1

What Does - BRIC Mean?

"The term 'BRIC' (BRAZIL, RUSSIA, INDIA, CHINA) was coined by Jim

O'Neill [Goldman Sachs' London-based head of global economic research] at

Goldman Sachs in November 2001," says Maria Gordon, speaking on a July 25

conference call. Gordon, based in London, is a portfolio manager for the new

BRIC fund, and executive director and co-head of GSAM's global emerging

markets equity. The other portfolio managers for the BRIC fund are: Singapore-

based Kenny Tjan, executive director and co-head of GSAM's global emerging

markets equity; Richard Flax executive director, global emerging markets equity,

London; and Mark Syn, executive director, global emerging markets equity,

Singapore.

At the end of the nineties, the emerging markets attracted attention mainly through

a series of crises. In 1994, Mexico was shaken by the so-called “Tequila crisis”,

and in 1997-98, the booming Tiger countries in Asia were hit. Then in early 1999,

Russia declared insolvency and in the same year Brazil just managed to escape the

bankruptcy of the state. Finally, in 2001 the financial and currency systems in

Argentina collapsed. In most cases, the economic crises were only of short

duration. Today most of the former Tiger countries are no longer counted as

developing countries. They have outgrown this state and are now viewed as

industrialised countries. Much the same applies to Mexico. An aspect of

importance for future developments is the fact that the crises concerned frequently

triggered sweeping reforms, and not just in the countries directly affected! In

recent years, BRIC countries have, for example, built up substantial foreign-

exchange reserves thanks to large trade surpluses. Russia and Brazil have

improved their debt structures and China is in the process of significantly

deregulating its currency and share trading systems. These factors are also

reflected in higher credit ratings of rating agencies. Three of these four countries

already have a prized investment grade rating.

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Younger populations and new pools of consumers are helping drive interest in

BRIC investing. According to GSAM, the pool of new consumers in BRIC

countries with annual incomes of above $15,000 will, by 2025, be almost twice the

total population of Japan, three times the total population of Germany, and four

times the total population of the U.K., France, or Italy. The four countries form

natural markets for each other: "China and India are key sources of demand for

natural resources; Russia and Brazil are key sources of supply for natural

resources," explains Gordon, adding that BRIC countries contributed one-third of

global growth in past five yrs, according to Jim O'Neill.

With valuations more modest since the emerging markets' sell off this year,

Gordon asserts that Ex-India, (which at 19.9 times earnings still has relatively high

P/E multiples), BRIC markets have more attractive fundamentals than the U.S.,

Europe, or Japan markets. She calls BRIC a "very profitable slice of the universe."

Including India, the P/E ratio for BRICs is 11.8 times earnings, while the U.S. is

16.8 and Japan is 19, according to GSAM.

The BRIC fund is designed to be part of a core and satellite approach to asset

management with the BRIC fund one of the satellites complementing a "core" of

more diverse equity and fixed-income assets. Because it will invest in a relatively

low number of companies, the BRIC fund is considered more concentrated than

many emerging markets funds, and may be more volatile as well. Emerging

markets funds have an average volatility of around 20% while the BRIC fund may

have closer to 25% volatility, according to Gordon

Feature of BRIC COUNTRY

The development model of the other BRIC countries seems to have different

drivers, much more influenced by natural resources in the case of Russia and

Brazil, while India is testing its own version of economic development with a

strong component of outsourced services. This new dimension of growth in

services rather than manufacturing has been made possible by the advent of the

internet and the huge reduction in communication costs linked to it. These new

3

models for growth have been untested over long periods but may prove to be other

pathways for achieving growth

1. Swiftly growing economies

2. Giant countries, with giant populations,

3. LOW cost of production

4. More visibility OF INCOME GROWTHS

BRIC leaders in 2008: Manmohan Singh (India), Dmitry Medvedev (Russia), Hu

Jintao (China) and Luiz Inácio Lula da Silva (Brazil).

In economics, BRIC or BRICs is an acronym that refers to the fast growing

developing economies of Brazil, Russia, India, and China. The acronym was first

coined and prominently used by Goldman Sachs in 2001. Goldman Sachs argued

that, since they are developing rapidly, by 2050 the combined economies of the

BRICs could eclipse the combined economies of the current richest countries of

the world.

Goldman Sachs did not argue that the BRICs would organize themselves into an

economic bloc, or a formal trading association, like the European Union has done.

However, there are strong indications that the "four BRIC countries have been

seeking to form a "political club" or "alliance", and thereby converting "their

growing economic power into greater geopolitical clout". One of the recent

4

indications was from a BRIC Summit meeting in 2008, in the Russian city of

Yekaterinburg between the foreign ministers of the BRIC countries. Also in his

Latin America trip Russian President Dmitry Medvedev while visiting Brazil, met

with Brazilian President Luiz Inácio Lula da Silva and agreed to visa-free travel.

Medvedev has also recently made a trip to New Delhi, India to meet with Indian

President, Prathiba Patil and Prime Minister Manmohan Singh to discuss a nuclear

deal as well as agreeing to cooperate in the spheres of finance and financial

security, tourism, culture and fighting drug trafficking.

5

The BRIC thesis

São Paulo,Brazil.

Goldman Sachs argues that the economic potential of Brazil, Russia, India, and

China is such that they may become among the four most dominant economies by

the year 2050. These countries encompass over twenty-five percent of the world's

land coverage, forty percent of the world's population and hold a combined GDP

(PPP) of 15.435 trillion dollars. On almost every scale, they would be the largest

entity on the global stage. These four countries are among the biggest and fastest

growing Emerging Markets.

The size of the world stock market is estimated at about $36.6 trillion US at the

beginning of October 2008. The total world derivatives market has been estimated

at about $791 trillion face or nominal value, 11 times the size of the entire world

economy. The value of the derivatives market, because it is stated in terms of

notional values, cannot be directly compared to a stock or a fixed income security,

which traditionally refers to an actual value. Moreover, the vast majority of

derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is

offset by a comparable derivative 'bet' on the event not occurring.). Many such

relatively illiquid securities are valued as marked to model, rather than an actual

market price.)

6

The BRIC term

The Sao Paulo Stock Exchange is the second largest in the Americas and the third

largest in the world

Various sources refer to a purported "original" BRIC agreement that predates the

Goldman Sachs thesis. Some of these sources claim that President Vladimir Putin

of Russia was the driving force behind this original cooperative coalition of

developing BRIC countries. However, thus far, no text has been made public of

any formal agreement to which all four BRIC states are signatories. This does not

mean, however, that they have not reached a multitude of bilateral or even

trilateral agreements. Evidence of agreements of this type are abundant and are

available on the foreign ministry websites of each of the four countries. Trilateral

agreements and frameworks made among the BRICs include the Shanghai

Cooperation Organization (member states include Russia and China, associate

members include India) and the IBSA Trilateral Forum, which unites Brazil, India,

and South Africa in annual dialogues. Also important to note is the G-20 coalition

of developing states which includes all the BRICs.

Also, because of the popularity of the Goldman Sachs thesis "BRIC", this term has

sometimes been extended to "BRICK" (K for South Korea), "BRIMC" (M for

Mexico), "BRICA" (GCC Arab countries – Saudi Arabia, Qatar, Kuwait, Bahrain,

Oman and the United Arab Emirates) and "BRICET" (including Eastern Europe

and Turkey) have become more generic marketing terms to refer to these emerging

markets.

7

Marketing

The BRIC term is also used by companies who refer to the four named countries as key

to their emerging markets strategies. By comparison the reduced acronym IC would not

be attractive, although the term "Chindia" is often used. The BRIC's study specifically

focuses on large countries, not necessarily the wealthiest or the most productive and was

never intended to be an investment thesis. If investors read the Goldman's research

carefully, and agreed with the conclusions, then they would gain exposure to Asian debt

and equity markets rather than to Latin America. According to estimates provided by the

USDA, the wealthiest regions outside of the G6 in 2015 will be Hong Kong, South

Korea and Singapore. Combined with China and India, these five economies are likely

to be the world's five most influential economies outside of the G6.

On the other hand, when the "R" in BRIC is extended beyond Russia and is used

as a loose term to include all of Eastern Europe as well, then the BRIC story

becomes more compelling. At issue are the multiple serious problems which

confront Russia (declining population, potentially unstable government,

environmental degradation, critical lack of modern infrastructure, etc), and the

comparatively much lower growth rate seen in Brazil. However, Brazil's lower

growth rate obscures the fact that the country is wealthier than China or India on a

per-capita basis, has a more developed and global integrated financial system and

has an economy potentially more diverse than the other BRICs due to its raw

material and manufacturing potential. Many other Eastern European countries,

such as Poland, the Czech Republic, Slovakia, Hungary, Romania, Bulgaria, and

several others were able to continually sustain high economic growth rates and do

not experience some of the problems that Russia experiences or experience them

to a lesser extent. In terms of GDP per capita in 2007, Brazil ranks 64th, Russia

54th, China 105th and India 131st. By comparison South Korea currently ranks

28th, Singapore 21st, and Hong Kong 27th.

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WHAT IS EQUITY MARKET?

A stock market, or equity market, is a private or public market for the trading of

company stock and derivatives at an agreed price; these are securities listed on a

stock exchange as well as those only traded privately.

The size of the world stock market is estimated at about $36.6 trillion US at the

beginning of October 2008. The total world derivatives market has been estimated

at about $791 trillion face or nominal value, 11 times the size of the entire world

economy. The value of the derivatives market, because it is stated in terms of

notional values, cannot be directly compared to a stock or a fixed income security,

which traditionally refers to an actual value. Moreover, the vast majority of

derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is

offset by a comparable derivative 'bet' on the event not occurring.). Many such

relatively illiquid securities are valued as marked to model, rather than an actual

market price.)

The stocks are listed and traded on stock exchanges which are entities a

corporation or mutual organization specialized in the business of bringing buyers

and sellers of the organizations to a listing of stocks and securities together. The

stock market in the United States includes the trading of all securities listed on the

NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges, e.g.

OTCBB and Pink Sheets. European examples of stock exchanges include the

London Stock Exchange, the Deutsche Börse and the Paris Bourse, now part of

Euronext.

9

CORRELATION

Correlation in statistics, refer to relationship between any two, or more variables

viz. height and weight, rainfall and yield, price and demand.

Two variables are said to be correlated if with a change in the value of one

variable there arises a change in the value of another variable. On the other hand if

a change in the value of one variable does not bring any change in the value of the

another variable, the two variable are said to have no relation with each other.

DEFINITION

According to CROXTON and COWDEN "When the relationship is of a

quantitative nature, the appropriate tool for discovering and measuring the

relationship, and expressing it in a brief formula is known as correlation".

According to SIMPSON and KAFKA "Correlation analysis deals with the

association between two or more variables".

Uses of Correlation

1. It is used in deriving precisely the degree , and the direction of relationship

between variables.

2. It is used to developing the concept of regression, and the ratio of variables for

a given value of another variable

3. It is used in reducing the range of uncertainty in the matter of prediction.

4. It is used in presenting the average relationship between any two variables

through a single value of co-efficient of correlation.

5. In the field of economics it is used in understanding the economic behavior,

and locating the important variables on which others depend .

6. In the field of business it is used advantageously to estimate the cost of sales,

volume of sales, sales prices, and any other values on the basis of some other

variable which are financially related to each other.

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7. In the field of science and philosophy , also the method of correlation are used

in making progressive developments in the respective lines.

CORRELATION FINANCIAL

The relationship between two variables during a period of time, especially one that

shows a close match between the variables' movements. For example, all utility

stocks tend to have a high degree of correlation because their share prices are

influenced by the same forces. Conversely, gold stock price movements are not

closely correlated with utility stock price movements because the two are

influenced by very different factors. The concept of correlation is frequently used

in portfolio analysis.

In investment terms, correlation is the extent to which the values of different types

of investments move in tandem with one another in response to changing

economic and market conditions.

Correlation is measured on a scale of - 1 to +1. Investments with a correlation of +

0.5 or more tend to rise and fall in value at the same time. Investments with a

negative correlation of - 0.5 to - 1 are more likely to gain or lose value in opposing

cycles.

11

INTRODUCTION TO BRIC COUNTRIES

India

Flag National Emblem

CapitalNew Delhi

‡ ) 28°34′N 77°12′E 28.567°N 77.2°E

Official languages Hindi, English

Government Federal republicParliamentary democracy [8]

 -  President Pratibha Patil

 -  Prime Minister Manmohan Singh

 -  Chief Justice K. G. Balakrishnan

Legislature Sansad

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 -  Upper House Rajya Sabha

 -  Lower House Lok Sabha

Independence from United Kingdom 

 -  Declared 15 August 1947 

 -  Republic 26 January 1950 

Area

 -  Total 3,287,240 ‡   km 2  (7th)1,269,210 sq   mi  

Population

 -  2008 estimate 1,147,995,904 (2nd)

 -  2001 census 1,028,610,328 

GDP (nominal) 2007 estimate

 -  Total $1.100 trillion (12th)

 -  Per capita $941 (132nd)

Currency Indian rupee (₨) (INR)India, officially the Republic of India (Hindi: भारत गणराज्य Bhārat Gaṇarājya;

see also other Indian languages), is a country in South Asia. It is the seventh-

largest country by geographical area, the second-most populous country, and the

most populous democracy in the world. Bounded by the Indian Ocean on the

south, the Arabian Sea on the west, and the Bay of Bengal on the east, India has a

coastline of 7,517 kilometers (4,671 mi). It is bordered by Pakistan to the west;

People's Republic of China (PRC), Nepal, and Bhutan to the north; and

Bangladesh and Myanmar to the east. India is in the vicinity of Sri Lanka, the

Maldives, and Indonesia in the Indian Ocean.

Economy of India

The economy of India was under socialism-based policies for an entire generation

from the 1950s until the 1980s. The economy was characterized by extensive

13

regulation, protectionism, and public ownership, leading to pervasive corruption

and slow growth. Since 1991, the ongoing economic liberalization has moved

India towards a capitalist market economy. It has created millions of better paying

jobs and a fast-growing middle class.

Agriculture provides livelihood for 60% of Indians. The service sector makes up a

further 28% of employment, and industrial sector around 12%.One estimate says

that only one in five job-seekers has had any sort of vocational training. The labor

force totals half a billion workers. For output, the agricultural sector accounts for

17% of GDP; the service and industrial sectors make up 54% and 29%

respectively. Major agricultural products include rice, wheat, oilseed, cotton, jute,

tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major

industries include textiles, chemicals, food processing, steel, transportation

equipment, cement, mining, petroleum, machinery and software design.

In 2007, India's GDP was $1.237 trillion, which makes it the twelfth-largest

economy in the world or fourth largest by purchasing power adjusted exchange

rates. India's nominal per capita income of $1043 is ranked 136th in the world. In

the late 2000s, India's growth has averaged 7.5% a year, increases which will

double the average income within a decade. Unemployment rate is 7% (2008

estimate).

Indian economic reforms have meant growing trade and globalization. India

currently accounts for 1.5% of World trade as of 2007 according to the WTO.

According to the World Trade Statistics of the WTO in 2006, India's total

merchandise trade (counting exports and imports) was valued at $294 billion in

2006 and India's services trade inclusive of export and import was $143 billion.

Thus, India's global economic engagement in 2006 covering both merchandise and

services trade was of the order of $437 billion, up by a record 72% from a level of

$253 billion in 2004. India's trade has reached a still relatively moderate share

24% of GDP in 2006, up from 6% in 1985.India has economic disparities at the

state level; more market-friendly states have raised living standards faster and

14

higher. Despite sustained high economic growth rate, approximately 80% of

Indian population lives on less than $2 a day (PPP), more than double the same

poverty rate in China Even though the Green Revolution ended famines in India,

40% of children under the age of three are underweight and a third of all men and

women suffer from chronic energy deficiency.

MAIN INDEX OF INDIA

1.BSE

2.NSE

Introduction TO BSE

Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage,

now spanning three centuries in its 133 years of existence. What is now popularly

known as BSE was established as "The Native Share & Stock Brokers'

Association" in 1875.

BSE is the first stock exchange in the country which obtained permanent

recognition (in 1956) from the Government of India under the Securities Contracts

(Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of

the Indian capital market is widely recognized. It migrated from the open outcry

system to an online screen-based order driven trading system in 1995. Earlier an

Association Of Persons (AOP), BSE is now a corporatised and demutualised entity

incorporated under the provisions of the Companies Act, 1956, pursuant to the

BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the

Securities and Exchange Board of India (SEBI). With demutualisation, BSE has

15

two of world's best exchanges, Deutsche Börse and Singapore Exchange, as its

strategic partners.

Today, BSE is the world's number 1 exchange in terms of the number of listed

companies and the world's 5th in transaction numbers. The market capitalization

as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from

more than 4,700 listed companies, which for easy reference, are classified into A,

B, S, T and Z groups.

BSE 30

ACC Ltd. Cement and cement products

Ambuja Cements Ltd. Cement and Cement Products

Bajaj Auto Ltd. Automobiles - 2 and 3 Wheelers

Bharat Heavy Electricals Ltd. Electrical Equipment

Bharti Airtel Ltd. Telecommunication - Services

Cipla Ltd. Pharmaceuticals

DLF Ltd. Developers/Construction

Grasim Industries Ltd. Diversified

Housing Development Finance Corporation Ltd. Finance - Housing

HDFC Bank Ltd. Banks

Hindalco Industries Ltd. Aluminium

Hindustan Unilever Ltd. FMCG

ICICI Bank Ltd. Banks

Infosys Technologies Ltd. Information Technology

ITC Ltd. FMCG

Larsen & Toubro Ltd. Engineering

Mahindra & Mahindra Ltd. Automobiles - 4 wheelers

Maruti Udyog Ltd. Automobiles - 4 wheelers

NTPC Ltd. Power

Oil & Natural Gas Corporation Ltd. Oil Exploration/Production

Ranbaxy Laboratories Ltd. Pharmaceuticals

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Reliance Communications Limited Telecom

Reliance Energy Ltd. Power

Reliance Industries Ltd. Refineries

Satyam Computer Services Ltd. Computers - Software

State Bank of India Banks

Tata Consultancy Services Ltd. Computers - Software

Tata Motors Ltd. Automobiles - 4 Wheelers

Wipro Ltd. Computers – Software

NSE

National Stock Exchange of India (NSE) is India's largest Stock Exchange &

World's third largest Stock Exchange in terms of transactions. Located in Mumbai,

NSE was promoted by leading Financial Institutions at the behest of the

Government of India, and was incorporated in November 1992 as a tax-paying

company. In April 1993, NSE was recognized as a Stock exchange under the

Securities Contracts (Regulation) Act-1956. NSE commenced operations in the

Wholesale Debt Market (WDM) segment in June 1994. Capital Market (Equities)

segment of the NSE commenced operations in November 1994, while operations

in the Derivatives segment commenced in June 2000. NSE has played a catalytic

role in reforming Indian securities market in terms of microstructure, market

practices and trading volumes. NSE has set up its trading system as a nation-wide,

fully automated screen based trading system. It has written for itself the mandate

to create World-class Stock Exchange and use it as an instrument of change for the

industry as a whole through competitive pressure. NSE is set up on a demutualised

model wherein the ownership, management and trading rights are in the hands of

three different sets of people. This has completely eliminated any conflict of

interest.

17

50 COMPANIES

ABB Ltd. Electrical equipment

ACC Ltd. Cement and cement products

Ambuja Cements Ltd. Cement and Cement Products

Bajaj Auto Ltd. Automobiles - 2 and 3 Wheelers

Bharat Heavy Electricals Ltd. Electrical Equipment

Bharat Petroleum Corporation Ltd. Refineries

Bharti Airtel Ltd. Telecommunication - Services

Cipla Ltd. Pharmaceuticals

Dr. Reddy's Laboratories Ltd. Pharmaceuticals

GAIL (India) Ltd. Gas

Glaxosmithkline Pharmaceuticals Ltd. Pharmaceuticals

Grasim Industries Ltd. Cement and Cement Products

HCL Technologies Ltd. Computers - Software

HDFC Bank Ltd. Banks

Hero Honda Motors Ltd. Automobiles - 2 and 3 Wheelers

Hindalco Industries Ltd. Aluminium

Hindustan Petroleum Corporation Ltd. Refineries

Hindustan Unilever Ltd. Diversified

Housing Development Finance Corporation Ltd. Finance - Housing

I T C Ltd. Cigarettes

ICICI Bank Ltd. Banks

Infosys Technologies Ltd. Computers - Software

Larsen & Toubro Ltd. Engineering

Mahanagar Telephone Nigam Ltd. Telecommunication - Services

Mahindra & Mahindra Ltd. Automobiles - 4 wheelers

Maruti Udyog Ltd. Automobiles - 4 wheelers

NTPC Ltd. Power

National Aluminium Co. Ltd. Aluminium

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Oil & Natural Gas Corporation Ltd. Oil Exploration/Production

Punjab National Bank Banks

Ranbaxy Laboratories Ltd. Pharmaceuticals

Reliance Communications Ltd. Telecommunication - Services

Reliance Energy Ltd. Power

Reliance Industries Ltd. Refineries

Reliance Petroleum Ltd. Refineries

Satyam Computer Services Ltd. Computers - Software

Siemens Ltd. Electrical Equipment

State Bank of India Banks

Steel Authority of India Ltd. Steel and Steel Products

Sterlite Industries (India) Ltd. Metals

Sun Pharmaceutical Industries Ltd. Pharmaceuticals

Suzlon Energy Ltd. Electrical Equipment

Tata Consultancy Services Ltd. Computers - Software

Tata Motors Ltd. Automobiles - 4 Wheelers

Tata Power Co. Ltd. Power

Tata Steel Ltd. Steel and Steel Products

Unitech Ltd. Construction

Videsh Sanchar Nigam Ltd. Telecommunication - Services

Wipro Ltd. Computers - Software

Zee Entertainment Enterprises Ltd. Media & Entertainmen

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China

People's Republic of China

Zhōnghuá Rénmín Gònghéguó

Flag Emblem

CapitalBeijing

39°55′N 116°23′E 39.917°N 116.383°E

Ethnic groups 

91.9% Han, 1.30% Zhuang, 0.86% Manchu, 0.79% Uyghur, 0.79% Hui, 0.72% Miao, 0.65% Yi, 0.62% Tujia, 0.47% Mongol, 0.44% Tibetan, 0.26% Buyei, 0.15% Korean, 1.05% other(See:List of ethnic groups in China)

Government Socialist state,[3]

Single-party communist state

 - President Hu Jintao

 - Premier Wen Jiabao

 - Chairman of NPCSC Wu Bangguo

 - Chairman of CPPCC Jia Qinglin

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Legislature National People's Congress

Area

 - Total9,640,821   km 2 or 9,671,018 km2

(3rd/4th)3,704,427 sq   mi  

Population

 - 2007 estimate 1,321,851,888 (1st)

 - 2000 census 1,242,612,226 

GDP (nominal) 2008 estimate

 - Total $4.329 trillion (3rd)

 - Per capita $3,260 (104th)

Currency Yuan (CNY)

China's development was influenced by the alien peoples on the frontiers of

Chinese civilization, who were sinicized into the Chinese polity .

ECONOMY

Economic system in transition, cautiously moving away from Soviet-style central

planning and gradually adopting market economy mechanisms and reduced

government role. Industry, largely based on state and collective ownership,

marked by increasing technological advancements and productivity. China's

people's communes eliminated by 1984--after more than twenty-five years--and

responsibility system of production introduced in agricultural sector. Private

ownership of production assets legal, although major nonagricultural and

industrial facilities still state owned and centrally planned. Restraints on foreign

trade relaxed and joint ventures encouraged.

Shanghai Stock Exchange

21

The Shanghai Stock Exchange (SSE) (simplified Chinese: traditional Chinese: ;

pinyin: Shànghǎi Zhèngquàn Jiāoyìsuǒ) is a Chinese stock exchange or bourse that

is based in the city of Shanghai. It is one of the three stock exchanges operating

independently in the People's Republic of China, the other two are the Shenzhen

Stock Exchange and the Hong Kong Stock Exchange. Unlike the Hong Kong

Stock Exchange, the Shanghai Stock Exchange is still not entirely open to foreign

investors due to tight capital account controls exercised by the Chinese mainland

authorities.

Shanghai Stock Exchange building (in 2008) at Shanghai's new Pudong financial

district.The first share list appeared in June 1866 and by then Shanghai's

International Settlement had developed the conditions conducive to the emergence

of a share market: several banks, a legal framework for joint-stock companies, and

an interest in diversification among the established trading houses (although the

trading houses themselves remained partnerships).

At the end of 2007, the Shanghai Stock Exchange had 860 listed companies with a

combined market capitalization of US$3.7 trillion, making it the largest in

mainland China and sixth largest in the world.

31 COMPANIES LISTED UNDER SHIANGHAI

Kweichow Moutai Co., Ltd

Maanshan Iron & Steel Co., Ltd.

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Minmetals Development Co., Ltd

Nanjing Textiles Import & Export Corp Ltd.

Ningbo Bird Co., Ltd.

Shanghai Automotive Industry Corporation (Group)

Shanghai Bailian Group Co., Ltd.

Shanghai Pharmaceutical (Group) Co., Ltd

Shanghai Pudong Development Bank

Sinopec Shanghai Petrochemical Company Limited

Xiamen C&D Inc.

Aerospace Communications Holdings Co., Ltd.

Beijing Shunxin Agriculture Co., Ltd.

Beijing Tongrentang Co., Ltd.

Beiqi Foton Motor Company Limited

Beiya Industrial (Group) Co. Ltd.

China Merchants Bank

China Minsheng Banking Corporation Limited

China Yangtze Power Co Ltd.

Chongqing Department Store Co. Ltd.

Citychamp Dartong Co., Ltd.

Daheng New Epoch Technology, Inc.

Dashang Group Co., Ltd.

Datang Telecom Technology Co., Ltd.

Dazhong Transportation (Group) Co., Ltd.

GITI Tire (China) Investment Company Ltd.

Guangzhou Development Industry (Holdings) Co., Ltd.

Handan Iron & Steel Co., Ltd.

Hua Xia Bank Limited

Inner Mongolia BaoTou Steel Union Co.

Inner Mongolia Yili Industrial Group Company Limited

23

Russia

Russian Federation

Российская ФедерацияRossiyskaya Federatsiya

Flag Coat of arms

Capital(and largest city)

Moscow55°45′N 37°37′E 55.75°N 37.617°E

Ethnic groups 

79.8% Russian3.8% Tatar2.0% Ukrainian1.2% Bashkir1.1% Chuvash12.1% others[1]

Government Federal Presidential republic

 - President Dmitry Medvedev (Ind.)

 - Prime Minister Vladimir Putin (UR)

Legislature Federal Assembly

 - Upper House Federation Council

 - Lower House State Duma

Area

24

 - Total 17,075,400   km 2  (1st)6,592,800 sq   mi  

Population

 - 2008 estimate 142,008,838[3] (9th)

 - 2002 census 145,166,731 

GDP (nominal) 2008 estimate

 - Total $1.778 trillion (8th)

 - Per capita $12,579 (52nd)Rossiyskaya Federatsiya), is a transcontinental country extending over much of

northern Eurasia. It is a semi-presidential republic comprising 83 federal subjects.

Russia is the largest country in the world, covering more than an eighth of the

Earth’s land area; with 142 million people, it is the ninth largest by population. It

extends across the whole of northern Asia and 40% of Europe, spanning 11 time

zones and incorporating a great range of environments and landforms. It has the

world's largest forest reserves and its lakes contain approximately one-quarter of

the world's unfrozen fresh water. Russia age stucture 14.6% (0-14 years), 71.2%

(15-64 years) , 14.1(65-over)

Economy

Since the turn of the century, rising oil prices, increased foreign investment, higher

domestic consumption and greater political stability have bolstered economic

growth in Russia. The country ended 2007 with its ninth straight year of growth,

averaging 7% annually since the financial crisis of 1998. In 2007, Russia's GDP

was $2.076 trillion (est. PPP), the 6th largest in the world, with GDP growing

8.1% from the previous year. Growth was primarily driven by non-traded services

and goods for the domestic market, as opposed to oil or mineral extraction and

exports. The average salary in Russia was $640 per month in early 2008, up from

$80 in 2000. Approximately 14% of Russians lived below the national poverty

line in 2007, significantly down from 40% in 1998 at the worst of the post-Soviet

25

collapse. Unemployment in Russia was at 6% in 2007, down from about 12.4% in

1999.

A Rosneft petrol station. Russia is the world's leading natural gas exporter and the

second leading oil exporter.

Russia has the world's largest natural gas reserves , the second largest coal reserves

and the eighth largest oil reserves . It is the world's leading natural gas exporter and

the second leading oil exporter. Oil, natural gas, metals, and timber account for

more than 80% of Russian exports abroad. Since 2003, however, exports of

natural resources started decreasing in economic importance as the internal market

strengthened considerably. Despite higher energy prices, oil and gas only

contribute to 5.7% of Russia's GDP and the government predicts this will drop to

3.7% by 2011. Russia is also considered well ahead of most other resource-rich

countries in its economic development, with a long tradition of education, science,

and industry. The country has more higher education graduates than any other

country in Europe.

Russia is Europe's key oil and gas supplier .

The economic development of the country though has been uneven geographically

with the Moscow region contributing a disproportionately high amount of the

country's GDP. Much of Russia, especially indigenous and rural communities in

Siberia, lags significantly behind. Nevertheless, the middle class has grown from

just 8 million persons in 2000 to 55 million persons in 2006. Russia is home to the

largest number of billionaires in the world after the United States, gaining 50

billionaires in 2007 for a total of 110.

MAIN INDEX

26

1.RTS

2.RSE

Russian Trading System

The Russian Trading System is a stock market established in 1995 in Moscow,

consolidating various regional trading floors into one exchange. Originally RTS

was modelled on NASDAQ's trading and settlement software; in 1998 the

exchange went on line with its own in-house system. Initially created as a non-

profit organization, at the moment RTS is in the process of reorganization: it is

being transformed into a joint-stock company.

BRAZIL

Introduction

Federative Republic of Brazil

República Federativa do Brasil

Flag Coat of arms

CapitalBrasília

15°45′S 47°57′W 15.75°S 47.95°W

27

Largest city São Paulo

Official languages Portuguese

Ethnic groups 

49.7% White42.6% Pardo (Brown)6.9% Black0.5% Asian0.3% Amerindian

Government Presidential Federal   republic

 - President Luiz Inácio Lula da Silva (PT)

 - Vice-President José Alencar (PRB)

 - President of the Chamber of Deputies Michel Temer (PMDB)

 - President of the Senate José Sarney (PMDB)

 - Chief Justice Gilmar Mendes

Independence from Portugal 

 - Declared September 7, 1822 

 - Recognized August 29, 1825 

 - Republic November 15, 1889 

Area

 - Total 8,514,877   km 2  (5th)3,287,597 sq   mi  

Population

 - 2008 estimate 196,342,592 (5th)

 - 2007 census 189,987,291 

GDP (nominal) 2008 estimate

 - Total $1.665 trillion[1] (10th)

 - Per capita $6,937[1] (63rd)

Currency Real (R$) (BRL)

28

Demographics

Boa Viagem beach in Recife. Much of Brazil's population is concentrated along

the coastline.

Downtown Rio de Janeiro, one of the most beautiful and modern cities in Latin

America.

Population of Brazil is made up of many racial and ethnic groups. Most Brazilians

can trace their ancestry to the country's Indigenous peoples, Portuguese colonists,

and African slaves. Beginning in the late 19th century, Brazil opened its borders to

immigration: people from over 60 nations migrated to Brazil. The largest

metropolitan areas in Brazil are São Paulo, Rio de Janeiro, and Belo Horizonte,

with 19.7, 11.4, and 5.4 million inhabitants respectively. Almost all the capitals

are the largest city in their corresponding state, except for Vitória, the capital of

Espírito Santo, and Florianópolis, the capital of Santa Catarina.

29

Economy

São Paulo, the wealthiest city of Brazil and the largest financial center of the

country.

Brazil is the largest national economy in Latin America, the world's tenth largest

economy at market exchange rates and the ninth largest in purchasing power parity

(PPP), according to the International Monetary Fund and the World Bank; with

large and developed agricultural, mining, manufacturing and service sectors, as

well as a large labor pool. Brazilian exports are booming, creating a new

generation of tycoons. Major export products include aircraft, coffee, automobiles,

soybean, iron ore, orange juice, steel, ethanol, textiles, footwear, corned beef and

electrical equipment. The country has been expanding its presence in international

financial and commodities markets, and is regarded as one of the group of four

emerging economies called BRIC.Nonetheless, foreign direct investment (FDI),

related to long-term, less speculative investment in production, is estimated to be

$193.8 billion for 2007. Inflation monitoring and control currently plays a major

role in Brazil's Central Bank activity in setting out short-term interest rates as a

monetary policy measure.

According to the Brazilian Constitution of 1988, Brazil is a federation of 26

states, one federal district and also the municipalities. None of these units have the

right to secede from the Federation.

MAIN INDEX

1.RIO DE JANEIRO STOCK EXCHANGE

30

2.BOVESPA

3.SAO PAULO STOCK EXCHANGE

BOVESPA’s Indexes

Ibovespa

The Bovespa Index (Ibovespa) is the oldest and most traditional indicator of the

average stock price behavior in Brazil. It represents the present value, in the

current currency, of a stock portfolio organized on January 2, 1968 by a

hypothetical investment. This portfolio consists of stocks that represent an

aggregate value of 80% of the cash volume traded during the twelve months

before the organization of its portfolio.

IBrX-100 : Top 100 shares most traded in terms of number of trades and financial

volume, in the cash market, weighted in accordance with the number of shares in

circulation (free float).

IBrX 50 : Top 50 shares most traded in terms of number of trades and financial

volume, in the cash market, weighted in accordance with the number of shares in

circulation (free float).

IVBX-2 : 50 shares ranked in decreasing order of liquidity (starting from the

11th), measured by their tradability over the last 12 months.

IEE : All exchange listed shares of the electrical power sector companies.

Itel : All exchange listed shares of the telecommunications companies.

IGC : Shares in all companies that adhered to Novo Mercado, Level 1 or 2,

with weighting in accordance with the Corporate Governance commitment. Novo

Mercado companies stocks have weight 2, Level 2s have weight 1.5 and Level 1s

have weight 1.

Itag : All the shares of companies that offer special tag along rights (spreading

control premium) and which were traded at least in 30% of the trading sessions

over the last 12 months

31

32

REVIEW OF LITERATURE

In this an attempt has been made to present in brief, a review of literature

available on the subject to provide a glimpse of the studies done so far on the

"Comparative study of Equity Markets of BRIC Countries" . It gives an eye view

of the findings of other academic researchers who have follow the path with the

study needs to tread. A brief resume of the possible available references is

presented below:

Fernando Ferrari-Filho And Anthony Spanakos (2007) tried to find out "Why

Brazil Has Not Grown: A Comparative Analysis of Brazilian and Chinese

Economic Management" . This paper aims to answer a very basic question asked

by not only Brazilians, but people in other developing countries where liberal

reform agendas were oversold, namely: why has China grown so rapidly and

Brazil not. An interesting point of divergence among the BRICs is in the area of

economic growth and reforms: the BRIC countries which pursued liberal reforms

more aggressively and holistically (Russia and Brazil in the 1990s) grew far

slower than those who were more heterodox (China since the 1980s, and India in

the 1990s). This is counter-intuitive since conventional wisdom holds that China

and India’s growth have largely been the result of freeing up their economies. It

also aims at a partial explanation by surveying the results of a generation of

Washington Consensus era growth. Something approaching a consensus now

exists over the lack of effectiveness of universally applicable holistic reform

programs.

Given the agnosticism about total liberal packages and the puzzle of why

incomplete reformers grew better, the paper engages in a comparative analysis of

Brazilian and Chinese reforms focusing only on the issue of macroeconomic

33

policy, especially the monetary and exchange rate regimes, and its effect on

growth . That is, the Brazilian experience with inflation targeting and flexible

exchange rate regime, since 1999, has contributed to slow start-stop growth and

has been relatively high inflation, while the more managed approaches favored by

China have done the reverse. Finally, the paper concludes offering policy advice to

the other developing countries, BRICs, N-11, or otherwise.

Wilson and Purushothaman, O’Neil, Jim, Purushothaman, and Stupnystka,

2005). In 2007, they published Brics and Beyond, a full-length book which

collected essays that analyzed the trajectories of the BRICs countries, the N-11 (11

other countries that have growth potential), and other possible markets. In the

introduction, Jim O’Neill wrote that since the original paper on the BRICs

countries was written, the equity markets in the BRICs countries had expanded

tremendously (in Brazil by 369.0%, India by 49.0%, Russia by 630.0%, and China

by 201.0% – see O’Neill, 2007, p.5) and that Goldman Sachs continues to be

bullish about them.

After all, regardless of equity market growth, between 2000 and 2006 Brazil

averaged only 3.1% economic growth. Goldman Sachs’ Paulo Leme was sanguine

about this, writing “Brazil has underperformed not only relative to our

expectations but also compared with all the other BRICs. Since 2003, real GDP

growth rates in China, India and Russia have averaged 10.2%, 8.0% and 6.9%, in

each case far exceeding our estimates of their long-term potential (4.9%, 5.8% and

3.5%, respectively)” (Leme, 20071, p.75 )

All four countries had economies where state intervention was considerable up

until the 1980s (Brazil and China) or 1990s (Russia and India) and all have moved

considerably in favor of freeing market actors and reducing the role of the state.

The governments in each of these countries entered the post-World War II period,

with a very clear awareness of a need to catch up and with a belief that

governments should either actively fill market gaps or that they should wholesale

34

collectivize productive activity. Post War policies involved state-led growth

through ambitious multi-year industrialization plans with considerable variety in

degrees of success. All pursued policies that were decidedly inward in orientation

and Brazil, India and China, displayed little interest in trade, save traditional

sectors which were increasingly disadvantaged by macroeconomic policies. The

Soviet Union economy, while more global in orientation, understood its trade

profile as part of a larger context of Communist solidarity and its trade was

determined by political motivations more so than by traditional concerns of price,

productivity and quality. Thus,while the Soviet Union was engaged in trade, it did

so through the Council of Mutual Economic Assistance, a relatively closed

association. The rise in global interest rates, sharp fall in oil prices and global

consumption in the early 1980s exposed many structural weaknesses in the models

pursued by all four countries. The BRICs countries differed in the speed, pace, and

content of the reforms that they implemented, as well as the amount of pressure

they endured from international financial institutions and trading partners.

Nevertheless, all moved towards liberalizing their economies to degrees unknown

by any of those countries for most of the twentieth century. Importantly, all moved

towards transforming state-owned enterprises into private or mixed partnerships

whose performance would be determined by market rather than political

conditions, increasing the role of domestic and foreign (China to a lesser extent)

participation in capital markets, felixibilizing labor contracts and rights, and

welcoming foreign and domestic private investment, particularly in industries once

considered sensitive or part of national security (again, China to a much lesser

extent). Given these similarities, what is telling is the stark difference in economic

growth over the last decade. More specifically, given that the explanation of the

growth of China and India is normally understood as the result of liberalization, it

is important to address why liberalization did not have the same effect in Brazil

and Russia (in the 1990s). Certain commonalities existed among the many

countries and regions in the world which had been hit hard by the rise in oil prices,

35

the global recession in the early 1980s, and its aftermath. These conditions

included high or hyper-inflation, overvalued exchange rates, excessive

indebtedness (often incurred in a foreign currency), rigid labor markets, inefficient

tax collecting agencies, and lack of credibility of monetary policy makers, among

others.

This comparative study of Brazilian and Chinese macroeconomic policies and

outcomes aims to address the puzzle of why the Brazilian economy, despite

considerable liberal reforms, has not produced stable and robust growth. It has

done this by comparing Brazil to peers in the BRICs group, gleaning information

from recent research on the relationship between reforms and growth, and by a

focused comparative case study with China. The paper agrees with the finding in

the literature that broad liberal reform agendas do not necessarily produce stable

and robust economic growth. It does find that certain policies do seem to have

more of an effect in limiting external vulnerability and in producing growth,

particularly policies that allow government’s to maintain autonomy of

macroeconomic policies. This confirms Ferrari Filho and Paula (2006) who find

that economic performance of BRICs countries is the result of the exchange rate

regime, capital account convertibility and fiscal and monetary regimes adopted in

each country. This suggests the necessity of (i) ensuring that monetary policy has a

significant positive impact on the level of economic activity, (ii) directing

financial markets toward financing development rather than rentier-like behavior,

and (iii) creating efficient anti- speculation mechanisms to control (or regulate)

movements of capital in order to prevent monetary and exchange rate crises and

augment the autonomy of domestic decision makers.

Exploring the last issue, the main difference among Brazil and China is that,

paraphrasing and adapting Stiglitz (2002), financial liberalization and capital

mobility in the Brazilian economy in the 1990s were at the center of its currency

crisis, while China, due to their measures of capital controls, could manage

monetary and fiscal policies proeconomic growth. Interestingly enough, in a panel

36

survey of 49 developing countries between 1970-1995, Gastanaga, Nugent and

Pashamova (1998) find that most policy reforms did not have much of an effect on

attracting FDI, though capital controls were associated with an increase in FDI and

the most important factor was economic growth. Uninterrupted and robust

economic growth is the goal of all policy makers, especially in the developing

world. Although academic literature has yet to produce clear causal relationships

which explain the necessary components for such growth and how to bolster these

components, empirical analysis of peer country performance gives valuable

signals to policy makers. It may be difficult to say exactly why, with academic

certainty, China has grown so robustly and consistently. But when Brazil is

compared against China, a strong case may be made for why growth may be weak

and interrupted.

Shuming Bai (Department of Economics and Finance, College of Business

Administration, The University of Texas . Pan American, 2007 ) analyse "The

BRIC Impact in Global Financial Markets". Although China.s economic boom has

been carried forward at a speed of annual GDP growth of over nine percent for the

past twenty-five years, making it the world.s fourth largest economy in 2005 by

World Bank, its equity market performance has not impressively reflected it. On

the contrary, both Shanghai and Shenzhen, the major stock exchanges declined

consecutively for four years until July 2005 when the markets turned around.

Bloomberg in January 2007 reports China.s market capitalization has surpassed

one trillion value in USD, positioning it as Asia.s third-largest market after Japan

and Hong Kong.

According to MSCI Barra, an equities tracker in New York, the big emerging

markets outperform all major mature markets in 2006, with China leading at 59%

return in US dollar, followed by Russia at 50%, India at 48%, Brazil at 38%, and

Mexico at 36% contrasting US S&P 500 at 14% and London.s FTSE at 11%, and

Japan at 7%. Thus, the emerging market

37

returns provided great diversification benefits when the US and other leading

markets were soft.

This study updates and extends previous literature on dependencies in stock

market indexes and exchange among the five largest emerging economies (the

BRIMC) and four developed equity markets in multivariate cointegration analysis.

To our best knowledge, there was no study before that put China, Russia and

India, Brazil and Mexico together in one analysis to see their relative impact on

each other and on other developed markets.

Empirical data show that each univariate series of stock prices has a unit root. The

multivariate conitegration test and the error correction model suggest a long-run

equilibrium relationship among the nine national stock price indexes for the full-

sample period and the two post-crisis periods.

In the short run, the impulse response analysis in the VAR of nine variables for

the. This results conforms with previous study by Masih (1999). Among the three

emerging markets, China shows a little more influence than the other two due to

its close linkage with the Hong Kong market. China and Russia also show more

connection between each other than with India.

However, the empirical evidence is rather weak. With China.s stock market reform

and regulation, along with its continuously spectacular economic development,

China may exert relatively greater influences in the world financial market in the

years to come. Our findings have implications for policy makers and global

investors. For the policy makers, the cointegrating relations provide them

(especially emerging markets) knowledge to adopt more appropriate stock market

policies and regulations from the developed markets. For the developed markets,

policy makers also need to cope with a world that is far more competitive and

dynamic than before and tackle the changes created by global linkages. For global

investors, this study sheds more light on how these three emerging markets are

related to each other and to other developed markets so that they can diversify and

invest globally for greater benefits.

38

DEUTSCHE BORSE AG (February,2007) Deutsche Börse has developed a

strictly rule-based, transparent and liquid index to give investors the opportunity to

participate in these four up-and-coming growth markets: the DAXglobal®

BRIC index (January 2007)

DAXglobal®

BRIC Index

Average annual performance 28.34 %

Annual volatility 22.91 %

Correlation 0.4750

Beta 0.8057

The index portfolio of the DAXglobal® BRIC comprises the top 40 companies

from Brazil, Russia, India, and China, which are the largest in terms of market

capitalization and are very liquid in terms of turnover. Each country is represented

by ten companies. Due to regulatory restrictions in the individual countries and the

usually higher level of liquidity in comparison with the underlyings, the stocks

from Brazil, Russia, and India are charted via ADRs relating to the respective

companies. In order to qualify, the average daily trading volume of each ADR

must exceed US$ 1 million. As for China, the calculation of the DAXglobal®

BRIC index also takes account of the performance of H-shares and red chips from

the Hongkong exchange. The index weighting is based on the market

capitalization of the individual companies. The maximum proportion attributed to

each individual index member is 10 percent; for countries, a cap is set at 35

percent. The weighting is adjusted every three months in order to guarantee the

clarity and balance of the index; the composition is reviewed on an annual basis.

39

The DAXglobal® BRIC index is disseminated in real time and calculated every

trading day between 9 a. m. and 10 p. m. CET.

Deutsche Börse also provides a performance indicator once a day based on the

closing prices. Calculating the index in euros, US dollars and pounds sterling

allows issuers to offer products in various currencies based on the new index;

conversion into US dollars and pounds sterling takes place in real time.

Ramaprasad Bhar and Biljana Nikolova (14 July 2008)  study the level of

integration and the dynamic relationship between the BRIC countries, their

respective regions and the world. We find that India shows the highest level of

regional and global integration among the BRIC countries, followed by Brazil and

Russia and lastly by China. There is a negative relationship between the location

conditional volatility of India with that of the Asia-Pacific region and of China

with the world, which indicates a presence of diversification opportunities for

portfolio investors. Portfolio investors can continue to receive sound returns from

taking positions in the index of these countries, however for an outstanding

investment performance, they should consider investing in specific areas of growth

within the economy rather than the country index.

40

OBJECTIVES

41

Following are the objectives of the study:

1. To study the Equity Market of BRIC Countries.

2. To study the factors which lead to the rise of the Equity Market in BRIC Countries.

3. To find the level of Correlation of equity markets among the BRIC Countries.

4. To find the level of Correlation of BRIC Markets with Crude Oil Prices and Gold Prices.

5. To Study the affect the U.S. Financial Crisis on Equity Markets of BRIC Countries.

42

43

RESEARCH METHODOLOGY

It is imperative to decide upon and document a research methodology well in

advance to carry out the research in a most effective and systemic way. This

section describes the research methodology adopted to serve the objectives of the

study in an effective manner.

SOURCES OF DATA COLLECTION:

Primary and Secondary sources of information were utilized for the collection of

required data, as comprehensive analysis requires a great deal of it.

PRIMARY DATAPrimary data are the first hand information, which we can get directly from the

people working in that concern. It can be collected by interview, survey,

questionnaires etc.

SECONDARY DATAThe secondary data is the information about the facts that we can get from

published materials such as books, journal , Internet, books etc.

I am using secondary sources of the data collection.

ANALYSIS In my project the source of data collection is Secondary. The present study being

qualitative as well as descriptive in nature was based on study of secondary data .

Analysis was done by performing basic mathematics operations on the data

collected.

Following are the areas which are covered:-

1. To find the correlation between INDIAN and RUSSIAN Equity Market.

2. To find the correlation between SENSEX values and OIL Price.

3. To find the correlation between SENSEX and GOLD Price

4. To find the effect of change in OIL and GOLD PRICES on INDIA AND

RUSSIA

5. Mathematical Formulas are used to find the correlation

44

The formula for Pearson's correlation takes on many forms. A commonly used

formula is shown below.

 N =Number of values or elements 

 x=First Score

Y = Second Score

ΣXY = Sum of the product of first and Second Scores

ΣX = Sum of First Scores

ΣY = Sum of Second Scores

ΣX2 = Sum of square First Scores

ΣY2 = Sum of square Second Scores

45

CORRELATION BETWEEB RUSSIA AND INDIA INDEX

46

Comparing the values of RTS EXCHANGE and NSE Stock Exchange.

5.1 Table shows the value of RTS

country Jan04 June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Russia 567 605 667 1125 1460 1921 1829 2290 2460 631 631

5.1 Graph shows the value of RTS

Russia

0

500

1000

1500

2000

2500

3000

Years

Inde

x Va

lue

Russia

5.2 Table showing % change in index of RUSSIA And INDIA

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09India -21 38 0.3 36 4 34 8 43 -21 -38Russia -2 9 10 69 30 32 -5 25 7 -74

5.2 Graph showing % change in index of RUSSIA And INDIA

47

India And Russia

-100

-80

-60

-40

-200

20

40

60

80

Years

% C

hang

e in

val

ues

India

Russia

CORRELATION

Correlation between these two are

R = 0.68

INTERPRETATION

There exist a fairly high correlation between the Russia and India. It means the

factors that affect are same. These may be Foreign capital flow and high

correlation of both the countries with the World Equity Market It shows that the

Economy of these countries are of similar nature. If the value of one is increasing

then the value of other is also increasing but the rate of increase is different.

48

COMPARING RUSSIAN STOCK EXCHANGE WITH CHANGING PRICE

OF GOLD

5.3 Table showing % change in RTS values and GOLD prices

Particular June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Gold -5 10 -5 24 22 1 5 25 6 -2Russia -2 9 10 69 30 32 -5 25 7 -74

5.3 Graph showing % change in RTS values and GOLD prices

Russia And Gold

-100

-50

0

50

100

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

Date

% C

hang

e in

val

ues

RussiaGold

.

CORRELATION

Correlation = 0 .4

INTERPRETATION

There exist low correlation between these. The effect of change in price of gold

effects little the equity market of Russia.

49

FINDING CORRELATION BETWEEN CHINA STOCK MARKET AND

RUSIA INDEX

5.4 Table showing % change in RTS values and China Index values

Country June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09China 6 -20 -19 12 45 59 50 32 -35 -47Russia -2 9 10 69 30 32 -5 25 7 -74

5.4 Graph showing % change in RTS values and China Index values

Russia And China

-100

-50

0

50

100

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

Date

% C

hang

e in

Val

ues

RussiaChina

CORRELATION

Correlation = 0 .5

INTERPRETATION

There exists moderate correlation between these. It means the economy of both the

countries is some where similar in nature and some factors which affect one also

affect to the other.

50

FINDING CORRELATION BETWEEN RUSSIA INDEX AND BRAZIL

5.5 Table showing % change in Brazil and Russia Index values

Country June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Brazil -13 49 -11 29 13 18 20 20 14 -48Russia -2 9 10 69 30 32 -5 25 7 -74

5.5 Graph showing % change in RTS values and China Index values

Brazil and Russia

-100

-50

0

50

100

Date

% C

hang

e

RussiaBrazil

CORRELATION

Correlation = 0 .6

INTERPRETATION

There is fairly high correlation between these two countries. It means the factors

that affect are same. These may be Foreign capital flow and high correlation of

both the countries with the World Equity Market It shows that the Economy of

these countries are of similar nature.

51

FINDING CORRELATION BETWEEN INDIAN STOCK MARKET AND

GOLD PRICE

5.6 Table showing values of NIFTY

Country Jan04 June04 Jan05 June05 Jan06 June06 Jan07 June07India 1912.25 1507.9 2080.5 2087.55 2836.55 2962.25 3966.4 4297.05

5.6 Graph showing values of NIFTY

INDIA index

01000200030004000500060007000

1/1/20

04

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

Years

Inde

x Va

lues

INDIA

5.7 Table showing % change in Index values Nifty and Gold prices

Particular June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Gold -5 10 -5 24 22 1 5 25 6 -2India -21 38 0.3 36 4 34 8 43 -21 -38

Country Jan08 June 08 Jan09India 6144.35 4870.1 3033.45

52

5.7 Graph showing % change in Index values Nifty and Gold prices

India And Gold

-60

-40

-20

0

20

40

60

6/1/2004 1/1/2005 6/1/2005 1/12006 6/1/2006 1/1/2007 6/1/2007 1/1/2008 6/1/2008 1/1/2009

Date

% C

nahg

e

India

Gold

CORRELATION

Correlation = .44

INTERPRETATION

Rang of correlation lies between -1<=r <=1 . There exist moderate correlation

between these. There is very little effect of change in prices of gold with change in

stock value of India.

53

FINDING CORRELATION BETWEEN CHINA SSE COMPOSITE INDEX

AND INDIA INDEX VALUES

5.8 Tables showing values of SSE COMPOSITE INDEXCountry 1/1/2004 6/1/2004 1/1/2005 6/1/2005 1/12006 6/1/2006 1/1/2007 6/1/2007China 1494 1580 1267 1034 1161 1684 2675 4001

Country 1/1/2008 6/1/2008 1/1/2009China 5262 3433 1821

5.8 Graph showing values of SSE COMPOSITE INDEX

China Index

01000

200030004000

50006000

1/1/20

04

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

Years

Inde

x V

alue

s

China

5.9 Table showing % change in China and India Index values

Country June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09India -21 38 0.3 36 4 34 8 43 -21 -38China 6 -20 -19 12 45 59 50 32 -35 -47

54

5.9 Graph showing % change in China and India Index values

China And India

-100

-50

0

50

100

6/1/2004 1/1/2005 6/1/2005 1/12006 6/1/2006 1/1/2007 6/1/2007 1/1/2008 6/1/2008 1/1/2009

Date

%Ch

ange

in v

alue

IndiaChina

CORRELATION

Correlaiton = .49

INTERPRETATION

There exists a positive and moderate correlation between these two countries.

Certain factors are same which affect the economy and equity market of both the

countries.

55

FINDING CORRELATION BETWEEN BRAZIL AND INDIA INDEX

VALUES

5.10 Table showing value of BOVESPA IndexCountry 1/1/2004 6/1/2004 1/1/2005 6/1/2005 1/12006 6/1/2006 1/1/2007 6/1/2007Brazil 22445 19546 29196 37748 33456 37748 44474 53423

Country 1/1/2008 6/1/2008 1/1/2009Brazil 63886 72593 37550

5.10 Graph showing value of BOVESPA Index

Brazil

01000020000300004000050000600007000080000

1/1/20

04

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

BOVESPA As On

Poin

ts

Brazil

5.11 Table showing % change in Brazil and India Index values

Country June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09India -21 38 0.3 36 4 34 8 43 -21 -38Brazil -13 49 -11 29 13 18 20 20 14 -48

56

5.11 Graph showing % change in Brazil and India Index values

Brazil and India

-60-40-20

0204060

Date

% C

hang

e in

va

lue

IndiaBrazil

CORRELATION

Correlation = .7

INTERPRETATION

It shows there exist fairly high correlation between these two. That means the

economy of these two countries behaves same in same situations and both are inter

related. These may be foreign capital flow and high correlation of both the

countries with the World Equity Market It shows that the Economy of these

countries is of similar nature.

57

FINDING CORRELATION BETWEEN CHINA SSE COMPOSITE INDEX

AND GOLD PRICE

5.12 Table showing % change in China Index values and Gold prices

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Gold -5 10 -5 24 22 1 5 25 6 -2

China 6 -20 -19 12 45 59 50 32 -35 -47

5.12 Graph showing % change in China Index values and Gold prices

China And Gold

-60

-40

-20

020

40

60

80

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

Date

% c

hang

e in

val

ue

GoldChina

CORRELATION

Correlation = .25

INTREPRETATION

It shows there is very low correlation between change in price of gold and change

in value of China index . There is near about no effect if the prices of gold are

changing on the equity market

58

FINDING CORRELATION BETWEEN CHINA SSE COMPOSITE INDEX

AND BRAZIL INDEX

5.13 Table showing % change in China Index values and Brazil Index

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Brazil -13 49 -11 29 13 18 20 20 14 -48

China 6 -20 -19 12 45 59 50 32 -35 -47

5.13 Graph showing % change in China Index values and Brazil Index

China And Brazil

-100

-50

0

50

100

Date

%Ch

ange

in v

alue

ChinaBrazil

CORRELATION

Correlation = .3

INTREPRETATION

It shows there is low correlation between these two countries. It shows the

economy of the countries is different. The factors that affect the equity market are

different.

59

FINDING CORRELATION BETWEEN GOLD PRICE AND BRAZIL

INDEX

5.14 Table showing % change in Gold Price and Brazil Index

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Brazil -13 49 -11 29 13 18 20 20 14 -48

Gold -5 10 -5 24 22 1 5 25 6 -2

5.14 Graph showing % change in Gold Price and Brazil Index

Brazil And Gold

-60

-40

-20

0

20

40

60

Date

%Ch

ange

in v

alue

GoldBrazil

CORRELATION

Correlation = -.01

INTERPRETATION

It shows the negative very low near about no correlation between the rise of gold

prices and BRAZIL Index. Negative correlation means if the price of one is

increasing then the price of other is decreasing.

60

FINDING CORRELATION BETWEEN OIL PRICE AND INDIA INDEX

Oil prices are taken as DOLLAR PER BARREL and the average of the month is

taken to find the correlation.

5.15 Table showing % change in Oil Price and India Index

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Oil 9 18 25 20 9 -26 28 32 41 -71

India -17 31 9 39 -3 50 8 19 20 -36

5.15 Graph showing % change in Oil Price and India Index

Oil and India

-100

-50

0

50

100

Date

% C

hang

e in

va

lue

OilIndia

CORRELATION

Correlation = .37

INTERPRETATION

It shows the low but positive correlation between the rise in the price of Oil and

India Index value. It indicates the oil prices and index value of India rise because

of speculation of world is in rising.

61

FINDING CORRELATION BETWEEN OIL PRICE AND INDIA INDEX

5.16 Table showing % change in Oil Price and Brazil Index

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Oil 9 18 25 20 9 -26 28 32 41 -71

Brazil -11 22 4 37 -2 28 23 4 19 -42

5.16 Graph showing % change in Oil Price and Brazil Index

Oil and Brazil

-80

-60

-40

-20

0

20

40

60

6/1/20

04

1/1/20

05

6/1/20

05

1/120

06

6/1/20

06

1/1/20

07

6/1/20

07

1/1/20

08

6/1/20

08

1/1/20

09

Date

% C

hang

e in

val

ues

OilBrazil

CORRELATION

Correlation = .5

INTERPRETATION

It shows there is high correlation between these two . it means if the prices of oil

increases then index value of Brazil also increases.

62

FINDING CORRELATION BETWEEN OIL PRICE AND RUSSIA INDEX

5.17 Table showing % change in Oil Price and Russia Index

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Oil 9 18 25 20 9 -26 28 32 41 -71

Russia -3 6 12 77 1 45 1 -1 12 -68

5.17 Graph showing % change in Oil Price and Russia Index

Russia and Oil

-100

-50

0

50

100

Date

% C

hang

e in

va

lues

OilRussia

CORRELATION

Correlation = .49

INTERPRETATION

It shows there is high correlation between these two . it means if the prices of oil

increases then index value of Russia also increases .Russia is an oil producing

country when the prices of oil increases the value of Index also increases and

decreases when oil prices decreases.

63

FINDING CORRELATION BETWEEN OIL PRICE AND CHINA INDEX

5.18 Table showing % change in Oil Price and China Index

June04 Jan05 June05 Jan06 June06 Jan07 June07 Jan08 June 08 Jan09Oil 9 18 25 20 9 -26 28 32 41 -71

Russia -3 6 12 77 1 45 1 -1 12 -68

5.18 Graph showing % change in Oil Price and China Index

China And Oil

-100

-50

0

50

100

Date

% C

hang

e in

va

lue

OilChina

CORRELATION

Correlation = - .01

INTERPRETATION

It shows there is negative correlation between these two. It means if the prices of

oil increases then index value of Brazil also decreases stay unchanged. China is

not oil producing country so when the prices of oil increases import charges

also increases and it results into decrease in the value of index.

64

Global Financial Crisis And Emerging Markets

CORRELATION BEFORE CRISS

5.19 Tables showing the value of India and Russia Index and Prices of Oil

2/1/2008 3/1/2008 4/1/2008 5/1/2008 6/1/2008 7/1/2008 8/1/2008 9/1/2008 10/1/2008India -0.7 -11 4 6 -17 -6 12 -10 -32Oil 0.17 14.2 1.4 11.4 8.6 -0.08 -7.6 -19.2 -31.1Russia -1.2 0 3.9 3.4 3.9 -17.9 -10.1 -33.9 -39.8

11/1/2008 12/1/2008 1/1/2009 2/1/2009 3/1/2009 4/1/2009India -0.6 3 -0.7 2 -7.5 22Oil -20.8 -31.7 4.5 -4 18.5 14.27Russia 0.58 8.7 -1.4 12.45 3.8 21.63

5.19 Graph showing the value of India and Russia Index and Prices of Oil

India,Russia And Oil

-60

-40

-200

20

40

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

DatePoin

ts

IndiaOilRussia

CORRELATIONIndia & Oil = 0.11

Russia & Oil = 0.42

INTERPRETATION

Correlation between India and Oil is low and between Russia and oil is high.It

shows the equity market of Russia affects with changing prices of oil.

If the prices increases the index moves up if decreases then move down.

65

How did a “house fire” in America turn into a global banking crisis?

1. Sub-prime mortgages are a financial innovation designed to provide home

ownership opportunities to borrowers in the U.S. with a higher risk profile (such

as borrowers with low incomes, bad credit histories or limited disposable income).

Most of the sub-prime mortgages were given out on a variable interest-rate basis,

with the risk of potentially large adjustments to monthly payments if interest rates

rose. Instruments of this nature increase the probability of foreclosure.

2. Institutions (lenders) were “easy” with credit regarding these mortgages under

the assumption that housing prices would continue to appreciate in value. Even if

some of the sub-prime borrowers would default, an ever expanding housing

market would still improve the lender’s overall position. However, money market

rates increased, inciting foreclosures, as expected, but occurred at the same time

the housing market and valuations cooled. This left the lending institutions with

assets of significantly reduced, and in some case worthless, value.

And why did it spread out globally?

Many of these sub-prime mortgages actually never made it on the balance sheets

of the lending institutions that originated them. Increasingly, these products had

been bundled together with prime mortgages and a variety of assets to be sold on

the market (so-called mortgage-backed securities, MBS).

The problem was that assets with different risk profiles were bundled together and

nevertheless received a high investment grading, making them attractive to

international investors, including European banks with free cash to go asset-

shopping.

1. However, when sub-prime borrowers failed to repay their mortgages, the

originating institution needed to finance the foreclosure with their own money,

bringing the asset back on its balance sheet. This left many banks in a financially

unviable situation, in a rather short, unmanageable timeframe. And, the fact that

nobody knew how much more of those MBS would return on their balance sheets,

66

banks effectively stopped lending to each other, drying up liquidity substantially,

both in the US and in Europe.

As the financial crisis continues to roil credit and stock markets around the globe,

there seems to be no country or continent is being spared the consequences. The

BRIC countries consist of Brazil, Russia, India and China is no exception. The US

financial crisis that started in July 2007 with the collapse of two Bear Sterns

subprime hedge funds has now turned into a full-blown global economic crisis.

Arguably, the climax of the financial crisis has been reached with the collapse of

Lehman Brothers on September 15, and the subsequent fall of stock markets all

around the world.

CORRELATION AFTER CORRELATION

5.20 Tables showing the value of India and Russia Index and Prices of Oil

2/1/2007 3/1/2007 4/1/2007 5/1/2007 6/1/2007 7/1/2007 8/1/2007 9/1/2007India -3 -4 0.32 11 1.7 4.7 -4.6 10.2Oil 13.5 -1.2 8.6 -0.06 5.3 9.7 -2.5 8.4Russia 4.4 -6.1 9 -9.6 4.7 5.9 -4.9 2.3

10/1/2008 11/1/2008 12/1/2008 1/1/2009 2/1/2009 3/1/2009 4/1/2009India -32 -0.6 3 -0.7 2 -7.5 22Oil -31.1 -20.8 -31.7 4.5 -4 18.5 14.27Russia -39.8 0.58 8.7 -1.4 12.45 3.8 21.63

67

5.20 Graph showing the value of India and Russia Index and Prices of Oil

India,Russia And Oil

-60

-40

-200

20

40

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

Date

Poin

ts IndiaOilRussia

CORRELATION

India and Oil = 0.31

Russia and Oil = 0.42

Interpretation

After crisis correlation between India and Oil increases. Correlation between

Russia and Oil remain same.

Generally risks to BRIC markets have intensified…The BRIC had been fairly

resilient to the global credit turmoil, however the giant economy is slowly facing

greater risks. As the credit crunch crisis has intensified, BRIC countries that once

appeared relatively immune to the financial and economic shocks emanating from

mature markets have increasingly been tested. Deleveraging by global financial

institutions has raised the cost and reduced the availability of external financing

and investor risk appetite has decreased, reducing the demand for BRIC market

assets. The pronounced reduction in investors’ risk appetite has resulted in a

retrenchment in short-term capital flows to the BRIC markets, exerting pressure on

local markets, and sharply raising costs of credit.

68

Economic growth in India in 2Q08 moderated to 7.9% compared to 8.8% in 1Q08

underpinned by a weakening investment. However, India’s private consumption

and export growth have held up well amid the global financial crisis. GDP growth

in China however eased to 10.5% in 1H08 from 12% in 2007 due to slowing

exports. Other activities continued to be supported by steady investment growth

and accelerating consumption. Among the BRIC countries, China’s GDP appears

to be the most resilient..

Investors will likely remain on the sidelines as BRIC equity markets go through a

correction after rising rapidly over the past three years. Case in point is Russia,

when regulators halted stock trading for a second day and poured USD44bln into

its three biggest banks in a bid to halt the biggest financial crisis since its

devaluation and debt default a decade ago. China’s stocks fell to the lowest in

almost 21 months after China Merchants Bank Co. said it held USD70mln of debt

issued by bankrupt Lehman Brothers Holdings Inc.

Growth slowdown as high energy prices inhibit household spending and a

spillover from the US slowdown impacts exports.

Indeed, if food and oil prices continue higher, the impact of rising prices on basic

necessities and rising interest rates could be quite damaging for growth in these

economies and traumatic for their societies. The risk is for a higher than expected

slowdown in emerging market economic growth under the weight of higher costs,

lower household spending and higher interest rates.

BRAZIL

When the global financial crisis arrived, it struck at Brazilian equities first, then

moved to the currency markets, and has since pushed up interest rates and

increased uncertainty, threatening to slow economic growth in the near future. As

of this writing, Brazilian equities continue to fall, as do equities across the world.

69

Brazil GDP growth in Brazil in 2007 was the highest in Latin American countries.

However, the GDP growth began to slow in 2008, even before the October crisis.

In 2Q08, Brazil’s GDP grew 6.13% y-o-y from 5.84% in 1Q08. Despite the

moderate increase in the GDP growth, Brazil’s economy is facing an awkward

combination of slow activity and more difficult external conditions. Growth in

Brazil is forecasted to decrease below trend as exports and remittances are

dampened by the U.S slowdown. The financial crisis has triggered downwards

revisions in economic growth in Brazil for 2009. While the country is set to post

5.1% GDP growth for 2008, the forecast for 2009 is 2.8%. The financial crisis and

decline in commodity prices which tend to reduce the amount of exports

contribute to lower growth

BOVESPA

In the beginning of 2008, MSCI Emerging Markets/MSCI World Markets showed

some weakness. Emerging Markets started underperforming the World Markets.

Commodity prices are weak and there are concerns about growth and demand for

commodities

Lower export growth…

Export growth in Brazil is expected to come down below trend, and activity would

remain sluggish in Mexico as exports and remittances are dampened by the US

slowdown. The country is less reliant on US demand than in the past (exports to

the US are down from around 27% of the total in 2003 to 15% in 2008), but with

other important export destinations faltering, notably the EU (which accounts for

24% of Brazil’s exports) and China(6%),the country is vulnerable to trade

contagion. Main export goods for Brazil are transport equipment, iron ore,

soybeans, footwear, coffee, and automobiles.

70

RUSSIA

Like other BRIC countries, Russia is in the grips of global financial market

turmoil. The Russian stock exchange index RTS has fallen by around 50% from its

peak in May 2008, reaching the level of summer 2006. After many years of

strengthening rouble have witnessed a slight weakening, and the central bank

has had to intervene by buying the currency in order to prevent its excessive

weakening against a currency basket made up of the US dollar and the Euro.

Russa’s GDP growth is expected to weaken appreciably, reflecting slowing world

demand and tightening financial conditions. In 2Q08, Russia’s GDP moderated to

7.5% from 8.5% in 1Q08. For Russia, the effects of the global credit crunch are

compounded by domestic factors, particularly a lack of confidence on the part

of foreign investors in Russia. The impact of the crisis on most Russians has so far

been minimal, partly because the crisis has received little attention in the largely

state-linked mainstream media. And it has not done much damage to the image of

the country's popular but increasingly authoritarian government.

The fall in oil prices to close to US$50/barrel envisaged makes Russia reliant on

other areas of the economy to sustain growth. But lack of diversification and

weaknesses in the business environment mean there are few alternatives for

Russia. Russia’s oil supply to decline in 2008…Russia’s oil production is now

forecast to experience a minor decline of around 20 tb/d over the previous year to

average 9.85 mb/d in 2008, indicating a downward revision of 30 tb/d from last

month’s assessment. The downward revision was made to accommodate the

adjustment to preliminary third-quarter production figures as well as minor

revisions to the first and the second quarters. According to preliminary data,

Russia’s oil supply stood at 9.84 mb/d in the third quarter, with many operators in

Russia reporting losses due to the relatively high duties. On a quarterly basis,

Russian oil supply is seen averaging 9.78 mb/d, 9.74 mb/d, 9.84 mb/d and 10.03

mb/d respectively.

71

RTS INDEX

RTS Index was trending up during the 1996-1997 period. The index moved from

72 levels to 570 levels. During the uptrend RSI signaled deceleration. The market

made higher highs but the RSI failed to make higher highs. The uptrend was

followed by a correction after breaking down the trend channel. During 2002-2003

period, RTS was testing its 1997 highs. The market again made higher highs but

the RSI failed to make higher highs. The uptrend was followed by a 2 year long

consolidation period. In 2005, the RTS index broke above the 2 year long

consolidation range at 750 levels and reached the upper boundary at 1,800. The

market made higher highs after 2006 and reached to 2500 levels but the speed was

decelerating. RSI was failing to make higher highs. The index broke down the

long term trend channel and we are now in a correction period. 580 levels is an

important long term support for the RTS index. We will follow RSI to see the

deceleration of the downtrend.

INDIA

India has been hurt by the global financial crisis, but it may be better positioned

for a quick recovery and for future growth than many of the other developing

economies. The Indian financial sector is relatively insulated; the rupee is not fully

convertible; and Indian banks did not have significant exposure to subprime loans

in the United States. The stock market, however, has been badly hit as foreign

institutional investors (FIIs) have sold almost US$10bln of their investments in

Indian companies to cover losses accrued in their home markets. From January

2008 to late October 2008, the Bombay Stock Exchange fell almost 50 percent,

from above 20,000 to around 10,500. There has also been an intense liquidity

crisis in the Indian economy, created by the tightening of global credit markets and

the withdrawal of FIIs, as well as earlier government efforts to fight inflation and

shore up the declining rupee. Slower GDP growth….The economic cycle in

72

emerging Asia started to turn in early 2008, and more weakness is expected ahead

in response to slowing demand from advanced economies and growing strains in

regional financial markets. In India, growth in 2Q08 came down to 7.9% from

8.5% in 1Q08, on the back of weakening investment, while private consumption

and export growth have held up well amid the global financial crisis.

SENSEX (INDIA)

1990-1992 was a strong period for the SENSEX, where the index moved from 700

to 3,800. However, after 1992 we saw a choppy sideways movement between

2,500 and 6,500. The consolidation range had a slightly positive slope. The index

moved in the wide range between 1992 and 2005. During 2002-2003 SENSEX

tested the lower boundary of the consolidation range and rebounded from 2,800

levels. In March 2005, the index reached 7,000. After a short pullback, SENSEX

broke above the upper boundary and started its strong uptrend. In the beginning of

2008, India's SENSEX index was testing 21,000 levels. The global sell-off and

sharp corrections in the World markets pushed the SENSEX back to the previous

consolidation range in 10 months. The index tested the upper boundary of the

consolidation range at 8,000 and rebounded. 20-50 and 100 week moving averages

are signaling a bear market. 8,000 is strong support. If the index holds above 8,000

levels we can expect a rebound towards the moving averages at 12,000 levels

CHINA

China’s economic growth rate slipped into single digits in the 3Q08 for the first

time in at least four years under the impact of the global credit crisis and weakness

in the domestic property sector. Annual gross domestic product growth slowed

more sharply than expected to 9%from 10.1% in the 2Q08. China's economic

expansion was the weakest since at least the second quarter of 2003, when growth

slumped because of the severe acute respiratory syndrome, or SARS, epidemic.

73

SSE COMPOSITE INDEX CHINA

The uptrend that started in 2006 pushed the index from 1,500 levels to 6,000 in

two years. During the strong uptrend, every correction took place in the parallel

trend channel and above the moving average. The first trend reversal signal was

generated at the beginning of 2008, when SSE Composite broke down the two

year long uptrend . Since then the index has been in a downtrend and gave back

almost all the gains of 2006 and 2007. The downtrend is continuing in a clear

parallel trend channel. We will be following the upper boundary of the parallel

trend channel and the moving average for a trend reversal. The important

resistances are at 2,300-2,500 range.

What is being done to solve the problem?

1 The U.S. government has spent (or committed) more than a trillion dollars in

trying to prevent the collapse of U.S. financial markets. Following the bailout of

Bear Sterns, AIG, Freddie Mac, and Fannie Mae, the U.S. Congress approved the

Emergency Economic Stabilization Act to give authority to the U.S. Treasury to

buy troubled mortgages and mortgage-related securities. However, the original

package (US$ 700 billion) has been revised to include a recapitalization of banks,

federal guarantees on new bank debt for three years and FDIC insurance for non-

interest bearing accounts. If the troubled assets (MBS) bought by the Treasury are

later sold at a fair market value, this could ultimately be a profitable transaction for

the U.S. government. And, if the Treasury finds the right buyers for the banks that

it partially owns, then it could also end up making money.

2 In Europe, the Bank of England pledged US$ 87 billion in direct support to the

country’s major financial institutions. British Prime Minister Gordon Brown’s

rescue package which involves direct capitalization and guarantee of inter-bank

lending has been adopted by other major European countries and the U.S.

government (as mirrored by the new revisions adopted by the U.S. Treasury).

Furthermore, central banks around the world (Fed, ECB, Canada, Sweden,

74

Switzerland, and China) introduced coordinated interest rate cuts to lower the cost

of borrowing, with the aim of restoring confidence in the global economy.

3 The Reserve Bank of India on March 04,2009 has announced the rate cut. It has

reduced the repo rate by 50 basis points to 5% and cut the reverse repo rate by 50

basis points to 3.5% with immediate effect.

WHY BRIC COUNTRIES PERFORM DIFFERENTLY

The behavior of these countries are different with respect to changing conditions.

Russia

The Russian economy is dominated by the energy sector: · Crude oil exports make

up about 60% of Russian exports. · Russia’s share of global crude oil production

in 2003 was some 11%, making the country the second largest oil producer in the

world after Saudi Arabia. Russia has a share of 5% in global oil reserves, placing it

in ninth position amongst oil producing countries.

More than a quarter of world natural gas reserves are located on Russian territory.

Only Qatar and Iran also have double-digit shares, each about 15%, of world gas

reserves. Russia leads in the production of natural gas as well, followed closely by

the U. S.A. Steadily rising prices for oil have generated

substantial, unforeseen income in US dollars for oil producers and for the Russian

state since the end of the nineties. This has enabled Russia to make early

repayments of government debt. Since 1999, public sector debt in Russia has been

halved to around 35% of GDP. Although the heavy dependency of Russia on oil

and gas may at first sight be a source of concern, the Russian economy is

relatively well prepared for periods of declining oil prices. According to initial

budget plans, the public sector budget would slide into deficit only at oil prices of

under 30 US dollars a barrel. The country’s foreign-exchange reserves are at a

record level and form a cushion against possible external shocks.

India

75

For years, India has attracted attention through the successful establishment there

of English-speaking call centres and software companies. It is unusual for the

export of services to play a major role in a developing country. The dynamic

growth of this sector is likely to continue, and is a positive feature of India.

Although the IT sector only accounted for 3% of Indian GDP in 2003, the services

sector has had a decisive impact on overall growth in the country in recent years.

The Indian economy continues to centre on traditional industries, however.

The agricultural sector accounts for about a quarter of economic output and two-

thirds of the workforce are employed in this sector. Traditional goods also make

up the bulk of Indian exports. In industry, the textile sector dominates. The major

role that agriculture still plays is also reflected in income levels in India. In terms

of per capita income, India trails far behind the other BRIC countries. In greatly

implified terms it can be concluded that Brazil stands for raw materials and

agricultural produce, Russia for oil and gas, that India has found a promising

niche with its IT and call-centre services and that China is the most advanced of all

in many industrial areas thanks to its international competitiveness.

Brazil

What oil and gas is for Russia, iron ore, coffee and soya are for Brazil. In the

export of these goods especially Brazil leads the world. And even though their

share of Brazilian exports is much lower today than it was ten years ago, high

prices for soya and iron ore are having a positive impact on the country’s trade

balance. However, Brazil is much more than just a producer of raw materials. In

2004, over 50% of the goods exported by Brazil, the biggest country in Latin

America both in terms of area and economic power, were manufactured products.

Brazil also produces oil although its share of world reserves of 1% is minor

compared to say Russia’s. But at least the country can meet its oil needs from its

own production. High oil prices thus do not have a negative effect on the country’s

current account balance. The high level of Brazilian foreign debt (135% of

exports) is still a problem and the relatively low savings rate as well as investment

76

shortfalls in infrastructure are curbing growth. However, since 2003 current

account surpluses have made it possible for Brazil to build up foreign exchange

reserves, and growth should accelerate to nearly 4% in 2007. Adjustments

in the structure of government debt have lessened the vulnerability of the country

to external shocks.

China

There are frequent reports on the shift of production facilities from industrial

countries to China. Will the largest Asian country soon become the world’s most

important production centre? Sweeping economic reforms have a long tradition in

China. Since the end of the seventies, the government has been endeavouring to

improve the country’s economic structures. With success: the share of

manufactured goods in exports has now reached some 50%.

The start of the process of change in China is reflected in the growth of the

economy. Since 1982, China‘s economy, with a few exceptions, has grown year

for year by over 7%. Not only industrial countries dream of such continuously

high growth. China also tops the growth rankings in direct comparisons with other

developing countries. In spite of the lengthy phase of unusually high growth,

China is still far removed from the status of an industrial country. Like Russia,

China is still in a transformation process, evolving from a centrally-planned into a

market economy. Such sweeping reform processes take time and are subject to the

risk of temporary setbacks.

Volatile oil prices have varying impacts on the Bric’s economies. High oil prices

help large producers like Russia that rely on exports for fiscal revenue and foreign

exchange. For the net oil-importing countries of China and India, the price of oil is

a key determinant of inflation, the cost of production, the trade balance and the

strength of the currency. Whereas Brazil, which is now largely self-sufficient and

has insulated its economy from oil price shock on net basis.

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In 2007, Russia’s real gross domestic product (GDP) grew by about 8.1%,

surpassing average growth rates in all other G-8 countries, and marking the

country’s seventh consecutive year of economic expansion. Russia’s economic

growth over the past seven years has been driven primarily by energy exports,

given the increase in Russian oil production and relatively high world oil prices

during the period.

While Russia might expect their large oil reserves to pave the way for economic

development, it is observed that oil-exporting economies have experienced

difficulty in converting oil revenues into a continuous source of financing for

economic growth and development. Oil exports have represented a greater share of

gross domestic product (GDP) in Russia than Brazil, China and India over past 5

years. Oil exports contribution to Russian GDP have increased from 15.8% of

GDP in 2003 to 17.5% of GDP in 2007.

Revenue from oil and gas extraction and export is a central component of the

Russian government’s budget, and the hydrocarbon industry is one of the main

drivers of the country's economy. Russian government is keenly interested in

increasing both production and exports in order to maximise revenue and keep the

economy growing steadily. Russian government’s central aim is to maximise

revenue from the oil and gas sectors, as about 40% of the state budget comes from

oil- and gas-related activities.

One of the major drawbacks for oil export dependent economies is that they can be

hurt by the impact of volatile oil export revenues on the exchange rate. A surge in

export revenues can lead to a surplus in a nation’s balance of payments, which

results in a stronger domestic currency. Foreign-exchange appreciation can have

some unexpected spillover effects for other parts of the economy. Appreciation of

domestic currency results in a loss of competitiveness in other economic sectors as

imports become cheaper and exports more expensive. Even if domestic currency

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depreciates, local manufacturers of tradable goods who were disadvantaged when

the currency was strong may still be unable to fully capitalise on the improved

exchange-rate environment if the volatility in the currency discourages investment

in other industries.

MAINLY

1.Russia is the oil producing country. High prices of oil favorably affect the

country.

2. Brazil raw material and agricultural produce.

3.India it is IT services and for the large domestic consumer market size

4.China is increasingly playing the role of a high developed workbench for industrial countries

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CONCLUSION

1.POSITIVE CORRELATION : There exist a positive correlation between the

equity market of all BRIC COUNTRIES. It means there are some common factors

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which affects these countries. Following are the factors that could be the reasons

for the positive correlation of EQUITY MARKET OF BRIC COUNTRIES

LARGE POPULATION :- The BRIC nations represent over 40% of the

world’s population and occupy over a quarter of the world’s land area. As

the emerging middle class continues to develop, the BRIC nations will be a

significant consumer of goods and services. China is First, India is second,

Brazil on fifth, and Russia is on ninth position in population.

PREFERABLE DEMOGRAPHICAL PROFILE :- BRIC Countries

provide preferable demography profile to the investors. In India percentage

of young population is 63.5 , In China the percentage of young population

is 71.5, In Russia its 71.2% and in Brazil its 66.8.

HIGH CONSUMPTION: - Bric countries represent 40% of word's

population so they have high domestic consumption capacity because of

that these countries are still doing well in the period of recession. Growing

consumer spending in BRIC Countries also help them to face the financial

crisis.

RELATIVE POLITICAL STABILITY: - Political stability determines the

factors which determine economic growth such as investments (foreign

direct investment (FDI), stock market capitalization, private investment)

technologies which comes with FDI and skilled labor who migrate to

countries which have political stability. So political stability indirectly

determines economic growth. Bric countries have relative political stability.

2. AFFECT OF OIL PRICES ON BRIC COUNTRIES

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The correlation between Oil price and BRIC countries is positive but in case of

China which shows it is not a oil producing country.

INDIA AND CHINA ;-India is net importer of oil so high prices of oil also

adversely affect the Indian Economy but high oil prices could also be result of an

overall bullish sentiments of FII's about the word economy. So the factors which

has lead high oil price in oil during 2005 to 2008 are also the factors which has

lead rise in the Equity of BRIC Countries. The same reasons exist for the

correlation of GOLD PRICE and Equity Market of BRIC COUNTRIES .The same

thesis hold true for China but probably to a lesser extent because China story is of

high manufacturing and export story but India story is primarily of high domestic

consumption story . For the net oil-importing countries of China and India, the

price of oil is a key determinant of inflation, the cost of production, the trade

balance and the strength of the currency.

BRAZIL AND RUSSIA: - Brazil and Russia are having different story so they are

favorably affected by oil prices and have different pattern. Russia is an oil

producing country so it affects favorability with high rate of oil prices. Volatile oil

prices have varying impacts on the BRIC’s economies. High oil prices help large

producers like Russia that rely on exports for fiscal revenue and foreign exchange.

Brazil, is now largely self-sufficient and has insulated its economy from oil price

shock on net basis.

3. AFFCT OF U.S. FINANCIAL CRISIS ON EQUITY MARKET OF BRIC

COUNTRIES

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The present FINANCIAL CRISIS has adversely affected all the Equity Markets of

the World including BRIC Equity Market also. Global Economy is now days too

much interlinked even in decline these countries show positive correlation. This

may be due to the fact that as the economy went into recessionary mode there is a

high risk aversion on the parts of the global factors and FII's.

As the global economy has set to slow in 2009, BRIC economies are feeling the

consequences.

CHINA AND BRAZIL:-China and Brazil will see weaker demand from the USA

and Europe for their exports, China SSE Composite broke down the two year long

uptrend. The financial crisis has triggered downwards revisions in economic

growth in Brazil for 2009

RUSSIA AND INDIA :- Russia is probably the most vulnerable of the BRIC

countries, as its economy is the least diversified. Russia is heavily reliant on

hydrocarbon exports, accounting for half of export revenues in 2007. Oil prices

fell from US$147 per barrel in July 2008 to below US$70 in October 2008 amid

the global economic slowdown. Additionally, Russia is considered more risky by

foreign investors. India's economy depends on the services sector, accounting for

more than half of GDP. The sector has thrived on outsourcing from the developed

world. India's services sector, oriented towards developed economies. From

January 2008 to late October 2008, the Bombay Stock Exchange fell almost 50

percent, from above 20,000 to around 10,500.

We all know that equity is high risk high return asset class and as in the bullish

period it attracts more capital flow similarly in bearish period there is a

phenomenon of capital flight during risk time the global investor would prefer to

take whatever profit these emerging markets are offer and would park the same

money in more secure asset class like various debt based instrument. India's

services sector, oriented towards developed economies, suffered.

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However, unlike other emerging economies, BRIC have large trade surpluses and

foreign exchange reserves that make them more resilient to the crisis. When the

markets will recover these are more likely to be chosen.

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LIMITATIONS AND SUGGESTIONS

The present study has been carried out with the following limitations:

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1. Combined correlation is not calculated. The analysis of Multiple variable is

not analysed.

2. Analysis is only a mean and not an end in itself. The analyst has to make

interpretation and draw his conclusions. Different people may interpret the

same analysis in different ways.

3. The country correlation is calculated on the basis of stock values at the end of

six month period from 2004 to 2009.

4. Due to only use of secondary data for the analysis there can be various errors

while using the information provided by secondary sources.

5. The better results could be achieved to study the monthly average values of the

stock and it will give more reliable results. Factor analysis and other statistical

measures can be used for better results.

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BIBLIOGRAPHY

1. www.google.com

2. www.nseindia.com

3. DIGAMBAR PATRI , D.N PATRI, QUNTITAVE TECHNIQUES (2007) Pg.No- 4.1-4.20

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