Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
A Study on Risk Return Analysis of
Pharmaceutical Industries in Indian
Stock Market
Dr. M. Muthu Gopalakrishnan1 & Amal Vijay A K2
1
Associate Professor, Acharya Bangalore B School, Bangalore, India.
2 nd
2 year MBA, Acharya Bangalore B School, Banglalore, India.
Abstract: Every individual attempts to park his/her
hard earned savings in various investment avenues
depending upon his/her objectives. Among the
various investment alternatives, stock market is
considered to be one of the most rewarding avenue
of investment. When the expected return is high, the
risk associated with such return is also high. So
before investing in equity market one should come
to know the risk return characteristics of those
stocks and those industries in which he/she intends
to invest. In this perspective, a study has been
undertaken to analyse the risk return relationship
of selected companies in pharmaceutical industry
of Indian stock market. The pharmaceutical
industry of India ranks 3rd in the world in terms of
volume and 14th in terms of value. The industry is
said to be the desired sector for lot of investors.
The investors must be aware of the risk and return
involved in the investment. This study helps the
potential investors to make informed and rational
investment decision. The sample period of this
study is five years from 2012 to 2017. The study
has attempted to find the risk return characteristics
of selected 10 pharmaceutical companies in Indian
stock market. The data have been collected and
analysed using MS excel. The study concluded that
from the selected pharmaceutical companies Sun
Pharmaceutical Industries Ltd provides high return
but the market risk of the shares are much high. So
the equity shares of Divi’s Laboratories Ltd is
more favorable to potential investors because it
gives high return and the risk associated with those
shares less.
Key words: Risk, Return, Alpha, Beta.
INTRODUCTION
Investing is the process of parking of fund
with an aim of achieving additional income or
growth in value. It involves providing of resources
which have been saved by the individuals in to
productive purposes or put away from current
consumption in the hope that some benefits will
Imperial Journal of Interdisciplinary Research (IJIR)
acquire in future. All individuals attempt to employ
their hard earned savings in various investment
options depending upon their decision. Stock
market is considered to be most rewarding
investment avenue among various investment
alternatives. The risk associated with the high
expected return will be also high. So before
investing one should come to know about risk and
return characteristics of those stocks and those
industries in which he/she intends to invest. In this
perspective a study has been conducted to analyse
the risk return relationship of selected companies in
pharmaceutical industry of Indian stock market.
The pharmaceutical industry of India
ranks 3rd in the world in terms of volume and 14 th
in terms of value. The industry is said to be the
desired sector for lot of investors. The investors
must be aware of the risk and return involved in the
investment. This study helps the potential investors
to make informed and rational investment decision.
STATEMENT OF THE PROBLEM
Every security is underlying with a risk
factor. This study is undertaken to calculate return
and risk associated with different stocks of
pharmaceutical industry listed in Indian stock
market (NSE). The risk and return has an inverse
relationship. When the expected return is high, the
risk associated with such return is also high. With
the understanding of risk and return characteristics
one can make rational decision regarding the
investment in which company one can invest.
NEED FOR THE STUDY
The pharmaceutical industry in India is
said to be most desired sector for lot of investors.
When the expected return is high then the risk
associated with such return is also high. So one
who intends to invest in such companies needs to
be aware of return and risk involved in the
investment. And this study has attempted to
analyse the risk return relationship of selected
Page 1869
Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in
companies in pharmaceutical industry of Indian
stock market. The Researcher has reviewed the
existing research work and published articles for
finding the return risk characteristics.
REVIEW OF LITERATURE
A.K.Dubey (2014) made an attempt in analyzing
time scale dependence of systematic risk of stocks
for an emerging market economy. The result of the
study showed that the betas were more or less
instable in terms of different trading stocks at
different investment horizons. The study was
undertaken on the basis of the characteristics of the
heterogeneous investors with different investment
horizons. In this study, it was stressed that holding
different stocks by trading classes varied due to the
time horizon of investment and perception of the
risk. The study emphasized the conditions of
business are very fluid i.e. the rate of change takes
place in the phase of organization as fast as
possible.
Dr. K. V. Ramanathan and Dr. M. Muthu
Gopalakrishnan (2013) examined the volatility in
Indian stock market during the post and pre
recession period. The study concluded that the
share prices are always fluctuating due to various
factors. The volatility is the biggest problem for
trading in the stock market. Understanding the
historical volatility is important for one who invests
in the stock market. The study has made an attempt
to examine volatility of sectoral indices listed in
NSE.
Kirti Arekar and Rinku Jain (2011): compared
the market performance during 2007-2010 with the
major overseas markets. The study considered the
market performance of different sectors i.e.
Information Technology and Banking with respect
to the market. Further they analyzed which sector is
impacted most during the recession period. Finally,
they interpreted that which sector performing good
and bad at Global recession period and which
sector has performed well after the recession.
K.V. Aruna Shanta (2010) examined the stability
of beta during the time in different market phases
from 2000 to 2009. The study estimated the beta
for five sub periods of two years each and one
bullish market phase with one more bearish market
phase. The stability was tested with the help of
time variable regression and dummy variable
regression. The result showed that in most of the
cases i.e. 80% of the scrips did support the null
hypothesis leading to infer that stability of beta
over time and market phases was not rejected by
both of the econometric methods. From the study,
it is understood there is less ground to conclude
Imperial Journal of Interdisciplinary Research (IJIR)
that beta values are not stable over the time and
market phases in Sri Lankan Stock Market.
Sharma and Sharma (2009) examined whether
fundamental analysis signals (traditional and
growth) on growth stock differentiate the extreme
performers. The study concluded that the
traditional method signals firm’s profitability, cash
performance, operating efficiency and liquidity and
growth signals related with the firm’s earnings,
growth, research and development, capital
expenditure and advertising expenditure. Finally,
the study concludes that fundamental analysis
based on growth signals is very successful in
differentiating firms.
Raj and Rakesh (2006) made an attempt to find
out the relationship between risk and return. In the
study the emphasis was given to the effect of
diversification in mitigating the portfolio risk. The
study analysed the closing price of 100 scrips from
BSE at the span of 10 years and the scrip returns
were regressed with market return with the help of
market index model and the result showed that
there was a high and positive correlation between
portfolio return and risk.
OBJECTIVES OF THE STUDY
 To understand the concept of risk and return of a
security.
 To analyse the risk return characteristics of selected
companies in pharmaceutical industry.
 To compare the risk and return of selected
companies.
 To offer valid suggestion and recommendation
based on the findings of the study.
RESEARCH METHODOLOGY
The study is of descriptive in nature. It
describes about risk and return of selected stocks of
pharmaceutical industry in Indian stock market.
Indian security market moving to newer heights
since from the last few years and the investors also
rewarding reasonable income, that some times
more than expected return but the next day the
price would be crumbling down like a glass house
this is the picture of Indian stock market, means
market is highly volatile and is still in the hands of
speculators and gamblers. In this situation common
people will find difficulty in investing their hard
earned savings. This study has been conducted for
finding out the return and risk relationship of
various selected pharmaceutical companies in
Indian stock market (NSE).
PERIOD OF STUDY
This study has analysed the equity shares
of selected pharmaceutical companies in Indian
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 Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

stock market for a period of 5 years, covering from This section of the research paper
2012 to 2017. This period has been selected discusses the analysis of data and interpretation in
because it will give a clear picture about the current terms of mean return, standard deviation, variance,
scenario of the equity shares of Indian correlation coefficient, beta and alpha.
pharmaceutical industry.
Table 1
SELECTION OF SAMPLE MEAN RETURN OF
In the National Stock Exchange (NSE),
there are 10 companies are listed in the NIFTY
PHARMACEUTICAL
Pharma index as on (21-04-2017). So the 10 COMPANIES
companies have been selected for this present Sl. Name of the Mean
study. No. Company Return
1 Aurobindo Pharma Ltd. -0.1894
SELECTED COMPANIES 2 Cadila Healthcare Ltd. -0.0400
 Aurobindo Pharma Ltd. 3 Cipla Ltd. -0.0647
 Cadila Healthcare Ltd. 4 Divi's Laboratories Ltd. -0.0167
 Cipla Ltd. 5 Dr. Reddy's Laboratories -0.0464
 Divi's Laboratories Ltd. Ltd.
 Dr. Reddy's Laboratories Ltd. 6 Glaxosmithkline -0.0239
 Glaxosmithkline Pharmaceuticals Ltd. Pharmaceuticals Ltd.
 Glenmark Pharmaceuticals Ltd. 7 Glenmark Pharmaceuticals -0.1017
 Lupin Ltd. Ltd.
 Piramal Enterprises Ltd. 8 Lupin Ltd. -0.0939
 Sun Pharmaceutical Industries Ltd. 9 Piramal Enterprises Ltd. -0.1347
10 Sun Pharmaceutical -0.0455
SOURCES OF DATA Industries Ltd.
The data required for this study have been
collected from various secondary sources like Inference
internet, journals and other publications. The stock From Table 1 it is clear that all the
prices and market index were collected from the companies show a negative daily mean return in
National Stock Exchange official website that the highest mean value is -0.0167 for Divi's
(www.nseindia.com). Laboratories Ltd, lowest mean value is -0.1894 for
Aurobindo Pharma Ltd during the year 1-4-2012 to
TOOLS FOR ANALYSIS 31-3-2017.
The data collected have been analysed by
Table 2
using MS excel by applying the following tools
 Mean STANDARD DEVIATION OF
 Standard Deviation PHARMACEUTICAL
 Co-efficient of variance COMPANIES
 Correlation Coefficient
 Beta
Sl. Name of the Standard
 Alpha No. Company Deviation
1 Aurobindo Pharma Ltd. 2.8474
2 Cadila Healthcare Ltd. 2.9842
LIMITATIONS OF THE STUDY 3 Cipla Ltd. 1.5588
 This study is based on the data collected from 4 Divi's Laboratories Ltd. 2.3387
secondary sources only. 5 Dr. Reddy's 1.5983
 The study is limited to pharmaceutical industry of Laboratories Ltd.
Indian stock market. 6 Glaxosmithkline 1.3456
 Risk cannot be accurately measured because the Pharmaceuticals Ltd.
market condition is always fluctuating and
7 Glenmark 1.9374
uncertain.
Pharmaceuticals Ltd.
 The accuracy of the study is based on the accuracy
8 Lupin Ltd. 1.6769
of the data in the stock market.
9 Piramal Enterprises Ltd. 2.0864
ANALYSIS AND 10 Sun Pharmaceutical 2.2607
INTERPRETATION Industries Ltd.

Imperial Journal of Interdisciplinary Research (IJIR) Page 1871

Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

Inference 5 Dr. Reddy's Laboratories -3440.5572

From Table 2 it is inferred that the Ltd.
standard deviation is high for Cadila Healthcare 6 Glaxosmithkline -5623.7337
Ltd(2.9842), standard deviation is low for Pharmaceuticals Ltd.
Glaxosmithkline Pharmaceuticals Ltd(1.3456) 7 Glenmark Pharmaceuticals -1903.3957
during the year 1-4-2012 to 31-3-2017. So it is Ltd.
found that the equity shares of Cadila Healthcare 8 Lupin Ltd. -1785.5930
Ltd have high risk factor and the equity shares of 9 Piramal Enterprises Ltd. -1548.4675
Glaxosmithkline Pharmaceuticals Ltd posses lower
risk factor. 10 Sun Pharmaceutical -4966.3249
Industries Ltd.
Table 3
VARIANCE OF Inference
PHARMACEUTICAL Table 4 exhibits that all the
pharmaceutical companies have a negative
COMPANIES coefficient of variation among that the highest
Sl. Name of the Variance coefficient of variation is -1503.5487 for
No. Company Aurobindo Pharma Ltd, coefficient of variation is -
1 Aurobindo Pharma Ltd. 8.1077 13990.7956 for Divi's Laboratories Ltd during the
year 1-4-2012 to 31-3-2017.
2 Cadila Healthcare Ltd. 8.9058
3 Cipla Ltd. 2.4301 Table 5

4 Divi's Laboratories Ltd. 5.4698

CORRELATION COEFFICIENT
OF PHARMACEUTICAL
5 Dr. Reddy's Laboratories 2.5547
Ltd.
COMPANIES
6 Glaxosmithkline 1.8107 Sl. Name of the Correlation
Pharmaceuticals Ltd. No. Company Coefficient
7 Glenmark Pharmaceuticals 3.7536 1 Aurobindo Pharma Ltd. 0.4167
Ltd. 2 Cadila Healthcare Ltd. 0.2485
8 Lupin Ltd. 2.8122 3 Cipla Ltd. 0.6037
4 Divi's Laboratories Ltd. 0.3462
9 Piramal Enterprises Ltd. 4.3531
5 Dr. Reddy's Laboratories 0.6198
10 Sun Pharmaceutical 5.1108 Ltd.
Industries Ltd. 6 Glaxosmithkline 0.2187
Pharmaceuticals Ltd.
Inference 7 Glenmark 0.4618
It has been observed from Table 3 that the Pharmaceuticals Ltd.
highest variance is -0.0167 for Divi's Laboratories 8 Lupin Ltd. 0.6285
Ltd, lowest variance is -0.1894 for Aurobindo 9 Piramal Enterprises Ltd. 0.2906
Pharma Ltd during the year 1-4-2012 to 31-3-2017. 10 Sun Pharmaceutical 0.6299
Industries Ltd.
Table 4
COEFFICIENT OF VARIATION Inference
OF PHARMACEUTICAL It is clearly understood from Table 5 that
all the pharmaceutical companies are positively
COMPANIES correlated. Among that the highest coefficient of
Sl. Name of the Coefficient correlation is 0.6299 for Sun Pharmaceutical
No. Company of Industries Ltd, lowest coefficient of correlation is
Variation 0.2187 for Glaxosmithkline Pharmaceuticals Ltd
1 Aurobindo Pharma Ltd. -1503.5487 during the year 1-4-2012 to 31-3-2017. So it is
found that the equity shares of Sun Pharmaceutical
2 Cadila Healthcare Ltd. -7464.9031 Industries Ltd are more risky than other
3 Cipla Ltd. -2405.8004 pharmaceutical companies. And it is also identified
that the equity shares of Glaxosmithkline
4 Divi's Laboratories Ltd. -13990.7956
Pharmaceuticals Ltd possesses less risk factor.

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 Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

Table 6  The beta value of Cadila Healthcare Ltd, Cipla Ltd,

BETA AND ALPHA OF Divi's Laboratories Ltd, Dr. Reddy's Laboratories
PHARMACEUTICAL Ltd, Glaxosmithkline Pharmaceuticals Ltd,
Glenmark Pharmaceuticals Ltd, Lupin Ltd, Piramal
COMPANIES Enterprises Ltd are less than one. It shows the
Sl. Name of the Beta Alpha market risk of the shares of the 8 companies is less
No. Company also it states that the volatility of return of the
1 Aurobindo Pharma Ltd. 1.0912 -0.1186 shares is less than the market.
2 Cadila Healthcare Ltd. 0.6819 0.0042
3 Cipla Ltd. 0.8655 -0.0087 CONCLUSION
4 Divi's Laboratories Ltd. 0.7445 0.0315 Many investors are confused while they
5 Dr. Reddy's 0.9110 0.0125 invest their money. In order to get maximum return
Laboratories Ltd. the investors must consider both risk return factors.
6 Glaxosmithkline 0.2706 -0.0063 By analyzing the selected pharmaceutical
Pharmaceuticals Ltd. companies in the Indian stock market the equity
7 Glenmark 0.8227 -0.0484 shares of Sun Pharmaceutical Industries Ltd is
Pharmaceuticals Ltd. giving high return but the market risk of the shares
8 Lupin Ltd. 0.9693 -0.0311 are higher and the volatility of the return is also
9 Piramal Enterprises Ltd. 0.5576 -0.0986 high than the market. But the equity shares Divi's
10 Sun Pharmaceutical 1.3094 0.0393 Laboratories Ltd gives high return and the market
Industries Ltd. risk is below average and the volatility of the return
is lesser than the market. So these share more
favorable to invest and the earning capacity of the
Inference shares is high. The study is an attempt to find the
It is identified from Table 6 that the
volatility of selected shares in pharmaceutical
highest beta is 1.3094 for Sun Pharmaceutical
industry listed in NSE for the purpose of providing
Industries Ltd, lowest beta is 0.2706 for
valuable knowledge to the investors to succeed.
Glaxosmithkline Pharmaceuticals Ltd. And the
highest alpha is 0.0393 for Sun Pharmaceutical
Industries Ltd, lowest alpha is -0.1186 for REFERENCES
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 Imperial Journal of Interdisciplinary Research (IJIR)
Vol-3, Issue-5, 2017
ISSN: 2454-1362, http://www.onlinejournal.in

Quantitative Analysis, 25, 203-214.  www.moneycontrol.com

http://dx.doi.org/10.2307/2330824.  www.investopedia.com
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