A Report on

BETA Estimation for BHEL & Other Maharatna PSU and performing a
comparative study amongst them
by

K. Ratna prashanth, 2012H14213P

2012-2014 MBA Batch
Department of Management, BITS Pilani

Under the guidance of

T. Ananthasayanam
DGM, Finance
BHEL Trichy

1
Introduction
Beta Coefficient is the term that sheds light on the historical relative volatility of the stock. It tells
about the market volatility of the stock w.r.t to the historical data of the Market Index.
If,
Beta value > 1 ------ > Implies the stock is more volatile than the Index
Beta Value < 1------ > Implies that stock is less volatile than the index
Beta Value = 1------ > Implies that the stock volatility moves with NIFTY
Since a stock’s beta coefficient determines how the stock affects the risk of a diversified portfolio,
beta is the most relevant measure of a stock risk.
Beta value of any security is dependent on return interval (i.e. daily, weekly, monthly or yearly
returns), length of time period chosen for analysis and the market index/ portfolio chosen to which
the security belongs.
Beta is the ratio of covariance of the return on asset and the return on market to variance in the
market retunes. This represents the slope of straight line between market returns (independent
variable) and the returns on the security (dependent variable)
Methodology
For calculating the BETA coefficient values, 8 year daily stock, index data is taken for BHEL and
other Maharatna PSU. Index taken is NIFTY. Other Maharatna PSU Companies compared are
SAIL, ONGC, COAL INDIA, IOCL, NTPC, GAIL.
Results
For 7 years, using the daily data of stock and index value, following β values are found
BHEL SAIL ONGC NTPC GAIL COAL IOCL
INDIA
1.057532263 1.358205 0.890861 0.794859 0.806067 0.554697969 0.806067

Analysis
Beta Value Analysis
βCOAL INDIA < βNTPC < βGAIL =βIOCL < βONGC < βBHEL< βSAIL
As one can see, β value of BHEL is above 1 indicating the stock is relatively volatile. In fact the
recent fall in stock price of BHEL implies its volatility. The Safe stock which an investor can
invest from the above is Coal India, followed by NTPC. BHEL is much safer stock compared to
SAIL. This can be attributed the factor that SAIL & BHEL are Engineering based companies
depending on the contracts heavily. This could be one factor which could make the stocks volatile.

2
Standard Deviation Analysis
Standard Deviation, sheds light on the historical Volatility of stock. High standard deviation means
more volatile stock. Lower Standard Deviation means more Stable Stock.
BHEL SAIL ONGC NTPC GAIL COAL IOCL
INDIA
3.231099882 3.134978 2.848135 2.034853 2.395179 1.768576953 2.395179

From the above data, it can be seen that BHEL has the highest volatility in comparison with other
PSU Maharatna firms. This indicates that stock is highly volatile in nature. We must also
understand that past 2 months of stock performance of BHEL has been highly mixed in nature and
shows that BHEL needs to perform better to gain investor confidence. Among the PSU Maharatna
Coal India limited is the less volatile and stable stock. This is followed by NTPC.
Variance Analysis
It is the measures of dispersion of stock price. Variance Measure the variability from average
(volatility) and risk.
Volatility and risk tells about the risk the investor is willing to take.
BHEL SAIL ONGC NTPC GAIL COAL IOCL
India
10.44000645 9.828089 8.111871 4.140625 5.736881 3.12786444 5.736881

Based on the data, BHEL is the stock which investor can take a risk and invest on it. This has the
highest volatility value. This is followed by SAIL and then by ONGC. BHEL can be said to have
the maximum risk premium in other words. COAL India is the stock where investor can take
minimum risk.
Conclusion

Thus, the beta coefficient analysis, Variance analysis, Standard Deviation analysis for BHEL vs.
OTHER Maharatna PSU is arrived. From the analysis we can interpret that BHEL is a highly risky
stock in comparison with its peer Maharatna PSU. But an industrial wise BETA analysis might
show different, so that too needs to be performed. Safest PSU is COAL India, followed by NTPC
showing that these stocks are safe bets for an investor.1

1
Refer Excel Sheet calculations for BETA, Standard Deviation, Variance values.