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Equity is the one of the most exotic asset class, it has given about 21% average annualized return
since 1990, investment in equity has seen sea change in recent decade. Emergence of business
channel sprayed the awareness about equity among the investor community ,earlier to buy equity
was not so easy as it is now, today market is in pockets of investor in terms of access, technology
has provided the multiple way to access the market through internet, through cell phone and
WAP , now a day’s various expert advices trading and investment tips are available with the
investors, Many fund house are running their mutual fund and giving good return to their
investors and the asset under management of mutual fund industry is approximately $ 6.7 lakh
billion. Reliance capital is the largest mutual fund whose asset under management is more than
one lacks crore followed by HDFC MF, ICICI Prudential MF, state run UTI Mutual Fund whose
asset under management is 68,000 crore and Birla Sun Life MF are the five largest fund house
of the country. Insurance companies, HNI, FII, Retail investors are holding significant amount of
equities in their portfolio, although the allocation in equity is less than 5% of the total house hold
saving in the country however in totality it is a huge amount. In recent market selloff where FII
has sold 13.1billion US$ at one way and DII has bought more than 16.2 US$ at the same time in
other way.

Identification of investable share is the tuff job even for the market participant and timing the
market is even tougher for the expert, but the fundamental analysis and technical analysis helps
the people to identify the cheap stocks at the right time to park their investments. But still the
question remain same what and how much one should buy? The main barometer which is index
it gives the diversity and credibility of the basket and also liquid to exit and enter at desired time
for the investor

NIFTY 50 stocks reflects the appropriate behavior of equity because this is the broader index
composed of 50 blue chips Company of various sector having better corporate governance,
credibility and profitability. Nifty is claimed as the stocks of the nation gives the diversity and
reliability .Reshuffling in script is also an important phenomena because we have observed that
time to time the company who hasn’t followed the corporate governance and not adequately
performed have shown exit way from the index, similar incident happened with the Satyam
computers after the scam broke out in the company the script of the company removed from the
index and replaced by other company. The most important characteristics of NIFTY is the
diversity it is the basket of the shares who represents the various sectors like Reliance and
ONGC represents the petrochemical sector, NTPC represents the power sector, ACC represents
the cement sector ,Infosys represent the IT sector and SBI and ICICI bank represents the banking
sectors and so on.

The stocks in NIFTY gets proportionate weight age according to their market capitalization so if
money will allocated to the company who are the component of index according to their
proportion, then the capital appreciation will be similar as the index fluctuation.
1990* 279 372 93 33.33333
1991 318 558 240 75.4717
1992 737 761 24 3.256445
1993 744 1042 298 40.05376
1994 1083 1182 99 9.141274
1995 1182 908 -274 -23.181
1996 908 899 -9 -0.99119
1997 939 1079 140 14.90948
1998 1081 884 -197 -18.2239
1999 890 1480 590 66.29213
2000 1592 1263 -329 -20.6658
2001 1254 1059 -195 -15.5502
2002 1055 1093 38 3.601896
2003 1100 1879 779 70.81818
2004 1912 2080 168 8.786611
2005 2115 2836 721 34.08983
2006 2835 3966 1131 39.89418
2007 4137 6130 1993 48.17501
2008 6144 2959 -3185 -51.8392
2009* 3033 4300 1267 41.77382
TOIAL 279 4300 4021 1441.219
HIGH 279 6200 5921 2122.222
LOW 279 2242 1963 703.5842

Table1: Analysis of equity data since 1990

Above table depicts the twenty year equity behavior in Indian context the index was quoting at
279 at July 1990 and when it peaked out in January 2008 it was quoting on whooping above
6200 which was 2122.22 % from the 1990 level .The appreciation is excluding the dividend
payouts from the holding of the share for such a long time. The gain has outperformed all the
asset class around.

However market corrected in between, time to time but they recovered their losses in coming
year. In the above calendar 1991 was the best month in terms of return the year has given
75.47% of annualized return to the Nifty followed by 70% in 2004 and 60% in 1999.since
1991, 14 years has given positive return while 6 years has given negative return among them
2008 has given -51% followed by -23.18% in 1995.
NIFTY 6130


2836 2959

1182 1263 1093
1042 1079 1059
908 899 884
1000 761

Fig: graphical presentation of nifty movement on monthly closing basis

*data for year (1990 July onwards, 2009 up to June first week)

** Nifty touched 4600 at 5th June 2009 at the intraday basis.

Several events have been priced by the market since 1990. earlier Indian capital market was in
nascent stage and the market infrastructure were poor, it was operating under very low base and
volume, there was the manual trading system in practice, settlements were in physical form and
time taking activity, the unlawful practices were quite common with the Indian market. After the
new economic policy opted by Rao Manmohan duo the market has seen a revolutionary change
in their all dynamics. The participation of investors has increased after the reform, system
became more regulated after the formation of SEBI, FII became the dominant player in the
market, retail and HNI also became active in on the bourses, household saving started trickling in
the equity market through mutual fund and direct investment. These events bring new confidence
and improved the sentiments in Indian capital market.

In Indian condition equity sparked fear in the minds of investor. In India people in generally love
to see their investment on regular basis. The fluctuation in the market is mostly hyped by the
media channel that’s why people feel themselves scary about to investment in the market. In
spite of that the equity has given best return in the longer horizon most of the household saving
finds their way towards fixed income instruments because liquidity concerns and conservative
attitude of the people. Investment psychology plays very important role to park the saving in the
equity, and second most important thing is risk aversion or risk apatite.

The advent of business channel has created a revolution in the investment world people getting
aware about the fundamental and technical’s of the markets and behaving accordingly.

The financial reforms taken by the government open another gate for money to the capital
market and treasury operation if corporate emergence of HNI and retail investor in the big way
played significant role in the lustrous performance of capital market in India.

Today Indian market has their own legs and wings although they are more dependent on foreign
flow but as the time is running out the dependency is getting lesser .In the recent downturn in
equity market in 2008 the FII has sold more than 13billion US$ and in the same period more than
16 billion US$ of domestic money get the way in the market .Indian equity market has slowly
and slowly showing sense of stability in their behavior.


At the first trading day of July NIFTY was quoting at 279 and by December end it climbed 75
points which was 25.25% up from July level. It was a politically unstable period the unstable
economic policy by the previous government of Janta Dal and latter on Samajwadi party headed
by Chandrasekhar previously India was under tremendous pressure of Balance of Payment crisis
this was the period when previous government kept their gold reserve to IMF to get foreign
exchange for their short term requirements in 1989.

This was the phase when market was poorly regulated only few people were able to invest in the
market because of the technical constrains. Manipulation frauds were the flavor of the market in
that period.

Year 1991 was the greatest year in the terms of equity market return it was fueled by the
economic reform and liberal policy opted by the Rao government in the centre .Market was seen
greater participation from the investor and DII .and given whooping gain of more than 75%in a
year the first half was given 22% return while last half given 41%of return.

The market has seen new ray of hope in the form of reform and performed accordingly this was
the pivotal period for the equity market in the India from here the market never looked back.


Market started with optimism in first quarter and given the return of 120%, however in later
month market cooled off and closed its shutter for the year at 33% of gain but this gain was very
important because it came after great 75% run in 1991.this was the tome when FII activity
started strengthening in the country. Political stability and optimism of growth was priced by the
market that’s why market showed follow rally after record year.

Indian economy reflected the ray of hope in this period and this was engineered by the Rao –
Manmohan policy


Year 1993 was also started on good notes. Historical serial bomblast of 12th march 1993 shocked
the market and on reaction of it market corrected 19%in two month i.e. March and April. The
green year for the market here it has given 40% annual return, it was great time for Indian
economy because Manmohan singh policy was converted into the performance by that time and
the country and the corporate India was in growth track .There was some profit booking seen in
the first two quarter but Nifty came back strongly in next quarter with significance gain.


1994 was the year of consolidation after three great years of Bull Run for the market. Main
outcome of the year was the market able to hold their green flag with 9%gain in the year .in spite
of global problems and geopolitical concerns market consolidated their gains in this year.


After the four year of Bull Run market corrected in this year due to political uncertainty in Delhi
and poor monsoon given the market an excuse for profit taking and it corrected 23% in the year.
This was the real breather for the market after for year of strong Bull Run.

Year started with the cautious note and remained under narrow range in whole year market
closed mere 0.99% down although first half market gone up 23% while final half of the year
surrendered 18%of their gain which was backed by non event year.


This year was given return of 14% but alternate band of buying and selling were seen on the
screen ,FII flow were sustained followed by better global picture .Positive budget and growth
familiar budget supported the market gain


Looming global instability and credit crisis in Asian economy open the selloff in market. NATO
intervention on Yugoslavia Middle East crisis of Israel and Palestine dampened the sentiments of
the markets and market corrected 18%in the year.

The subdued interest if FII and cooling of economic activity in the region pull backed the market
this year.


This was the third best year of the Indian capital market with 66%gain in the year the flavor of
NDA government led by Atal Bihari Bajpayee was backed by the market participant and plenty
of optimism created euphoria in the market.

Political stability in the centre and new reforms by the government bring the positive sentiments
in the market


Gloomy global economy and poor monsoon given the proper reason to selling in equity market
.political instability in the Delhi was another reason that created selloff in the equity markets.
This year market corrected 20% in the year. Ketan Parikh incident was created panic in the
market in November.


Global jitter especially Asian crises, geopolitical condition in Middle East created global selloff
in the equity markets and India corrected 15%in the year with global peers.

Japanese economy and problem in the Japanese financial system spread wave of selling in the
equity market in the Asia region.
Domestically poor agriculture growth and bad corporate earning added more flavor in the bad
sentiments and market further cooled


After the subdued year Indian capital market was mixed in 2002 here alternate bouts of rise and
fall were registered on the screen. Political uncertainty also added the sentiment and market
finally able to registered 3.6% gain in the year and made a good base for further move which was
never imagined that Indian capital market going to surprise every analyst in coming year.


This was the phenomenal year for equity market Nifty given 70% return in year among them
66% came in second half of the year. Again market was celebrating the election year.

Economy was growing at the rate of more than 8% one of the highest among the growing
nations. The corporate earnings were phenomenal. So market given thumbs up and registered
second highest gain in the history.

First half of the year was given only 3%of return but in second half it was given 66% return.


Surprise result of Loak Sabha election and strong performance of left parties spread the negative
sentiments in the market.

After the sustain rise market corrected in first half in first quarter 7% second quarter17% and
third quarter13% however fourth quarter was the recovery backed by the some policy action of
P.Chidambaram and Manmohan Singh. The quarter given 17% of northward movement and
annual basis market ended positive with 8%gain.


India became the destination of the overseas money yen carry trade created the opportunity for
the Japanese money to trickle in Indian bourses .and this effect was visible with the 34%annual
return in the market.

In spite of the fact that left parties supporting the government they forwarded banking reform
infrastructure spending and a budget that liked by India INC


Chidambaram effect was still there on Dalal street .Index were making new high and it was the
liquidity driven rally.
Growing economy better corporate number reflected at the screen of the market and market has
given 39% return in the year.FII were the key contributor in the market they were parking their
money in BRIC country .hedge fund became more active in this year .they were putting their
money through the participatory notes. Which were issued by FII?


Year 2007 was the green carpet for the markets with whooping 48% rally in the market backed
by record FII flow of 17 billion US$ in a single calendar year and significant amount of retail
participation in the market. The best month was the October with the 16% return while worst
month was the February with 9% negative return. The sentiments were quite positive in this year
record number of companies came with their IPO and they were successful to tap the market.

By this time India became one of the prime destination of investment, many India dedicated fund
were started operating from overseas, tax treaty done with Singapore also supported the equity
market, good amount of Japanese money came in the market and market rallied on the liquidity.

The GDP growth was at record level of 9.2 and India were about to achieve the double digit


The year 2008 was the worst year and one of the most eventful year of the equity market not
only in India but globally, the ghost of subprime spread their wing across the globe, credit crisis
was the flavor of the season .This event pulled down the equity market globally, equity markets
all around the globe corrected more than 60% taking the global link ,Indian market has also
corrected record 51% in the year .The investors money significantly eroded in the crash .In the
entire calendar year only July and December was the month that has given the positive return
and rest of the months ended into the red.

Growing crude price, inflation and credit crisis was the flavor of the season


The year started on the subdued notes however post march market surprise the investor with their
northward journey FII pumped significant money in the market and market gained 41% by June
election result created great euphoria in the market and in the history of Indian capital market.
Indices had hit the 20% circuit on Monday, May 18, after the UPA (United Progressive Alliance)
swept the Lok Sabha polls. This was the repeat of the history .The day's percentage rise was the
biggest since a 20.8 percent jump on March 2, 1992 when Singh, who was then finance minister,
unveiled reforms that opened the economy to foreigners .This was the pivotal event for the
market where same person voted by Indian people to govern in for next five year freely and also
saw the government unveiling the list of Cabinet Ministers.
The exile of left party from the decision making process was also celebrated by the market.
80 75.47


40.05 48
40 33.33
39 41*
20 %
0 3.6


-23.18 -18.2 -15.5



Fig: percentage fluctuation of Nifty

Investment of 1000 per year in NIFTY given the return in fillowing way.

Equity Year*

1000 1st year

2333.333 2nd year
5094.34 3rd year
6260.234 4th year
9767.693 5th year
11660.58 6th year
9957.539 7th year
10858.84 8th year
13477.84 9th year
12021.65 10th year
20991.07 11th year
17653.09 12th year
15907.99 13th year
17445.09 14th year
30141.26 15th year
33698.15 16th year
45839.11 17th year
64718.22 18th year
97478.29 19th year
48545.23 20th year
82320.5 21st year

Fig: return from nifty after annual investment of 1000 per year.

If an investor would have invested 1000 rupee every year since 1989 his investment would have swells
to 97478 in 18th year as per market growth this gain was more than four time than of investments and
after the massive correction of 51%in 2008 still the investment was 48545 after investing 20000 in the

Shorter term there is always a risk in the market because equity is known for their sharp move however
the longer term investment in equity has great potential to give the better return and as we know Indian
markets are maturing day by day so there are still a great opportunity in investing the equity so equity is
going to the biggest asset creator in times to come.
The above writ up is the summary of my summer project .

Article published in “Business and Management”

November 2009