MUTUAL FUNDS IN INDIA

STUDY ON ‘CREDIT POLICY AND ITS IMPACT ON INTEREST RATE SENSITIVE STOCK

Made by : SHARDENDU PRAKASH & ROHIT SHANDILYA 

DEFINING A RESEARCH PROBLEM .A Research problem is to estimate the impact of credit policy on interest rate sensitive stocks (Ashok Leyland, Bajaj, Canara, HDFC, HERO, ICICI, INDUSIND, and MARUTI). .Credit policy is very important for Asset heavy business or companies that required huge CAPEX to run their business and banking companies having main business is lending. .Any change in the policy rate by RBI in credit policy has huge bearing on their business as their funding cost may increase or decrease. So through this Research we want to gauge the impact of credit policy on these companies.

FORMULATION OF HYPOTHESIS Ho=Null hypothesis=Interest rate sensitive stocks have impact on NIFTY on the day of credit policy. H1=Alternative hypothesis=Interest rate sensitive stocks have no impact on NIFTY.

 RESEARCH DESIGN We estimate the impact of credit policy by running regression between dependent variable (NIFTY) and independent variables (Ashok Leyland, Bajaj, Canara, HDFC, Hero, Icici, IndusInd bank, Maruti) and using Dummy variables on the Eve of credit policy of 05 Dec 2017 on software E-views.

COLLECTION OF DATA The Historical data of past one year of NIFTY and Interest rate sensitive stocks has been taken from NSE website.

MODEL ESTIMATION

1

Dependent Variable: NIFTY
Method: Least Squares
Date: 11/16/17   Time: 18:45
Sample (adjusted): 1 235
Included observations: 235 after adjustments
Variable	Coefficient	Std. Error	t-Statistic	Prob.
C	0.027460	0.026266	1.045438	0.2969
ASHOK	0.064190	0.015322	4.189486	0.0000
BAJAJ	0.139723	0.024781	5.638280	0.0000
CANARA	0.012091	0.007529	1.605879	0.1097
HDFC	0.000287	0.008592	0.033385	0.9734
HERO	0.043668	0.021227	2.057137	0.0408
ICICI	0.086879	0.016061	5.409318	0.0000
INDUSIND	-0.002344	0.022802	-0.102806	0.9182
MARUTI	0.152901	0.025882	5.907549	0.0000
R-squared	0.650455	Mean dependent var		0.093932
Adjusted R-squared	0.534542	S.D. dependent var		0.573766
S.E. of regression	0.391449	Akaike info criterion		0.999621
Sum squared resid	34.63047	Schwarz criterion		1.132116
Log likelihood	-108.4555	Hannan-Quinn criter.		1.053037
F-statistic	34.59136	Durbin-Watson stat		1.852722
Prob(F-statistic)	0.000000

2

Estimation Command:

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LS NIFTY C ASHOK BAJAJ CANARA HDFC HERO ICICI INDUSIND MARUTI

Estimation Equation:

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NIFTY = C(1) + C(2)*ASHOK + C(3)*BAJAJ + C(4)*CANARA + C(5)*HDFC + C(6)*HERO + C(7)*ICICI + C(8)*INDUSIND + C(9)*MARUTI

Substituted Coefficients:

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NIFTY = 0.0274598391255 + 0.0641904508408*ASHOK + 0.1397228427*BAJAJ + 0.0120905362595*CANARA + 0.000286860978584*HDFC + 0.043667756982*HERO + 0.0868787307057*ICICI - 0.00234419194245*INDUSIND + 0.152901331435*MARUTII+ 0.0256034632816*DI

HYPOTHESIS TESTING

HO – NIFTY IMPACT

H1 – NO IMPACT

		ACCPETED	REJECTED
.29	29%	H1	H0
.00	00%	H0	H1
.00	00%	H0	H1
.1097	10.97%	H1	H0
.9734	97.34%	H1	H0
.0408	04.08%	H0	H1
.9182	94.82%	H1	H0
.0000	00%	H0	H1

INTERPRETATION : (MORE THAN 10% H1 ACCEPTED,LESS THEN 10% H0 WILL ACCEPTED)

FOR C ALTERNATIVE WILL ACCEPTED AND NULL WILL REJECTED

FOR ASHOK LEYLAND NULL WILL ACCEPTED AND ALTERNATIVE WILL REJECTED

FOR BAJAJ NULL WILL ACCEPTED AND ALTERNATIVE WILL REJECTED

FOR HDFC ALTERNATIVE WILL ACCEPTED AND NULL WILL REJECTED

FOR HERO NULL WILL ACCEPTED AND ALTERNATIVE WILL REJECTED

FOR ICICI NULL WILL ACCEPTED AND ALTERNATIVE WILL REJECTED

FOR INUSIND BANK ALTERNATIVE WILL ACCEPTED AND NULL WILL REJECTED

FOR MARUTI NULL WILL ACCEPTED AND ALTERNATIVE WILL REJECTED

INTERPRETATION:

This Model describe the relationship between independent variables (Ashok Leyland, Bajaj, Canara, HDFC, Hero, Icici, IndusInd, Maruti) and Dependent variable (NIFTY) under the condition of nominal scale variable or dummy variable (Credit policy 5 Dec 2017).The Model tells how the mean return of NIFTY varies vis-to vis various Interest rate sensitive stocks returns on days before and after the announcement of Credit policy. 

(1)Coefficient of determination= R-squared is 0.65,It shows that before and after effects of the Credit policy is rightly explained by the Interest rate sensitive stocks(Independent variables) on NIFTY(Dependent variable). 

(2)Prob (F-statistic) =since our P is 0, suggesting we can strongly reject the hypothesis that collectively all the explanatory variables (different companies returns) have no impact on the Dependent variable (NIFTY). 

(3) t- statistic= it determines level of significance. Since t –statistic of Bajaj Auto is 5.63, it has highest level of significance in relation to NIFTY. 

(4)Coefficient=the highest coefficient is of Bajaj. So Bajaj is the stock (independent variable) that has maximum impact on NIFTY. 

(5)STD-error of Maruti is maximum i.e. 0.025, it means it mean return is deviating maximum. 

(6)Since the coefficient of the Maruti (0.15) followed by Bajaj (0.13) is maximum in all stocks, it shows mean return of these two stocks effected most by Credit policy. 

(7)Since adjusted r-square is far away from R-square, it shows there is impact of no of regressors on Model.

CONCLUSION :

 At last it may be concluded that credit policy has significant impact on the price movement of interest rate sensitive stocks as we proved through the result of regression analysis on the day of credit policy declaration date of 05 DEC 2017.