RESEARCH ON

IMPACT OF FUNDAMENTAL AND TECHNICAL FACTOR ON THE PRICE OF EQUITY SHARES IN INDIA

SUBMITTED TO Dr. ANAND SWAROOP PANDEY DEAN (M.B.A.), I.M.S., DEHRADUN

SUBMITTED BY CHIRAG KHANDELWAL MB11B38 (M.B.A.) I.M.S., DEHRADUN

IMPACT OF FUNDAMENTAL AND TECHNICAL FACTOR ON THE PRICE OF EQUITY SHARES IN INDIA

ABSTRACT

In India, shares provide exciting opportunity for making big money but shares price behavior is a very controversial issue. The present study seeks to identify and quantify the impact of a selected number of fundamental and technical Factor on the price of equity shares in Indian. This task has been carried out by studying the trading activity of several companies. This study disclosed the fundamental factor like, DPS, EPS, Yield and ROI together account for 87% of variation in share price, further technical factor like security price index and GNP together account for nearly 81% of variation. The study finally revealed that all factors have a significant bearing on the price of equity shares in India.

INTRODUCTION

Shares pries behavior is a very controversial issue in field of financial instrument. It is not properly understood by a large segment of the financial community. As such, share price is an issue which can be examined only through deep study of various factors. Its a subject of enquiry of financial analysis, academics and researchers for the last few decades. Investigation empiricism on the subject over the year has led to the development of varies econometric models, attempting to determine, categorizes, explain and measure the difference type of observed shares price behavior in the market. However , nothing conclusive yet known about likely behavior of shares price and the factor influencing them in the market. No formal mathematical model have so far has been developed to deal with this subject in this subject long back wai and patric suggested that the most profitable line of research would be in detailed case study of capital market in specific development countries. The present research is an attempt in this direction.

LITRETUTE REVIEW There exists considerable conflict between the followers of the two different stock market school of thought. The first school of thought holds the view that fundamental analysis is the surest way of making money successful investment in equity shares in the long run fundamental analysis being a conservative and non speculative approach. According to this approach, an in depth study of various fundamental factors with in an company where he want to invest money. On the other hand the other school of thought holds the view that the technical aspect of the stock market is more important than the fundamental aspect. A number of study exists in the literature of finance attempting to examine the impact of fundamental factors on the price of equity shares in India. A very few time series studies the both micro and macro aspect of share market during the period. In one of the early study, desai (1965) using linear regression modles, concluded that the dividend per share as the most significant variables influence the share price in the positive direction. Shrivastav (1966) concluded with the observation that dividend per share is the most significant variable while retained earning had no significant impact on the share price in india. Ojha (1976) in his study select large range sized cotton textile firm his study witnessed that the effect of dividend is almost two times higher than the retained earnings. Chandra (1978) studied the influence of divedend, price dividend multiplier, growth in income, risk, leverage and size upon market price of share with the help of log linear regression analysis. The study supported that return, growth and size have positive influences on share price, while risk and leverage have no influences at all. Dixit (1986) examined the behavior of equity shares on the basis of 43 sample companies and reveled that DPS, BPS, EPS, size and ROI are significant determenants of shares price. Chawla

and Shriniwas (1987) in there study estimated a modle to explain share price, dividend and retained earning relationship. The result indicates that in case of chemical industry both dividend are retained earning significantly explain the variation in share price. However the impact of dividend is more pronounced that retained earning. The consistency of equity shares price of BSE SENSEX companies with there fundamental and found that dividend per share and earning per share had direct positive association with equity share behavior of more volatile share price. This study examines the effect of internal and external factor on the price of two groups of shares. Roul (2006) tried to examin the influence of FIIs on movement of SENSEX, this econometric analysis reavels that inflow of FIIs has positive impact on the movement of SENSEX. Further, the study reveled that FIIs explained 23%of variation in the total variation in the SENSEX and 77% of variation remained unexplained.

RESEARCH METHODOLOGY This research is quantitative in nature and data I collected from secondary sources. It was carried out with a judgement sample of 27 companies selected for this purpose covering a time period of 14 years from 1987-2000. Recent data could not be in corporate because of discontinuation of the publication of Bombay stock exchange official directory. Step wise multiple regression analysis was extensively used in the study of draw inferences. It is decided to include in the sample such public limited companies which are actively and regularly traded in various stock exchange and provide continous financial information for the entire study period. Thus on the whole 27 companies were selected for examining the share price behavior in the present study. The sample companies so selected cover a wide range of industries namely general engineering electrical goods, chemical, paper, steel, cotton textile and miscellaneous. It is a time series study based on secondary data planning to the time period 1987-2000. The required financial information of the sample companies has been carried from volumes of Bombay stock exchange official directory for the purpose of analysis of the fundamental factor have been collected from various volume of RBI bulletin and report on currency and finance. In the present study step wise multiple regression analysis has been used to estimate seprated the impact of a selected number of fundamental factor and technical factor on the price behavior of equity shares. This technique has been tried mainly to know seprated how many factor need inculsion as independent variables in the estimated equation for study the variation in the share price. The log linear model has been preferred for the estimated of regration parameter.

Model for fundamental factor log y = log a + a1 log x1 + a2 log x2 + a3 log x3 + log x6 + u Model for technical factor Log y = log a + a7 log x7 + a8 log x8 + a9 log x9 + Where, y- Average share price x1- Dividend per share x2- Earning per share x3- Book value per share x4- Yield x5- Return on investment x6- Size x7- Security price index x8- index of industrial production x9- Gross national product x10- Money supply U- Error term a10 log x10 + u a4 log x4 + a5 log x5 + a6

All the factors are explanatory variables used in the present study are taken with one year log (n-1), as these variables are expected to affect the next years market price of shares. Since the technical factor used in the study as important explanatory variables are supposed to affect the market price of share of the same year. The entire data are fed into the computer and log linear regression equation are estimated by the method of OLS. The co-efficient of multiple determination (R2) indicating the proportion of variation in the dependent variables is worked out f value. F values are also computed to test the significance of (R2)) for judging the significance of individual regression co-efficient T testing is correction in the time series data have been tested by computing the durbin Watson statistics.

Limitations
1. Primary data is not available because it difficult to gather information from people. 2. Time boundation is there to carry out research. 3. During this least time I could not manage to analysis the research problem 4. The secondary data which I had was not enough to conduct the research process.

CONCLUSSION The step wise regression test disclosed that , all the fundamental factors and technical factor used in this study have a significant bearing on the prices of equity shares in india. The multivariate analysis disclosed that fundamental factor like DPS,EPS, yield and ROI together explain about 87% the variation in the share price technical factor like security price index and GNP together explain around 81% variation in the share price in india it will not be possible to arrive at such firm inference because of the limited sample size choosen for the study.