ANALYSING THE SECTORAL PREDICTABILITY OF RISK AND RETURN IN INDIA

Risk and return are both relevant to investment decisions. India has been an emerging nation and since liberalisation, there have been a number of reforms that have witnessed stock market reactions. This has caused both the risk and return of the different sectors of the Indian market to frequently change and become unpredictable. There is no clear answer to whether the risks and returns of these indices remain stable over a period of time. This study takes the daily returns of the ten different sector indices from the National Stock Exchange (NSE) in the Indian market for analysis. The NIFTY indices considered here include bank (Nifty Bank Index), Auto (Nifty Auto Index), Energy (Nifty Energy Index), Financial services (Nifty Financial Services Index), FMCG (Nifty FMCG Index), IT (Nifty IT Index), Media (Nifty Media Index), Metal (Nifty Metal Index), Pharma (Nifty Pharma Index) and Realty (Nifty Realty Index). The returns and the risk of the ten sectors are compared and analysed over a ten year period to examine their stability. According to NSE (www.nseindia.com) ‘A stock market index is a measure of the relative value of a group of stocks in numerical terms. As the stocks within an index change value, the index value changes. An index is important to measure the performance of investments against a relevant market index'. Sectoral indices are normally used to provide information about price movements or overall behaviour of the sector. The sectoral index is created by selecting a group of stocks that represent that specified sector of the market. Usually indices are calculated with reference to a base period and a base index value. The level of the index reflects the total free float market value of all the stocks in the index relative to particular base market capitalisation value. Table one gives a snapshot of the indices selected for the study as on 31st March 2016.