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COMPARISON BETWEEN EXPECTED RETURN AS CALCULATED BY CAPM MODEL AND ACTUAL RETURNS

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF THE CURRICULUM REQUIREMENTS FOR THE AWARD OF THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION OF BANGALORE UNIVERSITY Submitted by: GAURAV GUPTA Register Number 05XQCM6023 Under the guidance of Dr. Nagesh Malavalli Principal

M.P.Birla Institute of Management, Associate Bharatiya Vidya Bhavan, Bangalore 560001 2005-07

DECLARATION

I hereby declare that the research work embodied in the dissertation entitled COMPARISON BETWEEN EXPECTED RETURN AS CALCULATED BY CAPM MODEL AND ACTUAL RETURNS is the result of research work carried out by me, under the guidance and supervision of Dr. Nagesh Malavalli, M.P.Birla Institute of Management, Bangalore.

I also declare that this report has not been submitted to any other University or Institute for award of any Degree or Diploma.

Place: Bangalore

(GAURAV GUPTA)

Date:

Reg. no. 05XQCM6023

PRINCIPALS CERTIFICATE
This is to certify that the Project titled COMPARISON BETWEEN EXPECTED RETURN
AS CALCULATED BY CAPM MODEL AND ACTUAL RETURNS has been prepared by

Mr. GauravGupta bearing registration number 05XQCM6023, under the guidance of Dr. Nagesh Malavalli , M.P.Birla Institute of Management, Associate Bharatiya Vidya Bhavan, Bangalore.

Place: Bangalore

Dr. NAGESH MALAVALLI

Date:

(Principal)

GUIDE CERTIFICATE

This is to certify that the Project titled COMPARISON BETWEEN EXPECTED RETURN
AS CALCULATED BY CAPM MODEL AND ACTUAL RETURNS has been prepared by

Mr. Gaurav Gupta bearing registration number

05XQCM6023,

under

the

guidance of Dr. Nagesh Malavalli, M.P.Birla Institute of Management, Associate Bharatiya Vidya Bhavan, Bangalore.

Place: Bangalore Date: (Dr. NAGESH MALAVALLI)

ACKNOWLEDGEMENT

The completion of the research would have been impossible without the valuable contributions of people from the academics, family and friends. I hereby wish to express my sincere gratitude to all those who supported me throughout the study.

I am thankful to Dr. Nagesh Malavalli (Finance), for his valuable guidance, academic and moral support which made this report a reality.

I am greatly thankful to Prof. T.V. Narasimha Rao (Senior Faculty), M.P.Birla Institute of Management, Bangalore, Prof. Santhanam (Statistics) and Prof. Rudramurthy (Finance) for their support in completion of this report.

I also thank my family members and friends whose support and encourage has meant a lot to me personally and also for the completion of the report.

(Gaurav Gupta)

CONTENTS

Phases PARTICULARS

1.

Introduction
o Background o Purpose of the study o Problem statement o Objectives of the study o Limitations of the study

2. 3.

Theoritical Framework Review of Literature

4.

Methodology

5.

Data analysis and Interpretation

6.

Bibliography

7.

Annexure
o Sample data

Phase: 1

Introduction

The CAPM as a model is used for calculating the expected returns by 3 out of 4 financial managers. In case where a firms capital structure involves equity capital, expected returns have a bearing on the cost of capital.

Recent research indicates that actual return may differ greatly from the returns predicted by CAPM model. CAPM uses market risk premium for estimating the expected returns. Recent research indicates that the true market risk premium may differ greatly from market risk premium used in CAPM model. As a result of result of which wrong cost of capital may be estimated.

Purpose of the Study: CAPM i.e Capital Asset Pricing Model is widely used tool for estimating the expected returns. This research aims to check that up to what extent returns predicted through CAPM matches the actual returns.

Statement of the problem:

Does the CAPM holds true in calculating expected returns?

Objectives of the study:

To see whether the expected returns as calculated by CAPM model matches with actual return.

To see what could be the probable reasons if the above two vary.

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Limitations of the study:


The study is limited to Indian 70 only The study is limited to a period of six years.

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Phase: 2 Theoretical Framework

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Capital Asset Pricing Model (CAPM)

The CAPM establishes a linear relationship between the required rate of return on a security and its systematic or non-diversifiable risk as measured by Beta.

Mathematically, it is represented as kj= Rf + (km- Rf)

where kj is the required rate of return on the security, km is the return on market portfolio, and Rf is the risk free rate of return. The term (km- Rf) indicates the risk premium on the security and the term (km- Rf)

indicates the market risk premium

Assumptions under the CAPM model:


1. 2. 3. 4. 5. Investors are risk-averse. Investors make their decisions based on a single- period horizon. There are no transactions costs in the financial markets. Taxes do not affect the choice of buying an asset. All individuals assume that they can buy assets at the going market price and

they all agree on the nature of risk and returns associated with each investment. 13

The CAPM model can be graphically represented by the security market line.

Any individuals expected return and beta should lie on the SML. Rf is the intercept of the SML. km-Rf is the slope of the SML.

Using SML to evaluate securities

If the expected rate of return on a security is greater than the required rate of return, it indicates that the security is undervalued because its average return is high for the level of risk it bears. Such a stock lies above the SML.

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-If the expected rate of return is less than the required rate of return then the security is over-valued. Such a stock is unattractive as it is expected to produce a rate of return lower than the stocks with similar betas and it lies below the SML. -The above two categories of stocks should move towards equilibrium by going through a temporary price adjustment. The expected return on the security is computed as: . Assuming that Betas remain the same, the expected return of the undervalued stock has to be brought down to be equal to the required rate of return by increasing the purchase price of the security. Similarly for the overpriced security, the purchase price of the security has to be brought down so that its expected rate of return rises and becomes equal to its required rate of return.

Concept of return

When an asset is bought, the gain (or loss) from that investment is called the return on investment. It is the major factor that motivates an investor to invest in an asset. Assessing the return of an asset is important because of the following reasons: a. b. c. It facilitates comparison between various alternatives. It helps in analyzing the past performance. It helps in forecasting the future returns.

Returns can be classified as: 1. Realized return; 2. Expected return

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Realized return (or ex-post) is the return that was realized or could have been realized from an asset whereas expected return is the return that an investor expects to earn over some time in future. Expected return is affected by uncertainty

Components of return

Return usually has two components 1. The income component or yield: The cash that the investor receives while

he owns an investment is called the income component. For e.g. the dividend that the equity-holders get when they own a companys shares constitutes the income component. The component of dividend yield is measured as , where Dt is the dividend paid on

the stock during the year and Pt-1 is the price of the stock at the beginning of the year. (Note: In case of bonds or debenture, Dt will represent coupon payments). 2. The capital gain (or loss): The value of the asset that an investor has will

often change; and depending upon the increase (or decrease) in the value of an asset there will be a capital gain (or loss).

The Capital gain yield is measured as (pt-pt-1)/pt-1 stock at the end of the year

, where Pt is the price of the

Concept of Return Concept of Return

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Measurement of returns

The component of dividend yield is measured as The Capital gain yield is measured as (pt-pt-1)/pt-1 ,

The total percentage return is measured as the sum of the dividend yield and

the capital gain yield Hence the total (percentage) return on an investment is given by Dt + (pt-pt-1)/pt-1

Probability and rate of return

The future returns are characterized by uncertainty. Whenever the probabilities associated with various possible returns are known, then the expected return can be computed as the weighted average of the various returns, the weights being the probabilities associated with the returns. Expected rate of return where Pi is the probability associated with the ith outcome and ki is the rate of return from the ith possible outcome.

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Concept of risk

Risk can be defined as the variability in the actual return emanating from a project in future over its working life, in relation to the estimated return that was forecasted at the time of selecting the project. The greater the variability between the actual and estimated return, the more risky is the project.

The financial decisions of the firm are inter-related and jointly affect the market value of its shares by influencing the return and risk of the firm. The relationship between return and risk can be simply expressed as:Return = Risk-free rate + Risk premium

A proper balance between return and risk should be maintained to maximize the

market value of a firms shares. Such a balance is called risk-return trade off. The finance manager, in a bid to maximize the shareholders wealth should strive to maximize returns in relation to the given risk and should seek courses of actions that avoid unnecessary risks.

Sources of risk

The various sources from which a risk can arise are: 1. Interest rate risk: Variability in securitys return due to changes in the level of

interest rates. The price of a security moves inversely to the changes in interest rates. Hence if there is a rise in the interest rate, the price of the security will fall. 2. Market rate risk: Variability in the securitys return due to fluctuations in the

securities market. This risk arises as a result of factors that affect the entire economy, e.g recession, war etc.

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3.

Inflation risk: The reduction in the purchasing power of money due to rise in

inflation is referred to as inflation risk. Inflation risk directly affects the interest rate risk as the interest rates increase with rise in inflation. 4. Business risk: It is the risk of doing business in a particular industry or

environment. This risk is unique in nature and arises as a result of uncertainties associated with a company or an industry. 5. Financial risk: It is the risk arising due to the use of debt financing (i.e.

financial leverage). It can also be defined as the variability in the return on equity and earnings per share of the firm due to increase in financial leverage. 6. Liquidity risk: It is the risk associated with the secondary market in which the

security is traded. Securities like treasury bills which can be sold without a significant price concession are considered to be more liquid.

Measurement of risk

The degree of uncertainty involved can be analyzed using the measures of dispersion. The various measures of dispersion are: 1. Range: It can be computed as the difference between the highest possible

return and the lowest possible return. It is not a popular measure of risk as it is based on two extreme values which can (may) misrepresent the actual risk involved. 2. Standard deviation: Standard deviation is an absolute measure of deviation.

Its very useful in comparing the risks involved in different projects that have similar outlays. It is defined as the square root of the mean deviations where the deviation is the difference between an outcome and the expected mean value of all outcomes. Further, each deviation is assigned a weight equal to its probability of occurrence.

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Let ki be the rate of return associated with the ith possible outcome and Pi be the corresponding probability and security can be computed as: be the mean return, then the standard deviation for the

The greater the standard deviation of a probability distribution, the greater is the dispersion or the variability of the outcomes around the expected (mean) value. Graphically, a distribution having a wider normal distribution indicates greater risk.

Portfolio risk:

The risk (as measured by standard deviation) of the portfolio is not a simple weighted average of the risk of the individual securities in it; the portfolios risk will be smaller than the weighted average of the standard deviations of the assets. The basic formula for computing the standard deviation of an n-security portfolio is: =

where,

is the standard deviation of the portfolio,

wi is the weight of the ith security wj is the weight of the jth security is the standard deviation of the ith security is the standard deviation of the jth security. is the correlation coefficient between the ith and the jth security.

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Risks Affecting a Portfolio:


The total risk in the case of an individual security can be divided into two parts: 1. Diversifiable risk or unsystematic risk: It affects a single asset or only a

small group of assets. Since these risks are specific to individual companies or assets, they are sometimes referred to as unique or asset-specific risks. This risk arises from the uncertainties which are unique to individual securities and which are diversifiable if a large number of securities are combined to form well-diversified portfolios. Examples of unsystematic risks:

Workers declare strike in a company. The R&D expert of a company leaves. The company is not able to obtain adequate quantity of raw material from the

supplier. 2. Non-Diversifiable or systematic risk: It influences a large number of assets,

each to a greater or lesser extent. This risk arises on account of economy-wide uncertainties and the tendency of the securities to move together with changes in the market. It is also referred to as market risk. This part of the risk cannot be reduced through diversification. Thus investors are exposed to market risk even when they hold well-diversified portfolios of securities. Examples of Systematic risk:

The Reserve Bank of India introduces a restrictive credit policy. The corporate tax is increased.

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The inflation rate increases.

Note: Since the systematic risk present in an asset cannot be eliminated by diversification, the expected return on a risky asset depends only on that assets systematic risk. As unsystematic risk can be eliminated by diversification, there is no reward for bearing it

From the above graph we observe that,


i.

Diversification reduces only the unsystematic risk whereas the systematic risk remains constant.

ii.

Beyond a certain point, the diversifying effect of each additional stock diminishes due to

increase in the positive correlation between the assets.

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Beta: A measure of systematic risk

Beta measures the relative risk associated with an individual portfolio as measured in relation to the risk of the market portfolio. The Market Portfolio represents the most diversified portfolio of risky assets an investor could buy since it includes all risky assets. The expected return and the risk premium on an asset depend only on its systematic risk. Since assets with larger betas have greater systematic risks, they will have greater expected returns. Mathematically beta can be expressed as:

If Beta is greater than 1, it indicates that the stock is more risky when compared to the market portfolio. If Beta=1 then it indicates average risk. If beta is less than 1, then it indicates that the security is less risky than the market portfolio. Beta of a Portfolio: The beta of a portfolio is a weighted average of the beta of the individual securities, where the weights represent the proportion of the individual securities in the portfolio.

, where is the beta of the portfolio, wi is the weight associated with the ith security, and is the beta associated with the ith security

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Phase: 3

Literature Review

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It was tried to investigate the appropriateness of CAPM model for calculating expected returns and the cost of equity capital. The results indicated that the expected returns predicted by CAPM model may vary greatly from actual returns due to market risk premium.

This research paper explains why the cost of capital may not be a critical input based on the theory of real options. Further it extends the analysis to continuous time and demonstrates that, when the firm has substantial real options, the project selection decision will be near optimal even when the wrong cost of capital is used.

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Phase: 4

Methodology

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Methodology

Study Design
a) Study Type: The study type is analytical, quantitative and historical. Analytical because facts and existing information is used for the analysis, Quantitative as relationship is examined by expressing variables in measurable terms and also Historical as the historical information is used for analysis and interpretation.

b) Study population: population is the entire stocks and all indices of all the countries.

c) Sampling frame: Sampling Frame would be 70 stocks of Indian companies choosen from CNX Nifty for individual stock returns and Sensex for market return.

d) Sample: Sample chosen is monthly average values of 70 stocks and monthly average values of Sensex.

e) Sampling technique:

Deliberate sampling is used because only particular units are

selected from the sampling frame. Such a selection is undertaken as these units represent the population in a better way and reflect better relationship with the other variable.

Data gathering procedures and instruments:

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Data: Historical monthly average share prices and Historical monthly average values of Sensex.

Data Source:

Historical share prices of the sample companies and the index points for the

period has been taken from the database of Capital Market Publishers (India) Ltd.,

Sensex has been taken because CNX Nifty and BSE Sensex are considered as trust worthy indices of India, to see whether both the indices move in the same direction or not.

List of companies taken for study:

Raymond Hindalco Ibp Ingersoll M&M Tata Motors Rel Cap IFCI Chennai Petro Glaxo Smithline Bharat Heavy Electricals Ltd Bajaj Auto Ltd

Nirma Ltd State Bank of India Polaris Software Lab Ltd ABB Ltd Indian Petrochemicals Corporation Ltd Siemens Ltd Container Corporation Of India Ltd Infosys Technologies Ltd Larsen & Toubro Ltd Hindustan Lever Ltd Corporation Bank Cadila Healthcare Ltd Industrial Development Bank of India

Tata Power Company Ltd ITC Ltd Cipla Ltd Ashok Leyland Ltd

Ltd MphasiS Ltd Bharat Electronics Ltd Indian Overseas Bank

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Bank of India Apollo Tyres Ltd ING Vysya Bank Ltd GAIL (India) Ltd Dr Reddys Laboratories Ltd Asian Paints Ltd Ranbaxy Laboratories Ltd Bharat Forge Ltd Aventis Pharma Ltd Moser Baer (India) Ltd HCL Technologies Ltd Lupin Ltd ACC Ltd Hindustan Petroleum Corporation Ltd Steel Authority of India Ltd Nicholas Piramal India Ltd Grasim Industries Ltd Hero Honda Motors Ltd TVS Motor Company Ltd

ICICI Bank - Private Sector Oil & Natural Gas Corpn Ltd LIC Housing Finance Ltd Aurobindo Pharma Ltd Kotak Mahindra Bank Ltd Punjab Tractors Ltd Cummins India Ltd Satyam Computer Services Ltd National Aluminium Company Ltd Sun Pharmaceuticals Industries Ltd Bharat Petroleum Corporation Ltd Mahanagar Telephone Nigam Ltd Tata Steel Ltd

Syndicate Bank Bank of Baroda Indian Hotels Co Ltd Housing Development Finance Corporation Ltd Dabur India Ltd HDFC Bank Ltd

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A BRIEF PROCESS SUMMARY:


First of all the monthly average prices data for 70 stocks were taken from capitaline for the period of 6 years starting from 2001 to 2006. Same was done for Sensex also. Now total period was divided into two parts as follows:

Estimation period- 01-012001 to 31-12-2004 Testing period01-01-2005 to 31-12-2006

Estimation period: In this period the log natural of all stocks and Sensex was taken for the purpose of calculating beta also the return of the market.

Beta for each stock was calculated by regressing the stock returns on market returns.

Testing period: in this period the average return for each stock was caculated through log naturals and these average returns were regressed on betas calculated under estimating period.

How to check whether CAPM holds true or not- The final regression results (in testing period) provides with 3 important values. Which are intercept, x variable and t statistic. Here intercept should be equal to risk free rate of return (Rf during estimation period). Which has been around 6-6.5%. The x variable should be equal to Rm-Rf during estimation period.

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Phase 5

Tests and Results

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Tests and Results


The primary test was regression analysis for this study

Regression; The results were as followsSUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations R -0.004009 0.0200304 70 0.1026737 0.0105419

ANOVA Significance df Regression Residual Total 1 68 69 SS 0.000291 0.027283 0.027573 MS 0.000291 0.000401 F 0.724486 F 0.397664

Standard Coefficients Intercept X Variable 1 -0.026512 0.0065529 Error 0.005951 0.007699 t Stat -4.4551 0.851168 P-value 3.21E-05 0.397664 Lower 95% -0.03839 -0.00881

Upper 95% -0.01464 0.021915

Lower 95.0% -0.03839 -0.00881

Upper 95.0% -0.01464 0.021915

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DATA ANALYSIS AND INTERPRETATION:


Now it is clear from the above summary output that intercept does not match to risk free rate of return as well as x variable also does not match to Rm-Rf. Hence it can be said as per this study that CAPM does not hold true. In other words expected returns as calculated by CAPM model does not match to actual returns.

If we see the test statistic in the above summary output, then also we can say that it is not significant at 5% level of significance.

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Phase 8

BIBLIOGRAPHY

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Text Books

Multinational Business Finance,

David K. Eieteman, Arthur I. Stonehill and Michel H. Moffett, (Tenth Edition)

Research Methodology

Donald Cooper and Pamela Schindler , (Eighth Edition)

Financial markets and services

Gordon and Natrajan, (Second Edition)

Websites

www.investopedia.com www.nseindia.com www.bseindia.com www.exchangerate.com www.emeclai.com

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www.icicidirect.com www.iciciresearch.com www.easy-forex.com www.indiainfoline.com

Database of Capital Market Publishers (India) Ltd., Capitaline 2000

Jstor Database

Reference:

Do we need capital budgeting? Ravi Jagannathan; Iwan Meier, Financial Management, Vol-31,No.4(Winter,2002), pp. 55-77

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Phase 9 ANNEXURES

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Calculation of betas for different companies


HDFC

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations R 0.265389 0.041971 48 0.530112 0.281019

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.031672 0.081031 0.112703 MS 0.031672 0.001762 F 17.97945 F 0.000107

Standard Coefficients Intercept X Variable 1 -0.01249 0.368034 Error 0.006104 0.086796 t Stat -2.04602 4.240218 P-value 0.046496 0.000107 Lower 95% -0.02478 0.193323

Upper 95% -0.0002 0.542746

Lower 95.0% -0.02478 0.193323

Upper 95.0% -0.0002 0.542746

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Dabur India Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations 0.488125 0.238266 0.221707 0.067676 48

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.0659 0.210683 0.276583 MS 0.0659 0.00458 F 14.38855 F 0.000432

Standard Coefficients Intercept X Variable 1 -0.00188 0.530881 Error 0.009843 0.139955 t Stat -0.19091 3.793224 P-value 0.849433 0.000432 Lower 95% -0.02169 0.249166

Upper 95% 0.017934 0.812597

Lower 95.0% -0.02169 0.249166

Upper 95.0% 0.017934 0.812597

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Housing Development Finance Corporation Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.041872 48 R 0.402284 0.644206 0.415001

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.057212 0.080648 0.137861 MS 0.057212 0.001753 F 32.6326 F 7.79E-07

Standard Coefficients Intercept X Variable 1 -0.01671 0.49465 Error 0.00609 0.086591 t Stat -2.74367 5.712495 P-value 0.008633 7.79E-07 Lower 95% -0.02897 0.320352

Upper 95% -0.00445 0.668949

Lower 95.0% -0.02897 0.320352

Upper 95.0% -0.00445 0.668949

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Indian Hotels Co Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.088131 48 R 0.235782 0.502037 0.252041

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.120395 0.357285 0.47768 MS 0.120395 0.007767 F 15.50074 F 0.000277

Standard Coefficients Intercept X Variable 1 -0.00979 0.71756 Error 0.012818 0.182256 t Stat -0.76357 3.937098 P-value 0.449024 0.000277 Lower 95% -0.03559 0.350697

Upper 95% 0.016014 1.084422

Lower 95.0% -0.03559 0.350697

Upper 95.0% 0.016014 1.084422

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Bank of Baroda

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.119509 48 R 0.107832 0.35611 0.126814

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.095416 0.656989 0.752405 MS 0.095416 0.014282 F 6.680666 F 0.012984

Standard Coefficients Intercept X Variable 1 -0.02445 0.638798 Error 0.017382 0.247146 t Stat -1.40691 2.584698 P-value 0.166176 0.012984 Lower 95% -0.05944 0.141319

Upper 95% 0.010533 1.136277

Lower 95.0% -0.05944 0.141319

Upper 95.0% 0.010533 1.136277

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Syndicate Bank

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.105668 48 R 0.077603 0.311814 0.097228

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.055317 0.513622 0.568939 MS 0.055317 0.011166 F 4.954182 F 0.030969

Standard Coefficients Intercept X Variable 1 -0.03205 0.486388 Error 0.015369 0.218523 t Stat -2.08528 2.225799 P-value 0.042621 0.030969 Lower 95% -0.06298 0.046524

Upper 95% -0.00111 0.926251

Lower 95.0% -0.06298 0.046524

Upper 95.0% -0.00111 0.926251

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Tata Steel Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.084169 48 R 0.37547 0.623504 0.388758

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.207265 0.325882 0.533148 MS 0.207265 0.007084 F 29.25656 F 2.2E-06

Standard Coefficients Intercept X Variable 1 -0.02149 0.941492 Error 0.012242 0.174062 t Stat -1.75539 5.408933 P-value 0.08585 2.2E-06 Lower 95% -0.04613 0.591122

Upper 95% 0.003152 1.291861

Lower 95.0% -0.04613 0.591122

Upper 95.0% 0.003152 1.291861

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Mahanagar Telephone Nigam Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.072414 48 R 0.31847 0.577036 0.332971

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.120409 0.241211 0.36162 MS 0.120409 0.005244 F 22.96249 F 1.76E-05

Standard Coefficients Intercept X Variable 1 0.011339 0.717601 Error 0.010532 0.149752 t Stat 1.076614 4.791919 P-value 0.287267 1.76E-05 Lower 95% -0.00986 0.416165

Upper 95% 0.032539 1.019036

Lower 95.0% -0.00986 0.416165

Upper 95.0% 0.032539 1.019036

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Bharat Petroleum Corporation Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.099385 48 R 0.212207 0.478506 0.228968

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.134927 0.454357 0.589285 MS 0.134927 0.009877 F 13.66031 F 0.000581

Standard Coefficients Intercept X Variable 1 -0.0166 0.759632 Error 0.014455 0.205529 t Stat -1.14859 3.695985 P-value 0.256664 0.000581 Lower 95% -0.0457 0.345924

Upper 95% 0.012493 1.173341

Lower 95.0% -0.0457 0.345924

Upper 95.0% 0.012493 1.173341

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Sun Pharmaceuticals Industries Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.058973 48 R 0.225818 0.492229 0.24229

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.051157 0.159981 0.211138 MS 0.051157 0.003478 F 14.70923 F 0.00038

Standard Coefficients Intercept X Variable 1 -0.02178 0.467739 Error 0.008577 0.121958 t Stat -2.53899 3.835261 P-value 0.014564 0.00038 Lower 95% -0.03904 0.222251

Upper 95% -0.00451 0.713227

Lower 95.0% -0.03904 0.222251

Upper 95.0% -0.00451 0.713227

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National Aluminium Company Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.091515 48 R 0.277558 0.541229 0.292929

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.159604 0.385252 0.544856 MS 0.159604 0.008375 F 19.0571 F 7.13E-05

Standard Coefficients Intercept X Variable 1 -0.02021 0.826181 Error 0.01331 0.189255 t Stat -1.5181 4.365444 P-value 0.135832 7.13E-05 Lower 95% -0.047 0.445231

Upper 95% 0.006586 1.207131

Lower 95.0% -0.047 0.445231

Upper 95.0% 0.006586 1.207131

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Satyam Computer Services Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.098423 48 R 0.350078 0.603246 0.363906

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.254929 0.445607 0.700536 MS 0.254929 0.009687 F 26.31633 F 5.68E-06

Standard Coefficients Intercept X Variable 1 0.009315 1.044151 Error 0.014315 0.20354 t Stat 0.650738 5.129944 P-value 0.518453 5.68E-06 Lower 95% -0.0195 0.634445

Upper 95% 0.03813 1.453856

Lower 95.0% -0.0195 0.634445

Upper 95.0% 0.03813 1.453856

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Cummins India Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.074723 48 R 0.26814 0.532646 0.283712

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.101732 0.256843 0.358575 MS 0.101732 0.005584 F 18.21996 F 9.73E-05

Standard Coefficients Intercept X Variable 1 -0.0024 0.659603 Error 0.010868 0.154529 t Stat -0.22128 4.268484 P-value 0.825857 9.73E-05 Lower 95% -0.02428 0.348553

Upper 95% 0.019471 0.970652

Lower 95.0% -0.02428 0.348553

Upper 95.0% 0.019471 0.970652

50

Punjab Tractors Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.067873 48 R 0.267503 0.53206 0.283088

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.083676 0.211908 0.295585 MS 0.083676 0.004607 F 18.16408 F 9.94E-05

Standard Coefficients Intercept X Variable 1 0.003757 0.598212 Error 0.009872 0.140362 t Stat 0.380578 4.261934 P-value 0.705268 9.94E-05 Lower 95% -0.01611 0.315679

Upper 95% 0.023628 0.880745

Lower 95.0% -0.01611 0.315679

Upper 95.0% 0.023628 0.880745

51

Kotak Mahindra Bank Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.092116 48 R 0.171906 0.435344 0.189525

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.091276 0.39033 0.481606 MS 0.091276 0.008485 F 10.75681 F 0.001985

Standard Coefficients Intercept X Variable 1 -0.02916 0.671103 Error 0.014214 0.20462 t Stat -2.05116 3.279757 P-value 0.045972 0.001985 Lower 95% -0.05777 0.259225

Upper 95% -0.00054 1.082981

Lower 95.0% -0.05777 0.259225

Upper 95.0% -0.00054 1.082981

52

Aurobindo Pharma Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.106415 48 R 0.209387 0.475613 0.226208

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.152283 0.520915 0.673198 MS 0.152283 0.011324 F 13.44751 F 0.000634

Standard Coefficients Intercept X Variable 1 0.001019 0.80701 Error 0.015477 0.220069 t Stat 0.065836 3.667084 P-value 0.947794 0.000634 Lower 95% -0.03014 0.364035

Upper 95% 0.032173 1.249985

Lower 95.0% -0.03014 0.364035

Upper 95.0% 0.032173 1.249985

53

LIC Housing Finance Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.09314 48 R 0.280557 0.543934 0.295864

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.167674 0.399052 0.566726 MS 0.167674 0.008675 F 19.32833 F 6.45E-05

Standard Coefficients Intercept X Variable 1 -0.03053 0.846811 Error 0.013547 0.192615 t Stat -2.25355 4.396399 P-value 0.029034 6.45E-05 Lower 95% -0.0578 0.459098

Upper 95% -0.00326 1.234524

Lower 95.0% -0.0578 0.459098

Upper 95.0% -0.00326 1.234524

54

Oil & Natural Gas Corpn Ltd

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.09783 48 R 0.108915 0.357595 0.127874

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.064551 0.440251 0.504802 MS 0.064551 0.009571 F 6.744677 F 0.012585

Standard Coefficients Intercept X Variable 1 -0.03254 0.525418 Error 0.014229 0.202313 t Stat -2.28682 2.597052 P-value 0.026857 0.012585 Lower 95% -0.06118 0.118183

Upper 95% -0.0039 0.932654

Lower 95.0% -0.06118 0.118183

Upper 95.0% -0.0039 0.932654

55

Industry :Banks - Private Sector

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.084637 48 R 0.202161 0.46812 0.219136

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.092473 0.329517 0.421991 MS 0.092473 0.007163 F 12.90912 F 0.000793

Standard Coefficients Intercept X Variable 1 -0.01161 0.628871 Error 0.01231 0.17503 t Stat -0.94304 3.592926 P-value 0.350586 0.000793 Lower 95% -0.03639 0.276553

Upper 95% 0.01317 0.981189

Lower 95.0% -0.03639 0.276553

Upper 95.0% 0.01317 0.981189

56

Indian Overseas Bank

SUMMARY OUTPUT

Regression Statistics Multiple R R Square Adjusted Square Standard Error Observations 0.099978 48 R 0.134804 0.391424 0.153212

ANOVA Significance df Regression Residual Total 1 46 47 SS 0.083192 0.459795 0.542988 MS 0.083192 0.009996 F 8.32295 F 0.00594

Standard Coefficients Intercept X Variable 1 -0.0375 0.596479 Error 0.014541 0.206755 t Stat -2.57879 2.884952 P-value 0.013179 0.00594 Lower 95% -0.06677 0.180302

Upper 95% -0.00823 1.012656

Lower 95.0% -0.06677 0.180302

Upper 95.0% -0.00823 1.012656

57

Bharat Electronics Ltd

SUMMARY OUTPUT Regression Statistics Multiple R 0.570982 R Square 0.32602 Adjusted R Square 0.311368 Standard Error 0.098577 Observations 48 ANOVA df Regression Residual Total 1 46 47 SS 0.216227 0.447005 0.663232 Standard Error 0.014337 0.203859 MS 0.216227 0.009718 F 22.25127 Significance F 2.26E-05

Intercept X Variable 1

Coefficients -0.03688 0.961631

t Stat -2.57263 4.717125

P-value 0.013385 2.26E-05

Lower 95% -0.06574 0.551283

Upper 95% -0.00803 1.371979

Lower 95.0% -0.06574 0.551283

Upper 95.0% -0.00803 1.371979

58

MphasiS Ltd

SUMMARY OUTPUT Regression Statistics Multiple R 0.469773 R Square 0.220686 Adjusted R Square 0.203745 Standard Error 0.167761 Observations 48 ANOVA df Regression Residual Total 1 46 47 SS 0.366609 1.294613 1.661222 Standard Error 0.0244 0.346932 MS 0.366609 0.028144 F 13.02629 Significance F 0.000755

Intercept X Variable 1

Coefficients -0.00603 1.252146

t Stat -0.24726 3.609196

P-value 0.80581 0.000755

Lower 95% -0.05515 0.553808

Upper 95% 0.043081 1.950484

Lower 95.0% -0.05515 0.553808

Upper 95.0% 0.043081 1.950484

59

Industrial Development Bank of India Ltd

SUMMARY OUTPUT Regression Statistics Multiple R 0.557742 R Square 0.311076 Adjusted R Square 0.296099 Standard Error 0.135531 Observations 48 ANOVA df Regression Residual Total 1 46 47 SS 0.381528 0.844952 1.22648 Standard Error 0.019712 0.280279 MS 0.381528 0.018369 F 20.77075 Significance F 3.82E-05

Intercept X Variable 1

Coefficients -0.01529 1.27737

t Stat -0.77584 4.557494

P-value 0.441813 3.82E-05

Lower 95% -0.05497 0.713198

Upper 95% 0.024385 1.841542

Lower 95.0% -0.05497 0.713198

Upper 95.0% 0.024385 1.841542

60

Cadila Healthcare Ltd

SUMMARY OUTPUT Regression Statistics Multiple R 0.323429 R Square 0.104606 Adjusted R Square 0.085141 Standard Error 0.095489 Observations 48 ANOVA df Regression Residual Total 1 46 47 SS 0.049001 0.419433 0.468434 Standard Error 0.013888 0.197472 MS 0.049001 0.009118 F 5.374057 Significance F 0.024938

Intercept X Variable 1

Coefficients -0.02118 0.45778

t Stat -1.52474 2.318201

P-value 0.13417 0.024938

Lower 95% -0.04913 0.060289

Upper 95% 0.00678 0.855271

Lower 95.0% -0.04913 0.060289

Upper 95.0% 0.00678 0.855271

In the same way beta was calculated for other companies also.

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