Summary of Findings From the Banking Industry

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4. Summary Of Findings

The study has been conducted to observe the impact of national elections on the share market, with regard to its performance in terms of volatility, which has been proved on the basis of the following findings published here:

4.1 As observed from Banking Industry:

  • The return of PNB on the date of elections (16th May, 2014) was 7.34%. When compared with the previous dates stock returns, the performance of the bank shows an inclination towards a positive fluctuation, as the returns rise from 1.3% on 2nd May 2014, 0.24% on 8th May 2014, 4.86 % on 9th May 2014, and then assumes a negative trend, but with a high volatility, succeeding the date of elections, as witnessed in (1.69%) returns on 20th May 2014, (0.14%) returns on 22nd May 2014, and so on. Furthermore, this strong volatility is exhibited by a comparatively high standard deviation of 0.0367 and a strong beta value of 1.7049
  • The return of SBI on the date of elections (16th may, 2014) was 5.71%. When Compared with the previous dates stock returns, the performance of the bank shows a positive volatility, as the returns rise from 0.37% on 4rd may 2014, 3.75% on 9th May 2014, on and than assumes a negative trend, but with a high volatility, succeeding the date of elections, as witnessed in (-1.64%) returns on 18th May 2014, (- 2.74%) returns on 19th May 2014, (-2.76%) returns on 27th May 2014 and so on. Furthermore, this strong volatility is exhibited by a comparatively high standard deviation of 0.0307 and a strong beta value of 1.9186.
  • The return of Axis bank on the date of elections (16th may, 2014) was 5.30%. When compared with the previous dates stock returns, the performance of the bank shows a positive volatility, as the returns rise from 1.45% on 5th May 2014, 4.64% on 9th May 2014, 1.51% on 15th May 2014, on and than assumes a negative trend, but with a high volatility, succeeding the date of elections, as witnessed in (-2.23%) returns on 21st May 2014, (1.37%) return on 27th May 2014 and so on. Furthermore, this strong volatility is exhibited by a comparatively high standard deviation of 0.0204 and a strong beta value of 1.1601.
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4.2 Pharmaceutical industry has shown the following fluctuations:

  • The return of sun pharma on the date of elections (16th may, 2014) was -1.27%. When compared with the previous dates stock returns, the performance of the company shows a high rate of volatility- the returns as on 5th may 2014 is -0.52%, on 6th may the return decreases to -0.08% whereas on 7th may again it became positive 0.74% whereas on 14th may the returns are 0.50% but on the day of election it again turns negative -1.27%. This shows the market is highly volatile. Furthermore this volatility is exhibited by a standard deviation of 0.0168.
  • Lupin and Cipla, both the companies show a similar trend in their volatility rate. The returns on the date of elections (16th May 2014) were Lupin 0.56% and Cipla’s was -2.54%. When compared with the previous dates stock returns, the performance of both the companies show a similar trend in volatility- the returns on 2nd May, 2014 – 2.07% and 1.16% respectively; 5th May, 2014 – (1.21%) and (2.37%), respectively. The companies follow a similar path before the date of elections. After the election date, similar high volatility is exhibited- returns on 19th May 2014 (4.63%) and (0.91%), respectively, 20th May 2014 1.7% and 1.18% respectively and returns of (0.95%) and (1.99%) respectively. This is further exhibited by a high standard deviation of 1.5 of both the companies.
  • The return of Torrent on the date of elections (6th May 2014) was -1.70%. When compared with the previous dates stock returns, the performance of the company shows a high volatility trend as compared with the other companies in the industry as well. The returns are, on 5th may 2014 2.64%, on 7th may 2014 -1.28%, 13th may -1.67% and on 15th May -3.21%. The mentioned figures show a high volatility in the stock returns. Furthermore this volatility is exhibited by a standard deviation of 2.44%.
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4.1.3 FMCG industry showed the following volatility:

  • The returns of Nestle on the date of elections (16th may 2014) was -1.45%. When compared with the previous dates stock returns, the performance of the company show a high volatility rate, as on 2nd may the return is -0.94%, whereas on 8th may the reruns are 1.48%, 9th may shows 1.17% but on 13th may the reruns again drops to -1.94% which is a negative figure, 14th may the returns are -1.20%. The returns mentioned show a high volatility trend. Furthermore this volatility is exhibited by a standard deviation of 0.0135.
  • ITC shows a high trend of volatility in the returns, the returns on the date of elections (16TH MAY 2014) is -3.04%. When the returns are compared with the previous dates stock returns, the performance of the company show a high volatility rate, as on 2nd may is -0.15%, 5th may the return is 1.31%, 8th may it turns negative to -1.30%, but again on 12th may the return became positive to 3.94%, whereas on 14th the return drop down to 1.33%. Thus the mentioned figures show a high volatility. Furthermore this volatility is exhibited by a standard deviation of 0.0183 and a strong beta of 0.2513.
  • The return of Dabur on the date of elections (16th may, 2014) was -3.38%. When compared with the previous dates stock returns, the performance of the company shows a high rate of volatility- the returns as on 2nd may the return is 0.56%, on 5th may it drops down to -0.42%, on 7th may it is -0.67%, whereas on 12th may it turns to 1.25%, on 13th it increases to 3.71%, whereas on 15th may it again drops down to a negative figure of -0.98%. Thus the figures conclude that the company has a high volatility rate. Furthermore this volatility is exhibited by a standard deviation of 0.0150 and with a strong beta value of 0.2180.

5. Conclusions

India, ever since its independence 68 years ago, seems to have been struck with policy paralyses, indecisiveness, and widespread bureaucracy. Its political lineup includes – the Congress, the Bhartiya Janata Party and the newly emerged - Aam Aadmi Party. In the world’s largest democracy, elections, which signify its very essence, bring activity and excitement not only on the political front, but also send our financial markets into turmoil. This study examined the impact of political uncertainty on stock exchange. To study this issue the researcher has taken two companies form two different sectors and than there returns are studied and correlated with the Sensex. The study brings to light several interesting facts. It is clear that political events stimulate a strong reaction from the stock market. Investors and Stock Market Analysts will benefit from analyzing the political situation of the country as well before investing in particular scrip. Further research and analysis to determine the exact extent of this influence will help analysts accurately measure future returns from scrips. Researcher studied the effect of political news i.e. election results, when the Bhartiya janta party formed a new government, on the stock market returns and volatility. Hence after the study it is proved that the political news does have a great impact on the volatility of the stock prices of different companies in different industry.

For the month of May, average returns given by banking industry is more than the pharmaceuticals industry. Though the returns are more in banking industry but the returns are more consistent in pharmaceuticals industry i.e. the returns are less volatile. The comparative analysis shows that the positive relation between stock and the market is more in banking industry as compared to pharmaceuticals industry. The expected returns as compared to actual returns i.e. Alpha is counterbalanced by the samples selected in both the industries. Hence the industries are on the same platform as regards to Alpha. The uncontrollable risk (beta) is more prominent in pharmaceuticals industry, which states that it is more affected by outside sources.

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This study will be beneficial for the investors, who invest in stock market as political scenario is one of the important factors for price fluctuations and this will help them to analyze and study the market properly. This study will also help the economist and companies to study the influence of political news on the share prices.

6. Implications of the study

  • This study will be beneficial for the investors, who invest in stock market as political scenario is one of the important factors for price fluctuations and this will help them to analyze and study the market properly.
  • This will also help the economist and companies to study the influence of political news on the share prices.

7. Limitations

  • The study have been conducted on using only 3 sectors of the economy i.e. Banking Pharmaceuticals and FMCG.
  • The political news, which has been taken, is for one month but not on an annual basis.

The study has ignored the dividends and different interest rates, as it does not create any significant error when we forecast stock market volatility.