value of all stocks on the NSE.
Impact cost for CNX Nifty Junior for a portfolio size of Rs.25 lakhs is 0.09%.
From May 04, 2009, CNX Nifty Junior is computed based on free float methodology.

1.2.7 Market Capitalisation

This is a chart of companies listed in the CNX Nifty Junior index by market capitalisation as on
June 2011 with figures in Indian Rupees.
Security name
Adani Enterprises Ltd.
Aditya Birla Nuvo Ltd.
Andhra Bank
Ashok Leyland Ltd.
Asian Paints Ltd.
Bank of Baroda
Bank of India
Bharat Electronics Ltd.
Bharat Forge Ltd.
Biocon Ltd.
Canara Bank
Coal India Ltd.
Colgate Palmolive (India) Ltd.
Container Corporation of IndiaLtd.
Crompton Greaves Ltd.
Cummins India Ltd.
Exide Industries Ltd.
Federal Bank Ltd.

Industry

Equity capital
(In Rs.)
trading
1099810083
textiles - synthetic
1135097290
banks
5595803640
automobiles - 4wheelers
1330338317
paints
959197790
banks
3915460790
banks
5464803700
electronics - industrial
800000000
castings/forgings
465588632
pharmaceuticals
1000000000
banks
4430000000
mining
63163644000
personal care
135992817
travel and transport
1299827940
electrical equipment
1282983072
diesel engines
396000000
auto ancillaries
850000000
banks
1712115340
6

GMR Infrastructure Ltd.

Glaxosmithkline Pharmaceuticals
Ltd.
Glenmark Pharmaceuticals Ltd.
Hindustan Petroleum Corporation
Ltd.
Housing Development and
Infrastructure Ltd.
IDBI Bank Ltd.
IFCI Ltd.
Indian Hotels Co. Ltd.
Indian Overseas Bank
IndusInd Bank Ltd.
JSW Steel Ltd.
LIC Housing Finance Ltd.
Lupin Ltd.
MphasiS Ltd.
Mundra Port and Special
Economic Zone Ltd.
Oracle Financial Services Software
Ltd.
Patni Computer Systems Ltd.
Power Finance Corporation Ltd.
Punj Lloyd Ltd.
Rural Electrification Corporation
Ltd.
Shriram Transport Finance Co.
Ltd.
Syndicate Bank
Tata Chemicals Ltd.
Tech Mahindra Ltd.
Titan Industries Ltd.
Torrent Power Ltd.
UltraTech Cement Ltd.
Union Bank of India
United Phosphorus Ltd.
United Spirits Ltd.
Yes Bank Ltd.
Zee Entertainment Enterprises Ltd.

construction
pharmaceuticals
pharmaceuticals
refineries

3892434782
847030170
270323853
3386272500

construction
banks
financial institution
hotels
banks
banks
steel and steel products
finance - housing
pharmaceuticals
computers - software
travel and transport

4150039860
9845532150
7378373310
759472787
6187493430
4659608850
2231172000
949326000
892595198
2100020560
4006788200

computers - software
computers - software
financial institution
construction
financial institution

419510760
267715336
13199317050
664191490
9874590000

finance
banks
chemicals - inorganic
computers - software
gems, jewellery and
watches
power
cement and cement
products
banks
pesticides and
agrochemicals
brew/distilleries
banks
media & entertainment
Total

2261606680
5732856710
2547562780
1260553760
887786160
4724483080
2740458750
5243324150
923608548
1307949680
3479787240
978076130
203,106,525,36
5

1.2.8 LIC housing finance limited

LIC Housing Finance Ltd., the largest Housing Finance Company in India was established on
19th June 1989 under the Companies Act, 1956. The company is promoted by LIC of India. The
company is recognized by National Housing Bank and listed on the National Stock Exchange
(NSE) & Bombay Stock Exchange Limited (BSE) and its shares can be traded only in
Dematformat. The company provides long term finance to individuals for purchase,
construction, repair and renovation of new, existing flats, houses. Company also provides
finance for business, personal needs against existing property. It also gives loans to
professionals for purchase, construction of Clinics, Nursing Homes, Diagnostic Centers, and
Office Space and also for purchase of equipments.
Over its existence of around 50 years, Life Insurance Corporation of India, which commanded a
monopoly of soliciting and selling life insurance in India, created huge surpluses, and
contributed around 7 % of India's GDP in 2006.
The Corporation, which started its business with around 300 offices, 5.6 million policies and a
corpus of INR 459 million (US$ 92 million as per the 1959 exchange rate of roughly Rs. 5 for a

US $

[4]

, has grown to 25000 servicing around 350 million policies and a corpus of over 8

trillion (US$178.4 billion).

The recentEconomic Times Brand Equity Survey rated LIC as the No. 1 Service Brand of the
Country. The slogan of LIC is "Zindagikesaathbhi, Zindagikebaadbhi"in Hindi. In English it
means "during life and after life.
In 2009 LIC Housing Finance cut interest rates for new loans by 0.5% where for customers
opting for floating rate loans between Rs.30 lakh andRs.75 lakh, the new rates will be 8.755
against 9.25%.

1.2.9 Products of LIC housing finance limited

Home Loans- It provides a range of services serving various needs of individuals,
NRIs and pensioners related to housing.
Corporate Loans- TheCompany offers financial assistance to corporate for purchasing,
constructing, renovating and repair of housing property.
Builders/Developers- It provides loans to builders or developers for construction of
housing projects for commercialization.

1.2.10 Income of the company

Interest on housing loans

Processing fees & service charges
Income from sale of share & securities
Interest
Fes & other charges
Finance & service charges
Other service charges.

1.3 PROBLEM DEFINITION

The small and medium investors can be motivated to save and invest in the capital market only if
their securities in the market are appropriately priced. The information content of events and its
dissemination determine the efficiency of the capital market. That is how quickly and correctly
security prices reflect these information show the efficiency of the capital market. In the developed
countries, many research studies have been conducted to test the efficiency of the capital market with
respect to information content of events. Whereas in India, very few studies have been conducted to
test the efficiency of the capital market with respect to scam, stock split and profit booking
announcements, even after these studies have been conducted with different industries with different
period. Hence present study is an attempt to test the efficiency of the Indian stock market with
respect to information content of LIC housing finance limited.

10

1.3 NEED OF THE STUDY

Stock market has been subjected to speculations and inefficiencies, which are beachedto the
rationality of the investor. Traditional finance theory is based on the two assumptions. Firstly,
investors make rational decisions; and secondly investors areunbiased in their predictions about
future returns of the stock. However financialeconomist have now realized that the long held
assumptions of traditional financetheory are wrong and found that investors can be irrational and
make predictableerrors about the return on investment on their investments.
This empirical study on Individual Investors Behavior is an attempt to know the profile of the
market and also know the characteristics of the market so as to know their preference with
respect to their investments. The study also tries to unravel the influence of demographic factors
like gender and age on risk tolerance level of the investor.

1.4 SCOPE OF THE STUDY

11

This study covers all types of investor in Indian stock market and taken to major information
passed in the market due to high and low movement of the price fluctuation related to the
market.Also, this research study is made based on efficient market hypotheses (semi-strong form
of efficient market hypotheses) to know the impact of events occurred in the market. Such as,
1. Scam
2. Stock split
3. Profit booking
In future, this study helps the researchers to measure the impact of those events will happened in
the stock market and suggest the investor to earn superior risk-adjusted return.

12

1.6 OBJECTIVES OF THE STUDY

To assess the pricing behavior of the events in LIC HOUSING FINANCE LIMITED.
To evaluate the risk of the stocks in in particular index.
To identify the effect of those events in the whole market.
To estimate the future price for the script and market.
To suggest the appropriate alternative for investor.
To suggest investors to buy, hold and sell stock in the market.

13

2. LITERATURE REVIEW
A study by George E. Pinches (1970) found that the random walk hypothesis implies that the
price movements are virtually independent of past price movement. The study reveals that the
random walk hypothesis may be incorrect or, at least incomplete.
McEnally (1971) and Beaver, Clarke and Wright (1979) report significant contemporaneous
correlations between the magnitude and sign of unexpected annual earnings changes and the
magnitude and sign of abnormal returns in the period preceding the annual earnings release.
Edward M. Miller (1979) in his study argues that any non-random fluctuation in price (other
than a steady upward drift approximating the risk adjusted rate of returns) would be exploited by
speculators who would buy before an expected fall, eliminating any predictable functions and
making all price changes random
Obaidullah (1990) studied 33 securities which performed well. The author has reported that
earnings showed an increasing trend much before the announcement week. The study entitled
Random Walks in Stock Market Prices.
Elroy Dimson and MassoudMussavian (1998), in their study narrated that the efficient markets
hypothesis is simple in principle but remains elusive. It is hard to profit from even the most.
AbhijitDutta (2001) has examined the investors reaction to information using primary data
collected from 600 individual investors and observes that the individual investors are less
reactive to bad news as they invest for longer period.
Prabina Das, S. SrinivasanandA. K. Dutta (2000) have studied the reaction of GDR prices and
the underlying share prices to the announcement of dividends and found that the CAR for the
GDR is mostly negative irrespective of the rate of dividend whereas the domestic share prices
react in a more synchronous manner.
14

An attempt was made by Kun Shin Im, Kevin E. Dow and Varun Grover (2001) in their study,
examined the changes in the market value of the firm as reflected in the stock price in response
to IT investment announcements. Reactions of price and volume were negatively related to firm
size and became more positive over time.
JijoLukose and Narayan Rao (2002) examined the security price behaviour around the
announcement of stock splits and around ex-split date.
Horvath and Zuckerman (1993) suggested that ones biological, demographic and
socioeconomic characteristics; together with his/her psychological makeup affects ones risk
tolerance level.
Mittra (1995) discussed factors that were related to individuals risk tolerance, which included
years until retirement, knowledge sophistication, income and net worth.
Cohn, Lewellen et.al found risky asset fraction of the portfolio to be positively correlated with
income and age and negatively correlated with marital status.
Lewellen et.al while identifying the systematic patterns of investment behavior exhibited by
individuals found age and expressed risk taking propensities to be inversely related with major
shifts taking place at age 55 and beyond.
Yoo (1994) found that the change in the risky asset holdings were not uniform. He found
individuals to increase their investments in risky assets throughout their working life time,
and decrease their risk exposure once they retire.
The NCAER's studies brought out the frequent form of savings of individuals and the
components of financial investments of rural households. The Indian Shareowners Survey
brought out a volley of information on shareowners.

15

Rajarajan V (1997, 1998, 2000 and 2003) classified investors on the basis of their
demographics. He has also brought out the investors' characteristics on the basis of their
investment size. He found that the percentage of risky assets to total financial investments had
declined as the investor moves up through various stages in life cycle. Also investors' lifestyles
based characteristics has been identified.
Al Tamimi (2007) identified company fundamental factors (performance of the company,
achange in board of directors, appointment of new management, and the creation of new assets,
dividends, earnings), and external factors (government rules and regulations, inflation, and other
economic conditions, investor behavior, market conditions, money supply, competition,
uncontrolled natural or environmental circumstances) as influencers of asset prices. He
developed a simple regression model to measure the coefficients of correlation between the
independent and dependent variables.
Rigobon and Sack (2004) discovered that increases in war risk caused declines in Treasury
yields and equity prices, a widening of lower-grade corporate spreads, a fall in the dollar, and a
rise in oil prices. A positive correlation exists between the price of oil and war. They argue that
war has a significant impact on the oil price.
Tymoigne (2002) argue that in the financial market, banking convention and financial
convention work together to fix the assets market prices. According to him the financial
convention creates a speculative sentiment of whether capitalists are more prone to sell, or to buy
assets while the banking convention determines the state of credit as evidenced by the confidence
of the banking sector and ability of investors accessing credit leverage for asset acquisition
purpose. He concluded that conventions do not determine asset-price, it is the law of supply
and demand that does so, conventionsonly influence the behaviors of financial actors
Inflation as an external factor exerts a very significant negative influence on the stock prices.
Molodovsky (1995) believes that dividends are the hard core of stock value. The value of any
asset equals the present value of all cash flows of the asset.

16

Blume (1971) used monthly prices data and successive seven-year periods and shown that the
portfolio betas are very stable where as individual security betas are highly unstable in nature.
He shows that, the stability of individual beta increases with increase in the time of estimation
period.
Allen et al. (1994) have considered the subject of comparative stability of beta coefficients for
individual securitiesand portfolios. The usual perception is that the portfolio betas are more
stable than those for individualsecurities. They argue that if the portfolio betas are more stable
than those for individual securities, thelarger confidence can be placed in portfolio betaestimates
over longer periods of time. But, their studyconcludes that larger confidence in portfolio betas is
not justified
Alexander and Chervany (1980) show empirically that extreme betas are less stable compared
to interior beta. They proved it by using mean absolute deviation as a measure of stability.
According to them, best estimation interval is generally four to six years. They also showed that
irrespective of the manner portfolios are formed, magnitudes of inter-temporal changes in beta
decreases as the number of securities in the portfolio.
Haddad (2007) examine the degree of return volatility persistence and time-varying nature of
systematic risk of two Egyptian stock portfolios. He used the Schwert and Sequin (1990) market
model to study the relationship between market capitalization and time varying beta for a sample
of investable Egyptian portfolios during the period January, 2001 to June, 2004.
According to Haddad, the small stocks portfolio exhibits difference in volatility persistenceand
time variability. The study also suggests that the volatility persistence of each portfolio and its
systematic risk are significantly positively related. Because of that, the systematic risks of
different portfolios tend to move in a different direction during the periods of increasing market
volatility.
McNulty et al (2002) highlight the problems with historical beta when computing the cost of
capital, and suggest as an alternative- the forward-looking market-derived capital pricing model
(MCPM), which uses option data to evaluate equity risk.
17

Siegel (1995) notes the improvement of a beta based on forward-looking option data,
and proceeds to propose the creation of a new derivative, called an exchange option, which
would allow for the calculation of what he refers to as implicit betas. Unfortunately the
exchange options discussed by Siegel (1995) are not yet traded, and therefore his method cannot
be applied in practice to compute forward-looking betas.
Scott & Brown (1980) show that when returns of the market are subjected to measurement
errors, the concurrent auto correlated residuals and inter-temporal correlation between market
returns and residual results in biased and unstable estimates of betas. This is so even when true
values of betas are stable over time.
Vipul (1999) examines the effect of company size, industry group and liquidity of the scrip on
beta. He considered equity shares of 114 companies listed at Bombay Stock Exchange from July
1986 to June 1993 for his study. He found that size of the company affects the value of betas and
the beta of medium sized companies is the lowest which increases with increase or decrease in
the size of the company. The study also concluded that industry group and liquidity of the scrip
do not affect beta.
Gupta &Sehgal (1999) examine the relationship between systematic risk and accounting
variables for the period April 1984 to March 1993. There is a confirmation of relationship in the
expected direction between systematic risk and variables such as debt-equity ratio, current ratio
and net sales. The association between systematic risk and variables like profitability, payout
ratio, earning growth and earnings volatility measures is not in accordance with expected sign.
In Canada Ikenberry et.al (2000) found that the Canadian experience is similar to the earlier
evidence obtained for US buyback and the initial market reaction to repurchase programs is
small.
The abnormal return is less than 1 % in the announcement month. They also found that the
market on average seems to under estimate the information contained in repurchase
18

announcements. Further using a three-factor model, abnormal performance over a three year
holding period is about seven percent per year. Their finding is consistent with well documented
findings in the United States, that long run abnormal stock returns for these cases are negative
Ikenberry and Vermaelen (1996) found that announcement returns are directly related to the
volatility of the stock and the fraction of shares to be purchased. They also found that the market
reaction is negatively related with the correlation co-efficient between stock returns and market
returns.
McNally. W, (1998), suggests that the two types of offers generate roughly the same total returns
(about 1011%, on average, during the offering period) to shareholders who do not tender.
Fixed-price offers involve considerably larger premiums (over the new, "full-information" price)
and wealth transfers than Dutch auctions. Reflecting the higher premiums, shareholders
tendering into fixed-price offers receive higher returns than those tendering into Dutch auctions
(13.8% vs. 11.3% during the announcement period). He also finds some evidence of fixedpriceoffers involve a considerably larger wealth transfer from non-tendering to tendering
shareholders, fixed-price repurchases compensate the non-tendering shareholders for the larger
wealth transfer with larger increases in "intrinsic value," thus generating the same total return as
Dutch auctions.Moreover, despite the large premiums offered in both types of offers, the wealth
transfer implicit in the premium represents a small cost (less than 1% in fixed-price offers, and
less than 0.1% in Dutch auctions) to non-tendering shareholders.
Isagawa (2002) examined corporate open market repurchase strategy and stock price behavior.
He establishes a signaling equilibrium with the assumption that the firm is committed to an
announcement of open-market repurchase intention. He also found that positive long run stock
returns as well as positive announcement effects following open-market repurchase
announcements.
Schaub, Mark (2008), provides some evidence that debt buybacks may have beneficial impacts
on stockholders holding period returns and cash flows. His analysis is based on the all things
constant model popularized by Modigliani and Miller in the capital structure and dividend
19

policy papers. He concludes, firms can obviously benefit by repurchasing their debt when market
values have decreased. His study also suggests debt buybacks may be valuable to stockholders in
and of themselves, not just in times of rising interest rates and downgraded bond ratings.
Schaub, Mark (2009) finds some evidence of wealth effects associated with debt buyback
announcements. He observed significant positive average returns on the announcement date
reflect investors opinion that the event is considered good news. He also suggest further
research to find out whether there are long-term positive effects or even intra-industry
information effects associated with such announcements.

20

3. RESEARCH METHODOLOGY
3.1 Research methodology
Research methodology is a way to systematically solve the research problem. Thus when we
talk of research method but also consider the logic behind the methods we use in the context of
our research study and explain why we are capable of being evaluated either by the researchers
himself or by others.

3.2 Research design

Research design is the arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure. The research
design used in the this study is empirical in nature the procedure which researchers has to use act
or information already available, andanalyze these to make a critical evaluation of the
performance.

3.2.1 Type of research

Empirical research which is used appropriate when proof is sought, that certain variables affect
another variable in some way. Evidence gathered through experiment or empirical studies is
today considered to be the most powerful support possible for a given hypothesis.

3.2.2 Method of data collection

This research is conducted by using secondary data which are obtained from the journals and
official websites like www.nseindia .com,www.bseindia.com, www.sebi etc.

3.2.3 Steps in event study

i) Semi-strong form of efficient market hypotheses
The SEMI-STRONG form efficient market hypothesis holds that stock price adjust rapidly to all
publically available information. This implies that using publicly available information investor
will not be able to earn superior risk-adjusted returns.
21

ii) Event study

An Event study examines the market reactions to and the excess market returns around a specific
information event like acquisition announcement or stock split.

iii) Steps involvedin event study,

a) Identify the event date
Event studies presume that the timing of the event can be specified with a fair degree of
precision. Because financial markets react to the announcement date of the event.
b) Collect return data around the announcement date
In this context two issues have to be resolved: What should be the period for calculating
returns ---- Weekly, daily, or some other interval? For how many periods should returns be
calculated before and after the announcement date?
Rj,- n -------------------------- Rj,0 ------------------------Rj,+n
|________________________|_____________________|
Return window: -n to +n
Rj, t = return for firm j for period t (t = -n 0 +n)

c) Calculate the excess return

The excess return is calculated as:
E Rjt = Rjt Beta j Rmt

d) Compute the average excess return

The average excess return is
j=m

ERt
=

ERjt
m
j =1

22

e) T statistics
d=
s d2

d /n
d( d / n)2
n1

2
Sd = s d

T=

d
sd / n

f) Future price estimation

a) Pivot point analysis
Market analysts or experienced traders talking about an equity price nearing a certain support or
resistance level, each of which is important because it represents a point at which a major price
movement is expected to occur. Pivot point is calculated using the following formula,
PP =H+L+C
3
R1 = (2PP)-L
R2=PP+ (H-L)
S1 = (2PP)-H
S2=PP-(H-L)

3.3 Limitations of the Study

The present study is confined to only the three events announcement.
This study is restricted with only selected securities in financial sector.
All the limitation of the tools is applicable to this study.
The study based on the past data, which may not guarantee to the future of the market.
23

4. ANALYSIS AND INTERPRETATIONS

Table 4.1.1

Calculation of returns during the event of Scam

PFC

SHRI RAM
TRONS

SYNDICATE

UNION
BANK

YES BANK

0.71877
4

2.24388
7

1.65989
2

4.89795
9

0.13803
7

0.23557
1

-1.59793

1.82984

4.66012
1

0.71428
6

0.27950
3

3.19256
8

4.76422
8

2.61883
1

-2.8951

0.90171
3

1.16106

-0.42188

-1.19028

2.31441

-1.9

-3.1654

-1.57879

-1.73913

-1.61801

0.52916
6

1.39007
1

-1.76617

-2.95483

-0.22849

-0.99398

-0.11042

2.611781

0.22052
3

-0.34884

-0.29991

-0.19481

3.67256
6

2.19633
9

-0.66549

-2.61905

-2.58125

-0.57471

-0.58132

4.59873
8

INDUSIND

-1.72414

-0.7381

-1.19625

0.42194
1
-0.45997

1.01384
8
-3.25581

LIC
HOUSING
FINANCE
IOB

-1.25

IFCI

0.98806
1
0.11236

2.56987

CAN BANK

2.00668
9
0.66666
7
1.91358

-2.86322

-0.8046

-2.8366

0.32894
7
-2.82158

-0.92246

0.25

-0.74257

-0.23033

-0.38911

0.86906
1
-1.11111

-3.91398

-0.89641

0.69384
2
-0.37585

-2.15569

-2.32852

1.80457
7
2.58865
2
1.01010
1
3.6875
-2.73189

0.66505
4

2.16402
1
-0.71809

0.76384
5
1.39479
9
-0.16008

-3.23944

-0.7657

IDBI

1.58567
8
1.117164

0.293112

1.75935
3
1.22077
9
0.19478
4
2.53378
4

-2.57785

1.66959
6

BOB

-0.61947

1.59687
7

-0.33408

5.72082
4

BOI

6.17328
5

FEDERAL

ANDRA
BANK

24

0.78469
5

0.10563
4

0.94202
9

-2.81223

0.55202
2

-3.66197

-3.89037

-2.3141

-3.29659

-0.43269

-5.0964

-3.46048

-2.64438

-2.8871

-0.83069

0.89062
5

0.00641
8

-0.57427

0.57054
7

-0.27331

-3.4748

-1.69799

-3.13482

-3.375

-1.27988

-3.3959

4.2

2.83269
4

2.38303
8

2.83241

3.61207
3

2.26982
1

-3.27103

-0.81164

-2.69084

-0.81618

-5.83116

-0.15106

-3.11693

-2.23607

-4.25267

-6.23197

0.03989
1

-2.14818

-3.79154

0.67352

-0.54348

-0.46308

-0.05702

-1.38618

-1.12896

-1.89132

-1.18613

0.98383
7

-1.79949

-3.88455

-0.22925

-3.91823

0.27043
3

-0.27273

-1.41892

0.21413
3

1.25359
6

-1.2037

1.67278
7

1.22214
2

0.14342
6

0.92250
9

-0.95745
-17.6769
-0.74733

1.56836
5

0.08363
6
-0.83045

-1.09778

-2.10339

-2.61975

-3.30684

1.38296
2
0.00525
8
1.4375

0.38108

0.77027

-2.81433

-2.99345

1.40127
4
0.38535
6
0.14347
2
1.77368
3
-1.67229

-3.93692

1.67349
7
0.0356

2.65574
2
-0.35714

2.45683
9

-1.99301

0.32585
1

1.98650
7
-0.9688

-15.9722

-2.87009

2.68620
3
0.80450
5
-6.71429

-3.06843

-0.51043

3.36375

0.64798
6
-2.90196
-0.68534

-2.96438

-2.25564

-0.79422

-3.66071

-1.40652

1.27140
2
1.30521

2.04172
2
-2.65082

-1.82349

-3.44828

-0.30182

0.69444
4
0.49333
3
7.10332
1
1.20710
8
-1.85079

3.32681

-1.00806
-1.3764

1.26087

0.36641
2
-0.5958

-0.06821

-0.78534

-1.19534

-1.57579

-1.85083

1.97296
3
-0.20795

-0.82155

0.85714
3
-0.0387

-3.91494

-1.84995

0.90122
6
-1.7227

-1.32653
1.98941
8
-1.38441

-1.75831

-4.46071

0.13695
9
-3.74074

-3.50257

0.40322
6
2.37449
1
-2.18328

0.67543
9
1.61213
8
2.08097
7
0.50724
6
3.45238
1

2.76243
1

25

Inference
The above table depicts that the market return of can bank is highest return 7.10% among the
selected securities. And the securities of IFCI have a lowest market during the period of scam.
The stock of LIC housing finance has an average decreasing. The returns of can bank and bank
of Baroda are moderate. The return of IFCI shows most of negative return that indicates the in
efficient transaction on it stock. The market return of Andhra bank is moderate level.

Figure 4.1.1

26

10

5 ANDRA BANK

BOI

BOB

CAN BANK

FEDERAL

IDBI

IFCI

10 11 12 13 14 15 16 17 18

INDUSIND

IOB

LIC HOUSING IFNANCE

SYNDICATE

UNION BANK

YES BANK

-5

PFC

SHRI RAM TRONS

-10

-15

-20

Table 4.1.2
Calculation of returns during the event of Stock split
YES
BANK

UNION
BANK
SYNDICA
E
SHRI RAM
TRANSPO

PFC

LIC
HOUSING
FINANCE
IOB

INDUSIND

IFCI

IDBI

FEDERAL
BANK

CAN
BANK
BANK OF
BARODA

BANK OF
INDIA

ANDHAR
A BANK

27

7.71527
8

0.43478
3
2.34533

-1.00162

0.83240
5

-3.00126

1.65855
1
0.19864
9
-0.72575

0.14662
8

-0.02941

-0.57054

3.23437
5
0.57142
9
1.85341
8

0.21857
9

1.85344
8
0.07812
5
1.24431
5

0.86834
7
-1.44422

-2.71628

0.35335
7
-3.06054

-1.55949
1.17748
4
1.36029
4
5.25259
1

2.45876
1
0.37413
7

1.08168
6
3.27520
2
4.22778
3

-0.74647

-0.73209

0.34743
2

0.511898

6.29734
8
5.45263
2

0.24831
5
0.29714
7
0.47430
8

1.671123

-2.84291
1.52702
2
-0.64103

-0.26027

-1.04558

6.66666
7
-0.56122

1.02880
7
0.29917
7
2.39669
4

0.15625

0.90789
5

-1.23333
0.17266
2
-0.38793
2.41666
7

-2.79856

0.16393
4

0.27897
5

-0.22852

1.64214
5
-0.95438

2.73991
7

-2.55663
-1.32645

-0.65441

0.46410
9
6.53874
8
2.64285
7

2.1875

0.68567

0.37558
7

1.95402
3

-0.61924
0.75849
1

0.20689
7

-0.73851

1.07122
5

0.39977
5

0.51500
2

-0.98727

-0.28443
0.37190
1
-0.35398

8.85258
4
1.20459
3
1.79640
7

-1.67702

3.04814

0.30574
2
0.81382
4

0.62379

0.66445
2

0.44287

-0.88403

-0.33383
0.15080
1
0.89503
7

1.27226
5

3.41701
5
3.44922
7

0.51224
3

1.32562
9

-0.41322

0.51679
6
-1.9569
2.30263
2
-0.2461

1.35220
1
-0.74506

2.21074
4
-0.20059

1.44927
5

0.39577
8

-0.54688

0.23923
4
-1.38756
0.56634
3
1.26760
6
-1.29288

-0.74576

0.46583
9
2.40713
8

1.72593
6

0.50955
4

2.80710
8
-1.49645

-5.68
-4.77778

-0.79324

1.60674
2

0.30303

0.50279
3

-0.61234

-1.20232

0.88055
1
-0.37969

1.21839
1

1.00043
5

-0.05882

0.48302
9

-2.50742
-1.54649

-1.57388

1.76646
7

3.23770
5
-0.53934

-0.17818
0.07228
9

-0.52632

-0.50595

1.80722
9
4.58647
1

-1.62533
-0.71455

-1.17759

1.12254
4
-0.84534

1.14864
9

-1.43162

-0.14409

-2.07039

28

-1.55949
0.43478
3
2.34533

-1.00162
1.65855
1
0.19864
9
-0.72575

0.14662
8
3.23437
5
0.57142
9
1.85341
8

0.21857
9

-4.71876

1.33663
4
0.50627
3

-0.88258

3.16819
1

-0.58952

0.97126
7
-1.31731

-0.04376

-0.3942

7.71527
8
-0.57054

1.17748
4
1.36029
4
5.25259
1
-3.00126

-0.26247

0.83240
5

-2.24424

2.45876
1
0.37413
7
-0.02941

6.29734
8
5.45263
2

-0.41322

The securities of Indian overseas bank IOB performed in a profitable way based on its highest
market return as 8.85% and 6.66% respectively during the study period.Shriram transport finance
has obtained a high rate of return on a particular period during the period of stock split The Lic
housing finance has earned an average market return during the stock split due to decision by the
company towards to acquire the market capitalization.Andhrabank, yes bank has earned negative
return during the event of stock split.

-5.03674
-4.19259
-3.74307
-0.64036
-3.91304
0.51630
4
-0.88496

29

-1.20155

-1.88053

0.24831
5
-0.68196

1.08168
6
0.90419
4
0.56074
8

-0.96522

1.02880
7
-2.52723
-0.84746

-1.48976

-6.18956

-3.48432

6.66666
7
2.85714
3
-1.12474

-0.36304

Figure 4.1.2

-4.58065
-6.27119

-3.23333

-1.28064

1.66279
1

-4.78163

-7.36156

-0.18863

-2.10456

-2.38786
-1.40853

0.86705
2
0.66614
4

-2.80172

5.48674
6

2.06513
1
3.41463
4

0.22875
8
2.52486
2

0.05470
5

1.25261

-4.64466

0.80165
3
-1.31106

-6.31166

-3.90323

-1.31045

-0.02626

2.86069
7

0.70200
1

-2.4856
-2.01064

-1.9971

-4.38846

-0.23596

-0.27759

0.66037
7
-0.22005

1.6

1.39705
9

0.22900
8
0.02525
1

-4.6858

Inference

10

9 10 11 12 13 14 15 16 17 18

-2

-4

ANDHARA BANK
BANK OF INDIA
BANK OF BARODA
CAN BANK
FEDERAL BANK
IDBI
IFCI
INDUSIND
IOB
LIC HOUSING FINANCE
PFC
SHRI RAM TRANSPORT
SYNDICATE
UNION BANK
YES BANK

-6

-8

-10

Table 4.1.3
Calculation of returns for profit booking
YES BANK

UNION
BANK
SYNDICATE

SHRIRAN
TRANSPORT
FINANCE
PFC

LIC
HOUSING

IOB

INDUSIND
BANK
IFCI

IDBI

FEDERAL
BANK

CAN BANK

BANK OF
BARODA

BANK OF
INDIA
ANDHRA
BANK

30

12.17

-0.94

-1.28

2.29

1.6

-1.64

-4.84

-4.16

-4.02

2.79

-0.93

-2.08

2.62

2.95

1.47

5.69

1.85

2.08

-3.84

-1.31

-1.24

-2.59

-0.64

-4.02

0.31

-1.84

1.14

2.01

-0.48

-3.58

-1.67

0.41

2.71

-1.36

0.23

-2.1

3.21

1.56

2.26

2.19

-1.45

0.92

-0.13

4.62

-2.73

2.44

1.25

-2.83

-5

0.12

7.51

1.51

2.98

-4.51

-1.73

3.09

-0.55

1.89

4.51

-3.63

2.55

1.93

0.85

0.19

-2.24

4.53

-3.33

0.03

1.29

2.22

-0.42

1.83

1.92

1.65

-2.66

2.8

0.26

-2.53

0.7

5.57

-0.04

7.73

-2.23

-5.04

-0.51

-0.14

7.85

0.16

0.15

-1.62

-0.62

2.89

6.35

-2.31

2.5

-2.52

0.94

0.99

-0.39

-2.82

5.93

1.38

3.58

1.73

Inference
Above table shows that the return of selected securities .bank of Baroda had given a most return
at 7.73% during the period of profit booking. The second most highest returns were belongs to
stock of federal bank due to a careful prediction about the stock market on future trend. The most
lowest returns generated by the securities of yes bank, power Finance Corporation, induslnd
bank respectively Most of the return of induslnd bank, IOB, power finance corporation, shriram
transport corporation and that of yes bank are negative because of the poor performance in the
capital market during the study period.
31

Figure 4.1.3

Table1 4.2.1
Beta calculation for selected companies in the event of scam

S.no

Stock name

Beta

Andhra bank

1.029923

Bank of India

1.350379

Bank of Baroda

0.962825

Can bank

1.288502

Federal bank

1.093431

IDBI

1.300076

IFCI

1.625507

Indusind bank

1.065066

IOB

1.425511

10

LIC housing finance

1.637331

11

Power finance corporation.

0.988274

12

Shriram Transport finance

0.715974

13

Syndicate bank

1.42934

14

Union bank

15

Yes bank

32

1.128751
1.319713

Inference
The above table states that beta of selected companies like Andhrabank,bank of india,can
bank, federal bank,IDBI, IFCI,Inussind bank,IOB,ILC housing finance, syndicate bank union
bank, yes bank are1.03, 1.35, 1.29, 1.09, 1.3, 1.62, 1.07, 1.43, 1.64, 1.421, 1.13, 1.32
respectively . It shows theis companies are over performed during scam due to announcement of
bonus. So these stocks are shows a good sign for purchase. And the beta of bank of Baroda,
power Finance Corporation, shriram transport finance are respectively 0.96, 0.99, 0.72 during the
scam. These stock are shows a good sign for sell.

Figure 4.2.1
BETA
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

beta

33

Table 4.2.2
Excess return calculation for selected companies in the event of scam
S.no.

Stock name

Excess return

Andhra bank

3.891552

Bank of India

18.14882

Bank of Baroda

62.84973

Can bank

4.449102

Federal bank

-13.4756

IDBI

-1.87858

IFCI

-56.5818

Indusind bank

-41.9157

IOB

-5.4815

10

LIC housing finance

-17

11

Power finance corporation

-56.0239

12

Shriram Transport finance

-24.93

13

Syndicate bank

-12.7413

14

Union bank

-14.0824

15

Yes bank

-5.48838

34

Inference
The above table states that the excess of selected companies like Andhra bank, bank of India,
Bank of Baroda can bank, are3.89, 18.15, 62.85, 4.45 respectively It shows this stock are moved
frequently in the market during the scam due to announcement of bonus . So these stocks are
shows a good sign for sell .and the excess return of federal bank, IDBI, IFCI, Inussind bank,
IOB, LIC housing finance, power finance corporation,shriram transport syndicate bank union
bank, yes bankare -13.48, -188, -56.58, -41.92, -5.48, -17, -56.02, -24.93,

-12.74, -14.08,

-5,488 (negative) respectively. this stock are poorly moved in the market during the scam. These
stock are shows a good sign for purchase.

Figure 4. 2.2

EXCESS RETURN
80
60
40
20
Excess return
0
-20
-40
-60
-80

35

Table 4.2.3
Average excess returns calculation for selected companies in the event of scam
S.no

Stock name

Average excess return

Andhra bank

0.077831

0.362976

Bank of
India
Bank of Baroda

Can bank

0.088982

Federal bank

-0.26951

IDBI

-0.03757

IFCI

-1.13164

Indusind bank

-0.83831

IOB

-0.10963

10

LIC housing finance

-0.34

11

Power finance corporation

-1.12048

12

Shriram Transport finance

-0.4986

13

Syndicate bank

-0.25483

14

Union bank

-0.28165

15

Yes bank

-0.10977

1.256995

Inference

36

This table states that the average excess return of selected companies like Andhra bank, bank of
India, Bank of Baroda can bank, are0.08, 0.36, 1.26,0.09 respectively. It shows thisstock is
performed in a positive way because of bonus announcement during the scam. So these stocks
are shows a good sing for sell. By selling these stocks the investor earn more return than
expected return. and the average excess return of Federal bank, IDBI, IFCI, Inussind bank, IOB,
LIC housing finance, power finance corporation,shriram transport, syndicate bank, union bank,
yes bankare -0.27, -0.04, -1,13, -0.84, -0,11, -0.34 -1.12, -0.5, -0.25, -0.28, -0.11, (negative)
respectively. This stock are earn less return than expected due to the effect of the event known as
scam. These stock are shows a good sign for purchase.

Figure 4.2.3

AVERAGE EXCESS RETURN

1.5
1
0.5
Average Excess return
0
-0.5
-1
-1.5

Table 4.3.1
37

Beta calculation for selected companies in the event of stock split

S.no

Stock name

Beta

Andhra bank

1.046955

Bank of India

0.104408

Bank of Baroda

0.977864

Can bank

1.212785

Federal bank

1.095953

IDBI

1.292549

IFCI

1.627631

Indusind bank

1.0701

IOB

1.418358

10

LIC housing finance

1.63267

11

Power finance corporation

0.99346

12

Shriram Transport finance

0.691975

13

Syndicate bank

1.457935

14

Union bank

1.114052

15

Yes bank

1.360864

Inference

38

The above table states that beta of selected companies like Andhra bank,

Can bank, Federal

bank, IDBI, IFCI, Inussind bank, IOB, LIC housing finance, Syndicate bank, Union bank, Yes
bank are 1.04, 1.21, 1.10, 1.29, 1.62, 1.07, 1.41, 1.73, 1.46, 1.11, 1.36, respectively. It shows
these companies are over performed during stock split due to announcement of bonus. So these
stocks are shows a good sign for purchase. and the beta of Bank of India, Bank of Baroda, power
finance corporation, Shriram transport finance are respectively 0.10, 0.98, 0.99, 0,69 during the
stock split. It shows these stocks arenormally valued and these stocks are shows a good sing for
sell.

Figure 4.3.1

BETA
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

beta

Table 4.3.2
39

Excess return calculation for selected companies in the event of stock split
S.no

Stock name

Excess return

Andhra bank

-1.55373

Bank of India

1.666099

Bank of Baroda

56.78525

Can bank

11.56024

Federal bank

-2.36441

IDBI

4.898998

IFCI

-73.2035

Indusind bank

-40.742

IOB

-16.399

10

LIC housing finance

-25.2452

11

Power finance corporation

-55.6487

12

Shriram Transport finance

-39.8258

13

Syndicate bank

-12.9175

14

Union bank

-14.1196

15

Yes bank

-6.79178

Inference

40

The above table indicates that the excess of selected companies like, bank of India, bank of
Baroda, can bank, IDBI are1.67, 56.78, 11.56, 4.90 respectively It shows this stock are moved
frequently in the market during the stock split due to announcement of bonus . So these stocks
are shows a good sign forsell. And the Excess return of Andhra bank, Federal bank, IDBI, IFCI,
Inussind bank, IOB, LIC housing finance, power finance corporation,shriram transport syndicate
bank union bank, yes bankare -1.55, -2.36, -73.20, -40.74, -16.40,

-25.25, -55.65, -39.83,

-12.92, -14.12, -6.80 (negative) respectively. This stock is poorly moved in the market during the
stock split. These stock are shows a appropriate sing for purchase.

Figure 4.3.2

EXCESS RETURN
80
60
40
20

Excess Rturn

0
-20
-40
-60
-80

Table 4.3.3
41

Average excess returns calculation for selected companies in the event of stock

split
S.no

Stock name

Average Excess return

Andhra bank

-0.03107

Bank of India

0.033322

Bank of Baroda

1.135705

Can bank

0.231205

Federal bank

-0.04729

IDBI

0.09798

IFCI

-1.46407

Indusind bank

-0.81484

IOB

-0.32798

10

LIC housing finance

-0.5049

11

Power finance corporation

-1.11297

12

Shriram Transport finance

-0.79652

13

Syndicate bank

-0.25835

14

Union bank

-0.28239

15

Yes bank

-0.13584

Inference

42

This table states that the average excess return of selected companies like Bank of India, Bank
of Baroda, can bank, IDBI are0.03, 0.1.14, 0.23, 0.10 respectively. It shows these stocks are
performed in a positive way because of bonus announcement during the stock split. So these
stocks are shows a good sign for sell. By selling these stocks the investor earn more return than
expected return. and the average excess return of Andhra bank, Federal bank, IFCI, Inussind
bank, IOB, LIC housing finance, power finance corporation, shriram transport, syndicate bank,
union bank, yes bankare -0.03, -0.05, -1.46, -0.81, -0.32, -0.50 -1.11, -0.80, -0.26, -0.28, -0.14,
(negative) respectively. This stock are earn less return than expected due to the effect of the event
known as stock split. These stock are shows a good sign for purchase.

Figure 4.3.3

AVERAGE EXCESS RETURN

1.5
1
0.5
0

Average Excess Return

-0.5
-1
-1.5
-2

43

Table 4.4.1
Beta calculation for selected companies in the event of profit booking
S.no

Stock name

Beta

Andhra bank

0.67

Bank of India

-0.13

Bank of Baroda

0.17

Can bank

0.37

Federal bank

0.64

IDBI

0.43

IFCI

0.83

Indusind bank

-0.66

IOB

0.5

10

LIC housing finance

0.37

11

Power finance corporation

-0.07

12

Shriram Transport finance

-0.08

13

Syndicate bank

0.62

14

Union bank

0.39

15

Yes bank

0.76

Inference

44

The above table states that beta of selected companies like Andhra bank,

Bank of Baroda, Can

bank, Federal bank, IDBI, IFCI, IOB, LIC housing finance, shriram transport finance, Syndicate
bank, Union bank, Yes bank are 0.67, 0.17, 0.37, 0.64, 0.43, 0.83, 0.50, 0.37, 0.62, 0.39, 0.76,
respectively. It shows these companies are over performed during profit booking due to
announcement of bonus. So these stocks are shows a good sing for purchase. and the beta of
Bank of india, Indusind Bank, power finance corporation, Shriram transport finance are
respectively -0.13, -0.66, -0.07, -0.08 during the profit booking. It shows these stocks are
normally valued and these stocks are shows a good sing for sell.

Figure 4.4.1

ANERAGE EXCESS RETURN

0.4
0.3
0.2
0.1

ANERAGE EXCESS
RETURN

0
-0.1
-0.2
-0.3
-0.4

Table 4.4.2
45

Excess returns calculation for selected companies in the event profit booking
S.no

Stock name

Excess return

Andhra bank

2.53

Bank of India

-6.85

Bank of Baroda

3.24

Can bank

4.35

Federal bank

8.17

IDBI

-2.63

IFCI

-13.33

Indusind bank

-25.17

IOB

2.12

10

LIC housing finance

14.65

11

Power finance corporation

-15.99

12

Shriram Transport finance

-6.43

13

Syndicate bank

7.84

14

Union bank

7.6

15

Yes bank

4.15

Inference
The above table indicates that the excess of selected companies like,Andhara bank, bank of
baroda,can bank, Federal bank, IOB, LIC housing finance, syndicate bank, Union bank, Yes bank
are2.53, 3,24, 4,35, 8.17, 2.12, 14.65, 7.84, 7.60, 4.15 respectively It shows this stocks are
46

moved frequently in the market during the profit booking due to announcement of bonus. So
these stocks are shows a good sign forsell. And the Excess return of Bank of India, IDBI, IFCI,
Inussind bank, power finance corporation,shriram transport finance syndicate bank, union bank,
yes bankare -6.85, -2.63, -13.33, -25.17, -15.99,

-6.43, (negative) respectively. This stock is

poorly moved in the market during the profit booking. These stock are shows a appropriate sing
for purchase.

Figure 4.4.2

ANERAGE EXCESS RETURN

0.4
0.3
0.2
0.1
ANERAGE EXCESS RETURN
0
-0.1
-0.2
-0.3
-0.4

Table 4.4.3
Average excess returns calculation for selected companies in the event of
profit booking
47

S.no

Stock name

Average
excess return

1
Andhra bank

0.05

Bank of India

-0.14

Bank of Baroda

0.06

Can bank

0.09

Federal bank

0.17

IDBI

-0.05

IFCI

-0.27

Indusind bank

-0.01

IOB

0.04

10

LIC housing finance

0.29

11

Power finance corporation

-0.32

12

Shriram Transport finance

-0.13

13

Syndicate bank

-0.04

14

Union bank

0.15

15

Yes bank

0.08

Inference
This table states that the average excess return of selected companies like Andhra Bank, Bank of
Baroda, can bank, Federal Bank, IDBI, IOB, LIC housing finance, union bank, Yes bank are0.5,
0.06, 0.09, 0.17, 0.04, 0.29, 0.15, and 0.08, respectively. It shows this stock is performed in a
positive way because of bonus announcement during the profit booking. So these stocks are
shows a good sign for sell. by selling this stocks the investor earn more return than expected
48

return. and the average excess return of Bank of India, IDBI, IFCI, Inussind bank,

power

finance corporation, shriram transport, syndicate bank, are -0.14, -0.05, -0.27, -0.01, -0.32,
-0.13, -0.04 (negative) respectively. This stock are earn less return than expected due to the effect
of the event known as profit booking. these stock are shows a good sign for purchase.

Figure 4.4.3

ANERAGE EXCESS RETURN

0.4
0.3
0.2
0.1

ANERAGE EXCESS
RETURN

0
-0.1
-0.2
-0.3
-0.4

Table 4.5.1
Prediction of price using pivot point analysis from July, 2010 to April 2011
NAME OF
STOCK
LIC HOUSING
FINANCE
CNX NIFTY
JUNIOR
S&P CNX NIFTY

R2

R1

PP

S1

S2

1964.4

1099.2

624.9

14988.47

13242.0349 11639.97

9893.533

8291.467

6969.017

6438.733

5277.933

4647.417

5808.217

Inference
The above table demonstrates the future price of stock as well as index which has been tested. A
pivot point indicates the information like and sells below that particular level. If the
LIC housing finance is moving above of 624.9 it is suggest buying above pivot point and selling
the next resistance level like 2437.5 for mid-term. If LIC housing finance is moving above 624.9
it suggested buying above pivot point and selling the next resistance level 1964.4. For mid-term.
The above table demonstrates the future price of stock as well as index which has been tested. A
pivot point indicates the information like and sells below that particular level. If the CNX NIFTY
JUNIOR is moving above of 13386.41 it is suggest buying above pivot point and selling the next

resistance level like 12168.45 for mid-term. If CNX NIFTY JUNIORfinance is moving above
16590.47, it suggested buying above pivot point and selling the next resistance level 14988.47
formid-term.
The above table demonstrates the future price of stock as well as index which has been tested. A
pivot point indicates the information like and sells below that particular level. If the S&P CNX
NIFTY is moving above of 6338.50 it is suggest buying above pivot point and selling the next
resistance level like 7598.72 for mid-term. If S&P CNX NIFTY is moving above 6143.38, it
suggested buying above pivot point and selling the next resistance level 6969.017formid-term.

Table 4.5.2
Pivot point analysis for the period of April 2011
LIC
HOUSING
FINANCE
CNX NIFTY
JUNIOR

R2

R1

PP

S1

S2

263.5167

241.3833

219.4667

197.3333

175.4167

11963.3

11670

11464.85

11171.55

10966.4

5892.383

5792.817

5641.183

5541.617

S&P CNX
NIFTY
6044.017

50

Inference
The above table demonstrates the future price of stock as well as index which has been tested. A
pivot point indicates the information like and sells below that particular level. If the

LIC

housing finance is moving above of 241.6it is suggest buying above pivot point and selling the
next resistance level like 285.376 for mid-term.if LIC housing finance is moving above 263.52, it
suggested to buy above pivot point and sell the next resistance level 263. 52. formid-term.
The above table demonstrates the future price of stock as well as index which has been tested. A
pivot point indicates the information like and sells below that particular level. If theCNX NIFTY
JUNIORis moving above of 11758.15 it is suggest buying above pivot point and selling the next
resistance level like 12168.45 for mid-term. If CNX NIFTY JUNIOR is moving above 11963.3,
it suggested buying above pivot point and selling the next resistance level 11963.3 formid-term.
The above table demonstrates the future price of stock as well as index which has been tested. A
pivot point indicates the information like and sells below that particular level. If the
S&P CNX NIFTYis moving above of 5944.46 it is suggest buying above pivot point and selling
the next resistance level like 6143.58 for mid-term. If S&P CNX NIFTYis moving above
6143.38, it suggested buying above pivot point and selling the next resistance level 6044.02
formid-term.

Figure 4.5.1& 4.5.2

51

16000
14000
12000

July 2010-April 2012 CNX Nfty

junior
July 2010-April 2013 S&P CNX
Nifty
Apr-11 LIC housing finance
Apr-11 CNX Nfty junior
Apr-11 S&P CNX Nifty

10000
8000
6000
4000
2000
0

Table 4.6.1
52

T- Statistics for scam

Period

Correlation

t-value

Sig.
(2-tailed)

+90 days to -90 days

.128

.198

.843

+80 days to -80 days

-.016

.551

.583

+70 days to -70 days

-.128

-.644

.522

+60 days to -60 days

.006

-.713

.478

+50 days to -50 days

.095

-.757

.453

+40 days to -40 days

-.358

-.480

.634

+30 days to -30 days

-.126

-.762

.452

+20 days to -20 days

-.064

-.385

.705

+10 days to -10 days

-.238

.152

.882

Inference
From the above table inferred that the period of scam compared with the returns is not having
significance relationship with before and after effect.-30 days to +30 days (t= -.762) of scam
having negative reaction over the market. -40 days to +40 days (correlation= -.358) the
relationship of before and after event provides negative returns in the market.

Table 4.6.2
T- Statistics for stock split
53

Period

Correlation

t-value

Sig.
(2-tailed)

-90 days to +90 days

.057

-.862

.391

-80 days to +80 days

-.085

-.995

.323

-70 days to +70 days

-.086

.330

.742

-60 days to +60 days

.085

.425

.673

-50 days to +50 days

-.050

.719

.476

-40 days to +40 days

.077

.469

.642

-30 days to +30 days

-.332

.271

.789

-20 days to +20 days

-.430

.062

.952

-10 days to +10 days

-.171

.336

.745

Inference
From the above table depicts that the period of stock split compared with the returns is not
having significance relationship with before and after effect. -80 days to +80 days (t= -.995) of
stock split having negative reaction in the market. -10 days to +10 days (correlation= -.171) the
relationship of before and after event provides negative returns in the market.

Table 4.6.3
T- Statistics for Profit booking

54

Period

Correlation

t-value

Sig.
(2-tailed)

-15 days to +15 days

.625

-.928

.369

-9 days to +9 days

.157

-1.040

.329

-6 days to +6 days

.278

-1.148

.303

-3 days to +3 days

-.223

-1.615

.248

Inference
From the above table depicts that the period of profit booking compared with the returns is not
having significance relationship with before and after effect. -3 days to +3 days (t= -1.615) of
profit booking having negative reaction in the market. -3 days to +3 days (correlation= -.223) the
relationship of before and after event provides negative returns in the market.

5.1 FINDINGS OF THE STUDY

The market return of Yes bank during November 2010 is high (4.6%) among the selected
stocks .It shows the good movement for sell it in the market.
55

 Indian overseas bank has identified the high return security (8.9%) during the period of
December 2010. It indicates a positive movement for make sales decision.

The security of LIC housing finance limited has earned high market return among the
selected securities during February 2011(profit booking).

The Risk behavior of LIC housing finance limited has shown high return before the scam
(November 2010). It implies that risk of the stock towards its market return.

The excess return of yes bank during the November 2010 goes negative. So the has been
poorly performed in the market.

Average returns of bank of Baroda shows high during November 2010. It infer that the
positive movement of the stock towards to make sales decision.

The market risk of Shri ram transport financeis very low on December 2010. This shows
a good movement towards to make the purchase decision.

The excess return of yes bank (-6.79%) is very low (negative) in selected stocks during
2010. Therefore the stock having a good movement to make the sales decision.

Union bank is better when compared with other scripts based on its risk pattern (0.39)
during the event of profit booking (February 2110).
56

 LIC housing finance limited can be placed at a better position in terms of its excess
market return(14.65%) than other stocks on profit booking (February 2011).

Federal bank is very sound position because of highest average excess return(0.15%) in
the selected stocksduring the same period.
When the LIC housing finance is moving above of 241.6 it is suggest to buying above
pivot point and selling the next resistance level like 285.376 for mid-term. If LIC housing
finance is moving above 263.52, it suggested buying above pivot point and selling the
next resistance level 263.52. for mid-term.
If the CNX NIFTY JUNIOR is moving above of 13386.41 it is suggest buying above pivot
point and selling the next resistance level like 12168.45 for mid-term. If CNX NIFTY
JUNIOR finance is moving above 16590.47, it suggested buying above pivot point and

selling the next resistance level 14988.47 for mid-term.

If S&P CNX NIFTY is moving above of 6338.50 it is suggest buying above pivot point
and selling the next resistance level like 7598.72 for mid-term. If S&P CNX NIFTY is
moving above 6143.38, it suggested buying above pivot point and selling the next
resistance level 6969.017 for mid-term.

57

5.2 SUGGESTIONS AND RECOMMENDATIONS

Based on the analysis the yes bank performed well and produced high return (4.6%).
Therefore it is suggested to buy.

Indian bank has obtained 8.9% of market return among the selected scripts during same
period. Hence the stock suggested buying.

LIC housing finance limited has identified as high return security (12.7%) in season of
profit booking (February 2011) its suggested to buy.

IFCI (0%), Can bank (0.026%), Yes bank (0.13%) are founded that poor performed
stocks based on its market return during November 2010, December 2010, February
2011 respectively. this stocks are suggested to sell immediately.

The risk averse investors would not be consider the stock of LIC housing finance limited
because of risk associated with the stock in November 2010.

58

 The poor performed stock (negative) during November 2010 founded the script of yes
bank is recommended to sell.

The market return of bank of Baroda has shown averagely increased trend during the
November 2010. Therefore it is suggested to buy.

Risk averse investors can be concentrate the script of shri ram transport finance limited
towards low risk pattern in the period of December 2010.

Yes bank shows the most negative excess return among the selected securities during
December 2010. It is a right a right time of investor to switch other stock.

Union bank is suggested to buy during February 2011 in the aspect of its risk pattern
(low risk).

The average excess return of federal bank is moderate among the stocks .so it is
suggested to buy.

The aggressive stocks are LIC housing finance limited and syndicate bank (beta value
more than 1).

The defensive stock is Shriram transport finance (beta value less than 1).

CNX Nifty junior has varied gap on its both resistance and support level. Therefore its
suitable to make decision on first level of both resistance and support.

The market is affected during the scam particularly in the interval in between -30 days to
+30 days and -40 days to + days. It implies the investor have to much more aware about
the market during the period.

59

 The announcement of stock split has made impact on the market in interval of -80 days
to +80 days and -10 days to +10 days. This infer that the investors are has to avoid the
transaction of buying and selling securities among the period.

The impact of profit booking is identified in the interval of -3 days to +3 days. It shows
positive trend of market to buy and sell the securities.

5.3 CONCLUSION
The CNX NIFTY JUNIOR index of 50 companies. Exhibits event anomalies in returns the event
anomalies examined in this study is an Empirical study on pricing behavior of Indian stock
market with the event happened in LIC housing finance limited. The main purpose of study was
to find out whether Indian stock market affect from event effects. To test these issues, the
researcher selected the CNX NIFTY JUNIOR index for the study.

60

With investing security market gaining much importance these days, a good strategy adopted to
gain from the market movements will give sure returns to the investors.Return on securities is
entirely depending on separate interest of investor towards the stock market.The major findings
of the study are Indian overseas bank has identified the high return security during the period of
December 2010, The security of LIC housing finance limited has earned high market return
among the selected securities during February 2011(profit booking).
The major suggestion the study are the risk averse investors would not be consider the stock of
LIC housing finance limited because of risk associated with the stock in November 2010.The
poor performed stock (negative return) during November 2010 founded the script of yes bank is
recommended to sell immediately.
The present study has concluded that the announcement of corporate events belongs to the LIC
housing finance limited like scam, stock split, profit booking are made a slight impact on the stock
market during the study period. Also this research study will be help the researchers to analyze the
similar event will happen in the market.

BIBLIOGRAPHY
1. Books
Investment analysis and portfolio management
- Prasanna Chandra
61

 Securities analysts and portfolio management

-Punithavathi pandian

Research methodology
-C.R Kothari

2. Journals
Stock price responses to the announcement of buyback of shares in India(2010)Dr.P.Ishwar
An empirical test of Indian stock market efficiency in respect of bonus announcement
(2010)-M. Raja.
A brief history of market efficiency (1998) -Elroy Dimson and MassoudMussavian.
Stability of Beta over Market Phases: An Empirical Study on Indian Stock Market
(2010)-KoustubhKanti Ray.
The Behaviour of Stock-Market Prices (2010) -Eugene F. Fama
Finding of Day of the Week Effect in the Indian Stock Market, co-authored by
Dr.M A Curious Carmaker, (Ed. 2000) Indian Capital Market: Trends and Dimensions,
TataMcGraw-Hill Publishing Co. Ltd., New Delhi.

3. WEBSITES
www.google.com
www.nseindia.com
www.bseindia.com
www.jstoe.org
62

www.eurojournals.com
www.fep.up.pt
www.scholarshub.net

63