“A STUDY ON RISK RETURN ANALYSIS OF SELECTED

AUTOMOTIVE COMPANY STOCKS IN NSE”

BY
ATTULURI MOHAN
B31820357

GUIDE
SRIDHAR K.V

Ramaiah Institute of Management Studies

#15, New BEL Road, MSRIT Post, M S Ramaiah Nagar
Bangalore – 560054

4
INTRODUCTION

The risk and return analysis is important to equity share investors in the share market. The
need of equity shares at the time of preliminary stage of the company to raise the fund for
starting a business. The equity shareholder is an actual owner of a company.

The risk and return analysis is main function of this project. The meaning of risk and return
as follows:

Risk: Risk refers to the profitability that the actual outcome of an investment will differ from
expected outcome. More specifically, most investors are concerned about the actual outcome
being less than the expected outcome. There are many source of risk ie., business risk, market
risk, interest rate of risk.

Return: Return is representing the reward for undertaking investment. The return of
investment consists of two components as under:

1. Current return
2. Capital return

PROFILE OF THE COMPANY

Tata motors limited: Tata motors limited, formerly Tata Engineering and locomotive
company (TELCO) is an Indian multinational automotive manufacturing company
headquarters in Mumbai, Maharashtra. Tata motors was founded in 1945. It is a part of Tata
group, an Indian conglomerate. Its products includes passenger cars, buses, sports cars and
trucks.

Mahindra & Mahindra limited: Mahindra & Mahindra limited is world’s largest tractor
manufacturing company and also India’s second largest vehicle manufacturing company. It
was founded in 1945, headquarters in Mumbai, Maharashtra. Mahindra & Mahindra is
India’s top SUV manufacturing company that produce two wheelers, buses, tempo, trucks
and commercial vehicles.

DEFINITIONS AND MEANINGS OF THE TERMS USED IN THE

TITLE:

STOCK MARKET
The stock market refers to the collection of markets and exchanges where regular activities of
buying, selling, and issuance of shares of publicly held companies take place. Such financial
activities are conducted through institutionalized formal exchange or over-the-counter (OTC)
marketplace which operate under a defined set of regulations. There can be multiple stock
trading venues in a country or a region which allow transactions in stocks and other forms of
securities.

STOCKS

Stock is an equity investment that represents the part of ownership in a company and entitles
you that part of that company’s assets and earnings. Stock give shareholders voting rights but
not guarantee of payment of dividends. At the point when the organization, you may benefit
also, and when the organization battles fiscally, your assumption may encounter as well.

STOCK EXCHANGE

Stock exchange is an organized market for buying and selling corporate and other securities.
Here, securities are purchased and sold out as per certain well-defined rules and regulations.
It provides a convenient and secured platform for transactions in different securities. Such
securities includes shares and debentures issued by pubic companies which are duly listed at
the stock exchange, and bonds and debentures issued by government, public corporations.

NSE (NATIONAL STOCK EXCHANGE)

The National Stock Exchange (NSE) is the fourth largest stock exchange by equity trading
volume at present. It began its operations in 1994 and is ranked as largest stock exchange in
India in terms of total and average daily turnover for equity shares every year since 1995,
based on the annual reports of SEBI. In 1994 NSE first launched electronic screen-based

Trading. Derivatives trading and internet trading in India is also first introduced by NSE in

India.

STATEMENT OF PROBLEM

The investment made in any security involves the element of risk which may be very high or
low. But suck risk depends upon the nature of the equity shares and the industry which the
company belongs to. Therefore before taking any rational investment decision, it is good for
the investors to analyse the equity in terms of risk and return that provides a clear idea
regarding the risk return that provides a clear idea regarding the risk return characteristics of
the equity. This study is undertaken to analyse the equity of selected automobile companies
listed in NSE.

SCOPE OF THE STUDY

The project primarily deals with equity shares, the study is limited to comparison of different
automotive company equity share in respect of their risk and return. The study cover only 2
automotive company which are listed in nifty auto The analysis is strictly based on unit price
and benchmarking information collected from NSE website. The automotive company’s
stock price and nifty auto price index movement for a period of 2013-14 to 2017-18 has been
considered for calculation of returns, standard deviation, variance and beta.

REVIEW OF LITERATURE

Dr. S. Krishnaprabha and Mr. M. Vijayakumar (2015) conducted a study on Risk and Return
Analysis of Selected Stocks in India. Risk and return analysis play an important role in the
decision-making process of most of the investors. Long term investors were able to take
advantage of the market as it less volatile. As there is less fluctuation in the shares when
compared to the market as well as its prices, the long-term investors are able to predict when
the share will raise. The majority of Information Technology, Fast Moving Consumer Goods,
and Pharmaceutical Sectors give more return while compared to Banking and Automobile
sector.

Dr. Anubha Srivastava (2014) conducted a comprehensive study of Performance of Indian

Automobile Industry. In that study the Researcher analyses 3 major automobile companies in
India that are Maruti, Mahindra, and Tata. The study found that the performance of the auto
sector is directly related to the country’s economic trend. It is also found that Mahindra and
Mahindra are the most correlated to the auto index than the other two companies. The
increasing demands and sales numbers of Indian auto bring many opportunities for these
players.

Dr. M. Muthu Gopalakrisnan and Dr. K. V. Ramanathan (2013) conducted a Study on

Volatility in Indian Stock Market – A Study of Post and Prerecession Period. In this study,
the Researchers try to analyse price fluctuation in Indian stock market. Estimating the
volatility in the market will help the investors in estimating or calculating their risk. They
analyse the volatility of sectoral index listed in Nifty as on 28-03-2013 using daily opening
price, closing price, high and low prices of 31 selected companies. This study helps in
identifying volatility relationship during Pre-Recession and Post-Recession period.

S.Nagarajan and K.Prabhakaran (2013) conducted a study on Equity Analysis of Selected

FMCG Companies Listed on NSE. They had used standard deviation, co- efficient of
variation and beta for analysing the shares of various selected FMCG companies. They found
that the Nestle India Ltd share price has 53% relationship with nifty index. It was much lower
than other companies selected from the FMCG sector.

Dr. P Vikkreaman and P Varadharajan (2009) analysed the equity of selected companies in
the automobile industry for the period of 2004 to 2007. They use Beta and Alpha techniques
for analysing risk and return of the automobile companies. The calculation of the return
indicator and systematic risk provide a clear understanding regarding the investment
decisions on these companies.

OBJECTIVES

1. To calculate the average return on selected automotive company stocks.

2. To calculate the market risk of selected automotive company stocks.
3. To compute the total risk of selected automotive company stock in NSE.
4. To offer valid suggestions for investor in order to take the rational decision.

HYPOTHESIS

H0: There is no relation between risk and market return.

H1: There is a relationship between risk and market return.

LIMITATIONS OF STUDY

1. The analysis is completely based on secondary data collected from website of NSE,
published literature, annual reports and so the findings of the study entirely depends
on the accuracy of such data.
2. Only 5 years data has been considered for calculation of risk and return.
3. The data is dependent on annual reports and NSE reports.

DATA COLLECTION USED IN THE STUDY:

Secondary data: The data which is used in the project work is collected from the various
automotive stock returns from NSE and various sources from internet

DATA COLLECTION:

Secondary source:

The secondary data consists of information that been already exists and has been collected
for some specific purpose previously.

 Websites
 Articles
 Annual reports of company
 www.nse.com
 www.investopedia.com

SAMPLING

1. Sample Design: Universe is the first step of sample design. I have selected nifty auto
for analysis of risk and return
2. Method of sampling: Deliberate sampling method” because it means selecting
particular unit in the universe.
3. Sample Size: Two companies in National Stock Exchange (Nifty auto) are selected to
analysis of the risk and return in equity shares. Those companies are as follows Tata
motors limited, Mahindra & Mahindra limited.

RESEARCH METHODOLOGY
To address the objectives of the study, the Indian automotive industry was taken as the
universe and a sample of two companies were selected. The study was based on secondary
data which was taken from NSE website
Risk in investment
Every investment is characterized by risk and return. For a common man the term „risk‟
means a situation in which something is unpleasant or unexpected may happen. In other
words, risk is a situation involving exposure to uncertainty.in the domain of investment, the
term „risk‟ has a definite financial meaning. As we are aware, an investor invests his funds in
anticipation of a regular stream of income in the future.
Risk
“Risk refers to the possibility that actual outcome of an investment will differ from expected
outcome. More specifically, most investors are concerned about the actual outcome being less
than the expected income”.
Return
“Return is representing reward for undertaking an investment. The return of an investment
consists of two components they are current return and capital return. In this project risk and
return are calculated using standard deviation, variance and beta”.

Variance
“Variance is a degree of spreading of a set of data points round their mean value. In other
words, variance is a mathematical anticipation of the average squared deviations from the
mean. It is calculated by finding the probability-weighted average of squared deviations from
the predictable value. Variance measures the variability from an average. Volatility is a
measure of risk, so this statistic can help to control the risk stakeholder might take on when
buying a definite security”.
Standard Deviation
“Standard Deviation is a statistical measurement, when applied to the annual rate of return of
an investment; it sheds light on the historical volatility of that investment. The greater the
standard deviation of a security, the greater the variance between each price and mean,
indicating a larger price range. For example, a volatile stock has a high standard deviation,
while the deviation f a stable blue-chip stock is usually rather low”.
Beta
“A measure of the volatility or systematic risk of a security in comparison to the market as a
whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the
expected return of an asset based on its beta and expected market returns. It is also known as
beta

BIBLIOGRAPHY
 www.nse.com
 www.investopedia.com
 www.moneycontrol.com
 WWW.TATAMOTORS.COM
 www.mahindra.com