LOVELY PROFESSIONAL UNIVERSITY SCHOOL OF BUSINESS AND APPLIED ARTS Report on Capstone Project

RELATIONSHIP STUDY OF INDIAN STOCK MARKET(NSE&BSE) AND GOLD PRICES

Submitted to Lovely Professional University

In partial fulfillment of the Requirements for the award of Degree of Master of Business Administration Submitted by: Aman srivastava (11200691) Sarita yadav(11200673) Nishant sharma(11200576) Vineet kumar(11200542) SCHOOL OF BUSINESS AND APPLIED ARTS LOVELY PROFESSIONAL UNIVERSITY JALANDHAR NEW DELHI GT ROAD PHAGWARA PUNJAB
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Under Supervision of: Mrs. Jyoti Verma

CERTIFICATE

This is to certify the declaration statements made by this group of students are correct to the best of my knowledge and belief. The project report titled RELATIONSHIP STUDY OF INDIAN STOCK MARKET(NSE&BSE) AND GOLD PRICES The capstone project-2 Submission is fit for the submission and partial fulfillment of the condition for the award of M.B.A from Lovely Professional University, Phagwara.

Name : ......................................................... U.ID: ............................................................ Designation :..................................................

Signature of Faculty Mentor

ACKNOWLEDGEMENT

We express our deep sense of gratitude and heartfelt thanks to the management of Lovely professional university for their constant encouragement and guidance at every stage during the course of this project work. Our learning has been immeasurable. Our heartfelt gratitude to my respected Faculty Guide Mrs. Jyoti Verma without her continuous help the project would not have been materialized in the present form. Their valuable suggestions helped us at every step. We also acknowledge heartfelt gratitude to our family, friends for having extended their cooperation in making this report.

Date:

DECLARATION

We, hereby declare that the work presented herein is genuine work done by us and has not been published or submitted elsewhere for the requirement of a degree program. Any literature, data or work done by others and cited within this dissertation has been given due acknowledgement and listed in the reference section.

AMAN SRIVASTAVA (11200492) SARITA YADAV (112000673) NISHANT SHARMA (11200576) VINEET KUMAR(11200542)

Table of Content S.no.

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PARTICULAR
INTRODUCTION 1.1 Gold as Investment 1.2 Investment Vehicle 1.3 Stock market REVIEW OF LITERATURE NEED AND SCOPE OF STUDY OBJECTIVE OF STUDY METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS AND LIMITATIONS REFERENCES

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07-12 8 9-10 10-12 13-16 17 18 19-20 21-25 25 26

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EXECUTIVE SUMMARY This research report is made with objective to find out the relationship between gold prices and NSE and BSE.U.S dollar has also been taken into consideration to find out its effect on Indian stock market. In this research report monthly data of Gold, U.S dollar, NSE, BSE have been taken from 2000 to 2013 with a purpose to find out their relationship and to what extent they are related. Various tools and techniques have been used to find out results. Correlation has been used to find out their relationship i.e. proportional or inverse. Standard deviation has been used to find out the risk involved while investing. This paper will help in decision making of investor at the time of their investment. By this paper investor may come to know that how much risk is involved in various avenues and which avenue is safer to invest with a purpose of higher return.

Introduction
Indian capital market has undergone tremendous changes since 1991, when the government has adopted liberalization and globalization polices. As a result, there is a growing importance of the stock market from aggregate economy point of view. Nowadays stock market have become a key driver of modern market based economy and is one of the major sources of raising resources for Indian corporate, thereby enabling financial development and economic growth. The economic position of a country can be judged by the performance of its stock market. An economic downturn escorts stock market towards collapse, and therefore, the government closely monitors the movements in the stock market. The stock market indices are mainly affected by the changes in the fundamentals of the economy. As India is a developing country, many researchers have tried to find out the effect of macroeconomic variables on the Indian stock market in the last few decades. There are two different views on the relationship between gold demand and income. The classical theory argues that there exists a positive relationship between gold price and real income, while Keynesian theory argues that more demand means more economic backwardness hence low income, which indicates an inverse relationship. India and China are the major gold purchasers in the world. In the last 10 years, Indian population has increased by 12%, while the demand for Indian gold has increased by 13%. According to the World Gold Council (WGC), Indians own more than 18,000 tons of gold, which represents 11% of the global stock and is the largest in the world. And this stock is expected to grow over the next decade. Indians roughly save 30% of their income, which is one of the highest in the world, and of this 10% is invested in gold. Gold is construed as customarily a secured investment whenever the market starts moving down. In order to avoid losses due to volatility, the smart investor starts moving his funds to the safer side. In view of the prudent investors in the stock market, gold is treated as one of the safest investment avenues in times of bearish stock market. It has been observed that whenever the share market goes down, the gold prices go up. Gold is traditionally a safe investment and it is the hard copy possession with the person buying it .When other investments are risky, people usually tend to invest in gold and when many start investing in gold, the price of gold increases. When other investments become safe, people disinvest from gold and enter into other investments resulting decline in demand of gold thereby decreasing price of gold. During bull

markets, gold at low price can be bought and in bear markets can be sold in high prices for profit booking. The gradual ascend in domestic gold price in India is owing to intense demand within the country. There are numerous reasons why gold has high demand within domestic market of India. The security that gold offers as long as it is retained by central banks is the most pertinent reason that can be cited for huge demand acceleration with in domestic market; moreover, the gold attached no credit risk. Another reason that can be mentioned here is that gold can be converted into liquid cash at any time, even in times of crisis scenario like high global inflation or political turbulence. Those who concentrate on building diversified portfolio are more likely to hold this precious metal. In times of general economic and financial crisis, gold is a safe haven investment. When paper currencies are over-produced, gold rises in anticipation of future inflation. When bank credit is over-produced and society can no longer sustain elevated debt levels, gold rises in anticipation of deflation, stock market collapses and bond failures. Again, in times of national crisis, bank failures, war and invasions and in case of negative real interest rate, people consider gold as a solid asset and like to invest in such precious metal because there is a little chance of getting better returns in the stock investments due to a fragile economic and financial position.

Gold as an investment
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. Gold price has shown a long term correlation with the price of crude oil. This suggests a reason why gold is sold off during economic weakness. Gold has been used throughout history as money and has been a relative standard for currency equivalents specific to economic regions or countries, until recent times. Many European countries implemented gold standards in the latter part of the 19th century until these were temporarily suspended in the financial crises involving World War I After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold and made the transition to a fiat system. The last currency to be divorced from gold was the Swiss Franc in 2000.Since 1919 the most
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common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intraday spot price, derived from over-the-counter gold-trading markets around the world (code "XAU"). The following table sets forth the gold price versus various assets and key statistics on the basis of data taken with the frequency of five years So, stock market research in India has got an enormous anxiety to the researchers, market players, investors and academicians. Keeping in view of this, this paper investigates the relationships between commodity market and stock market in India.

Investment vehicle Bars (1 troy ounce (31 g) gold bar with ate)
The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Canada, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars are available in various sizes. For example in Europe, Good Delivery bars are approximately 400 troy ounces (12 kg).1 kilogram (32 ozt) are also popular, although many other weights exist, such as the 10oz, 1oz, 10 g, 100 g, 1 kg, 1 Tael, and 1 Tola. Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. While bullion coins can be easily weighed and measured against known values to confirm their veracity, most bars cannot, and gold buyers often have bars re-assayed. Larger bars also have a greater volume in which to create a partial forgery using a tungsten-filled cavity, which may not be revealed by an assay. Good delivery bars that are held within the London bullion market (LBMA) system each have a verifiable chain of custody, beginning with the refiner and assayer, and continuing through storage in LBMA recognized vaults. Bars within the LBMA system can be bought and sold easily. If a bar is removed from the vaults and stored outside of the chain of integrity, for example stored at home or in a private vault, it will have to be re-assayed before it can be returned to the LBMA chain. This process is described under the LBMA's "Good Delivery
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Rules". The LBMA "traceable chain of custody" includes refiners as well as vaults. Both have to meet their strict guidelines. Bullion products from these trusted refiners are traded at face value by LBMA members without assay testing. By buying bullion from an LBMA member dealer and storing it in an LBMA recognized vault, customers avoid the need of re-assaying or the inconvenience in time and expense it would cost.[51] However this is not 100% sure, for example, Venezuela moved its gold because of the political risk for them, and as the past shows, even in countries considered as democratic and stable, for example in the USA in the 1930s gold was seized by the government and legal moving was banned. Efforts to combat gold bar counterfeiting include kinebars which employ a unique holographic technology and are manufactured by the Argor-Heraeus refinery in Switzerland.

Coins
Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand (as opposed to numismatic gold coins which are priced mainly by supply and demand based on rarity and condition). The Krugerrand is the most widely held gold bullion coin, with 46,000,000 troy ounces (1,400 tonnes) in circulation. Other common gold bullion coins include the Australian Gold Nugget (Kangaroo), Austrian Philharmoniker (Philharmonic), Austrian 100 Corona, Canadian Gold Maple Leaf, Chinese Gold Panda, Malaysian Kijang Emas, French Napoleon or Louis d'Or, Mexican Gold 50 Peso, British Sovereign, American Gold Eagle, and American Buffalo. Coins may be purchased from a variety of dealers both large and small. Fake gold coins are not uncommon, and are usually made of gold-plated lead.

STOCK MARKET (BSE & NSE)

A stock index or stock market index is a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. An index is a mathematical construct, so it may not be invested in directly. But many mutual funds and exchange-traded funds attempt to "track" an index (see index fund), and those funds that do not may be judged against those that do.
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Bombay stock exchange-(BSE),(Bombay hare Bzar) is a stock exchange located

on Dalal Street, Mumbai, Maharashtra, India. It is the11th largest stock exchange in the world by market capitalisation as of 31 December 2012.[2] Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd.), is the India's second oldest Stock Exchange (Oldest being the Calcutta Stock Exchange (CSE) located at the Lyons Range, Kolkata) and one of Indias leading exchange groups. Over the past 137 years, BSE has facilitated the growth of the Indian corporate sector by providing it an efficient capital-raising platform. Popularly known as BSE, the bourse was established as "The Native Share & Stock Brokers' Association" in 1875.

History
The Bombay Stock Exchange is the oldest exchange in India. It traces its history to 1855, when four Gujarati and one Parsi stockbroker would gather under banyan trees in front of Mumbai's Town Hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 31st August,1957, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. In 1980 the exchange moved to the Phiroze Jeejeebhoy Towers at Dalal Street, Fort area. In 1986 it developed the BSE SENSEX index, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading SENSEX futures contracts. The development of SENSEX options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. BSE also provides a host of other services to capital market participants including risk management, clearing, settlement, market data services and education. It has a global reach with customers around the world and a nation-wide presence. BSE systems and processes are designed to safeguard market integrity, drive the growth of the Indian capital market and stimulate innovation and competition across all market segments. BSE is the first exchange in India and second in the world to obtain an ISO 9001:2000 certification. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its On-Line trading System (BOLT).

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National Stock Exchange (NSE) (Hindi: Rashtriya share bazaar)

is stock exchange located in Mumbai, India. National Stock Exchange (NSE) was established in the mid 1990s as a demutualised electronic exchange. NSE provides a modern, fully automated screen-based trading system, with over two lakh trading terminals, through which investors in every nook and corner of India can trade. NSE has played a critical role in reforming the Indian securities market and in bringing unparalleled transparency, efficiency and market integrity. NSE has a market capitalisation of more than US$0.989 trillion and 1,635 companies listed as of July 2013. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. NSE's flagship index, the CNX NIFTY 50, is used extensively by investors in India and around the world to take exposure to the Indian equities market. NSE was started by a clutch of leading Indian financial institutions. It offers trading, clearing and settlement services in equity, debt and equity derivatives. It is India's largest exchange, globally in cash market trades, in currency trading and index options. NSE has diversified shareholding. There are many domestic and global institutions and companies that hold stake in the exchange. Some of the domestic investors include LIC, GIC, State Bank of India and IDFC Ltd. Foreign investors include MS Strategic (Mauritius) Limited, Citigroup Strategic Holdings Mauritius Limited, Tiger Global Five Holdings and Norwest Venture Partners X FII-Mauritius, who have a stake in NSE. As of June 2013, NSE has 1673 VSAT terminals and 2720 leaselines, spread over more than 2000 cities across India.

Origins
The National Stock Exchange of India was incorporated in 1992 and recognised as a stock exchange in 1993, at a time when PV Narasimha Rao was the Prime Minister of India and Dr. Manmohan Singh was the finance minister. It was set up to bring in transparency in the markets. Promoted by leading Financial institutions essentially led by IDBI at the behest of

the Government of India, it was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognised as a stock exchange under the Securities Contracts (Regulation) Act, 1956.

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REVIEW OF LITERATURE

Sharma, et.al (2008) examined and found out that the movement of stock indices is highly sensitive to the changes in fundamentals of the economy and to the changes in expectations about future prospects. This papers contributions are as follows. First by embracing a study period that extends beyond January 2008, this paper provides the first attempt to analyze the health of stock market near to the elections. The time period examined by existing studies on time series behavior of BSE do not cover the post election period. Naka (1990) employed a vector error correction model (VECM) (Johansen (1991)) in a system of five equations to investigate the presence of co integration among these factors. Analyzed a negative relationship between interest rates or inflation and stock prices, and a positive relation between output growth and stock prices. Sharma (2008) tests weak form of efficiency of the BSE. Srivastava, (2010) conducted a study and seen that asset pricing theories do not specify the fundamental macroeconomic factors that affect securities prices. The purpose of this paper is to investigate the impact of change in macroeconomic factors on the Indian stock market. The findings of the study conclude that emerging economies like India in long term are more affected by domestic macroeconomic factors than global factors.

Samveg (2011) investigated the causal relationship between stock market indices and gold price in India. The monthly time series data for Mumbai gold prices and three stock market indices, viz., Sensex, BSE 100 and S&P CNX Nifty, are used for the period January 1991 to December 2011. By applying Augmented Dickey-Fuller unit root test, Johansen cointegration test and Granger causality test in Error Correction Model framework, the study concludes that all series are I(1)and there exists a long-run equilibrium relation between all the variables. The study also provides evidence that the Granger causality runs from gold price to Nifty only. Hence, gold price contains some significant information to forecast Nifty return. Flandreau et.al (2011) describes that for Indian Government bonds, we analyze agents expectations between 1860 and 1890. The intuition is that the spread between gold and silver bonds issued by the same entity (India) and backed by a credible agent (Britai n) is a pure
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measure of the silver risk. The analysis shows that up until 1874 markets were expecting bimetallism to last. It is only after this date that markets gradually started requiring a premium to hold silver bonds indicating their belief that gold would eventually become the only metallic standard. Ahuja, et.al.,(2013) has conducted a study and this study help in exploring whether the movement of Bombay Stock Exchanges indices is the result of some selected macroeconomic variables or it is one of the causes of movement in those variables of the Indian economy. Researcher have conducted empirical studies to examine the effect of stock price on macroeconomic variables or vice-versa or relationship between the two and the results of all those studies have provided different conclusions according to the combination of variables, methodologies and tests used.

Ray (2013) investigated that Gold price and stock market moves in an opposite direction. This article aims to enquire into the causal nexus between gold price and stock price in India for the period, 1990-91 to 2010-11. The unit root test clarified that gold price and stock price were found to be integrated of order one using the Kwiatkowski, Phillips, Schmidt and Shinn (KPSS) test for unit root. The cointegration test confirmed that gold price and stock price are cointegrated, indicating an existence of long run equilibrium relationship between the two as confirmed by the Johansen cointegration test results. The Granger causality test finally confirmed the presence of uni-directional causality which runs from gold price to stock price. Other aspects on which future researchers can pay attention are the longer time horizon, larger sample sizes using other macroeconomic and non-macroeconomic variables. Mukhuti, et.al (2013) made a study and analyzed the reaction of Indian stock market index (Sensex and Nifty) on Indian gold price or the relationship between Indian gold price and Indian stock market index (Sensex and Nifty) for the period of study between 2nd January 1991 and 10th August 2012 using daily time series data with the application of bivariate and multivariate co-integration test. Bivariate co integration test results specify that there is no co-integration relationship between gold price and the two stock market indices. But multivariate co-integration test results show that there is a presence of steady cointegration relationship between the gold

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price and two stock market indices in India. So, gold price in India was increased during the study period because of stock market reaction in India along with other macro-economic factors. Joshi, et.al(2013) investigated the relationships between stock prices and macroeconomic variables in India. For this purpose the techniques of unit root tests, multivariate co-integration test and the Granger causality test have been applied between the BSE Sensitivity Index and the macroeconomic variables, viz., 91 days T-bills rate (TB), Foreign Institutional Investors (FIIs), Reserve Money (RM), Money Supply (Narrow Money-M1, Broad Money-M3), Gold Prices (GP), Crude Oil Prices (CP), Index of Industrial production (IIP), Foreign Exchange Reserve (FER), and Real Effective Exchange Rate (REER) using monthly data for the period from April 1994 to December 2012. The analysis reveals that macroeconomic variables and the stock market index are co-integrated. The granger causality test result shows that there exist unidirectional causal relationship from Foreign Exchange Reserve (FER) and T-Bill Rates (TB) to BSE Sensitivity Index, which shows that these two variables leads BSE Sensitivity Index, however, there is neither unidirectional nor bi directional causal relationship between other macroeconomic variables with BSE sensitivity index during the period of study. Dr. Bhuniau, (2013) explored the relationships between two commodity market indicators and stock market in India using daily time series data of 2nd January 1991 31st December 2012 comprising 5321 observations in the midst of employing Johansen co integration approach and Granger causality method. Empirical result points out that there is a presence of steady association between the commodity indicators and stock market index (Sensex) in the long-run. This research also shows that there must be either bidirectional or no causality among the variables. Bilal, et.al (2013) examined the long-run relationship between gold prices and Karachi Stock Exchange (KSE) and Bombay Stock Exchange (BSE). The statistical techniques used for this study includes Unit Root Augmented Dickey Fuller test, Phillips-Perron, Johnson Cointegration and Grangers Causality tests to measure the long-run relationship between gold prices, KSE and BSE using monthly data from 1st July 2005 to 30th June 2011. Findings of the co-integration test indicated that no long-run relationship exist between monthly average gold prices and KSE stock index; whereas, a significant long-run relationship is proved between BSE

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stock index and average gold prices. Results of Granger causality test demonstrated that no causal relationship exists among average gold prices, KSE and BSE stock indices. Dr. Amalendu (2013) investigated the co integration relationships among, domestic gold price and selected financial variables (exchange rates and stock price indices) in India. Increasing gold prices will increase the production costs which will affect cash flow and will decrease stock prices. This study is based on secondary data obtained from various data sources including BSE database, NSE database and World Gold Council database for the period from January 2, 1991 to October 31, 2012. In the course of analysis, ADF unit root test, Johansen cointegration analysis and Granger causality test have been designed. Johansen co integration test result indicates that there exists a long-term relationship among the selected variables. Granger causality test result shows that there must be either bidirectional or no causality among the variables.

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NEED AND SCOPE OF THE STUDY

This research paper consist of study of various macroeconomic variable which effect Indian stock market i.e. oil prices, currency fluctuation, gold price, interest rate. Currency fluctuation Impact on economy: Exchange rate fluctuation has a significant impact on the overall economy of a country. Rupee appreciation against US dollar is an indication of the strengthening of Indian economy with respect to US economy. Impact on foreign investors: If a foreign investor invests in Indian stock market and even if its value doesnt change in 1 year, hell earn profit if rupee appreciates and make a loss if it depreciates. Impact on industry/companies: Appreciation of the rupee makes imports cheaper and exports expensive. So, it can spell good news for companies who rely on import of goods like heavy machinery, technology, micro chips etc. According to reports by Associated Chambers of Commerce and Industry of India (ASSOCHAM) sectors like Petro & Petro Products, Drugs & Pharma and Engineering Goods which have import inputs of as much as 77%, 19% and 21% respectively would stand to gain the most if rupee appreciates. They would have to pay less for the imported raw materials which would increase their profit margins. Gold priceInvestor tend to invest more in stock market when gold prices are going down and vice versa to minimize their loss and maximize their profit

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OBJECTIVE OF STUDY

To investigate the relationship between Indian stock market and macroeconomic variables Gold Price (GP). To examine the existence of correlation between stock price & macroeconomic variables & the extent to which they are correlated.

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RESEARCH METHODOLOGY

The empirical research is conducted using monthly data ranging from 2000-01 to 2013-14 which covers 14 years monthly observations

Descriptive statistics technique Correlation matrix analysis

Descriptive statistics are used to describe the basic features of the data in a study. They provide simple summaries about the sample and the measures. Together with simple graphics analysis, they form the basis of virtually every quantitative analysis of data. With descriptive statistics you are simply describing what is or what the data shows. Descriptive statistics help us to simply large amounts of data in a sensible way. Each descriptive statistic reduces lots of data into a simpler summary. Central Tendency- The central tendency of a distribution is an estimate of the "center" of a distribution of values. There are three major types of estimates of central tendency:

Mean Median Mode

The Mean or average is probably the most commonly used method of describing central tendency. The mean refers to the number you obtain when you sum up a given set of numbers and then divide this sum by the total number in the set. Mean is also referred to more correctly as arithmetic mean. MEAN= OR Sum of elements in Set Numbers of elements in set

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The Median is the score found at the exact middle of the set of values. One way to compute the median is to list all scores in numerical order, and then locate the score in the center of the sample. When given a set of numbers, the median is the number positioned in the exact middle of the list when you arrange the numbers from the lowest to the highest. The median is also a measure of average. MEDIAN= SUM OF OBSERVATION/ NO. OF OBSERVATION The Mode is the most frequently occurring value in the set of scores. To determine the mode, you might again order the scores as shown above, and then count each one. The most frequently occurring value is the mode

Correlation matrix refers to any of a broad class of statistical relationships involving dependence. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.

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DATA ANALYSIS & INTERPRETATION

Gold price and Stock Market -There is a continuous increase in the prices of gold from
past years because of multiple use of gold in India. Gold is used as investment option which gives high return with minimum risk, India was also known as golden bird because of high production and consumption of gold, so gold is highly demanded in India because of culture of India is highly dependent on gold. Another reason for rise in price of gold is weakness of Indian rupees against dollar. India has to import gold by paying in dollars and Indian rupee is depreciating day by day so this leads to increase in value of gold in rupees. Indian rupee will appreciate only when economy of country get stabilize as India is developing country Indian economy is struggling so gold price will rise in future. Because of increase in price of gold investors are taking advantage and using it as investment avenue because its return is good and there is very less chance of depreciation in value of gold. Value of stock market has also increased from date of commencement because of entry of new companies in stock market; more companies are going public for collecting fund for running business. So because of increase in number of transactions value of stock market has also increased. But as it is very clear that stock market is very risky means it cannot be forecasted that value of stock market will increase or decrease. Stock market totally runs on difference in mindsets of investors when market goes down some investors start investing money while some start disinvesting their money and start investing in safer avenue. This up and down in stock market can regularly be seen. In the year 2007 BSE has increased from 11000- 15000 but after 2007 when world was suffering from recession its effect was clearly shown on BSE its value start decreasing

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Coefficients of correlation and covariance GOLD AND NSE CORRELATION -0.035068 DOLLAR AND NSE CORRELATION -0.24434 GOLD AND NSE COVARIANCE -0.00011412 DOLLAR AND NSE COVARIANCE -0.00044952 GOLD AND BSE -0.06585 DOLLAR AND BSE -0.1799 GOLD AND BSE -0.0004108 DOLLAR AND BSE -0.000634

RESULT OF DESCRIPTIVE STATISTICS RETURN ON GOLD RETURN ON NSE

Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 1.129447 0.625085 1.953117 0 8.102028 65.64286 13.39331 1.305792 87.41346 -31.3003 56.11321 189.7471 168

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RETURN ON BSE
Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 0.017986 0.012054 0.016204 0 0.15577 0.024264 17.44202 2.793904 1.514601 -0.47755 1.037052 3.003645 167

RETURN ON U.S.DOLLAR
Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 0.002415 0.001762 0 0 0.022843 0.000522 2.227415 0.567405 0.148165 -0.06662 0.081548 0.40564 168

DESCRIPTIVE STATISTICS 1. Standard deviation of return on gold is coming out to be 0.04 which is low which signifies that there is very less fluctuation in return. Means return on gold is showing a steady growth. Thats why investor is always having bull eyes on gold because of less involvement of risk. 2. S.D. of NSE is coming out to be 8.10 which are quite high which shows that there are high fluctuations in value of nifty. This fluctuation is directly related with risk involved, so risk averse investor tend to invest less in stock market.

CORRELATION MATRIX & COVARIANCE Gold & NSE- Correlation of coefficient between gold price and NSE is coming out to be -0.035 and covariance is -0.00011412 which clearly shows that there is a negative correlation relation between gold price and value of NSE. Effect on one variable will have its negative effect on other. If there is change in value of gold nifty will also show change in value.

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When the economy is in a downturn and stock markets were going south, investors tend to park their funds in gold and wait out the storm. The demand for gold increases in a downturn economy, and consequently the value of gold also increases. This can be directly seen in 2008 recession period gold prices have increased a lot. Gold & BSE- Coefficient of Correlation between gold and BSE SENSEX is coming out to be -0.065 and covariance -0.00041082 which is negative in nature. This negative relationship signifies that there is inverse relationship between Gold price and BSE value. This is because when share market goes down investor tend to disinvest from share market and start investing in gold with expectation of higher return with minimum risk. Dollar and NSE- US dollar and NSE also have inverse relationship this can be directly concluded by negative correlation between USD value and NIFTY value. Its correlation is -0.24 and covariance is -0.00044952 which says that if the price of dollar increase value of NIFTY will decrease and vice versa. Its effect can be directly seen in year 2013 when price of dollar against rupee was increasing value of NIFTY was going down Dollar & BSE - BSE SENSEX is also having inverse relationship with dollar price. When dollar increases, value of BSE will decrease and vice versa. Its coefficient of correlation and covariance is -0.17995681 and -0.00063468 respectively. On July 26, the US dollar index has gained a little over eight per cent. In the same period, Sensex has lost 12.4 per cent, establishing a negative correlation of about 1.5 times.

So it can be concluded that Gold and dollar both are having strong negative relationship with stock market of India. When value of any of the above factor increases or decreases it inversely affect the stock market. So investors have to keep eye on price of Gold and USD in order to forecast the movement of stock market. This research paper will help in understanding the relationship between gold and dollar with NSE and BSE and also help investor to invest in suitable avenue in which return is more and risk is less

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FINDINGS In this study we found out the relationship between gold and stock market and in this study we also included the effect of dollar and stock market in India. The result of our study shows that there is negative relationship between gold price and Stock market of India, when gold price tend to grow stock market start losing its value and vice versa. And same in the case of dollar and stock market index they also share negative correlation or inverse relationship when Indian rupee start losing its value against U.S dollar Indian stock market also loses its value and vice versa. This research paper will help investor to take decisions regarding their investment; by studying this paper investor can come to know about relationship between gold, dollar and stock market and make the understand the right time to invest. LIMITATIONS Like other research paper our paper is also having some limitations This paper will only show the relationship between 2000-2013. As the aim of the paper is to help investor in decision making but this paper only consist of relationship between gold, U.S dollar and Indian stock market.

CONCLUSION By taking monthly data from 2000-2013 by using various tools and techniques we calculated the relationship between gold, U.S dollar and Indian stock market and result of our study is inverse relationship between these three investment avenues. Various investors can take help of this paper and understand the relationship between these avenues and choose which one is best for them.

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REFERENCES

Sharma, G. D. & Mahendru, M., (2008). Impact of macro-economic variables on stock prices in India. Journal of finance, 60, 1221-1257 Srivastava, A. (2010). Relevance of Macro Economic factors for the Indian Stock Market. Decision 37.3 (Dec 2010): 69-89. Patel, S. A., (2011). Causal Relationship between Stock Market Indices and Gold Price: Evidence from India. International Research Journal of Finance and Economics, Vol. 14, pp. 126. Ahuja, A. K.,et.al, (2012). A Study of the effect of Macroeconomic Variables on Stock Market: Indian Perspective. Applied Financial Economics, 7: 2535. Bilal Ahmad Raza, (2013). How gold prices respond to stock exchange: A comparative analysis of Karachi Stock Exchange and Bombay Stock Exchange. World Applied Sciences Journal 21 (4): 485-491 Dr. Bhunia,(2013). Cointegration and causal relationship among crude price, domestic gold price and financial variables variables. Journal of Contemporary Issues Vol. 2, No. 1, 1-10 Flandreau, M. & Oosterlinck, (2011). Was the Emergence of the International Gold Standard Expected? Melodramatic Evidence from Indian Government Securities. Graduate Institute of International and Development Studies Working Paper No: 01/2011

Joshi, P. & Giri,et.al, (2013). An Empirical Analysis of the Relationship Between Stock Market Indices And Macroeconomic Variables: Evidences from India. International Academic Research Journal of Economics and Finance Vol No.2, Issue No. 1, July 2013 Page no.17-24

Mukhuti, S. & Bhunia, A., (2013). Is it true that Indian gold price influenced by Indian stock market reactions. Journal of Business Management and Economics Vol. 4(8). pp. 181-186

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Ray, S., (2013). Causal Nexus between Gold Price Movement and Stock Market: Evidence from Indian Stock Market E 2013, 1(1):12-19

United States dollar (USD) and Indian rupee (INR) Year 2000 Exchange Rate History retrieved 5-jan-2014from: http://www.freecurrencyrates.com/exchange-rate-history/USD-INR/2000 Historical NSE Index data retrieved 5-jan-2014 from: http://www.nseindia.com/products/content/equities/indices/historical_index_data.html Historical BSE Index data retrieved 5-Jan-2014 from: http://www.bseindia.com/indices/indexarchivedata.aspx Gold Price Data retrieved 5-jan-2014 from: http://www.mcxindia.com/sitepages/HistoricalDataForVolume.aspx

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