Table Of ContentIndia Studies in Business and Economics
Shveta Singh
P.K. Jain
Surendra Singh Yadav
Equity
Markets in
India
Returns, Risk and Price Multiples
India Studies in Business and Economics
TheIndianeconomyisconsideredtobeoneofthefastestgrowingeconomiesofthe
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Shveta Singh P.K. Jain
(cid:129)
Surendra Singh Yadav
Equity Markets in India
Returns, Risk and Price Multiples
123
ShvetaSingh Surendra SinghYadav
Department ofManagement Studies Department ofManagement Studies
Indian Institute of Technology Delhi Indian Institute of Technology Delhi
NewDelhi NewDelhi
India India
P.K. Jain
Department ofManagement Studies
Indian Institute of Technology Delhi
NewDelhi
India
ISSN 2198-0012 ISSN 2198-0020 (electronic)
India Studies inBusiness andEconomics
ISBN978-981-10-0867-2 ISBN978-981-10-0868-9 (eBook)
DOI 10.1007/978-981-10-0868-9
LibraryofCongressControlNumber:2016935967
©SpringerScience+BusinessMediaSingapore2016
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To
the Almighty
and
our family members
Preface
Greatdeedsareusuallywroughtatgreatrisk
—Herodotus
Equity markets constitute the most important segment of stock exchanges. In fact,
statusofequityreturnsis,byandlarge,reckonedasabarometerofthestateofthe
economyofacountry.Returnsearnedbyequityinvestorsontheirfundsinvestedin
equitymarketswouldbeadecisivefactorinthegrowthofsuchmarkets.Whathas
been the experience of Indian equity markets constitutes the subject matter of this
book.
It would be useful for equity investors to know the expected returns (on a
rationalbasis)andactualreturnsearnedontheirinvestments;equallyimportantfor
them would be to have an insight into the risk-return trade-off involved in equity
investment and the factors that affect the same.
A study comprising, possibly, the largest sample of the National Stock
Exchange’s (NSE) 500 index companies (representing almost 97 % of the market
capitalisation) has not been undertaken so far, in India. The period of the study is
spread over two decades (1994–2014) tracking returns right from the inception
of the index till the present. This book would, provide a comprehensive view of
equity returns in India.
Thisbookwoulddeepentheinvestor’sunderstandingofequityinvestmentand,
thus,helphimbecomeamoreinformedinvestor.Apartfromthis,thisstudywould
contribute significantly to the existing body of literature on market returns and
prove to be of some value to academic researchers and market participants
(financial institutions and other intermediaries), regulators and policy makers.
vii
Acknowledgements
Attheoutset,wewouldliketothanktheAlmightyforHisblessingstoinspireusto
accomplish this academic endeavour. This work has been possible because of the
help,encouragement,cooperationandguidanceofmanypeopleandweconveyour
heartfelt thanks to all of them. Special thanks to the Modi Chair Foundation for
funding the research effort. We are grateful to Prof. Kshitij Gupta, Director, IIT
DelhiandProf.R.K.Shevgaonkar,ex-Director,IITDelhi,fortheirencouragement
andsupport.WeexpressourgratitudetowardsProf.M.Balakrishnan(ex-DDF)and
Prof.Sushil,ex-Dean(Faculty),fortheirunstintingsupport.Ourthanksarealsodue
to Prof. S.N. Singh (ex-Dean, IRD), Prof. Sunil Tuli, Dean (IRD), Mr. V.K.
Vashistha, AR (IRD), Mr. R.K. Gupta (ex-AR, IRD Accounts), Mr. Anup Kuksal,
AR (IRD Accounts) and IRD stafffor their support for our academic endeavour.
TothanktheHeadoftheDepartmentmayseemtobearitual.Butitisnotsoin
the case of Prof. Kanika T. Bhal, Head, Department of Management Studies
(DMS). She has been supportive throughout. We thank Prof. Ravi Shankar for
engagingindiscussionsfromtimetotimeandallourcolleaguesintheDepartment
for their good wishes for this endeavour.
We are grateful to our students, Apurv Manvar, and our research scholars,
Monika Singla, Vandana Bhama and Sadaf Anwar, for their help with the data
collection. We thank our student Nishant Vats for his help with data collation and
processingandourresearchscholarHarshitaforpreparingthetableofcontentsand
lists offigures, etc.
Dr. Shveta Singh takes this opportunity to express her deepest gratitude to her
gurus and co-authors, Prof. P.K. Jain and Prof. Surendra Singh Yadav, for their
valuableguidance,inspiration,motivationanduntiringeffortsincompletionofthis
project. She also thanks Anil, her husband, for his unwavering support and
encouragement. Professor P.K. Jain acknowledges the patience, understanding,
cooperation and encouragement of his wife, Uma.
ix
x Acknowledgements
Last but not least, we are thankful to all those, not mentioned above, who have
helped in carrying out the study, our family members and loved ones for their
continuous encouragement and support.
Shveta Singh
P.K. Jain
Surendra Singh Yadav
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section I: Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equity Market Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Factors Affecting Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section II: Objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section III: Research Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
NSE 500 Index Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Secondary Data and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Data Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section IV: Layout of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section V: Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Annexure 1.1: Constituent Companies and Sectors of NSE 500
(as on 11 March 2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2 Rates of Return on Equity Funds (ROEF)—Corporates’
Perspective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section I: Literature Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Risk Factors/Determinants Affecting ROE. . . . . . . . . . . . . . . . . . . 34
Impact of Recent Financial Crisis on India . . . . . . . . . . . . . . . . . . 34
Section II: Scope, Data and Methodology. . . . . . . . . . . . . . . . . . . . . 35
Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
NSE 500 Index Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Secondary Data and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Data Sources and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section III: Rates of Return from the Company’s
Perspective—ROEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section IV: Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
xi
