CHAPTER 1 INTRODUCTION

1.1 Efficient Markets Hypothesis: An investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments. Although it is a cornerstone of modern financial theory, the EMH is highly controversial and often disputed. Believers argue it is pointless to search for undervalued stocks or to try to predict trends in the market through either fundamental or technical analysis.

Meanwhile, while academics point to a large body of evidence in support of EMH, an equal amount of dissension also exists. For example, investors, such as Warren Buffett have consistently beaten the market over long periods of time, which by definition is impossible according to the EMH. Detractors of the EMH also point to events, such as the 1987 stock market crash when the Dow Jones Industrial Average (DJIA) fell by over 20% in a single day, as evidence that stock prices can seriously deviate from their fair values Before taking any investment decision every investor has to use some investment techniques for evaluating the securities. Two different approaches in use for investment decision making are fundamental analysis and technical analysis. Fundamentalist use the intrinsic value of securities for identifying the securities to be purchased or sold. The technical analyst believed in the past behavior of the prices. However in real life decision making is not guided by a single tool fundamental or technical, but other qualitative factors requiring a lot of personal judgment. In this research work we study the third approach Efficient Market Hypothesis.Markets are considered to be efficient if there is a free flow of information and the market absorbs the information quickly. Market efficiency signifies: how quickly and accurately does relevant known information in immediately discounted by all the investors and reflected in the security prices in the market. No single investor has an information edge over the others as everyone knows all possible to know information simultaneously. Moreover every investor interprets the information similarly and behaves rationally. 2

1.2 Financial Market Efficiency: Financial market is a market for the exchange of capital and credit, which consists the money markets and the capital markets. Money market is the market for short-term debt securities, which is a typically safe and highly liquid able investment. While capital market is the market where long-term debt or securities are traded. Market efficiency refers to a condition, in which current prices reflect all the publicly available information about a security. The basic idea underlying market efficiency is that competition will drive all information into the price quickly. In the financial market, the maximum price that investors are willing to pay for a financial asset is actually the current value of future cash payments that discounted at a higher rate to compensate us for the uncertainty in the cash flow projections. Therefore what investors are trading actually information as a "commodity" in financial market for the future cash flows and information about the degree of certainty? Efficient market emerges when new information is quickly incorporated into the price so that price becomes information. In other words the current market price reflects all available information. Under these conditions the current market price in any financial market could be the best-unbiased estimate of the value of the investment.

1.3 Definitions of Market Eficiency : According to James Lorie Efficiency means the ability of the capital market to function, so that prices of securities react rapidly to new information. Such efficiency will produce prices that are appropriate in terms of current knowledge and investor will less likely to make unwise investment.

According to E.F.Fama Efficient markets is defined as the market where there are large numbers of rational profit maximizes actively competing with each trying to predict even the market value of individual securities and where current information is almost freely available to all participants. 3

In an efficient market scenario, all instruments in the market will be correctly priced as all the available information is perfectly understood and absorbed by all investors, present as well as prospective. No excess profits are possible in this scenario. A security price will be a good estimate of its investment value where investment value is present value of the securitys future prospects as estimated by well informed and capable analysts. Any substantial disparity between price and value would reflect market inefficiency. Alert analysts would seek to make advantage of this inefficiency, immediately. Under priced securities will be purchased creating pressure for price decline due to increased supply to sell. Thus, in a perfectly efficient market, analyst immediately competes away any chance of earning abnormal profits. Efficient market operates on following assumptions : Information must be free and quickly to flow so that all the investors can react to the new information. Transaction costs such as sales commission and bottlenecks are not there. Taxes have no noticeable impact on investment policy. Every investor can borrow or lead at same rate. Investors must be rational and behave in a cost effective competitive manner. Market prices are efficient and not sticky and absorb the market information quickly and absorb the market information quickly and the market responds to new technology, new trends, changes in tastes etc. In the efficient market, the forces of demand and supply move freely and in an independent manner.

1.4 Random Walk Theory The basis of random walk theory is that the markets information is immediately and fully spread so that all the investors have full knowledge of the information. As per this theory, changes in stock prices are independent of each other. The prices of today are independent of past trends. The price of each day is different it may be higher or lower than the previous price or may be unchanged. The present price is randomly determined and is influenced only by the information. This theory has been empirically tested and the analysts have also found an explanation for the efficiency of the markets. As the equilibrium price of the security is determined by demand and supply forces based on available information, this equilibrium price will immediately change as fresh information becomes available. Based on the fresh information, a new equilibrium price will be reached which is totally independent of the past price. The random walk theory totally contradicts technical analysis which believes that present prices are based on the past trends and the history of trend repeats itself. Random Walk theory is based on certain assumptions: There is a perfectly competitive market operating in an efficient manner in order to equate the actual stock prices with its present discounted value. Market is supreme and no individual investor or group p can influence it. All investors have the same information and nobody has superior knowledge so that the prevailing market prices reflect the stock present value. Stock prices discount all the information quickly. A price change occurs in the value of stock only because of information relating to fundamentals which affect the company or the stock markets. The price moves in an independent fashion without undue pressure. The instant changes in the stock prices are recognizing the fact that all available information is reflected in the stock prices.

Institutional investors or major fund managers have to follow the market and cannot influence it.

The changes in the stock prices show independent behavior and are dependent on the new pieces of information that are received but within themselves are independent of each other. Whenever a new piece of information is received in the stock market, it independently receives this new information and this is independent and separate of all other pieces of information.

This rapid shift to a new equilibrium level whenever new information is received is the random walk theory. The random walk theory is based on efficient market hypothesis. EMH says that successive absolute short run prices changes are independent. The hypothesis is based on the assumptions that all the securities markets are efficient. To have efficient markets, it is essential that both internal and external efficiency must be there:Internal efficiency: Internal efficiency refers it the market where the transaction costs are low and transaction move at a very high speed. Investor has no control over this type of efficiency. External efficiency: Markets are considered to be externally efficient if they absorb all the information in an unbiased manner. In such market, the new information is immediately reflected in the security prices. The price adjusts to the new information only when the investors are rational and markets are efficient. E.F Fama has provided that the efficiency of markets depends on the extend of absorption of information. The time taken for absorption and type of information absorbed. The absorption of information by the market is of different degrees.

1.5 Fama has given three Classification of Efficiency: WEAK FORM: The form of the market is the oldest statement. This form of market holds that current price of stock fully reflect all historical information thus, past data cannot be used to predict future prices. In the other words of Adam Smith, prices have no memory, and yesterday have nothing to do with tomorrow. This form asserts that any attempts to predict prices based on historical information are totally futile as future prices changes as independent of past price changes. The weak form contradicts the technical analysis, which states that price move in a predicated manner and historical price movement, can help to forecast future price trends. The weak form of efficiency hold good in any market, since even the critics of EMH admit that price adjust to the information ultimately. Empirical evidence has shown that as the past prices are already absorbed by the market the price moves in a independent fashion. Both EMH in its weal form and random walk theory postulates that analyzing the past does not improve the forecasting ability of stock prices and new information and prices that result from them cannot be predicted.

SEMI-STRONG FORM: The semi-strong form of EMH postulates that market absorbs quickly and efficiently all the publicly available information, as well as the information regarding historical prices. As prices adjust to the information quickly and accurately abnormal profits cannot be earned on a consistent basis. The empirical evidences support the convention that public react quickly to the new information. But there has been some evidence that market does not always digest the new information correctly. The inefficiency in the market mechanism in absorbing the data is found to be correct over a period of time, as the investor take time to analyze and conclude the effect of any public information. The semi-strong form is not empirically well supported but in many foreign markets semistrong form is found to be applicable and market quickly absorbs all public information .The revolution in information communication technology has made the application of semi-strong possible in developed countries.

STRONG-FORM: The strong form of EMH represents the most extreme case of market efficiency possible. According to the strong form the prices of the security fully reflect all available information both public and private. if this form is true, prices reflect the information that is available to the select group like Management, financers, stock exchange official etc. thus according to this form no information that is available be it public or inside can be used to consistently earn superior investment returns. This implies that not even security analyst and portfolio managers, who have access to information more quickly than the general public are able to use this information to earn superior returns. Studies made in developed countries have shown that strong form of efficient market does not exist their also. Investor has not shown consistently higher returns even with all the information available to them. It was also found that average investor could do better by picking up securities in random fashion. In the strong form two basic conditions are there (i) (ii) successive price changes or return are independent the successive price changes or return changes are identically distributed.

1.6 Testing techniques of EMH : EMH states that successive price changes are independent in the short run subject to the assumption that market comprises of rational investors. However in reality investors are not always rational for selecting the securities they consider a number of other factors also in addition to risk and return. It is very difficult if not impossible to segregate the fractional influences of these factors. In the stock market particularly in the Indian stock market sentiments play a major role in price behavior. There several techniques for measuring the EMH. The techniques can be direct and indirect. Direct assess the success of specific investment strategies or trading rules. Indirect test are statically test of prices or returns.

Test of weak forms Run Test Run test is the test for measuring the successive price changes. In this test, the sample for randomness is tested. The dictionary meaning of run is a sequence by different occurrences or by none at all. A run is thus a consecutive sequence of price changes of the same sign. Unlike correlation test, run test ignored the absolute value of signs. The run tests are took into research only the positive and negative signs. The run test is made by counting the numbers of consecutive signs or runs in the same direction. Under the hypothesis of independence of successive price changes, the distribution of total numbers of runs is approximately normal. For testing the randomness of stock prices, we take a series of stock prices. Starting with the first price each price change is denoted by +, - or zero signs. Plus signs indicate that the price under consideration has increased as compared to the preceding price; negative price indicates that the price has decreased as compared to the preceding price. In case the run has changed from a plus to minus or from minus to plus, a new run is counted to have begun. In this test the actual numbers of runs are compared with the expected number of runs of all types and if the actual number of runs is significantly different from the expected number of runs, the successive price changes are not considered to be independent. If the actual numbers of runs are not significantly different from the expected number of runs, then the price changes are considered to be independent or random.

Unit Root Tests: A unit root test is a statistical test for the proposition that in an autoregressive statistical model of a time series, the autoregressive parameter is one. It is a test for detecting the presence of stationarity in the series. There are three different unit root tests used to test the present of a unit root namely, ADF, Phillips-Perron (PP) test and the Kwiatkowski, Phillips, Schmidt and Shin (KPSS) test. The presence of unit root in a time series is tested with the help of Augmented Dickey-Fuller Test. It tests for a unit root in the univariate representation of time series.

The null hypothesis is H0: = 0 and H1: <1. The acceptance of null hypothesis implies nonstationarity. Mackinnons critical values are used in order to determine the significance of the test statistic. The PP test incorporates an alternative (nonparametric) method of controlling for serial correlation when testing for a unit root by estimating the nonaugmented Dickey-Fuller test equation and modifying test statistic so that its asymptotic distribution is unaffected by serial correlation. If the calculated absolute values of ADF and PP statistics are higher than Mackinnons critical value, we can reject the null hypothesis of random walk in the series. The KPSS procedure of Kwiatkowski et al (1992) has the advantage of being specifically designed to test the null hypothesis of stationary and unit root as the alternative hypothesis. The null hypothesis of stationarity is rejected in favor of the unit root alternative if the calculated statistic exceeds the critical values provided in KPSS (1992).

Test of the semi-strong form The semi strong form states that current stock prices instantaneously reflect all publicly available information such as quarterly reports change in accounting information, dividends, splits etc. Different studies conducted for testing the semi-strong form of markets are as follows:Market reaction test: in 1960, Fama, Fisher, Jensen and roll tested the speed of the market reaction to a firms announcement of a stock split and the accompanying information with respect to a change in dividend policy. During this period the investors could achieve abnormal returns on the basis of the information. But the average cumulative abnormal return which was going higher just before the announcement stopped increasing or decreasing in any significant manner in the following period once the split announcement was made.

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Earning impact: R.bull and P. Brown examined the effect of annual earnings announcements. They classified the firm into two groups based on whether their earnings increased or decreased relative to the average corporate earnings. They found that before the earnings announcements stocks associated with increased earnings provided abnormal returns and the stock associated with decreased earnings provided negative abnormal returns. Both groups generated normal returns after the earnings were released, thus providing support for the semi-strong form of EMH. Secondary offering impact: - In 1972, M.S.Scholls conducted a study to observe the reaction of security prices to the offer of secondary stock issues. The study showed that the price of security decreases when the issuer was a company which indicated to the market that such an offer contains some bad news. But secondary offerings by bank and insurance companies were not viewed in a negative manner and the security prices did

not fall significantly. The study proved that the prices behavior of secondary issues lent support with the market just to a new piece of information in an unbiased manner and almost immediately. Block trade impact: - In 1972 only Kraus and Stoll conducted a research study to examine the effect of large block trades on the behavior of security prices. The study showed that there was a temporary effect on share price which was associated with the block trade. There was no price behavior which could be predicted after the day on which the block trade occurred. Bonus Impact: - Even though the bonus issue never brings any additional value to investors, yet it does influence the expectations regarding future. As a result, the adjustment which starts well before such announcement is less than accurate as against one to one adjustment with bonus ratio. The cumulative average abnormal return after the zero date does not drift significantly, indicating fairly quick price adjustments.

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Test of the strong from In the strong form of efficiency of EMH, all the information, public as well as private in known to the investor and hence a particular investor cannot reap abnormal profits using this information. Thus all the information is fully reflected in the security prices. Trading By Stock Exchange Officials: - Top officials of the stock exchange have access to all the information on the overbought or oversold position. If private information is of no use, it should not be possible for them to make profits using the information. Trading By the Mutual Fund Managers: - Mutual fund managers are supposed to be expert in investment decisions making and are able to get that information which is not accessible to common man. Mutual fund managers thus must be in a position to earn consistent abnormal profits. The performance of mutual funds was tested and studies showed that mutual funds are not better in performance than an individual investor who purchased the same e security. 1.7 The Six Lessons of Market Efficiency: Economists all over the world are in the argument that capital markets functions sufficiently well those opportunities for easy profits are very rare. Therefore whenever we come across an instance where the market prices apparently dont make sense, we should not throw the efficient market hypothesis onto the economic garbage heap. Rather we should think carefully above whether there is some missing ingredient which our theories have ignored. The financial managers should thus, assume that security prices are fair and it is very difficult to outguess the market. Six lessons of market efficiency which every finance manages should learn are as discussed below: Lesson 1: Markets have no memory According to the weak form of the efficient market hypothesis the sequence of past price changes does not contain any information about the future price changes. Economists agree with this hypothesis when they emphases that market have no memory. Sometimes, financial managers dont seem to believe these statements. They generally have the following misconceptions:After an abnormal price rise, equity financing should be resorted to rather than debt financing. After a fall in price, equity stock should not be used.

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But in reality, the market has no memory and the cycles that financial managers seem to rely on do not exist. Therefore, the idea to catch the market while it is high or to want a rebound in prices does not hold any relevance.

Lesson 2: Trust Market Prices Price can be trusted in an efficient market because they impound all available information about the value of each security. It implies that in an efficient market, investors cannot achieve superior rates of return consistently. To do that, one not only needs to know more than anybody else rather he needs to know more than everybody else. Every financial manager must be aware of this message particularly while managing the firms exchange rate policy or for its purchase and sales of debt. Any overconfidence on the part of the financial manager will endanger the firms consistent financial policy. The companys assets may also be directly affected by management faith in its investment skills. ExampleOrange County In December 1994, Orange County, one of the wealthi- est counties in the United States, announced that it had lost $1.7 billion on its invest- ment portfolio. The losses arose because the county treasurer, Robert Citron, had raised large short-term loans which he then used to bet on a rise in long-term bond prices. The bonds that the county bought were backed by government-guaranteed mortgage loans. However, some of them were of an unusual type known as reverse floaters, which means that as interest rates rise, the interest payment on each bond is reduced, and vice versa. Reverse floaters are riskier than normal bonds. When interest rates rise, prices of all bonds fall, but prices of reverse floaters suffer a double whammy because the interest rate payments decline as the discount rate rises. Thus Robert Citrons pol- icy of borrowing to invest in reverse floaters ensured that when, contrary to his forecast, interest rates subsequently rose, the fund suffered huge losses. Lesson 3: Read the Entrails Since price impound all the available information an investor should learn to read the entrails as the security prices can tell a lot about the future. The markets assessment of the companys securities can provide important information about the company prospects. Therefore if a company is offering a much higher yield on its bond than average, it can be assumed that the company is in financial trouble.

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ExampleHewlett Packard Proposes to Merge with Compaq: On September 3, 2001, two computer companies, Hewlett Packard and Compaq, revealed plans to merge. Announcing the proposal, Carly Fiorina, the chief executive of Hewlett Packard, stated: This combination vaults us into a leadership role and creates substantial shareowner value through significant cost structure improvements and access to new growth opportunities. But investors and analysts gave the pro- posal a big thumbsdown. Figure 13.8 shows that over the following two days the shares of Hewlett Packard underperformed the market by 21 percent, while Com- paq shares underperformed by 16 percent. Investors, it seems, believed that the merger had a negative net present value of $13 billion. When on November 6 the Hewlett family announced that it would vote against the proposal, investors took heart, and the next day Hewlett Packard shares gained 16 percent.32 We do not wish to imply that investor concerns about the merger were justified, for manage- ment may have had important information that investors lacked. Our point is sim- ply that the price reaction of the two stocks provided a potentially valuable summary of investor opinion about the effect of the merger on firm value. Lesson 4: There Are No Financial Illusions There are no financial illustrations is an efficient market. Investors are selfishly concerned with the firms cash flow and the portion of those cash flows to which they are entitled. However there are occasions when the managers seem to assume that investors suffer form financial illusions. ExampleAccounting Changes There are other occasions on which managers seem to assume that investors suffer from financial illusion. For example, some firms devote considerable ingenuity to the task of manipulating earnings reported to stockholders. This is done by creative accounting, that is, by choosing ac- counting methods that stabilize and increase reported earnings. Presumably firms go to this trouble because management believes that stockholders take the figures at face value.36 One way that companies can affect their reported earnings is through the way that they cost the goods taken out of inventory. Companies can choose between two methods. Under the FIFO (first-in, first-out) method, the firm deducts the cost of the first goods to have been placed in inventory. Under the LIFO (last-in, first- out) method companies deduct the cost of the latest goods to arrive in the ware- house. When inflation is high, the

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cost of the goods that were bought first is likely to be lower than the cost of those that were bought last. So earnings calculated un- der FIFO appear higher than those calculated under LIFO. Now, if it were just a matter of presentation, there would be no harm in switching from LIFO to FIFO. But the IRS insists that the same method that is used to report to shareholders also be used to calculate the firms taxes. So the lower immediate tax payments from using the LIFO method also bring lower apparent earnings. If markets are efficient, investors should welcome a change to LIFO accounting, even though it reduces earnings. Biddle and Lindahl, who studied the matter, con- cluded that this is exactly what happens, so that the move to LIFO is associated with an abnormal rise in the stock price.37 It seems that shareholders look behind the figures and focus on the amount of the tax savings. Lesson 5: Do It Yourself Alternative In an efficient market, the investor always has an alternative of do it yourself. They will not pay others for what they can do equally well themselves. Many of the controversies in corporate financing centre on how well individuals can replicate corporate financial decisions. For ex- ample, companies often justify mergers on the grounds that they produce a more diversified and hence more stable firm. But if investors can hold the stocks of both companies why should they thank the companies for diversifying? It is much eas- ier and cheaper for them to diversify than it is for the firm. The financial manager needs to ask the same question when considering whether it is better to issue debt or common stock. If the firm issues debt, it will create financial leverage. As a result, the stock will be more risky and it will offer a higher expected return. But stockholders can obtain financial leverage without the firms issuing debt; they can borrow on their own accounts. The problem for the fi- nancial manager is, therefore, to decide whether the company can issue debt more cheaply than the individual shareholder.

Lesson 6: seen one stock, seen them all 15

Lesson 6 implies that investors are likely to regard different stock as much close substitutes for each other. Investors don not buy a stock for its unique qualities, they buy it because of offers the prospects for fair return for its risk. This means that stock is likely very similar brands. Investors dont buy a stock for its unique qualities; they buy it becaus e it offers the prospect of a fair return for its risk. This means that stocks should be like very similar brands of coffee, almost perfect substitutes. Therefore, the demand for a companys stock should be highly elastic. If its prospective return is too low rela- tive to its risk, nobody will want to hold that stock. If the reverse is true, everybody will scramble to buy.

1.8 The implications of the EMH for optimal investment strategies : The EMH has implied that no one can outperform the market either with security selection or with market timing. Thus, it carries huge negative implications for many investment strategies. Generally, the impact of EMH can be viewed from two different perspectives: I) Investors Perspective: Technical analysis uses past patterns of price and the volume of trading as the basis for predicting future prices. The random-walk evidence suggests that prices of securities are affected by news. Favorable news will push up the price and vice versa. It is therefore appropriate to question the value of technical analysis as a means of choosing security investments. Fundamentals analysis involves using market information to determine the intrinsic value of securities in order to identify those securities that are undervalued. However semi strong form market efficiency suggests that fundamentals analysis cannot be used to outperform the market. In an efficient market, equity research and valuation would be a costly task that provided no benefits. The odds of finding an undervalued stock should be random (50/50). Most of the time, the benefits from information collection and equity research would not cover the costs of doing the research.

For optimal investment strategies, investors are suggested should follow a passive investment strategy, which makes no attempt to beat the market. Investors should not select securities randomly according to their risk aversion or the tax positions. This does 16

not mean that there is no portfolio management. In an efficient market, it would be superior strategy to have a randomly diversifying across securities, carrying little or no information cost and minimal execution costs in order to optimize the returns. There would be no value added by portfolio managers and investment strategists. An inflexible buy-and-hold policy is not optimal for matching the investor's desired risk level. In addition, the portfolio manager must choose a portfolio that is geared toward the time horizon and risks profile of the investor.

II) Financial Managers Perspective Managers need to keep in mind that markets would under react or over react to information, the company's share price will reflect the information about their announcements(information).

The historical share price record can be used as a measure of company performance and management bear responsibility for it. When share are under priced, managers should avoid issuing new shares. This will only worsen the situation. In normal circumstances, market efficiency theory provides useful insight into price behavior. Generally, it can be concluded that investors should only expect a normal rate of return while company should expect to receive the fair value for the securities they issue.

1.9 Common Misconceptions About the EMH: As was suggested in the introduction to this chapter, EMH has received a lot of attention since its inception. Despite its relative simplicity, this hypothesis has also generated a lot of controversy. After all, the EMH questions the ability of investors to consistently detect mis-priced securities. Not surprisingly, this implication does not sit very well with many financial analysts and active portfolio managers. Arguably, in liquid markets with many participants, such as stock markets, prices should adjust quickly to new information in an unbiased manner. However, much of the criticism leveled at the EMH is based on numerous misconceptions, incorrect interpretations, and

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myths about the theory of efficient markets. We present some of the most persistent myths about the EMH below. Myth 1: EMH claims that investors cannot outperform the market. Yet we can see that some of the successful analysts (such as George Soros, Warren Buffett, or Peter Lynch) are able to do exactly that. Therefore, EMH must be incorrect. EMH does not imply that investors are unable to outperform the market. We know that the constant arrival of information makes prices fluctuate. It is possible for an investor to make a killing if newly released information causes the price of the security the investor owns to substantially increase. What EMH does claim, though, is that one should not be expected to outperform the market predictably or consistently. It should be noted, though, that some investors could outperform the market for a very long time by chance alone, even if markets are efficient. Imagine, for the sake of simplicity, that an investor who picks stocks randomly has a 50% chance of beatingthe market. For such an investor, the chance of outperforming the market in each and every of the next ten years is then (0.5) 10, or about one-tenth of one percent. However, the chance that there will be at least one investor outperforming the market in each of the next 10 years sharply increases as the number of investors trying to do exactly that rises. In a group of 1,000 investors, the probability of finding one ultimate winner with a perfect 10-year record is 63%. With a group of 10,000 investors, the chance of seeing at least one who outperforms the market in every of next ten years is 99.99%, a virtual certainty. Each individual investor may have dismal odds of beating the market for the next 10 years. Yet the likelihood of, after the ten years, finding one very successful investor, even if he or she is investing purely randomly is very high if there are a sufficiently large number of investors. This is the case with the state lottery, in which the probability of a given individual winning is virtually zero, but the probability that someone will win is very high. The existence of a handful of successful investors such as Messrs. Soros, Buffett, and Lynch is an expected outcome in a completely random distribution of investors. The theory would only be threatened if you could identify who those successful investors would be prior to their performance, rather than after the fact. Myth 2: EMH claims that financial analysis is pointless and investors who attempt to research security prices are wasting their time. Throwing darts at the financial page will

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produce a portfolio that can be expected to do as well as any managed by professional security analysts.6 Yet we tend to see that financial analysts are not driven out of market, which means that their services are valuable. Therefore, EMH must be incorrect. There are two principal counter-arguments against the equivalency of dart-throwing and professional analysis strategies. First, investors generally have different tastes some may, for example, prefer to put their money in high-risk hi-tech firm portfolios, while others may like less risky investment strategies. Optimal portfolios should provide the investor with the combination of return and risk that the investor finds desirable. A randomly chosen portfolio may not accomplish this goal. The competition among investors who actively seek and analyze new information with the goal to identify and take advantage of mis-priced stocks is truly essential for the existence of efficient capital markets. In fact, one can say that financial analysis is actually the engine that enables incoming information to get quickly reflected into security prices. So why dont all investors find it optimal to search for profits by performing financial analysis? The answer is simple financial research is very costly. As we have already discussed, financial analysts have to be able to gather, process, and evaluate vast amounts of information about firms, industries, scientific achievements, the economy, etc. They have to invest a lot of time and effort in sophisticated analysis, as well as many resources into data gathering, purchases of computers, software.7 In addition, analysts who frequently trade securities incur various transaction costs, including brokerage costs, bidask spread, and market impact costs. Therefore, any profits achieved by the analysts while trading on "mis-priced" securities must be reduced by the costs of financial analysis, as well as the transaction costs involved. For mutual funds and private investment managers these costs are passed on to investors as fees, loads, and reduced returns. There is some evidence that some professional investment managers are able to improve performance through their analyses. However, this may be by pure chance. In general, the advantage gained is not sufficient to outweigh the cost of their advice. In equilibrium, there will be only as many financial analysts in the market as optimal to insure that, on average, the incurred costs are covered by the achieved gross trading profits.

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For the majority of other investors, the chasing of "mis-priced" stocks would indeed be pointless and they should stick with passive investment, such as with index mutual fund. Myth 3: EMH claims that new information is always fully reflected in market prices. Yet one can observe prices fluctuating (sometimes very dramatically) every day, hour, and minute. Therefore, EMH must be incorrect. The constant fluctuation of market prices can be viewed as an indication that markets are efficient. New information affecting the value of securities arrives constantly, causing continuous adjustment of prices to information updates. In fact, observing that prices did not change would be inconsistent with market efficiency, since we know that relevant information is arriving almost continuously. Myth 4: EMH presumes that all investors have to be informed, skilled, and able to constantly analyze the flow of new information. Still, the majority of common investors are not trained financial experts. Therefore, EMH must be incorrect. This is an incorrect statement of the underlying assumptions needed for markets to be efficient. Not all investors have to be informed. In fact, market efficiency can be achieved even if only a relatively small core of informed and skilled investors trade in themarket, while the majority of investors never follow the securities they trade.

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CHAPTER 2 LITERATURE REVIEW

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Empirical studies of EHM can be thought of as belonging to one of the two eras. During the 1960 and 1970 virtually all tests of efficient market hypothesis were supportive and it was said that to the extent that potential inefficiencies were present and they were not pursued. The concept of efficient market was logical and EMH was clearly a new theory. Beginning in 1980 a number of studies began to appear which indicated that either security markets were not efficient as believed earlier or that our understanding of assets pricing models and market efficiency had to be considerably broadened. Kendall (1953) examined the correlation of weekly price changes in 19 British securities and the spot trading prices of cotton and wheat. Kendall found that the time series of prices are random and each price looks like a random number drawn form a symmetrical population of fixed depression. Roberts (1959) applied a simulating study to the pattern of weekly change in down Jones industrial averages. He tested whether the familiar stock price pattern could be replicated using the assumption that the price follows a random walk. He stated that the weekly change of index has the same appearance as a time series generated form a sequence of random numbers. One of the outstanding studies of random walk was conducted by Eugene Fama (1965). Fama was interested in the extent to which return of a stock in a given time period is correlated with its return in the subsequent time period. This study assumed that if the auto correlation is significantly large enough, the share traders thereby could formulate a profitable trade strategy using past returns. He tested the auto correlation of daily returns for each of 30 stocks in the DJIA in the period from 1957 to 1962. He found that the correlation coefficient between the return on day t and t-1, t-2, through t-10 are very small and nearly zero. It is unlikely that speculators can earn an abnormal return based on such series of past return. Barua (1981) used daily closing prices of 20 shares and the economic times index over the period 1977-1979 to confirm the efficiency of Indian stock market in weak form. In the more recent study, Rao (1988) examined weekend price data over period 1982-1987 for ten blue chip companies by means of serial correlation analysis, runtest and filter rules. He provided evidence in support of random walk hypothesis. In another study by Pandey and Bhatt (1988), the attitude and perception of market participants about the efficiency of stock market are examined. The participants included preparers and users of accounting information and the survey was conducted through structured questionnaire, the respondents belonging to various groups did not believe that Indian stock market was efficient; majority of them considered technical and fundamental analysis and audited accounting information sources to be useful in investment management.

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Khan Masood, S hahid Ashraf and Shahid (2006) rejected the random walk hypothesis of nifty and sensex. Their paper attempts to seek evidence for the weak form efficient hypothesis using daily data for stock indices of NSE, Nifty and Bombay Stock Exchange, Sensex, for period 1999-2004. They conducted that both the stock markets have become relatively more inefficient in recent periods and having high and increasing volatility. Ravija Badarinathi, Ladd Kochman in their work asserts that investors cannot consistently "beat the market" because stocks reside in perpetual equilibrium. Supporters point to the 100,000+ analysts and traders whose collective actions ensure that the prices of the 3000 or so major stocks do not stray too far from their respective values. Pankoff (1968) reasoned that the football-betting market attracts participants no less numerous, knowledgeable or competitive than its Wall Street counterpart and therefore functions as a convenient proxy for testing the fallibility of market consensus. Sharma and Kennedy (1977) compared the behavior of stock indices of the Bombay, London and New York Stock Exchanges during 1963-73 using run test and spectral analysis. Both run tests and spectral analysis confirmed the random movement of stock indices for all the three stock exchanges. They concluded that stock on the BSE obey a random walk and are equivalent in the markets of advanced industrialized countries". Kim, Nelson and Startz (1991) examined the random walk pattern of stock prices by using weekly and monthly returns in five Pacific-Basin Stock Markets. They found that all stock markets except Japanese stock market did not follow random walk. Madhusudan (1998) found that BSE sensitivity and national indices did not follow random walk. Using correlation analysis on monthly stock returns data over the period January 1981 to December 1992. Pandey Anand (2003) conducted an analysis of three popular stock indices is carried out to test the efficiency level in Indian Stock market and the random walk nature of the stock market by using the run test and the autocorrelation function ACF (k) for the period from January 1996 to June 2002. Poshakwale (1996) presented evidence concentrating on the weak form efficiency and on the day of week effect in the Bombay Stock Exchange under the consideration that variance is time dependent. Moving from its traditional functioning to that required by the opening of the capital markets, the BSE has presented different patterns of stock returns and supports the validity of day of the week effect. The frequency distribution of the prices in BSE does not follow a normal or uniform distribution, which is also confirmed by the non-parametric KS Test. The results of runs test and serial correlation coefficients tests indicate nonrandom nature of the series and, therefore, violation of weak form efficiency in the BSE. The other null hypothesis that there is no difference between the returns achieved on different days of the week is also rejected, as there is clear evidence that the average returns are different on each day of the week. The weekend effect is evident as the returns achieved on Fridays are significantly higher compared to rest of the days of the week. However, the results presented in the study are not adjusted for transaction costs. Nor have the results been adjusted for non-synchronous trading which may influence the serial correlation coefficients. 23

Beechey, Gruen and Vickery (2000) concluded that the efficient market hypothesis is almost certainly the right place to start when thinking about asset price formation. Both academic research and asset market experience, however, suggest that it does not explain some important and worrying features of asset market behaviour. Timmermann and Granger (2004) observed that there are likely to be short-lived gains to the first users of new financial prediction methods. Once these methods become more widely used, their information may get incorporated into prices and they will cease to be successful. This race for innovation coupled with the markets adoption of new methods is likely to give rise to many new generations of financial forecasting methods. Hadi (2006) identified EMH and provided some detail on the types of EMH, as well as identifying the empirical research that tested weak, semi-strong and strong forms of market efficiency. Accounting market based research more often assumes that market is efficient in semi-strong form, and the reason for this is that financial reports are considered public information once they are released to the market. He provided empirical evidence from the Jordanian market that showed that the security market reacted with mixed signal on releasing profitability, liquidly, and solvency information.

24

CHAPTER 3 OBJECTIVES AND HYPOTHESIS

25

3.1 Objectives of the Study :

Primary Objectives To validate the postulates of Weak Form of Efficiency of Indian Stock Market with reference to stock returns movement with special reference to NSE S&P CNX Nifty with the help of tools like SPSS and EViews.

Secondary Objectives To study and analyze different forms of efficiency in market. To study Random Walk Theory

3.2 Hypothesis : The study is based on the following hypothesis: H0: The S&P CNX Nifty Index stock returns do not follow a random pattern. H1: The S&P CNX Nifty Index is not weak form efficient.

3.3 Scope of the Study : The study is restricted to only one index of National Stock Exchange i.e. S&P CNX Nifty. The analysis is limited for a period of 7 years, from 1st April 2006 to 31st March 2013.

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CHAPTER 4 RESEARCH METHODOLOGY

27

4.1 Research Design: The research is descriptive in nature and attempts to study the relevance of the Random Walk Theory with respect to S&P CNX Nifty. Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied. However, it does not answer questions about e.g.: how/when/why the characteristics occurred, which is done under analytic research. Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Thus, Descriptive research cannot be used to create a causal relationship, where one variable affects another. In other words, descriptive research can be said to have a low requirement for internal validity.

4.2 The Sample: A Sample of 25 scripts belonging to the S&P CNX Nifty Index have been selected out of a total of 50 scripts on which the Index is based on the basis of their highest market capitalization from their respective sectors. Scripts of different sectors have been represented in the sample. The scripts monthly returns have been taken for the period of seven year from 1st April, 2006 to 31st March, 2013. Secondary data of monthly return of 25 scripts belongs to S&P CNX Nifty Index been taken from the NSE website.

4.3 Tools for Data Analysis: The data has been subject to analysis using Run Test with the help of SPSS Software PhillipsPerron Test with the help of EViews

28

Run Test:
The runs test is an approach to test and detect statistical dependencies (randomness) which may not be detected by the auto-correlation test. Runs test is used in the random-walk model because the test ignores the properties of distribution. The null hypothesis of the test is that the observed series is a random series. As defined by Poshokwale,(1996), a lower than expected number of runs indicates markets overreaction to information, subsequently reversed while higher number of runs reflect a lagged response to information, either situation would suggest an opportunity to make excess returns. The run test converts the total number of runs into Z statistic. For large samples the Z statistic gives the probability of difference between the actual and expected number of runs. The Z value is greater than or equal to 1.96, reject the null hypothesis at 5% level of significance (Sharma and Kennedy, 1977). Run test of randomness is a statistical test that is used to know the randomness in data. Run test of randomness is sometimes called the Geary test, and it is a nonparametric test. Run test of randomness is an alternative test to test autocorrelation in the data. Autocorrelation means that the data has correlation with its lagged value. To confirm whether or not the data has correlation with the lagged value, run test of randomness is applied. In the stock market, run test of randomness is applied to know if the stock price of a particular company is behaving randomly, or if there is any pattern. Run test of randomness is basically based on the run. Run is basically a sequence of one symbol such as + or -. Run test of randomness assumes that the mean and variance are constant and the probability is independent.

Hypothesis: To conduct the run test of randomness, first set up the null and alternative hypothesis. In run test of randomness, null hypothesis assumes that the distributions of the two continuous populations are the same and vise a versa in case of alternative hypothesis.

29

Calculation of statistics: In the run test of randomness,

Where R is the observed number of runs, R, is the expected number of runs, and sR is the standard deviation of the number of runs. The values of R and sR are computed as follows:

Where n1 and n2 are the number of positive and negative values in the series. Significance Level:

Critical Region:

The runs test rejects the null hypothesis if |Z| > Z1-/2 For a large-sample runs test (where n1 > 10 and n2 > 10), the test statistic is compared to a standard normal table. That is, at the 5 % significance level, a test statistic with an absolute value greater than 1.96 indicates non-randomness. For a small-sample runs test, there are tables to determine critical values that depend on values of n1 and n2.

30

If the number of observations is large its distribution is almost equal to normal distribution. That is why we can use standard normal Z distribution for implementing Run test. Decision run, in run test of randomness: If the calculated value of the run test of randomness lies within the preceding confidence interval, then do not reject the null hypothesis. If the calculated value of the run test of randomness lies outside the preceding confidence interval, then reject the null hypothesis.

PhillipsPerron test :
In statistics, the PhillipsPerron test (named after Peter C. B. Phillips and Pierre Perron) is a unit root test. Phillips and Perron (1988) developed a number of unit root tests that have become popular in the analysis of financial time series. The Phillips-Perron(PP) unit root tests differ from the ADF tests mainly in how they deal with serial correlation and heteroskedasticity in the errors. In particular, where the ADF tests use a parametric autoregression to approximate the ARMA structure of the errors in the test regression, the PP tests ignore any serial correlation in the test regression. The Phillips-Perron (PP) test offer an alternative method for correcting for serial correlation in unit root testing. Basically, they use the standard DF or ADF test, but modify the t-ratio so that the serial correlation does not affect the asymptotic distribution of the test statistic.

In the PP test, you have to decide whether or not to include a constant and/or time trend. You also have to choose a method for computing an estimator of the residual spectrum at frequency zero. This is often done by a sum-of-covariances approach or an autoregressive spectral density estimation.

31

CHAPTER 5 DATA ANALYSIS

32

Analysis

Since the test of weak form of EMH, in general, has come from the random walk literature, so I am interested in testing whether or not successive price changes were independent of each other. In this paper, I will use Runs Test and PhillipsPerron test for testing the efficiency of the stock market.

5.1 Run Test

Results of Run Test :
Runs Test returns Test Value
a

4.09 85 85 170 93 1.077 .282

Cases < Test Value Cases >= Test Value Total Cases Number of Runs Z Asymp. Sig. (2-tailed) a. Median

Results of Run Test- Median as Base: Runs test is employed to check if the return series follow random walk or not. The null hypothesis (randomness hypothesis) will be accepted at 5 % level of significance if Z value < 1.96 and it will be rejected if Z value is > 1.96. The results are shown in the Table respectively. The results of runs test reveal that the null hypothesis i.e H0: The S&P CNX Nifty Index stock returns do not follow a random pattern is accepted in the case, as the Z values are less than 1.96 (i.e. Z< 1.96) and and rejects the alternative hypothesis i.e H1: The S&P CNX Nifty Index is not weak form efficient.

All the calculations performed with the help of spss software.

33

5.2 PhillipsPerron test :

Method PP - Fisher Chi-square PP - Choi Z-stat

Statistic 87.9641 -3.16582

Prob.** 0.0007 0.0008

** Probabilities for Fisher tests are computed using an asymptotic Chi-square distribution. All other tests assume asymptotic normality. Intermediate Phillips-Perron test results RETURNS Cross section ACC Ltd. Axis Bank Ltd. Bharti Airtel Ltd. BHEL Cairn India Ltd. Cipla Ltd. GRASIM HDFC ltd. HDFC Bank Ltd. Hindalco Ltd. ICICI Bank Ltd. Infosys Ltd. I T C Ltd. L T Ltd. M & M Ltd. NTPC Ltd. ONGC ltd. Ranbaxy Lab. Ltd. Reliance Ind. Ltd. RELINFRA ltd. SBI ltd. TATAMOTOR S ltd. TATASTEEL ltd. TCS ltd. WIPRO ltd. Prob. 0.0130 0.3494 0.7381 0.6705 0.7906 0.3798 0.0578 0.0519 0.6919 0.2552 0.1294 0.0100 0.1138 0.3957 0.1551 0.2440 0.3823 0.9738 0.4639 0.8735 0.0165 0.0871 0.2900 0.0830 0.0194 Bandwidth 3.0 0.0 4.0 0.0 0.0 0.0 0.0 3.0 3.0 1.0 5.0 3.0 1.0 0.0 1.0 5.0 1.0 2.0 0.0 3.0 5.0 2.0 0.0 1.0 3.0 Obs 6 4 6 6 4 5 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

34

Results of PhillipsPerron test : PP unit root tests clearly reveals that the null hypothesis of unit root is convincingly accepted in the case of stock market returns of major indices, viz. S&P CNX NIFTY, as probabilities values are less than 0.05. This suggests that the Indian stock markets does not show characteristics of random walk and implying that stock prices remain predictable. The empirical results support the validity of weak-form efficiency for stock market returns of national stock exchanges. This implies that the Indian stock markets are weak form efficient signifying that there is systematic way to exploit trading opportunities and acquire excess profits. This provides an opportunity to the traders for predicting the future prices and earning abnormal profits. The implication of weak form efficiency for investors is that they can better predict the stock price movements, by holding a well-diversified portfolio while investing in the Indian stock markets.

35

CHAPTER 6 FINDINGS AND CONCLUSION

36

6.1 Findings :
The findings show that although the market is efficient it is a weak form stage thereby showing that information dissemination is still not immediate and insiders are still able to profit from their information. As defined by Poshokwale, (1996); a lower than expected number of runs indicates markets overreaction to information, subsequently reversed, while higher number of runs reflect a lagged response to information. Either situation would suggest an opportunity to make excess returns. The lower number of runs as compared to expected runs shows that the market is slow to react on available information. Thus the market is weak form efficient. The reasons for this may be attributed to lack of transparency in the system, cost of acquiring information, as well as fluctuations in prices due to events like political instability, non transparency in government policies etc. The results are in line with previous researches that have shown that emerging markets are less efficient than the developed market i.e. they are weak form efficient.

The result of this research is tandem with the Sharma and Kennedy (1977) who compared the behavior of stock indices of Bombay, London and New York stock exchanges during 1963-73 using run test in the Indian context and the analysis confirmed the weak form efficiency of all the three stock exchanges. Similarly, a study by Madhusudanan (1998) noticed strong presence of non predictability of stock prices on the basis of past data in the Indian stock markets. The study conducted NSEIL indices showed that it was weak form efficient and not predictable. Another recent study by Pandey (2003) analyzed the efficiency of the Indian Stock markets by using three Indian stock indices to test the efficiency level in Indian Stock market and the random walk nature of the stock market by using the Runs test for the period from January 1996 to June 2002. The study found that that the series of stock indices in the Indian Stock Market were random time series confirming the Random Walk Theory. The random walk evidence suggests that simple short-term repetitive patterns are unlikely to be present and therefore a simple buy and hold strategy may work equally well as compared to a technical analysis used by market experts. The results confirm the Random Walk Theory showing that chartists need to reconsider the use of technical analysis as a strategy for investment decisions. It also shows that investors may benefit from a simple buy and hold strategy rather than an elaborate or technical form of market analysis. However the selection of securities may not be made randomly due to different risk preferences and tax positions of investors. The study further postulates that managers must expect that the companys share price will reflect the information about the project they have selected and their announcements and company related information needs to be correctly handled.

37

6.2 Conclusion:

The study has revealed that the S&P CNX Nifty is weak form efficient thereby showing those investors will not benefit form technical analysis based on past data for predicting future prices. However, insider information is not finding itself reflected in the prices thereby implying that investors having access to this information may be able to earn abnormal profits.. As a professionally managed fund like S&P CNX Nifty is found to be weak form efficient there is a need for greater transparency and better dissemination of information in the Indian stock markets.

38

CHAPTER 7 BIBLIOGRAPHY

39

Journals: Pandey, A. (2003), Efficiency of Indian Stock Market, A Part of Project Report, Indira Gandhi Institute of Development and Research (IGIDR), Mumbai, India. Phillips, P. and Perron, P. (1988), Testing for a Unit Root in Time Series Regression, Biometrica, Vol.75, pp. 335-346. Poshakwale, S. (1996), Evidence on weak Form Efficiency and Day of the Week effect in the Indian Stock Market, Finance India, Vol.10, No.3, pp. 605-616. Dickey, D. A. and Fuller, W. A. (1979), Distribution of the estimates for autoregressive time series with a unit root, Journal of American Statistical Association, Vol.74, pp. 427-431. Fama, E. (1970), Efficient Capital Markets: A Review of Theory and Empirical Work, Journal of Finance, Vol.25, 283-306.

Fama, E. F. (1965). The Behavior of Stock Market Prices. Journal of Business, Vol. 38, No. 1, pp. 34-105.

Internet: National Stock Echange , Historical Data - India Vix , Retrieved April 15th, 2013, from http://www.nse-india.com/products/content/equities/indices/archieve_indices.htm.

40

CHAPTER 8 ANNEXURE

41

ANNEXURE

Period

company returns ACC Ltd. 2006-2007 24.89 2007-2008 -18.49 2008-2009 3.79 2009-2010 6.36 2010-2011 10.85 2011-2012 4.09 2012-2013 -8.91 Axis Bank Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

19.27 3.89 15.21 -2.68 -3.23

Bharti Airtel Ltd. 2006-2007 14.32 2007-2008 6.26 2008-2009 -2 2009-2010 11.88 2010-2011 7.88 2011-2012 -3.51 2012-2013 -9.65 BHEL 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 10.6 3.65 7.6 1.76 3.08 -16.33 -12.01

42

Cairn India Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

10.21 14.88 3.46 -9.51 -8.56

CiplaLtd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 GRASIM 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 HDFCltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 -2.11 0.83 10.8 8.67 11.44 1.53 9.05 HDFC Bank Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 5.03 2.05 9.43 13.42 14.31 0.53 0 43 18.35 -5.4 15.22 4.39 8.95 -5.21 -4.82 19.94 14.91 7.02 7.34 -3.74 5.53

Hindalco Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 ICICI Bank Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Infosys Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 I T C Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 L T Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 1.49 8.74 9.39 4.25 8.11 0.07 -0.12 13.16 -11.97 0.98 1.3 7.75 9.27 4.97 5.39 -2.84 7.52 0.54 8.15 -0.59 -0.61 -4.26 2.88 1.6 9.21 14.97 -1.78 0.46 19.14 -6.36 34.84 11.44 3.87 -13.1 -7.38

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M & M Ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 NTPCLtd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 ONGC ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 15.4 11.77 12.91 -1.69 7.75 -8.48 -0.65 5.14 11.26 -2.78 2.07 13.69 -10.11 -5.93 6.59 -3.81 23.08 7.44 13.74 -1.36 -1.42

Ranbaxy Lab. Ltd. 2006-2007 0.66 2007-2008 4.16 2008-2009 2.41 2009-2010 1.06 2010-2011 2.52 2011-2012 9.46 2012-2013 15.99 Reliance Ind. Ltd. 12.2 1.32 20.43 9.73 8.8 -8.55 -5.03

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

45

RELINFRA ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 SBI ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 10.37 -4.55 4.08 5.26 5.13 -6.73 -0.39 -1.38 3.03 4.99 -0.44 13.14 -1.12 -22.57

TATAMOTORS ltd. 2006-2007 14.17 2007-2008 -6.95 2008-2009 20.76 2009-2010 6.54 2010-2011 15.29 2011-2012 1.59 2012-2013 -6.4 TATASTEEL ltd. 2006-2007 24.48 2007-2008 1.62 2008-2009 19.16 2009-2010 10.05 2010-2011 2.49 2011-2012 -0.17 2012-2013 -8.39 TCS ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 12.62 3.39 11.48 2.47 6.63 -4.35 3.87

46

WIPRO ltd. 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 7.54 -0.53 18.51 4.35 9.58 1.79 4.98

47