Relationship Between Nature of Industry and Market Sensitivity

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Above analysis shows that all three sectors i.e. IT Services, FMCG and Energy Sector are sensitive to systematic risks of market. IT Services and FMCG Sectors show a low sensitivity to systematic risk of market with beta (β) values of 0.39 and 0.32 respectively. This shows that if market is affected 100% by certain event; then the stock prices of companies in IT services are affected only 39% while the stock prices of companies in FMCG sector are affected by 32%. Stock prices of companies in Energy sector shows that it is highly sensitive to the systematic risk of market with a beta (β) value of 1.30. This shows that the stock prices of companies in Energy sector are affected by 130%.

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Relationship of Sectors with Currency Exchange Rates (INR-$ Rate)

For this analysis, currency exchange rates were obtained for a period from 1st April 2014 to 31st March 2016. Corresponding stock prices for all nine (9) companies were also determined on same dates. Sector-wise comparison is made for stock prices with the currency exchange rates and is shown below. Left vertical axis shows the stock price while the right vertical axis shows the INR-$ exchange rate. Horizontal axis shows the month. Blue line is used to indicate the currency exchange rate variable in graph.

IT Services Sector

[pic 3]

Above graph shows that major IT sector stocks are sensitive to exchange rate variation. There is a mixed correlation with the exchange rates. Rise in exchange rates is beneficial for the companies as it increases the overall revenue in INR for already completed projects and this results in increase in valuation of accounts receivables in INR. Also at the same time as rupee depreciates, exports become cheaper and hence there is probability of increase in exports from IT companies. Thus, stock prices see a rise whenever there is depreciation in rupee as compared to dollar. Any adverse trend is due to sensitivity of the other sector to other factors like government policy or change in management etc.

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Energy Sector

[pic 4]

As seen from the above graph there is a negative correlation between stock prices of companies in energy sector and currency exchange rates. Stock prices rise as the exchange rate drops and rupee appreciates but there is a steep decline in stock price as the exchange rate falls and rupee depreciates. This is obvious for the stock prices of companies like ONGC whose production cost is related to the input prices of crude oil. Depreciating rupee makes the inputs costly and thus stock prices falls with anticipation of lesser profits. Government policy on determination of prices of products of these industries is another major factor which influences this sector.

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FMCG Sector

[pic 5]

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Relationship of Sectors with Inflation in Indian Economy

Government has replaced the WPI inflation by CPI inflation as indicator of inflation in India from 2013. CPI inflation data has been obtained for 24 month from 1st April 2014 till 31st March 2016. Corresponding stock prices for all (nine) 9 stocks have been analyzed with respect to this CPI inflation. Sector-wise comparison is made for stock prices of the companies with the CPI inflation percentage and is shown below. Left vertical axis shows the stock price while the right vertical axis shows the inflation percentage. Horizontal axis shows the month. Blue line is used to indicate the inflation rate variable in graph.

IT Services Sector

[pic 6]

Above graph shows that there is no major direct correlation between inflation and stock prices of companies in IT services sectors. IT sector being export oriented is insulated from inflationary trends within the domestic economy.

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Energy Sector

[pic 7]

Above graph shows a direct positive correlation between inflation and stock prices of companies in Energy sector. Government policies majorly affect the prices of the product of companies of energy sector. High inflationary trends form a positive factor which leads government authorities to increase the prices oil or electricity etc. which are product of this sector. Hence, as inflation rises, stock prices show increasing trends.

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FMCG Sector

[pic 8]

Above graph shows a major inverse correlation between inflation and stock prices of companies in FMCG sector. Decrease in inflation increases the purchasing power of consumers which in turn increases the demand for FMCG products. This explains this inverse correlation.

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Relationship of Sectors with Exports

For this analysis, exports data for the country was obtained for a period from 1st April 2014 to 31st March 2016. Corresponding stock prices for all nine (9) companies were also determined on same dates. Sector-wise comparison is made for stock prices with the export data and is shown below. Left vertical axis shows the stock price while the right vertical axis shows the export data (in crores). Horizontal axis shows the month. Blue line is used to indicate the exports variable in graph.

IT Services Sector

–[pic 9]

The graph above shows that the stock prices of companies in IT services sector have a direct positive correlation with the exports of the country. IT services sector are majorly export oriented and contribute around 62% to India’s exports.

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