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Analysis of Sectoral Indices versus NIFTY
Individual Assignment:Kumar Niraj Mohan09P149Section B
Objective
• Study the variance of the sectoral indexes and market index in terms of returns
• To understand the mutual influence between two sectoral index returns and on market index return
• Sectoral Beta and relative stability/volatility for portfolio risk management
Scope• Period Covered
▫ Jan 2008 – Till Date
• Sectoral Indices Analysed▫ CNX IT Index▫ CNX Bank Index▫ CNX Infrastructure Index▫ CNX Realty Index
• These 4 indices explain 99.2% variation in NIFTY
Indices at NSE• Major Indices
▫ S&P CNX Nifty▫ CNX Nifty Junior▫ CNX 100▫ S&P CNX 500▫ CNX Midcap *▫ Nifty Midcap 50▫ S&P CNX Defty
• Other Indices▫ CNX IT Index▫ CNX Bank Index▫ CNX FMCG Index▫ CNX PSE Index▫ CNX MNC Index▫ CNX Service Sector
Index▫ S&P CNX Industry
Indices▫ Customised Indices▫ CNX Energy Index▫ CNX Pharma Index▫ CNX Infrastructure
Index▫ CNX PSU BANK Index▫ CNX Realty Index▫ S&P CNX Nifty
Shariah / S&P CNX 500 Shariah
▫ S&P ESG India Index
Constituents list of CNX ITCompany Name IndustryCMC Ltd. COMPUTERS - HARDWARECore Projects & Technologies Ltd. COMPUTERS - SOFTWAREEducomp Solutions Ltd. COMPUTERS - SOFTWAREFinancial Technologies (India) Ltd. COMPUTERS - SOFTWAREFirstsource Solutions Ltd. COMPUTERS - SOFTWAREGTL Ltd. TELECOMMUNICATION - SERVICESHCL Infosystems Ltd. COMPUTERS - HARDWAREHCL Technologies Ltd. COMPUTERS - SOFTWAREInfosys Technologies Ltd. COMPUTERS - SOFTWAREMindTree Ltd. COMPUTERS - SOFTWAREMoser Baer India Ltd. COMPUTERS - HARDWAREMphasiS Ltd. COMPUTERS - SOFTWAREOracle Financial Services Software Ltd. COMPUTERS - SOFTWAREPatni Computer Systems Ltd. COMPUTERS - SOFTWAREPolaris Software Lab Ltd. COMPUTERS - SOFTWARERolta India Ltd. COMPUTERS - SOFTWARETata Consultancy Services Ltd. COMPUTERS - SOFTWARETech Mahindra Ltd. COMPUTERS - SOFTWARETulip Telecom Ltd. TELECOMMUNICATION - SERVICESWipro Ltd. COMPUTERS - SOFTWARE
Constituents list of CNX BANKCompany Name Industry
Axis Bank Ltd. BANKS
Bank of Baroda BANKS
Bank of India BANKS
Canara Bank BANKS
HDFC Bank Ltd. BANKS
ICICI Bank Ltd. BANKS
IDBI Bank Ltd. BANKS
Kotak Mahindra Bank Ltd. BANKS
Oriental Bank of Commerce BANKS
Punjab National Bank BANKS
State Bank of India BANKS
Union Bank of India BANKS
Constituents list of CNX REALTY
Company Name Industry
Anant Raj Industries Ltd. CONSTRUCTION
DLF Ltd. CONSTRUCTIONHousing Development and Infrastructure Ltd. CONSTRUCTION
Indiabulls Real Estate Ltd. CONSTRUCTION
Mahindra Lifespace Developers Ltd. CONSTRUCTION
Parsvnath Developer Ltd. CONSTRUCTION
Peninsula Land Ltd. CONSTRUCTION
Phoenix Mills Ltd. CONSTRUCTION
Sobha Developers Ltd. CONSTRUCTION
Unitech Ltd. CONSTRUCTION
Constituents list of CNX INFRACompany Name IndustryABB Ltd. ELECTRICAL EQUIPMENTBharat Heavy Electricals Ltd. ELECTRICAL EQUIPMENTBharti Airtel Ltd. TELECOMMUNICATION - SERVICESCrompton Greaves Ltd. ELECTRICAL EQUIPMENTDLF Ltd. CONSTRUCTIONGMR Infrastructure Ltd. CONSTRUCTIONIRB Infrastructure Developers Ltd. TRAVEL AND TRANSPORTIdea Cellular Ltd. TELECOMMUNICATION - SERVICESIndian Hotels Co. Ltd. HOTELSJaiprakash Associates Ltd. DIVERSIFIEDLanco Infratech Ltd. CONSTRUCTIONLarsen & Toubro Ltd. ENGINEERINGMahanagar Telephone Nigam Ltd. TELECOMMUNICATION - SERVICESNTPC Ltd. POWERNeyveli Lignite Corporation Ltd. POWERPunj Lloyd Ltd. CONSTRUCTIONReliance Communications Ltd. TELECOMMUNICATION - SERVICESReliance Infrastructure Ltd. POWERReliance Power Ltd. POWERShipping Corporation of India Ltd. SHIPPINGSiemens Ltd. ELECTRICAL EQUIPMENTSuzlon Energy Ltd. ELECTRICAL EQUIPMENTTata Communications Ltd. TELECOMMUNICATION - SERVICESTata Power Co. Ltd. POWERUnitech Ltd. CONSTRUCTION
Sectoral Index Volatility vs NIFTY
1-Jan-08 16-Apr-08 30-Jul-08 17-Nov-08 5-Mar-09 25-Jun-09 8-Oct-09 25-Jan-1012-May-100
2000
4000
6000
8000
10000
12000
NIFTY IT BANK INFRA REALTY
Beta Analysis
Beta Calculation
Covariance
IT BANK INFRA REALTY
0.0004204 0.000566 0.000543 0.000778
VARIANCE - NIFTY
0.000505416
BETA
0.8317116 1.120605 1.075122 1.539308
Beta Analysis• The analysis throws some startling results
• Beta for IT is less than NIFTY and other three are more than NIFTY for the period 01/01/2008 – Till Date
• This might seems counter-intuitive as bank stocks are relatively stable and IT is relatively more volatile.
• However, a closer look at the next graph shows this is indeed true. The “Normalized Indices (Index/Average)” plots the daily value divided by the mean over the period.
• The highest variation is in REALTY showing it have moved more with respect to its mean – variance from mean is high. This is followed by INFRA, BANK and then IT, being the least
Normalized Indices (Index/Average)
1-Jan-08 11-Apr-08 24-Jul-08 6-Nov-0820-Feb-0911-Jun-0917-Sep-09 5-Jan-10 20-Apr-10 27-Jul-100
0.5
1
1.5
2
2.5
3
3.5
Normalized NIFTYNormalized ITNormalized BANKNormalized INFRANoramalized REALTY
Regression Analysis• Determine whether there exists relationship between
indices and NIFTY
• CNX NIFTY regressed with CNX IT, CNX BANK, CNX INFRA, CNX REALTY
• Results show these 4 indices are correlated to a major portion of variation in NIFTY
Regression AnalysisSUMMARY OUTPUT
Regression StatisticsMultiple R 0.996006506R Square 0.992028961Adjusted R Square 0.991979374Standard Error 79.61902577Observations 648
ANOVA df SS MS F Significance F
Regression 4 507287426.6 126821856.6 20006.00571 0Residual 643 4076098.698 6339.189265Total 647 511363525.3
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%Intercept 150.5918082 30.40511213 4.952845018 9.35906E-07 90.88650077 210.2971156 90.88650077 210.2971156IT 0.323941202 0.005836275 55.50478647 2.0282E-247 0.312480741 0.335401662 0.312480741 0.335401662BANK 0.083096314 0.004567562 18.19270649 5.65604E-60 0.074127175 0.092065453 0.074127175 0.092065453INFRA 0.732832329 0.017484644 41.9129107 4.8415E-186 0.69849843 0.767166229 0.69849843 0.767166229REALTY -0.352469623 0.032852017 -10.72901019 8.10776E-25 -0.416979819 -0.287959426 -0.416979819 -0.287959426
Regression Analysis - Results• High R2 /Adjusted R2 of 99. 2/99.1%
▫ Most of the variation in NIFTY explained by 4 chosen sectoral indices
▫ Significance F = 0 implies the reliability of R2 – model fits properly and R2 is authentic
▫ Near zero p-values for intercept, IT, REALTY, INFRA, BANK show they are significantly different from zero, giving their coefficients credence
▫ REALTY negatively correlated. Intercept, IT, INFRA BANK positively correlated
CNX IT versus NIFTY
CNX IT versus NIFTY• August 2009 shows IT index crossing over NIFTY showing
improvement in IT spending
• Signals end of the trough of business cycle
• Here, the IT index improves after the nadir of the business cycle trough – showing the IT spending may have been delayed – should usually start before the nadir of the trough (Around March 2009)
• Period of consolidation from August 2009 till date as the gap between NIFTY and CNX IT seems almost stable
CNX BANK versus NIFTY
CNX BANK versus NIFTY
• Remains consistently over NIFTY showing a high valued sector
• March 2009 shows BANK index improving – exactly at the trough – ideally Financial Services should improve just before the trough
• Signals end of the trough of business cycle
• BANK index seems to have entered a period of expansion rather than consolidation as the gap is ever widening since March 2009
CNX INFRA versus NIFTY
CNX INFRA versus NIFTY• Remains consistently below NIFTY showing a relatively
low return sector for the period 2008-till date
• March 2009 shows INFRA index improving – exactly at the trough – little earlier than the expected for capital goods sector
• Signals end of the trough of business cycle
• INFRA index seems to have entered a period of stagnation even as NIFTY moves steeply into the expansion phase. Infra spending is yet to pick up
CNX REALTY versus NIFTY
CNX REALTY versus NIFTY • Remains consistently far below NIFTY showing investors’
lack of confidence in the sector
• Realty caused the primary panic and the recession thereafter
• Though NIFTY is improving, Realty has virtually stagnated showing that there is time before investor will regain confidence in the sector and start investing
Picking up of Sectoral Index vs. NIFTY
Thank You