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1 CHAPTER - V SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION A study on stock market returns under select technical rules in India has been done as per the methodology devised and for meeting specific objectives. Profitability of select 47 trading strategies under two major categories i.e. 22 Time based trading rules and 25 price movement based trading rules were tested on the indices of (Taken as ETF) two premier stock exchanges in India, the SENSEX of Bombay Stock Exchange and NIFTY of National Stock Exchange of India for the period of 15 years from 1997 to Indices are considered rather specific stock prices since stock prices tend to vary or affected by industry specific factors and individual stocks may not represent true picture of overall market. Hence indices are taken for this study assuming ETF index fund. The profitability of each trading rule on the basis of ROI as a percentage has been computed based on the available data. The few of the calendar rules, Alexander s filter rules, MACD and TRBO rules are modified at appropriate places so as suit the present market scenario and aimed at identifying most profitable trading rule. Total of 47 trading rules were tested on trades and market returns/profitability as Return on Investment (ROI) of each trade was calculated for both exchanges BSE and NSE. The profitability of various holding periods, profitability of mechanical trading strategy using Alexander s filter, MACD and TRBO rules are tested in study. In impact of presence and absence of brokerage cost on various trading rules tested also analyzed. Going for proprietary trade or trading through other intermediary for each trading rule can be decided based on the profitability of each option. Investment pattern of different class of investors are also studied to get a vital clue from market leaders to float along with market. 224

2 5.1 NUMBER OF TRADES TESTED -PROFIT/LOSS CALCULATIONS MADE The following table shows the number of trade positions tested/ profit/loss/roi arrived in this study. The calculations are made for Sensex and Nifty separately for 15 years period. The presence and absence of brokerage/commission in each trade is also made to test the profitability of proprietary trade (Dealers trade) TABLE 5.1 NUMBER OF TRADES TESTED -PROFIT/LOSS CALCULATIONS MADE TRADING RULE WITH BROKERAGE SENSEX WITH OUT BROKERAGE WITH BROKERAGE NIFTY WITH OUT BROKERAGE TOTAL Yearly Monthly Weekly Daily Daily Sip Yearly SIP monthly Filter Rules MACD TRBO Total A total of profit loss/roi calculations made in this study and the results were summarized by calculating average returns on annual basis under each technical rule. 225

3 5.2 SUMMARY OF FINDINGS The summary of major findings from the study of market returns and profitability analysis of select trading rules on SENSEX and NIFTY for the period of 15 years from 1997 to 2012 has been given as below PROFITABILITY OF TIME BASED TRADING RULES 1. The average rate of return of yearly trade in Sensex is 19.40% and in Nifty is 19.74%. The average annual return from proprietary trade. i.e. Without brokerage cost in Sensex is 20.50% and in Nifty 20.74%. 2. The average annual rate of return in case of monthly trade in Sensex is % and in Nifty is -2.84%. The average annualized monthly returns under proprietary trade in Sensex is 7.78% and in Nifty 9.00%.. 3. The mean ROI on average investment in case of weekly trade in Sensex is % and in Nifty is %. Under proprietary trade the weekly returns from Sensex is % and in Nifty 12.29%. 4. The mean rate of annualized return on average investment for daily trade on long and short mode is % and in case of short and long daily trade is % in Sensex during the period of study. 5. The results of Nifty for daily trade rule of long and short is % and in case of short & long is %. Under proprietary mode Sensex resulted a profit of and Nifty loss of 16.46%.. 6. The average yearly returns of Sensex on Systematic yearly investment plans from 1 year SIP to 5 year SIP is 18.33%,17.81%,19.17%,19.28% and 19.32% respectively. The four and five year SIPs reported higher returns than other SIPs. during The average yearly returns of Nifty on systematic yearly investment plan for 1 year SIP to 5 year SIP are 18.28%, for one year SIP, 17.54% for two year SIP, for 3 year SIP, % for 4 year SIP and % for 5 year SIP. 8. The average annual return on monthly SIP investments in case of Sensex is comparatively lower than yearly returns. Among 12 month systematic monthly investment plans the 10 month SIP is most profitable in Sensex at reported average profit of 17.73%.In case of Nifty stocks, the average annual returns on monthly investments on monthly SIP trading also not more than the returns of yearly SIP. 226

4 9. In Nifty, 10 month SIP is most profitable at % which is similar to Sensex. Monthly SIP tests reported that 6-11 months SIP is better than other months. Hence minimum holdings shall be 6-11 months. 10. Month of the year effect has been studied and it is found that during months of April, July, September, November and December, the trading reported better returns than other months in both Sensex and Nifty. Cumulative net profit from September trade is higher than that of any other months. Hence one shall resort to trading these months for better profitability. From the calendar return analysis in both Sensex and Nifty, the annual trade reported higher returns than any other holding period. From this empirical study it is concluded that, one shall hold the stock for the period of one year for getting better returns in India. Under SIP also, yearly SIP reports near equal returns of 2,3,4, 5 year SIP hence yearly SIP may be selected for better returns on Sensex and Nifty. The annual period is ideal holding period in India and its returns are taken as benchmark market returns. Any other trading strategy shall give over and above this benchmark returns to prove their efficacy. i.e. beating the market PROFITABILITY OF PRICE BASED TECHNICAL TRADING RULES Profitability of Filter rules 11. The volatility in daily prices of SENSEX and NIFTY are studied to decide up on the range of filter rates to be tested during the study period Intraday price changes are compared with daily open price and percentage of changes over open price i.e. ups and downs are calculated. The year wise intraday (daily) changes and their average for 15 years period are calculated. In Sensex the average daily price increase is 0.90% and decrease is %. with total average fluctuation of 1.94% 12. The average daily price changes in Nifty are 2.10% in total with daily mean increase of 1..05% and mean decrease of 1.05%. Based on this, filter rates are determined as 0.90% in this study. 13. As a part of mechanical trading strategy, Alexander s Filter rules are applied on SENSEX and NIFTY. The Filter rates are designed considering average daily upward volatility range of 0.90% -1.05% and transaction costs involved.thus 10 filters from 0.2% to 0.9% are selected. 227

5 14. The results for filter rule in Sensex are not encouraging one. Except for 0.2% and 0.3% filter, all other filters give negative returns. The filter applied on proprietary trade without brokerage give substantial returns with highest return of 29.67% for 0.3% filter. The next is 0.35% filter which gives 29.5%. It is also observed that when filter rate is increased the returns also getting increased but after 0.5% filter, the trend got reversed to negative even in the absence of brokerage. Hence the ideal rate of filter for proprietary trade is between 0.25% to 0.5% in Sensex. 15. The filter results for Nifty are better than Sensex and reports maximum of 13.83% at 0.4% filter including brokerage cost. The ideal filter for proprietary trade i.e. without brokerage is 0.5% in Nifty which gives 44.71%. It may be noted that, dealer enjoy better profitability in day trading under filter rules than ordinary investors. The higher volatility in NSE(2.10%) give wider scope for better returns than BSE which having volatility of 1.94% under technical rules. The results also indicate the same. Hence NSE is found to be better platform for day trading under filter rules for dealers.. Beating the Market by Filter Rules 16. Filter rules under normal trade both in Sensex and Nifty report comparatively lower returns than benchmark buy and hold annual returns. All the filter rules from 0.20% to 0.90% report lower returns. So normal investor could not outperform market return using filter trading rules in India. 17. Under proprietary trade filter rule from 0.20% to 0.50% report excess returns over market returns in Sensex. A minimum of 2.66% to maximum of 10.02% excess returns reported from proprietary trade in Sensex. 18. Nifty reported excess returns from filter rules (Filters 0.20% to 0.70% ) under proprietary trade. In both the exchanges proprietary trade can outperform the benchmark returns. Beating the market through technical filter rules is proved. Profitability of MACD Rules 19. The profitability of standard MACD rules MACD(9,26),MACD(12,26), MACD(19,39), MACD(50,200) using shorter EMA as indicator are tested on SENSEX and NIFTY. The annualized Daily returns (ADR) and Average Annualized Daily Returns (AADRs) are calculated. 228

6 20. Standard MACD rules reported AADR of 9.55%,8.85%, 6.66% and 18.88% for MACD rules of (9-26), (12-26),(19-39) and (50-200) respectively under normal trade in Sensex. 21. The modified SPMACD rules of (1-50), (1-100), (1-150) and (1-200) reported AADR of 27.81%,26.13,22.84% and 24.28% respectively under normal trade in Sensex. 22. Under proprietary trade without brokerage Standard MACD rules reported AADR of 13.97%,13.24%, 9.56% and 19.33% for MACD rules of (9-26), (12-26),(19-39) and (50-200) respectively in Sensex. 23. Under proprietary trade the modified version of MACD i.e. SPMACD rules of (1, 50), SPMACD (1,100), SPMACD (1,150), and SPMACD (1,200) reported AADR of 32.12%,31.11%, and % respectively in Sensex. 24. In Nifty the standard MACD rules reported AADR of 9.81%,7.91%, 6.54% and 15.29% for MACD rules of (9-26), (12-26),(19-39) and (50-200) respectively under normal trade. 25. The modified SPMACD rules of (1-50), (1-100), (1-150) and (1-200) reported AADR of 27.80%, 27.51%, 23.86% and 23.04% respectively under normal trade in Nifty. 26. Under proprietary trade without brokerage,the Standard MACD rules reported AADR of 14.13%,12.59%, 9.39% and 15.81% for MACD rules of (9-26), (12-26), (19-39) and (50-200) respectively in Nifty. 27. Under proprietary trade the modified version of MACD i.e. SPMACD rules of (1, 50), SPMACD (1,100), SPMACD (1,150), and SPMACD (1,200) reported AADR of 33.15%, %, 26.73% and 25.06% respectively in Nifty. 28. Comparative analysis of returns under MACD rules and benchmark market returns under buy and hold policy both under normal as well as proprietary trade has been made to test the efficacy of MACD rules. Under normal trade and well as proprietary trade, the standard MACD rules (9-26), (12-26),(19-39) and (50-200) reported lower returns than benchmark market returns in Sensex. 229

7 29. All the modified SPMACD rules reported excess returns over benchmark market returns in Sensex. SPMACD rule (1-50) reports highest return of 27.81% under normal trade where as benchmark holding period return is 19.40% only. Under proprietary trade also all the modified SPMACD rules reported excess returns over benchmark buy and hold return in Sensex. The AADR of SPMACD(1-50) is 32.12% where as the market return is 20.50% under proprietary trade in Sensex. 30. In Nifty also the standard MACD rules (9-26), (12-26),(19-39) and (50-200) reported lower returns than benchmark market returns in Sensex normal trade and well as proprietary trade. Standard MACD rule could not beat the market returns in Nifty. Beating the market by MACD Rules 31. All the 4 modified SPMACD rules reported excess returns over benchmark market returns in Nifty also. SPMACD rule (1-50) again reports highest return of 27.80% under normal trade where as benchmark holding period return is 19.74% only. Under proprietary trade also all the 4 modified SPMACD rules reported excess returns over benchmark buy and hold return in Sensex. The AADR of SPMACD(1-50) is 33.15% where as the market return is % under proprietary trade in Sensex. 32. In Nifty also modified SPMACD rules(1-50,1-100,1-150, 1-200) reports excess returns over benchmark market returns. It found that all Modified SPMACD rules reported excess returns over benchmark market returns in Sensex and Nifty both under normal as well as proprietary trade. So beating the market is proved. Profitability of TRBO Rules 33. The Standard TRBO Rules (50,100,150,200) reported AADR of 15.93%, 14.77%, 17.42%, 20.16% respectively under normal trade in Sensex. 34. Modified TRBO rules (200-50, ,50-200) reported ROI of 7.37%,28.91% and 36.97% respectively under normal trade in Sensex. 35. The Standard TRBO Rules (50,100,150,200) reported AADR of 18.31%,15.79%, 18.15%, 20.90% respectively under proprietary trade in Sensex. 230

8 35. Modified TRBO rules (200-50, ,50-200) reported ROI of 8.52%,29.96% and % respectively under proprietary trade in Sensex. 36. The Standard TRBO Rules(50,100,150,200) reported AADR of 18.34%,14.03%, 15.72%, % respectively under normal trade in Nifty. 37. Modified TRBO rules (200-50, ,50-200) reported ROI of 5.89%,27.28% and 33.92% respectively under normal trade in Nifty. 38. The Standard TRBO Rules (50,100,150,200) reported AADR of 19.88%, 14.96%, 16.31%, 20.21% respectively under proprietary trade in Nifty. 39. Modified TRBO rules (200-50, ,50-200) reported ROI of 7.02%,28.09% and % respectively under proprietary trade in Nifty Beating the Market by TRBO rules 40. Standard TRBO rules in Sensex could not outperform the market returns. TRBO 200, and rules could beat the market under normal as well as proprietary trades in Sensex. TRBO rule and reports maximum returns in excess of 9.79% and 17.93% over benchmark market returns in normal trade. An excess return of 10.03% and 18.91% under proprietary trade for TRBO rules , respectively has been reported. 41. In Nifty also modified TRBO rules and reported as excess return of 7.54% and 14.18% respectively over market returns under normal trade. Under proprietary trade excess return of 7.25% and 13.89% reported by the same rules. Since modified TRBO rules reported excess returns over market returns in both Sensex and Nifty, beating the market by TRBO rules proved IMPACT OF BROKERAGE COST ON STOCK MARKET RETURNS 42. The impact of brokerage on annual trade returns of Sensex is 1.10% and in Nifty is 1.10% 43. Impact of brokerage on monthly returns in Sensex is 11.98% and in Nifty is 11.84%. 44. Weekly returns of Sensex are affected by 50.77% and in Nifty 55.54% due to brokerage. 231

9 45. The daily returns under two day trading strategies long& short and short long are affected by 56.04% and 47.08% respectively in Sensex due to brokerage cost. In Nifty the impact rate is at 51.71% and 50.36% for respective trading strategies. 46. The returns of filter tests improved by 32.46% on an average in Sensex in the absence of brokerage and by 32.20% in Nifty. 47. The impact rate is high at 5.99% in case of SPMACD (1-50) rule and low at 0.45 % in case of MACD (50-200) in Sensex. Profitability of MACD (9, 26), MACD (12, 26), (19-39) and SPMACD (1-100,1-150,1-200) rules are improved by minimum of 4% on proprietary trade in Sensex. 48. The Average Annualized Daily Returns (AADR) is improved by 5.35% on proprietary trade in SPMACD (1.50) rule in Nifty. The profitability of other rules like MACD(9,26) and MACD(12,26) are improved by 4.32% and 4.68% on proprietary trade. 49. The impact of brokerage cost on results of TRBO rules is between 0.74% to 2.38% in Sensex and in Nifty the impact is between 0.52 % to 1.54% in Nifty INVESTMENT BEHAVIOR OF DIFFERENT INVESTOR CLASSES IN INDIA 50. The cumulative daily net investment by various players shows that there are positive inflows from all class of investors except retail investors. Retail investor took out Rs 68,640 Crores from the market. The net investment by NRI, Dealers, FIIs and DIIs are Rs Crores, Rs Crores, Rs Crores and Rs Crores respectively. There is no uniformity in investment pattern of various class of investors on yearly basis. 51. During 2008 the investment behaviour of all Indian Investors found uniform with positive net inflows. It is found that there was a net outflow of $34.6 bn by FIIs. FIIs cleverly exit the markets at peaks by booking profit. This happened in Jan 2008 and Jan The correlation analysis based on daily net investment by Retail investors and other class investors has been done. It is found that retail investor and NRI is lust positively correlated with and other are negatively correlated. The correlation 232

10 between retail investor and Dealer, FIIs and DIIs are , and respectively. This shows retail investor taking opposite stand with other players with regard to investment. 53. The correlation between NRI and Dealer, FIIs and DIIs are ,-0.34 and respectively. It is almost negative stand only. 54. The correlation between dealers and FII/DII are and The positive correlation shows the dealers' move along with other big players. 55. FII and DII are negatively correlated at This is how two equally well informed market players moving opposite in the market. Each other took opposite stand in term of investment. Market moves and Investors move 56. The relationship between daily movement of Sensex and daily investment pattern by different class of investor has been analyzed. The market and Retail investor move negatively correlated at The market with NRI at , with dealer at 0.516, with FII at and with DII at FII and market moves are positively correlated at Also dealers' move correlated with market at This clearly shows that marker mover is FII and their followers are dealers. Since market is moving as per the investment patterns of FII, one follow them closely for stock investing to float along with market. Test of Uniformity in Investment patterns.- ANOVA Tests 57. The test of significant difference in daily investment pattern within same class of investors has been done under the ANOVA test and the null hypothesis has been accepted. It is inferred that there is no significant difference in daily investment patterns within same investor group. So there is a uniformity in investment patterns within the group. 58. The test of significant difference in daily investment pattern among different classes of investors under ANOVA test has been done and the null hypothesis has been rejected. It is inferred that there is a significant difference in net daily investment pattern among different class of investors. So uniformity in investment pattern is missing among the investor groups. 233

11 59. The correlation analysis and test of uniformity reveals that different investors group take different investment decisions and uniformity and coherence are missing. This questions the rationality theory and widens scope for beating the market. The investment pattern of various players and market movement is studied for the period from with reference to BSE It is observed that lack of uniformity in trading pattern among different class of investor is prevailing in India. The ANOVAs test shows that there is a significant differences in daily investment pattern among various classes of investors. For e.g. FII go long while other on short and vice-versa. But there is no significance variation in daily investment pattern within a investor group i.e. daily trade position is uniform within same group. The results of correlation analysis shows that, the correlation with retail investors and others are negative only. NRI and others also not correlated. The correlation between Dealer and FII/DII is positive at above 0.5. FII and DII are negatively correlated in view of investment pattern. Hence uniformity in daily investment within a investor class is established. But correlation between investor groups showed that, investors behave differently from one to another in terms of daily investment giving wider room for earning profit due to different trading positions. Investment community is not moving together along with market but take different trade positions in India. Hence it may be concluded that uniformity (Rationality) is missing among different investor groups on daily investment basis in India. The Market Makers 60. The correlation analysis on investment pattern and market movement shows that FII and dealers actions are reflected in the market with positive correlation at above 0.5 where as others take opposite stand against market movements. FII and Sensex is positively correlated at 0.869, the next is the dealer and Sensex at The Sensex and retail investor s moves are negatively correlated at on an average. This proves that retail investors took investment decisions just opposite market movements and suffer loss. It is observed that FIIs becomes market makers along with dealers in India during the study period. Their actions may be followed to float along with market and better returns.. 234

12 5.3 SUGGESTIONS The profitability/market returns of select technical rules are tested on two major Indian stock exchanges for maximizing stock returns. Under time based calendar rules the yearly investment mode give maximum returns comparing to monthly, weekly and daily trades. Hence an ordinary investor who is risk averse nature may go for yearly trade for maximum profitability and other frequencies of trade may be avoided. Another important investment strategy is Systematic investment plan (SIP). The 5 year SIP returns is maximum one and more or less equal to simple buy and hold returns under yearly trade in both Sensex and Nifty. Hence 5 year SIP may be selected for long term investments. The monthly SIP is reported lesser returns than simple buy and hold policy on both BSE and NSE, hence the same may be avoided. The mechanical trading strategies of filter rules are tested. Filter is not profitable to ordinary investors in Sensex and Nifty. But for proprietary trade, the 0.3% and 0.35% filters give more returns than simple buy and hold policy in Sensex hence the same may used by dealers. In Nifty also filter rules are not profitable to ordinary investors but the returns beat the simple buy and hold returns in proprietary trade. At 0.5% filter the return is maximum in Nifty for proprietary trade. The average daily price fluctuations during the period of study on both exchanges are 1.94% to 2.10%. Hence filter rules and suitable algorithmic trading rules can be applied for better results considering the volatility range. Among tested standard MACD rules MACD (50,200) give more returns than other MACD rules in both Sensex and Nifty. Other standard MACD rules give lesser return than simple buy and hold policy. The modified SPMACD rules (1, 50), (1,100), (1,150) and (1,200) reports more returns than simple buy and hold policy in both Sensex and Nifty. SPMACD (1,50) is the best one for ordinary investors on both exchanges giving returns of 27.81% return in Sensex and % in Nifty. Hence those who like to get involved in some more frequencies of trade may apply these rules for getting more returns than simple buy and hold annual investments. For proprietary trade (for dealers) the all SPMACD rules tested gives positive excess returns and SPMACD (1, 50) rule is the most profitable on both exchanges hence same may be applied. Among tested TRBO rules, the modified TRBO rules of TRBO and TRBO are reported higher returns than simple buy and hold policy. 235

13 The impact of transaction cost on profitability of various technical rules is analyzed. Among other transaction costs, the intermediary cost can be avoided in proprietary trade. Hence this aspect being studied. The impact rate is the difference between the return of a technical rule with brokerage and without brokerage. This helps one to decide whether to go for proprietary trade or not by comparing cost of own broker firm and opportunity cost / profit lost due to brokerage effect( impact of brokerage on returns) If actual cost of broker firm is less than impact on returns then proprietary trade is suggested and vice versa. The returns of Nifty are comparatively better than Sensex on increased frequencies of trade as observed from this study. Hence NSE may be preferred for increased frequencies of trade (Short term investments). The Sensex movements and FIIs/dealers investment patterns are positively correlated. Hence proprietary and FII actions can be used as market indicator for better returns in BSE. It is suggested to Go technical for speculation/short term trading and go fundamental for long term investments' for successful stock investing. The empirical evidence shows that the return from equity investment is higher than that of any other investment avenues in India. Hence, it is suggested to stay invested in equity shares and continue to invest in stock market. In a country like India the average Indian must invest in the capital market, if he has to be a part of the growth story which rest of India is experiencing particularly the corporate India after liberalization of economy. More investment avenues coming up as many sectors were opened for private funding like roads, port, oils, energy, water etc., with promising returns. 5.4 CONCLUSION Profitability of select technical rules on two major stock exchanges in India, the SENSEX of Bombay Stock Exchange and NIFTY of National Stock Exchange of India for the period of 15 years from 1997 to 2012 has been tested by applying twenty two time based trading rules, ten filter rules, eight MACD, seven TRBO rules (47 Rules) in both stock exchanges in India with and without transaction cost. Among time based trading rules, yearly holding period give more returns than other periods like weekly, monthly and daily trades. 5 year Systematic Investment plan give equal return to yearly returns on both exchanges. Filter rules give excess returns only 236

14 on proprietary trade with ideal filter rate between 0.3% to 0.5%. All the modified MACD and TRBO rules reported excess returns on both exchanges. Among various asset classes, investing in stocks remains in top slot on profitability and liquidity around the world. This study also shows that, a simple buy and hold investment in stock gives an average return of 19% p.a. in India. At any point, this rate is much better than any other assets/investment opportunity in India. A 20 year period analysis show common stock returns outstrips gold, bank and commodity futures. It is also the best bet to beat inflation in India. Hence ordinary investor shall continue to invest in stocks for better returns. One may also satisfy with returns of simple buy and hold (19 % p.a. ) and live in peace of mind rather worrying about heuristic filter rules, technical rules, expert s advice, stock tips and other borrowed strategies. But the reports of stock markets, some mutual fund schemes and various stories of successful investors across the world suggest the possibility of earning excess returns. Hence this study tested the profitability of few trading strategies and found some of them giving excess returns both on BSE and NSE. So the possibility of beating the market proved. Hence who would like to get some more returns assuming some more risks may go for technical rule based trading. The success lies in identifying the point where growth ends and greed starts. Keeping in mind that greed on any level is bad but in turn one has to distinguish greed from reaping the just reward for the resources he commit and risk he assume. Hence it is suggested to take investment decisions accordingly. In view of the empirical evidence and outcome of this study, it may be concluded that, by adopting some simple trading rules, an ordinary investor either he can get excess returns over simple buy and hold returns or he can avoid trading loss by holding the investments for an ideal period in India. As the tested technical rules yield more market returns than returns based on the simple buy-and-hold decisions, findings presented in this study in a way challenge the orthodox view based on efficient market hypotheses (EMH), which rules out the possibility of excess returns. 237

15 AREAS FOR FUTURE RESEARCH AND FOR POLICY DEBATES Capital market segment opens up a greater scope for many researches. A new area called Intelligent Finance which seeks to develop a comprehensive understanding of financial markets by the combination of fundamental, technical and strategic analysis may be explored. New strategies based on combination of various technical rules may be tested. Broker firms offer many plans for service charges like fixed charges for unlimited number of trades, limited number of trade per month, year and day etc. Hence actual cost of transaction may also be considered for profitability of each trade on further researches. Along with major indices, sector wise indices and individual stock price movements may be tested on various trading rules in future. The application of algorithmic trading tools, flash trading, high frequency trading, direct market access and co-location services, network tuning, network synchronization, use of computer sophisticated trading platforms to trade in milliseconds by big institutional investors provides an edge over others who do not have such facilities. Hence their impact on liquidity and profitability is the area requires further research. These practices further alienate common investors from direct participation in trading, around the world including in India. The role of collective investment vehicles/mutual Funds in capital markets and resource mobilized and allocated the profitability of funds, methods to improve returns etc may be studied. The waning of retail interest in direct trade is noticed from 2005, but Mutual funds see more inflow during the same period from retail investors. RBI data also show increased ratio of financial assets in domestic savings. This seems to be that retail investors prefer trading jobs to institutional investors/mfs than trading on their own. Because of this, future markets may witness tough bull fight among informed institutional players. This aspect may be studied. The relationship between P/E ratio and profitability of various markets may also be studied. Indian bourses are one among the overvalued markets in the world with PE ratio more than 23.5 on an average (Dec 2010). PE ratio to GDP may be compared to estimate how much the market is valued by global investors as it is also used for potential trading purpose by many. 238

16 The flight of foreign funds((hot money) from one market to another across the world and the steps taken like imposing Tobin * type taxes on financial transactions across the borders including Keynes s view. Though RBI and some economists caution the volatile capital flows to India which may crowed out domestic funds and possible asset price bubble at many times, the managers of our economy deferred on banning excessive FIIs/PNs and Other Private Equity inflows. Whether any such curbs required or not may be studied. The derivative market is another area (Grey) of interest for analyzing profitability of F&O trades. The growth story of Futures and options market, how people predicted the markets and what was the result etc may be studied. Proposal for delivery based future trading and hike in option premium for curbing speculation in derivative market is under policy debate. Pros and cons of such moves on liquidity and returns may be studied. The new area called Financial Engineering and its exotic products for making quick money out of money being put forth by many neo liberal economists. But it is very dangerous to any economy which allows to making money out of money abnormally in the system. For a sustained economic growth the returns for the money invested shall not be more than the growth rate of GDP by manufacturing. An economic value addition must be made from manufacturing/production for real economic growth, not from the speculative money flows. The latest book on The rise and fall of neo-liberalism by Kean Birch exposed that major economies are financialised and commodified all most all life by neo liberalism. The Global financial assets were valued at $595.3 trillion in 2007 or 11 times of world s annual output and vast profits are made from just managing money not from using it. Nobel Laureate Paul Krugman, Eminent English columnist Gillen Tett, Indian writer S Gurumurthy, M R Venkatesh, C.P Chandrasekar, Jayati Gosh, TCA Srinivasa- Ramanujam etc. views on derivatives in economy may further studied. Greed is not good. Gambling by any other name be it Price Discovery, Improving Liquidity, Widening and deepening Markets', new investment products or Conforming * James Tobin (1970) an American Economist first made the suggestion for a tax on currency transactions to dissuade short term currency speculation. Shyamala Gopinath, Rakesh Mohan articles at and C.P Chandrasekar, Jayati Gosh at macroscan.com Kean Birch and Vlad Mykhnenko (2010).'The rise and fall of neo-liberalism, Books for Change, Bangalore. 239

17 Global practices cannot shed its basic characteristics. Commodity/Capital markets and their so called financial products sold as an investment opportunity to ordinary non trading citizen is actually a double edged sword. So to curb on price raises in essential commodities, the non business investments /non delivery/derivatives trading shall be curtailed in so called virtual commodities markets. Hence only serious traders/actual buyers to be allowed in commodity markets by having only delivery based transaction in commodity markets. This may be substantiated by a new studies. The media hype and capital market reformists lobby for further channeling of domestic savings to capital market which may hand over of strategic public sector projects/governments responsibilities to private parties because of easy availability of funds without fixed cost of capital raised from capital markets. Hence another area of study may cover capital raised for infrastructure finance companies i.e. funded by public for further policy debates on pros and cons of privatizing public utilities/social services. The fact is people pay for using roads built by their own money invested in road projects/infra companies thanks to neo liberal policies. Contribution of capital markets on total Indian economy may be studied so as to justify whether such importance to be given to capital market as now and many more. 240

18 AVVAIYAR - Legendary Le Tamil Poet (1-2 Century A.D) 'க ற கம கம அள, க ல த உலகள " - ஔ வய ய "Whatt yo you have learned is a mere handful; ul; What you ha haven't learned is the size of the worl orld" - Avvaiy vvaiyar Learnin arning is a never ending process.. 241