MULTIPLE REGRESSION ANALYSIS ON

Factors Influencing Investor Decision

Guided by: Prof. Rabi N. Subudhi

QT II
ASSIGNMENT

PREPARED BY

Chinmya Acharya 19202010

Shirsendu Das 19202037
Sujoy Dasgupta 19202055
Sec: A, Group No. : 11
 Acknowledgement

We would like to express our special thanks of gratitude to

our beloved Prof. Rabi N. Subudhi for giving us the golden
opportunity to do this wonderful project on the topic
“Multiple Regression Analysis on Factors Influencing
Investor Decision”, which also helped us in doing a lot
research and we came to know about so many new things for
Prof. Rabi N. Subudhi
which we are really thankful. Secondly, we would also like to
M.Phil. (Stat), Ph.D. (Management)
thank our friends who helped in finalizing this project within
the limited time frame.

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 Table of Contents

SI.No. Title Page No.

01. Objective 04

02. Understanding Regression & its uses 05

03. Multicollinearity and why it should be avoided 06

04. Company Overview (ITC Limited) 07-09

05. Understanding variables 10-13

06. Computing Regression Analysis 14-15

07. Bibliography 16

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Objective
The intended objective of this research is to find out the factors which affects the decisions
while investing in a Company’s stock. In this case we would be picking up a Company, i.e.,
ITC Limited and analyse the factors which have resulted in its growth, and why investors are
keen to invest in this company, and thus the demand increases its stock prices.

In this research we would take up three independent variables, i.e., the Repo Rate set by the
Reserve Bank of India, the yearly revenue of ITC Limited and the Corporate tax rate over
the years set by the Ministry of Finance, Government of India. Then we would analyse how
these factors have influenced the investors investing decisions which affected the stock prices
of ITC Limited over the years.

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Understanding Regression and its uses
Regression allows us to model the relationship between two or more variables. If it’s a linear
regression, only two variables, i.e., one dependent variable and another is an independent
variable. In multiple regression the only difference is, it uses multiple independent variables,
to establish a relationship with the dependent variable.

To break it down in simpler words, regression models allows us to predict the dependent
variable’s outcome in future by establishing a relationship between the dependent and
independent variables.

Whenever we take out the mean of any data set, it contains some kind of error. If we could
recall in standard deviation we take the sum of squares of error, to find out how much the data
is dispersed. The objective of a regression model is to introduce independent variables which
would reduce the sum of squares of the errors.

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Multicollinearity and why it should be avoided
Whenever there is a correlation between the independent variables in a regression model,
multicollinearity occurs. The objective of performing a regression analysis is to understand
how each one unit change in an independent variable could bring a change in the average of
the dependent variable, while
other independent variables
being constant at that time.
Now, if the independent
variables which we are
considering at hand are
correlated to each other, it
would mean change in one
variable will certainly bring
about change in another
variable. As the strength of
correlation increases between the independent variables, it becomes difficult for the model to
determine the relationship between each single independent variable and the dependent
variable, as it would definitely bring about a change in the other independent variable, if the
strength of correlation is really high.

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Company Overview
ITC Limited is an Indian public conglomerate company established in the year 1910 as
the 'Imperial Tobacco Company of India Ltd’. Later on 1970 it was renamed as the ‘India
Tobacco Company Limited’, and finally to
‘I.T.C. Ltd.' in 1974. In September 1974 the dots
were removed and renamed as ITC Limited. The
headquarters of ITC Limited situated in Kolkata,
west Bengal and Sanjiv Puri is the current
chairperson of ITC Limited. And the Market
capitalisation of nearly US$50 Billion in 2017-18,
and gross sales value is US$10.8 Billion. And over
3000 employees work under ITC limited in over 60 locations across India. On 24 august 2010
it completed 100 years. ITC's value shares are recorded on Bombay Stock Exchange, National
Stock Exchange of India and Calcutta Stock Exchange. The organization's Global Depository
Receipts (GDRs) are recorded on the Luxembourg Stock Exchange. It was Ranked as the 3rd
most admired company in India by Fortune in 2013. It is rated among the World’s Best Big
Companies, Asia’s Fab 50 & the World’s Most Reputable Companies by Forbes magazine.
ITC’s super premium luxury hotels accorded LEED Platinum certification in 2011.

Business Portfolio
ITC contains a wide range of business starting from Cigarettes tobacco to Hotel, Personal care,
agribusiness, Information technology,
packaging, foods, lifestyle retailing,
and education and stationary. ITC is
the market leader in cigarettes tobacco
category. Currently it enjoys the
market share of 84.27% in sales. The
major product come under this
categories Insignia, India Kings,
Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol,
Flake, Silk Cut, Duke & Royal. In Asia also it sells almost 80% tobacco where 275 million
people consume ITC brand tobacco having the total tobacco market worth close to$11 billion.
ITC’s Agri-Business is India’s 2nd largest exporter of agricultural products. It currently focus

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on exports and domestic trading of various products like feed ingredient like soya meal, wheat
which is comes under food grains, then marine products like shrimps and prawns, and coffee.

ITC’s packaging and printing business is the largest converter of paperboard packaging in south
asia and this department was started in 1925.over the last century the major client of this
business were Nokia,Colgate palmolive,Tata Tea, Akbar brothers and many more

The FMCG sector that comprises of worth 4500 crore consists of various brand comes under
various category. Essenza Di Wills, Fiama, Vivel, Engage, Savlon, Charmis, Shower to Shower
and Superia brands were comes
under personal care where as in
foods category brands like
Aashirvaad, Bingo! Sunfeast,
Fabelle, Sunbean, Yippee!
Kitchens of India, B Natural, ITC
Master Chef, Farmland, mint-o,
Candyman and GumOn capture
the market. similarly brands like classmate and Paperkraft were there in education and
stationary category. And brand like Wills Lifestyle and John Players is fall under lifestyle
segment and brand like AIM is one of the market leader falls under safety matches category.
In information technology the company services various industry including consumer
packaged goods(CPG), Media and Entertainment and travel, hospitality and life sciences. ITC
hotels currently own more than 100 hotels and operates in 75 destinations. The distinct brands
are ITC-Luxury Collection Hotels, Sheraton Hotels, Fortune Hotels, Welcome Heritage Hotels

Awards & Accolades

 In 2004 ITC won the prestigious world business award
 In 2005 ITC become the1st Indian Company and 2nd in the world to win the
Development Gateway Award for its trail-blazing e-Choupal initiative
 In 2008 ITC won the Corporate award for social responsibility from The Energy and
Resources Institute (TERI)
 In 2012 ITC won world business development award
 In 2016 ITC brags the Safaigiri award. ITC is the only corporate to receive this award
 ITC wins the prestigious Porter prize in 2017 for excellence in corporate governance
and integration

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  In 2018 it won SABRE awards South Asia for excellence in public relation
 In 2008 ITC was ranked 2nd among top Indian companies in the first of its kind
Standard & Poor Environmental, Social and Corporate Governance ratings
 In 2010, ITC was rated amongst Asia-Pacific’s 50 biggest listed companies in ‘Asia
Fab 50’ by Forbes
 Ranked as the 3rd most admired company in India by Fortune in 2013
 ITC’s super premium luxury hotels accorded LEED Platinum certification in 2011

Social Initiatives
Apart from their main business ITC gain a lots of accolades for their large amount of corporate
social responsibility(CSR) activity like e-Choupal Ecosystem, Women empowerment, Primary
education, Vocational training are the few major CSR activity still going on under ITC
Limited.e-choupal is an business initiatives started by ITC to provide internet service to rural
region farmers ,so that they empower from this initiatives and as a result improves the quality

of agriculture goods, Till now almost 4 million farmers empowered across 10 cities due to this
initiatives.

Similarly, under the ITC’s watershed development programme till now it improving water
resource management over 10,92,200 acres. Under this program ITC assist the farmer to make
a plan carry out interventions such as building micro water harvesting structures to store water,
taking various measures to reduce soil erosion, etc. Then ITC’s women’s economic
empowerment program helps the women’s to earn independent incomes and till now it helps
more than 72000 women across india.ITC’s primary education programme benefitted more
than 727600 underprivileged children to get good quality of primary education by using
innovative teaching methodologies. Apart from that a lot of CSR activity like health and
sanitation, solid waste management and livestock programme also going on, ITC spent 306 cr
on these CSR activities.

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 Understanding Variables

Dependent Variable: Share Prices

ITC's Share Prices(₹)

350

300 297.25
280.3
250 255.5
235.23
217.23 218.83
200 206.3

150 151.27
121.4
100
87.68
50

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Share Price(in Rs.)

Here, we can see ITC Limited stock’s price risen constantly

within a period of 10 years, i.e., from 2010 to 2019. This
shows that investors were keen to invest in ITC’s share.

Therefore, we would take a closer look at the reasons, which

have encouraged the investors to invest in ITC Limited and
develop a regression model which would establish
relationship between the share prices of ITC Limited and
how it is dependent on various other independent variables.
Therefore, we have taken the share prices of ITC Limited as
the dependent variable from the year 2010 to 2019.

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Independent Variable 1: Net Revenue

ITC'S NET REVENUE (IN ₹ CRORES)

47,480.19
Net Revenue (in Crores Rs.)

42,757.38
42,074.59
38,641.13
38050.53
34,345.74
30,839.97
25,999.16
22,038.80
19,112.50

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

The first independent variable which we have selected is the Net Revenue of ITC Limited.
Revenue of any company briefly
overviews the financial health of any
company, and this often influences
the investors to buy of those
company’s stock only which
witnesses a consistent growth in the
revenue amount, pushing the share
prices of the company in the stock
market. ITC Limited saw a
tremendous growth in its net revenue
Diversifying their business has resulted in higher revenue earnings. from 2010 to 2019. This largely
happened due to their diversification in the business, and how they expanded from only tobacco
business to entering into FMCG, Hospitality and other business across India.

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Independent Variable 2: Corporate Tax Rate

CORPORATE TAX RATE(%)

2019 25.17
2018 34.61
2017 34.61
2016 34.61
2015 34.61
2014 33.99
2013 33.99
2012 32.45
2011 32.44
2010 33.99

0 5 10 15 20 25 30 35 40

Corporate Tax Rate(%)

India being a socialist country, always had a steep corporate income tax rate since
independence. Although as years progressed, Govt. now had a softer approach towards the
India Inc. Since the liberalisation days, the
private sectors boomed, and Corporates
making more revenues than ever before. If
we closely examine the Corporate income
tax rate, we could easily notice that the tax
rate never actually dipped below the 32%
mark in last decade. So, when our current
Finance Minister Ms. Nirmala Sitharaman
announced huge tax cuts keeping in mind
Corporate Tax Rate cuts boosted the investors' confidence
the slowing of our economy, this was well
received by India Inc., as well as the investors, as the both NIFTY and SENSEX shot up within
one single day.

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Independent Variable 3: Repo Rate

REPO RATE (%)

9
8.25
8 8
8 7.5
6.75
7 6.5
6.25
6 6
6
5.15
5

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Repo Rate (%)

The repo rate is the rate at

which RBI lends money
to the commercial banks
in India. These are short
term borrowings and are
backed by securities. The
importance of the repo
rate is that; it is one of the
most important tool used
by RBI in the credit
creation process within
the economy. If the rates
are low, it means lower borrowing rates for the banks and thus lowering borrowing rates for
the companies and vice versa. If the companies can borrow at a lower rates, then it would mean
they are raising capital at a much lower rate.

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Computing Regression Analysis
YEAR Stock Price(Y) Revenue In Corporate Tax Repo Rate(X3)
Crores(X1) Rate(X2)
2010 87.68 19,112.50 33.99 6
2011 121.4 22,038.80 32.44 8.25
2012 151.27 25,999.16 32.45 8
2013 206.3 30,839.97 33.99 7.5
2014 235.23 34,345.74 33.99 8
2015 217.23 38050.53 34.61 6.75
2016 218.83 38,641.13 34.61 6.25
2017 280.3 42,074.59 34.61 6
2018 255.5 42,757.38 34.61 6.5
2019 297.25 47,480.19 25.17 5.15

Here, we have accumulated all the data regarding ITC’s share price for the last decade, so that
we could form a regression model by taking the ITC’s Revenue, Corporate Tax Rate and Repo
Rate as the Independent variables. Now we will compute the given data in MS Excel and form
regression model. After getting the output in MS Excel, we will investigate two things in the
regression, i.e.,

1) How well did the model fit overall (with all the predictors/independent variable
included)?

2) How well do each of the predictors do individually in predicting the Share prices
(specifically, which independent variables are significant)?

Regression Statistics Here, we can observe that the R2 value obtained is

Multiple R 0.98 0.95. Which means that, if the independent variables

R Square 0.95 (Revenue, Corporate Tax Rate & Repo Rate)
Adjusted R Square 0.93 accounts for 95% of the variance in the share prices
Standard Error 17.83 of ITC Limited. Also, the significance of F is 0.0002,
Observations 10 which is well below the α value (0.05). So the
takeaway from here is, the overall
ANOVA
Significance regression model is significant,
df SS MS F F
where p<0.05 and R2=0.95.
Regression 3 39676.09 13225.36 41.62 0.0002

Residual 6 1906.49 317.75

Total 9 41582.58

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After, we know overall model is significant in predicting the variance of share prices of ITC
Limited, now we look at the three independent variables whether they significant on their own
or not in predicting the variance in share prices of ITC Limited. Therefore, we would look at
the p-value of each variable and find out whether they are less than 0.05. If they p<0.05, it
means that the variable on their own is significant. The following table helps us to understand,
whether the independent variables account for unique variance.

Standard P- Lower Upper Lower Upper

Coefficients Error t Stat value 95% 95% 95.0% 95.0%

Intercept -99.982 92.198 -1.084 0.320 -325.581 125.618 -325.581 125.618

9.792
Revenue In Cr(X1) 0.008 0.001 0. 000 0.006 0.009 0.006 0.009

Corporate Tax(X2) -0.671 2.216 -0.303 0.772 -6.092 4.751 -6.092 4.751
-7.200
Repo Rate(X3) 10.310 7.156 1.441 0.200 27.819 -7.200 27.819

Significant
Not Significant

So from here we can deduce that Revenue is a significant variable in predicting the variance in
Share prices of ITC Limited. While on the other hand both Corporate tax rate and Repo rate
does not for unique variance in the share prices as their p-value>0.05.

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Bibliography
 https://economictimes.indiatimes.com/itc-ltd/yearly/companyid-13554.cms
 https://www.moneycontrol.com/financials/itc/profit-loss/itc
 https://in.finance.yahoo.com/quote/ITC.NS/history?period1=1238371200&period2=15854
40000&interval=1mo&filter=history&frequency=1mo
 https://tradingeconomics.com/india/corporate-tax-rate
 https://www.ceicdata.com/en/india/bank-interest-rate/repo-rate

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