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Indian Equity Markets: Performance Analysis over 2009
-- M Syam Babu
Faculty Associate, FedUni, Hyderabad.
-- Dr. B Ramachandra Reddy Professor,Department of Commerce,
Sri Venkateswara University, Tirupati.
-- Dr. G Narasimhulu,
Lecturer, SKIT, Srikalahasti.
After the global meltdown in 2008, the year 2009 was one of recovery instilling hope amongst
equity investors. The Indian equity markets witnessed a sharp upward rally from the lows that
were witnessed in March 2009. Positive economic data from the Western world, improving
consumer confidence, increasing industrial production, and rising domestic consumption are some
of the factors that have lent strength to the equity markets. This article analyzes how the Indianequity markets performed in 2009.
After a rapid downfall in 2008, the Indian capital markets performed very well in 2009. After
starting off in a whimper on the back of weak global cues and the Satyam fiasco, the Sensex, in
2009, surprised investors by gaining 80% over the previous year, Actually, the bellwether index
doubled itself towards the end of the year from its March bottom level of 8160. The gravity-defying
move by the equity markets was largely driven by improving economic conditions and ample
liquidity available in the system. At the dawn of the New Year, a sense of excitement, mixed with
apprehensions, prevailed in the air. Will the good run of the sensex continue in 2010? Actually, in
2009, all sectors did not participate in the upward rally of the stock market. Hence, the
performance in 2010 will depend on the sector wise performance in 2009. This article presents the
performance of various sectors in 2009 and the macro elements which the investors have to
observe in the current year to make their investment decisions.
Broadly, the major sectors involved in stock market activity are: auto, banking, capital goods,
consumer durables, FMCG, healthcare, information technology, metal, oil and gas, power and
realty stocks. The BSE maintains sectoral indices for these segments. The performance of the
equity market is explained with the help of these sectoral indices. The BSE sensitive index (30
Scrips) (Sensex) increased from 9,903.46 points on 1-1-2009 to 17,464.81 on 31-12-2009. This
means that the Sensex increased by 76.35% during 2009. The lower limit of sensex during 2009
was 8, 047.17 (recorded on March 6, 2009) and upper limit was 17,464.81 points (recorded on the
last trading day of 2009). The average monthly returns from the Sensex was 5.49% and the
monthly compounded returns was 5.07% during the year. FMCG sector was the worst performerand the metals sector was the best performer during this period. While the FMCG, healthcare,
realty, oil and gas and power indices underperformed, the banking, consumer durables, IT, auto
and metal indices over performed during 2009, compared to the Sensex. The details are given in
Table 1 and Figure 1.
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As can be seen from Table 1 and the Figure 1, the metal sector gave more than 10% returns per
month. The stocks of SAIL, TATA Steel, Jindal Steel, NMDC, etc., performed very well during 2009.
It appeared that the monetary stimulate packages announced by the government at the end of
2008 and at the beginning of 2009 had begun to yield results. The stocks of Tata Motors,
Mahindra&Mahindra etc., gave the best returns in the year. The monetary policy of RBI gave a
further impetus to the financial sectors. The 18 shares in the banking index showed an upward
trend during the study period. Overall, the average monthly returns of all indices was more than
3%, compounded monthly returns more than 2.85% and the annual returns of all indices was
more than 40%.
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Though the Sensex gave more than 85% returns in 2009, it is far below its all time high by
17.65%. The auto, FMCG and healthcare sectors managed to recover all the capitalization which
was lost during the panic conditions that prevailed in 2008 and reached new highs in 2009.
Although the remaining sectors did not recover their lost capitalization, they performed well in
2009, compared to their respective lows in the previous year. The realty sector witnessed its worst
performance in 2009. Realty stocks like DLF, Unitech, etc., lost more than 60% of their market
capitalization. DLF lost its 5th rank and stood at the 21st place in the order of total market
capitalization of the companies in the country. Many reasons can be identified for the poor
performance of the realty sector. Though this sector recovered by more than 270% from its 2009
lows, yet it could not recover more than 65% market capitalization from its all time high, which
was recorded on January 8, 2008. Another sector which did not recover its lost capitalization was
consumer durables. This sector was unable to recover more than 44% capitalization. The details of
performance of various sectors are presented in Table2. Potential investors have to conduct a
fundamental study of various stocks before investing in the stock markets.
IPO Performance
During 2009, 20 companies came out with IPOs and raised Rs. 19,303.81 cr. Of these 20
companies, nine companies failed to maintain even their issue price in the secondary market. It
means that 45% of the IPOs in 2009 failed to bring listing gains to the investors. The total market
capitalization of the issues was reduced by just 1.25% (from Rs. 19,303.81 cr to Rs. 19,545.63 cr
by the end of 2009). Two companies out of 20 companies lost more than 40% and only two
companies gave more than 100% returns within a short period of time to their investors. The
details of the IPO performance are presented in Table3. The performance of public issues during
2009 stands in stark contrast to that in 2007, when companies like Edelweiss Capital and Mundra
Port, listed at about 75% premium and gave more than 200% returns. Out of the 103 companies
that got listed during 2007, 62 companies gave more than 50% returns. The participation of retail
investors was also very low during 2009. Overall, in the 20 public offers, the average retail
participation was 2.36 times a sharp decline from 2007, when the average subscription was 14times.
Highly sub-scribed IPOs also failed to hold to at least their issue price. For example, the IPO of
NHPC, which attracted huge investor response, lost 10.42% of its issue price. The IPO of Edserv
Softsystems IPO, which gave 265.08% returns, was subscribed only 1.30 times and retail
investors subscription amounted to 1.02 times. Some analysts may argue that small stocks give
good returns through public issues. But the IPO of Euro Multivision Limited yielded a negative
return of 58.87%, whereas Oil India Limited increased its market value by 14.34% in 2009.
Hence, the issue price is not a criterion to judge the performance of a public issue. The first issue
to attract investors under the anchor investor scheme in India, the Adani Power IPO, also failed to
hold its issue price in secondary market. The main reason for the under performance of the IPOs inthe secondary market is that the company coming out with the IPO discounts its forecasted future
earnings to fix the price of IPO and follows an aggressive pricing strategy, whereas the traders
follow the market multiples to deal with secondary market operations. Though the long-term
investors will benefit from the IPOs, the short-term investors must take adequate care while
investing in the IPOs.
It is known that the returns from investment in capital market depend on the macro and micro
environment. The macro environment consists of the economic, political, psychological and
demographic factors. The political environment in 2009 was very attractive. For the first time in
the history of Dalal Street, trading had been suspended for an increase in value of the Sensex. On
May 18, 2009, after the declaration of results of the General Elections, Sensex increased to
14,284.21 points level from the previous closing of 12174.42 points, up 17.34%. This shows that
market sentiments play a very crucial role in determining the market returns. Also, any positive
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development in the European or the US markets has an immediate effect on the sentiments of the
investors. The economic factors in 2009 also attracted investments. After a sharp decline in the
growth rate in 2008, the Indian economy in 2009 exhibited signs of recovery with accelerated
growth in GDP. According to the estimates of the Central Statistical Organization (CSO), real GDP
growth recovered to 6.1% in the second quarter of 2009 from 5.8% in the first quarter. It further
increased to 7.9% in the third quarter. The sequential recovery was driven by notable turnaround
in industrial output (9.0%) and services sector (9.0%). The agricultural sector also recorded a
positive growth (0.9%), despite drought like conditions in some parts of the country and floods in
the others during the year. The growth in industrial production also accelerated to 7.1% during
April-October, 2009 and further rose to 11.7% in November, 2009. The inflation rate, based on
WPI, showed significant volatility during the year. Year-on-year WPI inflation turned negative
during June-August 2009, and later returned to a positive zone in the wake of a spurt in prices of
food items and rise in global crude oil prices. The annual year-on-year inflation for the month of
November 2009 based on monthly WPI increased to 4.8%, as compared with 1.3% in the previous
month. But food inflation, which increased to 19.8% towards the end of the year due to deficient
monsoon exacerbating supply conditions, brought negative sentiment in the market. Prices of
essential commodities have been steadily increasing. These macro environment factors are,
however, expected to show a positive performance in 2010. However, uncertainty about the
performance of the developed economies remains a key concern for the equity markets in this
year. Also, the strategy to be adopted by the RBI to exit from the fiscal and monetary stimulus
measures would add to the volatility in the equity markets. Apart from these factors, investors
have to observe the micro environment in 2010. According to market analysts, the year 2010
would be one of consolidation. Hence, inventors have to search for stock-specific investment
opportunities based on growth rate in sales, earnings profits and PE multiples of the company.
Conclusion
The selection of an equity investment opportunity depends on many macro and micro elements.
Potential investors have to keep both these factors in mind while investing in 2010.
Reference # 6M-2010-02-02-01.
The Current Bull Run Can It Sustain ?
-- Ashish Pai
Freelance Writer,
Mumbai.
The Indian stockmarket indices have been witnessing a strong upward rally in the past few months
powered by FII inflows and positive global market cues. While this rally has elicited optimism andjoy among the investors it has also fueled a debate: is this rally sustainable?
The Sensex has more than doubledfrom a low of 8,160 on March 09, 2009 to 16,843, as on
October 08, 2009. This phenomenal rise and that too in such a short span of time is
unprecedented. While the investors are rejoicing over this huge increase in the stock market
indices, they are also anxious about whether this bull run will sustain (Refer Table 1). Before
delving into this, we shall first try to identify the reasons for this current bull run. We will also
`attempt' to understand whether the market is overvalued and whether the bull run can sustain.
(The word `attempt' here is significant because, plainly speaking, it is difficult to predict the
market. Market collectively functions in a particular manner. It leads the way and we are just
followers of the market trend.)
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Reasons for the Bull Run
Some of the reasons for the recent stock market bull run are enumerated below:
Liquidity and FII Inflows
The most significant contributor to the stock market bull run has been the FII inflows. With most of
the central banks across the world following an `easy' monetary policy, the global financial systemis flush with funds. As such, there has been a massive inflow of funds into emerging markets like
India. The total inflow of funds on account of FII investments for the last seven months (April 01,
2009 till October 07, 2009) was Rs. 68,323 cr.
Indian Companies not Heavily Affected by Global Downturn
The corporate results for the financial year 2008-2009 and also for the first quarter for 2009-2010
reveal that Indian companies have delivered better than expected results. The global credit crisis
has not impacted the Indian companies severely.
Government Policies
The results of the 15th Lok Sabha general elections were a positive surprise. The mandate for a
stable government at the center increased market expectations with regard to economic reforms,
stable policies and good governance. It is expected that the newly formed government will be able
to deliver on key economic initiatives, especially in the financial sector such as banking, insurance,
etc., and socially important sectors, like healthcare, infrastructure, education, etc. The
disinvestment process has been kicked off by the government with the primary market issues of
NHPC and Oil India. It is expected that some public sector banks and power utilities will also tap
the primary market soon.
Signs of global economic recovery
Signs of revival are emerging from the developed economies. Data from the different sectors of
the economy has been encouraging. It seems that the worst is over and we have begun to see the
"green shoots." However, there are concerns whether this recovery is for real or is just an
aberration.
Increase in Capex
Corporates have started raising funds for capital expansion and are venturing into new vistas. The
M&A arena is also witnessing action.
Low Inflation
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The low inflation levels have helped the Indian corporate to raise funds at cheaper interest rates.
The RBI has been following an easy monetary policy giving a further impetus to revival and
growth.
Is the Market Overvalued
A mere look at the Sensex or Nifty numbers does not give an idea if the market is overvalued.
What actually matters is the earnings outlook of the companies. It would be incorrect to assume
that the markets are cheaper when the Sensex is at 10,000 or that they are more expensive when
it is at 16,800. That is because a market is valued according to the estimated future growth in
profits of companies. The growth outlook for companies could be brighter when the market is at
16,800 points and so the market could actually be cheaper at those levels. Conversely, if the
prospects for growth are muted going ahead, the market could be expensive even at 10,000
points. So, one useful metric that can be used to accurately value the market is the price-earnings
(P/E) ratio. The current P/E ratio for the Sensex is 22.39. The ratio for the other indices is given in
Table 2. Another metric to value the market is the dividend yield. If the dividend yield is, say 3-
4%, then it is worth buying the stocks because the current returns are good and one can expect
capital appreciation over the next few years. The current dividend yield for the Sensex is 1.10.
In case the future earnings are expected to be better, the indices may have a higher P/E ratio.
When the Sensex touched 21,000 levels, the P/E ratio was 25.53 and Dividend Yield was 0.88.
Bull Run can be Sustained if ..
Economic Growth
In terms of earnings growth, the first quarter results of India Inc. have been encouraging, with
better-than anticipated numbers. This is important because analysts believe that it has triggered
an earnings upgrade cycle, which would provide support to the market. The upward revision in the
earnings estimates has been largely driven by automobile, infrastructure, cement, information
technology (IT) services and banking stocks. A more widespread recovery in economic activity,
pick-up in investment and consumption, along with improving global scenario, are expected to
further upgrade the earnings estimates.
Continued FII Inflows
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The flow of money into Indian markets from FIIs has to continue for the bull run to continue. One
of the reasons for the market crash in the first three months of this year was the pull out of money
by FIIs.
Government Push for Economic Reforms
The high fiscal deficit and the large borrowing program also mean that there is a limited window
for action. A 'loose' monetary policy could trigger off inflationary pressures next year and,
combined with the governments borrowing it could crowd out private borrowers. This is something
that the government should guard against. The future of the economy lies in the hands of the new
formed government which can either take the economy to a higher growth path (and the stock
market will follow) or can waste the opportunity and fail to capitalize on India's potential.
Inflation Management
Another major requirement is managing the inflation. It is expected that with a rise in the prices of
consumables, inflation may rise which may cause a rise in the interest rates. This will increase thecost of borrowing for corporates,leading to lower profits.
Capital Market Initiatives
The government should facilitate greater market participation by provident funds, pension funds,
etc. It should also look at removing Securities Transaction Tax and certain other impediments so
that there is an impetus for the growth of capital markets.
Conclusion
It is important for India to undertake structural and progressive reforms so that the benefits ofliberalization and economic growth trickle down to all segments of society. If a large section of the
Indian society can participate in contributing capital to the corporates via the stock market, it will
be a true bull run which can sustain for a very long time to come irrespective of the changes in the
global market. The time for reckoning has come and all players involved in the market, be it
investors, industry, or the government should contribute to the development of a robust capital
market.
Reference # 6M-2009-11-02-01.
Optimism in Indian Stock Markets: How Long Will It Last?
-- Bhaskar Mutyala,
Faculty Associate,
Academic Wing (Finance),
FedUni, Hyderabad.
Indian stock markets have rebounded drastically in the last few months aided by the global stock
market rally, optimism in the international markets, pick up in the industrial activity and a growing
belief that the worst is behind us. Will this rally continue is what remains to be seen.
It has been 20 months since the bull market peaked in January 2008. The Indian markets are
again witnessing new levels of optimism. From the extreme pessimism that prevailed in March
2009, this optimism has been built in just six months. It seems like the Indian stock markets are
oscillating between extreme optimism and pessimism. This is not the first time that Indian markets
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are exhibiting this trend. Ever since the ongoing economic reforms have put India on the list of
emerging economies, Indian markets have became the target of low yielding funds from developed
economies.
In the year 2008, the early days of global economic recession, there was a perception that
emerging economies have decoupled from the developed markets and they can continue to growwithout the FII funds and any adverse development in the developed economies would not have
any repurcussions on these economies. It was argued that internal consumption in these
economies was sufficient to achieve the targeted economic growth. But all these theories were
proved wrong and Indian stock markets witnessed a huge decline in the year 2008 in sync with the
global stock markets.
The root cause of the recent global recession was the massive build up of leverage and creation of
liquidity glut which caused the market participants to overlook the risk and inflation that was being
built in the asset prices. This created a huge bubble in the all asset prices including the emerging
economy stocks. The US subprime crisis finally caused the bubble to burst. This subsequently
created a massive upheaval in the financial markets across the world. The collapse of big
investment banks in the US created a liquidity crunch in the global economic system. In 2008, the
emerging economies witnessed a huge outflow of funds (FII outflows). This again caused the stock
markets in the emerging economies to crash.
Indian stock markets, mostly driven by the FII investments, also witnessed a huge outflow of
funds. In 2008 itself, FIIs pulled out Rs. 52,794 cr dragging down the Nifty to 2000 levels which
subsequently created extreme pessimism in the markets. This pullout continued until March 2009
with a net amount of Rs. 58,480 cr. The global recession and the extreme pessimism also had an
effect on the real economic indicators. Negative IIP growth numbers were witnessed for four
subsequent months from December 2008 to March 2009 (Refer Chart 1).
In order to combat the global economic recession and prevent it from further deteriorating into a
depression, governments across the globe announced a host of stimulus packages. These stimulus
packages were aimed at saving the economies from recession. The US government too declared
massive stimulus packages and brought down interest rates to almost zero. In line with the global
economies, the Indian government also declared various stimulus packages in 2008 to boost the
industries in the economy to combat the global recession.
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However, there was a perception that the announced stimulus packages would not be sufficient for
the economy to combat the crisis. Hence, extreme pessimism prevailed in the markets from
January to March 2009 despite the stimulus support from the governments. The US stimulus
packages resulted in pumping of huge chunk of dollars into the global economic system; which
ultimately chased the potential emerging economy stock markets and commodities. All these
factors led to a turnaround in the global stock markets.
From April this year, the Indian markets have seen huge FII inflows, causing the stock market to
rise from the historic low levels that were witnessed in March. The government's stimulus
packages started yielding positive results from April onwards. The IIP reached a peak level of
10.4% in August this year, which again attracted more FII funds into the Indian markets. By the
end of September 2009, Indian markets attracted a cumulative FII net inflow of Rs. 60,000 cr.
This figure is expected to break the historical net inflows of Rs. 70,245 cr witnessed in the year
2007. All these developments have ultimately changed the entire perception in the market
postponing the much awaited correction. Benchmark index Nifty crossed the psychological barrier
of `5000' mark in October and continues to sustain above that.
Stock Market PEs
Despite all these developments, the markets appear to be in a bubble zone as the Nifty is now
trading at a PE multiple of nearly 24, which is just below the PE multiple peak of 28 that prevailed
in January 2008 just before the crash. If we analyze the PE multiple data of the last 10 years
(given in Chart 2), we can observe that it averaged 17 and was mostly oscillating between the 15
and 20. Whenever there was a deviation from this range, there was corresponding optimism and
pessimism in the market. Indian markets have witnessed the similar kind of optimism that is being
witnessed now, three times in the last ten years, the dotcom boom of 2000, the first leg of bull
market in 2004 and the global credit boom of 2007. At all these times, the PE multiple was above
the level of 22 and FII inflows were also at the peak (Refer Table 1).
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After every case of over optimism, the markets witness a correction that take the stock valuations
again to the below average levels. All these corrections are usually led by the huge outflow of FII
money from the stock markets (Refer Table 1). After both the dotcom bubble in 2000 and credit
bubble in 2007, the markets failed to overcome the pessimism which extended the period of
recovery. But post the correction in 2004, economic indicators and valuations favored the bulls
which took the market into a sustained long-term bull phase.
One thing is for sure even for the events happening in the markets now. Following this over
optimism, there should be a market correction that would again take the markets to the average
PE levels of 16-17. After that, the economic environment has to support the bulls in taking themarket again to the optimistic levels and to prevent them from going into a long period of
pessimism. It must be noted here that the current economic growth and corporate earnings
growth are mainly because of the huge stimulus packages and the asset price inflations. The
Indian economy now has to achieve growth in real demand which is a difficult task.
Many analysts are of the view that the worst is still ahead for the global economy. The root cause
of the current crisis has been the leverage problem and liquidity driven asset price inflation and
none of these problems have been solved so far. The stimulus packages announced by the
governments are actually worsening the situation.
How Long will it Last?
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The period and level of sustainability of the current optimism is perhaps dependent on the
continuing flow of FII (hot) money into the markets. Once the liquidity in the global economic
system tightens or the developed economies find better yielding investment avenues in their
system, it would lead to quick withdrawal of money from the Indian markets. This would ultimately
create euphoria in the markets leading to huge correction. Emerging economies, like India, have
still a long way to go for completely decoupling themselves from the developed international
markets.
Reference # 6M-2009-11-03-01.
Asian Capital Markets Integration
-- Tamal Datta Chaudhuri
Chief General Manager,
Industrial Investment Bank of India Ltd. (IIBI), Kolkata.
-- Rituparna DuttaFreelancer, Columnist.
This article seeks to examine the extent to which stock markets in Asia are interrelated. The
analysis shows that the markets have increasingly become more sensitive to international financial
flows. In that sense they have got integrated with the rest of the world.
One of the reasons for the present worldwide slump in stock markets and other asset markets is
"global imbalance". Briefly, this is an observed phenomenon where the eastern part of the world is
saving more than its investments, whereas the western part of the world, US in particular, is
investing more than its savings. The excess savings in the east is funding the excess spending of
the west which has made the state of savings of the east extremely sensitive to market conditions
in the west. It has been suggested that a way out of this is to create investment opportunities in
the east itself and together this part can grow faster. This is, of course, not to say that the eastern
part of the world should cut itself from the western countries.
To examine the opportunities in the eastern part of the world that will benefit this group of
countries, one has to take stock of the current state of interdependence. This would cover inter-
country flow of goods and services, inter-country flow of savings and investment, movement of
labor, mergers and acquisitions, market size and political and social conditions. However, our
limited purpose here is to examine the extent to which stock markets in this part of the world are
interrelated.
Figure 1 depicts the relationship between the following stock market indices: BSE Sensex, Kuala
Lumpur Composite, Strait Times, Shanghai Composite, Hang Seng and Seoul Composite. The time
period is 24.9.2007 to 18.2.2009. Figure 1 reveals that the indices are indeed related. They have
all fallen in this market downturn in the last one year.
Although the pattern observed in Figure 1 in all the stock market indices may look similar, each
country has its own characteristics and unique behavior pattern of its savers and investors. Each
country also has its own set of financial institutions and rules and regulations which affect market
behavior. This, we feel, should get reflected in volatility in market returns. This is shown in Figures
2 and 3. Figure 2 indicates that over the time period under consideration, volatility has increased
in all the markets. This implies that these markets have increasingly become more sensitive to
international financial flows and in that sense have got integrated with the rest of the world.Among these indices, Figure 3 shows that if we split the time period into bull and bear periods and
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look at periodic volatility, the Sensex and the Shanghai Composite are relatively more volatile than
the other indices. This is a reflection of the fact that India and China are the most happening
countries and financial capital has moved significantly into these countries in recent times. The
next volatile index returns is the Hang Seng.
We now turn to measures of interdependence and in this regard, Table 1 gives the extent of
correlation of volatility of Sensex returns with that of the other indices for the years 2005-06,
2006-07 and 2007-08. Three observations can be made. First, the extent of correlation between
volatility of the Sensex and the Shanghai Index has not been high and has fallen over the years.
Second, the correlation with Seoul Composite, Strait Times and Hang Seng has been high andpositive over the years. However, with Seoul the relationship has gone down, whereas that with
Strait Times has increased. Third, the correlation with Kuala Lumpur Composite has increased and
is positive in 2007-08.
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Although the discussion establishes the extent of association, it does not establish any causal
relationship. For this, we now present the results of Granger causality tests that we performed
with the index returns for the period from March 2005 to September 2008. The objective is to see
whether the movement in the Sensex returns is caused by index returns of other Asian equity
markets. The regression results and the inferences drawn are given at the end of each of the
tables.
From Table 2 we get the value of F (3,908) = F(3, a) = (1.37, 2.08, 2.60, 3.78 at various levels
of significance). As F-value is more than the critical value at most levels of significance, it can be
said that Hang Seng Granger causes Sensex.
From Table 3 we get the value of F (3,908) = F(3, a) = (1.37, 2.08, 2.60, 3.78at various levels
of significance). As F-value is more than the critical value at all levels of significance, it can be said
that Sensex Granger causes Hang Seng. Thus, with respect to the Sensex and the Hang Seng, a
two way causality has been established.
As the F-value is less than the critical value at all levels of significance, it can be inferred that
Kuala Lumpur Composite does not Granger cause Sensex (Refer Table 4).
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As the F-value is less than the critical value at all levels of significance, it can be inferred that
Sensex does not Granger cause Kuala Lumpur Composite (Refer Table 5). We can thus infer thatthere does not exist any causal relationship between the movement in the returns of the two
indices.
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From Table 6 we get the value of F (3,908) = F(3, a) = (1.37, 2.08, 2.60, 3.78at various levels
of significance). As F-value is more than the critical value at all levels of significance, it can be said
that Seoul Composite Granger causes Sensex returns.
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From Table 7 we get the value of F (3,908) = F(3, a) = (1.37, 2.08, 2.60, 3.78at various levels
of significance). As F-value is less than the critical value at almost all levels of significance, it can
be said that Sensex does not Granger cause Seoul Composite. In this case a one way causality has
been established.
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As the F-value is less than the critical value at all levels of significance, it can be said that
Shanghai returns does not Granger cause Sensex returns (Refer Table 8).
As the F-value is less than the critical value at all levels of significance, it can be said that Sensex
returns does not Granger cause Shanghai returns (Refer Table 9). The above analysis shows that
there does exist any form of causality between these two index returns.
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From Table 10 we get the value of F (3,908) = F(3, a) = (1.37, 2.08, 2.60, 3.78at various levels
of significance). The F-value suggests that the causality can be established at 10% level of
significance.
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From Table 11 we get the value of F (3,908) = F(3, a) = (1.37, 2.08, 2.60, 3.78at various levels
of significance). As F-value is more than the critical value at all levels of significance, it can be said
that Strait Times returns Granger causes Sensex returns.
8/3/2019 Indian Equity Markets
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The article presents a methodology of analyzing relationship between stock market movements
and index returns in Asian stock markets. Our results show that there is indeed some relationship
between these markets and financial sector players should take these relationships into cognizance
while making portfolio decisions.
Reference # 6M-2009-09-03-01.