financial instruments

NIIT UniversityMBA Finance and Banking 2014-2016

COMPARATIVE STUDY OF RETURNS OF STOCK WITH SECTORAL INDEX, MARKET INDEX and RISK FREE BOND

(Financial Instruments Project)

Submitted byName Roll NoApoorva Sharma P301414CMG4

22Anoop Sharma P301414CMG4

20Adarsh Chhajed P301414CMG4

11Rushikesh Chinderkar

P301414CMG458

Arpit Somani P301414CMG423

1

ContentsIT Industry overview....................................................................................................................................3

Methodology...........................................................................................................................................3

Market Representation...........................................................................................................................3

NIFTY IT Performances............................................................................................................................4

Choice of Stocks.......................................................................................................................................4

Descriptive Analysis.....................................................................................................................................5

Returns on all stocks and indices.............................................................................................................6

Tata Consultancy Services.......................................................................................................................7

Tech Mahindra......................................................................................................................................10

Wipro.....................................................................................................................................................13

Infosys...................................................................................................................................................16

HCL........................................................................................................................................................19

References.................................................................................................................................................22

2

IT Industry overview

Information Technology (IT) industry has played a major role in the Indian economy during the last few years. A number of large, profitable Indian companies today belong to the IT sector and a great deal of investment interest is now focused on the IT sector. In order to have a good benchmark of the Indian IT sector, IISL has developed the Nifty IT sector index. Nifty IT provides investors and market intermediaries with an appropriate benchmark that captures the performance of the IT segment of the market.Companies in this index are those that have more than 50% of their turnover from IT related activities like IT Infrastructure, IT Education and Software Training, Telecommunication Services and Networking Infrastructure, Software Development, Hardware Manufacturer’s, Vending, Support and Maintenance.

Methodology

The Nifty IT index is computed using free float market capitalization method with a base date of Jan 1, 1996 indexed to a base value of 1000 wherein the level of the index reflects total free float market value of all the stocks in the index relative to a particular base market capitalization value. The base value of the index was revised from 1000 to 100 with effect from May 28, 2004. The method also takes into account constituent changes in the index and importantly corporate actions such as stock splits, rights, new issue of shares etc. without affecting the index value.

Effective May 29, 2015, the index is computed with 10 companies and weights of each company in the index are capped at 25%. At the time of rebalancing of shares/ change in index constituents/ change in investable weight factors (IWFs), the weightage of the index constituent (where applicable) is capped at 25%. Weightage of such stock may increase beyond 25% between the rebalancing periods.

Market Representation

The Nifty IT Index represents about 11.96% of the free float market capitalization of the stocks listed on NSE and 96.66% of the free float market capitalization of the stocks forming part of the IT sector as on March 31, 2015.

The total traded value for the last six months ending March 2015 of all index constituents is approximately 9.48% of the traded value of all stocks on the NSE and 90.10% of the traded value of the stocks forming part of the IT sector.

3

NIFTY IT Performances

Choice of Stocks

The constituents (stocks) have been chosen based on the weightage:

Company NameWeight (%)

Infosys Ltd. 24.77Tata Consultancy Services Ltd. 24.2HCL Technologies Ltd. 16.81Wipro Ltd. 12.83Tech Mahindra Ltd. 11.37

4

Descriptive Analysis

Daily Annual 5 YearsAverage Nifty IT -0.07% -16.62% -68.51%Average Nifty 50 -0.04% -10.02% -41.29%Average G sec 0.01% 1.78% 7.34%Average TCS -0.08% -20.08% -82.77%Average Tech Mahindra 0.02% 5.20% 21.44%Average Wipro -0.04% -11.10% -45.78%Average Infy 0.08% 19.70% 81.23%Average HCL -0.07% -18.01% -74.27%

5

Returns on all stocks and indices

6

Tata Consultancy Services

t-Test: Paired Two Sample for Means

Return TCS Return Nifty IT

Mean

-0.0007966

4 -0.000659424

Variance0.0002496

13 0.000175418Observations 1037 1037

Pearson Correlation0.7362206

56Hypothesized Mean Difference 0Df 1036

t Stat

-0.4086386

9

P(T<=t) one-tail0.3414446

43

t Critical one-tail1.6463257

71

P(T<=t) two-tail0.6828892

85

t Critical two-tail1.9622564

54

Null Hypothesis: the mean of returns of NIFTY IT and TCS are equalWe notice that the two sample mean values (volatility) are -0.00079664 (0.000249613) and -0.000659424 (0.000175418). The two tailed calculated t-statistic is -0.4086 and the highlighted p-value for this test is p= 0.6829. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both NIFTY IT and TCS are equal which means whether we invest in NIFTY IT or TCS for a day the returns are same or similar.


Return TCSReturn Nifty

50

Mean

-0.0007966

4-

0.000397436

7

Variance0.0002496

13 0.000109466Observations 1037 1037



t Stat

-0.8300352

5


38


71


75


54

Null Hypothesis: the mean of returns of NIFTY 50 and TCS are equalWe notice that the two sample mean values (variance) are -0.00079664(0.0002496) and -0.000397436 (0.000109466). The two tailed calculated t-statistic is -0.8300 and the highlighted p-value for this test is p= 0.4067. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both NIFTY 50 and TCS are equal which means whether we invest in NIFTY 50 or TCS for a day the returns are same or similar.

-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%

-15.0000%

-10.0000%

-5.0000%

0.0000%

5.0000%

10.0000%

15.0000%

f(x) = 0.54663322740518 xR² = 0.13089606853902

Return TCS- Nifty 50

8

1. Slope which is also beta is +.5466 that shows that returns TCS is minutely correlated to Nifty 50 returns.

2. Both are positively correlated that shows returns move in same direction.


Return TCS Return G sec

Mean

-0.0007966

4 0.000071

Variance0.0002496

13 0.000046

Observations 1037 1037

Pearson Correlation

-0.0349403


t Stat

-1.6053080

1


98


71


95


54

Null Hypothesis: the mean of returns of Return G Sec and TCS are equalWe Notice that the two sample mean values (variance) are -0.00079664(0.0002496) and 0.000071 (0.000046). The two tailed calculated t-statistic is -1.6053 and the highlighted p-value for this test is p= 0.1087. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G Sec and TCS are equal which means whether we invest in G Sec or TCS for a day the returns are same or similar.

9

-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%

-15.0000%

-10.0000%

-5.0000%

0.0000%

5.0000%

10.0000%

15.0000%

f(x) = − 0.0829642865522561 xR² = 0.00125466742804379

Return TCS- G sec

1. Slope which is also beta is -0.083 that shows that returns TCS is minutely related to Nifty 50 returns.

2. Both are negatively correlated, for a portfolio if correlation is negatives between the two choices its good and effective diversification.

10

Tech Mahindra


Return Tech

MahindraReturn G

sec

Mean 0.0002063517.06471E-

05

Variance 0.0022551914.56109E-

05Observations 1037 1037Pearson Correlation 0.017628697Hypothesized Mean Difference 0Df 1036t Stat 0.091329478P(T<=t) one-tail 0.463624226t Critical one-tail 1.646325771P(T<=t) two-tail 0.927248451t Critical two-tail 1.962256454

Null Hypothesis: the mean of returns of Return G Sec and Tech Mahindra are equalWe Notice that the two sample mean values (variance) are 0.0002065 (0.002255) and 0.000071 (0.000046). The two tailed calculated t-statistic is 0.09134 and the highlighted p-value for this test is p= 0.9272. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G Sec and Tech Mahindra are equal which means whether we invest in G Sec or TCS for a day the returns are same or similar.

11

-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%-20.0000%

0.0000%

20.0000%

40.0000%

60.0000%

80.0000%

100.0000%

120.0000%

140.0000%

160.0000%

f(x) = 0.124265133296896 xR² = 0.000312337066374293

Return tech mahindra- G sec

1. Slope which is also beta is +.1243 that shows that returns Tech Mahindra is minutely related to G sec returns.



Return Tech

MahindraReturn Nifty 50

Mean 0.000206351

-0.0003974

36

Variance 0.0022551910.0001094


Null Hypothesis: the mean of returns of Return Nifty 50 and Tech Mahindra are equalWe Notice that the two sample mean values (variance) are 0.0002065 (0.002255) and - 0.0003975 (0.0001095). The two tailed calculated t-statistic is 0.4111264 and

12

the highlighted p-value for this test is p= 0.681064. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty 50 and Tech Mahindra are equal which means whether we invest in Nifty 50 or Tech Mahindra for a day the returns are same or similar.

-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%-20.0000%

0.0000%20.0000%40.0000%60.0000%80.0000%

100.0000%120.0000%140.0000%160.0000%

f(x) = 0.583152652550165 xR² = 0.0165301863108791

Return tech mahindra- Nifty 50

1. Slope which is also beta is +.5466 that shows that returns Tech Mahindra is highly correlated to Nifty 50 returns.



Return Tech

MahindraReturn Nifty IT

Mean 0.000206351

-0.0006594

24

Variance 0.0022551910.0001754


13

Null Hypothesis: the mean of returns of Return G Sec and Tech Mahindra are equalWe Notice that the two sample mean values (variance) are 0.000206351 (0.002255) and -0.000659424 (0.000175418). The two tailed calculated t-statistic is 0.593093049 and the highlighted p-value for this test is p= 0.553248328. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty IT and Tech Mahindra are equal which means whether we invest in Nifty IT or Tech Mahindra for a day the returns are same or similar.

14

Wipro


Return Wipro

Return Nifty IT

Mean

-0.0004405

8

-0.0006594

24

Variance0.0002787

320.0001754

18Observations 1037 1037


18Hypothesized Mean Difference 0df 1036

t Stat0.5115954

72


89


71


77


54

We Notice that the two sample mean values (variance) are -0.00044058 (0.000278732) and -0.000659424 (0.000175418). The two tailed calculated t-statistic is 0.511595472 and the highlighted p-value for this test is p= 0.609043177. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty IT and Wipro are equal which means whether we invest in Nifty IT or Wipro for a day the returns are same or similar.


Return Wipro

Return Nifty 50

Mean-

0.00044058

-0.0003974

36Variance 0.00027873 0.0001094

15

2 66Observations 1037 1037



t Stat

-0.08335074

2

P(T<=t) one-tail0.46679437

8


1

P(T<=t) two-tail0.93358875

6


4

We Notice that the two sample mean values (variance) are -0.00044058 (0.000278732) and -0.000397436 (0.000109466). The two tailed calculated t-statistic is -0.083350742 and the highlighted p-value for this test is p= 0.933588756. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty 50 and Wipro are equal which means whether we invest in Nifty 50 or Wipro for a day the returns are same or similar.

-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%

-10.0000%

-5.0000%

0.0000%

5.0000%

10.0000%

15.0000%

f(x) = 0.504933736492222 xR² = 0.100203699681815

Return Wipro- Nifty 50

1. Slope which is also beta is 0.5049 that shows that returns Wipro is highly correlated to Nifty 50 returns.

16


Return Wipro

Return G sec

Mean-

0.000440587.06471E-

05

Variance0.00027873

24.56109E-




t Stat

-0.91694077

7

P(T<=t) one-tail0.17969353

7


1

P(T<=t) two-tail0.35938707

3


4

We Notice that the two sample mean values (variance) are -0.00044058 (0.000278732) and -7.06471E-05 (4.56109E-05). The two tailed calculated t-statistic is -0.916940777 and the highlighted p-value for this test is p= 0.359387073. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G-Sec and Wipro are equal which means whether we invest in G-Sec or Wipro for a day the returns are same or similar.

17

-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%

-10.0000%

-5.0000%

0.0000%

5.0000%

10.0000%

15.0000%

f(x) = 0.021190357182214 xR² = 7.34350243543094E-05

Return Wipro- G Sec

1. Slope which is also beta is +.0212 that shows that returns TCS is minutely correlated to G sec returns.


18

Infosys


Return

InfyReturn G

sec

Mean0.0007817

847.06471E

-05

Variance0.0013056

464.56109E

-05Observations 1037 1037



t Stat0.6261141

16


06


71


12


54

We Notice that the two sample mean values (variance) are 0.000781784 (0.001305646) and 7.06471E-05 (4.56109E-05). The two tailed calculated t-statistic is 0.626114116 and the highlighted p-value for this test is p= 0.531378012. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both G-Sec and Infosys are equal which means whether we invest in G-Sec or Infosys for a day the returns are same or similar.

19

-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%

-20.0000%

-10.0000%

0.0000%

10.0000%

20.0000%

30.0000%

40.0000%

50.0000%

60.0000%

70.0000%

80.0000%

f(x) = 0.149162982710248 xR² = 0.000776980092296077

Return Infy- G sec

1. Slope which is also beta is +.1492 that shows that returns Infy is minutely correlated to G sec returns.



Return

InfyReturn Nifty 50

Mean0.000781

784

-0.000397

436

Variance0.001305

6460.000109




t Stat1.063042

159


278


771


555


454

20

We Notice that the two sample mean values (variance) are 0.000781784 (0.001305646) and 0.000397436 (0.000109466). The two tailed calculated t-statistic is 1.063042159 and the highlighted p-value for this test is p= 0.288010555. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty 50 and Infosys are equal which means whether we invest in Nifty 50 or Infosys for a day the returns are same or similar.

-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%

-20.0000%

-10.0000%

0.0000%

10.0000%

20.0000%

30.0000%

40.0000%

50.0000%

60.0000%

70.0000%

80.0000%

f(x) = 0.631431628479793 xR² = 0.033460215070507

Return Infy- Nifty 50

1. Slope which is also beta is 0.6314 that shows that returns Infy is highly correlated to Nifty 50 returns.


Return InfyReturn Nifty IT

Mean0.0007817

84

-0.0006594

24

Variance0.0013056

460.0001754




t Stat1.4494179

13

21


69


71


38


54

We Notice that the two sample mean values (variance) are 0.000781784 (0.001305646) and 0.000659424 (0.000175418). The two tailed calculated t-statistic is 1.449417913 and the highlighted p-value for this test is p= 0.147523538. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both Nifty IT and Infosys are equal which means whether we invest in Nifty IT or Infosys for a day the returns are same or similar.

22

HCL


Return

HCLReturn Nifty IT

Mean

-0.0007148

16

-0.000659

42

Variance0.0008487

650.000175




t Stat

-0.0660988

23


51


71


01


54

We Notice that the two sample mean values (variance) are 0.000714816 (0.000848765) and 0.00065942(0.00017542). The two tailed calculated t-statistic is 0.066098823 and the highlighted p-value for this test is p= 0.947311901. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both HCL and Nifty IT are equal which means whether we invest in HCL or Nifty IT for a day the returns are same or similar.


Return

HCLReturn Nifty 50

Mean

-0.0007148

16

-0.000397

44Variance 0.0008487 0.000109

23

65 47Observations 1037 1037



t Stat

-0.3571680

09


87


71


74


54

We Notice that the two sample mean values (variance) are 0.000714816 (0.000848765) and -0.00039744 (0.00010947). The two tailed calculated t-statistic is 0.357168009 and the highlighted p-value for this test is p= 0.721038774. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both HCL and Nifty 50 are equal which means whether we invest in HCL or Nifty 50 for a day the returns are same or similar.

-6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000% 8.0000%

-20.0000%

-10.0000%

0.0000%

10.0000%

20.0000%

30.0000%

40.0000%

50.0000%

60.0000%

70.0000%

80.0000%

f(x) = 0.638431944948334 xR² = 0.0526120367232026

Return HCL Nifty 50

1. Slope which is also beta is +.6384 that shows that returns HCL is minutely correlated to Nifty 50 returns.


24


Return

HCLReturn G sec

Mean

-0.0007148

167.0647E

-05

Variance0.0008487

654.5611E

-05Observations 1037 1037



t Stat

-0.8507169

77


82


71


64


54

We Notice that the two sample mean values (variance) are 0.000714816 (0.000848765) and -7.0647E-05 (4.5611E-05). The two tailed calculated t-statistic is 0.850716977 and the highlighted p-value for this test is p= 0.395123164. Since the p-value is greater than 0.05, this provides evidence to accept the null hypothesis of equal means. Thus the daily returns of both HCL and G-Sec are equal which means whether we invest in HCL or G-Sec for a day the returns are same or similar.

25

-10.0000% -8.0000% -6.0000% -4.0000% -2.0000% 0.0000% 2.0000% 4.0000% 6.0000%

-20.0000%

-10.0000%

0.0000%

10.0000%

20.0000%

30.0000%

40.0000%

50.0000%

60.0000%

70.0000%

80.0000%

f(x) = 0.112452467324305 xR² = 0.000679212362878787

Return HCL G sec

1. Slope which is also beta is +.1125 that shows that returns HCL is minutely correlated to G sec returns.


References

1. http://www.nseindia.com/ 2. http://in.investing.com/rates-bonds/india-10-year-bond-yield-historical-data 3. http://www.bloomberg.com/quote/GIND10YR:IND 4. https://www.statisticssolutions.com/manova-analysis-paired-sample-t-test/

26

https://www.statisticssolutions.com/manova-analysis-paired-sample-t-test/

http://www.bloomberg.com/quote/GIND10YR:IND

http://in.investing.com/rates-bonds/india-10-year-bond-yield-historical-data

http://www.nseindia.com/

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