Analysis and prediction of Indian stock market: a machine-learning approach
- CASE STUDIES
- Published: 01 July 2023
- Volume 14 , pages 1567–1585, ( 2023 )
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- Shilpa Srivastava ORCID: orcid.org/0000-0002-8566-1646 1 ,
- Millie Pant 2 &
- Varuna Gupta 1
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Prediction of financial stock market is a challenging task because of its volatile and non- linear nature. The presence of different factors like psychological, sentimental state, rational or irrational behaviour of investors make the stock market more dynamic. With the inculcation of algorithms based on artificial intelligence, deep learning algorithms, the prediction of movement of financial stock market is revolutionized in the recent years. The purpose of using these algorithms is to help the investors for taking decisions related to the Stock Pricing. A model has been proposed to predict the direction of movement of Indian stock market in the near future. This model makes use of historical Indian stock data of companies in nifty 50 since they came existence along with some financial and social indicators like financial news and tweets related to stocks. After pre-processing and normalization various machine learning algorithms like LSTM, support vector machines, KNearest neighbour, random forest, gradient boosting regressor are applied on this time series data to produce better accuracy and to minimize the RMSE error. This model has the ability to reduce major losses to the investors who invest in stock market. The social indicators will give an insight for predicting the direction of stock market. The LSTM network will make use of historical closing prices, tweets and trading volume.
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Srivastava, S., Pant, M. & Gupta, V. Analysis and prediction of Indian stock market: a machine-learning approach. Int J Syst Assur Eng Manag 14 , 1567–1585 (2023). https://doi.org/10.1007/s13198-023-01934-z
Received : 03 October 2021
Revised : 07 February 2023
Accepted : 24 April 2023
Published : 01 July 2023
Issue Date : August 2023
DOI : https://doi.org/10.1007/s13198-023-01934-z
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Market capitalization: Pre and post COVID-19 analysis
M. praveen kumar.
a Department of Management Sciences, CRESTA School of Management, Mysuru, India
N.V. Manoj Kumara
b Department of Management Sciences, Maharaja Institute of Technology, Mysuru, India
This research paper focuses on the impact of COVID-19 on Indian Stock Market and shares performance. In other words, the article analyses the market capitalization correlation between the performances of shares and the growth of the share market, using the stock market data of Pre and post COVID-19 status by comparing the data from Jan’20 to Jun’20. The variables have positive and statistically strong significance on the changes in the market’s performance and the value of its market capitalization.
Pre COVID-19, market capitalization on each major exchange in India was about $2.16 trillion. The 2019 stock market rally was limited to 8–10 stocks within the large caps. The Sensex returned around 14% (excluding dividends) for the year 2019 but prominently featured blue-chip companies such as HDFC Bank, HDFC, TCS, Infosys, Reliance, Hindustan Unilever, ICICI Bank and Kotak Bank, without which Sensex returns would have been negative. However, in the start of 2020, there was overall recovery which led to both NSE and BSE traded at their highest levels ever, hitting peaks of 12,362 and 42,273 respectively. At the beginning of the year, there were close to 30 companies that were expected to file IPO’s. The market conditions were generally favorable as they witnessed record highs in mid-January.
Ever since COVID 19 strike, markets loom under fear as uncertainty prevails. It has sent markets around the world crashing to levels not witnessed since the Global Financial Crisis of 2008. Following the strong correlation with the trends and indices of the global market as BSE Sensex and Nifty 50 fell by 38 per cent. The total Market Capitalization lost a staggering 27.31% from the start of the year. The stock market has reflected the sentiments this pandemic unleashed upon investors, foreign and domestic alike. Companies have scaled back; layoffs have multiplied and employee compensations have been affected resulting in negligible growth in the last couple of months. Certain sector such as hospitality, tourism and entertainment has been impacted adversely and stocks of such companies have plummeted by more than 40%.
2. Background of the study
Market Capitalization is the value of a public company in the stock market. It is based on the current share price and the total number of outstanding shares of a company. It is the total market of a company’s outstanding shares of stock. It is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share. Let’s assume that a company has 1 million shares to sell and the market price of a share is Rs 100. Then, the Market Capitalization of the company will be 1,000,000 (shares) × Rs100 = Rs 100,000,000.
Market Capitalization plays an important role in determining the size of a company. It gives an investor an insight to the future prospects of the company and whether or not they should invest. It also lets us know how much an investor is willing to pay for the shares of the company.
2.1. Importance of Market Capitalization in investment
Before investing in a stock, it is important to not only compare the price of the individual share but compare the Market cap. Market Capitalization gives a clear picture of a company’s value, the risks involved and helps in diversifying portfolios with company of different sizes. The Market Capitalization of a company determines which broad category of publicly traded company it falls under: small cap, mid cap, or large cap.
Companies are typically divided in the following way according to market capitalization:
- i) Large-cap: These are generally fully fledged, developed and well-known companies within established industries with a market value of $10 billion or more.
- ii) Mid-cap: These are established companies whose industries are experiencing or are expected to experience rapid growth with a market value of between $2 billion and $10billion.
- iii) Small-cap: These are young companies that serve emerging industries with a market value less than $2 billion.
Large-cap companies generally have a market capitalization of $10 billion or more. These companies are the ones that have been around for a long time, and they are major players in well-established industries. Investing in large-cap companies does not necessarily bring in huge returns in a short period of time, but over the long run, these companies generally reward investors with a consistent increase in share value and dividend payments. These companies are considered less risky as the prices remain relatively stable due to them being in the market for a long time. Some examples of large-cap companies are Reliance Industries, HDFC Bank, ITC, etc ( Fig. 1 , Fig. 2 , Fig. 3 , Fig. 4 ).
Jan 2020 Closing Indexes. Source: https://www.nseindia.com .
Apr 2020 Closing Indexes. Source: https://www.nseindia.com .
Comparison of Jan & Apr 2020 Data. Source: https://www.nseindia.com .
Comparison of Apr & Jun 2020 Data. Source: https://www.nseindia.com .
Mid-cap companies generally have a market capitalization of between $2 billion and $10 billion. These are established companies that operate in an industry expected to experience rapid growth. They are in the process of expanding. They carry a higher risk than large-cap companies because they are not as established, but attract investors with their growth potential. An example of a mid-cap company is Eagle Materials Inc ( Table 1 , Table 2 ).
A Comparison of Pre and Post COVID View of Indian Stock Markets-Source: Business world, Jun 2020.
A Comparison of Nifty50 – Jan 2020 and Apr’ 2020 closing Indexes of Indian Stock Markets-Source: https://www.nseindia.com .
Small-cap companies are those companies that have a market capitalization of between $300 million to $2 billion. These small companies could be young in age and/or they could serve niche markets and new industries. These companies are considered higher risk investments due to their age, the markets they serve, and their size. These companies are small with fewer resources and are more sensitive to economic slowdowns. As a result, small-cap share prices tend to be more volatile and less liquid than more mature and larger companies. At the same time, small companies often provide greater growth opportunities than large-caps as higher the risk, higher the returns.
Even smaller companies with values between approximately $50 million and $300 million are known as micro-cap.
2.2. Understanding Market Capitalization
Recognizing the value of a company is a very important yet difficult task. Business requires fast results and hence, knowing the value of a company quickly is necessary. Here, Market Capitalization plays a very important role as it is a fast and easy method in evaluating a company’s value by simply multiplying the share price by the number of shares available.
A company’s value is the fundamental determinant in which the investors hold great interest. It helps them in choosing from various stocks available and makes it easy to compare various companies and ascertain the risk involved.
To understand comparison of companies let us take an example where there are two companies namely ‘Company A’ and ‘Company B.’
‘Company A’ with 10,000 shares selling at $1,000 a share would have a Market Capitalization of $10 million whereas ‘Company B’ with a share price of $100 with 20 million shares outstanding, would have a Market Capitalization of $2 billion.
The formula for market capitalization is:
where, MC is the market capitalization, N is the number of shares outstanding, and P is the closing price per share.
This easy way helps an investor in deciding which company to invest in and also helps in ascertaining risks and potential growth of the company.
2.3. How Market Capitalization is established?
Market Capitalization is established at the time a private company decides to go public. The said company, with the help of investment banks in the market determines how many shares will be offered to the public and at what price. This is known as ‘Initial Public Offering’ and is the first step towards initiating the Market Capitalization.
After a company goes public and starts trading on the exchange, its share price is regulated based on the demand and supply of its shares in the market. If there is a high demand for its shares due to favorable factors, the price would increase. If the company's future potential doesn't look good, the price of the stock will decrease. The Market Capitalization thus, becomes a real-time estimate of the company's value.
3. Literature review
 and Jha  , “new issues comprise a category of stocks which falls outside the usual evaluation technique.” A new issue can be said to be the first sale of stock by a company to the public. Companies sell their stocks to the public when their physical resources have been utilized to the maximum and they need new capital for expansion and other related purposes. However, the need for this market arises when business prospects become bright and more capital is raised to meet these prospects. As a nation’s economy grows and develops, the volume of new issues of securities also increases. The modes of offers of securities traded in this market include offer for subscription, right issue, offer for sale and private placement.
Few Ekanem  ,  and Jha  have argued that stock markets might even be a good predictor of the economy of a nation, since stock prices may be a leading indicator of the general economic expansion and contraction. Jha  notes that the importance of the stock exchange lie in the fact that it promote businesses and the economy in the following ways:
i) The stock exchange helps companies and businesses to raise capital needed for operation, production, expansion and development. ii) The Government, which is a big borrower of funds, can raise money through the stock exchange when she issues and sells government stocks or bonds. iii) The stock exchange also encourages investment in the economy, since it provides an avenue that makes it easy for shareholders to buy and sell shares on the floor through stock brokers who work directly on the exchange. Also, since shares can be reconverted easily to cash by selling them on the exchange, investment is thus promoted. iv) Likewise in other nations, the National Stock Exchange provides a financial market for investors to buy and sell their shares and other securities easily. v) The stock exchange provides professional advice on the selection and management of investments in the country. With the investing public professionally advised on investments, they are encouraged and mobilized to invest and this raises living standards in the long run. vi) The activities of the exchange, companies are compelled to perform well and competitively. Only viable, efficient and profitable companies can have their stocks listed on the exchange. Also, the exchange requires regular reports from the companies and this encourages proper financial management and accounting. Therefore, companies strive hard to perform well and this generally helps to enhance economic development. vii) In order to secure the confidence of investors in part and the economy in general, the stock exchange establishes rules and regulations, guidelines and procedures which make sure dealings are done or carried out properly, professionally, transparently, efficiently and not fraudulently.
 examined the relationships between stock market capitalization rate and interest rate. They used the ordinary least-square (OLS) regression method and they found that the prevailing interest rate exerts positive influence on stock market capitalization rate. Also, they are finding that Government development stock rate exerts negative influence on stock market capitalization rate and prevailing interest rate exerts negative influence on government development stock rate. Kurihara  suggests that stock market capitalization rate is significantly influenced by the macroeconomic environment factors such as gross domestic product, exchange rates, interest rates, current account and money supply.
4. Objectives of the study
- • To understand how the Indian stock market is run, particularly as it pertains to the stocks of pre and post COVID-19.
- • To analyze the effects on performance of the stocks post COVID-19 spike in India.
- • To make concrete and justifiable conclusions and recommendations based on the findings of the study.
5. Research methodology
The secondary data collected from records of the companies, dealers. The data of past indices also have been collected. The secondary data has been collected to cover every aspect of the study. The secondary data shows the Indian stock market bourses data month wise, pre and post COVID-19. These data used in combination as per need of the study. These data having different merits and demerits and have serves our purpose of the research study. A variety of secondary information sources is available to gathering data on the market place.
6. Data analysis
6.1. the market before covid-19.
Pre COVID-19, market capitalization on each major exchange in India was about $2.16 trillion. The 2019 stock market rally was limited to 8–10 stocks within the large caps. The sensex returned around 14% (excluding dividends) for the year 2019 but prominently featured blue-chip companies such as HDFC Bank, HDFC, TCS, Infosys, Reliance, Hindustan Unilever, ICICI Bank and Kotak Bank, without which Sensex returns would have been negative. However, in the start of 2020, there was overall recovery which led to both NSE and BSE traded at their highest levels ever, hitting peaks of 12,362 and 42,273 respectively. At the beginning of the year, there were close to 30 companies that were expected to file IPO’s. The market conditions were generally favorable as they witnessed record highs in mid-January.
6.2. Impact of COVID 19 on the Indian stock markets
History is proof that sometimes events occur that nobody predicted or imagined could happen. These are events that leave everyone by surprise to an extent that create havoc and chaos in human activities and disrupt the human life. These events are called black swans. This term was derived in 1697 when mankind believed that all swans were white until Dutch explorers sighted black swans for the first time in Western Australia, completely invalidating the fact that swans could only be white. The Impact of novel corona virus (COVID-19) on the stock market is one such event, which has all characteristics of a black swan.
The stock market across the world came crashing down with the rise of Covid-19. It has brought the entire world to a halt including the world of business. The markets around the world have come crashing down to a level last seen during the financial crisis of 2008. Although the world has seen a market crash before, the impact due to covid-19 is unusually different as the pandemic is widely spreading due to which there is a lot of uncertainty in the market. The country went into a complete lockdown for almost a period of 3 months which has taken a toll on various economic activities.
The tabulated data shows the Indian market closing stock indexes of Nifty 50 for the month of January, April and June 2020. It can be observed that before the COVID-19 virus hit India, the stock market was performing very well in the month of Jan’20. It started to fall in the end of March’20 and it crashed in the month of April’20 when the country went into a nationwide lockdown. As the country started Unwinding the lockdown and restarted the economic operations in the due end of May, stock indexes started picking its speed up on the way to recovery as it can be seen in the June 2020 data.
7. Results & discussions
Following the strong correlation with the trends and indices of the global market as Nifty 50 fell by 38 per cent. The total Market Capitalization lost an astonishing 27.31% from the start of the year. The stock market has done nothing but reflected the attitude of investors globally due to the pandemic. Companies have started to scale back with their spending resulting in layoffs and unemployment.
Sectors like travel and transportation, entertainment industry, oil & gas have been the most affected. Stocks of these companies have come crashing down more than 40%. Several companies have declared bankruptcy due to a non-functioning business as a result of the lockdown.
The IT sector has also suffered as several companies have seen a drop in their revenue due to the global cut off on spending on technology because of the lockdown. However, there are also certain business sectors that are immune to the impact of corona virus or if not, will be able to revive faster than the other sectors. These sectors include healthcare, banking, telecommunications and retail such as groceries.
7.1. Recovery in the current times
An unfortunate pandemic, the Covid-19 has resulted in an economic, financial and medical crisis in the country. These are tough times but humankind is known to be tougher and will bounce back from this stronger than ever.
To revive the economy and boost the business, a smart recovery plan is essential.
The county needs to focus on attracting foreign investments and must reduce importing products. We must encourage products made in India and support local producers. The RBI and the Government of India has come up with a number of reforms such as reductions of repo rate, regulatory relaxation by extending moratorium and several measures to boost liquidity in the system in response to the current situation and keeping in mind the chaos the pandemic has created.
The government must focus on its Make in India initiatives, commercialization of Indigenous technology, developing a technology-driven transparent Public Distribution System (PDS), efficient rural health care delivery, reduction of import, adoption of emerging technology domains like AI, Machine Learning, Data Analytics and many more. Companies with innovative products, increasing distribution reach, technology-driven processes and healthy balance sheet would revive the growth momentum post lockdown. The only way to revive the economy is to strengthen the skills of its citizens and become self-sufficient as a country.
As for the outlook for the market, looking back at its history we know for sure that a crisis however long doesn’t last forever. Drops in BSE sensitive index are temporary, and each dip provides investors with the opportunity to enter the market and earn a higher return especially for those with long term horizon. Moreover, the higher the fluctuations, the higher chances of getting better returns. The world is competent enough to come up with answers to combat the pandemic. It is certain that the markets will bounce back soon the crisis gets over.
Until a medical vaccine or other medical solution is found for the Covid-19, it would be hypothetical to expect a quick economic rebound from the current effect of the pandemic.
Once the pandemic is over normalcy will surely return to the business and economy, the stock market will start moving in a positive direction, and as witnessed in the past, recovery would be faster than expected.
8.1. Scope of future research
Study on Indian stock market and its analysis of pre and post COVID-19 conditions has etched a large platform for researchers to continue the study effect of the same on stock prices and on country’s economy as a whole in the further days. We wish the researchers to make the study area broader by contributing on the above said topic.
Declaration of Competing Interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
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India's stock market will soar to $10 trillion by 2030 and the country's growth is impossible for investors to ignore, Jefferies says
- India's stock market is poised to more than double in value to $10 trillion by 2030, Jefferies says.
- Jefferies analysts also predicted the Indian economy would surpass Japan's and Germany's by 2027.
- The analysts said growth in the country in coming years would be impossible for investors to ignore.
India's stock market is poised to skyrocket, more than doubling in value to $10 trillion by 2030, thanks to the country's surging economy and persistent reforms, analysts at Jefferies wrote in a note published Thursday.
With a value of $4.3 trillion, India's equity market is the world's fifth-largest, and Indian stocks have managed to consistently yield 10% annual returns over a 20-year period.
Even after that run of stunning equity returns, the Jefferies analysts said investors in the country's stock market could still expect returns of 8% to 10% in the next five to seven years.
"Assuming market returns in line with the last 15-20 year history and new listings, India will become nearly a U$10trn market by 2030 - impossible for large global investors to ignore," the analysts wrote.
India has emerged as a hot spot for global capital inflows in recent years, especially as its longtime rival China struggles to keep investors from fleeing economic turmoil in the country.
China's flailing economy, its cratering stock market , and a never-ending property crisis have driven foreign investors to shift their focus to India, helping push the country's stock market 31% higher last year.
Meanwhile, India's financial-system reforms, favorable geopolitical dynamics, a growing entrepreneurial landscape, and the country's emphasis on services exports are all boosting its prospects for strong growth and stock-market returns. India's gross domestic product has seen a 7% compound annual growth rate in the past decade.
"Over the next 4 years, India's GDP will likely touch US$5trn making it the 3rd largest economy by 2027, overtaking Japan and Germany, being the fastest growing large economy with the tailwinds of demographics (consistent labor supply), improving institutional strength and improvement in Governance," the note said.
Correction: February 23, 2024 — An earlier version of this story misstated the year by which Jefferies analysts expect the Indian stock market to reach $10 trillion in value. It's 2030, not 2023.
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India's stock market value to reach $10 trillion by 2030, says Jefferies
The nation's market, currently the world's fifth largest at $4.5 trillion, briefly overtook hong kong last month. still, its weight in global stock indexes is below 2%.
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First Published: Feb 22 2024 | 11:31 PM IST
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Nifty 50 to Sensex: Why Indian stock market has been rising for last four days — explained with 5 crucial reasons
Stock market today: Positive global sentiments, strong Indian economy, liquidity buzz, and better-than-expected inflation data are driving continuous rallies on Dalal Street
Stock market today: Following strong global cues, the Indian stock market extended its rally for the fourth day in a row. The Nifty 50 index regained the 22,000 level within an hour of the opening bell whereas the Bank Nifty index gave a fresh breakout at the 46,300 mark within a few minutes of the opening bell.
The BSE Sensex continued to sustain above the 73,000 mark and extended its previous gain by logging an intraday gain of around 0.50 percent on Friday. However, in the broad market, the small-cap and mid-cap indices continue to outperform key benchmark indices.
Expecting further rally in key benchmark indices, Sumeet Bagadia, Executive Director at Choice Broking said, “The Bank Nifty index has given fresh breakout at 46,300 mark and the index is looking positive on chart pattern. It may touch the 46,800 to 46,900 level in the next few sessions whereas breaching above 46,900 on a closing basis may open fresh upside potential for the 47,800 mark." However, he said that Bank Nifty has a crucial base placed at 45,900 mark.
Bagadia said that the Nifty 50 index is facing resistance at the 21,125 mark. On breaching this resistance, the 50-stock index may go up to the 22,300 mark. However, he maintained that 21,800 would remain major support for the key benchmark index.
According to stock market experts, the Indian stock market is rising for various reasons but positive global sentiments are the prominent one. Apart from this, the strong Indian economy, liquidity buzz after better-than-expected inflation data in India, strong US CPI data, etc. are some of the major reasons for continuous rallies on Dalal Street.
Why Indian stock market is skyrocketing?
Speaking on the reason for the rise in the Indian stock market, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "The Indian stock market has been in uptrend for the last four sessions due to strong global market sentiments. Global sentiments have gone highly positive after the strong US CPI data. this has created a rate-cut buzz among central banks across the world. In India, we have already witnessed better-than-expected inflation data, which cements rate cut buzz in India."
Also Read: Five stocks set to benefit from the 2024 elections
"PSU stocks resumed their ongoing rally after a short pause. OIL & Gas posted solid gains due to impressive quarterly results, improved GRM, and strong growth expected in India’s oil consumption going forward. With the end of the Q3 result season, the focus is now shifting to fundamentals and economic macro data. Domestic equities are taking support from better-than-expected inflation which would keep the trend positive," said Siddhartha Khemka, Head - Retail Research at Motilal Oswal.
Top 5 reasons for Indian stock market rally
Stock market experts listed the following 5 reasons for a continuous rally on Dalal Street:
1] Strong global cues: "After strong US CPI data, the Wall Street and other global bourses are rising which has fueled buying interest in the Indian stock market as well. Japanese Nikkei is near an all-time high whereas most of the Asian and European bourses have registered strong rally after the US CPI data release," said Avinash Gorakshkar.
2] Indian economy: Avinash Gorakshkar went on to add that the Indian economy has been doing well in the last few years and this has happened even when the global market was reeling under the inflation concern. As global inflation is expected to feel relief after the strong US economic data, the Indian economy is expected to do exceedingly well and recent Indian inflation is a glaring example of it. This rise in the Indian markets can be attributed to this buzz as people are buying heavily in the wake of the resurging Indian economy in the near term. He said that most of the index heavyweights are an integral part of the national economy and their Q3 results were either better or in sync with the market estimates.
3] FII trade pattern: "If you look at the trade pattern of FIIs in the last four days, you would come to know that FIIs are net buyers in the cash segment whereas they have remained net sellers in the Future & Option (F&O) segment. What does it mean? In my opinion, it is a signal that FIIs are switching their money from short-term trade positions to long-term positions. And this is a good sign for the Indian stock market as FIIs are bullish on the Indian stock market in the medium to long term," said Sandeep Pandey, Founder of Basav Capital.
4] Ample liquidity: "After the soft Indian inflation data, the market is expecting a rate cut from the Reserve Bank of India in the near term. At least, a signal or timeline for rate cust is something that market observers are expecting in the next RBI meeting. This is expected to fuel liquidity in the market as lowering of interest rate may lead to more availability of the money in the markets," said Sandeep Pandey.
5] Participatory rally: "After the recent sell-off in the Indian PSUs and banking shares, we are witnessing bottom fishing in these stocks in the current rally, which means the PSU theme is still under the radar of stock market bulls. Apart from this, small-cap and mid-cap indices are still dominating over the key benchmark indices, which means the recent rally is across segments and it is going to sustain," said Avinash Gorakshkar of Profitmart Securities.
Disclaimer: The views and recommendations above are those of individual analysts, experts, and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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