PROJECT REPORT - Analysis of Indian Equity Market and Impact On Customers

PROJECT REPORT ON
Analysis of Indian Equity Market and its impact on

Customers
Submitted By
Amol Pawar
MFM Vth SEMESTER
BATCH 2014 -2017
ROLL NO: 40
UNDER THE GUIDANCE OF

PROF. Smita Ramkrishna
K.J. SOMAIYA INSTITUTE OF MANGEMENT STUDIES & RESEARCH

VIDYANAGAR, VIDYA VIHAR (E), MUMBAI- 400 077
SIMSR Project Report
DECLARATION
I, Amol Pawar , a student of MFM program, V Semester of 2014 2017 batch
at SIMSR do hereby declare that this report entitled Analysis of Indian

Equity Market and its impact on Customers
has been carried out by me during this semester under the guidance of Prof.
Smita Ramkrishna as per the norms prescribed by the University of Mumbai,
and the same work has not been copied from any source directly without
acknowledging for the part/ section that has been adopted from published/ non-
published works.
(Signature of the Student)

AMOL ARUN PAWAR
Amol Pawar Analysis of Indian Equity market and its Impact on customers
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CERTIFICATE
This is to certify that Mr. Amol Pawar a student of MFM

programme Vth Semester of 2014 - 2017 batch at SIMSR
has carried out the report entitled Analysis of Indian

Equity Market and its impact on Customers under my
guidance as per the norms prescribed by the University of
Mumbai.
(Signature of the Guide)

SMITA RAMKRISHNA
Date:
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ACKNOWLEDGEMENTS
I wish to express my gratitude to the administration of the

K. J. SOMAIYA INSTITUTE OF MANGEMENT STUDIES &
RESEARCH
for giving him the opportunity to learn so much about the equity
market. I also very grateful to the center coordinator, Prof.
Smita Ramkrishna, for her valuable and timely guidance
throughout the project.
This whole work, which is given to understanding of Equity
market, has been a wonderful exposure to me.
I also thankful to my friends, colleagues and family members
who have in any way contributed by giving their feedback in
questionnaire survey of this project.
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Amol Pawar
Roll No. 40
CONTENTS
Section Title of the Section Page no

Introduction 6
1. Overview 7-12
2. Stock market Indicators
2.1 Market Capitalization 13-14
2.2 Price to earnings ratio (P/E ratio) 14-16
2.3 Return on Equity (ROE) 16-17
2.4 Dividend Yield 17-18
2.5 Price to Book value 18-20
3. Volatility in Stock Markets 21-22
4. Review of Recent Policy developments and Programs 22-27
5. Global Events 28-33
6. Research Methodology
6.1 Market overview for year 2015 34-42
6.2 FII & Domestic investments 43-47
6.3 Sectorial participation, performance and Indices 48-59
6.4 Indian Economic outlook 60-65
6.5 Analysis of investors questionnaire Responses 66-68
7. Conclusion & recommendations
7.1 Selection of Stock 69-71
7.2 Diversification and Asset Allocation 72-73
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7.3 Stay Invested 73

7.4 Avoid Rumors 73-74
8. Bibliography 75
Introduction:
A strong financial market with broad participation is essential for a developed economy. With
India's growth story unfolding, there is a need to raise resources for companies to fuel the capital
needs of the economy and also ensure that the benefits of growth percolate to bottom of the
socio-economic pyramid. India's household savings, one of the highest in the world at 30-35%,
can be channelized through equities, bonds and other instruments to achieve greater financial
inclusion and improve the financial markets in India.
Of about the 8000 stocks listed on the Indian stock markets, less than 3,000 are actively traded.
Since the entire structure has a speculative culture, it exposes investors to greater risks and
restricts real capital formation.
On another hand, the market for other forms of financial instruments, such as bonds, Interest-rate
futures have not developed adequately. The equity segment currently accounts for more than
75% of market activity in India. In developed countries, the trend is the reverse, with bonds
accounting for more than 80% of trading in some markets. There's clearly a lack of broad
participation. Of a population of over one billion, barely 18 million invest in equity markets.
According to Sebi data, 10 cities contributed over 80% of trading volume in 2010.
The erratic behavior in the equity markets also indicates that these are not only highly
speculative but also lacks support from a large base. The Indian market is highly dependent on
foreign institutional investors (FII) movement. Thus, any change in FII inflows and outflows
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lead to extreme changes in market indicators, despite unchanged fundamentals, exposing retails
investors to a greater risk.
Many investors with limited access to knowledge on fundamental of the company, invest into the
stocks and end up losing lots of money. As India are much of the speculative market retail
investors are exposed to greater risk.
1. Overview:
Capital market is the center or arrangement that provides facilities for buying and selling of long-
term financial claims. It is the market where transactions are made in long term securities such as
stocks and bonds. The participants of this market includes various financial institutions, mutual
funds, agents, brokers, dealers and other borrowers and lenders of long term debt and
equity capital.
Capital market is not a compact unit but consists of two major parts:
a. Primary Market
b. Secondary market
The primary market or otherwise called as new issue market is one in which long term capital is
raised by corporate directly from the public. The secondary market or popularly called as the
stock market refers to the market where these long-term financial instruments which are already
issued in the primary market are traded.
The initial emergence of stock markets in the world can be traced back over hundreds of years to
when industrialization and innovation took hold in Europe. The rapid economic growth in the
past one hundred years gave rise to the explosive development of stock markets. At the same
time the enhancement of stock markets has played an important role in promoting the growth of
the world 36 economy. The modern market economy depends to a greater extent on a soundly
operated stock market.
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Stock market provides liquidity to the financial instruments which are issued in the primary
market. Players in the capital market are broadly divided in to three categories
Companies issuing securities and includes new companies, existing unlisted companies
and the existing listed companies.
Intermediaries who assist in the process of transferring savings into investment and they
include merchant bankers, underwriters, registrars to issue and share transfer agents, brokers,
depositories, collecting agents, advertising agencies, agents, mutual funds etc.
Investors consisting of institutional investors and the general public. Capital market
consists of equity market as well as debt market. But the chapter will be focusing on equity
market as it is more relevant for this study.
The BSE and NSE

Most of the trading in the Indian stock market takes place on its two stock exchanges:
the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been
in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in
1994. However, both exchanges follow the same trading mechanism, trading hours, settlement
process, etc. At the last count, the BSE had about 4,700 listed firms, whereas the rival NSE had
about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than
90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.
Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant
share in spot trading, with about 70% of the market share, as of 2009, and almost a complete
monopoly in derivatives trading, with about a 98% share in this market, also as of 2009. Both
exchanges compete for the order flow that leads to reduced costs, market efficiency and
innovation. The presence of arbitrageurs keeps the prices on the two stock exchanges within a
very tight range.
Trading Mechanism
Trading at both the exchanges takes place through an open electronic limit order book, in which
order matching is done by the trading computer. There are no market makers or specialists and
the entire process is order-driven, which means that market orders placed by investors are
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automatically matched with the best limit orders. As a result, buyers and sellers remain
anonymous. The advantage of an order driven market is that it brings more transparency, by
displaying all buy and sell orders in the trading system. However, in the absence of market
makers, there is no guarantee that orders will be executed.
All orders in the trading system need to be placed through brokers, many of which
provide online trading facility to retail customers. Institutional investors can also take advantage
of the direct market access (DMA) option, in which they use trading terminals provided by
brokers for placing orders directly into the stock market trading system.
Settlement Cycle and Trading Hours

Equity spot markets follow a T+2 rolling settlement. This means that any trade taking place on
Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9:55 am
and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT), Monday through Friday. Delivery of
shares must be made in dematerialized form, and each exchange has its own clearing house,
which assumes all settlement risk, by serving as a central counterparty.
Market Indexes
The two prominent Indian market indexes are Sensex and Nifty. Sensex is the oldest market
index for equities; it includes shares of 30 firms listed on the BSE, which represent about 45% of
the index's free-float market capitalization. It was created in 1986 and provides time series data
from April 1979, onward.
Another index is the S&P CNX Nifty; it includes 50 shares listed on the NSE, which represent
about 62% of its free-float market capitalization. It was created in 1996 and provides time series
data from July 1990, onward.
Market Regulation
The overall responsibility of development, regulation and supervision of the stock market rests
with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as an
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independent authority. Since then, SEBI has consistently tried to lay down market rules in line
with the best market practices. It enjoys vast powers of imposing penalties on market
participants, in case of a breach.
Who Can Invest In India?

India started permitting outside investments only in the 1990s. Foreign investments are classified
into two categories: foreign direct investment (FDI) and foreign portfolio investment (FPI). All
investments in which an investor takes part in the day-to-day management and operations of the
company, are treated as FDI, whereas investments in shares without any control over
management and operations, are treated as FPI.
For making portfolio investment in India, one should be registered either as a foreign
institutional investor (FII) or as one of the sub-accounts of one of the registered FIIs. Both
registrations are granted by the market regulator, SEBI. Foreign institutional investors mainly
consist of mutual funds, pension funds, endowments, sovereign wealth funds, insurance
companies, banks, asset management companies etc. At present, India does not allow foreign
individuals to invest directly into its stock market. However, high-net-worth individuals (those
with a net worth of at least $US50 million) can be registered as sub-accounts of an FII.
Foreign institutional investors and their sub accounts can invest directly into any of the stocks
listed on any of the stock exchanges. Most portfolio investments consist of investment in
securities in the primary and secondary markets, including shares, debentures and warrants of
companies listed or to be listed on a recognized stock exchange in India. FIIs can also invest
in unlisted securities outside stock exchanges, subject to approval of the price by the Reserve
Bank of India. Finally, they can invest in units of mutual funds and derivatives traded on any
stock exchange.
An FII registered as a debt-only FII can invest 100% of its investment into debt instruments.
Other FIIs must invest a minimum of 70% of their investments in equity. The balance of 30%
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can be invested in debt. FIIs must use special non-resident rupee bank accounts, in order to move
money in and out of India. The balances held in such an account can be fully repatriated.
Restrictions/Investment Ceilings
The government of India prescribes the FDI limit and different ceilings have been prescribed for
different sectors. Over a period of time, the government has been progressively increasing the
ceilings. FDI ceilings mostly fall in the range of 26-100%.
By default, the maximum limit for portfolio investment in a particular listed firm, is decided by
the FDI limit prescribed for the sector to which the firm belongs. However, there are two
additional restrictions on portfolio investment. First, the aggregate limit of investment by all FIIs,
inclusive of their sub-accounts in any particular firm, has been fixed at 24% of the paid-up
capital. However, the same can be raised up to the sector cap, with the approval of the company's
boards and shareholders.
Secondly, investment by any single FII in any particular firm should not exceed 10% of the paid-
up capital of the company. Regulations permit a separate 10% ceiling on investment for each of
the sub-accounts of an FII, in any particular firm. However, in case of foreign corporations or
individuals investing as a sub-account, the same ceiling is only 5%. Regulations also impose
limits for investment in equity-based derivatives trading on stock exchanges.
Investment Opportunities for Retail Foreign Investors

Foreign entities and individuals can gain exposure to Indian stocks through institutional
investors. Many India-focused mutual funds are becoming popular among retail investors.
Investments could also be made through some of the offshore instruments, like participatory
notes (PNs) and depositary receipts, such as American depositary receipts (ADRs), global
depositary receipts (GDRs), and exchange traded funds (ETFs) and exchange-traded
notes (ETNs).
As per Indian regulations, participatory notes representing underlying Indian stocks can be
issued offshore by FIIs, only to regulated entities. However, even small investors can invest in
American depositary receipts representing the underlying stocks of some of the well-known
Indian firms, listed on the New York Stock Exchange and Nasdaq. ADRs are denominated in
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dollars and subject to the regulations of the U.S. Securities and Exchange Commission (SEC).
Likewise, global depositary receipts are listed on European stock exchanges. However, many
promising Indian firms are not yet using ADRs or GDRs to access offshore investors.
Retail investors also have the option of investing in ETFs and ETNs, based on Indian stocks.
India ETFs mostly make investments in indexes made up of Indian stocks. Most of the stocks
included in the index are the ones already listed on NYSE and Nasdaq. As of 2009, the two most
prominent ETFs based on Indian stocks are the Wisdom-Tree India Earnings Fund (NYSE: EPI)
and the Power Shares India Portfolio Fund (NYSE:PIN). The most prominent ETN is the MSCI
India Index Exchange Traded Note (NYSE:INP). Both ETFs and ETNs provide good investment
opportunity for outside investors.
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2. Stock Market Indicators:
2.1 Market Capitalization:
Market capitalization is the measure of corporate size of a country. It shows the current stock
price multiplied by the number of outstanding shares. It is commonly referred to as Market cap.
It is calculated by multiplying the number of common shares with the current price of those
shares. This term is often confused with capitalization, which is the total amount of funds used to
finance a firm's balance sheet and is calculated as market capitalization plus debt (book or
market value) plus preferred stock. While there are no strong definitions for market cap
categorizations, a few terms are frequently used to group companies based on its capitalization.
Below is the market capitalization of top 20 companies in Indian Equities, TCS leading with INR
457,336 cr.
52 wk 52 wk Market Cap
Company Name Last Price
High Low (Rs. cr)
TCS 2,321.00 2,769.00 2,119.00 457,336.33

Reliance 1,049.40 1,089.50 849.3 340,315.33
HDFC Bank 1,271.10 1,305.00 928.8 322,662.45
ITC 250.5 266 178.76 303,095.42
Infosys 1,052.00 1,278.00 1,009.20 241,638.58
HDFC 1,390.60 1,463.25 1,012.00 220,058.55
ONGC 248.6 267.65 188 212,689.48
Coal India 324 349.85 272.05 204,650.21
SBI 255.65 271.55 148.3 198,455.40
HUL 912.2 954 765.35 197,425.00
Sun Pharma 778.5 933.7 706.4 187,365.80
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Tata Motors 546.25 598.6 266 185,489.04

Maruti Suzuki 5,366.00 5,499.00 3,202.10 162,096.16
ICICI Bank 272.25 292.65 180.8 158,387.14
Kotak Mahindra 806.45 825.6 586.5 148,065.54
Axis Bank 596.75 638 366.65 142,516.01
Larsen 1,470.00 1,615.00 1,016.60 137,053.13
IOC 563.6 593.25 376.55 136,839.40
NTPC 155.8 168.8 119.1 128,785.50
Bharti Airtel 320.05 384.9 282.3 127,936.79
2.2 Price to earnings ratio (P/E ratio):
It is common practice for investors to use the price-to-earnings ratio (P/E ratio or price multiple)
to determine if a company's stock price is over or undervalued. Companies with a high P/E ratio
are typically growth stocks. However, their relatively high multiples do not necessarily mean
their stocks are overpriced and not good buys for the long term. P/E ratio is calculated as follow:
There are two primary components here, the market value (price) of the stock and the earnings of
the company. Earnings are very important to consider. After all, earnings represent profits, and
that's what every business strives for. Earnings are calculated by taking the hard figures into
account: revenue, cost of goods sold (COGS), salaries, rent, etc. These are all important to the
livelihood of a company. If the company isn't using its resources effectively it will not have
positive earnings, and problems will eventually arise. Learn more about how to use the price-to-
earnings ratio to reveal a stocks real market value.
Besides earnings, there are other factors that affect the value of a stock. For example:
Brand - The name of a product or company has value. Established brands such as Proctor
& Gamble are worth billions.
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Human Capital - Now more than ever, a company's employees and their expertise are
thought to add value to the company.
Expectations - The stock market is forward looking. You buy a stock because of high
expectations for strong profits, not because of past achievements.
Barriers to Entry - For a company to be successful in the long run, it must have
strategies to keep competitors from entering the industry. For example, most anyone can make a
soda, but marketing and distributing that beverage on the same level as Coca-Cola is very costly.
All these factors will affect a company's earnings growth rate. Because the P/E ratio uses past
earnings (trailing 12 months), it gives a less accurate reflection of these growth potentials.
The relationship between the price/earnings ratio and earnings growth tells a more complete
story than the P/E on its own. This is called the PEG ratio and is formulated as:
Looking at the value of PEG of companies is similar to looking at the P/E ratio: A lower PEG
means the stock is more undervalued.
Comparative Value
Let's demonstrate the PEG ratio with an example. Say you are interested in buying stock in one
of two companies. The first is a networking company with 20% annual growth in net income and
a P/E ratio of 50. The second company is in the beer brewing business. It has lower earnings
growth at 10% and its P/E ratio is also relatively low at 15.
Many investors justify the stock valuations of tech companies by relying on the assumption that
these companies have enormous growth potential. Can we do the same in our example?
Networking Company:
P/E ratio (50) divided by the annual earnings growth rate (20) = PEG ratio of 2.5
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Beer Company:
P/E ratio (15) divided by the annual earnings growth rate (10) = PEG ratio of 1.5
The PEG ratio shows us that, when compare to the beer company, the always-popular tech
company doesn't have the growth rate to justify its higher P/E, and its stock price
appears overvalued.
Subjecting the traditional P/E ratio to the impact of future earnings growth produces the more
informative PEG ratio. The PEG ratio provides more insight about a stock's current valuation. By
providing a forward-looking perspective, the PEG is a valuable evaluative tool for investors
attempting to discern a stock's future prospects.
2.3 Return on Equity (ROE):
This ratio indicates how profitable a company is by comparing its net income to its average
shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders
earned for their investment in the company. The higher the ratio percentage, the more efficient
management is in utilizing its equity base and the better return is to investors.
Widely used by investors, the ROE ratio is an important measure of a company's earnings
performance. The ROE tells common shareholders how effectively their money is being
employed. Peer company, industry and overall market comparisons are appropriate; however, it
should be recognized that there are variations in ROEs among some types of businesses. In
general, financial analysts consider return on equity ratios in the 15-20% range as representing
attractive levels of investment quality.
While highly regarded as a profitability indicator, the ROE metric does have a recognized
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weakness. Investors need to be aware that a disproportionate amount of debt in a company's

capital structure would translate into a smaller equity base. Thus, a small amount of net income
(the numerator) could still produce a high ROE off a modest equity base (the denominator)
2.4 Dividend Yield:

A financial ratio that indicates how much a company pays out in dividends each year relative to
its share price. Dividend yield is represented as a percentage and can be calculated by dividing
the Rupee value of dividends paid in a given year per share of stock held by the rupee value of
one share of stock. The formula for calculating dividend yield may be represented as follows:
Dividend yield is a way to measure how much cash flow you are getting for each rupee invested
in an equity position. In other words, it measures how much you are getting from dividends. In
the absence of any capital gains, the dividend yield is effectively the return on investment for a
stock.
To better explain the concept, refer to the following dividend yield example. Suppose company
ABCs stock is trading at INR 20 and pays annual dividends of INR 1 per share to its
shareholders. Also suppose that company XYZs stock is trading at INR 40 and also pays annual
dividends of INR1 per share. This means that company ABCs dividend yield is 5% (1 / 20 =
0.05), while XYZs dividend yield is only 2.5% (1 / 40 = 0.025). Assuming all other factors are
equivalent, then, an investor looking to use his or her portfolio to supplement his or her income
would likely prefer ABC's stock over that of XYZ, as it has double the dividend yield.
Investors who require a minimum stream of cash flow from their investment portfolio can secure
this cash flow by investing in stocks paying relatively high, stable dividend yields. Yet, high
dividends may often come at the cost of growth potential. Every rupee a company is paying in
dividends to its shareholders is a rupee that company is not reinvesting in itself in an effort to
make capital gains. While being paid for holding a stock is attractive to many, and for good
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reason, shareholders can earn high returns if the value of their stock increases while they hold it.
In other words, when companies pay high dividends it may come at a cost.
When companies pay high dividends to their shareholders, it can indicate a variety of things
about the company, such as that the company might currently be undervalued or that it is
attempting to attract investors. On the other hand, if a company pays little or no dividends, it may
indicate that the company is overvalued or that the company is attempting to grow its capital.
Certain companies in particular industries, when they are well established and steady-earning,
often have good dividend yields even though they are not undervalued. Banks and utilities often
fall into this category.
While a company may pay high dividends to its shareholders for a time, this may not always be
so. Companies often trim their dividend payments or stop them altogether during hard economic
times or when the company is experiencing hard times of its own, so one can rarely rely on
consistent dividends on a permanent basis.
One can extrapolate information about a companys dividend payments to estimate a companys
future dividends, either by using the most recent annual dividend payment or by taking the most
recent quarterly payment and multiplying by 4. This is often referred to as the forward dividend
yield, although one should use it with caution, as estimates of future dividend payments are
inherently uncertain. One may also compare dividend payments relative to a stocks share price
over the past 12 months to better understand the history of its performance, and this is often
referred to as the trailing dividend yield.
2.5 Price to book value:
Price-to-book value (P/B) is the ratio of market price of a company's shares price over its book
value of equity. The book value of equity, in turn, is the value of a company's assets expressed on
the balance sheet. This number is defined as the difference between the book value of assets and
the book value of liabilities.
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Assume a company has INR100 million in assets on the balance sheet and INR75 million in
liabilities. The book value of that company would be INR25 million. If there are 10
million shares outstanding, each share would represent INR2.50 of book value. If each share
sells on the market at INR5, then the P/B ratio would be 2 (5/2.50).
What Does P/B Tell Us?

For value investors, P/B remains a tried and tested method for finding low-priced stocks that the
market has neglected. If a company is trading for less than its book value (or has a P/B less than
one), it normally tells investors one of two things: either the market believes the asset value is
overstated, or the company is earning a very poor (even negative) return on its assets.
If the former is true, then investors are well advised to steer clear of the company's shares
because there is a chance that asset value will face a downward correction by the market, leaving
investors with negative returns. If the latter is true, there is a chance that new management or
new business conditions will prompt a turnaround in prospects and give strong positive returns.
Even if this doesn't happen, a company trading at less than book value can be broken up for its
asset value, earning shareholders a profit.
A company with a very high share price relative to its asset value, on the other hand, is likely to
be one that has been earning a very high return on its assets. Any additional good news may
already be accounted for in the price.
Best of all, P/B provides a valuable reality check for investors seeking growth at a reasonable
price. Large discrepancies between P/B and ROE, a key growth indicator, can sometimes send up
a red flag on companies. Overvalued growth stocks frequently show a combination of low ROE
and high P/B ratios. If a company's ROE is growing, its P/B ratio should be doing the same.
Despite its simplicity, P/B doesn't do magic. First of all, the ratio is really only useful when you
are looking at capital-intensive businesses or financial businesses with plenty of assets on the
books. Thanks to conservative accounting rules, book value completely ignores intangible
assets like brand name, goodwill, patents and other intellectual property created by a company.
Book value doesn't carry much meaning for service-based firms with few tangible assets. Think
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of software giant Microsoft, whose bulk asset value is determined by intellectual property rather
than physical property; its shares have rarely sold for less than 10 times book value. In other
words, Microsoft's share value bears little relation to its book value.
Book value doesn't really offer insight into companies that carry high debt levels or sustained
losses. Debt can boost a company's liabilities to the point where they wipe out much of the book
value of its hard assets, creating artificially high P/B values. Highly leveraged companies - like
those involved in, say, cable and wireless telecommunications - have P/B ratios that understate
their assets. For companies with a string of losses, book value can be negative and hence
meaningless.
Behind-the-scenes, non-operating issues can impact book value so much that it no longer reflects
the real value of assets. For starters, the book value of an asset reflects its original cost, which
doesn't really help when assets are aging. Secondly, their value might deviate significantly from
market value if the earnings power of the assets has increased or declined since they were
acquired. Inflation alone may well ensure that book value of assets is less than the current market
value.At the same time, companies can boost or lower their cash reserves, which in effect
changes book value, but with no change in operations. For example, if a company chooses to
take cash off the balance sheet, placing it in reserves to fund a pension plan, its book value will
drop. Share buybacks also distort the ratio by reducing the capital on a company's balance sheet .
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3. Volatility in Stock Markets:

Volatility is basically the variation from the average value over a measurement period. If
a price of a security varies a great deal from day to day, the volatility of it will be high, and
conversely if the day to day variation is low, the value of volatility will be low as well. It is
measured by the standard deviation of logarithmic returns during a certain period.
India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask
prices of NIFTY Options contracts, a volatility figure (%) is calculated which indicates the
expected market volatility over the next 30 calendar days. India VIX uses the computation
methodology of CBOE, with suitable amendments to adapt to the NIFTY options order book
using cubic splines, etc.
Meaning of Volatility Index Volatility Index (VIX) is a key measure of market expectations
of near term volatility. As we understand, volatility implies the ability to change. Thus when the
markets are highly volatile, market tends to move steeply up or down and during this time
volatility index tends to rise. Volatility index declines when the markets become less volatile.
VIX is sometimes also referred to as the Fear Index because as the volatility index (VIX) rises,
one should become fearful or I would say careful as the markets can move steeply into any
direction. Worldwide, VIX has become an indicator of how market practitioners think about
volatility. Investors use it to gauge the market volatility and make their investment decisions.
It is important to understand that Volatility Index is different from a price index such as NIFTY
or Sensex. The price index measure the direction of the market and is computed using the price
movement of the underlying stocks where as Volatility Index measures the dispersion or variance
or change and is computed using the order book of the underlying index options and is denoted
as an annualized percentage.
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NSE has also started real time dissemination of India VIX which is one step towards introduction
of India VIX derivatives. India VIX futures and India VIX options can be used to hedge the risk
of market volatility.
.
Below chart represent the correlation between India VIX index and Nifty 50 indices.
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4. Review of Recent Policy developments and Programs:

Various policy developments has an direct impact on the stocks, sector or overall market,
hence it is essential to understand the policy development and programs
Indias economy started off FY 2016 on a sour note with growth moderating to an over-one-year
low in the first quarter. Surging government spending managed to prevent an even larger
slowdown as fixed investment plunged and private consumption decelerated. However, the
weakness seen in Q1 FY 2016 is likely to dissipate slightly in Q2 and high-frequency data are
more positive: both the manufacturing and services PMIs rose in August. In addition,
consumption should receive a boost from a hike in public paychecks and a solid monsoon going
forward. Meanwhile, a large-scale strike calling for higher wages and opposing some of the
governments reform plans took place in early September. The protest underscores the challenges
facing the governments ambitious reform agenda, especially unpopular labor reforms designed
to improve the ease of doing business.
Below are the few important policy changes by the Modi government to walk it fast on the track
of development and reach it goal to become a developed nation.
4.1 High GDP Growth:

Putting the Indian Economy on a FastTrack Growth
India becomes the fastest growing large economy in the world under the Modi Government.
Previous year has been very positive, and remarkable for the Indian Economy. From a period of
low growth, high inflation and shrinking production during the previous few years under the
previous UPA regime , the present Modi NDA Government has not only strengthened the macro-
economic fundamentals, but has also propelled the economy to a higher growth trajectory.
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Indias GDP Growth reached to a remarkable height to 7.4%, which is the fastest among all the
large economies of the world. Various rating agencies and think tanks have predicted that Indias
growth would accelerate sharply in the next few years under the NDA Government.
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4.2 The policy and drive for 'Make in India'
India is on its way to become a Manufacturing Giant The "Make in India" initiative is
based on four pillars to boost entrepreneurship in India, not only in manufacturing but also
in other sectors. New Processes: 'Make in India' recognizes 'ease of doing business' as the
single most important factor to promote entrepreneurship. A number of initiatives have
already been undertaken to ease business environment. The government's aim is to de-
license and de-regulate the industry during the entire life cycle of a business. New
Infrastructure: Availability of modern and facilitating infrastructure is a very important
requirement for the growth of industry. Government intends and have been emphasising
high on the growth of basic infrastructures such as more highway, the high-speed railroads
connecting the important cities, the airport infrastructure and the air transport, the
enhancement in capacity of the sea ports, the solar electricity on large scale which can
support the growth and development of the nation in sustainable manner.
4.3 Banking for every citizen :From Jan Dhan to Jan Suraksha
India creates world records: For opening maximum number of bank accounts and for the largest
cash transfer scheme 67 years after Independence, India still had a large part of the population
who had no access to banking services. This meant, they had no avenues for Savings, nor any
opportunity to get institutional credit. PM Modi launched the Pradhan Mantri Jan DhanYojana on
28th August to address this fundamental issue. Within a matter of months, this scheme has
radically transformed lives and futures of millions of Indians. In a matter of months, 15 crore
bank accounts were opened.
4.4 Transparency in Governance
Transparent & Corruption-Free Governance reap huge benefits for the nation While the past
decade under UPA regime had seen various scams in the government, many tales of arbitrary
decision making, corruption and discretion rather than policy dictating crucial decisions, the past
year has been a welcome change in governance . After the Supreme Court Order cancelled the
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coal block allocations, Govt acted with unparalleled swiftness to ensure transparent & timely
evaluations of the coal blocks . Auction and Allotment proceeds from 67 coal blocks have
touched 3.35 lakh crores over the life of the mine. The Delhi High Court remarked: What has
convinced us is the fact that the auction process has worked out well. The process by itself
proves the corruption in the previous regime and the huge loss to the government exchequer. '
4.5 Focus on children education and the skill oriented education
Modi Government gives massive push to education & skill development Various unique
measures have been taken to augment the quality and reach of education. A fully IT based
Financial Aid Authority to administer & monitor all education loans and scholarships
through Pradhan Mantri Vidyalakshmi Karyakram. Pandit Madan Mohan Malviya Mission
for Teacher Training has been launched to enhance the quality of teaching. Global
Initiative of Academic Network (GIAN) has been initiated to invite eminent faculty,
scientists, and entrepreneurs from premier educational and scientific institutions across the
world to teach in the higher educational institutions in the country during summer and
winter breaks to develop the job oriented skill development in the youths. This is going to
prove a game changer in the direction of the development of the nation.
4.6 Decentralization of power and growth :Empowering the States to create a true state
of Federalism in the nation to provide impetus for an uniform and inclusive growth
of the nation
Modi Government has initiated Team India approach to work for Indias development In a
unique departure from the past, PM Modi has stressed on the need to leverage co-operative &
competitive federalism to achieve all round growth. For a long time, we have seen a Big Brother
relationship between the Centre & States. A One Size Fits All approach had been used for
years, not taking into account the heterogeneity of different states and their local requirements.
The NITI Aayog was formed to further empower and strengthen the states and to make the policy
formulation for the state and nation inclusive and collective. It's an important evolutionary
change from the past and it will certainly be replacing a Union-to-State one-way to a multi
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prong and collective growth of the states and the nation as a whole.
4.7 The Policy Reforms
Multiple Reforms have been introduced by the government to ensure all round development of
India. The government has been ushering in game-changing reforms through the use of Jan
Dhan, Aadhar and Mobile (JAM), a unique combination of three to implement direct transfer of
benefits. This innovative methodology will allow transfer of benefits in a leakage-proof, well-
targeted and cashless manner. There would be cut in subsidy leakages but not in subsidy
themselves. NDA Government has been trying to build a national consensus and already
introduced a Bill to amend the Constitution to implement the Goods and Services Tax (GST).
The GST will put in place a state-of-the-art indirect tax system by 1st April, 2016. Unfortunately
being not in majority in Rajyashabha, as well as, very strong noncooperation from the opposition
Congress party has been seriously jeopardising the passing of GST bill, and hence causing
serious hurdles in the growth and development of the nation by very Congress party, which
already damaged and dented the financial soundness and economic growth of the nation for a
decade seriously and severely.
The above the key policy changes by the Modi government are certainly going to prove a game
changer for the fast track economic growth and development of India, in long term
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5. Global Events:
Global markets were rattled in June, due to the unexpected outcome of Brexit, apart from
continuing uncertainty over US Fed rate decision. The sharp fall in major European currencies
led to cautious sentiments. However, markets have recovered most of the 'Brexit' losses, despite
uncertainty over the future events in UK / EU.
For investors it become very important to keep close eye on global events as it any
positive/negative news across the work has direct impact their investment.
Uncertainty reigns supreme
Two months have passed since the Brexit vote and, although the dust is gradually settling, the
external environment remains challenging. The global economy slowed in the second quarter and
financial markets had another rocky month in June when the UK voted to leave the EU. Risky
assets, such as equities and commodities, declined sharply, before swiftly recovering as fears of
imminent spillovers to the global economy receded. Following the vote, market expectations for
a more accommodative monetary policy stance around the world increased, which, in turn,
spurred risk appetite to rise even higher: equities around the globe have reached new record
highs and commodities prices, led mainly by crude oil, have returned to the gradual recovery
path which was briefly interrupted by the aftermath of the Brexit vote.
The global economy was, however, already fragile before the Brexit vote. Preliminary data
suggest that global economic activity decelerated in the second quarter. An estimate produced by
Focus Economics showed that global GDP slowed from a downwardly-revised 2.5% year-on-
year increase in Q1 (previously reported: +2.6% year-on-year) to a 2.4% expansion in Q2. The
revision in Q1 and the Q2 deceleration reflect, in part, slower growth in Chinas economy, which
has contributed to weaker global trade and industrial production. This has weighed heavily on
commodities prices, creating significant challenges for commodities exporters, including a large
number of emerging economies.
Advanced economies have fared better, although most central banks in these economies are
struggling with low inflation. Low commodities prices, especially oil, have been a key factor of
the current disinflationary situation in the advanced economies. In response to this, many central
banks have reduced interest rates to ultra-low levelseven below zero in some casesand
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further monetary policy easing is priced in by the markets, apart from for the U.S. The U.S.
economy remains the outlier among advanced economies, with the debate about when the next
rate rise will be. Recently, all eyes were on the annual Jackson Hole conference, where Janet
Yellen, head of the Federal Reserve, stated that the case for an increase in short-term interest
rates has strengthened on the back of robust growth in the U.S. labor market. This indicates that
the Fed is likely to make a move in the coming months and potentially as soon as September.
However, disappointing GDP growth in the first half of 2016 and heightened uncertainty
regarding global risks suggest that the pace of tightening will be gradual.
Going forward, the global economy is expected to gain gradual momentum, boosted mainly by
stronger growth in the U.S. economy and improving conditions in battered emerging economies.
The U.S. economy is foreseen strengthening in the second half, buoyed by solid private
consumption and a bounce-back in inventories. Moreover, the difficult economic conditions that
key emerging markets, such as Brazil and Russia, experienced last year and in the first half of
this year are gradually abating. Meanwhile, the Chinese economy stabilized in the second quarter
as the resurgence of growth has been fueled by rising credit and a surge in government spending.
However, the recent impulse to growth does not look sustainable and economic activity is set to
slow in the coming quarter.
Uncertainty weighs on global outlook
The path forward is fraught with uncertainty and the UKs vote to leave the EU has skewed the
risks to the downside. While volatility has eased somewhat, long-term government bonds have
fallen to multi-year lows, spurred by expectations of looser monetary policy around the world.
The current global financial markets optimistic backdrop is not based on an improvement in
economic fundamentals. As mentioned before, the global economy remained weak in the first
half of the year and is expected to gain gradual momentum only in the coming quarters. Even
assuming that the Brexit vote will have a limited impact on the worlds economy this year, the
analysts we surveyed this month project that the global economy will slow from a 2.8% rise in
2015 to a 2.5% expansion in 2016. This months projection was cut by 0.1 percentage points
from last months projection and for 2017, the Focus Economics panel forecasts that global
economic growth will pick up to 2.9%.
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Among the major economies, this months global outlook for 2016 reflected a cut to the growth
forecasts for the U.S. economy, while projections for the Euro area were left unchanged.
Analysts raised their forecast for the United Kingdom as they had already taken into account the
consequences of the Brexit vote in previous publications and remain in wait-and-see mode,
following the Bank of Englands more expansionary monetary policy. In Japan, although the
government announced a massive stimulus program to boost economic growth this year, analysts
remain skeptical about whether the plan will be successful. Consequently, they left Japans
economic outlook unchanged over the previous month.
Among developing economies, the economic outlook for Asia ex-Japan remained unchanged.
Latin Americas dismal economic outlook also remained unchanged as panelists are less
pessimistic about the outlook for Brazil, although Venezuela continues to be a ticking bomb. In
Eastern Europe, a less negative outlook for Russia is supporting growth prospects in the region,
although spillovers from the Brexit vote are expected to hit some countries in Central Europe
going forward. Lastly, the recent rebound in commodity prices following the Brexit vote has
prompted the outlook for the Middle East and North Africa to stabilize. In contrast, the Sub-
Saharan Africa region continues to be threatened by volatility in the financial markets and
security concerns.
UNITED STATES | Economic growth disappoints in H1, Hillary Clinton leads in the polls
The U.S. economy firmed up in Q2 but growth was still disappointing. According to a second
estimate, GDP increased at a seasonally-adjusted annualized rate of 1.1% (previously reported:
+1.2% SAAR). The result was above the 0.8% increase in Q1 and showed that private
consumption continued to be the main source of growth. Data also showed that fixed investment
and government spending contracted, while exports rebounded. July payrolls increased strongly,
providing reassurance that the U.S. labor market remains solid, whereas growth in retail sales
and the manufacturing sector declined in the same month. Going forward, household spending is
likely to continue boosting economic growth on the back of buoyant consumer confidence, solid
employment and faster wage growth. The latest polls indicate that Donald Trumps approval
rating has fallen behind that of Hillary Clinton, but political analysts suggest the game is not yet
over.
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The U.S. economy is expected to strengthen in the second half, buoyed by solid private
consumption and a bounce-back in inventories. Nonetheless, a persistently strong U.S. dollar and
prospects of further weakening in the global economy will restrain growth in export-oriented
industries, while low oil prices will continue to weigh on fixed investment. Analysts expect GDP
to increase 1.7% in 2016, which is down 0.2 percentage points from last months forecast. For
2017, our panel sees GDP growth at 2.1%.
EURO AREA | Latest health check of European banks eases concerns
After a positive start to the year, growth in the Eurozone economy halved in the second quarter.
While a breakdown by components is not yet available, the slowdown was likely partly due to
temporary factors as growth in Q1 benefited from a mild winter and the early timing of Easter.
Available data for Q3 has demonstrated resilience in the face of heightened concerns over the
impact of Brexit on the economy. Economic sentiment rose in July and the composite PMI hit a
seven-month high in August. In addition, the regions banks showed a relatively clean bill of
health in the European Banking Authoritys latest stress tests. The results revealed on 29 July
showed that all but one of the 51 lenders testedItalys Banca Monte dei Paschi di Sienahad
enough capital to withstand the toughest scenario.
Healthy domestic dynamics should support a robust expansion in the Eurozone economy this
year, as low oil prices and supportive monetary policy provide a buffer for consumption. Our
panel sees the Eurozone economy expanding 1.5% in 2016, which is unchanged from last
months forecast. For next year, our panel sees the economy decelerating slightly to 1.4%
growth.
JAPAN | Cooling economy prompts government to unveil fiscal stimulus
Weak wage growth, an uncertain global economic outlook and a strong yen limited growth in the
second quarter, with GDP expanding at a paltry 0.2% quarter-on-quarter seasonally-adjusted
annualized rate. Against this backdrop, the government unveiled a JPY 28.1 trillion (USD 269
billion) stimulus package in an attempt to jumpstart the economy. The plan mainly targets
Japans challenging demographics, infrastructure projects and reconstruction in earthquake-hit
areas. While the program represents the largest fiscal stimulus since 2009, analysts warn that
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fresh spending only amounts to JPY 7.5 trillion. More recent data suggest that the strong yen is
hurting the external sector as exports contracted at the fastest pace since 2009 in July.
Despite massive fiscal and monetary policy stimulus, its slow implementation and the absence of
decisive structural reforms are curtailing Japans ability to boost economic growth. Moreover, a
strong yen and global economic uncertainties represent important downside risks to the
economic outlook. Analysts see the economy growing 0.5% this year, which is unchanged from
last month's projection. Next year, they see growth at 0.8%.
UNITED KINGDOM | Business as usual after the referendum?
The UKs economy is beginning to stabilize following Junes Brexit vote. Although post-
referendum data are still being released, both yearly and monthly retail sales growth in July
indicate that British consumers were unfazed by the EU referendum result. Shares in
construction companies have benefited indirectly from the Brexit vote: pressure on housing
prices increased after the Bank of England (BoE) cut its Bank Rate and expanded its quantitative
easing program in August. The BoEs move has also boosted UK equities, which have recovered
most of their post-referendum losses. Despite these positive signs, the British economy is not yet
in the clear. The PMI and consumer confidence fell to multi-year lows in July as the uncertainty
over how Brexit will play out is still a major source of concern for businesses and consumers,
suggesting that even though retail sales in July were strong, sales could drop in the future as the
decline in confidence takes hold.
Uncertainty stemming from the Brexit vote will continue to deter investment, but
accommodative policy action taken by the BoE will soften the impact. Our panel expects the
economy to grow 1.5% in 2016, which is up 0.1 percentage points from last months estimate.
For 2017, the panel projects that the economy will grow 0.3%.
INFLATION | Global inflation stabilizes at two-year high in July
Global inflation remains on a gradual upward trajectory. An estimate produced by Focus

Economics shows that global inflation stabilized in July after rising to 3.1% in June. At this rate,
global inflation remains at the highest level since August 2014. An increase in inflation reflects
the gradual recovery in commodities prices after they lost some ground in the aftermath of the
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UK referendum, as well as higher inflation in emerging markets. Conversely, advanced

economies continue to grapple with disinflationary pressures. Against this backdrop, major
central banks in advanced economies are keeping a loose monetary policy, while in the emerging
world, central banks are starting to tighten the reins.
Taking these developments into account, our panel of economic experts foresees that global
inflation will continue rising and average 3.5% in 2016, which is up 0.1 percentage points from
last month's estimate. For 2017, the group on surveyed analysts expect global inflation to rise
further to 4.1%.
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6 Research Methodology:
6.1 Market overview for year 2015:
6.1.1 Factors Affected the Indian Equity Market in 2015

The BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange) are the two major
stock exchanges in India. The S&P BSE Sensex, considered as a benchmark index, gave a return
of -3.7% in 2015, expressed in Indian rupees.
Meanwhile, the Nifty 50, another benchmark index, gave a return of -5.4%. The following chart
shows the monthly returns of the S&P BSE Sensex for 2015, shown in rupees.
Global events
For investors in Indian stocks, 2015 was a poor year in terms of performancea sharp contrast
to 2014, when the S&P BSE Sensex returned 32%. Although the stellar performance of the
previous year may be attributed to election results, the rally did not last beyond January 2015.
August 2015 saw the years worst performance. The effect of the Chinese market crash also had
its bearing on the Indian markets. While the Indian market recovered to some extent by October,
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it dropped sharply again in November. Anxiety over the impending rate hike by the US Federal
Reserve in December was felt in the Indian markets in November 2015.
India-focused mutual funds
India-focused mutual funds like the Wasatch Emerging India Fund (WAINX) returned about 2%
in US dollar terms in 2015. Among the five India-focused fundsthe ALPS Kotak India Growth
Fund (INDAX), the Matthews India Fund (MINDX), the Wasatch Emerging India Fund
(WAINX), the Eaton Vance Greater India Fund Class A (ETGIX), and the Franklin India
Growth Fund (FIGZX)WAINX was the only fund to give a positive return in 2015. Several of
these funds invest in large-cap banking companies like ICICI Bank Ltd (IBN) and HDFC
Bank Ltd. (HDB). The funds also invest heavily in the technology sector (INFY) (WIT).
6.1.2 2015s Gainers and Losers of the Indian Stock Markets
Sector-wise analysis
The sector-wise performance of Indian stocks for 2015a dismal year for all sectors. To get a
comparative view of the returns, we are considering the returns of the S&P BSE (Bombay Stock
Exchange) sectoral indexes.
The chart below gives the returns for 2015, for all sectors, expressed in Indian rupees.
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What the affected sectors performance?

By the end of 2015, six out of ten sectoral benchmark indexes gave positive returns. These
sectors are healthcare, information technology, energy, consumer staples, consumer discretionary,
and telecom. The materials sector had the worst performance and healthcare was the best,
returning a superlative 15.6% in the period. However, in November 2015, healthcare was the
worst-performing sector, and the S&P BSE Healthcare Index returned -9.9% in that month.
Similarly, information technology, the third-best performing sector this year, was the second-
worst performing sector of November 2015. The S&P BSE Information Technology Index
returned -2.8% in that month. Many BSE-listed IT and pharma companies have their operations
in Chennai, the capital city of Tamil Nadu, which were severely affected by floods in November
2015.
The ALPS Kotak India Growth Fund (INDAX) returned -17% in 2015. Among the five India-
focused mutual funds discussed in Part 1 of this series, INDAX was the worst-performing fund
in 2015. ICICI Bank (IBN), Infosys (INFY), HDFC Bank Ltd (HDB), and Tata Motors (TTM)
are among the top ten holdings of INDAXs portfolio.
6.1.3 FPI in Indian Equities Remained Volatile in 2015
Easier FPI norms in India

The FPI (Foreign Portfolio Investment) in a stock market is the net investment, or the gross
purchases minus gross sales. In fiscal 2015 and 2016, the government of India took several
measures to boost foreign investments. Indias fiscal year begins in April and ends in March of
the following year.
The governments endeavors included attempts to bring more clarity to the tax treatment of the
gains of the transactions in the securities market, the retrospective tax treatment, and FDI
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reforms (foreign direct investment) in various sectors. The countrys FPI Regulations 2014
initiative is an effort to ease entry norms for foreign investors.
FPI inflows hit hard by global factors
The chart above shows the net FPI investments in India. The FPI values considered here include
the equity segment only. After the first four months of an impressive net inflow of FPI, Indian
equities lost a substantial investment of foreign money. August 2015 witnessed the highest
exodus of foreign money from Indian equities.
The Chinese market crash, which provoked a global sell-off, was also reflected in this huge FPI
exodus from India. The net FPI exit in August was higher than the net FPI of the whole year. The
net FPI in the equity segment reported for the year was $3.2 billion. The net investment was
negative in November and first half of December, owing to the anticipation related to Federal
Reserves rate hike announcement.
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Which sector witnessed the highest FPI outflow?
Between December 1December 15, 2015, the automobile (TTM) sector witnessed the highest
net FPI inflow in equities. The net FPI was $296 million. The pharmaceuticals and
biotechnology (RDY) sector witnessed the highest outflow of $294 million in the same
period.
Financials (IBN) (HDB) witnessed an outflow of $218 million, which was the second-highest
outflow. India-focused mutual funds like the Matthews India Fund (MINDX) have
substantial exposure to the financials.
6.1.4 How Did Indian Equities Fare across Market Caps in 2015?
Returns of small caps, midcaps, and large caps
In general, 2015 did not give good returns to investors in the Indian equity market. The S&P
BSE Sensex, considered as a benchmark index, gave returns of -3.7% in 2015. Meanwhile, the
Nifty 50, another benchmark index, gave a return of -6.3%.
The losses in the Indian equity market could be due to global and domestic factors. However, not
all was bad with the Indian stock markets. While the large caps and blue chip companies (INFY)
(IBN) fell, the small-cap and mid-cap stocks did better. In this article, we will analyze the returns
of the small-cap and mid-cap companies in India.
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Smaller companies outperformed large companies
The chart above shows the returns of 2015 for the benchmark indexes, namely the S&P BSE
LargeCap Index, the S&P BSE MidCap Index, and the S&P BSE Small Cap Index. The returns
are expressed in Indian rupees. The constituents of the indexes are based on their market
capitalization. In 2015, smaller companies outperformed larger companies.
The Matthews India Fund (MINDX) invests mainly in small-cap and mid-cap Indian stocks. As
of September 2015, small-cap stocks formed 50.2% of the portfolio, and mid-cap stocks formed
27.6% of the portfolio. Among the five India-focused funds discussed in Part 1 of this series,
MINDX gave the highest returns since its inception.
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In 2015, MINDX was the second-best performing fund, following the Wasatch Emerging India
Fund (WAINX). Taro Pharmaceutical Industries Ltd (TARO), which is the top holding of
MINDX, returned about 7% in 2015.
6.1.5 Indian Equity Markets Finished 2015 with an Optimistic Outlook

US Fed rate set the course for 2016
The US Federal Reserve announced its monetary policy on December 16, 2015, and the federal
funds interest rate was raised by 25 basis points. In a speech on December 2, 2015, the Federal
Reserve chair Janet Yellen noted that the FOMC (Federal Open Market Committee) was
comfortable with the economic condition, and there was a possibility of moving toward a
normalized interest rate.
The Indian market had already shown signs of the jitters, with the anticipation of the impending
rate hike by the Fed. Losses were observed in major Indian stock indexes, the rupee fell against
the dollar, and the FPI (foreign portfolio investment) in equities were fleeing India.
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Indian markets resilient after the Fed rate hike

The chart above shows the net investment in FPI in the Indian equity market in December 2015.
The market showed volatility in the anticipation of a rate hike by the Fed, bounced back strongly
after the rate hike.
The FPI, which was on a losing spree before December 16, came back strongly. Indian stock
markets also started gaining. The major Indian benchmark index S&P BSE Sensex, which lost
3.2% from December 1December 15, 2015, resulted in a gain of 1.8% through December 2015.
The rupee
Indias currency, the rupee, has gained strongly against the US dollar since the Fed rate
announcement. The chart above shows the exchange rate of the rupee against the dollar for
December 2015.
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Although 2015 did not prove to be a good year for the India-focused funds, Indias
macroeconomic numbers have pointed toward their robustness. In the second quarter (July
September) of fiscal 2016, India reported its GDP growth rate at 7.4%. The Indian fiscal year
begins in April and ends in March of the following year. Indias CAD (current account deficit)
contracted to 1.6% of GDP in the second quarter from 2.2% of GDP in the first quarter.
India-focused mutual funds like the Wasatch Emerging India Fund (WAINX) and the Matthews
India Fund (MINDX) appreciated in December 2015. WAINX gained 2.4% and MINDX gained
0.72%. Blue chip stocks Infosys Ltd. (INFY), ICICI Bank Ltd. (IBN), and HDFC Bank Ltd.
(HDB) also gained in December 2015.
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6.2 FII & Domestic investments
An Indian economy is a highly fluid transmission mechanism. Its beauty lies in how the smallest
of changes have the most complex trickle-down effects. A paradigmatic example of how
seemingly minor policy changes can jumpstart the economy can be illustrated by examining the
effects liberalization on capital market in India.
Globalization had led to widespread liberalization and implementation of financial market
reforms in many countries, mainly focusing on integrating the financial markets with the global
markets. Indian Capital Market has also undergone metamorphic reforms in the past few years.
Every segment of Indian Capital Market viz primary and secondary markets, derivatives,
institutional investment and market intermediation has experienced impact of these changes
which has significantly improved the transparency, efficiency and integration of Indian market
with the global markets.
FOREIGN INSTITUTIONAL INVESTOR (FII):

FII is an investor, mostly of the form of an institution or entity, which invests money in the
financial markets of a country different from the one where in the institution or entity was
originally incorporated. FII investment is frequently referred to as hot money for the reason that
it can leave the country at the same speed at which it comes in. In countries like India, statutory
agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments
flowing in through FIIs.
A Grave Balance of Payments situation forced the policymakers to take a relook at allowing
foreign capital into the country and the year of 1991 marked the announcement of some fiscal
disciplinary measures along with reforms on the external sector made, it possible for the foreign
capital to reach the shores of the country. The banking sector witnessed sweeping changes,
including the elimination of interest rate controls, reductions in reserve and liquidity
requirements and an overhaul in priority sector lending. Persistent efforts by the Reserve Bank of
India (RBI) to put in place effective supervision and prudential norms since then have lifted the
country closer to global standards. Around the same time, Indias capital markets also began to
stage extensive changes. The Securities and Exchange Board of India (SEBI) was established in
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1992 with a mandate to protect investors and usher improvements into the microstructure of
capital markets. Competition in the markets increased with the establishment of the National
Stock Exchange (NSE) in 1994, leading to a significant rise in the volume of transactions and to
the emergence of new important instruments in financial intermediation.
DOMESTIC INSTITUTIONAL INVESTOR: DII is an investor, mostly of the form of

Institution or entity which invests money in the financial market of its own country where the
institution or entity was originally incorporated. In India, there are broadly four types of
institutional investors as follow:
Indian investors have been able to invest through mutual funds since 1964, when UTI was
established. Indian mutual funds have been organized through the Indian Trust Acts, under which
they have enjoyed certain tax benefits. Between 1987 and 1992, public sector banks and
insurance companies set up mutual funds. Since 1993, private sector mutual funds have been
allowed, which brought competition to the mutual fund industry. This has resulted in the
introduction of new products and improvement of services. The notification of the SEBI (Mutual
Fund) Regulations of 1993 brought about a restructuring of the mutual fund industry. An arms
length relationship is required between the fund sponsor, trustees, custodian, and asset
Management Company. This is in contrast to the previous practice where all three functions,
namely trusteeship, custodianship, and asset management, were often performed by one body.
An important feature of the development of stock market in India in the last 15 years has been
the growing participation of Institutional Investors, both foreign institutional investors and the
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Indian mutual funds combined together, the total assets under their management amounts to
almost 18-20% of the entire market capitalization. Thus role of these investors in Indian stock
markets and the market movement can be explained using the direction of the funds flow from
these investors. While the concerns such as FII pulling back their investments could really affect
the capital markets in India.
Below are the details of investment of FII and DII in indian capital market over last 10 years.
In 2008 crises, FII have withdrawn around 1 lakh Cr investments from Indian capital market
which witnessed a deep fall. IN 2008, while FII withdrawn over 1 lakh Cr of investments, DII
had pumped in 73000 Cr of investment.
Post 2009, FII pumping more and more money, whereas on the other hand DII are withdrawing
money from Indian market.
Surprisingly it has been observed FIIs and DIIs yearly investment flows are exactly opposite
since 2007 except 2009.
Indian Market has witnessed highest FII inflows in year 2012 when Mr Narendra Modi led BJP
has won the election and become Prime Minister on India.
Amt in Rs Cr
FII DII
Net
Gross Purchase/ Gross Net Purchase/
Year Purchase Gross Sales Sales Purchase Gross Sales Sales
2007 741138.31 742719.87 -1581.56 219172.5 194818.13 24354.37
2008 687856.19 789658.76 -101802.57 288366.74 215399.96 72966.78
2009 581159.18 556339.09 24820.09 307843.4 281737.24 26106.16
2010 705057.74 643544.61 61513.13 325309.97 344537.36 -19227.39
2011 595677.5 622275.76 -26598.26 285186.72 255980.95 29205.77
2012 633960.34 532794.23 101166.11 238655.43 294455.52 -55800.09
2013 762325.86 675220.8 87105.06 259310.21 332361.9 -73051.69
2014 970816.73 903393.33 67423.4 360088.19 388645.22 -28557.03
2015 1113733.07 1134106.76 -20373.69 465845.7 398258.88 67586.82
2016* 712395.63 689229.67 23165.96 297867.73 299823.86 -1956.13
Grand Total 7504120.55 7289282.88 214837.67 3047646.59 3006019.02 41627.57
*data till August 2016 Source: Moneycontrol.com
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When we observed investment flows against Nifty 50 index movement, Nifty has been dragged
upwards with the FII investment flows compared to DII. Above chart clearly shows that
whenever FII had pumped in additional money in India, Nifty has moved up and triggered new
lifetime highs. On the other side whenever FII has withdrawn the money from India, Nifty had
fallen irrespective of DII inflows and this trend clearly seen 2008 onwards.
Thus Institutional investors are a permanent feature of the financial landscape, and their growth
will continue at a similar and perhaps faster pace. The factors that underpin their development
are far from transitory and in many cases have only just started having an impact. The
behavioral characteristics of institutional investors, therefore, will be an increasingly important
determinant of domestic and international financial market conditions
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Road Ahead
India is being viewed as a potential opportunity by investors, with the economy having the
capacity to grow tremendously. Buoyed by strong support from the government, FII investments
have been strong and are expected to continue to improve going forward. "FIIs are flocking
towards Indian bonds as the confidence level of central bank and the government is at one of the
highest levels and benign commodity prices have added confidence," said Mr Rahul Goswami,
Chief Investment Officer for fixed income at ICICI Pru Mutual fund. "India is among the few
markets where interest rates are expected to drop with fair visibility, which would attract flow
from FIIs" said Arvind Sethi, MD & CEO, TATA Asset Management.
A PricewaterhouseCoopers India report based on a survey of 40 PE firm partners has projected
that the country has the potential to get PE funding of US$ 40 billion by 2025. Future PE
investments would be driven by Indias consumption story, realistic valuations, competitive
businesses, growing private entrepreneurship, among other factors, as per the report.
"The FII participation has been very consistent as far as India is concerned and we see the trend
continuing. We have been overweight India in the context of Asia and emerging markets since
November 2013 and that stance very much continues," said Mr Bharat Iyer, MD, Global
Research, JP Morgan India.
6.3 Sectorial participation, performance and Indices:
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An Index is used to give information about the price movements of products in the financial,
commodities or any other markets. Financial indexes are constructed to measure price
movements of stocks, bonds, T-bills and other forms of investments. Stock market indexes are
meant to capture the overall behaviour of equity markets. A stock market index is created by
selecting a group of stocks that are representative of the whole market or a specified sector or
segment of the market.
Below are 12 major Nifty indices which represent the behavior and performance of the major
sectors.
These Nifty sectorial indices capture the performance of the respective sectors. The Index
comprises of selected 10-15 stocks listed on National Stock Exchange (NSE). These indices are
computed using free float market capitalization method, wherein the level of the index reflects
the total free float market value of all the stocks in the index relative to particular base market
capitalization value.
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These Indices can be used for a variety of purposes such as benchmarking fund portfolios,
launching of index funds, ETFs and structured products, etc
Nifty Auto Index : The Nifty Auto Index is designed to reflect the behaviour and performance of
the Automobiles segment of the financial market. The Nifty Auto Index comprises 15 tradable,
exchange listed companies. The index represents auto related sectors like Automobiles
4wheelers, Automobiles 2 & 3 wheelers, Auto Ancillaries and Tyres.
Nifty Bank Index: The Nifty Bank Index is an index comprised of the most liquid and large
capitalized Indian Banking stocks. It provides investors and
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market intermediaries with a benchmark that captures the capital market performance of the
Indian banks. The Index has 12 stocks from the banking sector, which trade on the National
Stock Exchange (NSE).
Nifty Financial Services Index: The Nifty Financial Services Index is designed to reflect the
behavior and performance of the Indian financial market which includes banks, financial
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institutions, housing finance and other financial services companies. The Nifty Financial
Services Index comprises of 15 stocks that are listed on the National Stock Exchange (NSE).
Nifty FMCG Index: The Nifty FMCG Index is designed to reflect the behaviour and
performance of FMCGs (Fast Moving Consumer Goods) which are non-durable, mass
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consumption products and available off the shelf. The Nifty FMCG Index comprises of 15 stocks
from FMCG sector listed on the National Stock Exchange (NSE).
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The Nifty IT index provides investors and market intermediaries with an appropriate benchmark
that captures the performance of the Indian IT companies. The Nifty IT Index comprises of 10
companies listed on the National Stock Exchange (NSE).
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Nifty Media Index is designed to reflect the behaviour and performance of the Media &
Entertainment sector including printing and publishing. The Nifty Media Index comprises of
maximum 15 stocks from Media & Entertainment sector that are listed on the National Stock
Exchange (NSE).
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The Nifty Metal Index is designed to reflect the behaviour and performance of the Metals sector
(including mining). The Nifty Metal Index comprises of maximum 15 stocks that are listed on
the National Stock Exchange (NSE).
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Nifty Pharma Index captures the performance of the pharmaceutical sector. The Index
comprises of 10 companies listed on National Stock Exchange of India (NSE).
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The Nifty Private Bank Index is designed to reflect the performance of the banks from private
sector and consists of 10 stocks.
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The Nifty PSU Bank Index captures the performance of the PSU Banks. The Index comprises
of 12 companies listed on National Stock Exchange (NSE).
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Nifty Realty Index is designed to reflect the behavior and performance of Real Estate
companies. The Index comprises of 10 companies listed on National Stock Exchange of India
(NSE).
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Nifty 500 Index is desegregated into different Industry groups which are separately maintained
by IISL. The Nifty500 Industry indices are derived out of the Nifty 500 index. Nifty500 Industry
Indices are computed using free float market capitalization weighted method w.e.f. October 11,
2010.
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6.4 Indian Economic outlook
Markets ended August with strong gains on strong FII inflows and status quo from RBI on rates.
The immediate focus of the markets would now be on the timeline of rate hike by US Fed going
forward. Probability of Fed rate hike has weakened after the tepid non-farm payrolls data. Oil
prices would also remain in focus with the scheduled informal meeting of OPEC countries
towards the end of September, on output freeze. Domestically, focus would be on fast-tracking of
domestic reforms, pace and distribution of monsoons as well as fixing of GST rate prior to the its
likely implementation by April 2017. High CPI owing to soaring food prices has quashed hopes
of rate cut from RBI in near term. However, there is a likelihood that, consumer inflation will
ease post September, backed by a good monsoon received this year. Although, the investor
sentiment remains positive, one should be wary of market valuations which have now breached
the 18x FY17 earnings mark. Markets are currently factoring in most of the positives related to
earnings as well as monsoons. Thus, we would advise caution while trying to participate in the
on-going rally. One must re-calibrate asset allocation in favour of stocks which have sustainable
competitive advantage and consistent cash flows. We maintain our preference for companies
having strong balance sheets and ethical managements. With continuous action of government in
reviving infrastructure sector, we expect select construction companies and banks to benefit from
the same. We are also positive on sectors which could be positively impacted by GST (select
stocks in Logistics, Auto, Media, Building Materials, Cements etc.), government spending
(Roads and Railways) and rural demand revival (cement, paints, FMCG, etc). Key risks to our
recommendation would come from geopolitical concerns globally, decline in foreign inflows,
sharp currency movements and further spike in oil prices.
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Global events to watch

US FOMC meeting in September: US markets remained volatile during the month with sharp
swings in oil prices as well as uncertainty regarding the next Fed rate hike. Lower-than-expected
nonfarm payroll data for the August month has decreased chances for a September rate hike. Any
hint on future trajectory for a rise is likely to impact commodities and emerging markets.
BOJ policy review also due in September

The Japanese government approved 13.5 trillion yen ($132.04 billion) in fiscal measures, with
7.5 trillion yen in spending by the national and local governments. These formed part of Prime
Minister Shinzo Abe's 28 trillion yen fiscal stimulus package to boost the economy. However,
this stimulus package, which is being viewed as 'helicopter money', lacks structural reforms and
would do little help to boost the economy. With prices still sliding despite three years of
aggressive asset purchases, the BOJ's policy review in September could put up for debate its
target for expanding Japan's money supply.
EU to be watched out closely

The Bank of England has pushed the button on another 170 billion of monetary stimulus to stop
the economy sliding back into recession in the wake of the UK's Brexit vote. The minutes of the
Bank's latest Monetary Policy Committee meeting also strongly suggest interest rates could be
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cut still further to just over zero later this year if the economy continues to weaken in the coming
months. However, as per the latest data coming from that region, Britain appears to be bouncing
back post-Brexit, after a string of indicators showed growth across the manufacturing sector, the
building industry and in consumer spending.
Chinese economy remains weak

Chinese economy continued to remain on a weaker footing as downward trend in fixed asset
investment and infrastructure investment continued. Manufacturing PMI dipped into negative
territory while retail sales also moderated. This continued to increase expectations that, Chinese
authorities may resort to more stimulus measures to meet this year's growth target of between
6.5% and 7.0%. With discussions around Fed rate hikes also going on, the Yuan may see
increasing pressure. A stronger US dollar will likely lead to a gradual depreciation in the yuan
over the next 12 months, as China strives to limit economic volatility.
OPEC meet in September to be watched closely

Oil prices rose sharply during the month to touch $50 / barrel on the brent. Prices rose after hints
by Saudi Arabia and fellow members of the Organization of the Petroleum Exporting Countries
that they might agree to an output freeze at a meeting in Algeria on Sept. 26-28. However, a
stronger dollar on the back of a stronger US economy and increase in interest rates, may put
pressure on oil prices. India remains in a comfortable situation with crude at $40-60 per barrel.
At crude above $60 per barrel, we would be concerned, given negative impact on inflation and
balance of payments. At the same time, if Crude declines to below USD40 / barrel, it may trigger
a global risk-aversion, which may even lead to foreign fund outflows from asset classes like
emerging markets.
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Domestic events to watch

Monsoons
IMD, in its latest announcement, has revised downwards, its monsoon forecast to normal from
the earlier above-normal. As per IMD, 87% of India got normal to excess showers during June 1
- August 25, while rest of country recorded deficient rain. Skymet also lowered monsoon rain
forecast to 100% of LPA from 109% during the month of August. However, monsoon has picked
up once again, since last week of August and Skymet is predicting 111% rainfall in September.
Recent flooding in UP, MP and Bihar is likely to impact standing maize crop in Bihar, pulses in
UP and soybean in MP, which may have repercussion on prices of these foodgrains. Madhya
Pradesh accounts for more than 60% of India's soybean output. Maize is the biggest crop in
Bihar and there has been some damage to the maize crop in the riverside areas. However, despite
the recent flooding situation in central and few parts of northern India, overall sowing in the
kharif season is expected to have increased, which should moderate inflation, in the months
ahead. This is also likely to revive the rural demand, which was impacted for the past two years
due to poor monsoons. Hence, flooding may have a negative impact in near term, but with
medium to long term perspective, companies from sectors like auto, FMCG, cement, home
building, etc are likely to benefit from good demand growth from rural segment.
GST
bill moving ahead After the passage of the Constitutional Amendment Bill in the parliament,
half of the state legislatures have also ratified the same. Post this, we expect further actions on
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fixing the rates so that GST is in place by April 2017. While markets are hoping for a standard
rate around 18% (Congress has also demanded a maximum rate of 18%), various states are
asking for a >20% rate. Also, the Government will now finalise the Central GST Bill and Inter-
state GST Bill whereas the states will pass their respective State GST Bills. The Government is
targeting to operationalize GST WEF April 2017. Among the sectors that would benefit from
GST implementation would be the automobile sector as current tax incidence (of 24% for small
cars, CVs and two wheelers, 33% for mid-size cars) is significantly higher than the likely GST
rate of 18-20%. Apart from this, organized businesses could benefit at the cost of the unorganised
ones. For example, in products like footwear, tea, building products etc, the unorganised sector
has been a formidable competitor, offering lower price on products through tax evasion. In the
entertainment sector, exhibition companies are likely to benefit from lower taxes and availability
of credit for service tax paid.
Monetary policy - no near term rate cuts expected

CPI inflation for the month of July inched up further to 6.07 percent on soaring food prices. This
is the fourth consecutive month when inflation has come above RBI's comfort level. Though
there is a likelihood that consumer inflation will ease post September backed by a good monsoon
received this year the impact of the additional consumption from the 7th Pay Commission
recommendations may provide an upward bias to the same. Inflation projections are still at the
upper limits of RBI's inflation objective. As per RBI's annual report, there is no room to cut
policy rates till inflation stays higher. With the Reserve Bank needing to balance savers' desire
for positive real interest rates with corporate investors' and retail borrowers' need for low
nominal borrowing rates, the room to cut policy rates can emerge only if inflation is projected to
fall further. So we don't expect RBI to go ahead with rate cuts in its next policy meet due on 4th
Oct, 2016.
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6.5 Analysis of investors questionnaire Responses

Survey responses containing 11 questions were collected from various investors from difference
class of Gender, Age, Occupation, Income, Source of Income, Investment Time horizon,
investment objective to understand their risk capacity and various strategies they adopt during
the volatile or bearish market.
Questionare.docx
From 101 responses, around 56% of the population invest with the time horizon of more than 3
years while 34.31% of population have time horizon of 1 year to 3 years. Only 8.82% of
population has short term investment time horizon.
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It has been also observed that 67.65% of population is investing less than 25% of their
Liquid funds followed by 23.53% of population use 25 to 50% of their liquid funds for
investment. This is majorly due to 90% of the population from the salaried.
Secondly nearly 50% of the population is not depend on the investment income fro their regular
spending which indicate the higher Risk appetite of this population whereas 45% of the
population rely on 25% of investment income for their regular spending.
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When asked on the suitable strategies to adopt during volatile, bearish market, 46.08% of the
population believe the stay invested and not to take liquidation decision in panic. Secondly
29.46% of the population adopted a diversification of portfolio to avoid extreme losses in bearish
market whereas 13.73% of the population prefer to exit from the market either fully or partially
and 10.78% suggest a buy on dips to take a advantage of the price fall.
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7 Conclusion/ Recommendations:
7.1 Selection of Stock
Choosing the right company to invest in may sound like the first step in building a portfolio, but
financial advisors say that a beginning investor shouldn't actually "begin" with individual stocks.
If you're just starting to build your investment portfolio, buying a single stock is much riskier
than buying a low-cost mutual fund that tracks a large group of stocks, and it's more likely that
you'll see sharp, sudden changes in the value of your investment if you own just a few stocks.
If you already have a diversified portfolio of mutual funds and ETFs, then you may want to add
in a few individual stocks. With the risk of an individual stock, there's also the potential for
greater returns: The S&P 500 gained just 0.75% from 2006 through 2010;in the same five years,
Apple's stock rose more than 348%. And if you build your portfolio by picking stocks yourself,
you'll save some money compared to an investor who pays a fund manager through the fund's
expense ratio, to pick stocks.
Keep in mind that when you're buying a stock, you're becoming a part owner of that company.
So, short-term market movements aside, the value of your investment depends on the health of
the business. Here's more on how to choose a stock:
Buy what you know. Start with an industry or a company that's familiar to you. Here's why:
A place to start. You know why you choose to buy your favorite brands, or how busy the chain
restaurant down the street is on a typical night. That's not all the information you'll need, of
course, but it may help you put those companies' earnings reports in context.
Consider price and valuation. Investment pros often look for stocks that are "cheap" or
"undervalued." Generally, what they mean is that investors are paying a relatively low price for
each dollar the company earns. This is measured by the stock's price-to-earnings ratio, or P/E.
(Find that measure on SmartMoney.com, or calculate it yourself by dividing a company's share
price by its net income.) Very roughly speaking, a P/E below about 15 is considered cheap, and a
P/E above 20 is considered expensive. But there's more to it than that:
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Know what kind of stock you're talking about. A company that's expected to grow rapidly will
be more expensive than an established company that's growing more slowly. Compare a
company's P/E to other companies in the same industry to see if it's cheaper or more expensive
than its peers.
Cheap isn't always good, and expensive isn't always bad. Sometimes a stock is cheap because
its business is growing less or actually slowing down. And sometimes a stock is expensive
because it's widely expected to grow its earnings rapidly in the next few years. You want to buy
stocks that you can reasonably expect will be worth more later, so look at value combined with
expectations for future earnings.
Evaluate financial health. Start digging into the company's financial reports. All public
companies have to release quarterly and annual reports. Check the Investor Relations section of
their web site, or find official reports filed with the SEC online here. Don't just focus on the most
recent report: What you're really looking for is a consistent history of profitability and financial
health, not just one good quarter.
Look for revenue growth. Anything can happen day to day, but in the long run, stock prices
increase when companies are making more money, which usually starts with growing revenue.
You'll hear analysts refer to revenue as the "top line."
Know how much debt the company has. Check the company's balance sheet. Generally
speaking, the share price of a company with more debt is likely to be more volatile because more
of the company's income has to go to interest and debt payments. Compare a company to its
peers to see if it's borrowing an unusual amount of money for its industry and size.
Find a dividend. A dividend, a cash payout to stock investors, isn't just a source of regular
income, it's a sign of a company in good financial health. If a company pays a dividend, look at
the history of their payments. Are they increasing dividend or not?
What not to do when buying a stock:
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Don't buy on price alone. Don't assume a stock is a bargain just because its price has dipped
10%. Make sure you understand why and how that price is going to rebound.
Don't rely too much on analyst recommendations. Analysts' reports can offer some great
information on the health of a business, but be aware that they tend to be biased for 'buy' ratings.
But because of that bias, a sell rating, especially a new sell rating, from an analyst can be a red
flag. Keep an eye out for those calls.
Don't be surprised by volatility. An individual stock is always going to be more volatile than a
diversified mutual fund. Look at the 52-week highs and lows for stocks that you're interested in
to get some perspective on how widely prices can swing within a year.
Don't forget to sell. Of course, you should have a plan for how you approach buying stocks, but
it's just as important to know when to sell. Have a set of criteria that will tell you it's time to sell:
If the company cuts its dividend; if the price rises or falls to a certain point; if an analyst
downgrades the stock, and so on. Having a plan for selling will help you avoid selling out of
panic over a short-term move in the market. A plan for selling can also help you take your gains.
7.2 Asset allocation and Diversification
The second strategy that is especially critical in volatile markets is asset allocation.
Asset allocation involves dividing your portfolio into different asset classes such as stocks,
bonds, and cash, which each carry different levels of risk and return potential. During volatile
times, more risky asset classes such as stocks tend to fluctuate more, while lower-risk assets such
as bonds or cash tend to be more stable. By allocating your investments among these different
asset classes, you can help smooth out the short-term ups and downs.
In the example you see here, we have three different asset allocations: an all stock portfolio; a
portfolio of 60% stocks, 30% bonds, and 10% cash; and a portfolio of 40% stocks, 40% bonds,
and 20% cash. Note the total return and risk figures under each portfolio.
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As the chart above illustrates, over the long term (20 years), the more moderate 60% stock
portfolio and 40% stock portfolio would have delivered slightly lower returns than a portfolio
dedicated 100% to stocks, but with much less risk
In addition to diversifying your portfolio by asset class, you should also diversify it by sector,
size, and style.
Why? Because different sectors, sizes, and styles take turns outperforming one another.
Different sectors tend to outperform or underperform in different phases of the business cycle.
For instance, in the depths of a recession (like 2007 and 2008), defensive sectors such as Utilities
and Consumer Staples often outperform. In the height of a boom (like 2003), Information
Technology or Materials companies are more likely to outperform.
Likewise, different size companies tend to outperform at different times. For instance, small-cap
stocks tend to outperform large-caps at the start of the business cycle, while large caps generally
outperform in the later stages.
Similarly, different investing styles such as growth and value take turns outperforming one
another, although these are less tied to the business cycle than sectors or market cap.
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By diversifying your holdings by sector, size, and style, you can potentially smooth out short-
term performance fluctuations and lower the impact of shifting economic conditions on your
portfolio.
7.3 Stay invested for long term
But regardless of how well you diversify, you are still likely to see some fluctuation in your
portfolio when a perfect storm of events such as we saw recently occurs. This is where the fourth
key strategy comes in: Keep a long-term perspective.
It is all too easy to get caught up in the stock markets daily roller-coaster ride. How many of you
keep tabs on the market daily? (show of hands) How many of you also do a mental calculation
of its impact on your portfolio? (show of hands)
This type of behavior is natural, but can easily lead to bad decisions.
As this chart shows, the longer you hold an equity investment, the less likely youll experience
high variability of returns. For all the one-year periods since 1926, returns have varied from as
low as -XX% to as high as XXX%. Yet, for all ten-year periods, returns have not been below -X
% or higher than XX%. And, note that for all periods of 15 years or longer, returns have all been
positive.
The lesson here is: Dont get caught up in day-to-day or even week-to-week variations in
either direction. Instead, focus on whether your long-term performance objectives, i.e., your
average returns over time, are meeting your goals.
7.4 Dont Panic and Avoid rumors
When markets become volatile, the gut reaction for most of us is to panic. Most retail investors
do exactly what they should not do: They buy when everyone else is buying when prices are
highest and panic sell on the downside when prices are depressed.
So, another lesson when investing in a volatile market is: Dont panic. Dont sell into a rapidly
declining market and dont buy into a rapidly rising market. Youll just be following the herd and
locking in losses.
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Panic selling also runs the risk of missing the markets best-performing days
Investors should ignore rumors and buy on the basis of fundamental attributes of a company.
Don't buy stocks based on random tips. There are several illiquid stocks that are susceptible to
price manipulation. Investors should also avoid stocks that are doing well without any
improvement in their financial fundamentals. A big spike in price without any accompanying
justification is a red flag, signaling that an operator is manipulating the stock. Market
manipulation is a deliberate attempt to interfere with the free and fair operation of the market and
create artificial, false or misleading appearances with respect to the price of, or market for,
a security, commodity or currency.
If your broker is pushing you to buy a stock, do your own equity research before you invest. He
could be peddling the stock on behalf of someone with vested interests. Finally, it is always up to
you to make an informed judgment.
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8 Bibliography:
https://www.kotaksecurities.com/research_report
http://www.bseindia.com/
http://www.moneycontrol.com/
https://www.nseindia.com/
http://marketrealist.com/
http://www.investopedia.com/
https://www.kotaksecurities.com/
http://economictimes.indiatimes.com/
www.focus-economics.com
www.citiwealthadvisors.com
www.sebi.gov.in
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PROJECT REPORT - Analysis of Indian Equity Market and Impact On Customers

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PROJECT REPORT ON

Analysis of Indian Equity Market and its impact on

UNDER THE GUIDANCE OF

K.J. SOMAIYA INSTITUTE OF MANGEMENT STUDIES & RESEARCH

I, Amol Pawar , a student of MFM program, V Semester of 2014 2017 batch

at SIMSR do hereby declare that this report entitled Analysis of Indian

(Signature of the Student)

This is to certify that Mr. Amol Pawar a student of MFM

has carried out the report entitled Analysis of Indian

(Signature of the Guide)

I wish to express my gratitude to the administration of the

Section Title of the Section Page no

7.3 Stay Invested 73

The BSE and NSE

Settlement Cycle and Trading Hours

Who Can Invest In India?

Investment Opportunities for Retail Foreign Investors

2. Stock Market Indicators:

2.1 Market Capitalization:

TCS 2,321.00 2,769.00 2,119.00 457,336.33

Tata Motors 546.25 598.6 266 185,489.04

2.2 Price to earnings ratio (P/E ratio):

2.3 Return on Equity (ROE):

weakness. Investors need to be aware that a disproportionate amount of debt in a company's

2.4 Dividend Yield:

2.5 Price to book value:

What Does P/B Tell Us?

3. Volatility in Stock Markets:

4. Review of Recent Policy developments and Programs:

4.1 High GDP Growth:

4.2 The policy and drive for 'Make in India'

4.4 Transparency in Governance

4.5 Focus on children education and the skill oriented education

4.7 The Policy Reforms

Uncertainty reigns supreme

Uncertainty weighs on global outlook

EURO AREA | Latest health check of European banks eases concerns

JAPAN | Cooling economy prompts government to unveil fiscal stimulus

UNITED KINGDOM | Business as usual after the referendum?

INFLATION | Global inflation stabilizes at two-year high in July

Global inflation remains on a gradual upward trajectory. An estimate produced by Focus

UK referendum, as well as higher inflation in emerging markets. Conversely, advanced

6.1 Market overview for year 2015:

6.1.1 Factors Affected the Indian Equity Market in 2015

What the affected sectors performance?

India-focused mutual funds

6.1.3 FPI in Indian Equities Remained Volatile in 2015

Easier FPI norms in India

FPI inflows hit hard by global factors

Which sector witnessed the highest FPI outflow?

Smaller companies outperformed large companies

6.1.5 Indian Equity Markets Finished 2015 with an Optimistic Outlook

Indian markets resilient after the Fed rate hike

6.2 FII & Domestic investments

FOREIGN INSTITUTIONAL INVESTOR (FII):

DOMESTIC INSTITUTIONAL INVESTOR: DII is an investor, mostly of the form of

6.3 Sectorial participation, performance and Indices:

6.4 Indian Economic outlook

Global events to watch

BOJ policy review also due in September

EU to be watched out closely

Chinese economy remains weak

OPEC meet in September to be watched closely