DETERMINANTS OF SYSTEMATIC RISK IN INFORMATION TECHNOLOGY SECTOR OF THE INDIAN ECONOMY

Systematic risk is the risk arising from market factors that commonly affect all the firms. Capital Asset Pricing Model (CAPM) suggests that the firm-specific risk, called unsystematic risk, can be diversified away by portfolio creation. Hence, only systematic risk is relevant in financial decision making. The objective of this paper is to study the relationship between company financial factors and macro-economic factors and the systematic risk of firms in Information Technology sector of the Indian Economy. The study is undertaken on Nifty IT index companies for the years 2004 to 2017. Using panel data regression techniques, it is concluded that, out of the company variables, return on capital employed and asset growth are positively and significantly related to systematic risk (measured by beta), whereas price to book ratio and net profit margin are negatively related to systematic risk. And, out of the macro-economic variables, interest rate and international competitiveness (measured by current account balance as percentage of GDP) are negatively significantly related to systematic risk.