Exploring What Drives Indian Stock Market During Covid-19

Fads or Fundamentals

verfasst von: Indrani Chakraborty

Verlag: Springer Nature Singapore

Buchreihe : SpringerBriefs in Economics

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

Einloggen, um Zugang zu erhalten

Über dieses Buch

This book analyses the dynamics of Indian stock market with a special emphasis during the period following emergence of Covid-19. Coming from the instability in stock market following Covid-19, it delves deeper into the dynamics and unfolds the causal relationship between various economic fundamentals and the stock prices. Observing short-term herding in the stock market following Covid-19, the book's finding suggests that investors in the Indian stock market made investment choices irrationally during Covid-19 crisis periods. It also showcases how the stock market became inefficient following the emergence of pandemic and did not follow the fundamentals. Interestingly, the findings suggest no relationship between stock returns and real economic activities in India. The format of presentation makes the book well suited not only for students, academics, policy makers and investors in the stock markets, but also people engaged or interested in business and finance. The book would thus be of interest to both specialists and the laity. Analysis contained in this book will help different readership groups in different ways. Researchers from economics and finance disciplines will be able to learn about frontiers in the theoretical paradigms discussed in the book; advanced econometric techniques applied in the book will also be useful for their own research. The macroeconomic insights, and insights from behavioural economics, can expand the knowledge of corporate sector, useful in making real life decisions. Finally, it will help policy makers, like SEBI (Securities and Exchange Board of India), to formulate appropriate regulatory policies so as to minimize possibility of speculative bubbles as experienced during the pandemic period in the Indian stock markets.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Introduction

Abstract

In this chapter we first discuss the role of the stock market in the debate on the role of financial development on economic growth. We discuss some studies which show that stock market played some positive role in promoting economic growth in many countries specially in the developed ones. We also discuss some studies which put forward some dissenting arguments and show that stock market is harmful for the developing countries. Then we present a brief overview of the stock market development in India since the economic reforms in 1991. Finally we present the structure of the book discussing the contents of each chapter in greater detail

Indrani Chakraborty

Chapter 2. Impact of Covid-19 on the Stock Market and Corporate Firms in India

Abstract

Covid-19 was declared by WHO as a ‘pandemic’ on 11 March 2020, and the very next day the Indian stock market crashed heavily. This was primarily due to net outflows of foreign institutional investment (FII). While most of the sectors would go through adverse experience due to Covid-19, there are sectors where the negative impact could be low due to low negative demand shock or a strong balance sheet of firms. In this paper, we highlight the possible consequences of the pandemic. We contend that the direction of sector-wise movement in FII flow signals which sectors will grow or shrink in the coming years. Analysing the daily data from 2 March 2020 to 22 May 2020, we observe that FII flow ‘Granger causes’ stock market performance, measured by the closing price. Higher profitability in the past years, better growth opportunities in the stock market and being a stand-alone firm have a favourable impact on stock price reactions to Covid-19 shocks and hence they make the firms with these characteristics more resilient.

Indrani Chakraborty

Chapter 3. Covid-19 and Short-Term Herding in the Indian Stock Market: An Exploratory Analysis

Abstract

This chapter deals with the issue of short-term herding in the stock market following the emergence of Covid-19. We examine the existence of herding behaviour in Indian stock market during the period 1 January 2019 to 18 May 2021, using the CSAD approach proposed by Chang et al. (J Banking Finan 24(2–3(April–May)):1651–1679, 2000). We take the periods February-May 2020 and March–May 2021 as the Covid-19 crisis periods. During these periods, strong lockdown measure was implemented in India, and the death rate due to Covid-19 was high. Our analyses based on daily data support investor herding during this period, while those based on weekly and monthly data produce much weaker evidence, suggesting that herding is a short-run phenomenon. Therefore, our finding suggests that investors in the Indian stock market made investment choices irrationally during the Covid-19 crisis periods. The presence of herding behaviour indicates that the stock market is inefficient and it would bring instability in the stock market.

Indrani Chakraborty

Chapter 4. Stock Markets, Investment, and the Real Economy: An Analysis of Firm-Level Data in India

Abstract

Using a large panel of Indian firms, we investigate if mispricing in the stock market has an impact on firm-level investment. A significantly positive relation is observed between investment and the proxies for mispricing in the listed manufacturing firms, suggesting that overpriced (underpriced) firms tend to overinvest (underinvest). Moreover, we observe that equity-dependent firms display a more pronounced sensitivity of investment to stock misvaluation than do non-equity-dependent firms. Therefore, our findings imply that mispricing in Indian stock markets may have a significant influence on the real economy and the influence works through an equity-financing channel. However, investment is not sensitive to stock mispricing when we consider all listed firms and listed non-manufacturing firms.

Indrani Chakraborty

Chapter 5. Effects of R&D Investment on Stock Returns: An Analysis of Indian Publicly Listed Firms

Abstract

The relationship between R&D investment and stock returns may be due to the disruption in adjustment costs or earnings management by the managers. Using an unbalanced panel data for 3823 publicly listed firms for the period 2011–2021 for India, we find that R&D expenditures and change in R&D expenditures have negative effects on stock returns while considering all listed firms. Therefore, our findings support the predictions of agency theory and behavioural theory of finance, according to which overconfident managers are likely to spend more on R&D projects, most of which are likely to be negative net present value projects, which in turn reduce firm value and hence stock returns. Our analysis reveals that the negative relationships between R&D expenditure and stock returns and between the change in R&D expenditure and stock returns that we observe for all listed firms are owed solely to low-technology firms. Our findings also show that R&D intensity has a positive effect on stock returns whereas volatility in R&D expenditures has a negative effect. The latter result supports the assertion that R&D volatility is consistent with adjustment costs associated with disruption which adversely affects firm performance. It suggests that volatility in R&D expenditures by earnings management is penalized by the market, hence reducing stock returns. We also observe that firm size has a moderating effect on the relationship between volatility in R&D and stock returns. Our finding also shows that these relationships were more pronounced during the Covid-19 crisis period in India.

Indrani Chakraborty

Chapter 6. Stock Returns and Real Economic Activities: Is There a Connection in India?

Abstract

In this chapter, the relationship between stock returns and real economic activities has been examined for India. We also bring in the role of interest rates and dividend yields to this relationship to disentangle the effect of primary variables that influenced stock returns. Our study period is from 2010 to 2021. We analyse monthly, quarterly, and annual data pertaining to this period. In the case of monthly data, we observe that stock returns in a month anticipate the changes in the index of industrial production (IIP) in the following month. But in the case of annual data, this does not hold good. Rather, in the case of annual data, changes in interest rates affect stock returns in the same year and stock returns anticipate the changes in dividend yields in the following year. Moreover, better results are obtained when we use industrial production rather than gross production (GDP). However, our results show that stock returns in India do not help us predict real activities in the case of quarterly and annual data. Our analysis further shows that contemporaneous changes in interest rates and future changes in dividend yield are more important sources of movements in stock returns than future changes in production when we focus on annual data. We can therefore conclude that there is no connection between stock returns and real economic activities in India, except when the monthly data are used.

Indrani Chakraborty

Chapter 7. Conclusion

Abstract

The objective of this study was to analyse the dynamics of the stock market in India with a special emphasis on the period following the emergence of Covid-19. The study period is from 2010–2021, with a special focus on the period from February, 2020 to May, 2021.

Indrani Chakraborty

Titel: Exploring What Drives Indian Stock Market During Covid-19
verfasst von: Indrani Chakraborty
Verlag: Springer Nature Singapore
Electronic ISBN: 978-981-19-8001-5
Print ISBN: 978-981-19-8000-8
DOI: https://doi.org/10.1007/978-981-19-8001-5