Analysis of stock market fluctuations

BUSINESS RESEARCH METHODS
RESARCH REPORT
ON

ANALYSIS OF STOCK MARKET
FLUCTUATIONS

SUBMITTED TO:
DR. VIBHAVA SRIVASTAVA
MARKETING AREA

SUBMITTED BY:
ADITYA KAPOOR (2012020)
AMIT GUPTA (2012037)
GROUP - 2
SECTION - A
PGDM- 2012-14

ANALYSIS OF STOCK MARKET FLUCTUATIONS

SUMMARY:
The report will tell the behavior of stock prices within a specific period of time and what
factors influence the stock prices. The stock prices according to our report particularly are
influenced by increase/decrease in internal factors such as sales and profitability and by
external factors such as its relationship between stock market behavior and cycle period of
economy (boom or recession). The weight age of each of these factors is industry specific.

PROBLEM STATEMENT:
Sometimes we observe that whenever any monetary or fiscal decision or when any company
declares its result like how much they earn profit in the particular financial year or when they
announce any expansionary project, capital market got affected. So, we want to find out
whether the fluctuations in stock markets are random or follow a cause and effect relationship
with all these decisions. Hence, we have derived the hypothesis, and they are:
 H0: That all the variables (sales, profitability and economic indicators) will affect the
stock return, and stock fluctuations behavior can be determined by these variables.
 H1: Stock market behavior will be determined by the technical analysis.

BENEFITS OF THE STUDY:
Broadly we have classified the benefits research into various sub groups:
 As an investor:
1. An investor will be able to predict returns and take decisions according.
2. Investor can earn higher returns.
 As a Student: Student can learn about various research methods that are used to
determine the stock market.

RESEARCH DESIGN:
We have followed the exploratory research approach and our research is typically based on
the secondary data plus on a small focused group survey by targeting those persons who
invests in the market frequently, hence we have taken a sample size of 20 persons. Through
the survey we are to predict the investor behavior that how they invests in the market and
what are the factors which they see In this research we are analyzing the stock market
movement by doing fundamental research which includes the variables like beta value,
profitability and sales of the company and economic indicators like GDP, inflation as well.
With all these variables we have tried to predict the dependency of the variables among each
other. As exploratory research allows us to manipulate the discoveries due to less stringent
methodological restrictions, hence we have used the data to do the research on our hypothesis
that we have made. We are focusing on the research objective that if any normal investor
invests in the market by analyzing all these factors then is (s)he will be able to earn a good
amount on the stock market provided that all the factors that we have taken are dependent or
not. So if all the factors are dependent then we can infer that our objective is workable and if
not then we have to simply shift towards the technical analysis (observing the trend that how
much shares are being purchased and sold or how much money is invested on daily basis) of
the market which is beyond our research scope because it requires very typical and heavy
calculations on the daily basis.

2 | GROUP – 2 SECTION – A

PGDM -2012-14


QUESTIONNAIRE ANALYSIS:
A focus group questionnaire was filled by 20 respondents i.e. by those who invest frequently
in stock market and also look at some factors while investing in stock. Following were the
questions asked to them:
1. How frequently do you invest in stock market in a year?
a. Daily
b. Weekly
c. Fortnightly
d. Monthly
e. Quarterly
f. Yearly
2. How much do you invest in a year (in ₹)?
a. 0-25, 000
b. 25, 000-50, 000
c. 50,000 -75, 000
d. 75, 000 & above
3. What factors you observe while investing in a company stock?
a. Fundamentals
i. Sales or Quarterly Results
ii. Profitability
iii. P/E Ratio
iv. Company type (Blue Chip or White chip)
v. Business Trend
vi. News
1. Economic News
2. Stock Specific News
b. Technical
Following results were obtained:
1. How frequently do you invest in stock market in a year?
10

5

8
3

0


4
0

0

PGDM -2012-14


2. How much do you invest in a year (in ₹)?

Frenquency

Rs0-25000
Rs25000-50000
5%
10%
Rs75000
ABOVE
40%

Rs5000075000
45%

3. What factors you observe while investing in a company stock?
20
18

15
10

14

5

12

11

10

8
5

Series1

0

DATA ANALYSIS:
1. STATE BANK OF INDIA:
STATE BANK OF INDIA
RELATION BETWEEN STOCK RETURN AND
CORRELATION
REGRESSION
SIGNIFICANCE F
SALES
0.766725515
0.587868015
0.130413348
PROFITABILITY
0.661256299
0.437259894
0.224253153
ECONOMIC INDICATORS
0.865156419
0.74849563
0.05822293
ALL THREE VARIABLES
0.916442587
0.839867014
0.49556236

After all the calculations, we observe that there is high correlation and good dependency
between stock return and economic indicators and this argument is also closely supported
by the significance F value(1%).
 Considering the relation between sales and return correlation is high and dependency
is moderate but significance value of F shows the amount of errors the data set
possess and same is the case with profitability and return. In order to solve or rectify
rather this problem we clubbed all the variables.

PGDM -2012-14




Considering the relation between the stock return and economic indicators and we
found that the significance level is somewhat supporting our result which helps in
analysing the behaviour of stock fluctuations. To support this argument graph 1.1
depicts the same behaviour i.e. any monetary or fiscal measures taken by the govt. the
stock markets move accordingly. Still the data have very small percentage of errors.

RELATION BETWEEN ECONOMIC INDICATORS
AND STOCK RETURNS
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
economic indicators
stock return

2012

2011

2010

2009

2008

0.0334375

0.042875

0.04325

0.02575

0.040275

-0.39893

0.748289

0.252093

-0.41373

0.485794

Graph 1.1: RELATION BETWEEN ECONOMIC INDICATORS AND STOCK RETURNS

So, to remove this error we clubbed all the variables with each other.


After clubbing all the dependent variables (sales, profitability and economic
indicators) and find the correlation between clubbed variables and stock return we
find the problem of multi co-linearity even though there is a high correlation and
dependency among themselves. Graph 1.2 shows the same i.e. because of problem of
multi co-linearity the behaviour of both the lines is somewhat different. So, it is hard
to determine the stock market behaviour with these variables.

RELATION BETWEEN RETURN AND SALES,
PROFITABILITY AND ECO. INDICATORS
1
0.5
0
-0.5
RETURN

2012

2011

2010

2009

2008

-0.39893

0.748289

0.252093

-0.41373

0.485794

SALES, PROFITABLITY & ECO.
0.696229868 -0.116466523 0.07643367 0.457001297 0.581982196
INDICATOR
GRAPH 1.2: RELATION BETWEEN RETURN AND SALES, PROFITABILITY AND ECO. INDICATORS


PGDM -2012-14




So, for the banking sector an investor can somewhat rely on the economic indicator.
And other than that an investor can also go for the other factors for the stock
fluctuations like price to earnings ratio or otherwise investor has to go for the
technical analysis.
2. MARUTI SUZUKI INDIA LIMITED:
SALES
PROFITABILITY
ECONOMIC INDICATORS
ALL THREE VARIABLES





MARUTI SUZUKI
CORRELATION
REGRESSION
SIGNIFICANCE F
0.463136819
0.214495713
0.432133082
0.841827236
0.708673096
0.073696915
0.954913767
0.911860303
0.011414074
0.998657544
0.99731689
0.065922709

Initially if an investor got influenced with the sales and profitability results of the
company then it might not get the accurate picture about the stock movement because
for sales correlation and dependency with the stock return are low and high and weak
and moderate respectively. But if we analyse the significance F value; it shows the
high percentage errors in the sales data and very low error in the profitability data but
logically it should be the same because both sales and profitability are interrelated
with each other. So, it is not showing the clear picture.
Considering the economic variable with stock return; the correlation is very strong
and dependency between them is also very high and significance value of F test also

RELATION BETWEEN ECONOMIC INDICATOR AND
STOCK RETURN
2
1.5
1
0.5
0
-0.5
-1
ECONOMIC INDICATOR
STOCK RETURN

2012

2011

2010

2009

2008

0.0334375

0.042875

0.04325

0.02575

0.040275

0.62663

-0.34683

-0.0859

1.847905

-0.47077

GRAPH 2.1: RELATION BETWEEN ECONOMIC INDICATOR AND STOCK RETURN

supports our argument as there is almost no error in the data set. But after observing the
graph it is clear that economic indicators like GDP and inflation that we had considered
are not enough to substantiate the stock fluctuations (refer graph 2.1) there is a possibility
of other economic factors like any measures taken by the govt. for the stock specific or
sector (automobile) specific might be there which is influencing the stock prices in the
market. For that we have combined all the variables to find the clear picture.
 After clubbing all the variables, there is a strong relation and high dependency among
others and the same is supported by the F value. So, our assumption in above point is

PGDM -2012-14


SALES, ECONOMIC INDICATORS AND
PROFITABILITY
2
1.5
1
0.5
0
-0.5
-1

2012

2011

2010

2009

2008

SALES, RETURN AND
-0.258914554
ECONOMIC INDICATORS

0.020945

0.15734397

-0.233295

0.2033916

STOCK RETURN

-0.34683

-0.0859

1.847905

-0.47077

0.62663

GRAPH 2.2: RELATION BETWEEN STOCK RETURN AND SALES, ECONOMIC INDICATORS AND
PROFITABILITY

almost founds to be true and the same is being supported by the graph 2.2 that all the
variables and the other variables results in the fluctuations of this stock and behaviour
can be analysed about the market fluctuations can be determined.
 So, for an investor to earn good profit through this stock they must look towards the
economic indicators with other indicators like P/E ratio and beta values of the stock as
well.
3. DR. REDDY’s:
DR. REDDY's
CORRELATION REGRESSION SIGNIFICANCE F
SALES
0.472567434 0.22331998
0.421520897
PROFITABILITY
0.536678712 0.28802404
0.35106906
ECONOMIC INDICATORS
0.801718309 0.642752248
0.102777858
ALL THREE VARIABLES
0.978170001 0.956816551
0.262670343





The relation between sales and return is moderate and dependency between them is
low and F value shows the good amount of errors in the data set or in other words
very noisy data, same is the case with profitability. So it is hard to depict the true
behaviour of the stock with these two factors. For this to overcome we have to
increase the data set range from five years to large number in order to clear the picture
or we to choose other factor.
Relation between economic indicators and return is strong with moderate dependency
and significance F value shows a little amount of noisy data which can be rectified if


PGDM -2012-14


AND STOCK RETURN
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6

2012

ECONOMIC INDICATORS

2010

2009

2008

0.1724

STOCK RETURN

2011
-0.052

0.3313

1.4375

-0.3554

0.0334375

0.042875

0.04325

0.02575

0.040275

GRAPH 3.1: RELATION BETWEEN ECONOMIC INDICATORS AND STOCK RETURN



increase our data set range. But after observing the graph 3.1 the result is something
else because economic indicators have no impact on stock returns which means that
there is some other factor which is influencing the stock behaviour. It might be the
price to earnings ratio or beta value of the stock or something else. The measures
taken by the govt. are not affecting the stock market; either there is a possibility that
the measures are not sector and stock specific. For this to determine we clubbed all
the variables.
After clubbing we found the high dependency and strong correlation among all the
variables but the data set is very noisy as there is a problem of multi co-linearity. So,

SALES, PROFITABILITY AND ECO. INDICATORS
2
1.5
1
0.5
0
-0.5
-1
STOCK RETURN

2012

2011

2010

2009

2008

0.1724

-0.052

0.3313

1.4375

-0.3554

0.143804

0.576519

0.25502

-0.584922

ECO. INDICATOR, SALES &
0.12690457
PROFITABILITY

GRAPH 3.2: RELATION BETWEEN STOCK RETURN AND SALES, PROFITABILITY AND ECO.
INDICATORS


PGDM -2012-14


If we increase the data set range then that problem can be rectified. From the graph
3.2 it is clear that all the variables are highly dependent on the stock return and they
are moving in a same way. And also there is possibility that stock is getting
influenced by some other factors because in the range of five years of data; data set is
very noisy so there might be a possibility that some other factors or indicators are
affecting the stock. So, investors have to closely observe all the factors in order to
gain profit from this stock.
4. LARSEN AND TUOBRO:
RELATION BETWEENSTOCK RETURN AND
SALES
PROFITABILITY
ECONOMIC INDICATORS
ALL THREE VARIABLES





L&T
CORRELATION
0.014241594
0.299605326
0.83994028
0.996363434

REGRESSION SIGNIFICANCE F
0.000202823
0.981867652
0.089763351
0.624317065
0.705499673
0.07499721
0.992740093
0.108355081

As this is the stock of capital goods, so sales and profitability will not affect the stock
return anyhow the capital goods which are producing by the industry are always in
demand. Their demand varies only when govt. takes any monetary or fiscal measures
for the further expansion or to boost the industrial sector of the company. The same
has been reflected by the data set that weak correlation and very low dependency of
the sales and profitability with the stock return. And the same has been supported by
the significance F value which shows the huge amount of percentage errors in the
data.
On finding the relation between the economic indicators and return we find that
relation is good and dependency is moderate which means that there is a relation
between them which is affecting the stock fluctuation in the market but graph 4.1 says

AND STOCK RETURN
1.5
1
0.5
0
-0.5
-1

2012

2011

2010

2009

2008

STOCK RETURN

0.630653

-0.48989

0.181623

1.057856

-0.61843

ECONOMIC INDICATORS

0.0334375

0.042875

0.04325

0.02575

0.040275

.GRAPH 4.1: RELATION BETWEEN ECONOMIC INDICATORS AND STOCK RETURN

something else. It says that economic indicators alone are not affecting the stock there
is a measure taken by the govt. for this sector which is affecting the stock; which we
tried to find by clubbing all the variables.

PGDM -2012-14




After clubbing we find that correlation is very strong and dependency of all the
variables are very high, and the data set are having somewhat low noise or problem of
multi co-linearity is there which can be rectified by increasing the data set range.

RELATION BETWEEN STOCK RETURN & ECO.
INDICATOR, SALES AND PROFITABILITY
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8

2012

2011

2010

2009

2008

0.630653

-0.48989

0.181623

1.057856

-0.61843

ECO. INDICATORS, SALES AND
0.2146662
PROFITABILITY

-0.006575

0.322234

0.716977

0.6928262

STOCK RETURN

GRAPH 4.2: RELATION BETWEEN STOCK RETURN & ECO. INDICATOR, SALES AND PROFITABILITY

By closely observing the graph 4.2 we find that our argument is true. The stock is behaving in
the same way as the variables are behaving. Hence for investors to invest in the capital goods
firms they must see those factors which are affected directly by the measures taken by the
govt.

KEY FINDINGS:
From the above research we can conclude that:
 Sales and profitability though they are positively related to the return to stock but have
high level of significance of 20-50%, which means high number of errors. This cannot be
validated, so they are not considered. To remove errors this we can take longer range of
data.
 The economic indicators- GDP and Inflation measure the overall growth and money
supply of an economy. These show positive relation with stock returns and have only 1%
level of significance.
 After clubbing all the data of sales, profitability and economic indicators we conclude that
although these are highly related with stock returns but have larger significance value i.e.
from 6%-50%. So these all data cannot be validated.
 There are some other factors such return of stock with relation to market return and P/E
ratio etc. that also affect the stock price.

RECOMMENDATIONS:
Our study suggests following recommendations:
 As an investor in stocks one should not go by the figures of increase or decrease in sales
and profitability because they have a chance that they will not affect the return of stock.


PGDM -2012-14




While investing one should always look for economic indicators such as GDP and
Inflation because these figures directly affect the stock returns. An increase in these
factors will also increase the stock returns. So, as an investor one should see that whether
the GDP growing or not and inflation is high/low.

REFERENCES:
 For all the figures in the tables refer spread sheet.
 Bloomberg terminal for beta values, stock returns
 Other online resources for the price to earnings ratio, sales and profitability like
o www.moneycontrol.com,
o www.bseindia.com
o www.money.rediff.com
o www.tradingeconomy.com for economic indicators like GDP, inflation.


E-resources like: prowess and Capitaline.


PGDM -2012-14

Analysis of stock market fluctuations

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (16)

Recently uploaded

Recently uploaded (20)

Analysis of stock market fluctuations