Return and Risk Analysis Sagar Reddy Raju Rathipelli

Asia Pacific Journal of Applied Finance ISSN 2277 9027
Vol. III Issue 5 Vol. III Issue 5 Vol. III Issue 5 Vol. III Issue 5, , , , May May May May 2014 2014 2014 2014 Impact Factor 3.404 Impact Factor 3.404 Impact Factor 3.404 Impact Factor 3.404
1

Return and Risk Analysis of NSE Nifty Stocks for the Period 2013-14
Sagar Reddy Adavelli* Raju Rathipelli

Abstract
This study examines the performance of stocks listed in Nifty during 2013-2014. We
conducted a risk return analysis of 46 stocks and also the performance of eleven industries.
Thirty seven stocks reported positive returns led by HCL technologies (76 percent). Among
the industries IT industry has highest returns. Top ten stocks in the Nifty have a cumulative
weightage of 61 percent, which mean these stocks drive the market.
I. Introduction
Stock markets fascinate many individual and institutional investors. It is generally agreed that
investing in equities yield better returns than any other investment avenues. However, high
equity returns are always associated with high risk. Furthermore, not all the equity stocks
fetch higher returns to investors. Many factors like economic, political, industry specific, and
company specific will influence the stock prices. Very importantly the intensity of the
influencing factors may not be same on all the stocks. During 2013-14 the Indian stock
markets witnessed many issues like Political uncertainties, Exchange rate volatility, Gross
National Products, GDP slowdown, Monetary policies, Consumer spending, Market
performances etc. These factors have huge impact on performance of stocks. In this context,
present study explores the performance of stock market and stocks prices.
II. Literature Review
Risk is an instinctive part of investing. In order to get a sensible return on an investment, risk
has to be present. A riskless asset produces petite or no return. The intellectual investor will
manage risk by recognizing its existence, measuring its level in any given investment and
pragmatically assessing an individuals risk tolerance level. There is nothing wrong with
investing in a high-risk fund if the fund's return is equally high (Richard Loth). Investors
invest for humdrum future returns, but those returns not often can be predicted accurately.
There, almost always a risk is associated with investments. Actual or realized returns will
almost always diverge from the expected return anticipated at the beginning of the investment
period (Kane et.al.). All investments encompass risk (Volatility), but a few investments are
riskier than others. There may be a greater probability you possibly will lose some or all of
your money. Higher-risk investments offer higher possible returns, and lower-risk
investments offer lower returns. The timing and magnitude of changes in stock returns and
volatility differ across markets around the world (Roll, 1988). Systematic risk () affects a
large number of assets in the economy and is generally market wide. Unsystematic risk ()
affects only a single firm or a small number of firms (Martin Glogger, 2008).Martin Lilly &
Steve swindler (2007) find that the effect of large weight is to significantly reduce the beta of
the residual portfolio, and it may also significantly raise the beta of the single stock. An
earlier model by Lally and Swidler (2003) express the relationship between an asset's market
weight and its beta, and go on to examine the implications for measures of abnormal return.
Their analysis suggests that an asset's market weight exerts a significant impact upon its beta.
III. Methodology
The main aim of the study is to assess the risk and return of stocks listed in NSE CNX
NIFTY. For this purpose we sourced data of 50 stocks from NSE India website for the period
April 1, 2013 to March 31, 2014. Data has been analysed using MS-Excel. To analyse the
performance of sample stocks we calculated their holding period return, daily return,
annualised return, unsystematic risk, and systematic risk. Furthermore, to find out the
2
association we calculated the correlation between stocks and NSE NIFTY. We also analysed
the influence of stocks weightage on association between stocks and NIFTY. The below
equations are used to calculate Holding Period Return, Daily Return, Average Return,
Volatility (), Systematic Risk (), and Measure of Association (Correlation).

Holding Period Return (HPR) = (P
end
P
begging
) / P
begging
* 100
Daily Return = (Pt P
t-1
) / (P
t-1
) *100
Daily Average Return = Daily Return * No. of trading days
Daily Standard Deviation (Risk) () =

Average SD = Daily *
Beta ( ) =

IV. Results
IV.1 Stock wise performance
To assess the performance of stocks, initially we calculated holding period return (HPR),
Annualised Return (AR) and Unsystematic Risk () of the sample stocks. From the total 50
stocks four stocks were removed due to insufficient data, final sample contains 46 stocks.
Stock wise HPR, AR, and Risk are presented in Table - I.
Refer Table - I
During the study period NIFTY reported an annualised return of 17.79 percent. Of the 46
stocks 26 (57 percent) stocks reported higher returns than NIFTY, and 43 percent of stocks
returns were below NIFTY returns. During the year 2013-14 HCL Technologies Ltd., topped
the list with a Holding Period Return (HPR) of 76.37 percent followed by Tech Mahindra
(69.19 percent). On the other hand DLF Ltd., was the worst performer with an Annualized
Return (AR) of -23.08 percent. For the study period seven stocks closed in red and 39 stocks
reported positive returns.
Table-II shows the top five gainers, IT stocks were the top performers followed by Hindalco
and Automobile stocks. Average annualised return of top five gainers is 60 percent. However
Hindalco witnessed highest volatility.
Table II showing list of top five gainers
Sl.No. Stocks Industry Type HPR Annual Return Risk
1 HCL Technologies Ltd. IT 76.37 61.16 29.56
2 Tech Mahindra Ltd. IT 69.19 57.12 30.10
3 Hindalco Industries Ltd. METALS 54.58 52.16 41.67
4 Maruti Suzuki India Ltd. AUTOMOBILE 53.59 47.97 31.93
5 Tata Motors Ltd. AUTOMOBILE 50.15 46.61 34.66
Table III shows the top five losers. Where DLF ltd., was the worst performer reported a
negative return of 23.08 percent and Tata Power Co. Ltd., with 4.81 percent.
Systematic risk (Beta, ) of the stocks is presented in Table-IV (Annexure). Beta shows the
movement of stocks with index. A of 1 mean stock moves in tandem with index, a beta less
3

than one mean stock moves slowly than the index and finally a beta above one mean stock is
aggressive than the index. During the boom period i.e., when index is moving towards north
investing in high Beta stocks are advisable, and when the market is in bearish trend holding
stocks with lower than one yields better results. Of the 46 stocks listed 21 (46 percent)
stocks have Beta more than one, and 54 percent of stocks were with Beta below one. During
the year 2013-14 DLF Ltd., top the list with 1.81 Beta and Wipro Ltd., with 0.26 Beta.
Table III showing list of least performed stocks
Sl.No. Stocks Industry Type HPR Annual Return Risk
1 DLF Ltd. CONSTRUCTION -30.31 -23.08 50.94
2 NTPC Ltd. ENERGY -16.45 -12.99 31.21
3 Jindal Steel & Power Ltd. METALS -14.60 -6.30 43.22
4 IDFC Ltd. FINANCIAL SERVICES -14.09 -5.05 44.68
5 Tata Power Co. Ltd. ENERGY -11.16 -4.81 37.29
Table - V shows high weightage stocks. In Nifty, ITC Ltd weighs top (8.35 percent weight),
and cumulatively weightage of top 10 stocks was 61 percent which means those stocks have
highest influence on index movement.
Table V showing Top 10 High weightage stocks
Sl.No. Stocks Nifty Weightage Cumulative Weights Beta
1 I T C Ltd. 8.35 8.35 0.90
2 Reliance Industries Ltd. 7.03 16.7 1.08
3 Infosys Ltd. 6.81 23.73 0.47
4 HDFC Bank Ltd. 6.11 30.54 1.29
5 ICICI Bank Ltd. 6.11 36.65 1.56
6 Housing Development Finance Corporation Ltd. 5.86 42.76 1.29
7 Tata Consultancy Services Ltd. 5.33 48.62 0.51
8 Tata Motors Ltd. 3.82 53.95 1.03
9 Oil & Natural Gas Corporation Ltd. 2.9 57.77 1.21
10 Hindustan Unilever Ltd. 2.78 60.67 0.61
Table - VI showing low weightage stocks. As per NIFTY weights Sesa Sterlite Ltd., has
lowest weightage of 0.31 percent, which impact the market conditions and cumulatively
weightage of top ten stocks were 5 percent. That means these stocks will have least influence
on index movement.
Table VI showing Bottom 10 Low weightage stocks
Sl.No. Stocks Nifty Weightage Cumulative Weights Beta
1 Sesa Sterlite Ltd. 0.31 0.31 1.14
2 DLF Ltd. 0.33 0.64 1.81
3 NMDC Ltd. 0.47 1.11 0.92
4 Punjab National Bank 0.51 1.62 1.65
5 Jindal Steel & Power Ltd. 0.52 2.14 1.07
6 ACC Ltd. 0.56 2.7 0.93
7 Bharat Petroleum Corporation Ltd. 0.57 3.27 1.19
8 Bank of Baroda 0.6 3.87 1.61
9 Ambuja Cements Ltd. 0.66 4.53 0.96
10 IDFC Ltd. 0.67 5.2 1.67
4

IV.2 Industry-wise Performance of Stocks
Automobile
NSE Nifty has five stocks representing automobile Industry. The average HPR of automobile
industry stocks was 37 percent with a volatility of 29. Of the five automobile stocks, Maruti
Suzuki reported highest HPR (54 percent). Mahindra & Mahindra was the least performer
with 14 percent HPR. The average systematic risk () of the automobile industry was 0.85.
The cumulative weightage of automobile stocks in Nifty was 9.07 percent
Cement & Cement Products
The average HPR of cement and cement product stocks in Nifty was 14 percent (= 29).
With 21 percent HPR ACC topped the list and Grasim stood last with 3 percent HPR. The
industry average was 0.92. Cement and cement products have 3.32 percent weightage in
Nifty.
Construction
The Construction industry has only one stock i.e. DLF Ltd listed in Nifty. DLF reported a
negative HPR of 30 percent and highest systematic and unsystematic risk among all other
stocks. The systematic risk () of the DLF was at 1.81 and the market weghtage was 0.36
percent.
Consumer goods
The Consumer goods industry has two stocks with average return of 22 percent and a
volatility of 28 percent compared to other industry segments. Of the two stocks listed,
Hindustan Uniliver Ltd. (HUL) reported more returns i.e. 28 percent. The systematic risk of
the industry segment was 0.75. The industry segment has a market weightage of 12.20
percent, of which ITC Ltd weightage is 8.35 percent.
Energy
The Energy segment has eight stocks with 6 percent returns with huge risk (30 percent)
compared to other industries. Of the eight stocks listed, five stocks reported positive returns
and three reported negative returns. Bharat petroleum corporation Ltd. with a highest return
of 22 percent followed by Reliance Industries Ltd. NTPC was the worst performer with a
negative return of 16 percent. The systematic risk of the industry segment was 0.86. The
industry segment has a market weightage of 16.24 percent.
Financial services
The Financial services industry has highest market weightage (29 percent) with a
representation of ten stocks. The average industry return was 38 percent. Of the ten stocks
listed IndusInd Bank Ltd. reported highest return of 21 percent followed by ICICI Bank Ltd.
with 18 percent return. IDFC Ltd. was the worst performer with a negative HPR of 14
percent. The systematic risk of the industry segment was 1.5.
Industrial manufacturing
The Industrial manufacturing industry has one stock only i.e. Bharat Heavy Electricals Ltd.
with a seven percent return and beta of 1.39. This industry market weightage was 0.78
percent.
IT
IT stocks reported the highest returns among all the stocks. HCL technologies reported HPR
of 76 percent, followed by Tech Mahindra Limited (69 percent). Infosys was the least
performer (12 percent). Five stocks represented IT industry with an average return of 44
5

percent. The market weightage of IT stocks was 18.26 percent and Infosys has third largest
market capitalization in the Nifty.
Metals
The Metals industry has six stocks with 15 percent returns with a volatility of 39. Among the
six metal stocks Hindalco Industries Ltd. reported highest return of 55 percent and Jindal
Steel & Power Ltd. was the worst performer with negative result of 15 percent return. The
systematic risk of the industry segment was at slender higher than one i.e. 1.04. Metals
segment has a market weightage of 4.47 percent.
Pharmaceutical
The Pharmaceutical industry has three stocks with average return of 29 percent ( = 24)
Lupin Ltd. reported highest holding period return (r = 48, = 26) and Cipla Ltd. was the
worst performer (r = -0.47, = 23.18). The systematic risk of the industry segment was at
0.36. Pharmaceutical segment has a market weightage of 3.53 percent.
Telecom
The Telecom industry has one stock only i.e. Bharti Airtel Ltd. During the year Bhartis
holding period return was 8 percent ( = 35, = 1.14). Bharti has market weightage of 1.78
percent.
IV.3 Industry Performance
Table VII depicts the industry wise performance of Nifty stocks. Information Technology
(IT) industry topped the list with average industry return of 44 percent followed by
Automobile (37 percent) and Pharma (30 percent). Construction industry affected a lot and
reported a negative return of 30 percent.
Table VII Industry Performance
Industry Average of Holding Period Average of Risk
IT 44.02 30.00
Automobile 36.70 29.49
Pharma 29.27 24.47
Consumer goods 21.67 28.22
Metals 14.57 39.35
Cement & cement products 14.17 28.73
Financial services 8.27 38.18
Telecom 8.21 35.11
Industrial manufacturing 7.42 48.16
Energy 6.26 30.49
Construction -30.31 50.94
V. Discussion
This study has been conducted to analyze the performance of Nifty stocks during the period
2013-14. Data were sourced from National Stock Exchange (NSE). During this period Nifty
surge by 17 percent and 26 stocks have higher returns than Nifty. HCL technologies was the
top performer (76 percent) and DLF (-23.08 percent) was the worst performer. Top ten stocks
in the Nifty have cumulative weightage of more than 61 percent. When looked at industry
wise performance IT industry had better average return followed by Automobile Industry.
Construction industry affected badly. We assume that the exchange rate volatility and
recovery of US economy helped IT industry to report superior results.

6

References
Kane et.al. Essentials of Investments, McGraw Hill/Irwin
Lally, Martin & Swidler, Steve, 2003. "The effect of an asset's market weight on its beta:
implications for international markets," Journal of Multinational Financial Management,
Elsevier, vol. 13(2), pages 161-170, April.
Martin Glogger (2008). Risk and Return, http://university.akelius.de
Roll, R. (1988). The International Crash of October 1987. In R. Kamphius, R. Kormendi, & J.
Waston (Eds.), Black Monday and the future of financial markets (pp. 35 70). Mid-
American Institute.
Annexure
Table I showing Holding Period Return (HPR), Annualised Return, and Unsystematic Risk
Sl.No. Stocks HPR Annual Returns Risk
1 HCL Technologies Ltd. 76.37 61.16 29.56
2 Tech Mahindra Ltd. 69.19 57.12 30.10
3 Hindalco Industries Ltd. 54.58 52.16 41.67
4 Maruti Suzuki India Ltd. 53.59 47.97 31.93
5 Tata Motors Ltd. 50.15 46.61 34.66
6 Hero MotoCorp Ltd. 48.36 43.15 27.22
7 Lupin Ltd. 47.86 42.61 26.40
8 Dr. Reddy's Laboratories Ltd. 40.42 36.79 23.83
9 Tata Consultancy Services Ltd. 37.02 35.31 27.66
10 Sesa Sterlite Ltd. 24.58 32.26 46.06
11 Tata Steel Ltd. 25.18 30.65 40.67
12 Hindustan Unilever Ltd. 28.47 29.45 30.33
13 IndusInd Bank Ltd. 20.72 28.57 44.10
14 Wipro Ltd. 26.03 27.70 29.99
15 Bharat Petroleum Corporation Ltd. 22.03 27.41 38.74
16 ICICI Bank Ltd. 18.40 23.45 36.40
17 Kotak Mahindra Bank Ltd. 19.79 23.39 32.78
18 HDFC Bank Ltd. 20.03 22.67 29.77
19 ACC Ltd. 20.56 22.47 27.52
20 Reliance Industries Ltd. 19.52 21.55 27.32
21 UltraTech Cement Ltd. 17.25 20.30 29.67
22 Ambuja Cements Ltd. 16.04 20.16 32.52
23 Axis Bank Ltd. 11.07 19.69 43.10
24 GAIL (India) Ltd. 17.02 19.23 26.55
25 Bharat Heavy Electricals Ltd. 7.42 19.02 48.16
26 Bajaj Auto Ltd. 16.97 18.74 24.83
27 Cairn India Ltd. 16.41 17.92 23.39
28 Nifty 17.53 17.79 18.10
29 Mahindra & Mahindra Ltd. 14.42 17.60 28.81
30 I T C Ltd. 14.86 17.26 26.12
31 Infosys Ltd. 11.50 16.56 32.67
7

32 Bank of Baroda 5.27 15.04 44.61
33 Bharti Airtel Ltd. 8.21 14.00 35.11
34 Housing Development Finance Corporation Ltd. 7.11 11.85 31.61
35 Punjab National Bank 2.62 11.69 42.79
36 Oil & Natural Gas Corporation Ltd. 3.19 8.90 34.06
37 NMDC Ltd. 3.03 8.39 32.96
38 Grasim Industries Ltd. 2.81 5.92 25.20
39 Power Grid Corporation of India Ltd. -0.47 2.78 25.37
40 Cipla Ltd. -0.47 2.22 23.18
41 Coal India Ltd. -5.36 -0.53 31.51
42 State Bank of India -8.27 -3.56 31.99
43 Tata Power Co. Ltd. -11.16 -4.81 37.29
44 IDFC Ltd. -14.09 -5.05 44.68
45 Jindal Steel & Power Ltd. -14.60 -6.30 43.22
46 NTPC Ltd. -16.45 -12.99 31.21
47 DLF Ltd. -30.31 -23.08 50.94

Table IV showing Systematic Risk
Sl.No. Stocks Correlation Beta
1 Wipro Ltd. 0.16 0.26
2 Tech Mahindra Ltd. 0.16 0.27
3 HCL Technologies Ltd. 0.20 0.33
4 Lupin Ltd. 0.26 0.38
5 Cairn India Ltd. 0.31 0.40
6 Cipla Ltd. 0.36 0.46
7 Dr. Reddy's Laboratories Ltd. 0.36 0.47
8 Infosys Ltd. 0.26 0.47
9 Tata Consultancy Services Ltd. 0.33 0.51
10 Power Grid Corporation of India Ltd. 0.43 0.60
11 Hindustan Unilever Ltd. 0.36 0.61
12 Coal India Ltd. 0.39 0.68
13 GAIL (India) Ltd. 0.47 0.69
14 Hero MotoCorp Ltd. 0.48 0.72
15 NTPC Ltd. 0.42 0.73
16 Bajaj Auto Ltd. 0.57 0.78
17 Mahindra & Mahindra Ltd. 0.53 0.84
18 Grasim Industries Ltd. 0.61 0.85
19 Maruti Suzuki India Ltd. 0.50 0.88
20 I T C Ltd. 0.62 0.90
21 NMDC Ltd. 0.50 0.92
22 UltraTech Cement Ltd. 0.56 0.92
23 ACC Ltd. 0.61 0.93
24 Ambuja Cements Ltd. 0.54 0.96
8

25 Tata Power Co. Ltd. 0.47 0.98
26 Nifty 1.00 1.00
27 Tata Motors Ltd. 0.54 1.03
28 Jindal Steel & Power Ltd. 0.45 1.07
29 Reliance Industries Ltd. 0.71 1.08
30 Sesa Sterlite Ltd. 0.45 1.14
31 Bharti Airtel Ltd. 0.59 1.14
32 State Bank of India 0.65 1.15
33 Bharat Petroleum Corporation Ltd. 0.55 1.19
34 Hindalco Industries Ltd. 0.52 1.20
35 Oil & Natural Gas Corporation Ltd. 0.65 1.21
36 Tata Steel Ltd. 0.56 1.26
37 HDFC Bank Ltd. 0.78 1.28
38 Housing Development Finance Corporation Ltd. 0.74 1.29
39 Kotak Mahindra Bank Ltd. 0.72 1.31
40 Bharat Heavy Electricals Ltd. 0.52 1.39
41 ICICI Bank Ltd. 0.78 1.56
42 Bank of Baroda 0.65 1.61
43 Punjab National Bank 0.70 1.65
44 IDFC Ltd. 0.68 1.67
45 Axis Bank Ltd. 0.72 1.72
46 IndusInd Bank Ltd. 0.72 1.74
47 DLF Ltd. 0.64 1.81

Authors
Sagar Reddy Adavelli*, Associate Professor, RK Business School, Revelli (Vil.) Toopran
(Mandal) Hyderabad sagar@rkbusinessschool.com
Raju Rathipelli, Associate Professor, RK Business School, Revelli (Vil.) Toopran (Mandal)
Hyderabad raju@rkbusinessschool.com

Return and Risk Analysis Sagar Reddy Raju Rathipelli

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Return and Risk Analysis Sagar Reddy Raju Rathipelli

Uploaded by

Copyright:

Available Formats

Asia Pacific Journal of Applied Finance ISSN 2277 9027

You might also like