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    Question

    In December 2025, mutual funds added more than 1 crore

    shares in several stocks. Some of these stocks delivered positive returns of over 10%, while others declined by 10–20% during the same period despite similar accumulation. The observation that mutual funds continued to increase holdings even when stock prices fell suggests that institutional investors are primarily guided by (A) valuation horizons, whereas stock prices in the short run are influenced by (B) and (C) factors. Select the correct option for (A), (B) and (C) in the above passage.
    A (A) long-term; (B) liquidity conditions; (C) risk sentiment Correct Answer Incorrect Answer
    B (A) short-term; (B) dividend expectations; (C) accounting profits Correct Answer Incorrect Answer
    C (A) speculative; (B) arbitrage constraints; (C) insider trading Correct Answer Incorrect Answer
    D (A) passive; (B) index rebalancing; (C) regulatory limits Correct Answer Incorrect Answer
    E (A) random; (B) noise trading; (C) absence of information Correct Answer Incorrect Answer

    Solution

    Institutional investors like mutual funds operate on long-term valuation horizons, while short-term prices respond to liquidity conditions and risk sentiment, a key insight from market microstructure and behavioural finance.  

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