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SUMMER PROJECT
ON
“EVALUATION OF STOCK MARKET MOVEMENT WITH RESPECT TO
CURRENCY FLUCTUATIONS”
AT
LKP SECURITIES LTD
Submitted by
KIRAN CHOUDHARI
2GI15MBA16
Academic Year:
2015-2016
I, KIRAN CHOUDHARI, hereby declare that the summer project undertaken at LKP
Securities ltd, prepared by me under the guidance of Prof. Govindraj Mane and external
assistance by Mr.Ravi Kiran
I also declare that this summer project is submitted adhering Institute and University
regulations towards the partial fulfillment for the award of the degree of Master of Business
Administration by VTU Belagavi.
I have undergone in plant for a period of 6 weeks. I further declare that this report is
based on the original study undertaken by me and has not been submitted for the award of any
degree from any other university/Institution
I also dedicate my sincere thanks to Dr. P M Kulkarni, Head of the Department, Department
of MBA, Gogte Institute of Technology, Belagavi.
I would like to express my sincere gratitude to my Prof. Govindraj Mane for his valuable
guidance in the completion of this project successfully.
I would like to extend my sincere gratitude to Mr.Ravi Kiran, for his constant support for
carrying out this project in his organization.
I also express thanks to all the faculty members for their valuable suggestions,
encouragements, guidance and support. I would also like to thank all the respondents for extending
the required timely help. I would like to thank my family who were a constant source of
encouragement and provided me with the necessary resources. I would lastly thank non teaching staff
and all my friends who were directly and indirectly involved with their help and guidance in successful
completion of my study.
4.15 Table showing JPY/INR monthly average for the year 2016 48-48
4.16 Table showing percentage change in JPY and sensex 48-48
4.17 Table showing correlation coefficient between JPY and sensex movements 49-49
The Forex market is a market where trading happens between different types of international
currencies. The trading happens between different currencies where buyers and sellers of
different countries come and trade in forex market.
Foreign exchange rate is the charge of a foreign currency comparative to domestic currency. The
exchange of currencies is completed in the foreign exchange market, which is one of the main
monetary markets. A foreign swap bond typically states the currency pair, the amount of the
contract, the established rate of exchange etc.
There are primarily two strategies used by the governments to find the value of home currency in
relation to other currencies: fixed and floating exchange rate
Fixed exchange rate is when a currency’s charge is maintain at a set ratio to the value of one
more currency or to any further measure of price. While the price of currency rise over the
permitted limits, the government sells the currency in the open market, thereby increasing its
supply and reducing value
A floating exchange rate is determined the supply and demand for the currency in a market. It is
termed as “self-correcting”, if any variation in the value caused by differences in supply and
demand will automatically be corrected by the market
A study was conducted in “LKP Securities Ltd. "To evaluate the stock market
movements with respect to currency fluctuation”. The Indian stock market (Sensex) and the
exchange rates.
This study was mainly concentrated to observe how change in exchange rates and stock price
are correlated for one year i.e., from Jan 2016 to Dec 2016 this will help the domestic as well as
international investors to hedge and diversify the portfolio based on the risk and return associated
with stocks and the exchange rates.
f) METHODOLOGY:
For this study, the data have been collected mainly from secondary sources
Secondary Data: The collection of secondary data was done mainly through the Internet.
Various sources of information and data relating to the topic were referred to. A statistical
method that is average price calculation and the correlation coefficient is used to find the
relationship between two variables.
Makar and Huffman (2008, pp 219-231) examined the existing relationship between stocks
returns of UK multinationals and changes in the principal exchange rate in which each firm is
most exposed using a unique dataset of recently available accounting disclosures. Their findings
suggest that there are a greater number of firms with significant exposures using this unique firm
principal currency data, when compared with estimates of exposures using a broad exchange rate
index data. This means that most firms are concerned mainly with the principal currency with
which they are exposed.
Entorf and Jamin (2007, pp 355, 362) analyzed value changes of companies in the German stock
market in response to the US dollar. Using time series and panel data of German Deutsche
Aktien Xchange companies, Deutsche Mark/dollar rates and 22
macroeconomic factors, they found out that the time variant exposure of German stock market
companies were quite unstable. The ratio of exports/gross domestic product (GDP) positively
affects dollar sensitivity;
In a study carried out by Bae, Kwon and Li (2008, pp 1) to investigate the effects of exchange
rate changes on security returns and how economic and translation exposure components of
exchange rate risk are priced across countries. Employing America Depositary Receipts (ADR)
of four countries, they came out with four major findings. They found a negative relationship
Hsin et al (2007, pp 385) investigated the absence of the prevailing evidence on the large
exposure of U.S stocks to exchange rate risk by considering a firm‟s pre-hedging currency
exposure to its expected hedging activity and the delayed reaction of its stocks to currency
movements.
Tai (2005, pp 455) investigate the likelyhood of asymmetric currency exposure using U.S bank
stock returns. His findings showed that more than 80% of the samples are significantly exposed
to exchange rate variations in an asymmetric way based on test of multifactor model with
multivariate GARCH (Generalised Autoregressive Conditional Heteroscedasticity)
parameterization. This finding is strong to whether contemporaneous or lagged exchange rate
variations are used to estimate the model.
Chen and So (2002, pp 411) studied the relationship between exchange rate inconsistency and
the volatility of the returns of U.S multinationals. Using samples of U.S multinationals with sales
in the Asian-Pacific region, how variations in exchange rates around the 1997 Asian financial
crises affected the sensitivity of those firms to stock market risk was looked at.
Chamberlain, Howe and Popper (1997, pp 871) in their study, examined “foreign exchange
exposure of a sample of U.S and Japanese firms. They made estimates of exchange rate
sensitivity of the equity returns of the U.S bank holding companies and compare them to those of
the Japanese banks using daily data. Their results show that a large fraction of the U.S companies
stock returns move with the exchange rate, while few of the observed Japanese returns do so.
(a) The scope of study is vast and the time that could be allocated was very limited (6
weeks). Hence it was not possible to do analyze on a daily basis.
(b) Financial information in any company has its own limitations are crucial and very
confidential.
(c) Since analysis is based on opinions and attitudes, the result at best are near truth.
(d) Conclusions are drawn on the basis of limited data available.
Capital market is the foundation of any nation's economy. It encourages change of reserve
funds to speculations. money market can be delegated primary and secondary market. The new
issue of securities happens in primary market and trading of shares happens in secondary market.
Primary market is otherwise called new issue market. Value first enter capital market however
interest in primary market. In India, normal financial specialists taking an interest in the primary
market is huge. The quantity of organizations offering equity in primary markets increased
consistently in the post freedom period till the year 1995. After 1995, there is a consistent droop
experienced by the primary market offering value. The fundamental explanation behind droop is
absence of speculators' trust in the essential market. So it is essential to comprehend the causes
and measures of recovery of financial specialists' certainty prompting to capital activating and
interest in right roads making, monetary development in the nation.
In earlier times, to buy and sell the stocks the investors have to assemble in a stock exchange
but now with huge development in IT sector these transactions are carried out easily using
Internet. With this development almost all transactions are done through internet this will help
stock exchange to become paperless.
Year 1874: Brokers used to gather at a street (Dalal) for transacting purpose.
Year 1894: "The Ahmadabad Share and Stock Brokers’ Association" has been established.
Year 1920: Madras Stock Exchange transacted with 100 brokers. But after 3 years in 1923 with a
recession the number of brokers has fallen to 3.
The misery saw after the Independence prompted to conclusion of a ton of trades in the nation.
Lahore Stock Exchange was shut down after the parcel of India, and later on converged with the
Delhi Stock Exchange. Bangalore Stock Exchange Limited was enlisted in 1957 and got
acknowledgment just by 1963. A large portion of alternate Exchanges were in a hopeless state
till 1957 when they connected for acknowledgment under Securities Contracts (Regulations) Act,
1956. The Exchanges that were perceived under the Act were:
1. Bombay
2. Calcutta
3. Madras
4. Ahmadabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Indore
Act as an agent,
Buy and sell securities for his clients and charge commission for the same,
Act as a trader or dealer as a principal,
Buy and sell securities on his own account and risk.
b) COMPANY PROFILE:
LKP Securities was begun as one of India's first securities business houses in 1948 is today one
of the nation's biggest multi-dimensional money related administrations assemble. LKP. LKP
Finance Limited is a Non Banking Finance Company (NBFC) enlisted with Reserve Bank of
India and a recorded open constrained organization having a total assets of Rs.142 crores as on
FY10.
It is the India’s first financial group to be awarded the prestigious ISO 9002 certified KPMG
Quality Registrar, USA, for certain businesses.
Since 1948, LKP keeps on giving customers a solitary source equipped for addressing every one
of their needs by its Equities markets, Debt markets, Corporate Finance, Investment Banking,
Merchant Banking, Wealth Management or Commodities
LKP Securities Limited and its associates enjoy the following registrations & memberships:
Mr. M v Doshi is the chairman of the company. he is with the company from 1982. He has 34
years of experience in the finance field.
Vision:
Mission:
Providing complete financial care driven by the core values of diligence and transparency.
Quality policy:
LKP is committed to client satisfaction by offering quality services meeting their
specifications and expectations at competitive prices by customer- employee in involvement and
adopting good quality management systems.
It aims to create and maintain safe and healthy working conditions, protect the
environment, strive for continual improvement of company personnel, quality and process of
services and meet regulatory requirements.
Network of 520 outlets across 220 cities in India with 545 sub brokers and 60 branches.
Maharashtra.
Email: www.lkpsec.com
LKP offers a wide range of administrations that incorporates Equity Broking in Cash and
Derivatives, Internet based exchanging, Demat administrations and Research administrations. At
the point when customers manage LKP they are managing an expert agent who has incorporated
hazard administration framework set up at Mumbai.
Commodities:
A sister concern of the famous and trusted LKP Group, Alpha Commodities offers a total bundle
of customer benevolent administrations in the prospering Commodity Futures advertise. Items
have dependably been the establishment of world exchange, and as they turn into an inexorably
appealing speculation alternative, LKP at Alpha Commodities hope to guide and help financial
specialist in all the conceivable approaches to help you in every one of your attempts in the
product markets.
Currency Derivatives:
With the open of currency derivative , LKP offer its customers yet another portion for
exchanging. Mutually controlled by SEBI and RBI furnishes brokers with another lucrative
exchanging road.
LKP Investment Advisory Services Offer tailor-made riches administration to Retail, High Net
worth Individual and Corporate Clients. Organization firmly trusts that Investment Planning is
the venturing stone to accomplish one's monetary yearnings.
Currency Derivatives:
Each branch having TV and other electronic medium to facilitate real time updates and
dissemination of information to the customer.
The employees are well trained and qualified Investment advisors to take care of the needs of the
customer.
f) Competitors Information:
Competitors
1 Sharekhan
2 India Infoline
4 Motilal Oswal
5 Religar
6 Angel Broking
7 Reliance Money
Weakness:
Time consuming process for account opening, resolving the problems of customers,
etc.
Lack of awareness among south region customers.
Localized presence due to in sufficient investment for country wide expansion.
The Future prospects and growth in various field is as fallows
The company has a good network of franchisee and offices in north India and is
planning open more offices in south India.
It can easily tap the retail investors with small saving through promotional channels like
print media electronic media.
Product and service expansion.
Economy is growing at healthy rate leading to investment / capital requirement
Attract the customers who are dissatisfied with other brokers & DPs.
Threats:
Table no 2.1: showing the Balance Sheet of LKP Ltd (Rs in cr)
Source: Moneycontrol.com
Table no 2.2: showing the profit and loss account of LKP securities
Particulars March 2016 March 2015 March 2014
Income
Expenditure
Gross profit ratio establishes relationship between gross profit and net sales. the gross profit ratio
of the company 75.68 in 2014 it was reduced to 47.76 in 2015 and again it was raised to 63.22 in
2016
It shows the profitability position of the company. it indicates how much the
company is able to earn after deducting all direct and indirect expenses. The
net profit ratio was highest 23.19% in 2014 as compared 21.25 in 2015 and
19.54 in 2016.
It expresses the relationship between current assets and current liabilities the
current ratio of the company was continually decreasing from the year 2014
11.92 to 7.68 and in 2016, 2.41.
Table : 6
Year Debt Equity DER
2016 67.05 156.89 0.42
2015 106.31 158.30 0.67
2014 79.23 158.20 0.50
Debt equity ratio indicates to what extent the firm depends upon outsiders for its existence. It is
useful to owners to measure how much they have to invest to have control over the firm. In LKP
the DER was high in 2014 and 2015 compared to 2016.
Table no 2.7: Debtors’ Turnover Ratio = Net Credit Sales during the Year / Average Debtors
It establishes relationship between net credit sales and average receivables. In LKP the DTR was
very high 185.52 in 2014 and it has come down to 14.46 in 2015 and 8.71 in 2016.
This study helps us to examine the impact of currency fluctuations on Indian stock
market when there is fluctuation in a Rupee value against U S Dollar, EURO, POUND, FRANC,
and YEN. To observe the impact I have collected data relating to sensex movements and rupee
value against all the five currencies for the one whole year from January 2016 to December
2016. This data will help us to know what kind of variations that are happened in a stock market
when the rupee is appreciated and when the rupee is depreciated.
In the study with the collected data I have found the correlation and coefficient between the
currency rate and sensex movements for the year 2016 and also the correlation between rupee
and sensex for each month of 2016 from January to December with graphical representation.
∑(X-Mx)*(X-Mx) = 27.338
‘Y’ values
∑(Y-My)*(Y-My) = 243.965
X and Y combined
N=12
∑(X-Mx)(Y-My) = -56.031
Correlation coefficient
= ∑(X-Mx)(Y-My)
√∑(X-Mx)*(X-Mx)*(Y-My)*(Y-My)
= -56.031
√ (27.338)(243.965)
= -0.6861
Sensex
30000
25000
20000
15000
Sensex
10000
5000
INR/USD
69
68.5
68
67.5
67
66.5 INR/USD
66
65.5
65
In the year 2016 there was a negative correlation between the sensex movements and Rupee rate
against dollars
The sensex closed at 26626.46 on December. During the year the sensex hit a high of 29077.28
on September 2016 and a low of 22494.61 on February 2016. The total change % of sensex
during the year was 3.14%
The INR/USD closed at 67.955 on December 2016. During the year the rupee hit a high of
68.909 on February 2016 and a low of 66.014 on April 2016. The total chage % of Rupee to
dollar was 2.76% in 2016.
The chart shows whenever the rupee appreciated against dollar the sensex performed well and
when rupee depreciated the sensex has fallen. This indicates the positive correlation between
sensex and rupee and a negative correlation between sensex and dollar.
‘X’ values
∑(X-Mx)*(X-Mx) = 20.721
‘Y’ values
∑(Y-My)*(Y-My) = 243.965
X and Y combined
N=12
∑(X-Mx)(Y-My) = -4.682
Correlation coefficient
= ∑(X-Mx)(Y-My)
√∑(X-Mx)*(X-Mx)*(Y-My)*(Y-My)
= -4.682
√ (20.721)(243.965)
= -0.0659
Sensex
30000
25000
20000
15000
Sensex
10000
5000
INR/EUR
77
76
75
74
73
72 INR/EUR
71
70
69
In the year 2016 there was a negative correlation between the sensex movements and Rupee rate
against Euro
The sensex closed at 26626.46 on December. During the year the sensex hit a high of 29077.28
on September 2016 and a low of 22494.61 on February 2016. The total change % of sensex
during the year was 3.14%
The INR/EUR closed at 71.461 on December 2016. During the year it hit a high of 77.8730 in
February 2016 and a low of 70.3540 in December 2016.the total % change of INR/EUR for the
year was -0.5.
The chart shows whenever the rupee appreciated against Euro the sensex performed well and
when rupee depreciated the sensex has fallen. This indicates the positive correlation between
sensex and rupee and a negative correlation between sensex and Euro.
‘X’ values
∑(X-Mx)*(X-Mx) = 117.277
‘Y’ values
∑(Y-My)*(Y-My) = 243.965
X and Y combined
N=12
∑(X-Mx)(Y-My) = -9.941
Correlation coefficient
= ∑(X-Mx)(Y-My)
√∑(X-Mx)*(X-Mx)*(Y-My)*(Y-My)
= -9.941
√ (117.277) (243.965)
= -0.0588
Sensex
30000
25000
20000
15000
Sensex
10000
5000
INR/GBP
100
95
90
85
INR/GBP
80
75
70
In the year 2016 there was a negative correlation between the sensex movements and Rupee rate
against Pounds.(GBP)
The sensex closed at 26626.46 on December. During the year the sensex hit a high of 29077.28
on September 2016 and a low of 22494.61 on February 2016. The total change % of sensex
during the year was 3.14%
The INR/GBP closed at 83.846 in December 2016.during the year it has hit a high of 101.049 in
the month of june 2016 and a low of 78.817 in the month of oct 2016. The total change % of
INR/GBP for the year 2016 was -14.47%.
The chart shows whenever the rupee appreciated against GBP the sensex performed well and
when rupee depreciated the sensex has fallen. This indicates the positive correlation between
sensex and rupee and a negative correlation between sensex and GBP.
TABLE NO 4.13: PERCENTAGE CHANGE IN CHF AND SENSEX FOR THE YEAR 2016
∑(X-Mx)*(X-Mx) = 25.39
‘Y’ values
∑(Y-My)*(Y-My) = 243.965
X and Y combined
N=12
∑(X-Mx)(Y-My) = -27.39
Correlation coefficient
= ∑(X-Mx)(Y-My)
√∑(X-Mx)*(X-Mx)*(Y-My)*(Y-My)
= -27.39
√ (25.39) (243.965)
= -0.3480
Sensex
30000
25000
20000
15000
Sensex
10000
5000
CHF/INR
69.5
69
68.5
68
67.5
67
66.5 CHF/INR
66
65.5
65
64.5
In the year 2016 there was a negative correlation between the sensex movements and Rupee rate
against Franc(CHF).
The sensex closed at 26626.46 on December. During the year the sensex hit a high of 29077.28
on September 2016 and a low of 22494.61 on February 2016. The total change % of sensex
during the year was 3.14%
The INR/CHF has closed at 66.727 in December 2016. During the year it has it a high of 70.779
in June 2016 and a low of 68.255 in January 2016. The total change % of INR/CHF during the
year was 1.12%
The chart shows whenever the rupee appreciated against CHF the sensex performed well and
when rupee depreciated the sensex has fallen. This indicates the positive correlation between
sensex and rupee and a negative correlation between sensex and CHF.
‘X’ values
∑(X-Mx)*(X-Mx) = 231.09
‘Y’ values
∑(Y-My)*(Y-My) = 243.965
X and Y combined
N=12
∑(X-Mx)(Y-My) = -72.68
Correlation coefficient
= ∑(X-Mx)(Y-My)
√∑(X-Mx)*(X-Mx)*(Y-My)*(Y-My)
= -72.68
√ (231.093) (243.965)
= -0.3061
Sensex
30000
25000
20000
15000
Sensex
10000
5000
INR/JPY
0.68
0.66
0.64
0.62
0.6
0.58
INR/JPY
0.56
0.54
0.52
0.5
In the year 2016 there was a negative correlation between the sensex movements and Rupee rate
against YEN(JPY).
The sensex closed at 26626.46 in December. During the year the sensex hit a high of 29077.28
on September 2016 and a low of 22494.61 on February 2016. The total change % of sensex
during the year was 3.14%
The INR/JPY closed at 0.58 in December 2016. During the year it has hit a high of 0.6818 in
June 2016 and a low of 0.5494 in January 2016. The total change % of INR/JPY during the year
was 6.4%.
The chart shows whenever the rupee appreciated against YEN the sensex performed well and
when rupee depreciated the sensex has fallen. This indicates the positive correlation between
sensex and rupee and a negative correlation between sensex and YEN
This study examines the dynamics between the instability of stock returns and movement of
exchange rates, in terms of the degree of interdependency. To begin with, the average price and
the coefficient of correlation between the two variables are computed, which indicated slight
negative correlation between them. As the exchange rate depreciates the sensex will move up the
demand for rupee increases for investing in stocks this result in rupee appreciation. As the rupee
depreciates the investor will sell their stocks which will result in fall in sensex points the demand
for rupee decreases resulting in other currency appreciation. The investor should be cautious
when the market goes up the other currency will depreciate and the demand for rupee increases
for investing in stocks this result in rupee appreciation. The rupee appreciation and the rupee
depreciation have positive as well as negative impact in making investment decisions.
Websites
www.moneycontrol.com
www.investing.com
www.lkpsec.com
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