A STUDY ON RISK AND RETURN ANALYSIS OF SELECTED FMCG

REVIEW OF LITERATURE

1. Dr. S Krishnaprabha Mr. M Vijayakumar (2015) had conducted ‘A study on risk

return analysis of selected stocks in India’. The study conducted to analyse the risk
and return of investing in various companies like banking, IT, FMCG, Automobiles,
pharmaceuticals etc. The results of the study states that there is less fluctuations in the
shares when compared to the market as well as prices. The long-term investors are
able to predict the about the variations in the share prices. Majority of IT, FMCG,
pharmaceutical sectors give more return compared to banking and automobiles. Risk
and return analysis play a key role in most individual decision-making process. Every
investor wants to avoid risk and maximize return. In general, risk and return go hand.
If an investor wishes to earn higher returns than the investor must appreciate that this
will only be achieved by accepting a commensurate increase in risk. Based on risk
and return analysis, high risk gives high returns with low risk gives to low return,
based on this concept in Banking and Automobile sector high risk gives low return,
and in Information technology, Fast moving consumer goods, Pharmaceutical sector
low risk gives high return. Alpha stock is positive and the companies are independent
to market return and have a profitable return.

2. DR.K.V. Geetha Devi and DR.G. Ramakrishna Reddy had conducted a study on
“Analysis of Risk and Return of Selected FMCG Scrips At BSE”.
This study aims to compare the stocks of selected companies from FMCG sectors in
the form of their risk and return. This study is also creating awareness about stocks
among the investors to invest in particular company in this FMCG sectors. The risk
and return relationship are fundamental concept in not only financial analysis but in
every aspect of life. It is necessary that every individual or institutions consider the
combined influence of risk and return. This analysis using the standard deviation and
average return tools to discuss and quantify the trade-off between risk and return.
3. Ms. M. Giri Kumari and Prof. G.L. Narayanappa had conducted a study on “Risk
Return Analysis of Selected Fast Moving Consumer Goods (FMCG) Companies
Listed in Bombay Stock Exchange.
Indian government is receiving more economy from the FMCG sector comparatively.
Products sold in FMCG sector are relatively low cost and also relatively short life
span i.e., dairy products, fruits, vegetables, etc. Sometimes sales are influenced by
holidays, seasons and discounts offered by the companies. Promotion strategies and
packing also highly influenced the FMCG products. FMCG product profit margin is
low, masses are highly purchased and customers also expect products to be more
innovative. This sector is creating more employment opportunities in rural areas. High
potential and professional abilities are needed to maintain these products. The
objective of this paper is to know the risk and return patterns in FMCG companies'
stocks. Risk is the ability to uncontrolled loss of something.

4. Sumit Kumar Maji (2015) had conducted a study on “Business Risk in Selected
FMCG Companies in India during the Post-liberalization Era: An Empirical Analysis
through Ginni‟s Coefficient” Though business risks may take place in different forms
and in different magnitude depending upon the nature and mass of the business,
generally it is composed of three basic kinds of risk, which are, one, economy-
specific risk, two, industry-specific risk and third, the final, company-specific risk.
Economy-specific risk, generally beyond the control of a capitalist or a corporate,
affecting all the sectors of an economy, arises out of the events like inflationary
tendency in the economy, rising unemployment, fluctuations in the world economy,
price fluctuations, changes in tastes and preferences of the consumers and changes in
income, output or trade cycles, fluctuations in foreign exchanges, concentration of
revenue, imports, etc. The present paper seeks to determine and explain the business
risk associated with the companies belonging to the Indian FMCG sector.

5. Mathangi Vijayan and Kiruthika N (2016) had conducted a study on “Investigating

Risk and Return of Selected Companies in Various Sectors in BSE-SENSEX”.
In the recent times, capital markets are characterized by fluctuations in returns of
companies belonging to various sectors. Stocks of few companies tend to be more
 tandem with that of the market. Investors are facing difficulty in making informed
decisions due to high volatility in financial markets. This paper attempts to throw light
on the intricacies of risk and return while investing in companies belonging to various
sectors in BSE-SENSEX. In this context, six companies were selected from
Automobile, Metal, Consumer goods, IT, Pharmaceutical and Financial sectors. The
outcome of the study has provided evidence that the returns of TCS, Sun Pharma and
ITC are higher during the study period and are less volatile. The stock returns of Tata
Motors, HDFC and Coal India have been lower due to greater volatility and higher
levels of systematic risk inherent in them compared to other sector stocks.

6. R.V. Naveenan (2019) had conducted study on “Risk and Return Analysis of
Portfolio Management Services of Reliance Nippon Asset Management Limited
(RNAM)”.
Portfolio management of equities has a great potential owing to robust growth of
capital market and the shift in investor behaviour from dumping savings as bank
deposits to investment in capital market. A research in the field of Portfolio
Management Services (PMS) prepares one to understand the equity market behaviour,
conduct technical evaluation of the market, and predict fluctuations to invest wisely
and the logic behind construction and optimization of equity portfolios. The
dissertation was undertaken from 23 April 2018 to 04 June 2018 with the objective of
understanding the basic concepts of Portfolio Management Services and its benefits as
an investment avenue and evaluate risk and risk adjusted return of various PMS and
direct investment of similar value in equity. The risk and return analysis of equity
portfolios was conducted through an evaluation of returns achieved in the past and its
comparison through measurement of central tendency i.e., mean, variation through
Standard Deviation and risk analysis done using Standard Deviation of returns, Beta
and Sharpe's Ratio. The article has given a valuable insight into this highly
specialized profession requiring proficient handling and expertise and will always
support in making prudent investment decisions.

7. Pramod Patil (2016) had conducted a study on “An Overview of Indian FMCG
Sector”.
FMCG products touches every aspects of human life. These products are frequently
consumed by all sections of the society and a considerable portion of their income is
 spent on these goods. Apart from this, the sector is one of the important contributors
of the Indian economy. This sector has shown an extraordinary growth over past few
years, in fact it has registered growth during recession period also. The future for
FMCG sector is very promising due to its inherent capacity and favourable changes in
the environment. This paper discusses on overview of the sector, its critical analysis
and future prospectus.

8. Mark Mitchell and Todd Pulvino (2002) has conducted a study on “Characteristics
of Risk and Return in Risk Arbitrage”.
This paper analyses 4,750 mergers from 1963 to 1998 to characterize the risk and
return in risk arbitrage. Results indicate that risk arbitrage returns are positively
correlated with market returns in severely depreciating markets but uncorrelated with
market returns in flat and appreciating markets. This suggests that returns to risk
arbitrage are similar to those obtained from selling uncovered index put options.
Using a contingent claims analysis that controls for the nonlinear relationship with
market returns, and after controlling for transaction costs, we find that risk arbitrage
generates excess returns of four percent per year.

9. Kevin Dowd (1999) has conducted a study on “Characteristics of Risk and Return in
Risk Arbitrage” published in The Journal of Portfolio Management Summer.
The author's value at risk approach to risk-return analysis highlights the importance of
dealing with net rather than gross exposures. A VaR approach can be used for
investment, hedging, and general portfolio management decisions. It is particularly
useful when making hedge decisions by helping to avoid a number of problems that
can easily arise using the traditional approach to hedging.

10. Gerry McNamara and Philip Bromiley(2017) has conducted a study on “Risk and
Return in Organizational Decision Making” published in Academy of Management
Journal.
Examining the association between managerial assessments of risk and expected
return using nonexperimental data from specific commercial lending decisions, we
found that risk-return associations depended on the measures used. However, with a
return measure that accounted for the expected costs of riskier decisions, risk and
return were negatively related. We also found evidence of conservatism in managers’
 adjusting to new information regarding the riskiness of decisions. The study points
toward the need for more careful understanding of managerial definitions of risk and
return, careful handling of leads and lags, and understanding risky decisions in their
organizational and market contexts.

11. John Y. Campbell (1996) had conducted a study on “Understanding Risk and
Return”.
This paper uses an equilibrium multifactor model to interpret the cross-sectional
pattern of post-war U.S. stock and bond returns. Priced factors include the return on a
stock index, revisions in forecasts of future stock returns (to capture intertemporal
hedging effects), and revisions in forecasts of future labour income growth (proxies
for the return on human capital). Aggregate stock market risk is the main factor
determining excess returns; but in the presence of human capital or stock market
mean reversion, the coefficient of relative risk aversion is much higher than the price
of stock market risk.

12. Paul Harrison and Harold H. Zhang (1999) has conducted a study on “An
Investigation of the Risk and Return Relation at Long Horizons”.
This paper examines the relation between expected stock returns and their conditional
volatility over different holding periods and across different states of the economy.
Semi nonparametric density estimation and Monte Carlo integration are used to obtain
the expected returns and conditional volatility at various holding intervals. We
uncover a significantly positive risk and return relation at long holding intervals, such
as one and two years, which is non-existent at short holding periods such as one
month. We also show that the existing finding in the literature of a negative risk and
return relation may be attributable to misspecification.

13. Don U.A. Galagedera (2004) had conducted a study on “A survey on risk-return
analysis” published in ResearchGate.
This paper presents a stock-flow consistent macroeconomic model in which financial
fragility in firm and household sectors evolves endogenously through the interaction
between real and financial sectors. Changes in firms' and households' financial
practices produce long waves. The Hopf bifurcation theorem is applied to clarify the
conditions for the existence of limit cycles, and simulations illustrate stable limit
 cycles. The long waves are characterized by periodic economic crises following long
expansions. Short cycles, generated by the interaction between effective demand and
labour market dynamics, fluctuate around the long waves.

14. Harry M. Markowitz (2010) had conducted a study on “Risk–Return Analysis”

published in ResearchGate.
A risk–return analysis analyses the trade-off of some measure of risk and some
measure of return. Almost universally, the measure of return used is the mean or
expected value. Various measures of risk have been proposed including variance (or,
equivalently, standard deviation), semi variance (which is the same as variance, but
only considers the downside), absolute deviation, and probability of loss. This article
considers the merits of each, how trade-off curves (also known as efficient frontiers)
of these are computed, and how one gets (or can get) data for these.

15. Harry M. Markowitz and Erik Van Dijk(2008) has conducted a study on “Risk-
Return Analysis” published in Research gate.
This chapter examines several risk-return criteria, but focuses principally on the oldest
and still most widely used, namely, mean-variance analysis. Important properties and
fast computing procedures are known for mean-variance analysis, in general.
Additional properties and much faster algorithms are known for certain of its
distinguished special cases. It explores both the general case and some of the
distinguished special cases. A risk-return analysis seeks "efficient portfolios", i.e.,
those which provide maximum return on average for a given level of portfolio risk. It
examines investment opportunities in terms familiar to the financial practitioner: the
risk and return of the investment portfolio. On the other hand, it can be related to the
theory of rational behaviour overtime and under uncertainty-e.g., as formulated by
von Neumann and Morgenstern, Leonard J. Savage and R. Bellman- by viewing a
function of portfolio "risk" and "return" as an approximation to a "derived utility
function". This view is useful in exploring practical questions such as choice among
alternate measures of risk in the risk-return analysis, and the relationship between the
single-period analysis and the many-period investment and problem.

16. Bedanta Bora, Anindita Adhikary (2015) has conducted a study on’ Risk and
Return Relationship – an Empirical Study of BSE Sensex Companies in India’. The
 basic framework of the study was analysis of relationship between risk and returns on
the basis of beta of 30 companies listed at BSE Sensex. It concluded that 99% of
variation in the Sensex is explained by variation in scripts.

17. Dr. Prasanth B, Ashurkar, Abdhuleah Mahmood A, Abazi (2015) conducted

study on ‘An Evaluation and Analysis of the Risk/Return profile of selected Banks’.
The study was to analyse the economic condition of Indian Banks and to find out the
credit exposure that the top five Banks in the country have in the market. They studied
the NPA level as against the total assets of the bank. It found that there is a need to
manage the risk and maximise the return in all five Banks.

18. By Wayne E. Ferson, Campbell R. Harvey(2018) the variation of economic risk

premiums published in the journal of political economy. analysed a predictable
component of monthly common stock and portfolio and bond portfolio returns. Most
of the predictability is associated with sensitivity to economic variables in a rational
asset pricing model with multiple Betas. The stock market risk is premium is the most
important for capturing predictable variations of the stock portfolios, while premiums
is associated with interest rate risk is predictability associated with interest rate risks
capture predictability of the bond returns. Time variation in the premium for Beta risk
is more important than changes in Betas.

19. Ananth Madhavan Jian Yang (2003) has conducted a study on Practical Risk
Analysis for Portfolio Managers and Traders Once a fairly esoteric subject, risk
analysis and measurement has become a critical function for both portfolio managers
and traders. Yet, accurate measurement and analysis of risk presents many practical
challenges including the choice of risk model, pitfalls in portfolio optimization,
horizon mismatches, and out-of-sample testing. This article provides a detailed
overview of recent developments in risk analysis and modelling, with a focus on
practical applications for both portfolio managers and traders. They demonstrate that
these tools can provide invaluable insights regarding portfolio risk, but must be
applied with considerable care. Risk analysis, as it stands today, is as much an art as a
science.
20. Abdullahi Ibrahim Bello and Lawal Wahab Adedokun(2011) had studied a study
on “Empirical Analysis of the Risk-Return Characteristics of the Quoted Firms in the
Nigerian Stock Market”. It studied empirically investigates the risk-return dynamics
of the Nigerian quoted firms for the period of 2000-2004 as monthly. The objective of
study is to establish what determines the systematic risk (beta) of firms, the magnitude
of such risk (beta) associated with returns in the Nigerian Stock Market. This study
employed Ordinary Least Squares (OLS) procedure to estimate the regression in order
to obtain the systematic risk (beta) of each of the firm. In addition, market model was
used to estimate returns of the firms. This study revealed that the sizes of risks (betas)
are different in firms studied; they varied positively with the sizes of returns. In
addition, 65% of the firms’ risk (beta) is statistically significant at 1% and 5% level
and most of the firms’ risks (betas) are less than Unity, which imply lower risk as
compared to Market Portfolio. More importantly, most of firms’ betas are positive;
suggesting limited scope for diversification in the Nigerian Stock Market. The
outcome of this study conformed to similar studies in the emerging stock markets.

21. Dr P Vikkraman and P Varadharajan (2009) has conducted “A Study on Risk &
Return analysis of Automobile industry in India” published Journal of Contemporary
Research in Management.

Automobile Industry is a symbol of technical marvel by humankind. Automobile

industry is considered to be one of the fastest growing sectors in any developing and
even in a developed country. Due to its deep forward and backward linkages with
several key segments of the economy, the automobile industry is having a strong
multiplier effect on the growth of a country and hence is capable of being the driver of
economic growth. Even automobile industry plays a major role as a catalyst in
developing the transport sector in one hand and helps industrial sector on the other
thereby even facilitates in the growth of the economy and increases the employment
opportunities. The risk and return analysis linked with any industry reveals the
intricacies involved with the particular industry. A close watch on these values throws
light on a clear understanding and facilitates in decision making about the investment
in securities. While making the decisions regarding investment and financing, one
seeks to achieve the right balance between risk and return, in order to optimize the
 value of the firm. Risk and return go together in investments. Everything an investor
(be it the firm or the investor in the firm) does is tied directly or indirectly to return
and risk. The objective of any investor is to maximize expected returns from his
investments, subject to various constraints, primary risk. Return is the motivating
force, inspiring the investor in the form of rewards, for undertaking the investment.
The importance of returns in any investment decision can be traced to the factors: it
enables investors to compare alternative investments in terms of what they have to
offer the investor, it helps in measuring of historical returns which enables the
investors to assess how well they have done, it facilitates in measuring of the
historical returns also helps in estimation of future returns.

22. Sushma K S, Charitha C M, Dr. Bhavya Vikas has conducted “A Study on Risk
And Return Analysis of Selected Financial Services Companies Listed on NSE.”
The security market is very dynamic and volatile in nature, where prediction plays a
pivotal role for an investor to invest in this market. Risk and return are two sides of a
same coin, where both the aspects influence each other for an investment. Hence,
understanding the risk involved in the investment helps to maximize returns. This
study helps the investors to examine and compare the assessments along with the
market and to identify the company which would be preferable to invest based on
their risk-taking ability. The primary objective of the study was to assess the risk and
return of the eight NSE listed financial services companies along with a secondary
objective to compare individual company stock volatility before and after the event of
demonetization. The tools and techniques used for analysis were Mean, Standard
deviation, Beta, Correlation, Covariance and T-test. Analysis was done by using the
closing prices of each month for all the selected companies (Bajaj Finserv, HDFC,
ICICI, Axis, Cholamandalam investment and finance, State bank of India, Mahindra
& Mahindra, Max finance services) for a specified time period. The findings of the
study were that Bajaj Finserv had the highest returns amongst the selected eight
companies and the volatility of all the selected eight companies had no difference
before and after the event of demonetization. The overall study suggested that
investors should always be ready to face any unforeseen events. To be on a safer side
and to minimize the severity of loss during such events, various preventive measures
like assessing the risk and return should be done well in advance.
23. Dr. Nilam Panchal has conducted a study on “Risk-Return Relationship ANALYSIS
of Selected Stocks Using CAPM” which is published in International Journal of
Engineering & Science Research.
Risk and Return analysis plays a very important role in most individual decision-
making process. Every investor wants to avoid risk and maximize their gain. In
general, risk and return go together. If an investor wishes to earn higher returns than
the investor must appreciate that this can only be achieved by accepting a certain
increase in risk. The present study has investigated 5 stocks from seven different
sectors. Certain calculations have been done in this study to find out the relationship
between risk and return of these two sectors with the help of Capital Asset Pricing
Model. By analysing stocks of seven different sectors, investors will find it
informative in which sector to invest.

24. S. Dharchana and Dr. P. Kanchana Devi (2017) identified the share price
fluctuations of FMCG corporations and analysed risk involved in selecting FMCG
companies. Kurtosis, Beta, Trend analysis and correlation analysis are used for the
study and it is found that unsystematic risk is not correlated with average return and
systematic risk. Similarly, it is clear that there is a relationship between average return
and systematic risk.

25. V.Geetha, Yavana Rani Subramanian and N. Muthukumar (2020) has conducted
a study on “Correlation Between Risk And Return of Stocks in Multisector”
Risk and return are both relevant to investment decisions. India has been an emerging
nation and since liberalization, there have been a number of reforms that have
witnessed stock market reactions. This has caused both the risk and return of the
different sectors of the Indian market to frequently change and become unpredictable.
There is no clear answer to whether the risks and returns of these indices remain
stable over a period of time. Stock market ensures liquidity of industrial securities; it
also ensures the appreciation of funds invested in the securities with the improvement
in the performance of companies and increase in the demand for their securities. Thus,
they motivate the public to invest their savings in the capital of companies. These
savings are channelized in the productive activities of the companies resulting in the
capital formation which is essential for the economic development of a nation.
26. Cormac Lucas, Vincenzina Messina and G. Mitra (2011) had conducted a study on
“Risk and Return Analysis of a Multi-Period Strategic Planning Problem”
In this paper the multi-period strategic planning problem for a consumer product
manufacturing chain is considered. Our discussion is focused on investment decisions
which are economically optimal over the whole planning horizon T, while meeting
customer demands and conforming to technological requirements. In strategic
planning, time and uncertainty play important roles. The uncertainties in the model
are due to different levels of forecast demands, cost estimates and equipment
behaviour. The main aim of this paper is to develop and analyse a multiperiod
stochastic model representing the entire manufacturing chain, from the acquisitions of
raw material to the delivering of final products. The resulting optimization problem is
computationally intractable because of the enormous, and some time unrealistic,
number of scenarios that must be considered in order to identify the optimal planning
strategy. We have developed an approximate multilevel optimization approach which
can be assumed as a starting point for a subsequent refinement procedure. The
strategic LP/ILP model is used to identify suboptimal asset allocation strategies
whose risk is analysed by a refinement procedure in order to obtain hedging strategies
in an uncertain environment.

27. David A. Baucus, Joseph H. Golec and Juett R. Cooper(1993) had conducted a

study on “Estimating risk‐return relationships: An analysis of measures”.
We show that the risk‐return paradox can be partly explained by the choice of
accounting risk and return measures. Returns computed with equity or assets from
End‐of‐Period (EOP) annual reports produce negative risk‐return associations, while
measures calculated using Beginning‐of‐Period (BOP) equity or assets yield more
positive relationships. The likelihood of reporting negative relationships using EOP
methods is accentuated by dividing samples at median returns. Below‐median firms
suffer losses and may appear to have lower and more variable returns than above‐
median firms, simply because of EOP methods. Our results show that mean and
variance measures are unstable and risk‐return relationships vary inversely the
number of firms reporting mean losses.

28. Haim Levy (1997) has conducted a study on “Risk and Return: An Experimental
Analysis”. An investment experiment in which a real monetary profit or loss can occur is
 designed to test the Capital Asset Pricing Model (CAPM) and the Generalized CAPM
(segmented market model) with ex-ante parameters. Risk and return are found to be
strongly associated. While in most cases the Generalized CAPM beta provides the best
results, the CAPM beta (and even the individual asset's variance, being a good proxy to the
Generalized CAPM beta) reveals a strong positive association with mean returns. I
conclude that the risk return equilibrium model is not dead; it is alive and doing better than
previous empirical studies have revealed.

29. Pramod Patjoshi and Girija Nandhini (2020) has conducted a study on
“Comparative Risk and Return Analysis of Bombay Stock Exchanges and Steel
Sector in India” published in ResearchGate.
In the contemporary economic expansion interest rates are failing and fluctuation in
the stock market has forced the investors to think before investment in financial
securities. Hence it found difficulties to take investment decision for framing an
efficient portfolio. This is mainly, as investments in stock market are risky in nature
and investors have to expect various issues before investing. These issues include
risk, return, volatility of financial securities and liquidity. Therefore, the primary
objective of this research is risk and returns analysis of Sensex and different steel
sectors of Bombay Stock Exchange. The risk and return have analysed by considering
the daily closing value of Sensex and all the sample companies. The study is centered
on secondary data. The data for the study has been composed from the BSE website
over a period of 10 years from January 4, 2010 to December 31, 2019. For achieving
the above objective in addition to test the hypothesis, various methods like
correlation, descriptive statistics and t test have been employed.

30. Chokri Mamoghli examined how downside risk measures perform in an investment
management context compared to variance or standard deviation. To our knowledge,
this paper is the first to include several acknowledged downside risk measures in a
thorough analysis where their different properties are compared with those of
variance. Risk is an essential factor to consider when investing in the capital markets.
The question of how one should define and manage risk is one that has gained a lot of
attention and remains a popular topic in both the academic and professional world.
This study considers six different downside risk measures and tests their relationship
with the cross-section of returns as well as their performance compared to variance.
The first part of the analysis suggests that the conditional drawdown-at-risk explains
the cross-section of returns the best across methodologies and data frequency.
Conditional value at- risk explains the daily returns the best but the worst in monthly
returns. Variance, together with semi variance, performs average in both data
frequencies. The second part of the analysis concludes that conditional value-at-risk
and conditional drawdown-at-risk are the two superior risk measures whereas semi
variance is the worst performing risk measure – mainly caused by the poor
performance during bull markets. Again, variance performs average compared to the
downside risk measures in most aspects of this analysis.