Event Analysis

Management Research Project IBS Hyderabad
REPORT

ON
Event Analysis
Submitted By
C. Aswin Kumar
09bshyd1044
Submitted To
Prof.I.R.S.Sarma (Faculty Guide)

Event Analysis Page 1
Table of Contents:
Abstract……………………………………………………………………………..3
Introduction………………………………………………………………………...4
Objective……………………………………………………………………………7
Methodology………………………………………………………………………..7
Major Events Affecting the Stock Prices…………………………………………..8
Trend Analysis of Nifty Fifty Stock Index………………………………………..12
Event One…………………………………………………………………………14
Event Two…………………………………………………………………………15
Graph 1……………………………………………………………………………12
References………………………………………………………………………...17

ABSTRACT

The project undertaken for the Management Research Project (MRP) is “Event Analysis”. This
project has been divided into two stages.
In the first stage the project is mainly dealing with the events that affect the stock market and the
reasons particular stock rise and fall can be complex. More often, the Nifty Index stock prices are
affected by number of events, some of which influence stock prices directly and others do so
indirectly. According to the stock market guru Peter Lynch, an important to remember “there is a
company behind every stock and a reason why companies – and their stocks- perform the way
they do.” The share price of NIFTY index listed companies is affected by corporate governance,
various scams, Internal events, FDI, FII, Budget, M&A’, External factors or not. For this
research the annual reports and the actual share prices of fifty companies as sample from NIFTY
50 Index from India, is taken. The data is collected for financial year 2006-2010 relating to the
variables that are- share price, EPS, P/E, Corporate Governance Score , FIIS data etc..,
All the above aspects have been covered in my interim report.
In the second stage I intend to take this project forward by using certain technical tools like
correlation which shows price relation, I have considered they are descriptive statistics, unit root,
and auto regressive integrated moving average a Regression model testing. The stock prices data
is necessary to test stationary of each individual variable. Mean and variance between two time
periods depend only on the distance or lag between the two time periods and not on the actual
time at which co variance is computed. It consists of regression level and first difference of the
time series against constant.
INTRODUCTION

Stock markets can be volatile, and the reasons particular stocks rise and fall can be complex.
More often than not, stock prices are affected by a number of factors and events, some of which
influence stock prices directly and others that do so indirectly. According to stock market guru
Peter Lynch, an important point to remember when investing is that "there is a company behind
every stock and a reason why companies--and their stocks--perform the way they do."
Internal Developments
Developments that can occur within companies will affect the price of its stock, including
mergers and acquisitions, earnings reports, the suspension of dividends, the development or
approval of a new innovative product, the hiring or firing of company executives and allegations
of fraud or negligence. Stock price movements will be most drastic when these internal
developments are unexpected.
World Events
Company stock prices and the stock market in general can be affected by world events such as
war and civil unrest, natural disasters and terrorism. These influences can be direct and indirect,
and they often occur in chain reactions. The social uncertainty and fear generated by the terrorist
attacks on Sept. 11, 2001, affected markets directly as they caused many investors in the United
States to trade less and to focus on stocks and bonds with less risk. An example of an indirect
influence on markets is the announcement of a new military venture by a country in response to
the outbreak of civil unrest or conflict abroad. This announcement likely would cause the price
of the stocks of military equipment and weapons manufacturers to rise due to an expected
increase in defense contracts, which in turn can raise the value of stocks for companies that
supply military equipment parts and technology. It likely would raise the demand for, and price
of, natural resources used to make these parts, which would raise the price of stocks representing
particular mining and natural resource processing companies.
Inflation and Interest Rates
One of the more predictable influences of the stock market are periodic adjustments of interest
rates by the U.S. Federal Reserve to combat inflation. When interest rates are raised, many
investors sell or trade their higher risk stocks for government-backed securities such as bonds to
take advantage of the higher interest rates they yield and to ensure that their investments are
protected.
Exchange Rates
Foreign currency rates have a direct impact on the price and value of stocks in foreign countries,
and changes in exchange rates will increase or decrease the cost of doing business in a country,
which will affect the price of stocks of companies doing business abroad. While long-term
movements in exchange rates are affected by fundamental market forces of supply and demand
and purchase price parity, short-term movements are driven by news, events and futures trading
and are difficult to predict.
Hype
Stocks and the stock market also can be affected by hype about a company or the release of new
products or services. Many people and organizations have an interest in promoting particular
stocks and industries to increase the value of their own shares and profits, and positive financial
reports and stock market newsletters, Internet blogs, press releases and news reports can build
high expectations for the performance of companies, which will raise the price of their stocks.
This can occur even when the hype has no foundation in truth; investors are wise to consider
people's reaction to hype rather than analyze the merits of the positive promotion. Hype (and its
opposite) can be advanced by respected stock market authorities such as Warren Buffet, Peter
Lynch and hedge fund investor and financial speculator George Soros; such is the respect given
to these individuals' skill and past success that they sometimes can affect the movement of
markets by simply suggesting that developments might occur.
Introduction To NIFTY FIFTY Index:
Capital market reforms in India and the launch of the Securities and Exchange Board of India
accelerated the incorporation of the second Indian stock exchange called the National Stock
Exchange in 1992. After a few years of operations, the NSE has become the largest stock
exchange in India. Three segments of the NSE trading platform were established one after
another. The Wholesale Debt Market commenced operations in June 1994 and the Capital
Market segment was opened at the end of 1994. Finally, the Futures and Options segment began
operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the
world.
In 1996, the National Stock Exchange of India launched Standard& Poor CRISIL NSE INDEX
Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a
diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and
managed by India Index Services and Products Ltd that has a consulting and licensing agreement
with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and
was the first exchange in India that started trading stock on the Internet in 2000. The NSE has
also proved its leadership in the Indian financial market by gaining many awards such as 'Best IT
Usage Award' by Computer Society in India in 1996 and 1997 and CHIP Web Award by CHIP
magazine 1999.
NSE S&P CNX Nifty 50 is the prime stock index in India. The NIFTY index is made of top 50
listed companies in the national stock exchange. These companies are selected on the basis of
market capitalization and the 50 stocks that have made the NIFTY account for about 58.64% of
the total market capitalization. In fact these stocks are the most actively traded stocks in the
national stock exchange and NIFTY stocks make about 50% of the total trading volume in NSE.
The companies that are listed in the NIFTY index are selected from 21 different sectors and they
represent the leading companies in the country. Therefore, NIFTY is a profitable investment
proposition for any investor who is looking forward to invest in the index. In fact the growth of
the NIFTY index in the recent years have attracted retail investors, institutional investors and
foreign investors to invest in the NIFTY either directly or through the index funds.
OBJECTIVE:
To understand & gain the knowledge of various events that are affecting the Index stocks and
relationship between the Micro & macro economic variables & prices of shares using multiple
regression analysis; this will be very helpful for researchers, policy makers, and corporate
investors to suggest the clients.
METHODOLOGY:
The methodology involves a study of the 50 companies included in the nifty index, for the
purpose of independent and dependent variable is identified for the year 2006-2010. Then a cross
sectional regression analysis is carried out several times , till the times we will get all the
variables significant , then the number of variables remain valid can be considered. The sample
50 companies are chosen as a representative sample of the population out of Nifty 50 Index for
analysis. The selection is based on the result followed by the regression analysis.
Major Events Affecting the Stock Prices:

Earnings Release:
Issue of Audited / Un-audited financial results provided by the company at the end of the quarter.
Key metrics are: Revenue (top line), Net Income (bottom-line) & EPS.
Earnings Preview:
After end of quarter and before a full earnings release, a company could give brief overview of
the upcoming results.
Earnings Restatement:
At times, due to accounting changes, discontinued operations, or incorrect accounting procedures

followed etc., companies may restate their prior quarter and/or annual financials. This is termed
as earnings restatement.
Buyback Update:
Any update on the previous repurchase authorization.
Dividend:
Dividends are payments made by a company to its shareholder generally a part of the profits. We
consider only the common shares dividend. Dividends can be declared monthly, Quarterly,
Semi-Annually, Annually or Interim and Can be given in Cash, Stock, Mix or special one time
dividends.
Stock Split:
A stock split increases the number of shares in a public company. The price is adjusted such that
the before and after market capitalization of the company remains the same and dilution does not
occur. Options and warrants are included. A reverse stock split is just the same, but in reverse: a
reduction in number of shares and an accompanying increase in the share price.
Sales:
Quarterly & Monthly sales performance reports by retail companies, auto companies, stock
exchanges, airlines, insurance, financial, bank etc.
Investment:
Investment by a company, financial in the nature with a profit motive. These are generally non
operating e.g. Equity investment into companies, investment into bonds, investment into plant
and machinery for trading purposes etc.
Divestment:
Sale of an Investment being held for non operating purposes i.e. earlier bought for investment
purpose. It also includes cases of sale of part ownership in other companies/firms.
Layoff:
A cost cutting effort by a company by terminating employees. Layoffs occur when a company is
having significant financial problems and can no longer afford to pay its workers. A layoff can
also occur as a part of a restructuring or downsizing plans when a company decides to close
down a plant or office.
Asset Purchase:
Asset Purchases for usage in business operations or otherwise for cash or in exchange of
Acquirer Stock.
Tangible assets – Plant or Machinery, Business Branch e.g. Bank Branch
Intangible asset – Patents, Copyrights, Goodwill, Trademarks etc.
Asset Sale:
Asset Sale by a Company for any reason, for Cash or Stock or mixed
Tangible assets – Plant or Machinery, Business Branch e.g. Bank Branch
Intangible asset – Patents, Copyrights, Goodwill, Trademarks etc.
Business Expansion:
Expansion of company's business - general like new outlets or geographic including capacity
enhancement, plant expansion, diversification etc.
Downsizing:
Closure of plant / branch or certain part of larger operations or reduction of capacity.

Restructuring and reorganization of businesses, Consolidation, break-up etc. for business
streamlining and better efficiencies.
Joint Venture:
A project or business in which two persons or companies partner together to conduct the project
e.g. marketing V, Manufacturing JV, R&D JV. Each of the companies to the venture is
responsible for profits, losses, and operations. A joint venture operates like a partnership and is
usually taxed like one. Termination of a joint venture.
M&A Announcements:
¾ Announcement by companies to merge; or one to acquire another. An acquisition Could

be friendly - both boards mutually agree to the M&A or hostile (without the board
approval of the Target company).
¾ Any update related to an M&A Announcement captured earlier. For e.g. increase in
consideration value, announcement of tender offer for shares of the target company etc.
¾ Approval for the M&A deal from shareholders / regulatory bodies
¾ Withdrawal of the M&A deal by either one or both parties to the earlier M&A Agreement
¾ The completion of the M&A deal
Alliance:
Agreement between two or more parties to advance towards common goals like research,
development, marketing, Technology Sharing.
Issue Equity:
Acquisition of funds by issuing shares of common or preferred stock. Firms usually use equity
financing when they are unable to raise sufficient funds through retained earnings or when they
have to raise additional equity capital to offset debt.
Issue Debts:
Financing by way of issuing Secured/ Unsecured Notes, Loan, Bonds, Debentures and other
financial instruments bearing a fixed rate of interest. Notes are the most common with US
companies (issued to public at large or private institutions).
Redemptions:
Redemption / retirement of debt.
Credit Facility:
Company signs credit agreement that entitles it to borrow money now or in the future from an
institution granting the credit facility.
Credit Rating:
A credit rating assesses the credit worthiness of a company. Credit ratings are calculated from
financial history and current assets and liabilities. A higher rating implies the company is better
placed to repay debt and the company can borrow at a lesser interest rate compared to companies
with lower ratings. Ratings can be changed based on the company‘s current performance /
financial position. S&P, Moody's, Fitch and A M Best are the top credit rating agencies.
Analyst Comments:
An analyst writes reports / comments on the companies they cover. The comments covers
aspects related to investment potential in the company wart. its future business performance and
outlook.
Analyst Initiates:
Initiation of Coverage on a Stock by Analyst scenarios: Initiate as Buy, Sell, Hold, Outperform,
Market Perform, Neutral etc.
Spin-off:
Existing business unit being divested and would become independent entity, to trade as a public
company i.e. Splitting a business followed by an IPO for that business.
Business Unit Dealings:
¾ Sale of a business unit / operations i.e. A profit center

¾ Purchase of Business Operations which is not an independent organization in itself.
¾ Company announcing closure of a business operation. A business operation is generally
an SBU and a profit center.
¾ Expansion of company's business - general like new outlets or geographic including
capacity enhancement, plant expansion, diversification etc.
13 D Issuer:
Schedule filed with the SEC to report acquisition of beneficial ownership of 5% or more of a
class of equity securities.
The 13D filed by the issuer i.e. whose shares have been acquired.
13 G Issuer:
Schedule filed to report acquisition of beneficial ownership of 5% or more of a class of equity

securities by passive investors and certain institutions
The 13G filing by the Issuer i.e. whose shares have been acquired.
Managem
ment Research
h Project IBS Hyderrabad
Trend an
nalysis of Nifty
N Fifty Sttock Index for
f the yearr2000-2010:
6000
5000
4000
OPENING PRICE
3000
HIGH PRIC
CE
2000
LOW PRICE
1000 CLOSEPRIC
CE
0
Graph 1:: Trend analy

lysis of nifty fifty
f Stock Inndex for the year2000-2010
Data Souurce: www.n

nseindia.com
m
In The yeear 2000-200

02:
While inn the past th hree-four quuarters, comppanies have improved profitability
p with some belt-
tighteninng; this strategy did not pay off thiis quarter, thhough it maay have helpped avoid fuurther
strain. Thhe rise in expenditure surpassed
s thhat of sales. Operating expenses roose 1.02 perr cent
against saales growth of just 0.44 per cent.
Operating profits felll 3.10 per cent and opperating proffit margins 13.57 per centc compared to
14.07 per cent in thee correspondding previouus quarter. Despite
D a moderate 4.444 per cent riise in
other inccome', the PBDIT
P marggin fell by 1.65 per cennt. Though cost-cutting
c could add to
t the
bottom liine only to a certain exteent, the conttinuous focus on improving efficienccy should paay off
in the lonng run. Thiss also suggessts that onlyy a genuine growth
g in toop line woulld improve future
f
prospectss and the earrnings perforrmance of thhese compannies.
Interest costs
c declineed 5.08 per cent in thee December 2001 quarteer comparedd to the prevvious
quarter, thanks
t to th
he two perceentage pointt cut in inteerest rates. But,
B this didd not providde the
much-needed push to t the bottom line. Thoough a furthher 50-100 percentage
p p
point cut caan be
expectedd in the neaar future, thhis might noot have mucch impact on o the profi
fitability of these
companiees as suggessted by the nuumbers in thhe Decemberr 2001 quartter.
Taxes annd extraordinary incomee: The signiificant rise in taxes andd provisionss was due to the
deferred taxation req
quirement inttroduced this year. A 122.67 per centt rise in tax liabilities
l ledd to a
one percentage point rise in the effective taxation rate to 38.69 per cent. Even the substantial
increase in extraordinary income did not provide the required impetus to the bottom line.
Sectorial performance and outlook: FMCG companies suffered continued pressure on top line
due to lower rural demand. Companies such as HLL reported modest top- and bottom-line
growth. As for technology stocks, lower growth rates continued. The growth for most companies
was modest compared to the last two years. NIIT suffered the most as its education business
declined sharply.
Cement companies, however, performed better in comparison, thanks to the pick-up in volumes
and prices. Two-wheeler makers such as Bajaj Auto and Hero Honda, however, were upbeat on
the back of rising volumes. Two-wheelers witnessed good demand growth the past few months
and this is likely to be sustained in the near future.
As for other sectors, one can only wait and watch if the demand picks up in the near future.
Though the farm sector has just started showing some signs of a pick-up, it could take a while for
the manufacturing sector to get going. Till then, sluggish top line growth would continue to cast
a shadow on profitability.
Event One:
Corporate Governance on the Stock Prices of the Nifty 50 Broad Index Listed Companies:
Literature Review:
Setting a good corporate governance policy will lead to a lot of benefits to different levels of
Management and helps the organization to avoid management level corruption and helps in
enhancing the firm values, shareholders’ value creation and reducing the investment and
financial risks. Therefore a good, sound and healthy corporate governance policy is a very
important criterion while investing in a company. (Shen, Shu, and Chen, 2006)
This particular topic has been an interested area of analysis for many researchers. There have
been some of the relevant researches done which are worthwhile mentioning. Black & Khanna,
(2007), in their path breaking work, did an event study on change in share price of the companies
with respect to regulations passed by the regulatory bodies in India. They found that the May
1999 announcement by Indian securities regulators of plans to adopt what became Clause 49 is
accompanied by a 4% increase in the price of large firms over a two-day event window (the
announcement date plus the next trading day), relative to smaller public firms; the difference
grows to 7% over a five-day event window and 10% over a two-week window. Mid-sized firms
had an intermediate reaction. Faster growing firms gained more than other firms, consistent with
firms that need external equity capital benefiting more from governance rules. Cross-listed firms
gained more than other firms, suggesting that local regulation can sometimes complement, rather
than substitute for, the benefits of cross-listing. The positive reaction of large Indian firms
contrasts with the mixed reaction to the Sarbanes- Oxley Act (which is similar to Clause 49 in
important respects), suggesting that the value of mandatory governance rules may depend on a
country’s prior institutional environment.
2. In another work by Barnes, and Hughes, (2002), they model returns and test whether the
conditional CAPM holds at other points of the distribution by utilizing the technique of quintile
regression. This method allowed them to model the performance of firms or portfolios that
underperform or over perform in the sense that the conditional mean under- or over predicts the
firm’s return. Quintile regression alleviates some of the statistical problems which plague CAPM
studies: errors invariables; omitted variables bias; sensitivity to outliers; and non-normal error
distributions.
The research holds true for foreign companies, but no such research has been done on Indian
Companies and also, the research did not focus on certain financial parameters and their effect on
the prior performance of the companies. Also cross sectional research has far not been used to
predict Index share prices. Analyst may have better captured the underlying construct of share
price with respect to corporate governance and other variables. This study extends the prior
literature by filling the gaps that have been discussed above. The paper attempts to find the
relationship between corporate governance and share price of listed companies in the Nifty 50
Index.
Event Two:
Foreign Institutional Investors (FII’s) on the Stock Prices of the Nifty 50 Broad Index
Listed Companies:
Literature Review:
P. Krishna Prasanna (2008) has examined the contribution of foreign institutional investment
particularly among companies included in sensitivity index (Sensex) of Bombay Stock
Exchange. Also examined is the relationship between foreign institutional investment and firm
specific characteristics in terms of ownership structure, financial performance and stock
performance. It is observed that foreign investors invested more in companies with a higher
volume of shares owned by the general public. The promoters’ holdings and the foreign
investments are inversely related. Foreign investors choose the companies where family
shareholding of promoters is not substantial. Among the financial performance variables the
share returns and earnings per share are significant factors influencing their investment decision.
Trends Analysis of Foreign Institutional Investors:
In 2004, FII investments crossed $9 billion, the highest in the history of Indian capital markets.
¾ The total net investment for the year up to December 29 stood at US$9,072 million while
foreign investors pumped in about US$2,113 million in December.
¾ Korea and Taiwan have always been the biggest recipients of FII money. It was only in
2004 that India managed to receive the second highest FII inflow at over $8.5bn.
¾ In 2005 FIIs invested more in Indian equities than in Korean or Taiwanese equities.
¾ On 9th March 2009, India's exceptional growth story and its booming economy have
made the country a favourite destination with foreign institutional investors (FIIs). It has
continued to attract investment despite the Satyam non-governance issue and the global
economic contagion impact on Indian markets.
¾ According to Mr Gautam Chand, CEO of Instanex, said FIIs are the largest institutional
investors in India with holdings valued at over US$ 751.14 billion as on December 31,
2008.
¾ They are also the most successful portfolio investors in India with 102 per cent
appreciation since September 30, 2003.
¾ As per SEBI, number of registered FIIs stood at 1626 and number of registered sub-
accounts stood at 4972 as on March 17, 2009.
References:
1. www.nseindia.com
2. http://smallbusiness.chron.com/five-factors-events-affect-stock-market-
3384.html
3. http://www.google.co.in/
4. http://www.scribd.com/doc/14854096/Project-Report-on-Camels-Model
5. http://web.ebscohost.com/ehost/selectdb?hid=8&sid=1a71e6bb-a755-48f2-
97a5-e2c42d87b047%40sessionmgr4&vid=1
6. http://www.capitaline.com/user/framepage.asp?id=1
Note: Harvard Style Referencing has been used
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Management Research Project IBS Hyderabad

Major Events Affecting the Stock Prices…………………………………………..8

Trend Analysis of Nifty Fifty Stock Index………………………………………..12

All the above aspects have been covered in my interim report.

Inflation and Interest Rates

Introduction To NIFTY FIFTY Index:

Major Events Affecting the Stock Prices:

At times, due to accounting changes, discontinued operations, or incorrect accounting procedures

Any update on the previous repurchase authorization.

Tangible assets – Plant or Machinery, Business Branch e.g. Bank Branch

Intangible asset – Patents, Copyrights, Goodwill, Trademarks etc.

Tangible assets – Plant or Machinery, Business Branch e.g. Bank Branch

Intangible asset – Patents, Copyrights, Goodwill, Trademarks etc.

Closure of plant / branch or certain part of larger operations or reduction of capacity.

¾ Announcement by companies to merge; or one to acquire another. An acquisition Could

Redemption / retirement of debt.

Business Unit Dealings:

¾ Sale of a business unit / operations i.e. A profit center

Schedule filed to report acquisition of beneficial ownership of 5% or more of a class of equity

Graph 1:: Trend analy

Data Souurce: www.n

In The yeear 2000-200

Trends Analysis of Foreign Institutional Investors:

Note: Harvard Style Referencing has been used

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