A STUDY ON RELATIONSHIP OF SENSEX WITH BANKEX & PAIR STRATEGY WITH REFERENCE TO FIVE MAJOR BANKS

Presented BY: Manish Kumar Lodha

FLOW OF PRESENTATION

Introduction

Literature Review
Research Methodology Data analysis and Interpretation

Results and Findings

Limitation of the study

INTRODUCTION

The Indian security market has become one of the most dynamic and efficient security markets in Asia today

A small group of stock brokers in Bombay joined together in 1875 to form an association called Native Share & Stock brokers Association

The association drew up codes of conduct for brokerage

business and mobilizes private funds for investment in the

corporate sector

CONT.

The job of the Stock Exchange and its members is to satisfy the need of market for investments to bring the buyers and sellers of investments together, and to make the 'Exchange' of Stock between them as simple and fair as possible

Definition of stock exchange : "Stock exchange means anybody or individuals whether

incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities."

BSE SENSEX

BSE SENSEX or Bombay Stock Exchange Sensitive Index is a value-

weighted index composed of 30 stocks started in 1st of January, 1986.

It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange.

The index is calculated based on a free-float capitalization method The index has increased by over ten times from June 1990 to the present. Using information from April 1979 onwards, the long-run rate of return on the BSE SENSEX works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation

Source:- www.bseindia.com/indices/DispIndex.aspx?...BSE30...30...appSENSEX.

BSE BANKEX

In the year 2002, return on assets in Indian banking was higher

compared to many emerging economies

For instance trading profits of the public sector banks shot up by Rs. 3749 crores

BSE considered it important to design an index exclusively for bank stocks

BANKEX will track the performance of the leading banking sector stocks listed on the BSE BANKEX is based on the free float methodology of index construction
Source :- minoze.livejournal.com

PAIR TRADING STRATEGY

Pairs trading strategy is a market neutral strategy which enables

traders to profit from virtually any market condition; uptrend,

downtrend or sidewise movement

Opportunities of pairs trading usually last for only a short-period of time thus quick response to market movements is required

Pair Trading refers to opposite positions in two different stocks or indices that is long position in one stock and short position in another stock

Pair traders look for divergence of correlation between shares of a pair when a divergence is noticed, traders take opposite positions in a pair

LITERATURE REVIEW

Pramod Kumar Saxena and Kirti Khanna (Dayalbagh Educational Institute),

October 28, 2011 Impact of Quarterly Results on Sensex and Market Volatility An Empirical Research: - This study has the two main objectives; to analyze the impact of top most sectored indices on the BSE benchmark during the Quarterly results and to judge the market volatility during the period of Quarterly results announcements

Dr. N.K. Totla, Prof. H.S. Saluja, Dr. Ira Bapna and Prof. Vishal Sood, August 2012 Does Bse Bankex Walk Randomly? An Innovative Investment Approach: - This

study is conducted to examine whether the Bankex and share prices of Bankex
Banking Companies are stationary or not and the banking companies' stock prices are correlated with Bankex or not

RESEARCH METHODOLOGY

Objectives of the study

To study the financial performance of bank securities in India
To study the risk involves in bank scripts To study the sensitivity of BSE BANKEX during past five years

To study the relationship of BSE BANKEX and BSE SENSEX

To study the Pair Trading Strategy in securities To analyze the banks scripts which are appropriate for Pair Trading

Strategy

To recommend investment strategy in a particular bank script

CONT.

Research Design

Types of Research:- Exploratory research as well as descriptive

research

Sources of Data

Questionnaire BSE website and other websites Other source like banking website and Research papers

Sampling Plan The sample was a random sampling having the sample size of 50 people that they already invested in stock market

CONT.

Tools and Techniques:

Correlation
ANOVAs Hypothesis

H0: There has been no co-relation between BSE SENSEX and BSE
BANKEX H1: There has been co-relation between BSE SENSEX and BSE

BANKEX

DATA ANALYSIS AND INTERPRETATION

Correlation is 0.89690413 in the year 2008

Correlation is 0.957220642 in the year 2009

Correlation is 0.771744653 in the year 2010 Correlation is 0.959895054 in the year 2011 Correlation is 0.948060771 in the year 2012 Correlation is 0.999456703 during the three months of 2013

CONT.
1600 1400 1349.5 1200

1362.2

1230.95
1144.65 1159.15

1000

973

988.7 875.7

800

806.75 684.6

Axis Bank Last Price ICICI BANK Last Price

600

517.25 464.05
400

200

0 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013

RESULTS AND FINDINGS

During the year 2008, 2011 and 2013 BANKEX has given minor negative

return so it had underperformed compare to SENSEX.

During the year 2009, 2010 and 2012 BANKEX has given minor positive return so it had out performed compare to SENSEX.

Risk of BANKEX was more compared to the risk of SENSEX If investor wants to do pair trading between bank scripts than two bank script Axis bank and ICICI bank are appropriate for Pair trading

If an investor wants to take position of Rs. 100. He should short sell 100*13.3851 worth of ICICI share and invest 100+ (100*13.3851) Rs. in Axis Bank share

CONT.
o

26% of the Population was invested in banking scripts & more than

half of the population 60% invested in two sector IT and Pharmacy

o o

66% investor has invested for high long term gain in Equity market. 50% investors attracts towards equity market is for high return than

22% investor are attract by speculation.

o o

62% investor wants to invest in banking scripts in near future 84% investor agree that Investing in bank scripts is far safer than

Investing in other securities

o

80% investors are trade in share market through investment

LIMITATION OF THE STUDY

Though the resources seem sufficient enough to achieve high

standard for this research, still we foresee the following limitations

of study.

The Sector is very vast and it was not possible to cover every nook and corner of this sector.

The research is based on secondary data so variability and availability of data was also a limitation.

Time limitation

Thank You