Stock Market Reaction to Policy Change Announcements-Geetha-0417

8/7/2019 Stock Market Reaction to Policy Change Announcements-Geetha-0417

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Stock Market Reaction To Policy Change Announcement

M.P.Birla Institute Of Management Studies 1

STOCK MARKET REACTION TO POLICY CHANGE

ANNOUNCEMENTS

A dissertation submitted in partial fulfillment of the requirement for the

award of M.B.A Degree of Bangalore University.

By

GEETHA.B.R

04XQCM6030

Under the guidance of

Dr. T V N Rao

Professor MPBIM

M P Birla Institute of Management

Associate Bharatiya Vidya Bhavan

#43, Race Course road,

Bangalore-01.


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DECLARATIONI hereby declare that this dissertation work entitled STOCK MARKET

REACTION TO POLICY CHANGES ANNOUNCEMENTS is a bonafide

study, completed under the guidance and supervision of

Dr. T. V. N. Rao, professor Finance and submitted in partial fulfillment for the

award of MASTERS OF BUSINESS ADMINISTRATION degree at

BANGALORE UNIVERSITY

I further declare that this project is the result of my own effort and that it

has not been submitted to any other university/institution for the award of any

degree or diploma or any other similar title of recognition.


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ACKNOWLEDGEMENTThis Project report has been made possible through the direct and indirect

cooperation of various people to whom I wish to express my deep sense of

Gratitude.

I am extremely grateful to my Internal Guide Dr. T. V. N. Rao, for his

valuable advice and guidance throughout the project, which has enabled me in

the successful completion of this project and whose constant backing and

support made my project a knowledgably and insightful experience.

.

.


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GUIDES CERTIFICATE

This is to certify that Project titled STOCK MARKET

REACTION TO POLICY CHANGE ANNOUNCEMENTS has

been prepared by MISS GEETHA.B.R registration number

04XQCM6030 under the guidance of Dr.T.V.N. RAO.

This has not formed a basis for the award of any Degrees/Diploma

by any other University

Date:

Place: Bangalore Dr. T. V. N. Rao


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PRINCIPAL CERTIFICATEThis is to certify that Project titled STOCK MARKET

REACTION TO POLICY CHANGE ANNOUNCEMENTS has

been prepared by MISS GEETHA.B.R registration number

04XQCM6030 under the guidance of Dr.T.V.N. RAO.

This has not formed a basis for the award of any Degrees/Diploma

by any other University

Date:

Place: Bangalore Dr.NAGESH MALAVALLI


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SERIAL NO CONTENTSPAGE

NO

Chapter 1

Introduction

1.1 Efficiency Market

1.2 Event Study Methodology

7

8

11

Chapter 2Review of Literature

13

Chapter 3

Methodology

3.1 Research Problem

3.2 Purpose of Study

3.3 Objectives of Study

3.4 Data and Sample Size

3.5 Event to be Studied

3.6 Period of Study

3.7 Methodology used

16-19

Chapter 4

Data Analysis and Interpretations

5.1 Finding of log price

5.2 Regression of market return with stock return.

5.3 Estimation of the residual valves

5.4 Averaging of Residual Valves and finding

Cumulative Abnormal returns

5.5 Charts of Cumulative Abnormal Returns

5.6 Analysis of Abnormal Returns

20-52

Chapter 5 Summary 53

Chapter 6 Findings and Conclusions 54

Chapter 7 Bibliography 55


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Introduction and Background of Study

In the past few years there has been substantial increase in activities of Indian stock

exchange. Stock prices are among the most closely watched asset prices in the economy and

are viewed as being highly sensitive to economic conditions. Stock prices have also been

known to swing rather widely, leading to concerns about possible "bubbles" or other

deviations of stock prices from fundamental values, that may have adverse implications for

the economy. The stock market also plays an important role in allocation of capital

resources. The market is allocationally efficient when it maintains equivalent rate of return

on compatible investments for which it would channelise funds to those users who utilize

them most profitably. Consequently the efficiency of pricing mechanism influences the

performance of stock market. A number of studies have been conducted to find whether the

markets are efficient with respect to announcement of mergers and acquisition, bonus issue,

stock split and earnings announcement.

The interpretation of daily stock prices reaction to various news good or bad is a common

thing in India. Researchers and Analysts often comment about the Reaction of Stock Prices

to various announcements good or bad. The reports appearing in Financial Press is evidence

to this. The greatest amount of research in finance is devoted to the effect of announcement

on share prices .Academicians have studied stock market reaction to certain specific policychanges by the government . These studies are known as event study it was under taken to

examine how fast the information was incorporated in stock prices. It is of great interest,

then, to understand more precisely how changes in government policy and the stock market

are related. Prices in speculative markets respond sensitively to events, including policy

actions and hints about policy actions, of all kinds.

This study aims at examining the impact of changes in government policy on the share prices

in three different sectors namely Banking, Pharmaceuticals and Information Technology


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EFFICIENT MARKET THEORY:

An investment theory that states that it is impossible to "beat the market" because stock

market efficiency causes existing share prices to always incorporate and reflect all relevant

information. According to the EMH, this means that stocks always trade at their fair value on

stock exchanges, and thus it is impossible for investors to either purchase undervalued stocks

or sell stocks for inflated prices. Thus, the crux of the EMH is that it should be impossible to

outperform the overall market through expert stock selection or market timing, and that the

only way an investor can possibly obtain higher returns is by purchasing riskier

investments.

Although it is a cornerstone of modern financial theory, the EMH is highly controversial and

often disputed. Believers argue it is pointless to search for undervalued stocks or to try to

predict trends in the market through either fundamental or technical analysis.

While academics point to a large body of evidence in support of EMH, an equal amount of

dissension also exists. For example, investors such as Warren Buffett have consistently

beaten the market over long periods of time, which by definition is impossibility according to

the EMH.

There are three common forms in which the Efficient Market Hypothesis is commonly stated

- Weak Form Efficiency, Semi-Strong Form Efficiency and Strong Form Efficiency,

each of which have different implications for how markets works.


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WEAK-FORM EFFICIENCY

No excess returns can be earned by using investment strategies based on

historical share prices or other financial data.

Weak-form efficiency implies that no Technical analysis techniques will be

able to consistently produce excess returns.

In a weak-form efficient market current share prices are the best, unbiased,

estimate of the value of the security. Theoretical in nature, weak form efficiency

advocates assert that fundamental analysis can be used to identify stocks that are

undervalued and overvalued. Therefore, keen investors looking for profitable

companies can earn profits by researching financial statements.

SEMI-STRONG FORM EFFICIENCY

Share prices adjust instantaneously and in an unbiased fashion to publicly

available new information, so that no excess returns can be earned by trading on that

information.

Semi-strong-form efficiency implies that Fundamental analysis techniques

will not be able to reliably produce excess returns.

To test for semi-strong-form efficiency, the adjustments to previously

unknown news must be of a reasonable size and must be instantaneous.

To test for this, consistent upward or downward adjustments after the initial

change must be looked for. If there are any such adjustments it would suggest that

investors had interpreted the information in a biased fashion and hence in an

inefficient manner.


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STRONG-FORM EFFICIENCY

Share prices reflect all information and no one can earn excess returns.

To test for strong form efficiency, a market needs to exist where investors

cannot consistently earn excess returns over a long period of time. When the topic of

insider trading is introduced, where an investor trades on information that is not yet

publicly available, the idea of a strong-form efficient market seems impossible.

Studies on the US stock market have shown that people do trade on inside

information.

It was also found though that others monitored the activity of those with

inside information and in turn followed, having the effect of reducing any profits that

could be made.

Even though many fund managers have consistently beaten the market, this

does not necessarily invalidate strong-form efficiency. We need to find out how many

managers in fact do beat the market, how many match it, and how many under

perform it. The results imply that performance relative to the market is more or less

normally distributed, so that a certain percentage of managers can be expected to beat

the market. Given that there are tens of thousand of fund managers worldwide, then

having a few dozen star performers is perfectly consistent with statistical

expectations.

The Efficient Markets Paradigm

The efficient markets paradigm surely has to be the starting point in understanding

speculative markets. According to this view, speculative markets respond efficiently as

market participants assess all relevant informationabsolutely everything that might

influence market pricesand bid market prices up or down accordingly. Given that investors

bid current prices to levels at which risk-adjusted expected rates of return are equalized

across various investment alternatives, each new piece of information may move market

prices. The efficient markets model is not perfect, but it certainly goes far in explaining the

behavior of speculative prices.


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EVENT STUDY

What is an event study? An event study, in economics/finance/accounting research, is an

analysis of whether there was a statistically significant reaction in financial markets to past

occurrences of a given type of event that is hypothesized to affect public firms' market

values.

EVENT STUDY METHODOLOGY

In event study analysis, the first requirement is event definition. The event is the

occurrence assumed to influence firm valuation. The potential effect of an event is measured

over a period of time surrounding the event in order to ensure that its information effect will

be captured. This period of time is the event window. A period of time prior to the event

window, called the estimation window, typically estimates the parameters of the model to

ensure accurate abnormal return analysis.

Methodologies vary as to how they calculate and test abnormal returns but most use a

variation on an efficient market model as the root of their calculation. This event study

analysis uses the market model to estimate returns. Efficient market models such as the

random walk, capital asset pricing model (CAPM), constant-mean return model, or

market model all offer alternatives for empirical testing. Efficient market models assume

abnormal return, or the actual ex postreturn of a security less the normal return, measures the

impact of an event.


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STEPS INVOLVED IN THE METHODOLOGY

1. Collect a sample of firms on whom there may be an impact of announcement.

since positive or negative have different impact the sample of firms are grouped

into two categories

2. Determine the precise date of announcement and designate this date as zero most

current study uses daily data while a few of them use monthly data .some use

intraday data also

3. Define the period to be used. if we study 60 days period we designate -30,-29,...

-1 as days prior to date of announcement and +1,+2,....+30 as days after the event

4. For each of the firm in the sample compute the return on each of the days being

studied.

5. Compute abnormal returns for each of the days being studied for each firm in

the sample. Abnormal return is actual return minus expected return.

6. Compute for each day in the event period the Average Abnormal Returns for all

the firms in the sample. We normally look at average effect rather than each firm

separately.

7. Often the individual days Abnormal Return is added together to compute the

Cumulative Abnormal Return from the beginning of the period.The charts are

drawn to give a visual view.

8. Examine and analyze the results. Having performed the analysis conclusions are

drawn


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returns to stock holders after the use of FAC tend to be less than expected but this was due to

the fact that utilities as a whole had negative returns

The period of study was January 1965 to January 1974 the firms investigated are large

electric utilities whose stock has been traded on New York Stock Exchange. The Empirical

Evidence from the paper indicate that the use of fuel adjusted clause by electric utilities in

early part of 1970s did have an impact on these firms systematic risk as expected .A

decrease in firms systematic risk resulting from use of FAC will decrease the firms cost of

equity . In an efficient market the investors would bid up the prices of the firms share until

expected return confirmed to its corresponding risk the sudden upward movement in share

prices of the firm would result in wind fall gain for existing share holders to test possible

windfall gains we will examine residual returns of stock holders.

The study conducted by Hagerman (1984), et al was to test whether risk adjusted stock

price are a function of magnitude of quarterly earnings informational signals and there is a

Marginal Information effect of annual versus Fourth Quarter Earnings Informational Signals

.This study is an important extension to the Seminial Work conducted by Ball and Brown

which examined association between Quarterly and Annual Earnings forecast errors and Risk

Adjusted Stock Prices.

Moreover Beaver Clarke and Wright who studied association between unsystematic security

returns and Magnitude of Annual Earnings Forecasting Errors .Wall Street Earnings

Announcements dates were collected for Randhom sample of 215 firms over a period of

1974 to 1976 these sample were constrained to be NYSE or ASE firms to have fiscal year

end over the time period and to be listed on COMPUSTAT quarterly industrial tape. Stock

Returns were taken from CRSP daily return file and Quarter Earnings from aforesaid

COMPUSTST tape.

The study assumes that annual earnings follow pure Random Walk Hypothesis and Quarterly

Earnings follow some type of Seasonal Random Walk Hypothesis. Cumulative Risk

Adjusted stock returns are found and three return generating models are used to determine

expected security returns models are Market Model, Mean Return Model and Scholes and


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Williams Model. They were tested both for securities and second was for portfolio of 25.

Regression analysis was also used where ever necessary.

The results reported, provide a strong evidence for above study. It also said that fourth

quarterly information signal is more highly associated with risk adjusted stock returns than

annual signals immediately around public release of these contemporaneous information

signals.

A study by J Ramachandran(1988) aims at examination of weak and semi strong form of

efficiency of pricing mechanism and Bombay stock exchange it also attempts to estimate the

stock market speed of adjustment to information The period of study is 6 year period starting

from January 1976 and ending with December 1981.Two approaches have been used to

investigate into weak form of market efficiency one is for statistical independence of

successive price changes And second approach involves direct testing of filter rules. In case

of semi strong form of efficiency impact of issue of bonus shares was studied Market model

was used for this purpose methodology based on Stewart control chart was employed for this

purpose The result indicate market tends to co orborate the new information made available

with other information at its disposal

The study bySubramaniam (1989) is similar to the above study. The daily closing price offorty five securities and financial express equity index for the 8 year period between 1/1/1979

to 31/12/1986.The economic times and financial express of period were referred. Fifteen

major political events were identified. The speed of reaction of market factor and 45 scripts

have been computed the mean variance of market factor returns outside the period was

drawn. For individual securities the methodology used was by Fama and Fisher and Jensen.

This market factor and individual securities behavior prior to the occurrence of the event

supports Efficiency Market Hypothesis .However post event adjustment time is on higher

side. The long post event adjustment time around dates of events indicate that the market

may relatively efficient for some kind of events and may be relatively not efficient for some

other events .If the relationship between an event and security prices are characterized by low


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complexity and high clarity the market would possibly be more efficient to this events for

other events

RESEARCH PROBLEM:

Empirical study of Stock Market Reaction to Policy Change Announcements

PURPOSE OF STUDY

The purpose of this study is to examine the adjustment of stock prices to announcements of

changes in Government Policy .The announcement was in relation to Banking,

Pharmaceuticals and InformationSector. To find strong evidence in supporting of semi

strong form market efficiency a scientific study called event study is conducted. Its done to

find whether there are any abnormal returns or not. Semi strong form of market efficiency

implies that no abnormal returns should consistently occur after the announcement date.

Several studies done before support this theory

PERIOD OF STUDY

The Period of Study is different for 3 Sectors:

For Banking Sector its from 10th September 2005 to 1st June 2006 and the

Date of Announcement is 20th Feb 2006. The period of 90 days before the event and60 days after the event.

For Pharmaceutical Sector its from 15th September 2005 to 2nd June 2006

and the Date of Announcement is 19th Jan 2005. The period is 90 days before and 90

days after the Date of Announcement.

The period of study is from 23rd October 2000 to 12th June 2001 and the

Date of Announcement is 28th February 2001 the event period is 90 days before and

90 days after the event.

DATA AND SAMPLE SIZE

The data is collected for five different companies in a particular sector .The event window

consist of 90 days before and 90 days after the event. The bench marks used are Nifty,

Bankex, and Lifex. The software used includes SPSS and MICROSOFT EXCEL .T test is


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conducted for average abnormal returns to find whether the results are statistically significant

or not. The data for the event period is collected from the issues of Economic Times and

from National Stock Exchange Websites.:

OBJECTIVES OF STUDY

To ascertain the impact of industry specific announcements on the return of the stock

prices of that particular sector.

The impact may be different for different sectors. The share prices of different companies

may react differently to the announcement. Some may react so volatively that there may

be a chance to make abnormal returns. While in some cases it may not. The question

concerned is whether an investor can make short term profits by buying on

announcement date or make long term profits by buying on announcement date and

holding over a longer period of time

To determine the time period with in which the stock prices adjusts itself to the new

information.

The time taken for the share prices to adjust itself to the new information may be

different for different companies. The time taken to adjust may also depend on market

efficiency. If it takes a long time investors can make abnormal profits until it adjusts

itself.

EVENT TO BE STUDIED

Repo and Reverse Repo Rates hiked by 25 basis points by Reserve Bank on

February 06th

2006

Finance minister Mr. P Chidambaram decide to levy excise duty on

Maximum Retail Price of drugs onJanuary 19th 2005

Exemption of 100% of profits derived from export outside of India in

Connection with development of computer software on28th February 2001


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COMPANIES CONSIDERED

BANKING SECTOR

Canara Bank

SBI Bank

UTI Bank

ICICI Bank

HDFC Bank

PHARMACEUTICAL

SECTOR

Cipla

Ranbaxy

SunPharma

Glaxo

Dr Reddy

I T SECTOR

Tata Consultancy

Infosys Technology

Wipro

Satyam

HCL Technology

METHODOLOGY:

Event study methodology is used to calculate Average Abnormal Returns and Cumulative

Average Abnormal Returns around the date of announcement

R it = Ln(Pit/Pit-1)

Where, Pit and Pit-1 are respective closing daily prices for company i at time t and

t1.

The expected returns on a stock have been estimated using the market model of Sharpe

(1964):

R it= + *R m t+ it

Where R it is the return on security i at time t, R m t is the return on the market index

at time t, is the estimate of the intercept for share of company i, is the estimate for beta of

share of company i, and it, is the independently and identically distributed residual error

term. In the next step we compute the abnormal returns for each of the sample company for

the window period. Abnormal return is defined as the actual return minus the expected

return.


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The abnormal return for company i on day t is calculated as:

AR it = R it * R m t

In order to eliminate the effect of any one or group of securities on the abnormal returns, the

AARs are averaged over the number of companies. The AARs of individual companies are

averaged for each day using the following model.

(AAR t)=

N

i 1 AR it/N

With a view to know the cumulative effect of AARs on days surrounding the event,

cumulative Average Abnormal Return (CAAR) is calculated for event days t1 through t2 by

summing the average abnormal returns for these days: i.e.,

(CAAR d)=

2

1

t

tt AAR t

t TEST:

t test for difference of mean is also calculated to find out if there is any change in abnormal

returns before and after the event. To find whether there is significant difference in mean

before and after the event. Thet

test is conducted at 5% level of significance

Formula used

=X -Y Sd

SD ={(S1^2/N1)=(S2^2-N2)}^

SD = Combined Standard Deviation

N= Number of Samples

X =Mean of Sample before Date of Announcement

Y= Mean of Sample after the Announcement Date


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ABNORMAL RESIDUAL VALUES BY SPSS SOFTWARE

UTI SBI HDFC ICICI CAN BK BANKEX

0.01328 0.01049 0.00025 0.01941 0.00612 0.01213

0.02266 0.00174 0.01372 0.00739 0.01073 0.01303

0.01057 0.00142 -0.0035 0.00426 0.01363 -0.0045

0.02344 0.0031 0.01309 0.01077 0.0155 0.00587

0.00999 0.00137 0.02009 -0.0239 0.00504 -0.0046

0.02661 0.00319 0.03923 0.01695 0.01248 0.0099

0.00368 -0.0027 -0.0053 0.03912 -0.0047 -0.02242

0.01366 0.00469 0.01238 0.02079 0.0016 -0.03027

0.0175 0.00518 0.00376 0.00432 0.01546 -0.00823

0.01227 0.00956 0.01615 0.00787 0.02174 -0.00254

-0.0084 0.03065 0.00386 0.00572 0.02022 0.018560.03016 0.00728 0.00323 0.00025 0.00159 -0.01948

-0.0192 0.00971 0.01302 0.01236 0.00872 -0.02352

0.00129 0.01677 .00782 -0.01 -0.006 -0.00357

0.00871 0.00379 0.00987 0.00216 0.00652 -0.00659

0.05457 0.00011 0.00041 0.02911 0.01052 -0.01099

0.01891 0.01427 .00089 0.00843 0.01707 -0.01643

0.01139 0.00265 .00806 0.00069 0.0047 0.01151

0.00302 0.00274 0.00488 0.00648 0.01267 -0.01614

0.00697 0.01592 -0.0144 0.00405 0.00366 0.01327

0.01665 0.00607 0.00193 0.01998 0.00577 -0.03805

0.04371 0.03674 0.00747 0.03464 0.01729 -0.008940.03141 0.00664 0.01112 0.03103 0.01146 0.02954

-0.0127 0.013 0.02334 0.00288 0.01968 0.00439

0.00201 0.00487 0.03228 0.00516 -0.0074 0.00035

-0.0191 0.02199 0.02334 0.01115 0.01245 0.00255

0.00246 0.00981 0.00481 0.01695 0.00229 0.0099

0.00283 0.01274 0.01148 0.00149 0.0244 -0.00091

0.00678 0.01996 0.00861 0.0052 0.01112 -0.00143

0.00377 0.00064 0.00489 0.00673 0.01465 0.01957

0.01784 0.00778 0.00632 0.00362 0.00616 0.03816

0.01769 0.01096 0.05915 0.02037 0.00259 0.00536

0.01048 0.00841 0.0143 0.00345 0.01212 -0.02372

0.02478 0.01129 0.00714 0.01586 0.01303 0.004740.01703 0.00595 0.00356 0.01719 0.02519 0.01092

0.01253 0.01037 -0.0239 0.02118 0.01502 0.01228

0.02603 0.00598 0.0048 0.00996 0.00297 -0.00078

0.01787 0.01268 0.00797 0.00203 .00353 0.00373

0.0389 0.00317 -0.0046 0.0115 0.03441 -0.01158

0.01147 -0.0026 0.00175 0.00067 0.02036 -0.00536

0.00959 -0.0012 0.01375 -0.0133 0.01081 0.01029


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0.02497 0.01625 0.00137 0.01266 0.01135 0.00336

0.03093 0.01162 0.01212 0.00372 0.0007 -0.01366

0.01895 .00167 0.01489 0.02314 0.00126 -0.00648

0.01143 0.00286 0.00211 0.01253 0.02353 0.01234

0.04757 0.00066 0.00306 0.00919 0.01022 -0.00096

0.01416 0.00342 0.00658 0.00383 0.0155 0.01062

0.00215 -0.0126 0.00989 0.00406 -0.0247 0.01011

0.00349 0.00281 0.01102 0.01284 0.01756 0.01197

0.03143 0.00314 0.01184 0.00769 0.00758 0.01921

0.01238 0.00698 0.01302 -0.0013 0.00516 -0.02653

0.00713 0.00771 0.00561 0.01642 0.002 0.02669

0.06849 0.00846 0.00151 0.01084 0.00272 0.01016

0.06414 0.02356 0.03561 0.02131 0.07835 -0.00289

0.01313 0.01782 0.01419 0.00383 0.01591 -0.00899

0.02824 0.01216 -0.0122 0.03156 0.00004 0.00223

-0.0155 0.00279 0.00725 0.01349 0.06277 -0.00499

0.00537 0.02319 0.03699 0.00848 0.02236 -0.03149

0.01528 0.0016 0.01081 0.00342 0.02473 0.025580.01519 0.00733 0.01767 0.00545 0.00247 -0.00262

0.03171 0.00472 0.02238 0.02691 0.01952 -0.00216

0.03624 0.00677 0.00282 0.01375 0.01412 0.01972

0.01348 0.01445 0.01408 0.01252 0.05791 0.00742

-0.0587 0.01463 -0.0052 0.00368 0.00361 0.02883

0.01474 0.01477 0.00151 0.01341 0.02763 0.00751

0.00464 0.00117 0.00033 0.0157 0.03552 -0.00931

0.00648 0.00683 0.00676 0.0225 0.01228 -0.01121

0.01862 0.00118 0.01173 0.00041 0.00619 -0.00524

0.02482 0.02897 0.0209 0.00584 0.01983 -0.00292

0.02952 0.00399 0.01122 0.01125 0.01313 -0.0101

0.01884 0.01058 0.03567 0.01061 0.02333 -0.00968

0.01301 0.00119 0.00441 -0.0115 0.01704 -0.01251

0.00614 0.03306 0.01235 0.0069 0.00175 0.01539

0.01536 0.00761 0.00262 0.00303 0.01774 0.00916

0.0194 0.0015 0.02265 0.01278 0.00717 0.03524

0.00351 .00683 0.01991 0.00968 0.01174 -0.00991

0.00614 -0.0071 0.01119 0.01204 -0.0229 0.00165

0.00743 0.00349 0.00084 0.00048 0.01129 -0.02698

0.02603 0.00948 0.03715 0.00342 0.01647 -0.0146

0.08439 0.0034 0.01178 0.00789 0.01712 -0.00961

0.09287 -0.0069 0.00375 0.00682 0.04486 0.0327

-.04293 0.02782 0.01076 .00286 -0.0123 0.026060.01618 0.01935 -0.0035 0.03081 0.03852 -0.01012

0.00206 0.02836 0.01506 0.02328 0.06373 -0.00564

0.0049 0.00394 0.01064 0.00284 0.00504 0.00506

0.00358 -0.0072 0.01892 0.01658 0.01859 -0.01487

0.00827 -0.0013 0.02463 0.01882 0.03294 -0.00215

0.02379 0.0024 0.00191 0.01395 0.01572 0.00438

0.00403 0.00876 0.00354 0.04315 0.02263 -0.00291


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0.03506 0.01007 0.02972 0.02801 0.00167 0.00144

0.01687 0.00295 0.00825 .00934 0.02504 -0.00051

0.00907 0.00245 -0.0048 0.02976 0.0873 -0.01524

0.0379 0.00715 0.02379 0.00651 0.07471 0.01802

0.02076 0.00122 0.00736 0.01093 0.02829 0.01106

0.02161 0.00332 0.00663 0.00337 -0.0065 0.00993

0.00142 0.0037 0.02176 0.00143 0.01286 0.003

0.02954 0.00186 -0.0142 0.00164 0.02312 0.01474

0.00133 0.00336 0.03317 0.00133 0.02192 -0.00739

0.01489 0.00437 0.00322 0.00606 0.0038 0.00247

-.04207 0.01925 0.00094 0.00189 -0.029 -0.00824

0.01364 0.03394 0.00905 -0.012 0.01999 -0.0147

0.02734 0.01371 -0.0119 0.01553 0.06674 0.01107

0.01432 0.01576 0.01925 0.00049 0.02576 0.01234

0.02223 0.00951 0.01065 0.03023 0.0311 -0.00258

0.01369 0.00838 0.00222 0.01303 0.06448 0.00469

0.04319 0.00378 0.00904 0.00141 0.05035 0.00377

0.00543 0.01009 0.00266 0.01074 0.02944 -0.000420.03026 0.01312 0.00891 0.01038 0.02318 -0.00033

0.04023 0.00629 0.00143 0.01583 0.01301 -0.00913

0.01917 0.01738 0.01762 0.00947 0.01288 -0.00608

0.0172 0.00033 -0.0158 0.01477 -0.0007 -0.00035

0.01686 0.0046 0.01366 0.00366 0.00721 0.00675

0.0582 0.03194 0.0226 0.01942 0.00844 0.00535

0.01709 0.00136 0.00788 0.00737 0.00527 -0.00839

0.00662 0.00104 0.00056 0.00226 -0.0189 0.0052

-0.0209 0.00129 0.00597 0.00813 0.00005 -0.00466

0.03943 0.00092 0.00505 0.00849 0.00944 0.01619

0.00199 0.01131 0.01342 0.01019 0.01075 0.02456

0.01367 0.02729 0.00811 0.0004 0.01394 0.01231

0.01479 0.00074 0.02204 0.00075 0.00204 -0.03625

0.02225 0.00479 0.01656 0.00136 0.00995 -0.02169

0.02714 0.00411 0.00419 0.01141 0.0414 -0.00516

0.01244 0.00529 0.00531 0.00972 0.03314 0.01433

0.03841 0.03611 -0.0013 0.00233 0.02694 0.00022

0.04657 0.01004 0.03031 .03551 0.05747 -0.00043

0.00036 0.00356 0.00341 0.00794 0.00159 -0.00001

0.01608 0.01285 0.01482 0.00446 0.01253 -0.02519

0.01905 0.00439 0.07151 0.01495 0.00545 -0.00005

0.02478 0.00897 0.00423 0.00651 0.00486 -0.00949

0.00692 0.02055 0.01689 0.01657 0.01714 0.004320.00893 0.00364 0.00452 .00922 0.01028 0.0211

0.05697 0.00836 0.00002 0.0084 0.00272 0.04341

0.03418 -0.0074 0.00088 0.02017 0.03201 0.03165

0.03185 0.01277 -0.0039 0.00648 0.01863 0.0134

0.02079 0.00841 0.00547 0.01749 0.02131 -0.01668

0.00054 0.00918 0.0132 0.00085 0.02113 -0.00279

0.01396 0.01478 0.00559 0.00859 0.01459 0.0071


23/55



0.00248 0.00197 -0.0015 0.00719 0.00696 0.02485

0.03135 0.01168 -0.0267 0.02935 0.04187 -0.00948

0.01081 0.01512 0.01984 0.01275 0.01961 -0.01896

0.01694 0.00443 0.00351 -0.0135 0.02884 -0.03

0.00716 0.00746 0.00609 0.01452 0.01003 -0.00868

-.00292 0.02168 0.00839 0.02061 -0.0045 0.00026

0.04143 0.01511 0.0006 0.01229 0.02016 -0.03364

0.00767 0.01941 0.02113 0.03712 0.0193 -0.04693

0.00976 0.00463 0.00836 0.03602 0.01069 -0.00222

0.01843 0.00747 0.02083 0.01427 -0.0067 -0.00577

0.01743 -0.0027 0.00874 0.03607 0.00168 -0.01267

AVERAGE ABNORMAL RETURNS BEFORE AND AFTER THE DATE OF

ANNOUNCEMENT

Companies Before AfterBankex 0.000313371 -0.000458852

UTI Bank 0.000843 -0.00123

SBI Bank 0.000843 0.000193

HDFC Bank -0.00025 0.000359

ICICI 0.000227 -0.00033

Canara Bank -4.76404E-05 7.08197E-05

t TEST RESULTS

Companies T calculated T tabulated (5%)

Bankex 0.295 2.015

UTI Bank 0.479 2.015

SBI Bank -0.158 2.015

HDFC Bank -0.158 2.015

ICICI Bank 0.227 2.015

Canara Bank 0.028 2.015

HYPOTESIS

Ho; There is no significant difference in the means before and after the date of announcement

H1; There is significant difference in the means before and after the date of announcement

Results;


24/55



Sincet calculated is less thant tabulated valve, the Null Hypothesis is Accepted. We can

Conclude that the event does not have significant impact on the share prices.

Therefore the markets are efficient.

CUMULATIVE ABNORMAL RETURNS

BANKEX SBI UTI HDFC ICICI CANBK

0.01213 0.01049 0.01213 0.00025 0.01941 0.00612

0.01303 0.01223 0.01303 0.01347 0.0268 0.01685

-0.0045 0.01365 -0.0045 0.00997 0.02254 0.03048

0.00587 0.01675 0.00587 0.00312 0.03331 0.01498

-0.0046 0.01538 -0.0046 0.02321 0.00941 0.020020.0099 0.01857 0.0099 0.01602 0.00754 0.00754

-0.02242 0.01587 0.02242 0.01072 0.04666 0.01224

-0.03027 0.02056 0.03027 0.00166 0.06745 0.01064

-0.00823 0.01538 0.00823 0.00542 0.07177 -0.0261

-0.00254 0.00582 0.00254 0.01073 -0.0639 0.04784

0.01856 0.03647 0.01856 0.00687 0.05818 0.02762

-0.01948 0.04375 0.01948 0.00364 0.05793 0.02603

-0.02352 0.05346 0.02352 0.00938 0.07029 0.03475

-0.00357 0.07023 0.00357 -0.0172 0.08029 0.04075

-0.00659 0.06644 0.00659 0.00733 0.07813 0.04727

-0.01099 0.06633 0.01099 0.00692 0.04902 0.03675

-0.01643 0.05206 0.01643 0.00781 0.04059 0.05382

0.01151 0.05471 0.01151 0.01587 0.04128 0.04912

-0.01614 0.05197 0.01614 0.02075 -0.0348 0.03645

0.01327 0.06789 0.01327 0.03515 0.03075 0.03279

-0.03805 0.07396 0.03805 0.03322 0.01077 0.02702

-0.00894 0.03722 0.00894 0.02575 0.04541 0.04431

0.02954 0.03058 0.02954 0.03687 0.01438 0.03285

0.00439 0.04358 0.00439 0.06021 -0.0115 0.01317

0.00035 0.03871 0.00035 0.02793 .01666 0.02057

0.00255 0.01672 0.00255 0.05127 0.02781 0.03302

0.0099 0.00691 0.0099 0.05608 0.04476 0.03531

-0.00091 0.00583 0.00091 -0.0446 0.04625 0.01091-0.00143 0.01413 0.00143 0.05321 0.04105 0.02203

0.01957 0.01477 0.01957 -0.0581 0.04778 0.03668

0.03816 0.02255 0.03816 0.06442 0.04416 0.04284

0.00536 0.03351 0.00536 0.00527 0.02379 0.04543

-0.02372 0.04192 0.02372 0.00903 0.02034 0.03331

0.00474 0.05321 0.00474 0.01617 0.00448 0.04634

0.01092 0.04726 0.01092 0.01261 0.02167 0.07153


25/55



0.01228 0.03689 0.01228 0.01129 0.04285 0.08655

-0.00078 0.03091 0.00078 0.00649 0.03289 0.08358

0.00373 0.04359 0.00373 0.00148 0.03086 0.08711

-0.01158 0.04042 0.01158 -0.0032 0.01936 -0.0527

-0.00536 0.03782 0.00536 0.00145 0.01869 0.07306

0.01029 0.03662 0.01029 -0.0152 0.03199 0.06225

0.00336 0.05287 0.00336 0.01657 0.04465 -0.0736

-0.01366 0.04125 0.01366 0.02869 0.04093 -0.0729

-0.00648 0.03958 0.00648 -0.0138 0.01779 0.07164

0.01234 0.04244 0.01234 0.01169 0.03032 0.09517

-0.00096 0.04178 0.00096 0.00863 0.02113 0.08495

0.01062 0.03836 0.01062 0.01521 0.02496 0.06945

0.01011 0.02576 0.01011 -0.0251 0.02902 0.09415

0.01197 0.02363 0.01197 0.01408 0.01618 0.11171

0.01921 0.02082 0.01921 -0.0252 0.02387 0.11929

-0.02653 0.01768 0.02653 -0.0389 00257 0.12445

0.02669 0.02466 0.02669 0.04455 0.00875 0.12245

0.01016 0.03237 0.01016 0.04304 0.01959 0.11973

-0.00289 0.04083 .00289 0.00743 0.00172 0.04138

-0.00899 0.01727 0.00899 0.02162 0.00211 0.05729

0.00223 0.03509 0.00223 0.03382 0.02945 0.05725

-0.00499 0.04725 0.00499 0.02657 0.01596 0.00552

-0.03149 0.04446 0.03149 0.01042 0.00748 0.02788

0.02558 0.02127 0.02558 0.00039 0.0109 0.00315

-0.00262 0.02287 0.00262 0.01728 0.00545 0.00068

-0.00216 0.01554 0.00216 -0.0051 0.03236 0.01884

0.01972 0.01082 0.01972 0.00792 0.01861 0.03296

0.00742 0.01759 0.00742 -0.022 0.03113 0.02495

0.02883 0.03204 0.02883 -0.0272 0.03481 0.02134

0.00751 0.01741 0.00751 0.02871 0.0214 0.00629

-0.00931 0.03218 0.00931 0.02904 0.0371 0.02923

-0.01121 0.03101 0.01121 0.02228 0.0596 0.01695

-0.00524 0.02418 0.00524 0.03401 0.05919 0.01076

-0.00292 0.02536 0.00292 0.01311 0.06503 0.03059

-0.0101 0.05433 -0.0101 0.00189 0.05378 0.04372

-0.00968 0.05034 0.00968 0.03378 0.04317 0.02039

-0.01251 0.03976 0.01251 0.02937 0.03167 0.00335

0.01539 0.03857 0.01539 0.01702 0.03857 0.0016

0.00916 0.07163 0.00916 0.01964 0.03554 0.01934

0.03524 0.06402 0.03524 0.00301 0.04832 0.01217-0.00991 0.06552 0.00991 0.0169 0.03864 0.00043

0.00165 0.05869 0.00165 0.02809 0.0266 0.02247

-0.02698 0.05159 0.02698 0.02725 0.02708 0.01118

-0.0146 0.0481 -0.0146 -0.0099 0.02366 0.02765

-0.00961 0.03862 0.00961 0.02168 0.03155 0.04477

0.0327 0.04202 0.0327 0.02543 0.02473 9E-05

0.02606 0.03512 0.02606 0.03619 0.02187 0.01221


26/55



-0.01012 0.0073 0.01012 0.03969 0.05268 0.05073

-0.00564 0.02665 0.00564 0.02463 0.07596 0.013

0.00506 0.00171 0.00506 0.01399 0.07312 0.01804

-0.01487 0.00565 0.01487 0.00493 0.05654 0.03663

-0.00215 0.01285 0.00215 -0.0197 0.03772 0.00369

0.00438 0.01415 0.00438 0.01779 0.02377 0.01203

-0.01788 0.01175 0.01788 0.02186 0.02019 0.00424

-0.00291 0.02051 0.00291 0.01832 0.06334 0.02687

0.00144 0.01365 0.00144 0.0114 0.09135 -0.0252

-0.00051 0.00358 0.00051 0.00315 0.08201 0.00016

-0.01524 0.00653 0.01524 0.00165 0.05225 0.08714

0.01802 0.00408 0.01802 0.02544 0.05876 0.16185

0.01106 0.01123 0.01106 0.01808 0.04783 0.13356

0.00993 0.01245 0.00993 0.02471 0.0512 0.12706

0.003 0.00913 0.003 0.00295 0.05263 0.13992

0.01474 0.00543 0.01474 0.01715 0.05099 0.1168

-0.00739 0.00357 0.00739 0.05032 0.05232 0.09488

0.00247 0.00693 0.00247 0.05354 0.04626 0.09868-0.00824 -0.0113 0.00824 0.05448 0.04437 0.06968

-0.0147 0.03055 -0.0147 0.06353 0.03237 0.04969

0.01107 0.00339 0.01107 0.07543 0.0479 0.11643

0.01234 0.0171 0.01234 0.05618 0.04839 0.14219

-0.00258 0.00134 0.00258 0.04553 0.07862 0.17329

0.00469 0.00817 0.00469 0.04331 0.06559 0.10881

0.00377 0.00021 0.00377 0.03427 0.06418 0.15916

-0.00042 0.00399 0.00042 0.03161 0.05344 0.12972

-0.00033 -0.0061 0.00033 0.04052 0.04306 0.10654

-0.00913 0.00702 0.00913 0.04195 0.02723 0.11955

-0.00608 0.01331 0.00608 0.02433 0.0367 0.13243

-0.00035 0.03069 0.00035 0.04013 0.05147 0.13173

0.00675 0.03102 0.00675 0.05379 0.05513 0.12452

0.00535 0.03562 0.00535 0.03119 0.03571 0.11608

-0.00839 0.06756 0.00839 0.03907 0.04308 0.11081

0.0052 0.06892 0.0052 0.03851 0.04082 0.09191

-0.00466 0.06788 0.00466 0.04448 0.03269 0.09186

0.01619 0.06917 0.01619 0.04953 0.0242 0.08242

0.02456 0.07009 0.02456 0.06295 0.01401 0.07167

0.01231 0.05878 0.01231 0.05484 0.01441 0.05773

-0.03625 0.08607 0.03625 0.07688 0.01366 0.05977

-0.02169 0.08533 0.02169 0.09344 0.01502 0.04982

-0.00516 0.08054 0.00516 0.09763 0.00361 0.091220.01433 0.07643 0.01433 0.09232 0.00611 0.05808

0.00022 0.07114 0.00022 0.09362 0.00378 0.08502

-0.00043 0.03503 0.00043 0.06331 0.03929 0.02755

-0.00001 0.04507 0.00001 0.06672 0.03135 0.02596

-0.02519 0.04151 0.02519 0.08154 0.02689 0.01343

-0.00005 0.05436 0.00005 0.01003 0.01194 0.01888

-0.00949 0.05875 0.00949 -0.0058 0.00543 0.02374


27/55



0.00432 0.04978 0.00432 0.02269 -0.022 0.0066

0.0211 0.02923 0.0211 0.01817 0.03122 0.00368

0.04341 0.03287 0.04341 0.01815 0.02282 0.00096

0.03165 0.02451 0.03165 0.01727 0.04299 0.03297

0.0134 0.01711 0.0134 0.02046 0.03651 0.01434

-0.01668 0.00434 0.01668 0.01499 -0.054 0.03565

-0.00279 0.00407 0.00279 0.00179 0.05485 0.05678

0.0071 0.01325 0.0071 0.00738 0.06344 0.07137

0.02485 0.02803 0.02485 0.00888 0.05625 0.06441

-0.00948 0.02606 0.00948 0.03558 -0.0856 0.02254

-0.01896 0.01438 0.01896 0.01574 0.07285 0.04215

-0.03 -0.0295 -0.03 0.01925 0.08635 0.07099

-0.00868 0.03393 0.00868 0.02534 0.07183 0.06096

0.00026 0.04139 0.00026 0.03373 0.05122 0.06546

-0.03364 0.01971 0.03364 0.03313 0.03893 -0.0453

-0.04693 -0.0046 0.04693 -0.012 0.00181 -0.026

-0.00222 0.01481 0.00222 0.00364 0.03421 0.01531

-0.00577 0.01018 0.00577 0.01719 0.04848 0.02201-0.01267 0.00271 0.01267 0.00845 0.01241 0.02033

0.0155 1E-05 0.0155 3E-05 -1E-05 8E-05


28/55



GRAPHS OF CUMULATIVE ABNORMAL RETURNS

BANKEX

-0.15

-0.1

-0.05

0

0.050.1

0.15

0.2

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148

DAYS

CAAR

UTI

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106 113 120 127 134 141 148

DAYS

CAAR


29/55



SBI

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145

DAYS

CAAR

HDFC

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1 815

22

29

36

43

50

57

64

71

78

85

92

99

106

113

120

127

134

141

148

DAYS

CAAR

ICICI

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1 815

22

29

36

43

50

57

64

71

78

85

92

99

106

113

120

127

134

141

148

DAYS

CAAR


30/55



CANARA BANK

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

1 917

25

33

41

49

57

65

73

81

89

97

105

113

121

129

137

145

DAYS

CAAR

EVENT STUDIED:REPO RATES AND REVERSE REPO RATES HAVE BEEN HIKED BY 25 BASIS

POINTS ON FEBRUARY 6th

2006

As REPOS are short-maturity collateralized instruments, REPO markets have strong

linkages with securities markets, derivatives markets and other short-term markets

such as INTERBANK and money markets. REPOS are useful to central banks both

as a monetary policy instrument and as a source of market information

ANALYSIS

There seems to be a general trend of decline in share prices of companies in this

sector between 127th

and 145t h

day i.e. between March 10th

and 30t h

March. HDFC

is the only company where the prices have not decline during this stage. Many

industry specific or economic factors may have been the reason for this. Bankex

seems to be more stable than any other companies in this sector.

Except for Canara Bank, which shows signs of abnormal profits, all the other

companies have adjusted itself to the new information quite quickly and there was

no room for making abnormal profits to the investors. By looking at the graphs we

may conclude that the markets are efficient.


31/55



The share prices seem to have adjusted itself to the new information within a

period of 15 to 20 days.

To conclude a mere 25-basis-point rise in REPO rate is not going to make much of

a difference to banking companies. Banks in general operate on a fairly large

margin or spread between the cost of raising funds and the return on them. They

have, thus, the capacity to absorb the low rise in repo rates. It is reasonable to

expect that only those banks which have not raised the rates in the recent months

will now do so.


32/55



ABNORMAL REURNS USING SPSS SOFTWARE

LIFEX RANBAXY SUNPHARMA GLAXO DR REDDY CIPLA

0.01723 0.04106 0.03461 0.00881 0.04157 0.01357

-0.0013 0.01557 -0.00692 0.00829 0.01086 0.01624

0.00125 -0.01341 -0.01223 0.03123 0.00297 0.00012

0.00356 0.00522 0.01235 0.01108 0.00232 0.01382

-0.0065 -0.01785 -0.00051 0.00572 0.00874 0.01074

0.00279 0.00117 0.00038 0.00356 0.01024 0.02094

0.0074 0.01386 0.02875 0.00551 0.00505 0.02355

0.00703 0.01509 -0.00148 0.00648 0.00766 0.00247

0.00466 -0.00203 -0.00682 0.00601 0.00087 0.00327

0.01686 0.00896 0.01384 0.00017 0.00483 0.01841

0.01517 -0.02421 0.04178 0.03003 0.00038 0.01065

0.00003 0.00407 -0.00669 -.02056 0.00997 0.01217

0.01263 -0.01662 -0.04303 0.01168 0.02113 0.00361

0.00885 0.00745 0.02353 0.00596 0.00555 0.02786

0.01207 -0.00499 -0.02494 0.02278 0.01593 0.010560.00508 -0.00607 0.02212 0.00522 0.00609 0.00691

0.00801 -0.01271 0.01544 -0.0119 0.01227 0.02038

0.00597 -0.00761 -0.02186 0.01406 -0.0123 -0.0126

0.00758 0.00484 -0.02419 0.01804 0.00748 0.00224

0.0002 -0.00118 0.00176 0.01065 0.01357 0.00243

0.00179 -0.0066 0.00601 0.00148 0.00704 0.00076

0.00887 -0.01404 -0.00698 0.01626 0.00872 0.00337

0.00006 0.02095 -0.00196 0.00925 0.00181 0.00043

0.00159 0.00405 0.00198 0.00033 -0.0078 0.01258

0.00051 -0.00984 0.01156 0.01796 0.00358 0.00211

0.01142 0.01132 0.04212 0.01868 0.00178 0.00814

-0.0025 0.00058 -0.03146 0.01082 0.00159 0.01068

0.00105 0.00847 -0.01563 0.00311 0.00131 0.00785

0.00148 -0.01359 0.05057 0.00244 0.00166 0.00437

-0.0013 0.00666 0.00854 0.0098 0.00055 0.00629

-0.0019 -0.00749 -0.02759 0.01373 0.01875 .02199

0.00459 -0.00276 0.00007 0.00955 0.02738 0.01779

0.00105 0.00799 0.01309 0.00553 0.00411 0.0064

0.00751 0.0196 -0.02155 0.0309 0.00102 0.01823

0.00024 0.00603 0.01431 0.01603 0.00964 0.00101

0.01264 0.00756 0.02575 0.04147 0.00465 0.01172

0.00262 -0.0055 -0.02324 0.03598 0.01293 0.01869

0.00824 0.01309 0.02199 0.01095 0.01814 0.002080.00718 0.00399 -0.02352 0.00599 0.01487 0.01851

0.00803 -0.02995 -0.00848 0.01539 0.00494 0.00878

0.01081 -0.0361 -0.01428 0.00573 0.00939 0.00511

0.00135 0.00563 -0.0063 0.01386 0.00001 0.00499

0.00187 -0.00041 -0.00338 0.01653 0.00362 0.01615

0.00536 0.00521 -0.00093 0.00265 0.00528 0.0013

0.00244 -0.02289 0.03684 0.00788 0.00031 -0.0051


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0.00536 -0.02516 0.03706 0.02206 0.0112 0.02593

0.00272 0.00408 0.01 0.00683 0.01616 0.01595

0.00625 -0.01139 -0.00013 0.01246 0.00675 0.00029

0.00623 0.01672 0.00004 0.01708 0.00215 0.01289

0.00627 0.00116 0.04188 0.02038 0.00014 0.01154

0.00348 0.00021 0.03526 0.00965 0.00215 0.0029

.00247 0.00003 -0.0301 0.00358 0.01363 0.01351

0.01341 0.00773 -0.03369 0.02936 0.01694 0.00837

0.00468 0.02556 -0.02895 -0.0076 0.01261 0.01549

0.00038 0.00604 -0.01039 0.00027 0.01834 0.0193

0.00457 -0.0116 0.00971 0.00198 0.01325 0.00247

0.00605 0.02778 -0.01215 0.01742 0.01824 0.01292

0.01714 0.04413 0.00416 0.00216 0.0242 0.00867

0.00363 -0.0044 0.00195 0.00454 0.00068 0.00375

0.00189 -0.00093 -0.0167 0.01616 0.00895 0.00819

0.00101 0.01047 0.01241 0.00845 0.00178 -0.0161

0.00089 -0.00538 -0.00487 0.00915 0.01026 0.00468

0.00341 0.00807 0.0026 0.00373 0.01267 0.004640.00116 -0.00183 -0.02459 0.00422 0.00013 0.00266

0.01404 0.03148 0.02923 0.01029 0.00156 0.00791

0.01265 -0.00422 0.04834 0.00161 0.02178 0.01011

0.01906 0.00213 0.00566 0.0223 0.00454 0.02481

0.01296 -0.00632 0.01796 0.0181 0.02435 0.02035

0.00591 -0.0113 -0.00024 0.00659 0.00739 0.00576

0.00386 0.00966 0.00497 0.01756 0.00813 0.01722

0.00473 -0.01765 -0.0034 0.00396 0.00081 -0.003

0.00534 -0.00517 -0.01482 0.00666 0.00881 0.00832

0.00673 0.00234 0.00042 0.00577 0.00815 0.01131

0.00467 -0.0001 -0.00068 -0.0177 0.00098 0.00865

0.00269 -0.00002 -0.01409 0.00182 0.00251 0.007

0.00414 -0.00687 0.03547 0.00826 0.00401 0.00024

0.00833 0.01032 -0.01406 -0.0069 0.01326 0.01171

0.00396 -0.01332 -0.0061 0.01088 0.00899 0.01032

0.00776 -0.0057 -0.04582 0.00525 0.01895 0.00164

0.00596 0.00208 0.01423 0.01032 0.00617 0.02401

0.01281 0.00672 -0.02995 0.02161 0.01664 0.01179

0.00107 -0.00687 -0.01754 0.00977 0.00983 0.01025

0.00366 -0.0191 -0.00348 0.00798 0.01035 .01886

0.02675 -0.0387 -0.04686 0.00497 -0.0267 -0.0359

0.02292 -0.02333 -0.01725 0.01608 0.03024 0.04066

0.00189 -0.00911 -0.00546 0.00591 0.01114 0.026390.00323 0.00416 -0.03777 0.01953 0.00047 0.0175

-0.0109 -0.02778 -0.02108 0.00344 0.02011 -0.0136

0.00485 -0.02477 0.05746 -0.0084 0.02199 0.00559

0.00449 -0.01167 -0.00817 0.01331 0.00094 0.024

0.00833 -0.01529 -0.00257 0.00651 0.01588 0.0197

0.0033 0.00296 0.01945 0.01189 0.01905 0.02236

0.00444 -0.00403 0.00097 0.01296 0.00699 0.01765


34/55



0.00492 0.02808 -0.02648 0.01614 0.00419 0.03015

0.00705 0.03279 0.04342 0.01832 0.00051 0.00111

0.00493 -0.00656 0.00239 0.00617 .02374 0.02155

-0.0034 -0.00426 -0.00245 0.01274 0.03591 0.01544

-0.0065 -0.02169 -0.01451 0.01848 0.00164 0.01243

0.00435 -0.00151 -0.01391 0.00152 0.00535 -0.0071

0.00368 0.02024 0.01297 0.00185 0.03058 0.00273

0.00406 -0.00935 0.00714 0.00283 0.00067 0.01145

0.00413 -0.01096 -0.00248 0.00272 0.00996 0.01838

0.00384 -0.01285 -0.00559 0.02505 0.00262 0.00378

0.00474 0.00496 0.00252 0.00762 0.007 0.01008

0.00098 -0.00478 0.00487 0.00131 -0.0013 0.00597

0.00389 0.00176 -0.00362 0.00516 0.00217 0.00538

0.00096 0.00383 -0.01236 0.02329 0.01223 0.00432

0.00216 0.00778 -0.00474 0.00541 0.00205 0.01013

0.00264 -0.01154 -0.00313 0.00132 0.00343 0.0031

0.00919 -0.01109 -0.02572 0.01248 0.02609 -0.0061

.00608 0.00725 -0.00753 0.02196 0.00684 0.017760.00435 -0.01879 -0.00446 0.00118 0.00141 0.00265

0.00256 -0.00123 0.00474 0.02024 0.00817 0.00965

0.00055 -0.00982 0.02126 0.0158 0.01085 0.02492

0.00322 0.01894 -0.01368 0.02812 0.01381 0.00002

0.01359 -0.01252 -0.01622 0.01283 0.00112 0.01041

0.00569 0.00219 0.02067 -0.006 0.01242 0.0045

0.00356 -0.01826 -0.00873 0.02303 -0.0022 0.00892

0.00196 0.0055 -0.00435 0.01021 0.01358 0.02395

0.00094 -0.00035 -0.00498 0.01233 0.00093 0.00036

0.00407 0.00775 -0.00301 0.00605 .00387 0.01753

0.00833 0.01921 -0.00432 0.0072 0.02649 0.01815

0.01485 0.03396 0.00948 0.00198 0.01185 0.08489

0.00231 -0.00925 -0.00497 0.01704 0.00758 0.03897

0.00291 -0.00458 -0.00094 -0.0036 0.01431 -0.0099

0.00043 0.00363 -0.00131 0.01449 0.00007 -0.0147

0.00897 0.00083 0.0107 0.00481 0.02217 0.03748

0.00908 -0.01462 -0.00843 0.02678 0.00587 0.0012

-0.003 0.00457 -0.00493 0.01934 .00304 0.0077

0.00896 0.0227 0.00249 0.01625 0.04201 0.02392

0.00253 0.00299 -0.00938 0.01259 0.01096 0.00253

0.00336 0.00979 0.01138 0.00255 0.0219 0.02292

0.00405 0.01913 -0.00525 0.02184 0.04295 0.00235

0.01033 -0.01776 -0.00398 0.00004 0.00066 0.021910.00145 0.01227 -0.01093 0.00888 0.02422 0.00915

0.00288 0.00908 0.01949 0.02049 0.02497 0.00359

0.00909 -0.04248 -0.006 0.00475 0.00239 0.00316

0.00812 -0.02917 -0.02663 0.01405 0.02136 0.00018

0.00495 -0.00414 -0.01102 0.00037 0.00344 0.00086

0.0135 -0.00386 0.01025 0.02026 0.00341 0.00944

0.00849 -0.01227 -0.0084 0.01387 0.00688 0.00059


35/55



-0.0044 -0.00256 -0.01276 0.00479 0.00289 0.01027

0.00154 -0.00307 -0.00137 0.00456 0.00795 0.01643

0.00091 -0.00065 0.00349 0.00074 0.00329 0.0058

0.00011 0.01956 0.00373 0.00006 0.01062 0.00112

0.00254 -0.00565 -0.00508 -0.0037 0.00628 0.00214

0.00137 -0.00334 0.00308 0.0216 0.01216 0.00115

0.00051 -0.00957 0.01278 0.01606 0.01188 0.03086

0.00123 -0.00746 0.00607 0.00856 0.02446 0.00375

0.00353 0.01154 0.00563 0.00505 0.00917 0.01956

0.00106 0.00588 0.00997 -0.007 0.00173 0.01022

0.00116 -0.01527 0.0268 0.00558 -0.0065 0.00259

0.00484 -0.0272 0.0128 0.01711 0.01943 0.0034

0.00543 -0.01006 -0.01171 0.00688 0.03256 0.00444

0.00191 0.00447 -0.00505 0.00358 0.01448 0.00822

0.00524 -0.00147 -0.00596 0.00066 0.00773 0.05415

0.00504 0.00357 0.06241 0.01832 0.01806 0.00848

0.00008 0.01605 -0.0225 0.01197 0.00158 0.04308

0.00705 -0.00472 -0.01092 0.01785 0.00958 0.000160.00185 -0.00273 0.00755 0.0005 0.00461 0.00476

0.00531 0.03603 -0.02323 -0.0683 0.01625 -0.0029

0.00883 0.0274 -0.00235 0.00139 0.02443 0.00714

0.00481 -0.03393 -0.006 0.00217 -0.0101 0.00963

0.00442 -0.00619 0.01773 0.00075 0.00697 0.00138

0.00406 0.0131 -0.00645 0.00158 0.01732 0.00428

0.00094 0.00028 -0.01391 0.00624 0.00945 0.0104

0.00416 0.01321 0.01603 0.00278 0.00305 0.00211

0.00636 0.00361 0.00744 0.00016 0.01911 0.02033

-0.0067 -0.01722 -0.00531 0.01038 0.00243 -0.0175

0.00249 -0.00503 0.00499 0.02192 0.01549 0.00737

0.00316 0.01163 0.00682 -0.0017 0.00357 0.00217

0.00177 -0.00432 -0.00376 0.01055 0.00027 0.00696

0.00015 0.01273 -0.00463 0.00528 0.01066 -0.0138

0.0012 -0.00649 0.00193 0.00226 0.00199 0.00913

0.00637 0.01536 0.0272 -0.0062 0.00943 0.0155

0.01126 0.03473 0.02092 0.0075 0.01498 0.0041

0.00128 0.02036 0.01604 0.00206 0.01915 0.00026

0.00192 0.02745 -0.028 0.00809 -0.0132 0.00376

0.00109 -0.00036 -0.01931 0.0011 0.0147 0.01174

0.0027 -0.00505 -0.02151 0.00575 0.00285 0.00639

0.0156 0.01544 0.0053 0.01572 0.01028 0.00924


36/55



Average Abnormal Returns before and after the date of

announcement

Companies Before After

Lifex -0.000104176 0.000106444

Ranbaxy -0.00115 0.001161Sunpharma 0.000124 -0.00013

Glaxo -0.00032 0.000326

Dr Reddy -0.00034 0.000341

Cipla -0.00049 0.000493

t test results

Companies T calculated T tabulate

Lifex -0.202 2.015

Ranbaxy -1.032 2.015Sunpharma 0.088 2.015

Glaxo -0.331 2.015

Dr Reddy -0.333 2.015

Cipla -0.417 2.015

HYPOTESIS



Results;

Sincet calculated is significantly less thant tabulated valve, the Null Hypothesis is

Accepted. .This shows that the difference is very minimal. We can conclude that the event

does not have significant impact on the share prices and market has not reacted so strongly.

Therefore the markets are efficient


37/55



CUMULATIVE AVERAGE ABNORMAL RETURNS

LIFEX RANBAXY SUNPHARMA GLAXO DR REDDY CIPLA

0.01723 0.04106 0.03461 0.00881 0.04157 0.01357

0.01593 0.05663 0.02769 0.0171 0.03071 0.02981

0.01468 0.04322 0.01546 0.04833 0.03368 0.02969

0.01112 0.04844 0.02781 0.03725 0.036 0.01587

0.00462 0.03059 0.0273 0.03153 0.02726 0.00513

0.00741 0.03176 0.02768 0.02797 0.01702 0.02607

0.01481 0.04562 0.05643 0.03348 0.01197 0.04962

0.02184 0.06071 0.05495 0.03996 0.01963 0.04715

0.0265 0.05868 0.04813 0.04597 0.0205 0.05042

0.04336 0.06764 0.06197 0.04614 0.02533 0.06883

0.05853 0.04343 0.10375 0.07617 0.02495 0.05818

0.05856 0.0475 0.09706 0.05561 0.01498 0.07035

0.04593 0.03088 0.05403 0.06729 -0.00615 0.06674

0.05478 0.03833 0.07756 0.07325 -0.0006 0.0946

0.04271 0.03334 0.05262 0.05047 0.01533 0.08404

0.03763 0.02727 0.07474 0.04525 0.02142 0.07713

0.02962 0.01456 0.09018 0.03335 0.00915 0.05675

0.02365 0.00695 0.06832 0.01929 -0.00315 0.04415

0.01607 0.01179 0.04413 0.00125 0.00433 0.04191

0.01627 0.01061 0.04589 0.0119 0.0179 0.03948

0.01806 0.00401 0.0519 0.01042 0.02494 0.03872

0.00919 -0.01003 0.04492 -0.00584 0.01622 0.042090.00925 0.01092 0.04296 -0.01509 0.01441 0.04252

0.01084 0.01497 0.04494 -0.01542 0.00661 0.02994

0.01033 0.00513 0.0565 0.00254 0.01019 0.03205

0.02175 0.01645 0.09862 0.02122 0.01197 0.02391

0.01925 0.01703 0.06716 0.0104 0.01356 0.01323

0.0182 0.0255 0.05153 0.01351 0.01225 0.00538

0.01968 0.01191 0.1021 0.01595 0.01391 0.00975

0.01838 0.01857 0.11064 0.02575 0.01446 0.00346

0.01648 0.01108 0.08305 0.01202 -0.00429 0.01853

0.02107 0.00832 0.08312 0.02157 0.02309 0.00074

0.02002 0.01631 0.09621 0.01604 0.01898 0.00566

0.02753 0.03591 0.07466 0.04694 0.01796 0.02389

0.02777 0.04194 0.08897 0.06297 0.00832 0.02288

0.04041 0.0495 0.11472 0.10444 0.01297 0.01116

0.04303 0.044 0.09148 0.14042 0.0259 0.00753

0.05127 0.05709 0.11347 0.12947 0.04404 0.00545


38/55



0.04409 0.06108 0.08995 0.13546 0.02917 0.02396

0.03606 0.03113 0.08147 0.12007 0.03411 0.03274

0.02525 -0.00497 0.06719 0.1258 0.02472 0.03785

0.0266 0.00066 0.06089 0.13966 0.02471 -0.03286

0.02847 0.00025 0.05751 0.15619 0.02109 -0.01671

0.03383 0.00546 0.05658 0.15354 0.02637 -0.015410.03627 -0.01743 0.09342 0.14566 0.02606 0.02051

0.03091 -0.04259 0.13048 0.1236 0.03726 -0.04644

0.03363 -0.03851 0.14048 0.13043 0.05342 -0.06239

0.02738 -0.0499 0.14035 0.11797 0.04667 -0.0621

0.03361 -0.03318 0.14039 0.10089 0.04452 -0.07499

0.03988 -0.03202 0.18227 0.12127 0.04438 -0.06345

0.04336 -0.03181 0.21753 0.11162 0.04653 -0.06055

0.04089 -0.03178 0.18743 0.1152 0.06016 -0.04704

0.02748 -0.02405 0.15374 0.08584 0.04322 -0.03867

0.0228 0.00151 0.12479 0.07824 0.03061 -0.05416

0.02242 0.00755 0.1144 0.07797 0.01227 -0.03486

0.01785 -0.00405 0.12411 0.07599 0.02552 -0.03239

0.0239 0.02373 0.11196 0.05857 0.04376 -0.019470.04104 0.06786 0.11612 0.05641 0.06796 -0.0108


39/55



GRAPHS SHOWING CUMULATIVE ABNORMAL RETURNS

RANBAXY

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99106113120127134141148155162169176

days

caar

LIFEX

-0.1

-0.05

0

0.05

0.1

0.15

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99106113120127134141148155162169176

days

caar

SUNPHARMA

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 106113120127134141148155162169176

days

C

AAR


40/55



GLAXO

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

1 815

22

29

36

43

50

57

64

71

78

85

92

99

106

113

120

127

134

141

148

155

162

169

176

DAYS

CAA

R

DR REDDY

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99106113120127134141148155162169176

DAYS

CAAR

CIPLA

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

1 815

22

29

36

43

50

57

64

71

78

85

92

99

106

113

120

127

134

141

148

155

162

169

176

DAYS

CAAR


41/55



EVENT STUDIED

UNION FINANCE MINISTER DECIDES TO LEVY EXCISE DUTY ON MRP

OF DRUGS ON- JANVARY 19TH 2005

Pharma stocks have been on the decline since the beginning of 2005. Major

scrips have lost 21 per cent to 11 per cent against a 7.3 per cent decline in

the Sensex since January 3 until event date.Pharma sector quarterly results

have shown a mixed trend.Some companies have shown good results but

some have not.

Market analysts attribute the reasons for the fall in pharma share prices to a

mix of short-term impact caused by the change to MRP-based excise

assessment system for drugs and long-term impact following the change-over

to the product patent regime.

ANALYSIS

By observing the graph one can say that the news was anticipated by this

sector. The drop in prices just before the date of announcement proves this

point. The CAAR valves have come down drastically in the ten days

preceding the Date of Announcement .The drop in prices may also be as a

result of information leakage details of which is not known

After the announcement is made we can see that the share prices have

gradually adjusted itself and there was no room for abnormal profits. The

share prices seem to have adjusted within the span of 10 to 15 days.

There is no significant change in the CAAR valves after the event so we may

conclude that market is efficient.


42/55



GOEMETRIC WIPRO SATYAM HCL INFOSYS

0.0166 -0.00258 0.01372 0.04984 0.0105

-0.05262 -0.02385 -0.05041 0.02402 -0.02657

0.02694 -0.0003 -0.01935 -0.0144 -0.00624

-0.01938 0.02754 -0.02688 0.12202 0.02432

0.03692 -0.00716 -0.01696 -0.00592 0.010330.00046 0.03665 -0.01639 -0.03154 -0.00295

0.00581 -0.02765 0.03118 -0.0453 -0.01947

0.00415 -0.06272 -0.00863 -0.03775 -0.02133

0.01098 -0.02023 0.0074 -0.02213 -0.00225

-0.03887 -0.02286 0.07403 0.01487 0.01023

-0.03206 -0.0186 -0.00138 0.02853 0.00772

-0.07676 -0.01348 -0.0388 -0.02075 0.00281

-0.07458 0.01383 -0.02205 -0.02513 -0.00494

-0.06924 0.02791 0.00553 0.04919 0.02742

-0.06892 -0.0088 -0.02881 0.02447 0.00411

-0.07978 -0.01087 0.02653 -0.00299 -0.01401-0.07265 0.01901 0.01271 0.00381 -0.00857

-0.06852 0.02848 0.03924 0.04758 0.01734

0.04338 0.0069 0.00328 0.02506 0.01086

-0.03328 0.03084 0.02019 -0.01948 0.00349

-0.06912 0.0329 0.00355 0.05977 0.00456

-0.07205 -0.00382 -0.03747 -0.00449 -0.00031

-0.03142 0.00124 0.00807 0.00059 0.01173

0.0849 0.0028 -0.02517 -0.00783 -0.00851

0.07417 -0.00296 -0.00768 -0.01167 -0.02526

0.08163 -0.04472 -0.05814 -0.03665 -0.04301

-0.04717 0.02238 0.0136 -0.68322 0.00588

-0.0051 -0.01894 -0.0402 -0.05498 -0.028970.07001 0.07588 0.01825 0.00331 0.00541

-0.04863 -0.01095 -0.02186 -0.00102 -0.01026

-0.00248 0.03316 -0.00335 0.01456 -0.01056

-0.05184 -0.02605 0.01594 -0.00543 -0.00071

-0.02205 -0.00045 -0.00187 -0.00597 -0.00496

0.08353 0.00585 0.02247 0.00432 0.00093

-0.00069 -0.03648 -0.0117 0.0806 -0.01347

-0.0385 -0.00499 0.03126 0.02155 -0.00049

-0.06893 -0.02813 -0.0134 0.00196 -0.00475

0.06534 -0.0138 -0.01977 -0.09472 -0.00152

0.00495 0.01232 -0.00124 0.03741 0.01323

0.00813 0.00218 0.00577 -0.0077 -0.01917

-0.00885 0.01138 0.0568 0.02474 -0.00967

0.02665 0.05109 0.01163 0.08092 -0.00486

0.0253 -0.05815 0.0047 -0.02189 -0.00697

0.05748 0.00248 0.01956 0.03865 0.0382

-0.00331 0.04069 0.0337 0.0565 0.01212

-0.05809 0.05694 -0.0007 0.0741 0.01742

0.03552 -0.04276 -0.01361 -0.10133 -0.01155


43/55


44/55



RESIDUAL VALUES USING SPSS SOFTWARE

-0.07193 -0.02517 -0.01761 0.08163 -0.01495

-0.07434 -0.06794 -0.00777 0.03512 0.02725

0.03693 0.02435 0.03557 -0.03425 0.00826

-0.02985 -0.01634 0.03518 -0.05001 0.01158

-0.06651 -0.09299 -0.06007 -0.08993 -0.10517

-0.06606 0.02723 -0.06749 -0.07437 -0.03445

-0.07777 0.10392 0.07057 -0.02103 0.03367

-0.03435 0.04945 -0.04277 0.04853 -0.04022

0.07896 0.06683 0.06973 0.07623 0.08591

0.00125 -0.05274 0.04607 0.06923 0.0076

-0.0553 0.06249 0.00154 0.08645 0.00273

-0.01047 -0.01358 -0.04356 0.01815 -0.03285

0.02052 0.09275 0.03405 -0.0053 0.04251

-0.00174 -0.02433 -0.06609 0.01111 -0.0116

-0.04973 0.00069 -0.04155 0.01071 -0.02222

0.00241 -0.05498 -0.07375 -0.07516 -0.04542

0.01713 0.0778 0.09346 0.09874 0.09374

0.06952 0.03392 0.00125 0.04841 0.04444-0.04768 0.08807 -0.0306 0.04954 -0.007

-0.06474 0.02432 0.04718 0.0035 -0.00549

-0.07476 0.0258 0.00326 0.04539 0.03159

0.00916 0.00522 0.05154 0.02184 -0.01954

-0.00594 -0.0857 -0.00975 -0.07032 -0.02403

0.07296 0.00579 -0.02361 0.01671 0.00989

0.00919 -0.00473 0.00283 -0.00448 0.01859

0.00038 -0.00832 -0.01645 -0.02057 0.00046

-0.03998 0.013 0.01362 -0.01573 0.00184

-0.06593 0.01683 -0.00018 0.03705 -0.02716

0.05969 -0.04236 -0.03686 -0.01127 -0.01683

0.0507 -0.00815 -0.01185 0.03801 0.01945

0.08729 0.03547 0.01735 -0.0041 0.01029

0.08702 0.03047 0.02877 0.04627 0.0108

0.08454 -0.00236 -0.00644 0.00573 0.04581

0.08587 0.0037 -0.00391 -0.06028 -0.01584

0.08759 0.01936 0.05083 -0.00829 0.01856

0.08348 -0.00626 -0.0222 0.00615 -0.00123

-0.05408 -0.00433 -0.01972 -0.02513 -0.01398

-0.06506 -0.02211 -0.0243 -0.00194 -0.03977

0.08147 -0.01534 -0.03757 -0.00328 -0.02093

0.00931 0.0401 0.01893 0.03002 0.0329

-0.03263 -0.02504 0.01483 -0.01774 0.001980.02113 0.02036 0.0225 0.01216 0.07091

-0.00124 0.03369 0.02537 0.03007 0.0068

0.00514 0.00689 -0.00291 0.05554 0.02542

0.03605 0.02242 0.0077 0.00388 -0.00225

-0.00302 -0.00255 -0.02027 -0.04207 -0.03917

0.02587 0.03553 0.002 -0.00809 0.01746


45/55



AVERAGE OF ABNORMAL RETURNS BEFORE AND AFTER THE DATE OF

ANNOUNCEMENT

T test results

HYPOTESIS



Results;

Sincet calculated is less thant tabulated valve, the Null Hypothesis is Accepted. The

means values before the date of announcements in negatives while after the date it has been

positive. The impact is very less and that the company prices have adjusted itself very

quickly. We can conclude that the event does not have significant impact on the share

prices and there is no significant difference in means before and after the event and the

markets are efficient.

Before After

Geometric -0.003807889 0.004895714

Wipro -0.001493111 0.001920286

Satyam -0.00131 0.00168

HCL -0.00359 0.004619

Infosys -0.00125 0.001601

T calculated T tabulated (5%)Geometric -1.193 2.015

Wipro -0.641 2.015

Satyam -0.539 2.015

HCL -0.741 2.015

Infosys -0.631 2.015


46/55



CUMULATIVE ABNORMAL RETURNS

GEOMETRIC WIPRO SATYAM HCL INFOSYS

0.0166 -0.00258 0.01372 0.04984 0.0105

-0.03602 -0.02643 -0.03669 0.07386 -0.01607-0.00908 -0.02673 -0.05604 0.05946 -0.02231

-0.02846 0.00081 -0.08292 0.18148 0.00201

0.00846 -0.00635 -0.09988 0.17556 0.01234

0.00892 0.0303 -0.11627 0.14402 0.00939

0.01473 0.00265 -0.08509 0.09872 -0.01008

0.01888 -0.06007 -0.09372 0.06097 -0.03141

0.02986 -0.0803 -0.08632 0.03884 -0.03366

-0.00901 -0.10316 -0.01229 0.05371 -0.02343

-0.04107 -0.12176 -0.01367 0.08224 -0.01571

-0.11783 -0.13524 -0.05247 0.06149 -0.0129

-0.19241 -0.12141 -0.07452 0.03636 -0.01784

-0.26165 -0.0935 -0.06899 0.08555 0.00958

-0.33057 -0.1023 -0.0978 0.11002 0.01369

-0.41035 -0.11317 -0.07127 0.10703 -0.00032

-0.483 -0.09416 -0.05856 0.11084 -0.00889

-0.55152 -0.06568 -0.01932 0.15842 0.00845

-0.50814 -0.05878 -0.01604 0.18348 0.01931

-0.54142 -0.02794 0.00415 0.164 0.0228

-0.61054 0.00496 0.0077 0.22377 0.02736

-0.68259 0.00114 -0.02977 0.21928 0.02705

-0.71401 0.00238 -0.0217 0.21987 0.03878

-0.62911 0.00518 -0.04687 0.21204 0.03027

-0.55494 0.00222 -0.05455 0.20037 0.00501-0.47331 -0.0425 -0.11269 0.16372 -0.038

-0.52048 -0.02012 -0.09909 -0.5195 -0.03212

-0.52558 -0.03906 -0.13929 -0.57448 -0.06109

-0.45557 0.03682 -0.12104 -0.57117 -0.05568

-0.5042 0.02587 -0.1429 -0.57219 -0.06594

-0.50668 0.05903 -0.14625 -0.55763 -0.0765

-0.55852 0.03298 -0.13031 -0.56306 -0.07721

-0.58057 0.03253 -0.13218 -0.56903 -0.08217

-0.49704 0.03838 -0.10971 -0.56471 -0.08124

-0.49773 0.0019 -0.12141 -0.48411 -0.09471

-0.53623 -0.00309 -0.09015 -0.46256 -0.0952

-0.60516 -0.03122 -0.10355 -0.4606 -0.09995-0.53982 -0.04502 -0.12332 -0.55532 -0.10147

-0.53487 -0.0327 -0.12456 -0.51791 -0.08824

-0.52674 -0.03052 -0.11879 -0.52561 -0.10741

-0.51338 -0.07447 -0.14845 -0.57271 -0.12261

-0.48903 -0.05891 -0.13931 -0.58466 -0.13282

-0.50467 -0.06996 -0.14696 -0.59073 -0.15857

-0.48548 -0.08275 -0.1412 -0.56011 -0.17669


47/55



-0.48415 -0.07799 -0.11073 -0.51774 -0.17669

-0.48109 -0.07895 -0.1181 -0.58357 -0.20528

-0.45466 -0.09591 -0.14893 -0.56369 -0.22388

-0.4671 -0.07912 -0.12863 -0.56956 -0.21717

-0.44268 -0.07432 -0.13537 -0.57465 -0.21707

-0.4478 -0.08598 -0.14639 -0.59707 -0.22538

-0.43663 -0.12582 -0.1925 -0.64647 -0.26355

-0.42622 -0.05444 -0.0998 -0.53905 -0.20171

-0.43916 -0.03993 -0.05589 -0.53082 -0.18263

-0.39661 -0.05311 -0.06478 -0.55076 -0.21651

-0.40546 -0.04173 -0.00798 -0.52602 -0.22618

-0.37881 0.00936 0.00365 -0.4451 -0.23104

-0.35351 -0.04879 0.00835 -0.46699 -0.23801

-0.29603 -0.04631 0.02791 -0.42834 -0.19981

-0.20966 -0.04597 0.0403 -0.41547 -0.13472

-0.22421 -0.07314 0.0046 -0.41107 -0.15246

-0.28885 -0.08684 0.01069 -0.42064 -0.12415

-0.29216 -0.04615 0.04439 -0.36414 -0.11203-0.35025 0.01079 0.04369 -0.29004 -0.09461

-0.31473 -0.03197 0.03008 -0.39137 -0.10616

-0.33829 -0.06543 -0.01969 -0.45448 -0.12503

-0.3908 -0.07179 -0.01449 -0.41967 -0.12641

-0.45452 -0.08288 -0.02792 -0.43499 -0.13502

-0.41316 -0.0754 -0.01851 -0.42144 -0.11342

-0.40703 -0.10132 -0.03512 -0.44802 -0.12698

-0.39208 -0.10003 -0.01822 -0.43898 -0.12609

-0.40342 -0.09296 -0.00449 -0.45868 -0.11066

-0.41707 -0.10236 -0.02735 -0.48689 -0.11901

-0.38808 -0.11535 -0.06065 -0.4956 -0.15029

-0.34805 -0.09718 -0.06064 -0.48982 -0.15176

-0.33126 -0.07991 -0.09157 -0.45652 -0.1521

-0.35838 -0.10206 -0.12469 -0.48671 -0.17772

-0.37418 -0.10046 -0.1664 -0.52771 -0.20563

-0.38297 -0.07741 -0.17831 -0.50755 -0.20606

-0.40135 -0.05041 -0.16419 -0.49573 -0.18637

-0.41933 -0.08612 -0.16963 -0.4716 -0.18678

-0.48633 -0.11192 -0.16741 -0.46029 -0.19621

-0.51544 -0.08574 -0.13514 -0.42483 -0.1745

-0.47875 -0.08319 -0.12084 -0.43403 -0.17567

-0.44723 -0.09633 -0.11903 -0.43523 -0.17637

-0.35972 -0.1008 -0.16754 -0.4369 -0.21119-0.34324 -0.11717 -0.15766 -0.44103 -0.20584

-0.35364 -0.08661 -0.14558 -0.41187 -0.18142

-0.31298 -0.07463 -0.1093 -0.36434 -0.1481

-0.3109 -0.11712 -0.14363 -0.29671 -0.1349

-0.34271 -0.13438 -0.11759 -0.32336 -0.11214

-0.29223 -0.20059 -0.23796 -0.41989 -0.21566

-0.25836 -0.24217 -0.30555 -0.48306 -0.26833


48/55



-0.29002 -0.22116 -0.30704 -0.48359 -0.24567

-0.26917 -0.18761 -0.24133 -0.37131 -0.19166

-0.28296 -0.15209 -0.28494 -0.45424 -0.20364

-0.2542 -0.19999 -0.29675 -0.41157 -0.18544

-0.23808 -0.26202 -0.30049 -0.44219 -0.18909

-0.22418 -0.28281 -0.1986 -0.31542 -0.12139

-0.23787 -0.29677 -0.19587 -0.30135 -0.11691

-0.29422 -0.28255 -0.17819 -0.28136 -0.11952

-0.26064 -0.25183 -0.16653 -0.18747 -0.11355

-0.2212 -0.24475 -0.16749 -0.21843 -0.1521

-0.18624 -0.23105 -0.09934 -0.21384 -0.14266

-0.19198 -0.31334 -0.16483 -0.31289 -0.17335

-0.20113 -0.33085 -0.16776 -0.31035 -0.17673

-0.221 -0.33505 -0.13136 -0.29273 -0.15178

-0.21611 -0.33175 -0.06941 -0.28808 -0.12394

-0.23706 -0.34601 -0.05754 -0.29932 -0.07203

-0.25446 -0.37075 -0.09033 -0.29594 -0.10464

-0.18315 -0.39793 -0.11019 -0.32835 -0.14838-0.2181 -0.36096 -0.05991 -0.33487 -0.14324

-0.13397 -0.39229 0.00661 -0.36654 -0.1153

-0.13046 -0.39109 -0.00687 -0.34285 -0.14038

-0.20239 -0.41626 -0.02448 -0.26122 -0.15533

-0.27673 -0.4842 -0.03225 -0.2261 -0.12808

-0.2398 -0.45985 0.00332 -0.26035 -0.11982

-0.26965 -0.47619 0.0385 -0.31036 -0.10824

-0.33616 -0.56918 -0.02157 -0.40029 -0.21341

-0.40222 -0.54195 -0.08906 -0.47466 -0.24786

-0.47999 -0.43803 -0.01849 -0.49569 -0.21419

-0.51434 -0.38858 -0.06126 -0.44716 -0.25441

-0.43538 -0.32175 0.00847 -0.37093 -0.1685

-0.43413 -0.37449 0.05454 -0.3017 -0.1609

-0.48943 -0.312 0.05608 -0.21525 -0.15817

-0.4999 -0.32558 0.01252 -0.1971 -0.19102

-0.47938 -0.23283 0.04657 -0.2024 -0.14851

-0.48112 -0.25716 -0.01952 -0.19129 -0.16011

-0.53085 -0.25647 -0.06107 -0.18058 -0.18233

-0.52844 -0.31145 -0.13482 -0.25574 -0.22775

-0.51131 -0.23365 -0.04136 -0.157 -0.13401

-0.44179 -0.19973 -0.04011 -0.10859 -0.08957

-0.48947 -0.11166 -0.07071 -0.05905 -0.09657

-0.55421 -0.08734 -0.02353 -0.05555 -0.10206-0.62897 -0.06154 -0.02027 -0.01016 -0.07047

-0.61981 -0.05632 0.03127 0.01168 -0.09001

-0.62575 -0.14202 0.02152 -0.05864 -0.11404

-0.55279 -0.13623 -0.00209 -0.04193 -0.10415

-0.5436 -0.14096 0.00074 -0.04641 -0.08556

-0.54322 -0.14928 -0.01571 -0.06698 -0.0851

-0.5832 -0.13628 -0.00209 -0.08271 -0.08326


49/55



-0.64913 -0.11945 -0.00227 -0.04566 -0.11042

-0.58944 -0.16181 -0.03913 -0.05693 -0.12725

-0.53874 -0.16996 -0.05098 -0.01892 -0.1078

-0.45145 -0.13449 -0.03363 -0.02302 -0.09751

-0.36443 -0.10402 -0.00486 0.02325 -0.08671

-0.27989 -0.10638 -0.0113 0.02898 -0.0409

-0.19402 -0.10268 -0.01521 -0.0313 -0.05674

-0.10643 -0.08332 0.03562 -0.03959 -0.03818

-0.02295 -0.08958 0.01342 -0.03344 -0.03941

-0.07703 -0.09391 -0.0063 -0.05857 -0.05339

-0.14209 -0.11602 -0.0306 -0.06051 -0.09316

-0.06062 -0.13136 -0.06817 -0.06379 -0.11409

-0.05131 -0.09126 -0.04924 -0.03377 -0.08119

-0.08394 -0.1163 -0.03441 -0.05151 -0.07921

-0.06281 -0.09594 -0.01191 -0.03935 -0.0083

-0.06405 -0.06225 0.01346 -0.00928 -0.0015

-0.05891 -0.05536 0.01055 0.04626 0.02392

-0.02286 -0.03294 0.01825 0.05014 0.02167-0.02588 -0.03549 -0.00202 0.00807 -0.0175

-1E-05 4E-05 -2E-05 -2E-05 -4E-05


50/55



GRAPHS OF ABNORMAL RETURNS

geometric

-0.8

-0.6

-0.4

-0.2

0

0.2

1 815

22

29

36

43

50

57

64

71

78

85

92

99

106

113

120

127

134

141

148

155

days

CAAR

WIPRO

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

1 8 15 22 29 36 43 50 57 64 71 78 85 92 99 1 06 113 120 127 134 141 148 155

DAYS

CAAR


51/55


52/55



EVENT STUDIED

Exemption of 100% of profits Derived from export out of India in

connection with development of Computer Software on 28 th February 2001

ANALYSIS

After the date of announcement there seem to be a drastic fall in the share

prices. There is a down ward trend. The trend continues for some 15 to 20

days after which we can see the market picking up. There is no evidence of

investor making abnormal profits in any of the company .There is not much

of an impact on HCL. One of the reasons may be it s majorly into hardware

sector. On the other hand impact is more in Wipro. Stake holders may have

lost out on wealth i n this particular company.

The share prices of Infosys and Satyam have taken a beating immediately

after the announcement but have adjusted in few days. The market seems to

have adjusted itself within a period of 20 to 25 days .the impact is also very

less in geometric company. One of the reasons is it s a small company when

compared to other companies which are taken as market leaders.

Therefore it can be concluded that market is efficient.


53/55



SUMMARY

This study was conducted to find whether there were any abnormal returns after the

announcement of policy change by the government, and how long does the market take to

adjust to the new information. Event study methodology is used in this process. There has

been research in this field regarding reaction of stock market to bonus issue or stock split.

Very few studies have conducted event study on stock market reaction to changes in

government policy. This study aims to do that

The study was conducted for three different sectors namely Banking, Pharmaceuticals and

Information Technology. The event period was 90 days before and 60 days after the date of

announcement. The Events Studied were, changes in Repo and Reverse Repo rates in case of

Banking sector , excise on MRP in case of Pharmaceutical Companies and Software Products

brought under the tax net in case of Information Technology Sector. The data was collected

from various issues of Economic Times and websites of National Stock Exchange. Residual

returns were found using SPSS software. These valves were averaged and t test was done to

find whether the there is significant difference in means before and after the date of

announcement.

The results were negative, there was no significant difference. Then the residuals werec

Documents

Stock Market Reaction to Policy Change Announcements-Geetha-0417