Events, News, Stocks, Sectors and Market
KIRAN KUMAR K V
Sensex touching 30000 was the most anticipated long due sentimental aspiration of every market participant in India. This April 5th, the 30-scrip index did touch the emotional benchmark. What is even more joyful for investors is the kind of returns the markets have generated in the last few months. Overall, various equity portfolios (read equity mutual funds) have returned a 12-14% return in the past one year. For the last three-four quarters markets have been remaining in the positive terrain. In March-2017 alone benchmark indices like Sensex and Nifty have rose around 3%. The said rally, mostly termed as bullish phase can be dedicated to certain events like passing of four GST bills in the latest past, release of stronger growth numbers despite demonetization, rupee strengthening and positive flow of FII money.
Every bull phase in the market will be led by certain sectors. Logically, events drive the market.
Events will also be related to few sectors and stocks of those sectors will see heavy buying. For instance consider the case of Cosco. Cosco (India) Limited is a company primarily into manufacturing of sports goods. Post the Summer Olympics of 2016 (held during August of 2016), the stock price has only been going up from a level of Rs. 140 to Rs. 260 (refer appended graph), mostly led by the bronze medal winning of Badminton player P V Sindhu, which was expected to increase the interest levels in the very sport – Ball Badminton. Cosco one of the few branded and listed manufacturer of sports goods, already present in the manufacturing of Badminton related goods, was one of the few companies that attracted buyers.
Similarly, GST bill passing in Jan-Mar 2017 quarter, attracted heavy buying in sectors like consumer durables, capital goods, FMCG and realty companies. Stronger rupee has affected the metal and IT sector during the same period. (Refer the table appended). Events affect Sectors; Sector impact overall Market. Mathematically, overall market movement in the short term is a function of events. Thus, as an investor, it becomes useful to understand the relation of each sector in the market with the market. Because, what investors access is news. Using obvious senses to determine which sectors get affected due to the events, one can attempt to predict the overall markets. This article, tries to summarise the relation between different sectors and the market.
Data Analysis
Last one year’s daily index price data is collected for Nifty and 17 sectoral indices – Nifty Auto, Nifty Banking, Nifty Energy, Nifty Financial Services, Nifty FMCG, Nifty IT, Nifty Media, Nifty Metal, Nifty Pharma, Nifty Private Bank, Nifty PSU Bank, Nifty Realty, Nifty Commodities, Nifty Infrastructure, Nifty Tata Group, Nifty Mahindra and Nifty Aditya Birla Group. A study of correlation of the same is conducted using MS-Excel Data Analysis Toolpak. A graphical correlation matrix (using data bars of conditional formatting) is created.
ü Correlation between IT sector and the market (as represented by Nifty) and also IT sector with most other sectors is also negative. The same can be due to the negative impact of political changes at the global level, including Donald Trump winning the US presidential elections and also the strengthening of rupee.
ü Surprisingly, Pharma is found to be least correlated with Nifty.
ü Also tested are the relation of large corporate groups like Tatas, Birlas and Mahindras, and it is found that Tata and Birla Groups have major association with the overall market, whereas Mahindra group is not much correlated.
For further validation, below alternative hypotheses were tested in the statistical analysis package R. The result is also presented in the same table:
Alternative Hypotheses Tested (H1) | cor | t statistic | p-value | null |
There is a significant relation between Nifty and Auto Sector Stock Prices ( ) | 0.8912184 | t = 30.818 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Banking Sector Stock Prices ( ) | 0.9505362 | t = 47.997 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Energy Sector Stock Prices ( ) | 0.7281391 | t = 16.662 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Financial Services Sector Stock Prices ( ) | 0.9667073 | t = 59.254 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and FMCG Sector Stock Prices ( ) | 0.9493773 | t = 47.401 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and IT Sector Stock Prices ( ) | -0.2059671 | t = -3.3013 | p-value = 0.001105 | Reject |
There is a significant relation between Nifty and Media Sector Stock Prices ( ) | 0.9505844 | t = 48.022 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Metal Sector Stock Prices ( ) | 0.7204613 | t = 16.294 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Pharma Sector Stock Prices ( ) | 0.09299627 | t = 1.4649 | p-value = 0.1442 | Fail to reject |
There is a significant relation between Nifty and Pvt. Bank Sector Stock Prices ( ) | 0.9705643 | t = 63.206 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and PSU Bank Sector Stock Prices ( ) | 0.7686472 | t = 18.847 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Realty Sector Stock Prices ( ) | 0.8166621 | t = 22.195 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Commodity Sector Stock Prices ( ) | 0.8218225 | t = 22.624 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Infra Sector Stock Prices ( ) | 0.9444792 | t = 45.085 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Tata Group Stock Prices ( ) | 0.7685794 | t = 18.843 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Aditya Birla Group Stock Prices ( ) | 0.9524415 | t = 49.023 | p-value < 2.2e-16 | Reject |
There is a significant relation between Nifty and Mahindra Group Stock Prices ( ) | 0.3520583 | t = 5.8995 | p-value = 1.2e-08 | Reject |
Thus, we can infer the below:
> All the sectors studied above, except IT are positively correlated with overall market
> IT sector has demonstrated a negative association with overall market
> The relation between pharma and overall market cannot be established with statistical accuracy
> Among the corporate groups studied, Mahindra group is found to be least associated with overall market compared to Tata and Aditya Birla Group
Based on above results, we can also say that IT sector is highly sensitive to events like US elections, Brexit and rupee stability, as these were the events that could be majorly attributed to have impacted the IT stock prices in the last financial year.
Sources: NSE India, Google Finance & YouTube | Analysis Packages: R-Studio 3.3.3 & MS-Excel 2013
Author is a faculty in Finance @ International School of Management Excellence, Bangalore (www.isme.in)
Feedback: kirankvk@isme.in
