Nse Nifty Bank Stocks: Risk and Return Analysis
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© 2019 JETIR May 2019, Volume 6, Issue 5 www.jetir.org (ISSN-2349-5162) NSE NIFTY BANK STOCKS: RISK AND RETURN ANALYSIS 1Dr. E RAJESH M.Com., M.Phil., Ph.D., NET., SLET., 1Assistant Professor in Commerce Faculty of Science & Humanities SRM Institute of Science and Technology Ramapuram, Chennai - 89 ABSTRACT: This study analyzes the risk and returns of selected stocks of NSE NIFTY Bank index. For the purpose of analysis, the researcher collected data from the official website of National Stock Exchange. This study covers the period from 1st January 2018 to 31st December 2018. The data has been tested by different statistical tools namely: Mean, Standard deviation, Beta and Correlation. The findings of the study exposed that the average of daily returns for the NSE NIFTY 50 Index for the period was positive. However, the average returns of the selected banks' stocks show negatively except ICICI BANK. The standard deviation of returns series highest for all bank stocks when compared to NSE NIFTY 50 index. It is evident that all bank stocks have fluctuation in its price. Key words: Risk & Return, Beta, Standard deviation and Average price INTRODUCTION Investment, the process of exchanging income during one period of time for an asset that is expected to produce earnings in future periods. Thus, consumption in the current period is foregone in order to obtain a greater return in the future. For an economy as a whole to invest, total production must exceed total consumption. Throughout the history of capitalism, investment has been primarily the function of private business; during the 20th century, however, governments in planned economies and developing countries have become important investors. (www.britannica.com). In India, different range of investment opportunities exist namely postal savings, bank deposits, mutual funds, equity shares, preference shares, bonds and so on. However, investment in the stock market i.e., equity shares and preference shares play a crucial role in the mindset of investors. In order to get maximum returns from investment, investors are willing to take high-risk security. However, there are issues in stock market investment in finding the right combination of risk and return. If the investors identified the right combination of these two, obviously return from the investment will be high but majority of the investors fail to identify and know the concept of risk and return. Hence, the researcher has taken an attempt to study the risk and return analysis of NSE selected Nifty Bank Index stocks. REVIEW OF LITERATURE S Poornima and Swathiga P (2017), investigate the study in relationship between risk and return of selected stocks from two different sectors on NSE with the help of Capital Asset Pricing Model (CAPM). The risk and return analysis linked with any industry reveal the intricacies involved with the particular industry. A study revealed that the automobile sector showing positive return and low risk and IT sector showing negative return and high risk during the study period. Subramanyam and Nalla Bala Kalyan (2018), the risk-return investigation helps the investor to pick up the securities based on his choice. The study provides information about the performance of various stocks in the market in terms of risk and return. The study emphasized on the market fluctuations in relation to the prices of scrip's, though it is difficult to observe the pattern of the price movement’s efforts that have been taken using fundamental analysis and technical analysis. Nalla Bala Kalyan and S Gautami (2018), the study focused on the risk and return of the selected mutual funds' schemes in India. Risk refers to relatively objective probabilities which can be computed on the basis of past experience or some prior principle. The empirical results of Beta revelled that Tata contra fund (1.30) is having a high risk when compared to another contra fund Magnum contra fund (1.09), Kotak contra fund (0.94), UTI contra fund (0.63), and L&T contra fund (0.32). P Naveen and K Neeraja (2018), examined the Risk and Return Analysis of Equity Shares in the Banking Sector. The study concluded that some of the banks have higher returns and also some banks with high risk. Whatever it may be the investor always needs a combination with higher returns and low risk. Here the beta is useful to judge where the systematic risk is high. Kusuma Perikala1 Karishma Reddy (2019), analyses the risk-return relationship of Indian equity markets, S&P NSE NIFTY and CNX Nifty, for the period 2008-2009 through 2017-2018. The results indicate that on an aggregate basis both the indices performed similar except in the year 2013-2014 in which CNX Nifty outperformed. The study also reveals that Indian equity markets yielded negative returns in the year 2008-2009 and rocketed in the subsequent year. OBJECTIVE OF THE STUDY The overall objective of the study is to examine the risk and return analysis of selected Nifty Bank Index stocks. The following are specific objectives. They are JETIR1905J39 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org 252 © 2019 JETIR May 2019, Volume 6, Issue 5 www.jetir.org (ISSN-2349-5162) 1. to study the banks’ stock movement with respect to Nifty 50 index; and 2. to know the average returns and risk of each selected stocks. METHODOLOGY OF THE STUDY In order to analyse the risk and return in bank stocks, the researcher has chosen the NIFTY Bank Index. Bank Nifty index represents the 12 most liquid and large capitalised stocks from the banking sector which trade on the National Stock Exchange (NSE). It provides investors and market intermediaries a benchmark that captures the capital market performance of the Indian banking sector (www.nseindia.com). The researcher has selected on top five banking stocks namely Yes bank, Punjab National Bank, State Bank and ICICI bank based on traded volume. The data collected for this study are daily open, high, low and closing prices of selected stocks and NIFTY 50 index. Instead of using closing price itself, the researcher used the average of these four prices. According to Shilpa Lodha et al., majority of prior researchers have used only closing prices as if trading is done only at the closing price, rather the average of these four prices can yield better results as it can control volatility up to some extent. All the data have been collected from the official website of National Stock Exchange i.e., www.nseindia.com. The sample included from 1st January 2018 to 31st December 2018. TOOLS USED FOR THE STUDY MEAN It is used to measure the central value of the tendency. Mean represents the average value of the return series. It’s obtained by the sum of all the values of return series and divides by a number of elements in the return series. ∑ 푥 x̄ = 푁 Here, ∑X= Sum of all the individual values and N= Total number of items STANDARD DEVIATION It is the widest statistics used to measure the dispersion in the return series. Standard Deviation is also known as Root- Mean-Square Deviation. It is mainly used to find out the deviation of each value from the mean. (σ)= √[∑D²/N] Here, D= Deviation of an item relative to mean and N= The number of observation BETA A beta coefficient is a measure of the volatility or systematic risk of an individual stock in comparison to the unsystematic risk of the entire market. If the beta value shows 1, the security's price moves with the market. If the beta value is less than 1, means that the security is theoretically less volatile than the market. If the beta value more than 1 means that the security's price is theoretically more volatile than the market. 퐶표푣푎푟푖푎푛푐푒 (푅 ,푅 ) β = 푒 푚 푉푎푟푖푎푛푐푒 (푅푚) Here: Covariance = Measure of a stock’s return relative to that of the market Variance = Measure of how the market moves relative to its mean Re = Stock return and Rm = market return CORRELATION Correlation is used to measure the degree of relationship between the two variables. Hence, it is used to find if there is any relationship between the NIFTY 50 index returns and the individual bank stock returns. DATA ANALYSIS AND INTERPRETATION Table 1.1 Risk and Return analysis of YES BANK Stocks with NSE NIFTY 50 Particulars YES BANK Stock NSE NIFTY 50 Index MEAN -0.223 0.016 STANDARD DEVIATION 3.289 0.705 BETA 1.525 1 CORRELATION 0.327 - Source: Compiled from Excel Table 1.1 reveals the Risk and Return analysis of YES BANK Stock. The mean return of YES BANK (-0.223) is negative when compared to the NSE NIFTY 50 Index (0.016). The standard deviation of YES BANK Stock is 3.289 which is higher than the market return i.e., NSE NIFTY 50 (0.705). It is evident that the stock of YES BANK has fluctuation in its price. The beta value of YES BANK shows 1.525 which indicates the high risky stocks. The correlation statistics between the daily average returns of the YES BANK stocks with NSE NIFTY 50 index shows the least correlation (0.327). Table 1.2 Risk and Return analysis of Punjab national banks Stocks with NSE NIFTY Particulars PNB Stock NSE NIFTY 50 Index MEAN -0.319 0.016 STANDARD DEVIATION 2.735 0.705 BETA 1.544 1 CORRELATION 0.398 - Source: Compiled from Excel JETIR1905J39 Journal of Emerging Technologies and Innovative Research (JETIR) www.jetir.org 253 © 2019 JETIR May 2019, Volume 6, Issue 5 www.jetir.org (ISSN-2349-5162) Table 1.2 reveals the Risk and Return analysis of Punjab National Bank Stock.