Indian Institute of Management Kozhikode (IIM-K)

Beta Calculation for ICICI Bank

Course- Advanced Corporate Finance

Submitted By
Name Abhishek Kumar Singh Roll No. EPGP-04A-005

Beta Calculation-ICICI Bank

I have worked with last three years returns data (both daily and weekly) for ICICI Bank. I laid the companys historical information out on my spreadsheet before I began. The next thing I did to derive the beta was to use the slope function to compare the companys returns with Niftys returns. The beta coefficient is part of the capital asset pricing model and it plays a big role. The reason why slope function is a key is because beta of a stock shows a relationship between the companys returns and the financial market as a whole, which here is being represented by Nifty. Beta tells us how risky an asset is. We determine whether a certain stock holds more or less risk or higher stock prices. So if we have a beta that is higher than 1, then the stock prices will go up above the market but these are more risky stocks. If there are betas lower than 1, then the stock prices will fall and go down with the market but these are less sensitive and not as risky stocks. This is what the relationship between beta and stock prices is . This is something an intelligent investor takes a look at. If an investor has a high beta then the investor expects a higher return. In opposite relation as well if an investor has a low beta he would be expecting to take less risk but possibly less value. This relationship works inversely. After deriving the returns for ICICI I achieved the beta of 1.393823 (using daily returns) and 1.360281 (using weekly returns). For my beta calculations I used the daily returns data from September 15, 2010 until August 16, 2013. The market has a Beta of 1. For making analysis easier, an index can be considered as representative of the entire market. Therefore, Nifty can be said to have a beta of 1. The beta for ICICI as calculated predicts that its stock prices will go up in the current stock market and also be more risky. To explain further, if the market (Nifty) goes up by 10%, then the ICICI stock would go up by ~ 14%. On the downside if the market drops by 5%, the stock drops by ~ 2% .Beta just shows or predicts what will happen so it is just used as a reference. If the beta is same as that of market, then this would mean that the stock would move at the same rate as that of market. So thats how beta can be used to determine whether the stock price is below or above to that of market and can be used as a reference to see if the stock price will go up or down.

References
Returns data for ICICI Bank for last 3 years has been taken from http://in.finance.yahoo.com/q/ website.

Attachment
Beta Calculation detail sheet for ICICI Bank is attached herewith.

BetaCalculation.xls