Risk–Return Analysis of Selected Equity Stocks Listed in Bombay Stock Exchange Using Capital Asset Pricing Model

DOI

10.2991/978-94-6463-374-0_33How to use a DOI?

Keywords

Bombay Stock Exchange; CAPM; Equity Stocks; Systematic risk; Unsystematic risk; overpriced; underpriced

Abstract

Investment in Stocks is considered the best alternative to earn higher returns in form of dividends and capital appreciation. Two important ways to investment in Stocks viz., Risk and Return. Indeed, each return on investment is influenced by varying levels of risk. Investors consider Stocks which offer higher returns at comparatively low risk levels. These stocks may be underpriced in the market whereas stocks with less returns at higher risk level may be overpriced and such stocks are eschewed by the investors. A wise investment decision requires proper measurement of both returns and risk. Risks are of two types viz., systematic and unsystematic risks. Unsystematic risk can be eliminated by efficient diversification of investment where systematic also called as market risk cannot be removed through diversification. So, the investment decision should be based on comparison of returns with systematic risk. CAPM helps the investors in identifying stocks best suited for their investment by measuring actual returns, expected returns and Systematic risk. This study makes an endeavour to employ the Capital Asset Pricing Model (CAPM) on a portfolio of 30 stocks listed on the Bombay Stock Exchange, with the aim of identifying stocks that might be undervalued or overvalued. When stocks offer returns additional than expected, they are underpriced otherwise they are overpriced or fairly priced. Underpriced stocks are seemly for long period investment as they offer high returns in the long period. The study found that 15 out of 30 Stocks are considered underpriced and potentially suitable for long-term investment viz., Axis Bank Ltd., Bajaj Auto Ltd., Bajaj Finance Ltd., Hindustan Unilever Ltd., Housing Development Finance Corporation Ltd., Infosys Ltd., Kotak Mahindra Bank Ltd., Reliance Industries Ltd., Tata Consultancy Services., Tata Steel Ltd., Vedanta Ltd., Yes Bank Ltd., HDFC Bank Ltd., IndusInd Bank Ltd., Maruti Suzuki India Ltd.

Copyright

© 2024 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - V. Bheemeswara Reddy
AU  - N. Harish
PY  - 2024
DA  - 2024/02/20
TI  - Risk–Return Analysis of Selected Equity Stocks Listed in Bombay Stock Exchange Using Capital Asset Pricing Model
BT  - Proceedings of the 3rd International Conference on Reinventing Business Practices, Start-ups and Sustainability (ICRBSS 2023)
PB  - Atlantis Press
SP  - 375
EP  - 388
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-374-0_33
DO  - 10.2991/978-94-6463-374-0_33
ID  - Reddy2024
ER  -