“A STUDY ON RISK AND RETURN ANALYSIS OF

SELECTED STOCKS IN INDIA”

A report submitted in partial fulfilment for the award of the degree

MASTER OF BUSINESS OF ADMINISTRATION

Submitted By:
CHETHANA H S
USN: 1NX16MBA08
Under the Guidance Assistant Prof. JOYTHI G

Nitte Meenakshi Institute of Technology

(An Autonomous Institute under Visvesvaraya Technology University, Belagavi)
 PROJECT SYNOPSIS

Project Title: A study on risk and return analysis of stocks in india

Student Name: CHETHANA H S

Program: MBA

Current Organization: NITTE MEENAKSHI INSTITUTE OF TECHNOLOGY

INTRODUCTION

The term stock exchange is the concept for the mechanism that the trading of company stocks.
Trading at both the exchanges takes place through an open electronic limit order book, in which
order matching is done by the trading computer. There are no market makers or specialists and
the entire process is order-driven, which means that market orders placed by investors are
automatically matched with the best limit orders. As a result, buyers and sellers remain
anonymous.

The advantage of an order driven market is that it brings more transparency, by displaying all
buy and sell orders in the trading system. All orders in the trading system need to be placed
through brokers, many of which provide online trading facility to retail customers. Institutional
investors can also take advantage of the direct market access (DMA) option, in which they use
trading terminals provided by brokers for placing orders directly into the stock market trading
system.

LITERATURE REVIEW

1. Ratna – 2013
As per the author the returns of the stock became dependent on the factors that influence over
stock markets returns. At the same time change in interest rates did not really affect the bank
stocks. In near future the banking industry is expected to have growth opportunity since banks
play a vital role in the economic development. In the future years this sector is expected to be the
highest performer with Indian growing economy at the constant rate of 9% presently. The various
roles that bank play in an economy include monitoring the investors to make situation better
from the problems between investors and borrowers and also ensure proper use of depositor
funds. The banks provides insurance to depositors against the unexpected consumption. Bank is
also subjected to risk due to the mismatch between their assets and liabilities.
The equity investment returns are higher hence investors are advised to invest regularly and for
long term to enjoy greater returns with minimum amount of risk. The Indian economy is growing
rapidly resulting in good returns in banking sector, hence it is better to hold stocks for a longer
period of time i.e. more than one year.

2. Naveen and Mallikarjunappa - 2017

The article by Shaini Naveen and Mallikarjunappa, a study on comparative analysis of risk and
return with reference to stock of cnx bank nifty. India being one of the emerging economy has
witnessed a major developments in stock markets. The author has analyzed this paper in banking
sector taking nifty bank index as the benchmark. The study compares the performance of 12
stocks listed in the NSE, to know the volatility of banks in comparison with the market. The
author has used a risk measurement tools like standard deviation and also beta to measure the
variability of returns. The analysis shows that the systematic risks of various securities differ due
to their relationships with the market. The results state that the banks individual returns are
highly correlated with the nifty index. The yes bank is highly correlated and also highly risky
due to high standard deviation. When compared to other banks yes bank is highly volatile but has
earned good returns in the market.
The findings by the author has showed that from the betas of 12 stock, it is found that few stocks
move in the opposite direction to the market, some stocks move along with the market. Some
stocks are less volatile compared to the market and some stocks are more volatile compared to
the market.
3.Rohit U J 2016
In this paper the author has made an attempt to measure the volatility of the bank index stocks
and compare it with that of the volatility of NIFTY. The objective of the study was to find out the
nature and extend of relationship between the returns and volatility of the bank index an NSE
NIFTY. To find out if the stock appearing in the bank index are more or less volatile than the
NSE NIFTY. To study the bank’s stock movement with respect to bank nifty. He has considered
the returns of the NIFTY index as a percentage between any two months, the difference between
closing index value of two months divided by the first month is taken. To measure the monthly
return of the 12 bank stock as a percentage between any two months, the difference between
closing price of the individual stock value of second month and the first month is divided by the
closing price of the individual stock of the first month.

The data analysis with respect to this study they have considered standard deviation and beta to
measure volatility. The NIFTY index returns and each of the bank returns have been correlated to
see the relationship. By analysis the findings show that the bank nifty was in 3 rd position
followed to nifty financial services with an average return of 36.2%. Federal bank has the good
return among all 12 bank stocks in market with an average return of 3.36%. The stocks in the
bank nifty is having positive correlation of more than +0.8. The Punjab National bank shows
higher beta value of 1.87 followed by canara bank and bank of India with beta value of 1.62 and
1.41 respectively.

4. Rohit U J 2016
In this paper the author has made an attempt to measure the volatility of the bank index stocks
and compare it with that of the volatility of NIFTY. The objective of the study was to find out the
nature and extend of relationship between the returns and volatility of the bank index an NSE
NIFTY. To find out if the stock appearing in the bank index are more or less volatile than the
NSE NIFTY. To study the bank’s stock movement with respect to bank nifty. He has considered
the returns of the NIFTY index as a percentage between any two months, the difference between
closing index value of two months divided by the first month is taken. To measure the monthly
return of the 12 bank stock as a percentage between any two months, the difference between
closing price of the individual stock value of second month and the first month is divided by the
closing price of the individual stock of the first month.

The data analysis with respect to this study they have considered standard deviation and beta to
measure volatility. The NIFTY index returns and each of the bank returns have been correlated to
see the relationship. By analysis the findings show that the bank nifty was in 3 rd position
followed to nifty financial services with an average return of 36.2%. Federal bank has the good
return among all 12 bank stocks in market with an average return of 3.36%. The stocks in the
bank nifty is having positive correlation of more than +0.8. The Punjab National bank shows
higher beta value of 1.87 followed by canara bank and bank of India with beta value of 1.62 and
1.41 respectively.

5. Krishnaprabha and Vijayakumar – 2015

The author believes that risk and return plays a very important role for an investor to make
decision, each and every investor wants to avoid risk and maximize returns. High risk would
yield more return and low risk yields low returns, based on this concept banking and automobile
industries gives high risk but yields low returns and in case of Information technology (IT), fast
moving consumer goods and pharmaceutical sectors gives low risk and yields more returns, he
concludes that investors who wishes to invest for long term tenure they are able to take
advantage of the market due to less volatile. When there is not much fluctuations in the stock
price when compared to market, investors who are looking for long term investment are able to
predict the price movement when they may fall. According to author IT, FMCG and
Pharmaceutical sectors yields more returns then the banking and automobile sector.

6. Dr. Prema Chandran- 2016

In this Paper the author has made an attempt to measure the volatility of the bank index stocks
and compare it with that of the Nifty stocks volatility. The investors who are risk averse would
not be happy to invest in a highly fluctuating stock, where as those with a thirst for riskiness
would happily invest in a highly volatile market. In this study standard deviation and individual
beta values have been calculated to get an idea of volatility. The data used for the study is
secondary in nature where the daily closing of the NIFTY index and daily closing prices of stock
of the 12 banks that are listed in the bank index is considered. The daily closing prices have been
collected from the NSE website for a period of one year from April 1 st 2015 to 30th March
2016.Volatility is explained using standard deviation and Beta.

OBJECTIVES OF THE STUDY

The objective of this research paper is listed below.

Before starting a project, we should keep in mind the clear objective of the project because in the
absence of the objective one can’t reach the conclusion or the end result of the project. Research
objective answer the question “Why this study is being conducted”For every problem there is a
research. As all the research is based onsome objective, our research has also some objectives
which are as

follows:

 To analyse the risk and return of private and public banks listed on Bank Nifty.
 To rank the stocks on the basis of risk and returns.
 To analyse the portfolio risk and return of the stocks listed on Bank Nifty.
 To provide suggestions based on the study.

Primary Objective

 To identify and analyze the portfolio management strategies in

Indian Sock market.

 To measure customers preference towards dealing in derivative

market segment

 The perception held by investors about the financial derivatives

Secondary Objective

 To study which class mostly invest in stock market

 Evaluate the various investment opportunities for investors

 To study the behavior of investor during the market fluctuations

METHODOLOGY

Source of Data - The study based on secondary data collected from BSE. The data on monthly
market prices of leading sector listed in BSE have been collected. In addition the other sources
are also used for data collecting like newspaper and internet(www.bseindia.com). Published data
will be available in News papers, Websites, Journals, books, Reports by management, scholars,
researchers, brokers etc.., The reason behind choosing the monthly prices is that short term
fluctuations in the market prices of the stocks due to internal and external factors can be catch
hold off. Through it is possible to make much an analysis using daily prices; collection of data
for long period of time is not possible. Hence the monthly prices are considered.

Data Collection Method - The sample of the stocks for thepurpose of collecting secondary data
has been selected on the basis of Random Sampling. The stocks are chosen based on top market
capitalization in BSE.

Method of Sampling - Judgmental sampling involves the choice of subjects who are most
advantageously placed or in the best position to provide the information required. The
Judgmental sampling method is used for selected sector from BSE for the study. The following
sector scrip are taken for study.

RESEARCH DESIGN

 Research Design is the plan which defines the methods and the procedure for collecting
and analysing the data.
 A descriptive research design has been adopted for the purpose of this study to analyse
the returns and risk.
Tools and Techniques Used:

A. Analytical Tools:

 Rate of Return:
The rate of returns is calculated by using closing price and opening price of each stock
for individual return and market opening and closing price for market return.
The following formula can be used for calculating rate of returns.

R= X 100

 Beta:
It is the slope of characteristic regression line it describes the relationship between the
index return and stock return. Beta helps in determining the sensitivity of the share price
in relation to the index price. Beta measures the systematic risk which cannot be
diversified.
Beta can be calculated with the help of the following formula.

Where, Rx is market return.

Ry is individual stock return.

N is Number of pairs of observations.

 Co-efficient of correlation:
It is a statistical tool which helps in determining, the fluctuation in two variables i.e.
security return and market return. It determines the extent of relationship but it does not
always imply cause and effect relation. This helps to understand the market indicator
prediction ability. It ranges from +1 and -1.
The following formula is used for calculating correlation.

r=
Where, r is the co – efficient of correlation between x and y

Rx is the return of index.

Ry is returns of listed banks.

N is number of pairs of observations

 Standard Deviation:
Standard deviation is also used for measuring the volatility of the share. Standard
deviation is used for measuring unsystematic risk which cannot be controlled. Standard
deviation is used for measuring the expected risk and also for determining the importance
of the certain movement of price.
The following formula is used for calculating standard deviation.

S.D=

 Mean:

XX =

B. Statistical Tools:

 Bar Graph
 Line Graph

NOTE – MS Office is used for calculating average return, Standard Deviation, Beta and

Co-efficient of correlation. .

LIMITATION OF THE STUDY

 The study is limited to data that is collected from a period of one year i.e. from January
2017 to December 2017.
 The study is limited to data collected from 12 banks listed under Bank Nifty.
 The risk cannot be predicted accurately since the fluctuations in the market is based on
other External factors and it is uncertain.
 The analysis is based only on secondary data.