A

PROJECT REPORT
ON

TO STUDY EFFECT OF MARKET ANNOMOLIES ON BANKING

SECTOR

LOVELY PROFESSIONAL UNIVERSITY

IN PARTIAL FULFILLMENT OF 2 YEARS FULL TIME COURSE
MASTERS IN BUSINESS ADMINISTRATION
(BATCH 2013-15)

SUBMITTED BY ,
1) SANDEEP S. THOMBARE
2) CHANDAN VERMA
3) RAJPRATAP SINGH

BANKING SECTOR IN INDIA

INTRODUCTION:A bank is a financial institution and a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly orthrough capital markets. A bank connects customers that
have capital deficits tocustomers with capital surpluses.
Due to their critical status within the financial system and the economygenerally, banks are highly
regulated in most countries. They are generallysubject to minimum capital requirements which are based
on an international setof capital standards, known as the Basel Accords.
Banking in India originated in the last decades of the 18th century. The firstbanks were The General
Bank of India, which started in 1786, and Bank ofHindustan, which started in 1790; both are now
defunct. The oldest bank inexistence in India is the State Bank of India, which originated in the Bank
ofCalcutta in June 1806, which almost immediately became the Bank of Bengal.
This was one of the three presidency banks, the other two being the Bank ofBombay and the Bank of
Madras, all three of which were established undercharters from the British East India Company. For
many years the Presidencybanks acted as quasi-central banks, as did their successors. The three banks
merged in 1921 to form the Imperial Bank of India, which, upon India'sindependence, became the State
Bank of India in 1955.
SECTOR PROFILE:Indian Banking Sector is extremely critical for the economic development of the country. The last
decade witnessed unprecedented growth and value creation in Indias banking sector with little impact
from the global financial crisis due to strong regulation and discipline. However, the scenario is now
changing due to various reasons. Tightening of monetary policy, a burgeoning fiscal and current account
deficit, the need for increased infrastructure lending, de-regulation of interest rates on savings accounts,
etc have diluted the robust performance of banks in comparison to other sectors.
The RBI had increased lending rates 13 times between March 2010 and October 2011 in a bid to rein in
inflation. A direct result of this has been the impact on demand, leading to reduced revenue, lower
margins and an increase in non performing assets (NPAs) of banks.

PERFORMANCE:In todays globalised economy competitiveness and competitive advantage have become the
buzzwords for corporate around the world. Companies , for entering new markets, asset growth
,garnering greater market share/ additional manufacturing capacities, and gaining
complementarystrengths and competencies, and to become more competitive in the market place, are
increasingly using Mergers and Acquisition .
The Indian economy has undergone a major transformation and structural change following
theeconomic reforms introduced by the Government of India in 1991. Since then, the M&A
movement in India have picked up momentum. In the liberalized economic and businessenvironment ,
magnitude and competence have become the focal points of every businessenterprise in India , as
companies have realized the need to grow and expand in business thatthey understand well to face the
following competition. Indian corporate has under takenrestructuring exercise to sell off non core
business and to create stronger presence in their coreareas of business interest. M& A emerged as one of
the most effective methods of such corporaterestructuring and have, therefore become an integral part of
the long term business strategy ofcorporate in India.
Three distinct trends can be seen in the M&A activity in India after the reforms in 1991. Initially,there
was intense investment activity, a wave of consolidation within the Indian industry, ascompanies tried to
prepare for the potentially aggressive competition in the domestic andoverseas market, through M& A
and achieve economies of scale and scope.In the second significant trend , visible since , 1995, there was
increased activity in consolidationof subsidiaries by multinational companies in to the national market ,
through the acquisitionroute , with liberalized norms in place for foreign Direct Investments( FDIs) .
Indian companiesfocused on capital and business restructuring, and cleaned up their balance sheets.
There wasconsolidation in the domestic industries such as steel, cement and telecom.
The third wave of M& A in India, evident since 2002, is that of Indian companies venturingabroad and
making acquisition in developed markets for gaining entry into the internationalmarket.Indian
companies have been actively pursuing overseas acquisitions in recent years. Theopening up of Indian
economy and financial sector, huge cash reserves following some years ofgreat profits, and enhanced
competiveness in the global markets have given greater confidencefor big Indian companies to venture
abroad for market expansion. Surge in economic growth andfall in interest rates have made the
financing of such deals cheaper. Changes in regulations madeby the finance Ministry in India pertaining
to overseas investments by Indian companies havealso made it easier for the companies to acquire
abroad.
The past five years have seen Indian Corporate in several international acquisition deals in developed
and emerging markets.

MERGERS AND ACQUISITIONS IN INDIAN BANKING INDUSTRY:1) In the banking sector, important mergers and acquisitions in India in recent years include
themerger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI
Bank.The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). Another
importantmerger was that between Centurion Bank and Bank of Punjab. Worth $82.1 million
(Rs. 3.6billion in Indian currency), this merger led to the creation of the Centurion Bank of
Punjab with235 branches in different regions of India.
2) Mergers and acquisitions in India are on the rise. Volume of mergers and acquisitions in India
in2007 are expected to grow two fold from 2006 and four times compared to 2005.
3) India has emerged as one of the top countries with respect to merger and acquisition deals.
In2007, the first two months alone accounted for merger and acquisition deals worth $40 billion
inIndia. The estimated figures for the entire year projected a total of more than $ 100 billion
worthof mergers and acquisitions in India. This is twofold growth from 2006 and a growth of
almostfour times from 2005

ISSUES IN BANKING SECTOR:

Financial Inclusion:- Financial inclusion refers to delivery of banking services at an affordable

cost to the vast sections of disadvantaged and low income group.
Priority Sector Lending:- It is based on bringing unbanked into banking community. While
sectors included under PSL meet this overarching agenda, it also has to be feasible and self
sustaining. Banks are being asked to use Banking Correspondents to help meet with their PSL
targets.
Payment System :- The Reserve Bank aims to develop a more efficient and integrated payment
system in the country. In its 'Payment Systems In India: Vision 2012-15' document, main focus
of RBI is to provide a modern electronic payments system that is safe, simple and low-cost for
use by all.
Investments in Physical Gold and Real Estate: - Today, a lot of money is invested by Indian
households in acquiring physical gold and real estate industry that involves huge cash
transactions. It is therefore extremely essential for the government to look at ways to reduce high
cash transactions so that the money could be channelized by the banks in other revenue
generation schemes and liquidity in the system remains intact.
Bank marketing is a managerial approach to survive in highly competitivemarket as well as
reliable service delivery to target customers.
* It is a social process to sub serve social interests.
* It is a fair way of making profits

* It is an art to make possible performance-orientation.

* It is a professionally tested skill to excel competition

Structure of Indian Banking:Indian Banking Regulation Act 1949: Banking means theaccepting, for the purpose of lending or
investment, of deposits of money fromthe public, repayable on demand or otherwise, and withdawal by
cheque, draft,order or otherwise.
All banks which are included in the Second Schedule to the Reserve Bank ofIndia Act, 1934 are
scheduled banks. These banks comprise ScheduledCommercial Banks and Scheduled Cooperative
Banks.Scheduled Commercial Banks in India are categorised into five different groupsaccording to their
ownership and / or nature of operation.
These bank groups are:(i) State Bank of India and its Associates,
(ii) Nationalised Banks,(26 Banks).
(iii) Regional Rural Banks,
(iv) Foreign Banks and
(v) Other Indian Scheduled Commercial Banks (in the private sector).
Besides the Nationalized banks (majority equity holding is with theGovernment), the State Bank of
India (SBI) (majority equity holding being withthe Reserve Bank of India) and the associate banks of
SBI (majority holding beingwith State Bank of India), the commercial banks comprise foreign and
Indianprivate banks. While the State bank of India and its associates, nationalizedbanks and Regional
Rural Banks are constituted under respective enactments ofthe Parliament, the private sector banks are
banking companies as defined in theBanking Regulation Act. These banks, along with regional rural
banks, constitutethe public sector (state owned) banking system in India.

ABSTRACT:In financial markets, anomalies refer to situations when a security or group of securities performs
contrary to the notion of efficient markets, where security prices are said to reflect all available
information at any point in time. With the constant release and rapid dissemination of new information,
sometimes efficient markets are hard to achieve and even more difficult to maintain. There are many
market anomalies; some occur once and disappear, while others are continuously observed. The
evidences provided therein become the foundation of our study which evokes a desire to investigate
existence of such anomalies in Indian Capital Market This paper investigates the existence of the market
anomalies in the Indian market by comparing averages of the mean of the index values of share price
changes from the year August 2004 to 3 November 2014 by analyzing weekend effect, Turn of the
Month effect, Turn of the Year effect both in terms of price and volume and stock split effect of Ten
selected banks.
The weekend effect was proved in Indian stock market. Turn of the month effect and Turn of the year
effect are minimally visible but not statistically proven for the analyzed period. Stock split effect testing
was proved negative except for Jindal steel. The study has important implications in understanding the
market anomalies, its effect and the way it can influence investor decisions.
Key words: Market anomalies, Efficient Market Hypothesis, Weekend effect, Turn of the month effect,

Turn of the year effect, Stock split effect, Indian Stock Market.

Market Anomalies :As the efficient market hypothesis defines efficient market is that where all the investors are well
informed about all the relevant information about the stocks and they take action accordingly. Due to
their timely actions prices of stocks quickly adjust to the new information, and reflect all the available
information. So no investor can beat the market by generating abnormal returns. In the weak form of
efficient market technical analysis is useless, while in semi strong form, both the technical and
fundamental analysis is of no use. And in strong form of efficient market even the insider trader cannot
get abnormal return. But it is found in many stock exchanges of the world that these markets are not
following the rules of EMH. The functioning of these stock markets deviate from the rules of EMH.
These deviations are called anomalies
There is a lot of researches is done on the existence of various types of abnormalities or deviations of
stocks returns from the normal pattern so called anomalies. Different authors segregated anomalies into
different types. But there are three main types
a) calendar anomalies

b) fundamental anomalies

c) technical anomalies

Market Anomalies :Anomalies that are linked to a particular time are called calendar effects. Some of the most popular
calendar effects include the weekend effect, the turn-of-the-month effect, the turn-of-the-year effect and
the January effect.
Weekend Effect:
The weekend effect describes the tendency of stock prices to decrease onMondays, meaning that
closing prices on Monday are lower than closing prices on the previousFriday. For some
unknown reason, returns on Mondays have been consistently lower than everyother day of the
week. In fact, Monday is the only weekday with a negative average rate ofreturn.
Turn-of-the-Month Effect:
The turn-of-the-month effect refers to the tendency of stock pricesto rise on the last trading day of
the month and the first three trading days of the next month.
Turn-of-the-Year Effect:
The turn-of-the-year effect describes a pattern of increased tradingvolume and higher stock prices in the
last week of December and the first two weeks of January.Occasionally, the turn-of-the-year effect and
the January effect may be addressed as the same trend,because much of the January effect can be
attributed to the returns of small-company stocks.
January Effect:
Amid the turn-of-the-year market optimism, there is one class of securities thatconsistently
outperforms the rest. Small-company stocks outperform the market and other assetclasses during
the first two to three weeks of January. This phenomenon is referred to as theJanuary effect.

 Stock Split Effect:

Stock splits increase the number of shares outstanding and decrease the valueof each outstanding
share, with a net effect of zero on the company's market capitalization. However, before and after a
company announces a stock split, the stock price normally rises. The increase in price is known as
the stock split effect.

Objectives of the Study :Followings are the objectives are to be studied in this reaserch project . The objectives of the study
include:
Understanding Market Anomalies and reason for its occurrence.
To test the existence of Market Anomalies in Indian market.

 Reaserch Design :1) Period of the Study :The study measures the existence of market anomalies with respect to BSE SENSEX Index from
2004 2014 Since BSE is the oldest stock exchange, the data is available for a longer period.
And the periodis significant as it includes the market fluctuations before, during and after the
global financial crisis.The data for the period are tabulated and analysed on monthly basis.
2) Data Collection and Tabulation :The study is designed as to test the existence of market anomalies in Indian stock market. The closing
price and turnover of BSE index for a period of 10 years has been taken for the study. Average return per
month , average return per day for all 10 years were tabulated for analysis. The closing price of the
companies before and after stock split was taken to understand the impact of stock split on the market
movements.

3) Sample :For the study of calendar effects, 10 years BSE INDEX values for five public & private sector banks
are selected from the year 2004 to 2014 For the study of share price change banks from public & private
sector are selected .
4) Tools of Data Analysis :For the analysis the tools used are:
Mean: it is the sum of the values divided by number which means the average of the
values.
T-test: A t-tests statistical significance indicates whether or not the difference between
two groupsaverages most likely reflects a real difference in the population from which
the groups were sampled.
ANOVA Test :- ANOVA test is statistical analysis of two or more ependent &independent
variable in market annomolies .