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Analysis of Sectoral Indices versus

NIFTY

Individual Assignment:
Kumar Niraj Mohan
09P149
Section 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 •Other Indices
▫ S&P CNX Nifty ▫CNX IT Index
▫ CNX Nifty Junior ▫CNX Bank Index
▫ CNX 100 ▫CNX FMCG Index
▫ S&P CNX 500 ▫CNX PSE Index
▫ CNX Midcap * ▫CNX MNC Index
▫ Nifty Midcap 50 ▫CNX Service Sector
▫ S&P CNX Defty 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
Constituents list of CNX IT
Company Name Industry
CMC Ltd. COMPUTERS - HARDWARE
Core Projects & Technologies Ltd. COMPUTERS - SOFTWARE
Educomp Solutions Ltd. COMPUTERS - SOFTWARE
Financial Technologies (India) Ltd. COMPUTERS - SOFTWARE
Firstsource Solutions Ltd. COMPUTERS - SOFTWARE
GTL Ltd. TELECOMMUNICATION - SERVICES
HCL Infosystems Ltd. COMPUTERS - HARDWARE
HCL Technologies Ltd. COMPUTERS - SOFTWARE
Infosys Technologies Ltd. COMPUTERS - SOFTWARE
MindTree Ltd. COMPUTERS - SOFTWARE
Moser Baer India Ltd. COMPUTERS - HARDWARE
MphasiS Ltd. COMPUTERS - SOFTWARE
Oracle Financial Services Software Ltd. COMPUTERS - SOFTWARE
Patni Computer Systems Ltd. COMPUTERS - SOFTWARE
Polaris Software Lab Ltd. COMPUTERS - SOFTWARE
Rolta India Ltd. COMPUTERS - SOFTWARE
Tata Consultancy Services Ltd. COMPUTERS - SOFTWARE
Tech Mahindra Ltd. COMPUTERS - SOFTWARE
Tulip Telecom Ltd. TELECOMMUNICATION - SERVICES
Wipro Ltd. COMPUTERS - SOFTWARE
Constituents list of CNX BANK
Company 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. CONSTRUCTION

Housing 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 INFRA
Company Name Industry
ABB Ltd. ELECTRICAL EQUIPMENT
Bharat Heavy Electricals Ltd. ELECTRICAL EQUIPMENT
Bharti Airtel Ltd. TELECOMMUNICATION - SERVICES
Crompton Greaves Ltd. ELECTRICAL EQUIPMENT
DLF Ltd. CONSTRUCTION
GMR Infrastructure Ltd. CONSTRUCTION
IRB Infrastructure Developers Ltd. TRAVEL AND TRANSPORT
Idea Cellular Ltd. TELECOMMUNICATION - SERVICES
Indian Hotels Co. Ltd. HOTELS
Jaiprakash Associates Ltd. DIVERSIFIED
Lanco Infratech Ltd. CONSTRUCTION
Larsen & Toubro Ltd. ENGINEERING
Mahanagar Telephone Nigam Ltd. TELECOMMUNICATION - SERVICES
NTPC Ltd. POWER
Neyveli Lignite Corporation Ltd. POWER
Punj Lloyd Ltd. CONSTRUCTION
Reliance Communications Ltd. TELECOMMUNICATION - SERVICES
Reliance Infrastructure Ltd. POWER
Reliance Power Ltd. POWER
Shipping Corporation of India Ltd. SHIPPING
Siemens Ltd. ELECTRICAL EQUIPMENT
Suzlon Energy Ltd. ELECTRICAL EQUIPMENT
Tata Communications Ltd. TELECOMMUNICATION - SERVICES
Tata Power Co. Ltd. POWER
Unitech Ltd. CONSTRUCTION
Sectoral Index Volatility vs NIFTY
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)
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 Analysis
SUMMARY OUTPUT

Regression Statistics
Multiple R 0 . 99600650
R Square 60 . 99202896
Adjusted R 10 . 99197937
Square
Standard Error 479 . 6190257
Observations 648 7

ANOVA
  df SS MS F Significan
Regression 4 507287426 . 6 126821856 . 20006 . 005 ce
0 F
Residual 643 4076098 . 698 66339 . 18926 71
Total 647 511363525 . 3  5    

  Coefficien Standard t Stat P - value Lower 95 % Upper 95 % Lower Upper


Intercept ts
150 . 591808 Error
30 . 40511213 4 . 95284501 9 . 35906E - 90 . 88650077 210 . 297115 95
90 .. 08865007
% 95
210. 0. 297115
%
IT 20 . 32394120 0 . 005836275 855 . 5047864 07
2 . 0282E - 0 . 312480741 60 . 33540166 70 . 31248074 60 . 33540166
BANK 02 . 08309631 0 . 004567562 7 . 1927064
18 5247
. 65604E - 0 . 074127175 02 . 09206545 01 . 07412717 02 . 09206545
INFRA 40 . 73283232 0 . 017484644 941 . 9129107 60
4 . 8415E - 0 . 69849843 30 . 76716622 50 . 69849843 30 . 76716622
REALTY 9- 0 . 032852017 - 186
8 . 10776E - - 9- - 9-
0 . 35246962 10 . 7290101 25 0 . 416979819 0 . 28795942 0 . 41697981 0 . 28795942
3 9 6 9 6
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