ABM-953

Self Study On

IMPACT OF TOP MOST BSE SECTORAL INDICES ON SENSEX

Submitted By
Anuradha Agarwal M.Phil.

DAYALBAGH EDUCATIONAL INSTITUTE FACULTY OF COMMERCE (DEEMED UNIVERSITY) Dayalbagh, Agra 2013

ABSTRACT
The unusual rise and fall in of Bombay Stock Exchange (BSE) Sensitive Index (SENSEX) has received a lot of media attention over last couple of decades in India. Even some policy analyst has designated it as an indicator of Indias inevitable growth and development. In this p aper attempt has been made to explore the relation between BSE SENSEX and top most BSE sectoral indices by using correlation and descriptive statistics. Quarterly data has been used from 20082009 to 2012-2013 for both, SENSEX, and top most BSE sectoral indices viz., BSE AUTO, BSE BANKEX, BSE FMCG and BSE IT. The study also explained the degree and direction of that relationship as up to what extent quarterly reporting of constituents of sectoral indices have laid their impact on sensex. And find that the stock prices are highly effected by selected top most BSE sectoral indices especially by BSE AUTO, BSE BANKEX.

Introduction
In India, since independence the socialistic pattern of development was followed but in early 1990s due to the financial crunch that India faced, it had to afterwards follow on a strict economic reform package as dictated by World Bank. One of the important components of this package was financial liberalization. This financial liberalization paved a new way of growth and development and volatile atmosphere to the Indian economy especially in terms of BSE SENSEX which is credited as one of the main indicators of Indias financial health. Today stock market has been one of the prime most sources for mobilizing household savings into upcoming productive ventures and lends a helping hand in the countrys development.

Review of literature
A large number of empirical studies have been conducted about the determinants of stock prices. To review the situation different studies have been undertaken on national and international ground. Different researchers have conducted their researches with different views and elucidated their findings by different parameters. Halil kiymaz, Eric Girard (2009) have investigated the relationship between the daily returns and trading volume. The study found that the persistency of conditional volatility is high and very close to unity, implying that current information can be used to predict future volatility.

Santu Das, J.K. Pattanayak, promod pathak (2008) have judged the impact of quarterly announcements on sensex. The study also examines the drifting up of shares prices with references to good announcement and bad announcement. Shurthi Tripathi (2008) has looked into the different aspects and judged the difference between BSE 100 index and BSE sensitive index through the use of various times series tools, and finally tries to find which series is better for the investors to base their decision on. Angela J. Black, Patricia Fraser, NIcolaas Groenewold (2001) have used 54 years of quarterly data and a VAR model underpinned by a theoretical framework describing the relationship between stock prices and the macro economy. This analyses the extent to which prices deviate from economy wide fundamentals.

Research Methodology
Objective To judge the impact of quarterly results on Sensex by the constituents of BSE sectoral indices Hypothesis H0- The top most sectoral indices of BSE and Sensex are independent from each other.

Data and variables in the study The study has been based on secondary data and information regarding the stock prices, the sensex figures and quarterly reports has been taken from the different authentic websites. For the purpose of the study top 4 sectoral indices viz. BSE AUTO, BSE BANKEX, BSE
FMCG, BSE IT have been considered as the constituents of these four and have affected the market mainly. It has taken the changes in the quarterly figures of both; Sectoral

indices and the sensex.

Duration of the study2008 to 2013 on Quarterly basis Tools Descriptive Statistics, Correlation analysis, Coefficient of determination and t test

Data Analysis and Interpretation

Descriptive Statistics Various descriptive statistics are calculated of the variables under study in order to describe the basic characteristics of these variables. In this table various statistics are calculated like mean, maximum and minimum value, standard deviation, skewness, and kurtosis, Table 1- Descriptive Statistics
BSE AUTO Mean Mini. Maxi. S.D Skewness Kurtosis 5.626319 -0.72048 53.64647 3.383319 0.750807 2.156158 BSE BANKEX 3.254907 -1.03447 62.53326 5.750832 1.510175 4.47834 BSE FMCG 5.187925 -0.74399 21.89464 1.537468 -0.22032 0.297848 BSE IT 4.207641 0.605074 41.99148 3.901591 0.424403 1.006978 BSE SENSEX 1.565876 0.05566 44.59682 9.182943 0.870341 4.607288

Interpretation: From the table above in which descriptive values of all the variables have been calculated shows that S.D is very high in case of Sensex comparative to others which explain that there is high volatility in its values. From the skewness measure we found that only BSE FMCG is negatively skewed while BSE bankex is more positively skewed compared to other variables. In case of kurtosis, all variables are positively skewed, thus illustrating that all have peaked distribution comparative with normal distribution and as almost in all cases it is lowest in BSE FMCG and highest in SENSEX.

Next step is to check out the correlation between the variables in consideration of this study.

Table 2: Correlation Matrix

BSE AUTO BSE AUTO BSE BANKEX BSE FMCG BSE IT BSE SENSEX 1 BSE BANKEX 0.893561 1 BSE FMCG 0.650671 0.482911 1 BSE IT 0.7902 0.680312 0.504418 1 BSE SENSEX 0.949773 0.946609 0.588338 0.803805 1

Interpretation: In the following correlation matrix almost all the variables are positively high correlated to each other apart from Sensex and BSE FMCG which are less correlated to each other. Next step is to find that up to what extent quarterly reporting of constituents of sectoral indices have laid their impact on sensex by calculating coefficient of determination.

Table 3: coefficient of determination

BSE AUTO BSE AUTO BSE BANKEX BSE FMCG BSE IT BSE SENSEX 1 BSE BANKEX 0.798451 1 BSE FMCG 0.423373 0.233204 1 BSE IT 0.624417 0.462824 0.254437 1 BSE SENSEX 0.902068 0.896068 0.346142 0.646103 1

Interpretation: In the following table of coefficient of determination the stock prices is highly effected by BSE AUTO and BSE BANKEX whereas least affected by BSE FMCG. Next step is to calculate the t-test and check that the top most Sectoral indices of BSE and Sensex are independent from each other or not.

Table 4: t- test
Variables Calculated Value
BSE AUTO BSE BANKEX BSE FMCG BSE IT

12.88

12.46

3.09

5.73

Interpretation: The table value of t at 5% level of significance for 19 degree of freedom (n-1, where n= 20) is 1.96. Since the computed value oft of all the top most sectoral indices is more than the table value, therefore the hypothesis is rejected and can say that stock prices is effected by top most sectoral indices. Findings & conclusion There is high volatility in case of stock prices BSE FMCG is negatively skewed while BSE bankex is more positively skewed compared to other variables. In case of kurtosis, all variables are positively skewed, thus illustrating that all have peaked distribution comparative with normal distribution and as almost in all cases it is lowest in BSE FMCG and highest in SENSEX. Correlation matrix almost all the variables are positively high correlated to each other apart from Sensex and BSE FMCG which are less correlated to each other. Stock prices is highly effected by BSE AUTO and BSE BANKEX whereas least affected by BSE
FMCG.

Therefore, it can be concluded that the stock prices is highly affected by the top most sectoral indices.

Appendixes Quarterly Reports BSE AUTO Q1 2008-2009 Q2 2008-2009 Q3 2008-2009 Q4 2008-2009 Q1 2009-2010 Q2 2009-2010 Q3 2009-2010 Q4 2009-2010 Q1 2010-2011 Q2 2010-2011 Q3 2010-2011 Q4 2010-2011 Q1 2011-2012 Q2 2011-2012 Q32011-2012 Q4 2011-2012 Q1 2012-2013 Q2 2012-2013 Q3 2012-2013 Q4 2012-2013 -11.0713 -10.3546 -34.2985 10.50198 53.64647 44.12067 13.71336 4.989241 9.303193 12.35155 13.00041 -12.5871 3.226008 -6.00107 1.565992 12.7274 -1.34427 -0.72048 13.14069 -3.38326 BSE BANKEX -21.3521 -10.8921 -24.4627 -9.7944 62.53326 20.33327 10.31299 2.467577 8.101909 15.89657 8.633246 -9.29081 3.324633 -11.0253 -10.9493 15.2939 -1.40722 5.612783 12.79638 -1.03447 BSE FMCG 3.530413 -6.51314 -12.1514 6.785364 5.597848 21.89464 7.691545 -2.99873 10.58583 13.70882 5.200562 -4.38939 12.16024 2.524805 2.673955 3.761275 12.59621 10.95063 10.89305 -0.74399 BSE IT 16.23511 -16.8204 -28.8574 -13.4723 35.20117 41.99148 13.09342 7.098968 3.005616 5.966415 12.58562 0.605074 -4.13596 -11.3307 5.606929 5.51177 -4.91153 -0.73496 1.655417 15.859 BSE SENSEX -7.28772 -11.4149 -31.7195 -1.76573 44.59682 19.59772 3.762646 0.05566 3.754227 7.095747 7.430282 -7.43608 1.598576 -9.13058 -3.98288 6.223296 -2.64204 4.82892 7.193749 0.559279

References: J.k Pattnayak, The effect of quarterly earnings announcement on sensex : a case with clustering of events, Indian school of Mines, Dhanbad. Research report. www.economictimes.com www.bseindia.com www.icai.org.in/resource_file/11054p449-oct04 www.ssrn.com