Performance Analysis of Top Performing Sectors Stocks in India

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1 Performance Analysis of Top Performing Sectors Stocks in India Dr.Krishnaprabha Sivaprakasam Associate Professr, Department of Management Studies, SREC, Coimbatore, Anna University, Tamilnadu India Abstract The risk and return analysis in equity market affect the automobile sector, banking sector, infrastructure sector and IT sector in NSE NIFTY to a great extent and had led the investors in dilemma regarding the choice of investment. The study focused on risk and return analysis of equity based on 4 sectors. The study also describes standard deviation and variance of selected stocks. The study analysis the return and systematic risk associated with selected stocks. Key words: Risk, return, standard deviation and variance. Introduction Equity or Stock Market Equity markets are which shares are issued and traded either through exchanges or over-thecounter markets. Also known as the stock market, it is one of the most vital areas of a market economy as it provides companies with access to capital and investors with a slice of ownership in the company and the potential of gains based on the company's future performance. Stock Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. As acquire more stock, our ownership stake in the company becomes greater. Whether shares, equity, or stock, it all means the same thing. The importance of being a shareholder is that we are entitled to a portion of the company s profits and have a claim on assets. Profits are sometimes paid out in the form of dividends. The more shares own, the larger the portion of the profits we get. The securities market has two interdependent segments: the primary (new issues) market and the secondary market. Primary market is where new issues are first offered, with any subsequent trading going on in the secondary market. The primary market provides the channel for sale of new securities. Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. Review of Literature Richa Gupta and Deepti Goel (May 2014) 1 International Journal of Emerging Research in Management &Technology ISSN: (Volume-3, Issue-5) conducted a study on Indian Capital Market, Capital market in any country plays a pivotal role in the growth of economy and meeting country s socio economic goals. They are an important constituent of the financial system, given their role in the financial intermediation process and capital formation of the country. The importance of the capital market cannot be underemphasized for developing economy like India which needs significant amount of capital for the development of strong infrastructure. The entire paper is divided into three parts. In the first part discussed the conceptual framework of the capital market and in the next section focused on the trends in the capital market in India. In the third section, the discussion various issues 1 Richa Gupta and Deepti Goel International Journal of Emerging Research in Management &Technology ISSN: (Volume-3, Issue-5) (MAY 2014) > RJCBS: Volume: 05, Number: 04, February-2016 Page 19

2 and challenges of the capital market in India. They concluded that there is a positive correlation between the finance and the economic growth of the country. Madhvi (2014) 2 international journal , conducted a study on an evaluating study of Indian stock market scenario with reference to its growth and inception trend the objective of the study is to know the trend of Indian stock market, to study the volatile trends for securities on Indian stock market after globalization, and to analyze risk management measures adopted for securing safe return This paper is an attempt to analyze stock market conditions with all related measure to check on risk management tools with their respective return. With the help of Secondary sources like current research studies, Reports of BSE, NSE this study has been taken further to exploring some new highlights. The conclusion made was the study found stock market very volatile and fluctuating with respect to risk and return relationship. In stock market incomplete information leads to bad return whereas perfection and alertness leads to good and stable return. It was found that higher the risk higher the return and vice versa. Rakesh Kumar (Sep. Oct. 2013) 3 conducted a study on the effect of macroeconomic factors on Indian stock market performance the objective of the study is to find the influence of such variables on the Indian stock market through the data reduction technique of factor analysis. The Principal Component Technique after using orthogonal rotation extracted three factors labeled intuitively as Macro Environment, Industrial Performance and Policy Rates. It has been established that industrial performance play significant role in influencing the stock market. Besides, stock market responds to performance of the firm specific factors and unforeseen events in the economy. The conclusion made was data reduction technique of Factor analysis has been used to derive the common factors with the 78 percent explanation of variance among variables. Sagarika Misra and Soumya Guha Deb (2011) 4 conducted a study to analyze the Equity Beta the objectives of the study is to find out the stability of beta coefficients over time in Indian equity market, both across calendar periods and across some control periods or subperiods, corresponding to bull and bear phases in the market. They found some evidence of instability of betas over shorter time horizons. This instability reduces to a considerable extent when the beta estimation period increases. The analysis was done both at individual security level as well as portfolio level. Even though many previous studies indicated that portfolio betas are more stable than individual security betas, the results obtained in case of portfolios, however, are more or less similar to that in case of individual stocks. Tirthankar C. Patnaik and Susan Thomas (2004) 5 conducted a study to analyze the Profitability of Trading Strategies on High-Frequency Data, with Trading Costs the objectives of the study is to find out the profitability of contrarian and momentum trading strategies in the Indian equity markets, in the period , explicitly accounting for transaction costs. Using raw intraday data for order-book from the National Stock Exchange of India Limited, calculate the actual prices at which trades would take place for an order of INR 10,000, using the price impact of each of the stocks studied. Founded that for the Indian market, momentum strategies are profitable in the short-run, but profits fall as the formation period increases. The methodology eliminates market-microstructure biases, like the bid-ask bounce. 2 Madhavi, Evaluating Study Of Indian Stock Market Scenario with Reference to its Growth and Inception Trend international journal giirj, vol.2 (2), February (2014) 3 Rakesh Kumar, The Effect of Macroeconomic Factors on Indian Stock Market Performance IOSR Journal of Economics and Finance (IOSR-JEF) e-issn: , p-issn: Volume 1, Issue 3 (Sep. Oct. 2013), 3 PP Sagarika Misra and Soumya Guha Deb The IUP Journal of Applied Finance, Vol. 17, No. 4, pp. 5-25, (Oct2011) 5 Mr Tirthankar C. Patnaik and Susan Thomas IGIDR (April 28, 2004) > RJCBS: Volume: 05, Number: 04, February-2016 Page 20

3 Methodology Type of research The research is quantitative and analysis research. The study is descriptive type of study. The descriptive study is quite possible in the situation of having quantitative data. Research design The study describes the performance of the stocks and hence Descriptive Research Design. Sample Size The project analyses the performance of four leading sectors of National Stock Exchange, in the market and its fluctuations. The project also aims to analyze the average return and risk of the sample units in NSE. The sample size for the number of stocks is taken as 20 for analysis of stock as very exhaustive and required detailed study. Data collection Method The data used for the research work is secondary data and was collected for a period of 3 years from January 2012 to December Secondary data have been collected from the National Stock Exchange (NSE) website ( The stratified sampling technique is used to select the following four industrial sectors: Banking, Infrastructure, Automobiles, Information Technology Method of Sampling Judgmental sampling involves the choice of subjects who are most advantages placed or in the best position to provide the information required. Period of Study The period of study covers from 1 st January 2012 to 31 st December 2014 Analysis and Interpretation Return In finance, return is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain /loss, or net income /loss. R= (closing price opening price) / opening price *100 BETA analysis - Beta is a slope of the characteristic regression line. Beta describes the relationship between the stock s return and index return. 1) Beta = One percent change in market index returns causes exactly one percent change in the stock return. It indicates that the stock moves in tandem with the market. 2) Beta = One percent changes in market index return causes 0.5 percent change in the stock return. The stock is less volatile compared to the market. 3) Beta = One percent changes in market index return causes 2 percent change in the stock return. The stock is more volatile. When there is decline 10 percent in the market return, the stock with a beta of 2 would give a negative return of 20 percent. The stock with more than 1 beta value is considered to be risky. 4) Beta = -Ve - Negative beta value indicates that the stock return moves in the opposite direction to the market return. A stock with a negative beta of -1 would provide a return of 10 percent, if the market return declines by 10 percent and vice versa. Objectives of the Study To find risk and return analysis of selected stocks in NSE NIFTY To find the standard deviation and variance of selects stocks. > RJCBS: Volume: 05, Number: 04, February-2016 Page 21

4 Table 1: Risk and Return Analysis of Automobile sector Automobile Sector Return Risk (Beta) Bharat forge Eicher motor Hero motor Mahindra&Mahindra Tata motors It is inferred from the above table that in TATA MOTORS 1% change in market index return causes exactly 1.2 cent change in the stock return. It indicates that the stock moves in tandem with the market. In MAHINDRA AND MAHINDRA 1% change in market index return causes exactly 0.1% changes in the stock return. It indicates that the stock moves in tandem with the market. Table 2: Risk and Return Analysis of Banking Sector Companies Return Risk (beta) Axis Canara HDFC ICICI SBI It is inferred from the above table that in CANARA BANK 1% change in market index return causes exactly 2.8 % change in the stock return. It indicates that the stock moves in tandem with the market. In HDFC 1% change in market index return causes exactly 1.1% changes in the stock return. It indicates that the stock moves in tandem with the market. Table 3: Risk and Return Analysis of Infrastructure sector Companies Return Risk(beta) ABB Adani Ports BHEL IRB > RJCBS: Volume: 05, Number: 04, February-2016 Page 22

5 L&T It is inferred from the above table that in IRB1% change in market index return causes exactly 3.1% change in the stock return. It indicates that the stock moves in tandem with the market. In ADANI PORTS % change in market index return causes exactly 1.0% changes in the stock return. It indicates that the stock moves in tandem with the market. Table 4: Risk and Return Analysis of IT sector Companies Return Risk (Beta) HCL Infosys TCS Tech Mahindra Wipro It is inferred from the above table that in TECH MAHINDRA 1% change in market index return causes exactly 0.1 % change in the stock return. It indicates that the stock moves in tandem with the market. In HCL MAHINDRA 1% change in market index return causes exactly -0.4 % changes in the stock return. It indicates that the stock moves in tandem with the market. Table 5: Variance and Standard deviation of Automobile sector Bharat forge Eicher motor Hero motor Mahindra & Mahindra Tata motors It is inferred from the above table the standard deviation ranges from to Highest standard deviation is recorded by EICHER MOTOR (0.094) and lowest standard deviation is made by BHARAT FORGE (0.016). Table 6: Variance and Standard deviation of Banking sector Axis Canara HDFC > RJCBS: Volume: 05, Number: 04, February-2016 Page 23

6 ICICI SBI It is inferred from the above table the standard deviation ranges from to Highest standard deviation is recorded by CANARA (0.148) and lowest standard deviation is made by HDFC (0.056). Table 7: Variance and Standard deviation of infrastructure sector ABB Adani ports BHEL IRB L&T It is inferred from the above table the standard deviation ranges from to Highest standard deviation is recorded by IRB (0.178) and lowest standard deviation is made by ADANI PORTS (0.070). Table 8: Variance and Standard deviation of IT sector HCL Infosys TCS Tech mahindra Wipro It is inferred from the above table the standard deviation ranges from to Highest standard deviation is recorded by INFOSYS (0.085) and lowest standard deviation is made by TCS (0.067). Conclusion The investors in India are generally confused, regarding their choice of investing in equity market. As there is a fluctuation in share when compared to market and its stock price, the investor can able to predict about the price movement. Majority of the stocks in Infrastructure and Banking sector has more return when compared to Automobile and IT sector. > RJCBS: Volume: 05, Number: 04, February-2016 Page 24

7 Reference Books Punithavathy Pandiyan Security Analysis and Portfolio Management Vikas publishing Pvt Ltd. S.Kevin Security Analysis and Portfolio Management PHI learning Pvt Ltd, New Delhi. Journals Madhvi February 2014, an evaluating study of Indian stock market scenario with reference to its growth and inception trend attempted by Indian investors, S.D institute of management and technology, Jagadhri. Dr. Ambrish Gupta, Scenario of the Primary Capital Market in India: Present State, Future Outlook and Suggested Policy Reforms FORE School of Management New Delhi. Nay-Fu Chen, Richard Roll and Stephen A. Ross, Economic Forces and the Stock Market, The Journal of Business, Vol. 59, No. 3, , Jul Johannes A., August 2004, A study of Individual, Institutional and Corporate Trading Decisions. > RJCBS: Volume: 05, Number: 04, February-2016 Page 25