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Analysis Of Return And Beta In Sensex Component

A RESEARCH STUDY

On

ANALYSIS OF RETURN AND BETA IN SENSEX COMPONENT” Submitted in partial fulfillment of the requirements for MBA Degree of Bangalore University

Submitted By

KIRAN M K

06XQCM6035

Under the Guidance and Supervision Of

Dr. NAGESH S MALAVALLI

the Guidance and Supervision Of Dr. NAGESH S MALAVALLI M.P.BIRLA INSTITUTE OF MANAGEMENT Associate Bharatiya Vidya

M.P.BIRLA INSTITUTE OF MANAGEMENT

Associate Bharatiya Vidya Bhavan

# 43, Race Course Road

Bangalore-560001

2006 – 08

Analysis Of Return And Beta In Sensex Component

DECLARATION

I hereby declare that the report entitled. “A Study on ANALYSIS OF

RETURN AND BETA IN SENSEX COMPONENTis prepared under the

guidance of Dr Nagesh S Malavalli ( Principal, M P BIRLA INSTITUTE

OF MANAGEMENT) .I also declare that this project report has not been

submitted to any other University / Institute for the award of any other

degree, diploma, fellowship or other similar title or prizes.

Date:

Place: Bangalore

Kiran M K

(O6XQCM6035)

Analysis Of Return And Beta In Sensex Component

PRINCIPAL’S CERTIFICATE

This is to certify that this report titled. “A ANALYSIS OF RETURN AND BETA IN SENSEX COMPONENT " is the result of project work undergone by Kiran M K, bearing the Register Number 06XQCM6035, under the guidance of Dr Nagesh S Mallavalli . This has not formed a basis for the award of any Degree/Diploma for any other University.

Place: Bangalore

Date :

Dr. Nagesh.S.Malavalli

Analysis Of Return And Beta In Sensex Component

GUIDE’S CERTIFICATE

This is to certify that Mr. Kiran M K student of M.P.BIRLA INSTITUTE

OF MANAGEMENT Associate Bharatiya Vidya Bhavan, Bangalore, has

successfully completed the research work entitled “A Study on ANALYSIS

OF RETURN AND BETA IN SENSEX COMPONENT” for the partial

fulfilment of the requirements of MASTER OF BUSINESS

ADMINISTRATION degree of BANGALORE UNIVERSITY, under my

guidance and supervision.

Date:

Place: Bangalore

Dr. Nagesh S Malavalli (Internal guide)

Analysis Of Return And Beta In Sensex Component

ACKNOWLEDGEMENT

I am thankful to Dr. Nagesh malavalli, Principal M.P. Birla Institute of Management, Bangalore, who has given his valuable support during the Study and who has guided me to do this project by giving valuable suggestions and advice. My gratitude will not be complete without thanking God and I am most grateful to my beloved parents who have been a constant source of aspiration and blessings in my pursuit for studies. Finally, I express my sincere gratitude to all my friends and well wishers who helped me to do this project

Kiran M K

Analysis Of Return And Beta In Sensex Component

CONTENTS

1. Research Extract

2. Introduction Statement Of Problem Objective of the study Hypothesis

Limitations of the Research

3. Literature Review

Theoretical background:

Beta

Beta and risk

Sensex

4. Research Methodology

Research Design

5. Data Analysis and Interpretation

6. Summary of Findings

7. Conclusion

8. Bibliography

9. Annexure

Analysis Of Return And Beta In Sensex Component

RESEARCH EXTRACT

In partial fulfillment of MBA degree of Bangalore University, I took up a project titled ANALYSIS OF RETURN AND BETA IN SENSEX COMPONENTHence, I thought it would be a right time to take such a project and present the findings of what impact it has made. I have also specified in the end of the project the road for further study, which other interested persons, can take up a project and augment to the findings of this project.

The following research has been conducted to find out index stock follows a particular trend. If stocks of a particular sector gave their investor huge return for one particular year does it the stock follow the same trend for the next years. In order to find out the trend the opening price and closing price for a period of eight year from 2001 to 2008 of Sensex index stocks considered. Based on the return arrived each 30 stocks are ranked using simple ranking method and analyzed for the presence of any particular trend. It has been found that the Sensex index stock does not follow any particular trend.

Analysis Of Return And Beta In Sensex Component

INTRODUCTION

It is widely believed that stock market is related to macroeconomic fundamentals of an economy, as companies that are listed for trading in stock exchanges are the Ones who contribute significantly to the economy's growth .Ever since the turn of the century; world stock markets have been very volatile. In other words there have been significant movements (up or down) in share prices. This phenomenon has been evidenced by the collapse in recent years of the share prices of the companies.

The current world political situation is probably the worst it is for many years. World markets are falling at a rapid pace. What does beta factor analysis teach us about an investment strategy in this situation? Firstly, however good a company is it likely that in such circumstances most will encounter falls in their share price.

The beta of an investment is a relative measure of the systematic risk of an investment. In other words it measures the specific risk of the company's shares relative to the market as a whole. In general, the sign of the beta indicates whether, on average, the investment's returns move with the market or in the opposite direction to the market. The scale or value of the beta indicates the relative volatility of the particular stock.

However during this time a number of alternative investments that have negative beta factors have appreciated in value. The prime example of this is gold. However in the past few years it is noticeable that in the political uncertainty that has arisen in the world that the price of gold has shown material gains at a time when equity markets have recorded sharp falls.

Analysis Of Return And Beta In Sensex Component

PROBLEM STATEMENT

To assess the return and beta from Sensex index stocks and analyzing the behavior of stocks. On the basis of this problem statement, the following specific objectives have been crystallized

OBJECTIVE OF THE STUDY

To study the index stocks behavior from past eight years.

To know the performance of index stocks in Sensex.

To find out whether index stocks return having any relationships.

Need of the study:

In Sensex market, index stocks beta factor can have a major influence on the investment strategies of investors but this factor doesn’t have any specific format. If the analysis is to be believed then in times of a bull market investors should hold stocks with a high positive beta factor since they should outperform the market.

Hypothesis:

Null hypothesis (H0):

There is no specific format in index stocks in Sensex.

Alternative hypothesis (Ha): There is a specific format in index stocks in Sensex.

Analysis Of Return And Beta In Sensex Component

LIMITATIONS OF THE RESEARCH

The sample consider for research is only stocks from BSE index.

Ideally, the research should have been done throughout the cross Section of the equity stocks in India, but this would have been beyond my scope of study due to limited resources.

Analysis Of Return And Beta In Sensex Component

LITERATURE REVIEW AND THEORETICAL BACKGROUND

Analysis Of Return And Beta In Sensex Component

LITERATURE REVIEW

Sharpe (1963) developed a simplified single-index model to predict security returns. The major characteristic, and the primary shortcoming, of the single index model is that the only factor influencing a security’s return is its sensitivity to changes in the market portfolio return (Martin and Klemkosky (1976)). King (1966) published the first important study proving that stock prices for firms in the same industry exhibit a common movement that goes beyond the market effect. Employing monthly closing stock prices for 63 firms in six industries during the June 1927 to December 1960 period, his study documents that while 50% of stock price movements could be explained by movements in the market index, 20% of the residual variance was accounted for by industry affiliation.

Meyers (1973) and Livingston (1977) in similar studies confirmed King’s findings. The Meyers study involved 60 of the same companies used by King and 60 additional companies, using data through December 1967. Meyers concluded that although there were strong industries effects, King may have overstated the percent of residual variance explained by industry association. Livingston used 50 companies in 10 industry groups and studied monthly returns from January 1966 through June 1970. He also found strong co movement among stocks in the same industry, and concluded that 18% of residual variance was accounted for by industry effects.

The recognition that factors other than movement in the market index affect security returns led to the development of multi-index models. Several subsequent studies attempted to determine factors other than the market index which affect security prices.

Sharpe (1982) studied monthly returns for stocks of 2,197 firms from 1931 through 1979. His findings showed that the R2 for a regression model was significantly improved using dividend yield, company size, and bond beta in addition to a market index. Pari and Chen (1984) conducted a test of an Arbitrage Pricing Theory (APT)

Analysis Of Return And Beta In Sensex Component

model for 2,090 firms for the period 1975 to 1980. Using this model, they found that factors such as the general market index, price volatility of energy, and interest rate risk, influence stock price. Chen, Roll, and Ross (1986) tested an APT model for significance of several factors in explaining security returns. Using monthly data for the period 1953- 1983, their results indicate that the following factors are significant in explaining the variability of a security return: spread between long and short interest rates, expected and unexpected inflation. Beginning in the early 1980’s, researchers began applying multi-index An Empirical Analysis Of Market And Industry Factors In Stock Returns Of U.S. Aerospace Industry 87 CAPMs to identify which factors influenced stock returns. These studies tend to cover stocks in various industries, mainly focusing on utility industry, and show that various factors have significant influence on stock returns. In particular, the CAPM approach has been widely used in the utility industry for determining its cost of capital and the utility’s rate structure.

Theoretical Background:

Economists have long been fascinated by what influences aggregate stock Market returns. For example, a distinguished literature has examined the role of Inflation (e.g. Fama, 1981 Feldstein, 1982; Lintner, 1976; Modigliani and Cohn, 1979; and Stulz, 1986), while recent research has drawn attention to the possible Influence of a exhaustive list of macroeconomic variables (e.g. Campbell and Hamao, 1989: Engel and Rodrigues, 1988; Giovannini and Jorion, 1989; and Keim and Stambaugh, 1986).

On the other hand financial economists Investigating the pricing of risky securities have largely focused on factor Models; the (single factor) CAPM due to Sharpe (1964) Lintner (1965), and Others, and estimated by, for example, Blume and Friend (1973), and Fama and Macbeth (1973); and the multi-factor analytic methods which have been used to Estimate multiple measures of systmatic risk (Roll and Ross, 1980). Typically it Has not been possible to identify economic variables with those factors (other Than the market index itself).

Analysis Of Return And Beta In Sensex Component

Economic Factors and Stock Returns:

Economic variable which influences expected dividends or the discount rate will affect stock prices. Which affect future anticipated cash flows, and those influences the discount rate, though such a distinction will be somewhat arbitrary if one considers a complete structural model of the economy. Expected dividends will be affected by anything, which influences cash flows. Changes in the expected rate of inflation would affect both nominal cash flows and interest rates. Clearly changes in industrial production would influence profits and hence dividends. Fama (1981) finds a correlation between stock market returns and future growth rates of output. There is extensive evidence that relative prices change with inflation and hence sectoral and aggregate performance may change, (see Fischer, 1981: and Driffill, Mizonand Ulph, 1989). Changes in exchange rate will affect the value of foreign earnings and export performance. Default risk referred to a ‘market risk’ by Chen, Roll and Ross(CRR) may be captured by the spread between the yield on a corporate debentures and loan price index and the yield on long government bonds. The use of interest differential between government stocks and below-investment grade corporate bond as a measure of risk aversion implicit in the market’s pricing of stocks, though one could argue that such a variable simply reflects financial leverage. This is the most important variable (statistically) in the analysis of CCH and CRR.

Other indicators of economic activity like unemployment, stock market turnover, bank lending, and the trade balance might also have an influence upon expected future cash flows expected cash flows. Finally, oil price changes also observed to influence industry costs, and via induced macro policy responses, possibly output and hence revenues.

The appropriate discount rate in equation is constructed from the prevailing risk-free rate and a risk premium, and an average of rate over time; the changes in the ‘safe’ rate and yield curve are likely to influence the stock prices. Further, ‘surprises’ in the current account balance, exchange rates, the money supply, output, oil prices, or even the price of

Analysis Of Return And Beta In Sensex Component

gold, could all alter the outlook for interest rates, and hence the discount rate. To the extent that the ‘market risk’ variables capture perceptions of equity market risk, and unanticipated changes in these will also influence returns.

One of the difficulties of empirically studying the APT is that it does not offer any theoretical or empirical grounds for identifying the economic nature of the factors. An alternative to the use of artificially devised factors and their corresponding sensitivities is to identify factors a priori. Chen, Roll and Ross (1986) adopted this approach using macro-economic factors.

Returns on securities are influenced by various macro economic activities. Nevertheless, individual economic variables cannot be taken directly as common factors in the generating process. First, economic variables are not totally independent of each other. Including this economic variable in equation to estimate loadings will introduce multicollinearity.

Second, there is a lack of prior knowledge which economic variables should be included as factors that determine asset returns. The factors estimated from all economic activities eliminate multicollinearity among independent variables and reduce the dimension of independent variables entering the return generating process. These estimated economic factors preserve most of the relevant information. King (1966) and Cohen and Pogue (1967), who investigate mainly the industry related impact on asset returns also use a similar specification of the return generating process. Although these studies have enhanced the understanding of non-market components of asset returns, the equilibrium asset-pricing model is not used and major economic variables are not considered.

In India. A total of 30scrip considered in the construction of BSE30 form the basic sample stocks. While establishing the CAPM, APT and Economic Factor Models, these 30 scrip have been grouped into 15 portfolios of with two assets each,. The first factor composed of a wide variety of factors from different sectors like Industrial production, Money Banking and Interest rate, Inflation, External Transactions and select indicators of

Analysis Of Return And Beta In Sensex Component

Capital Market. The second factor represents primarily the inflation factor and the last factor represents the select sectors of Industrial Production. Next the systematic risks (beta coefficients) corresponding to these factors are estimated for each stock using the three factors by regressing the individual stock return relatives against the factor scores obtained from Factor Analysis.

The macro economic factor model is based on the general hypothesis that returns are influenced by three classes of factors – real domestic activity, money and stock market activity and foreign variables and any change in them are expected to change the investor’s perceptions of future expected cash flows and likely to affect current asset prices. While inflation is the most common factor; it was found to be significant in Chen, Roll and Ross (1986) and Mc Elroy and Burmeister (1988) and others.

Interest rates were also prevalent amongst priced factors in almost all studies. While monetary variables are found to be less common the foreign influences (exchange rates or balance of payments) found to play their own role. As the macro economic factor model is trying to explain the cross sectional variations in average security returns, the results of this model has been compared with that of the APT. But it should be noted that the APT and economic factors are not directly comparable to each other because of the differences in the scope and nature of the factors considered in the analysis.

Analysis Of Return And Beta In Sensex Component

BETA

Beta is a measure of a stock's volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. If a stock moves less than the market, the stock's beta is less than 1.0. High- beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns.

Beta measures a stock's volatility, the degree to which its price fluctuates in relation to the overall market. In other words, it gives a sense of the stock's market risk compared to the greater market. Beta is used also to compare a stock's market risk to that of other stocks. Investment analysts use the Greek letter 'ß' to represent beta.

Beta is a key component for the capital asset pricing model (CAPM), which is used to calculate cost of equity. Recall that the cost of capital represents the discount rate used to arrive at the present value of a company's future cash flows. All things being equal, the higher a company's beta is, the higher its cost of capital discount rate. The higher the discount rate, the lower the present value placed on the company's future cash flows. In short, beta can impact a company's share valuation.

The beta of an investment is a relative measure of the systematic risk of an investment. In other words it measures the specific risk of the company's shares relative to the market as a whole. In general, the sign of the beta (+/-) indicates whether, on average, the investment's returns move with the market or in the opposite direction to the market. The scale or value of the beta indicates the relative volatility of the particular stock.

Indian Capital Market since liberalizations has undergone tremendous Changes and has evolved as a vibrant system of investment flows. A dynamic Capital market is an important segment of the financial system of any country as it plays a significant role in mobilizing savings and channeling them for Productive purposes. The efficient fund allocation depends on the stock market Efficiency in pricing the different securities traded in it. The modern financial Theory focuses upon systematic factors as sources of

Analysis Of Return And Beta In Sensex Component

risk and contemplates that The long run return on an individual asset must reflect the changes in such Systematic factors. An enquiry into such systematic factors through different Methodologies suggested in finance literature would help the policy makers, Investors, to design their investment strategies meaningfully.

BETA FACTORS:

This measure is calculated using regression analysis. A beta of 1 indicates that the security's price tends to move with the market. A beta greater than 1 indicates that the security's price tends to be more volatile than the market, and a beta less than 1 means it tends to be less volatile than the market. Many utility stocks have a beta of less than 1, and, conversely, many high-tech NASDAQ-listed stocks have a beta greater than 1.

Essentially, beta expresses the fundamental tradeoff between minimizing risk and

maximizing return. Let's give an illustration. Say a company has a beta of 2. This means

it is two times as volatile as the overall market. Let's say we expect the market to provide

a return of 10% on an investment. We would expect the company to return 20%. On the

other hand, if the market were to decline and provide a return of -6%, investors in that company could expect a return of -12% (a loss of 12%). If a stock had a beta of 0.5, we would expect it to be half as volatile as the market: a market return of 10% would mean a 5% gain for the company.

Here is a basic guide to various betas:

Negative beta - A beta less than 0 - which would indicate an inverse relation to the market - is possible but highly unlikely. Some investors used to believe that gold and gold stocks should have negative betas because they tended to do better when the stock market declined, but this hasn't proved to be true over the long term.

Beta of 0 - Basically, cash has a beta of 0. In other words, regardless of which way the market moves, the value of cash remains unchanged (given no inflation).

Analysis Of Return And Beta In Sensex Component

Beta between 0 and 1 - Companies with volatilities lower than the market have a beta of less than 1 (but more than 0). As we mentioned earlier, many utilities fall in this range.

Beta of 1 - A beta of 1 represents the volatility of the given index used to represent the overall market, against which other stocks and their betas are measured. The S&P 500 is such an index. If a stock has a beta of one, it will move the same amount and direction as the index. So, an index fund that mirrors the S&P 500 will have a beta close to 1.

Beta greater than 1 - This denotes a volatility that is greater than the broad-based index. Again, as we mentioned above, many technology companies on the NASDAQ have a beta higher than 1.

Beta greater than 100 - This is impossible as it essentially denotes a volatility that is 100 times greater than the market. If a stock had a beta of 100, it would be expected to go to 0 on any decline in the stock market. If you ever see a beta of over 100 on a research site it

is usually the result of a statistical error, or the given stock has experienced large swings

due to low liquidity, such as an over-the-counter stock. For the most part, stocks of well-

known companies rarely ever have a beta higher than 4.

A beta of +0.25 for instance, would indicate that on average, the investment's returns

move one quarter as much as the markets do in the same direction. If the market rose by 10%, the investment would be expected to rise by 2.5% but on the other hand if the market fell by 10% the investment would be expected to fall by only 2.5%. A beta of -0.1 would indicate that on average, the investment's returns move one tenth as much as the market's do, but in the opposite direction. If the market rose by 10%, the investment

would be expected to fall by 1%. Hence we can summaries a number of situations:

Analysis Of Return And Beta In Sensex Component

BETA AND RISK

Of course, there is more to it than that. Risk also implies return. Stocks with a high beta should have a higher return than the market. If you are accepting more risk, you should expect more reward.

For example, if the market with a beta of 1 is expected to return 8%, a stock with a beta of 1.5 should return 12%. If you don’t see that level of return, then the stock is not a good investment possibility.

Stocks with a beta below 1 may be a safer investment (at least by this one measure) and you should expect a lower return.

Beta seems to be a great way to measure the risk of any stock. If you look a young, technology stocks, they will always carry high betas. Many utilities on the other hand, carry betas below 1. Problems with Beta

While the may seem to be a good measure of risk, there are some problems with relying on beta scores alone for determining the risk of an investment.

Beta looks backward and history is not always an accurate predictor of the future.

Beta also doesn’t account for changes that are in the works, such as new lines of business or industry shifts.

Beta suggests a stock’s price volatility relative to the whole market, but that volatility can be upward as well as downward movement. In a sustained advancing market, a stock that is outperforming the whole market would have a beta greater than 1.

Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the asset's sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic risk or market risk. On an individual asset level, measuring beta can give clues to volatility and liquidity in the marketplace. On a portfolio level, measuring beta is thought to separate a manager's skill from his or her willingness to take risk.

Analysis Of Return And Beta In Sensex Component

The beta movement should be distinguished from the actual returns of the stocks. For example, a sector may be performing well and may have good prospects, but the fact that its movement does not correlate well with the broader market index may decrease its beta. However, it should not be taken as a reflection on the overall attractiveness or the loss of it for the sector, or stock as the case may be. Beta is a measure of risk and not to be confused with the attractiveness of the investment.

The beta coefficient was born out of linear regression analysis. It is linked to a regression analysis of the returns of a portfolio (such as a stock index) (x-axis) in a specific period versus the returns of an individual asset (y-axis) in a specific year. The regression line is then called the Security Characteristic Line (SCL).

USING BETA FACTORS IN THE PRESENT SITUATION:

The current world political situation is probably the worst it is for many years. World markets are falling at a rapid pace. What does beta factor analysis teach us about an investment strategy in this situation? Firstly, however good a company is it likely that in such circumstances most will encounter falls in their share prices.

However during this time a number of alternative investments that have negative beta factors have appreciated in value. The prime example of this is gold. Over the past twenty years when there was a strong equity bull market, However in the past few years it is noticeable that in the political uncertainty that has arisen in the world that the price of gold has shown material gains at a time when equity markets have recorded sharp falls.

Beta factor analysis is a useful technique that has enabled many international investors to achieve satisfactory returns in the past. If one looks at the trends in world markets then one can see that in a bull market those investors that have followed a selective aggressive portfolio (i.e. including shares with beta factors of over 1 times) have generally outperformed the market.

The current political uncertainty has made things extremely difficult for investors especially in India. Should they get out of world markets since a conflict will

Analysis Of Return And Beta In Sensex Component

almost certainly mean falling equity prices. Or should investors move to alternative investments with negative beta factors such as gold and oil? After all in case of a conflict these commodities will almost certainly rise and will probably go against the trend of equity prices. The beta is a measure of a stock’s price volatility in relation to the rest of the market.

How to Use Beta

Investors can find the best use of the beta ratio in short-term decision-making, where price volatility is important. If you are planning to buy and sell within a short period, beta is a good measure of risk.

However, as a single predictor of risk for a long-term investor, the beta has too many flaws. Careful consideration of a company’s fundamentals will give you a much better picture of the potential long-term risk.

Beta is a measure of the market risk or volatility of investing in a stock. It helps investors pick stocks that fall in their risk comfort zone.

But what does it really tell you about a stock and what mixed signals do investors get when three different Web sites report three different betas for the same stock?

The last part of than question came from a reader, Dan R., who wondered why three Web sites gave him three different answers to the same question about a stock’s beta and one answer was apparently much different from the other two.

Advantages of Beta

To followers of CAPM, beta is a useful measure. A stock's price variability is important to consider when assessing risk. Indeed, if you think about risk as the possibility of a stock losing its value, beta has appeal as a proxy for risk.

Analysis Of Return And Beta In Sensex Component

Intuitively, it makes plenty of sense. Think of an early-stage technology stock with a price that bounces up and down more than the market. It's hard not to think that stock will be riskier than, say, a safe-haven utility industry stock with a low beta.

Besides, beta offers a clear, quantifiable measure, which makes it easy to work with. Sure, there are variations on beta depending on things such as the market index used and the time period measured, but broadly speaking, the notion of beta is fairly straightforward to understand. It's a convenient measure that can be used to calculate the costs of equity used in a valuation method that discounts cash flows.

Disadvantages of Beta.

For starters, beta doesn't incorporate new information. Consider the electrical utility company American Electric Power (AEP). Historically, AEP has been considered a defensive stock with a low beta. But when it entered the merchant energy business and assumed high debt levels, AEP's historic beta no longer captured the substantial risks the company took on. At the same time, many technology stocks, such as Google, are so new to the market they have insufficient price history to establish a reliable beta.

Another troubling factor is that past price movements are very poor predictors of the future. Betas are merely rear-view mirrors, reflecting very little of what lies ahead.

Furthermore, the beta measure on a single stock tends to flip around over time, which makes it unreliable. Granted, for traders looking to buy and sell stocks within short time periods, beta is a fairly good risk metric. But for investors with long-term horizons, it's less useful.

In investing, beta does not refer to fraternities, product testing or VHS' old competition - in investing, beta is a measurement of market risk, or volatility. It is because of this risk that some people don't want to invest in stocks. These risk-averse investors can't stomach stocks' greater tendency to fluctuate in price. Sure, there is always the possibility that a

Analysis Of Return And Beta In Sensex Component

stock will lose some or all of its value, but volatility also makes it possible for investors to make a great deal of money - if they make the right choices.

Why You Should Know What Beta Is

Are you prepared to take a loss on your investments? Many people are not and therefore opt for investments with low volatility. Other people are willing to take on additional risk because with it they receive the possibility of increased reward. It is very important that investors not only have a good understanding of their risk tolerance, but also know which investments match their risk preferences.

And, by using beta to measure volatility, you can better choose those securities that meet your criteria for risk. Investors who are very risk averse should put their money into investments with low betas such as utility stocks and Treasury bills. Those investors who are willing to take on more risk may want to invest in stocks with higher betas. Many brokerage firms calculate the betas of securities they trade and then publish their calculations in a beta book. These books offer estimates of the beta for almost any publicly-traded company. The problem is that most of us don't have access to these brokerage books, and the calculation for beta can often be confusing, even for experienced investors

Analysis Of Return And Beta In Sensex Component

SENSEX

Established in 1875, BSE is not only the oldest stock exchange in India, but is also the oldest in Asia. It accounts for over one-third of the total trading volume in the country. The National Stock Exchange (NSE), located in Bombay, was set up in 1993 to encourage stock exchange reform through system modernization and competition. It opened for trading in mid-1994. Since then the NSE has made major strides and is now the dominant stock exchange in the country. Most other studies on Indian market use the BSE Sensex index to compute market returns. With NSE being an equally prominent stock exchange in India, we also use the S&P CNX Nifty index to compute returns.

Between the two exchanges, NSE being demutualized provides a better market quality. With lower execution cost, lower price volatility and higher liquidity compared to BSE, NSE has emerged to be superior by providing improved market quality and high standards of investor protection.

BSE Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media. The Index was initially calculated based on the .Full market capitalization. Methodology but was shifted to the .Free-float methodology with effect from September 1, 2003.

SENSEX: THE BAROMETER OF INDIAN ECONOMY

For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "The Stock Exchange, Mumbai" by paying a princely amount of Re1.Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy

Analysis Of Return And Beta In Sensex Component

one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.

The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media.

The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology.

Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. The SENSEX captured all these events in the most judicial manner. One can identify the booms and busts of the Indian stock market through SENSEX.

Analysis Of Return And Beta In Sensex Component

SENSEX Calculation Methodology

SENSEX is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization. The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc.

During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time.

Maintenance of SENSEX

One of the important aspects of maintaining continuity with the past is to update the base year average. The base year value adjustment ensures that replacement of stocks in Index, additional issue of capital and other corporate announcements like 'rights issue' etc. do not destroy the historical value of the index. The beauty of maintenance lies in the fact that adjustments for corporate actions in the Index should not per se affect the index values.

The Index Cell of the exchange does the day-to-day maintenance of the index within the road index policy framework set by the Index Committee. The Index Cell ensures that SENSEX and all the other BSE indices maintain their benchmark properties by striking a

Analysis Of Return And Beta In Sensex Component

delicate balance between frequent replacements in index and maintaining its historical continuity. The Index Committee of the Exchange comprises of experts on capital markets from all major market segments. They include Academicians, Fund-managers from leading Mutual Funds, Finance-Journalists, Market Participants, Independent Governing Board members, and Exchange administration.

On-Line Computation of the Index

During market hours, prices of the index scrips, at which trades are executed, are automatically used by the trading computer to calculate the SENSEX every 15 seconds and continuously updated on all trading workstations connected to the BSE trading computer in real time. Adjustment for Bonus, Rights and Newly issued Capital: The arithmetic calculation involved in calculating SENSEX is simple, but problem arises when one of the component stocks pays a bonus or issues rights shares. If no adjustments were made, a discontinuity would arise between the current value of the index and its previous value despite the non-occurrence of any economic activity of substance. At the Index Cell of the Exchange, the base value is adjusted, which is used to alter market capitalization of the component stocks to arrive at the SENSEX value. The Index Cell of the Exchange keeps a close watch on the events that might affect the index on a regular basis and carries out daily maintenance of all the 14 Indices. Qualification Criteria:

The general guidelines for selection of constituent scrips in SENSEX are as follows:

A. Quantitative Criteria:

1. Final Rank: The scrip should figure in the top 100 companies listed by Final Rank. The final rank is arrived at by assigning 75% weightage to the rank on the basis of six- month average full market capitalisation and 25% weightage to the liquidity rank based on six-month average daily turnover & six-month average impact cost.

Analysis Of Return And Beta In Sensex Component

2. Trading Frequency: The scrip should have been traded on each and every trading day

for the last six months. Exceptions can be made for extreme reasons like scrip suspension etc.

3. Market Capitalization Weightage: The weight of each scrip in SENSEX based on

six-month average Free-Float market capitalization should be at least 0.5% of the Index.

4. Industry Representation: Scrip selection would take into account a balanced representation of the listed companies in the universe of BSE. The index companies should be leaders in their industry group.

5. Listed History: The scrip should have a listing history of at least 3 months on BSE.

However, the Committee may relax the criteria under exceptional circumstances.

B. Qualitative Criteria:

Track Record In the opinion of the Committee, the company should have an acceptable track record.

Index Review Frequency:

The Index Committee meets every quarter to review all BSE indices. However, every review meeting need not necessarily result in a change in the index constituents. In case of a revision in the Index constituents, the announcement of the incoming and outgoing scrips is made six weeks in advance of the actual implementation of the revision of the Index.

Analysis Of Return And Beta In Sensex Component

Analysis of Indian stock market BSE Sensex Index

The BSE SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies.

The base year of SENSEX is 1978-79 and the base value is 100. The index is widely reported in both domestic and international markets through print as well as electronic media. The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003. The "Free-float Market Capitalization" methodology of index construction is regarded as an industry best practice globally. All major index providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. Due to is wide acceptance amongst the Indian investors; SENSEX is regarded to be the pulse of the Indian stock market. As the oldest index in the country, it provides the time series data over a fairly long period of time (From 1979 onwards). Small wonder, the SENSEX has over the years become one of the most prominent brands in the country. SENSEX MILESTONES

Rise of the Sensex through Indian stock market history.

1000, July 25, 1990 - On July 25, 1990, the Sensex touched the four-digit figure for the

first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.

2000, January 15, 1992 - On January 15, 1992, the Sensex crossed the 2,000-mark and

closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.

Analysis Of Return And Beta In Sensex Component

3000, February 29, 1992 - On February 29, 1992, the Sensex surged past the 3000 mark

in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.

4000, March 30, 1992 - On March 30, 1992, the Sensex crossed the 4,000-mark and

closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.

5000, October 11, 1999 - On October 8, 1999, the Sensex crossed the 5,000-mark as the

BJP-led coalition won the majority in the 13th Lok Sabha election.

6000, February 11, 2000 - On February 11, 2000, the infotech boom helped the Sensex

to cross the 6,000-mark and hit and all time high of 6,006.

7000, June 21, 2005 - On June 20, 2005, the news of the settlement between the Ambani

brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.

8000, September 8, 2005 - On September 8, 2005, the Bombay Stock Exchange's

benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.

9000, December 09, 2005 - The Sensex on November 28, 2005 crossed 9000 to touch

9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.

10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points

during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.

Analysis Of Return And Beta In Sensex Component

11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed 11,000 and touched a

peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points.

12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed 12,000 and touched a

peak of 12,004 points during mid-session at the Bombay Stock Exchange for the first time.

13,000, October 30, 2006 - The Sensex on October 30, 2006 crossed 13,000 and still

riding high at the Bombay Stock Exchange for the first time. It took 135 days to reach 13,000 from 12,000. And 124 days to reach 13,000 from 12,500. On 30th October 2006 it touched a peak of 13,039.36 & closed at 13,024.26.

14,000, December 5, 2006 - The Sensex on December 5, 2006 crossed 14,000 and

touched a peak of 14028 at 9.58AM (IST) while opening for the day December 5, 2006.

15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and reached

a magic figure of 15,000. it took almost 7 month and 1 day to touch such a historic milestone.

16,000, September 19, 2007- The Sensex on September 19, 2007 crossed the 16,000

mark and reached a historic peak of 16322 while closing. The bull hits because of the rate cut of 50 bps in the discount rate by the Fed chief Ben Bernanke in US.

17,000, September 26, 2007- The Sensex on September 26, 2007 crossed the 17,000

mark for the first time, creating a record for the second fastest 1000 point gain in just 5 trading sessions. It failed however to sustain the momentum and closed below 17000. The Sensex closed above 17000 for the first time on the following day. Reliance group has been the main contributor in this bull run, contributing 256 points. This also helped Mukesh Ambani's net worth to grow to over $50 billion or Rs.2 trillion. It was also

Analysis Of Return And Beta In Sensex Component

during this record bull run that the Sensex for the first time zoomed ahead of the Nikkei of Japan.

18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on October

9, 2007. The journey from 17k to 18k took just 8 trading sessions which is the third fastest 1000 point rise in the history of the Sensex. The Sensex closed at 18,280 at the end of day. This 788 point gain on 9th October was the second biggest single day absolute gains.

19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on

October 15th 2007. It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally ever and also the 640 point rally was the second highest single day rally in absolute terms. This made it a record 3000 point rally in 17 trading sessions overall.

20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a

massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from 19k to 20k. The journey of the last 10,000 points was covered in just 869 sessions as against 7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone, there were six 1,000-point rallies for the Sensex.

Analysis Of Return And Beta In Sensex Component

RESEARCH METHODALOGY

Analysis Of Return And Beta In Sensex Component

RESEARCH DESIGN

Study Type: The study type is analytical, quantitative and historical.

Analytical because facts and existing information is used for the analysis, Quantitative as relationship is examined by expressing variables in measurable terms and also Historical as the historical information is used for analysis and interpretation.

Sampling frame: Sampling Frame would be 30 stocks of SENSEX INDEX

STOCKS.

Sampling technique: simple random sampling is used because only index

stocks units are selected from the sampling frame. Such a selection is undertaken as these units represent the population in a better way and reflect better relationship with the other variable.

Data gathering procedures and instruments:

Data: Historical yearly share prices of index stocks from 2001 to 2008 Data Source: Historical share prices of the sample companies and the index points for the period has been taken from the database of capitaline.com Sensex has been taken because BSE Sensex is considered as trust worthy indices of India.

Analysis Of Return And Beta In Sensex Component

Sample description : to assessing the beta following list of index stocks to be taken

Name of company

Name of industries

Acc

Cement industries

Ambuja cement ltd

Cement industries

Bharthi airtell

telecommunication

Cipla

Pharmaceutical industries

DLF

Infrastructure development

Grasim

Textile industries

HDFC

Banking

Hindalco Ltd

Iron and steel industries

ICICI Bank

Banking industries

Jaiprakash

Consulting and broking

L & T

Infrastructure development

Maruthi Suzuki

Automobile industries

Reliance com

Information technology

Reliance energy

Oil and power

SBI

Banking industries

Satym

Information technology

TATA Steel

Iron and steel industries

TCS

Information technology

M & M

Automobile industries

Infosys

Information technology

TATA MOTARS

Auto mobile industries

BHEL

Power

HUL

Marketing

NTPC

power and fuel

RANBAXY

Pharmaceutical industries

WIPRO

Information technology

ITC

FMCG

Reliance Industries Ltd

Diversified

HDFC Bank

Banking

ONGC

Oil and power

Analysis Of Return And Beta In Sensex Component

ANALYSIS

AND

INTERPRETATION

Analysis Of Return And Beta In Sensex Component

Table1: show that ranking of index stocks according to returns (%).

   

YEAR/returns (%)

 

1 ST

year

2 ND year

3 RD year

4 TH year

5 TH year ranks

6 TH year ranks

7 TH year ranks

8 TH year ranks

NAME OF INDEX STOCKS

ranks

ranks

ranks

ranks

Acc Ambuja cement ltd Bharthi airtel Cipla DLF Grasim HDFC Hindalco Ltd ICICI Bank Jaiprakash L & T Maruthi Suzuki Reliance com Reliance energy sbi Satym TATA Steel TCS M & M infosys TATA MOTARS BHEL HUL NTPC RANBAXY WIPRO ITC Reliance Industries Ltd HDFC Bank

11

14

19

9

9

1

24

21

2

21

15

11

12

6

21

18

24

1

1

8

4

13

8

5

23

21

19

15

16

28

3

8

29

13

11

3

12

26

2

16

25

1

15

17

20

10

19

10

7

15

20

8

26

25

25

17

12

23

4

12

7

11

11

15

22

3

1

3

3

30

10

13

7

2

2

10

2

27

9

17

17

14

20

24

9

12

19

9

12

10

24

24

29

1

28

12

5

14

18

16

18

7

17

18

9

22

23

5

20

25

5

21

2

4

14

27

22

6

14

16

22

15

26

16

22

7

2

8

3

5

23

23

19

10

23

5

13

13

30

6

3

3

6

22

20

17

29

13

16

8

5

4

4

8

5

26

6

22

24

28

18

27

22

1

15

21

24

9

20

7

6

16

21

28

28

19

2

20

16

25

13

23

21

27

9

17

17

20

10

7

23

18

4

14

19

13

27

6

7

4

10

8

18

18

6

19

12

11

11

ongc

4

1

11

25

14

26

14

15

38 M.P. Birla Institute of Management

Analysis Of Return And Beta In Sensex Component

INTERPRETATION:

the above table states that , in year 2001 HDFC got 1 st rank (22.33%). but later it started to vary like 1,15,17,20,10,19,10,7 rank according to year 2002,2003,2004,2005,2006,2007,2008 respectively. Ranking is based on percentage of return. So that, it states proper format is not there in index stocks and also there is no relationship with past ranking.

Ambuja cement ltd having a second rank in 2001 but in 2002, rank 21st so that it indicate that past ranking not influencing the future ranks

In 2006, ACC ranked 1 st with a return of 101.775% and year 2007,ranked 24 th with a negative return of 6.63%, it indicates that ranking of post rank will not influence future rank in index stocks.

This table shows that there is no specific format in index stocks rank so that portfolio manager and investor not invest according the past rank in index stock.

According to research, in BSE 30 there is no proper format in index stocks and in this company who had 1 st rank may not be same for the future years. So that by using simple ranking technique null hypothesis is accepted.

Analysis Of Return And Beta In Sensex Component

Table2: show that ranking of index stocks according to Beta of stock.

   

YEAR/beta

 

NAME

OF

INDEX

1 ST

year

2 ND year

3 RD year

4 TH year

5 TH year ranks

6 TH year ranks

7 TH year ranks

8 TH year ranks

STOCKS

ranks

ranks

ranks

ranks

Acc

4

8

9

16

12

14

12

12

Ambuja cement ltd

 

15

13

18

14

27

17

27

27

Bharthi airtel

14

22

15

9

22

10

26

Cipla

18

24

24

22

17

25

28

27

DLF

3

4

Grasim

12

12

13

20

22

5

20

19

HDFC

23

23

25

28

26

28

24

23

Hindalco Ltd

 

22

21

19

21

13

4

14

3

ICICI Bank

5

11

15

18

Jaiprakash

3

5

2

4

1

L & T

7

16

14

27

18

8

7

9

Maruthi Suzuki

 

4

8

8

7

13

28

Reliance com

3

6

6

Reliance energy

17

22

10

1

10

18

1

2

sbi

13

12

12

4

3

24

2

13

Satym

1

1

1

16

1

12

19

20

TATA Steel

8

7

5

2

6

1

8

10

TCS

19

19

23

14

M & M

9

4

6

12

14

16

16

22

infosys

3

2

3

19

7

20

22

15

TATA MOTARS

 

10

3

7

5

4

6

15

21

BHEL

11

9

17

2

15

10

5

11

HUL

16

10

11

24

20

13

26

24

NTPC

13

23

26

18

5

RANBAXY

14

17

21

26

21

23

25

25

WIPRO

2

6

2

7

2

9

17

16

ITC

19

18

20

23

24

11

29

18

Reliance Industries Ltd

6

5

8

9

11

15

9

7

HDFC Bank

 

20

20

23

25

25

27

21

17

ONGC

21

15

16

10

16

21

11

8

Analysis Of Return And Beta In Sensex Component

INTERPRETATION:

The above table shows that ranking of sensex index stocks according to beta of stocks. This analysis prove that no specific format there in index stocks. Because this research revels that if index stocks having higher Beta (1 st rank) in previous year but it may have low ranking in current year.

In this analysis also states that specific format is not there. Beta analysis reveals that all the index stocks having a beta more than 0.5.

Beta analysis reveals that there is no consistency in Volatility of index stocks example: in 2001, M&M having 0.993 Beta and 2002 it will 1.2, in 2003 it will 1.2262, in 2004 it will 1.05, in 2005 it will 0.97.

In 2001, 30% of index stocks having Beta more than 1. In 2002, 32% of index stocks having Beta more than 1. In 2003, 40% of index stocks having beta more than 1 and in2007, it will increase to 50%. This states that volatility of index stocks don’t have any consistency.

According to research, in BSE 30 there is no proper format in index stocks and in this 1 st rank may not be same for future years. So that by using simple ranking technique null hypothesis is accepted.

Analysis Of Return And Beta In Sensex Component

Table3: show that top 10 ranking index stocks in 2001

1st year

Return (%)

Beta

Ranks

Ambuja cement ltd Cipla HDFC L & T Reliance energy TATA MOTARS HUL RANBAXY HDFC Bank ONGC

17.322835

0.738

2

8.4047619

0.6474

5

22.335793

0.2866

1

-2.84264

1.0422

10

-0.326633

0.6629

9

11.63311

0.9925

3

7.7831325

0.73

6

1.961433

0.83

7

0.8301548

0.5941

8

10.16845

0.5691

4

25 20 15 10 Series1 5 0 -5 Ambuja cement Cipla HDFC L & ener
25
20
15
10
Series1
5
0
-5
Ambuja cement
Cipla
HDFC
L & ener
T MOTAR RANBAX
Reliance
TATA
HUL
HDFC Ba
ongc

In 2001 out of 30 stocks, only 13.33% of index stocks giving more than 10% of return and 50 % index stocks giving negative return and HDFC giving more return and ranked 1 and. If you are invested in market in this period you can get negative return.

Analysis Of Return And Beta In Sensex Component

Table4: show that top 20 and below 20 ranking index stocks in 2001

year 1

return %

Beta

ranks

ICICI Bank

-42.671

1.1162

23

TATA Steel

-33.6861

21

1.04

M & M

-40.4933

22

0.993

WIPRO

-33.2216

20

2.2138

year 1st 0 ICICI Bank TATA Steel M & M WIPRO -10 -20 return (%)
year 1st
0
ICICI Bank
TATA
Steel
M &
M WIPRO
-10
-20
return (%)
-30
-40
-50
index stocks

Series1

Analysis Of Return And Beta In Sensex Component

Table5: show that top 10 ranking index stocks in 2002

2nd year

Return (%)

Beta

Ranks

ICICI Bank SBI Satym TATA Steel M & M Infosys TATA MOTARS BHEL RANBAXY ONGC

56.166667

0.8766

4

54.459632

0.8204

5

18.964041

2.0251

9

71.475221

1.12

2

25.222222

1.2

7

17.08155

1.3617

10

59.673429

1.2568

3

22.846975

0.9588

8

35.90049

0.709

6

153.47826

0.7956

1

sbi Sat TATA ym Ste M

BHEL

M MOTAR RANBAXY

ongc

& infosys

ICICI Ba

TATA

180 160 140 120 100 Series1 80 60 40 20 0
180
160
140
120
100
Series1
80
60
40
20
0

Analysis Of Return And Beta In Sensex Component

Table6: show that top 20 and below 20 ranking index stocks in 2002

year 2

return %

Beta

ranks

Ambuja cement ltd Bharthi airtel Cipla Hindalco Ltd HUL

-14.0828

0.8113

21

-58.3636

0.8065

24

-22.132

0.237

23

-7.51174

0.377

20

-18.6801

0.9464

22

2ndyear

0 Ambujacement ltd Bharthi airtel Cipla HindalcoLtd HUL -10 -20 -30 Series1 -40 -50 -60
0
Ambujacement ltd
Bharthi airtel
Cipla
HindalcoLtd
HUL
-10
-20
-30
Series1
-40
-50
-60
-70
return(% )

indexstocks

Analysis Of Return And Beta In Sensex Component

Table7: show that top 10 ranking index stocks in 2003

3 rd year

Return

Beta

Ranks

(%)

 

Bharthi airtell Grasim Hindalco Ltd L & T Maruthi Suzuki Reliance energy TATA Steel M & M TATA MOTARS BHEL

347.23404

0.5418

1

217.80627

0.9572

3

142.75243

0.6722

8

146.77585

0.92

7

137.56313

1.3526

9

130.55054

1.0677

10

191.94376

1.3

4

244.11817

1.2262

2

180.14865

1.2113

6

191.93103

0.8968

5

120 100 80 60 Series1 40 20 0 Acc airt Bharthi ICICI Jaiprakas Ban L
120
100
80
60
Series1
40
20
0
Acc airt
Bharthi
ICICI Jaiprakas Ban
L & T M & infosys
M
BHEL HDFC
ITC Ban

Analysis Of Return And Beta In Sensex Component

Table8: show that top 20 and below 20 ranking index stocks in 2003

year 3

return %

Beta

ranks

Cipla

45.7135

0.5109

21

Satym

31.15316

1.9873

22

Infosys

16.83494

1.5784

23

HUL

12.28744

0.9962

24

WIPRO

5.670291

1.7877

25

ITC

48.30547

0.6616

20

3 rd year

60 50 40 30 Series1 20 10 0 Cipla Satym infosys HUL WIPRO ITC return
60
50
40
30
Series1
20
10
0
Cipla
Satym
infosys
HUL
WIPRO
ITC
return (% )

index stocks

Analysis Of Return And Beta In Sensex Component

Table9: show that top 10 ranking index stocks in 2004

 

Return

 

4 th year

(%)

Beta

Ranks

Acc Bharthi airtell ICICI Bank Jaiprakash L & T M & M Infosys BHEL ITC HDFC Bank

37.738918

1.0873

9

102.91765

1.0346

1

42.760878

0.9693

7

62.350427

1.4335

3

85.283019

0.49

2

38.903061

1.0563

8

49.080114

0.9167

5

50.371094

1.3626

4

31.763996

0.7584

10

43.328729

0.6697

6

120 100 80 60 Series1 40 20 0 Acc airte Bharthi ICICI Jaiprakash Ban L
120
100
80
60
Series1
40
20
0
Acc airte
Bharthi
ICICI Jaiprakash Ban
L & T M & infosys
M
BHEL HDFC
ITC Ban

Analysis Of Return And Beta In Sensex Component

Table10: show that top 20 and below 20 ranking index stocks in 2004

year 4

return %

Beta

ranks

HDFC Hindalco Ltd Reliance energy Satym TATA MOTARS HUL RANBAXY

18.13416

0.4293

20

0.14177

0.7719

26

1.83513

1.4851

24

10.78378

1.0202

23

11.02198

1.3794

22

-30.3567

0.7058

28

13.7533

0.5373

21

Reliance

Industries

1.201

Ltd

-6.51617

 

27

ONGC

1.217117

1.1246

25

4 th year

30 20 10 0 Series1 -10 -20 -30 -40 return (% ) HDFC Reliance energy
30
20
10
0
Series1
-10
-20
-30
-40
return (% )
HDFC
Reliance
energy
TATA
MOTARS
RANBAXY
ongc

index stocks

Analysis Of Return And Beta In Sensex Component

Table11: show that top 10 ranking index stocks in 2005

5 th year

Return (%)

Beta

Ranks

Acc Bharthi airtell HDFC Jaiprakash L & T Satym M & M BHEL ITC Reliance Industries Ltd

57.279552

1.0433

9

57.925994

1.0845

8

56.742523

0.4678

10

109.1129

1.1597

1

86.527764

0.8942

2

79.07767

1.32

5

86.267734

0.9746

3

79.800259

0.9723

4

60.815402

0.7751

7

71.067383

1.0525

6

120 100 80 60 Series1 40 20 0 Acc Bharthi HDFC Jaiprakash L&T Satym M&M
120
100
80
60
Series1
40
20
0
Acc
Bharthi
HDFC
Jaiprakash
L&T
Satym
M&M
BHEL
ITC
Reliance
airtel
Industries

Ltd

Analysis Of Return And Beta In Sensex Component

Table12: show that top 10 ranking index stocks in 2005

year 5

return %

Beta

ranks

Grasim Hindalco Ltd Reliance energy TATA Steel TCS TATA MOTARS NTPC RANBAXY WIPRO

4.213483

0.7923

26

5.869324

0.9848

25

15.14286

1.0602

24

-2.73751

1.12

27

26.12683

0.8586

22

28.10201

1.17

20

27.98635

0.792

21

-42.1166

0.799

28

23.09429

1.12

23

5 th year

40 30 20 10 0 Series1 -10 -20 -30 -40 -50 Grasim Hindalco Reliance Ltd
40
30
20
10
0
Series1
-10
-20
-30
-40
-50
Grasim
Hindalco
Reliance Ltd energy
TATA Steel
TATA TCS
MOTARS NTPC
RANBAXY
WIPRO
return(%)

index stocks

Analysis Of Return And Beta In Sensex Component

Table13: show that top 10 ranking index stocks in 2006

6 th year

Return (%)

Beta

Ranks

Acc Ambuja cement ltd Bharthi airtell Grasim Jaiprakash L & T Reliance com M & M BHEL Reliance Industries Ltd

101.77509

1.0429

1