2

Risk - Return Analysis of BSE 30 Companies- An

Application of CAPM Model

Kanika Mehta*
Vishal Malik**

In today’s world, every investor expects that he should get interest on his
investment. For getting maximum return on investment, the investor should
know the relationship between risk and return. It is generally said that higher
the risk, higher the return. But the investor should know that for a specific
risk, how much return he can expect. In today’s market where everyone wants
to invest because of rise in the market, this thing becomes more important. In
this study, an effort has been made to find out which company, among the
BSE-30 is more risky and which company is less risky. Also, this study tries to
highlight the companies among the same group that are giving higher returns.
This study also tries to find that which are the companies whose share price
are undervalued or overvalued. For this purpose, Capital Asset Pricing Model
(CAPM) Model, Treynor’s ratio have been used to draw out an authentic
conclusion. So, an investor should always keep the risk associated in mind
while expecting the return.
Key Words: CAPM, Investor, Return, Risk, Treynor’s Ratio

INTRODUCTION
Return
Every investor prefers to earn a return on their investment. Return is the money that is
generated over time. If it is positive, then it is known as profit (money earned), and if
negative, then it is known as the loss (money lost).
Return from the financial asset is calculated as:
Return = {Income from asset + (Sale Price-Purchase Price)}/ (Purchase Price)
Risk
Risk is the uncertainty that is linked with the outcome of an investment. The riskiest
investment is Equity, and the least risky are government securities. There are two types of
risk i.e., systematic risk and unsystematic risk. Systematic risk is the risk which is beyond the
capabilities of the company.

*Student, MBA, Kurukshetra University, Kurukshetra, Haryana, India, E-mail: [email protected]

**Student, MBA, Kurukshetra University, Kurukshetra, Haryana, India, E-mail: [email protected]
10 Quintessential Reflections

Thus, these are also known as non-diversifiable risk. The fluctuations in return are dueto the
general factors in the market, such as inflation, recession, money supply, tax reforms, etc. It
is that part of total risk, caused by the factors which are in the control of the particular
company. Thus, these are known as diversifiable risk. It is the fluctuations in return due to
factors that are specified to a specific company and the market as a whole. These are firm-
specific.
Capital Asset Pricing Model (CAPM)
CAPM model describes the relationship between the systematic risk and expected return of a
security. This model helps in the valuation of capital assets by computing the required rate of
return.
ERi= Rf + βi(ERm– Rf)
where:
ERi= expected return of investment
Rf = risk-free rate
βi = beta of the investment
(ERm– Rf) = market risk premium
CAPM model shows the expected return as two components, Rfand (ERm – Rf) * βi. Thus, it
can be observed that there is a direct relationship between the risk premium and the beta
factor. Therefore, the expected return directly depends upon the beta factor, which indicates
that the higher the beta, the higher is the expected return and vice-versa.
The difference between realized (predicted through past returns) rate of return and expected
(calculated through the CAPM model) rate of return is known as alpha (α). If the realized
(predicted through past returns) rate of return is more than the expected (calculated through
the CAPM model) rate of return, then alpha (α) is positive. Hence, there is the undervaluation
of stocks. If the realized (predicted through past returns) rate of return is less than the
expected (calculated through the CAPM model) rate of return, then alpha (α) is negative.
Hence, there is the overvaluation of stocks.
Figure 1: Security Market Line

Source: Self-Computation

It shows the relationship between the beta factor and the expected rate of return. On X-axis,
the beta factor, i.e., risk, is shown, and on Y-axis, the predicted rate of return is shown. The
risk-free rate of return is the rate that is required even if the beta factor is zero. There is a
direct relationship between the required rate of return and the beta factor. With an increase in
risk or beta factor, there is an increase in the risk premium. Hence, an increase in the required
rate of return is experienced. Thus, the risk premium is lower for low beta factor and vice-
versa.
Risk - Return Analysis of BSE... 11

Treynor Ratio:
Treynor ratio determines how much the investor is earning the extra return for each unit of
risk (systematic risk). The higher the Treynor ratio, the better it is to show that the investor is
earning an excessive return. It is also the slope of the SML line.
Treynor Ratio = rp – rf
βp
where:
rp = portfolio return
rf= risk-free return
βp = beta of the portfolio

REVIEW OF LITERATURE AND HYPOTHESIS DEVELOPMENT

Alam et al. (2015) concluded that the difference between the expected return and the actual
return is significant. Fama & French (2004) examined relevance of the CAPM model. The
study was done by taking the returns of stocks from NYSE, AMEX, NASDAQ stock
exchanges. The conclusion came to be that change in beta doesn't affect the return of the
security. The time period of the study was 1928 -1993. The study was done by taking the
NYSE stocks. Khan et al. (2012) discovered validity of the CAPM model in KSE. The time
period of the study was 2006-2010. It was found that there CAPM is not applicable for KSE.
Chaudhary & Chaudhary (2010) tried to study the performance of BSE companies through
the CAPM model. The time period of the study was 1996-2009. It was found that change in
beta affects the return of the security. Reddy (2011) tried to study the validity of CAPM. The
time period of the study was 2000-2007. It was found that change in beta affects the return of
the security. Selvam & Jeyachitra (2009) tried to find the relationship between risk and return
through CAPM of private sector bank. It was found that there is a high degree of correlation
between systematic risk and return. Yalawar (1985) tried to study the validity of CAPM in
BSE. The period of the study was 1963-1982. It was found that the returns were high, and
BSE is efficient at least in the week form. Rui et al. (2018), in their research on the
Malaysian stock exchange, studied the positive relationship between the risk and return using
the CAPM. Mahida (2020), in his study on the NSE using CAPM, found that there is out of
25 Companies, 15 Companies' share price is overvalued, and 10 Companies' share price is
undervalued. He also suggested that in which companies the buyer would tend to invest.
Therefore, based on a review of the majority of the studies on the subject, the following has
been hypothesized:
H1: There is a significant relationship between risk and return.
H2: There is a significant relationship between realized return and expected return.
RESEARCH METHODOLOGY
Need of the Study
The investment seems to be very risky; however, it can also provide a good return if the study
is conducted before investing in the stocks. Thus, for investing in stocks, the investor needs to
study the risk and return of the various stocks. When the returns are high, the risk is also high
and vice- versa. So, it depends upon the investor whether he wants to take the risk, and thus,
12 Quintessential Reflections

accordingly, he has to choose the stocks and prepare the portfolio for the investment. Also,
the investor needs to know whether a stock is worth investing in or not, i.e., whether the stock
has good market value or not. This study mainly discusses the risk-return relationship of
various tocks of BSE. Although various studies have already been conducted, however, the
business environment keeps changing, like the Covid-19 pandemic, etc. So, there is a need to
ascertain the risk and return according to the changing environment.
SCOPE OF THE STUDY
Sample and Sources of data:
The population of the research consists of various companies that are listed on BSE. The
sample size to conduct the study is taken as 30 companies of the BSE of different industries.
The stocks that are decided are based on top capitalization in BSE. The index which
constitutes the top 30 companies of BSE companies is known as Sensex. In order to collect
the data for the study, secondary sources will be used. The secondary data will be collected
from the BSE website. The data will also be collected through the annual reports of the
respective companies.
Time of the Study: The period of the study will be of 5 years, i.e., from 2014-15 to 2018-19.
RESEARCH DESIGN
Framework of Analysis
For achieving the primary objective, various tools will be used. For calculating the
components of CAPM, the following equation will be followed:
ERi= Rf + βi(ERm– Rf)
where:
ERi= expected return of investment
Rf = risk-free rate
βi = beta of the investment
(ERm– Rf) = market risk premium
Another objective is to analyze whether the stocks are undervalued or overvalued. It can be
analyzed through the use of α. α is the difference between realized (predicted through past
returns) rate of return and expected (calculated through the CAPM model) rate of return. If α
is positive, which means the realized rate of return is greater than the expected rate of return,
then the stocks are undervalued, and if α is negative, then the stocks are overvalued. The
focus of the research is also to study the Treynor's ratio. Treynor's ratio depicts how much
investment provides a return at each unit of risk (systematic risk). For proving the hypothesis,
t-test will be used.
DATA ANALYSIS AND INTERPRETATION
Table 1: CAPM Model
Realized Risk Expected Treynor's Alpha Undervalued/
(yearly) Beta IRF Premium Return Ratio Overvalued
Return (model)
Asian Paints Ltd. 0.222 0.86 7.02% 4.47% 0.109 17.60% 11.31% Undervaluation
Axis Bank Ltd. -0.119 1.32 7.02% 4.47% 0.129 -14.34% -24.85% Overvaluation
Bajaj Auto Ltd. 0.070 0.83 7.02% 4.47% 0.107 0.00% -3.69% Overvaluation
Bajaj Finance 0.111 1.01 7.02% 4.47% 0.115 4.07% -0.40% Overvaluation
Risk - Return Analysis of BSE... 13

Ltd.
Bajaj Finserv 0.547 0.88 7.02% 4.47% 0.109 54.14% 43.72% Undervaluation
Ltd.
Bharti Airtel 0.009 0.78 7.02% 4.47% 0.105 -7.81% -9.59% Overvaluation
Ltd.
HCL Technologies -0.051 0.48 7.02% 4.47% 0.091 -25.45% -14.22% Overvaluation
Ltd.
HDFC Bank Ltd. 0.252 0.81 7.02% 4.47% 0.107 22.35% 14.55% Undervaluation
Hindustan 0.231 0.59 7.02% 4.47% 0.097 27.24% 13.46% Undervaluation
Unilever Ltd.
HDFC 0.173 1.17 7.02% 4.47% 0.122 8.85% 5.11% Undervaluation
ICICI Bank Ltd. -0.204 1.47 7.02% 4.47% 0.136 -18.66% -33.93% Overvaluation
Indusind Bank 0.288 0.99 7.02% 4.47% 0.114 21.96% 17.35% Undervaluation
Ltd.
Infosys Ltd. -0.257 0.69 7.02% 4.47% 0.101 -47.46% -35.83% Overvaluation
ITC Ltd. -0.034 0.85 7.02% 4.47% 0.108 -12.20% -14.22% Overvaluation
Kotak 0.114 0.95 7.02% 4.47% 0.113 4.60% 0.13% Undervaluation
Mahindra Bank Ltd.
Larsen&Tourbo 0.018 1.20 7.02% 4.47% 0.124 -4.38% -10.60% Overvaluation
Ltd.
Mahindra & -0.075 1.06 7.02% 4.47% 0.118 -13.63% -19.23% Overvaluation
Mahindra Ltd.
Maruti Suzuki 0.276 1.03 7.02% 4.47% 0.116 19.96% 15.99% Undervaluation
Ltd.
Nestle India 0.169 0.40 7.02% 4.47% 0.088 24.61% 8.11% Undervaluation
Ltd.
NTPC Ltd. 0.024 0.79 7.02% 4.47% 0.105 -5.85% -8.14% Overvaluation
ONGC Ltd -0.130 1.01 7.02% 4.47% 0.115 -19.83% -24.59% Overvaluation
Power Grid Corp Of 0.135 0.72 7.02% 4.47% 0.102 9.03% 3.28% Undervaluation
India
Ltd.
Reliance 0.078 1.14 7.02% 4.47% 0.121 0.71% -4.26% Overvaluation
Industries Ltd.
State Bank Of India -0.302 1.51 7.02% 4.47% 0.137 -24.70% -43.92% Overvaluation
Sun
Pharmaceutical -0.035 0.83 7.02% 4.47% 0.107 -12.64% -14.27% Overvaluation
Industries
Ltd.
Tata Consultancy -0.014 0.50 7.02% 4.47% 0.093 -16.68% -10.66% Overvaluation
Services Ltd.
Tata Steel Ltd. 0.057 1.39 7.02% 4.47% 0.132 -0.94% -7.52% Overvaluation
Tech Mahindra Ltd. -0.155 0.51 7.02% 4.47% 0.093 -44.07% -24.84% Overvaluation
Titan Co Ltd. 0.338 0.88 7.02% 4.47% 0.109 30.45% 22.83% Undervaluation
Ultratech Cement 0.129 1.00 7.02% 4.47% 0.115 5.89% 1.42% Undervaluation
Ltd.
Market Return 0.115 1.00

Source: Self-Computation

T-TEST
For testing the hypothesis, t-test has been used.
14 Quintessential Reflections

Table 2: Paired Sample Correlation

N Correlation Sig.
Pair 1 Risk and expected rate of return 30 1.000 0.000
Pair 2 Realized rate of return & expected 30 -0.206 0.275
rate of return
Source: Self-Computation
Table 3: Paired Sample T-test
Paired Differences t df Sig. (2-
tailed)
Mean Std. Std. 95% confidence
deviation error interval of the
mean differences
Lower Upper
Pair 1 Risk- .810400 .273027 .049848 .708450 .912350 16.25 29 .000
expected rate of
return
Pair 2 Realized -.049100 .190699 .034817 -.120308 .022108 -1.410 29 .169
rate of return-
expected rate of
return
Source: Self-Computation
Expected Return: It is a return that is anticipated by the investor for the future. It is
estimated based on past prices.
Realized Return: It is the actual return that is earned by the investor.
Risk: It is the uncertainty that is linked with the outcome of an investment. The difference
between the expected return (anticipated return) and realized return (actual return) from the
investment is known as risk.
From the below table, the following conclusions can be drawn:
In pair 1(risk and expected rate of return), t-value (16.258) is greater than the significant
value (0.0); thus, there is significant relationship between risk and expected rate of return.
Therefore, the alternative hypothesis is accepted.
In pair 2 (realized rate of return and expected rate of return), t-value (-1.41) is less than
significant value (0.169); thus, there is insignificant relationship between realized rate of
return and expected rate of return. Therefore, alternative hypothesis is rejected.
Mispricing
Overvalued stocks are those stocks of which realized rate of return is less than the expected
rate of return, and undervalued stocks are those stocks of which realized rate of return is more
than the expected rate of return.
Following are the stocks which are overvalued and undervalued:
From the above table, it can be concluded that Bajaj Finserv Ltd. stocks alpha is 43.72% and
it is the highest. It means that the expectation about the return from this stock is very less and
the difference from expected return and realized return is 43.72%. Thus, Bajaj Finserv Ltd.
stocks are undervalued the most.
Risk - Return Analysis of BSE... 15

Table 4: Mispricing: Undervalued Stocks

Companies Alpha
Kotak Mahindra Bank Ltd. 0.13%
Ultratech Cement Ltd. 1.42%
Power Grid Corp Of India Ltd. 3.28%
HDFC 5.11%
Nestle India Ltd. 8.11%
Asian Paints Ltd. 11.31%
Hindustan Unilever Ltd. 13.46%
HDFC Bank Ltd. 14.55%
Maruti Suzuki Ltd. 15.99%
Indusind Bank Ltd. 17.35%
Titan Co Ltd. 22.83%
Bajaj Finserv Ltd. 43.72%
Source: Self-Computation

Table 5: Mispricing: Overvalued Stocks

Companies Alpha
Bajaj Finance Ltd. -0.40%
Bajaj Auto Ltd. -3.69%
Reliance Industries Ltd. -4.26%
Tata Steel Ltd. -7.52%
NTPC Ltd. -8.14%
Bharti Airtel Ltd. -9.59%
Larsen&Tourbo Ltd. -10.60%
Tata Consultancy Services Ltd. -10.66%
ITC Ltd. -14.22%
HCL Technologies Ltd. -14.22%
Sun Pharmaceutical Industries Ltd. -14.27%
Mahindra&Mahindra Ltd. -19.23%
ONGC Ltd -24.59%
Tech Mahindra Ltd. -24.84%
Axis Bank Ltd. -24.85%
ICICI Bank Ltd. -33.93%
Infosys Ltd. -35.83%
State Bank Of India -43.92%
Source: Self-Computation
16 Quintessential Reflections

From the above table, it can be concluded that State Bank of India stocks alpha is -43.92%
and it is the highest. It means that the expectation about the return from this stock is very high
and the difference from expected return and realized return is 43.92%. Thus, State Bank of
India stocks are overvalued the most.
Treynor‟s Ratio
Treynor‟s ratio determines how much the investor is earning the extra return for each unit of
risk. The higher the Treynor ratio, the better it is to show that the investor is making an
excessive return.
The following table shows the stocks having positive, negative and zero Treynor's ratio:
Table 6: Treynor's Ratio
Positive Value Negative Value Zero
Reliance Industries 0.71% Infosys Ltd. -47.46% Bajaj Auto
Ltd. Ltd.
Bajaj Finance Ltd. 4.07% Tech Mahindra Ltd. -44.07%
Kotak Mahindra 4.60% HCL Technologies Ltd. -25.45%
Bank Ltd.
Ultratech Cement 5.89% State Bank Of India -24.70%
Ltd.
HDFC 8.85% ONGC Ltd -19.83%
Power Grid Corp Of 9.03% ICICI Bank Ltd. -18.66%
India Ltd.
Asian Paints Ltd. 17.60% Tata Consultancy -16.68%
Services Ltd.
Maruti Suzuki Ltd. 19.96% Axis Bank Ltd. -14.34%
Indusind Bank Ltd. 21.96% Mahindra&Mahindra -13.63%
Ltd.
HDFC Bank Ltd. 22.35% Sun Pharmaceutical -12.64%
Industries Ltd.
Nestle India Ltd. 24.61% ITC Ltd. -12.20%
Hindustan Unilever 27.24% Bharti Airtel Ltd. -7.81%
Ltd.
Titan Co Ltd. 30.45% NTPC Ltd. -5.85%
Bajaj Finserv Ltd. 54.14% Larsen&Tourbo Ltd. -4.38%
Tata Steel Ltd. -0.94%
Source: Self-Computation

From the above table, it can be concluded that there are 14 such companies such as Reliance
Industries Ltd., Bajaj Finance Ltd., etc. who have positive Treynor's ratio which means that
investor can earn more than a risk-free rate of return from such companies. Bajaj Finserv Ltd.
has the highest treynor's ratio which means that investor is able to earn the maximum return if
he invests in Bajaj Finserv Ltd. Bajaj Auto Ltd. has zero Treynor's ratio which means that the
Risk - Return Analysis of BSE... 17

return earned by the company is same as the risk-free return i.e., investor is not able to earn
any extra return if he invests in Bajaj Auto Ltd. There are 15 such companies such as Infosys
Ltd., Tech Mahindra Ltd., etc. who have negative Treynor‟s ratio which means that investor
can't even earn risk-free rate of return from such companies.
Ranking According to Risk and Return
To know about which company has outperformed, following table shows the ranking
according to risk and return:
Table 7: Ranking of Companies According to Risk
Companies Risk Rank
Nestle India Ltd. 0.40 1
HCL Technologies Ltd. 0.48 2
Tata Consultancy Services Ltd. 0.50 3
Tech Mahindra Ltd. 0.51 4
Hindustan Unilever Ltd. 0.59 5
Infosys Ltd. 0.69 6
Power Grid Corp Of India Ltd. 0.72 7
Bharti Airtel Ltd. 0.78 8
NTPC Ltd. 0.79 9
HDFC Bank Ltd. 0.81 10
Bajaj Auto Ltd. 0.83 11
Sun Pharmaceutical Industries Ltd. 0.83 12
ITC Ltd. 0.85 13
Asian Paints Ltd. 0.86 14
Titan Co Ltd. 0.88 15
Bajaj Finserv Ltd. 0.88 16
Kotak Mahindra Bank Ltd. 0.95 17
Indusind Bank Ltd. 0.99 18
Ultratech Cement Ltd. 1.00 19
Bajaj Finance Ltd. 1.01 20
ONGC Ltd 1.01 21
Maruti Suzuki Ltd. 1.03 22
Mahindra & Mahindra Ltd. 1.06 23
Reliance Industries Ltd. 1.14 24
HDFC 1.17 25
Larsen&Tourbo Ltd. 1.20 26
Axis Bank Ltd. 1.32 27
Tata Steel Ltd. 1.39 28
ICICI Bank Ltd. 1.47 29
State Bank Of India 1.51 30
Source: Self-Computation
18 Quintessential Reflections

From the above table it can be seen that investing in Nestle India Ltd is least risky for an
investor whereas investing in State Bank of India is riskiest for an investor. Companies with
beta less than 1 imply that investing in these companies' securities is less risky than the
market. Such companies are, for example, Nestle India Ltd, HCL technologies ltd, Tata
consultancy services ltd., Tech Mahindra Ltd, Hindustan Unilever Ltd., etc. Companies with
beta equal to 1 imply that investing in such companies' securities has the same risk as the
market. Such companies are, for example, Ultratech Cement Ltd. Companies with beta more
than 1 imply that investing in these companies' securities is riskier than the market. Such
companies are Larsen &Tourbo Ltd., Axis Bank Ltd., Tata Steel Ltd., ICICI Bank Ltd., State
Bank of India, etc.
Table 8: Ranking of Companies According to Return
Companies Return Rank
State Bank Of India 0.137 1
ICICI Bank Ltd. 0.136 2
Tata Steel Ltd. 0.132 3
Axis Bank Ltd. 0.129 4
Larsen & Tourbo Ltd. 0.124 5
HDFC 0.122 6
Reliance Industries Ltd. 0.121 7
Mahindra & Mahindra Ltd. 0.118 8
Maruti Suzuki Ltd. 0.116 9
ONGC Ltd 0.115 10
Bajaj Finance Ltd. 0.115 11
Ultratech Cement Ltd. 0.115 12
Indusind Bank Ltd. 0.114 13
Kotak Mahindra Bank Ltd. 0.113 14
Bajaj Finserv Ltd. 0.109 15
Titan Co Ltd. 0.109 16
Asian Paints Ltd. 0.109 17
ITC Ltd. 0.108 18
Sun Pharmaceutical Industries Ltd. 0.107 19
Bajaj Auto Ltd. 0.107 20
HDFC Bank Ltd. 0.107 21
NTPC Ltd. 0.105 22
Bharti Airtel Ltd. 0.105 23
Power Grid Corp Of India Ltd. 0.102 24
Infosys Ltd. 0.101 25
Hindustan Unilever Ltd. 0.097 26
Tech Mahindra Ltd. 0.093 27
Tata Consultancy Services Ltd. 0.093 28
HCL Technologies Ltd. 0.091 29
Nestle India Ltd. 0.088 30
Source: Self-Computation
Risk - Return Analysis of BSE... 19

From the above table, it can be seen that investor earns the highest return if he invests in State
Bank of India whereas investor earns the least if he invests in Nestle Ltd.
Thus, from Table 6 and Table 7 it can be said that higher the risk higher is the return which
can be seen in case of State Bank of India.
FINDINGS
There is a significant relationship between risk and expected rate of return as t-value is
greater than the significant value. There is an insignificant relationship between the realized
rate of return and the expected rate of return as t-value is less than the significant value.
Correlation between risk and expected rate of return is +1, which shows that with the increase
in risk, return also increases with the same degree. Thus, the higher the risk, the higher is the
return. Investing in Nestle India Ltd is the least risky for an investor as beta is the least,
whereas investing in the State Bank of India is the riskiest for an investor as beta is highest.
Companies like Nestle India Ltd, HCL technologies ltd, Tata consultancy services ltd., Tech
Mahindra Ltd, Hindustan Unilever Ltd. have beta less than 1 which means that risk in
securities of these companies is less than market. Thus, these are less risky companies.
Company like Ultratech Cement Ltd. has beta equal to 1 which means that risk in such
security is same as market risk. Companies like Larsen & Tourbo Ltd., Axis Bank Ltd., Tata
Steel Ltd., ICICI Bank Ltd., State Bank of India have beta more than 1 which means that risk
in securities of these companies is more than market. Thus, these are very risky companies.
Investor earns the highest return if he invests in State Bank of India whereas investor earns
the least if he invests in Nestle Ltd. Bajaj Finserv Ltd stocks are undervalued the most and
State Bank of India stocks are overvalued the most. There are 14 such companies such as
Reliance Industries Ltd., Bajaj Finance Ltd., etc. who have positive Treynor's ratio which
means that investor can earn more than a risk-free rate of return from such companies.
Bajaj Finserv Ltd. has the highest Treynor‟s ratio which means that investor is able to earn
the maximum return if he invests in Bajaj Finserv Ltd.. Bajaj Auto Ltd. has zero Treynor‟s
ratio which means that the return earned by the company is same as the risk-free return i.e.,
investor is not able to earn any extra return if he invests in Bajaj Auto Ltd.. There are 15 such
companies such as Infosys Ltd., Tech Mahindra Ltd., etc. who have negative Treynor‟s ratio
which means that investor can't even earn risk-free rate of return from such companies.
CONCLUSION
In this study, top 30 companies of BSE have been taken to analyze the relationship between
risk and return based on CAPM model. Time period taken for the study is 5 years from 2014-
15 to 2018-19. From the analysis, it has been concluded that there is has been significant
relationship between risk and expected rate of return but there has been insignificant
relationship between realized return and expected return. It has also been seen that there has
been mispricing in the form of either overvaluing or undervaluing of stocks. There are 12
such stocks which have been overvalued and remaining 18 stocks have been overvalued. It
has also been seen that State Bank of India is riskiest but along with it provides highest return
whereas Nestle India Ltd. is the least risky stock but also provides least return. Thus, it shows
higher the risk higher is the return. So, it all depends upon as investor whether he is a risk
averse or risk lover. If he is risk-averse, then he would prefer less risk and less return and
prefer investing in stocks like Nestle India Ltd. and if he is risk lover, then he would prefer to
take higher and higher risk so that he can earn more and more return and thus, prefer to invest
in stocks like State Bank of India.
20 Quintessential Reflections

LIMITATIONS
The study will be based on the secondary data, and the secondary data has its own limitations,
such as the data can be misleading sometimes. The time period of the study will be five years
which is not very suitable for the long-term investors. The investment is also based on an
individual's preference, whether he is risk-averse or risk seeker. So, the finding wouldn't be
applicable for all the individuals.
SUGGESTIONS
Investor should consider risk factor also along with return. Investor should consider whether
he is risk-averse or risk seeker and accordingly, he should invest. Investor should check
whether there is any mispricing of stocks and if yes, then he should consider investing in
undervalued stocks as they will provide more return in future. Investor should not consider
only this measure rather go for some other measures as well.
FUTURE SCOPE
This study is only limited to top 30 companies of BSE. In future, the researcher can consider
other sectors like BSE100 or NSE50 and also can consider comparison among different
sectors. The researcher can also consider some other factors such as inflation and can take
three factor or four factor model into consideration.
REFERENCES
Alam, M. R. (2015). Application of application of capital asset pricing model empirical
evidences from Chittagong stock exchange. The cost and management, 43(3), 38-44.
An application of CAPM: National stock exchange. (2020). International Journal of
Multidisciplinary Research and Development, 7(7), 1–4.
BSE Sensex – Live Sensex and Stock Values. (n.d.).BSE.https://www.bseindia.com
/sensex/code/16/.
Choudhary, K. & Choudhary, S. (2010). Testing capital asset pricing model: empirical
evidences from Indian equity market. Eurasian Journal of Business and Economics, 3(6),
127- 138.
Karakoc, B. (2016). A validity analysis of capital asset pricing model (capm) in Istanbul
stock exchange. Journal of social sciences, 4(1), 45-56.
Khan, M.I. & Gul, M. (June 2012). Assessing and Testing the Capital Asset Pricing Model
(CAPM): A Study Involving KSE-Pakistan. Global Journal of Management and Business
Research, 12 (10), 32-38.
Lakonishok, J., Shleifer, A. & Vishny, R.W. (1994). Contrarian investment, extrapolation,
and risk. The Journal of finance, 49(5), 1541-1578.
Mahida, C. (2020). An application of CAPM: National stock exchange. (2020). International
Journal of Multidisciplinary Research and Development, 7(7), 1–4.
Nel, W.S. (2011). The application of the Capital Asset Pricing Model (CAPM): A South
African perspective. African Journal of Business Management , 5(13), 5336- 5347.
Panchal, N. (2014). Risk-return relationship analysis of selected Stocks using CAPM.
International Journal of Engineering & Science Research, 8(5), 14–23.
Reddy, G., (2011). Testing The Capital Asset Pricing Model (CAPM)- A Study Of Indian
Stock Market. IJRCM, 1(3), 40–46.
Risk - Return Analysis of BSE... 21

Reserve Bank of India - Annual Report. (n.d.).RBI.https://www.rbi.org.in/Scripts/Annual

ReportPublications.aspx?Id=1299
Rustogi, R. P. (n.d.). Investment Management: Theory and Practice (10th ed.). Sultan Chand
& Sons.
Seethanaik, D. (2014). Empirical Testing of CAPM in Selected Securities. International
Journal of Financial Management (IJFM), 3(1), 21-28.
Selvam, M., & Jeyachitra, A. (2009). Risk and returns relationship of private sector banks
stocks: Application of Capm Model. JIMS8M:The Journal of Indian Management &
Strategy, 14(2), 32-47.
Shetty, S., & D Souza, J. J. (2019).An Empirical Examination of the CAPM on BSE
SENSEX Stocks. International Journal of Recent Technology and Engineering (IJRTE), 8(2),
678.
Treynor Ratio. (n.d.). Treynor Ratio. https://www.investopedia.com/terms/t/treynorratio.asp
Yalawar, Y. B. (1988). Bombay stock exchange: rates of return and efficiency. Indian
Economic Journal, 35(4), 68.