Escolar Documentos
Profissional Documentos
Cultura Documentos
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. Kj=Rf + (km-Rf) Kj- required rate of return Km- return on market portfolio Rf- risk free rate of return - measure of systematic risk
To compare and study the difference between expected return and actual return of 7 companies during the period 2010 January2010 December. To identify whether various securities are overpriced, correctly priced or under priced. To study the perception of investors about CAPM model.
RESEARCH METHODOLOGY
Data Collection Based on primary and secondary data. Primary data - survey secondary data from journals, books and websites.
RESEARCH METHODOLOGY
Sampling To conduct the CAPM analysis, the sample size under the study consisted of 7 shares of BSE. Six scrips were taken from six different sectors and seventh one is taken having a diversified strategy. Six sectors selected for study are Information technology, Banking, Oil, Power, Steel and Telecom sector. Securities from different sectors were taken based on market capitalization. Systematic random sampling was done. To study the perception of investors, a survey was conducted using questionnaire. Population consist of the investors who invested in the above 7 scrips through ACUMEN. Sample selected were the clients of the company Acumen. Stratified random sampling done. Data collected from company records.
FORMULAE APPLIED
Expected return r= Rf + c (Rm - Rf) Where, r - is the expected return on risky asset Rf - is the risk free rate Rm - is the return on the market (Rm Rf) - is the market risk premium c - is the consumption beta
FORMULAE APPLIED
Rf = 6/12% = 0.5% Where, Rf = Risk free rate for the month of January Rm = (Q1-Q0) 100 -----------------------Q0 Where, Rm = Market return Q1= Closing nifty price Q0 = Opening nifty price
FORMULAE APPLIED
Beta =
Where, N = Number of days taken X = Share Price Return percentage Y = Nifty Return percentage
FORMULAE APPLIED
Estimated return Re = (P1-P0) 100 -------------------P0 Where, Re = Estimated return P1 = Closing share price P0 = Opening share price
Implication
Beta An individual shares beta shows how it compares to the market as a whole: = 1 means equal risk with the market > 1 means more risky than the market < 1 means less risky than the market
Return Expected return = Estimated return means stock is correctly priced Expected return> Estimated return means stock is overvalued Expected return< Estimated return means stock is undervalued
6.
7.
Bharti Airtel
DLF
Telecom
Real estate, retail, sports
name
1. 2. Infosys ONGC 0.45 0.3
return
0.35 0.4
return
31.78 8.94
Deviation
31.43 8.54
3.
4. 5.
SBI
SAIL Power Grid
0.38
0.35 0.34
0.38
0.38 0.39
22.67
-26.47 -12.59
22.29
-26.85 -12.98
6.
7.
Bharti Airtel
DLF
0.16
0.32
0.45
0.4
10.28
-19.94
9.83
-20.34
Closing Price
1400
1200 1000 800 Closing Price 600 400 200 0
Closing Price
500
0
Closing Price
FINDINGS
Among the 7 scrips, Infosys, ONGC, SBI, Bharti Airtel, are underpriced. SAIL, POWER GRID and DLF are over priced. All 7 scrips are having below average risk. Comparing the beta value of DLF with others, it seems that the DLF share is not highly fluctuating with the market. It is overvalued because of the speculation in market. Analyzing the variance, DLF is having a medium variance compared to others. That means it is having a medium risk among the group under study. So investing in company with diversified strategy is good avenue for investment. Investors are not aware of CAPM analysis.
CONCLUSION
This project gave me immense opportunity and exposure to trading practiced in the stock market. To study and apply the analysis technique used by most of the investment analyst. And to study the perception of investors about CAPM