IS CAPM STILL ALIVE FOR SENSEX STOCKS IN INDIAN STOCK MARKET? - AN EMPIRICAL ANALYSIS

Capital Asset Pricing Model (CAPM) is one of the valuation model used to calculate the expected stock return for individual company in the stock market. Investors in Indian stock market used it extensively. This study mainly focused on the relevance and suitability of CAPM in BSE for Sensex stocks and to establish risk and return relationship for individual securities in this index. Using CAPM model in the Indian Stock Market, 30 stocks from Sensex were taken and evaluated the correlation between Intrinsic value and Market price for testing the relevance of CAPM. The results of the study proven that CAPM offered the evidence in favour for majority of Sensex stocks in Indian Stock Market. There exists linearity in the securities market line for most of the company in Indian stock market. This study proven that valuation accuracy of capital asset pricing model was kept at high level and can be used for predicting the intrinsic value of large market capitalised stocks. Finally this paper suggests the undervalued stocks in Indian stock market to build a Portfolio also.