Joseph Anbarasu

Trends in Financial Research in India (to be updated)

Joseph Anbarasu.. Presented on 16 - 12 - 2010

Joseph Anbarasu

Not an Exhaustive Research Review

• This presentation is not an exhaustive one. I want my students to update it with new and innovative researches going on in India.

• Sources are– Libraries and websites– IIMs, IFMR, other Research oriented institutes in the country, – Journals, Working papers both dated and undated, Institutional

reviews and so on• This presentation did not touch

– Derivative market and its segments – Innovative and hybrid instruments of the market– Risk management and related field

Joseph Anbarasu

Financial System: Overview

• Individual• Companies • Government

Departments

Surplus Units

• Financial Market• Its Various

Segments

Financial System • Individual

• Companies • Government

Departments

Deficit Units

Joseph Anbarasu

Major Areas of Research

Valuation of Stocks and Functioning of

Indian Stock Market

Valuation of Bonds, Convertible

Debentures and Market for Debt

Performance and Regulation of Mutual Funds

Dividends, Bonus & Rights Issues and Rates of Return

Market Efficiency

New Issue Market and Merchant

Banking

Joseph Anbarasu

Valuation of Shares and Functioning of Stock Market

• Those dealing with functioning of securities markets and financial institutions operating in these markets,

• Those pertaining to the investment decision making process of individuals, and

• Empirical work on Indian stock markets.

Operators

Empirical Work

Decision Makers

Joseph Anbarasu

Joseph Anbarasu

Functioning of Stock Market

Sahni (1985), Kothari (1986),

Raju (1988), Lal (1990), Chandra (1990b), Francis (1991a), Ramesh Gupta (1991a,c, 1992a), Raghunathan (1991), Varma (1992a), L.C. Gupta (1992) and Sinha (1993)

• Indian capital market in general and trading systems in the stock exchanges in particular and suggest that the systems therein are rather – antiquated and inefficient,– and suffer from major

weaknesses and malpractices.

• Significant reforms required.

Joseph Anbarasu

Valuation of Shares and Functioning of Stock Market

Researcher Research Work

Barua and Srinivasan (1986, 1987a, 1991) Investment is based on Risk

Gupta (1991b) Portfolio for a client is much more than merely picking up securities for investment.

Chandra (1989) Mistakes of Investors and Remedial steps

L.C. Gupta (1992) Highly Speculative Market; Brokers not up to the market; and Liquidity is lacking

Mayya (1977), Barua and Raghunathan (1982) and Prabhakar (1989)

Gold real hedge against inflation, silver and stock partial hedges against inflation

Varma (1991) Comparative study Natex and Sensex, later is a Proxy

Francis (1991b), Barua (1993)). Dhillon (1993)

SEBIs intervention as a regulatory authority has marginal Impact

Joseph Anbarasu

Valuation of Shares and Functioning of Stock Market

Researcher Research Work

Pandya (1992) on SEBI Investors’ Protection varied; ensured Transparency in the Secondary market

Venkateshwar (1991) Bombay Stock Exchange has no meaningful relations with International Stock Exchange

Raghunathan and Varma (1992a) Operations in SE must be in common Currency

Raghunathan and Varma (1991) on Valuation of Securities

Developed model supporting MM approach in Indian Context

Pandey (1981) Modigliani-Miller hypothesis is not supported.

Zahir and Yakesh (1982) DPS alone influenced the Share Price

Barua and Raghunathan (1990a) Gordon Model holds good I &III quarter

Joseph Anbarasu

Valuation of Bonds, Convertible Debentures and Market for Debt

Researcher Research WorkKapadia (1981), Kapoor (1981), SINHA (1983), Chaudhury(1985)

Convertible Debenture lacks liquidity; Capital gains tax prevented investor to choose CDs

Barua and Srinivasan 91987b) and Barua and Raghunathan (1990b)

Low conversion price not preferable; Compulsory conversion to be removed

Barua, Madhavan and Varma (1991) CDs with unspecified conversion terms are popular among investors

Barua and Varma (1991b) CRISIL Rating not consistent with international rating norms; internally inconsistent

Raghunathan and Varm (1993) CRISIL is good; No need to have private rating agencies

Sankar (1992) Identified flaws in CRISIL credit ratings

Varma (1989) Developed Valuation model by using CAPM. Model is not affected by black money

Barua et al (1994) A diagnostic study - regulatory market to be integrated with secondary debt market

Joseph Anbarasu

New Issues MarketResearcher Research Work

Gujarathi (1981) Investors in the new issue market in 1970's earned an extra income of 2%

Khan (1997, 1978) In 60s and 70s, new issue declined in importance

Jain (1979) found Underwriting was the right mode for new issue

Chandra (1989a) and Varma and Venkiteswaran(1990)

Issue pricing becoming redundant with CCI,

Anshuman and Chandra (1991) Found flaws with prorata allocation; Suggested to introduce new method of allocation

Joseph Anbarasu

Merchant Banking relatedResearcher Research Work

Bhatt (1980) Most required role of MB is promotion, financing and syndication of loans

Agarwal (1980) Underwriting is to be differentiated from investing

Saha (1988) MB should be a process; not to be restricted only to delivering instruments

Trikha (1989) Merchant banking lacks professionalism

No paper has ventured a detailed analysis of Merchant Bankers in India

Joseph Anbarasu

Market EfficiencyResearcher Research WorkBarua (1980,1987); Sharma (1983); Ramachandran (1985); Sharma and Kennedy (1977); Gupta (1985)

Weak form efficiency

Kularni (1978); Chaudhury (1991a,b,c) Did not support weak efficiency hypothesis

Bhat and Pandey (1987) Paradoxical

Bhat (1988a) Semi strong form of efficiency

Subramanian (1989) Political event is quickly taken

Ramachandran (1985) and Srinivasan (1988) Efficient with bonus issues and right issues

Varma (1988) and Yalawar (1988) Evidence of CAPM

Srinivasan(1988) CAPM holds only in the long run

Barua and Raghunathan (1986) Arbitrage opportunity prevails in the market

There is no research in the area of behaviour of interest and fixed income securities

Nachane (1988) Only few interest rates are subject to interaction of market forces

Joseph Anbarasu

Dividends, Bonuses And Right Issues And Rate Of Return

Researcher Research WorkL.C.Gupta (1980,1981) Rates of return of equities are unsatisfactory

Gujarathi and Srinivasan (1980) Discount on equity was not taxed

Srivastava (1984) MM contribution of dividend irrelevance theorem does not hold good in Indian context

Dholakia and Bhat (1986) There is negative relationship between dividends and capital gains

Gupta (1991) Bonus Policy consists of low bonus, irregular and inconsistent policy

L.C. Gupta (1978) One in three companies did not pay increased dividend and reduced dividends occasionally

Sarma (1993) In 77 and 78, bonus issues were accompanied by increased dividend

Ramachandran (1985) and Ramachandran (1992)

Market assimilates information regarding bonus issues rapidly and efficiently

Obaidullah (1992) there is no evidence to suggest that learning lags exist

Joseph Anbarasu

Right IssueResearcher Research Work

Hingorani (1978) Value of right shares: an advantage derived by the invester

Srinivasan (1993) Market assimilates information on right issue efficiently

Barua, Madhavan and Raghunathan (1987)

Beta coefficients of a security vary with lennth of the period

Rao and Bhole (1990) Equity investment partially, a hedge against inflation

Ignatious (1992) Comparing return of BSE with NYSE; return patterns similar;

Joseph Anbarasu

Performance And Regulation Of Mutual Fund

Researcher Research Work

Barua and Varma (1990) Examined Mastershares return - inferior to market return

Barua and Varma (1993b) Market prices are more volatile than the market yield of Master share

Joseph Anbarasu

Regulatory FrameworkResearcher Research Work

Barua, Varma and Venkiteswaran (1991)

They suggested USA model for regulation of MFs in India

Vidhayashankar (1990) Established the MFs most preferred instrument by household investors

Mahendran (1991) Endorsed the previous findings and found MFS dominated the Indian Capital Market

Bal and Mishra (1990) MFs played important role for the development of Indian Capital Market

Joseph Anbarasu

Conclusion

• Only few are involved in the financial research.• Only few topics have been covered. • Only few instruments are taken for study. • Only traditional system is researched