Performance of Select Sectoral Indices - A Study of BSE

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Abstract

The Indian equity market barometer BSE Sensex-30 reflects the overall equity market situation but also it indicates the country's economic situation. The present paper has considered the BSE six sectoral indices from the period of 2009 to 2016 years. The performance methods of Sharpe method, Jensen and Eugene fama results indicated that the BSE Bankex returns are superior to the other sectoral indices during the study period. The Terynor performance method result observed the BSE Auto returns are found to be superior to other indices. The Bi-variate correlation result indicates that the Sharpe vs. Eugene fame is having the strong correlation. This paper is useful to the equity investors.

Keywords: Auto Sector, Healthcare Sector , Bankex, CAPM, Eugene Fama, Jensen and Sharpe Method.

Introduction

The investors can generate substantial returns if they can invest for the long-term and who can with stand the high levels of volatility. The higher risk is involved in equity and as a result, investors can expect to receive an added equity premium and way beyond the risk free investments over the long term. Investing in the equity market indices is one way to reduce some of the risks of the individual stock exposure in the equity market while still benefiting from equity market premiums over the long term. The S&P Sensex is one of the market's most widely known indexes for both investment and the return comparison as a benchmark. The components of the S&P Sensex-30 index are based primarily on their market caps, with the index representing the largest capitalization stocks in the India. The individual stocks with greater market capital have the greater impact on the index's returns. Over the long term, the S&P sensex-30 has recorded significant returns for the investors who are holding the investments.

In the global equity markets, the returns of the S&P sensex and the resilience of the Indian economy have proved to outperform most comparable country indexes over the 5, 10 and 20 years periods. Overall, the S&P sensex -30 provides a leading index for the investors both in India and

* Research Scholar, Department of Commerce, Telangana University, Dichpally,Nizamabad -503 322.(T.S)

Performance of Select Sectoral Indices - A Study of BSE

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globally who are seeking equity market exposure with more diversified risk than the single stock investments. The Bombay stock exchange had introduced many indices representing the different sectors. The present paper had focused the returns performance of these sectoral indices with the help of BSE benchmark indicator sensex.

Review of Literature

Hamao (2009) further illustrated that the German stock returns were influenced by the changes in expected inflation and the changes in risk premium and slope of the term structure of interest rates. German stock returns are mainly depend on the three variables i.e., Inflation, Risk premium, term structure of interest rates.

Omkar Nath Bhat (2011) studies the relationship between the Indian stock market of regional market indices over the period of fourteen years from 1971 to 1985 using monthly data. He finds that the regional price indicators respond immediately to the all India index, but different cautions which show that his study is not adequate to conclude the existence of an integrated national market.

Darren Figgit (2016) used multivariate granger-causality test to test the hypothesis in Nairobi and found that stock prices in Nairobi completely reflected all available information on monetary policy moves (macro-economic). Based on granger-causality test, we can define stock prices of Nairobi moves from micro-economic to macro-economic.

Youngoh Yoon and George Swales - (2017) A function which maps inputs to output and encoding it in magnitudes of the weights in the neural network connection is called as the Neural Network Approach. And compared Neural Network technique with Multivariate Distinct Analysis approach Indicated that the Neural Network approach can significantly improve the predictability of stock price performance.

Research Gap: Many research studies and papers have done extensive research on return performance across the world equity market indices. The Indian equity markets exchange leader Bombay Stock Exchange had introduced multiple indices in the recent past and those indices got rated by the S & P. No research has covered the S&P rated BSE indices returns performances measurement. This paper has made an attempt to fill the gap by considering the performance measure tools viz. Sharpe, Treynor, Jensen, Sharpe Differential method, Eugene fame and Capital Asset pricing Model.

Objectives

1. To measure the returns performances of selected Indies of Bombay Stock Exchange.

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Hypothesis of the Study

Null hypothesis - H0: There is no relationship between the returns performances of the selected indices of the Bombay Stock exchange.

Scope of the Study: The present paper has considered the indices from the Bombay Stock Exchange from the period April, 2009 to March, 2016. The paper had focused the performance of the returns for 5 indices along with the BSE bench mark index sensex. They are as follows

• S & P BSE Sensex

• S & P BSE TECK Index

• S & P BSE Auto Index

• S & P BSE Bankex

• S & P BSE Power Index

• S & P BSE Healthcare Index

Research Methodology: The present study has been done based on the secondary data and applied the tools which measures the indices returns performance.

Sharpe: The Sharpe ratio characterizes how well the return of an asset compensates the investor for the risk taken. When comparing two assets versus a common benchmark, the one with a higher Sharpe ratio provides better return for the same risk.

Treynor: A ranking of portfolios based on the Treynor Ratio is only useful if the portfolios under consideration are sub-portfolios of a broader, fully diversified portfolio. If this is not the case, portfolios with identical systematic risk, but different total risk, will be rated the same.

Jensen: To accurately analyze the performance of an investment manager, an investor must look not only at the overall return of a portfolio, but also at the risk of that portfolio to see if the investment's return compensates for the risk it takes.

Eugene Fame: The Fama and French Three Factor Model is an asset pricing model that expands on the capital asset pricing model by adding size and value factors to the market risk factor in CAPM.

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Data Analysis

1. To measure the performances of select Indies of Bombay Stock Exchange.

S & P BSE-TECK

Year Sharpe

Market Sharpe Treynor Index Market Treynor Index Jensen Alpha Sharpe Differential Returns Eugene Total

Return CAPM

2009 -0.0004 0.00008 0.0234 0.0345 0.2187 0.5222 0.75862 0.4938 2010 0.0021 0.00031 0.0684 0.0752 0.4344 0.5546 0.56910 0.5062 2011 0.0037 0.00052 0.2383 0.2248 0.5509 0.5949 0.39420 0.4710 2012 0.0027 0.00042 0.1158 0.1177 0.4375 -0.5596 0.59694 0.5161 2013 0.0025 0.00063 0.4645 0.2919 0.5624 0.8036 0.53595 0.5126 2014 -0.0051 0.00014 0.3415 0.0842 3.6001 0.8196 0.31243 0.5001 2015 0.0355 0.00041 0.0941 0.1018 0.4876 0.5051 0.48468 0.5073 2016 0.0303 0.00042 0.5124 0.0543 3.6447 0.8657 1.29702 0.4952 0.0089 0.00037 0.2323 0.1230 1.2420 0.5133 0.61862 0.5003

Source: Compiled through secondary data

The table result depicts that the index S & P BSE-TECK returns has been measured by the selected performance measure methods for the period of 2009 year to 2016 year. The Sharpe average returns performance (0.0089) had given superior than the market Sharpe average returns performance (0.00037). The Treynor performance measure also followed the footsteps of Sharpe and had given greater returns performance than the market Treynor performance. The Jensen alpha result had given highest returns (1.2420) comparing with other performance measure results. The market returns performance has been measured with the help of Eugene Fama and it had given better returns than the capital asset pricing method (0.61862 > 0.5003).

S & P BSE Auto

Year Sharpe

Market Sharpe Treynor Index Market Treynor Index Jensen Alpha Sharpe Differential Returns Total

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The table of S & P BSE Auto index returns performance results reveals that Sharpe returns had given negative performance (-0.00123) than the market Sharpe performance (0.00037). The Treynor performance of S & P BSE Auto had given higher returns than the market Treynor performance. The Jensen alpha returns had given slightly less performance than the Sharpe differential returns (0.407254 < 0.780054. Eugene Fama of market total returns performance found to be greater than the Capital asset pricing method (0.618617 > 0.49946. The S & P BSE Auto returns performance observed to be positive except Sharpe returns (-0.00123) compared with other performance measure methods.

S&P BSE Bankex

Year Sharpe

Return CAPM 2009 0.00104 0.00008 0.01154 0.01517 0.30914 0.48939 0.75862 0.49185 2010 -0.00124 0.00031 0.03482 0.06716 -0.28523 0.52939 0.56910 0.50132 2011 0.00219 0.00052 -0.42533 -0.28504 0.53880 0.81953 0.39420 0.49813 2012 0.01013 0.00042 0.21524 0.26244 -0.38659 0.51126 0.59694 0.51043 2013 0.01439 0.00063 0.03037 -0.04309 0.38359 0.51054 0.53595 0.51253 2014 0.03647 0.00014 0.07056 0.01470 2.94323 0.56220 0.31243 0.50095 2015 -0.00561 0.00041 0.06452 0.05250 0.54887 0.55706 0.48468 0.50869 2016 0.01995 0.00042 0.47194 0.06010 1.94164 0.88447 1.29702 0.48926 0.00966 0.00037 0.05921 0.01799 0.74918 0.60798 0.61862 0.50165

The table shows that S&P BSE Bankex returns performance from the year 2009 to 2016 year. The S&P BSE Bankex Sharpe average returns performance (0.00966) is observed to greater than the market Sharpe average performance (0.00037). The Trynor returns performance of S&P BSE Bankex also performed (0.05921) greater than the market Treynor performance (0.01799). The Jensen alpha average returns performance (0.74918) found to be greater than the Sharpe differential returns. The Eugene Fama total returns performance (0.61862) able to perform better than the Capm returns performance (0.50165).

S&P BSE Power Index

Year Sharpe

Return CAPM

2009 -0.0000273 0.00008 0.001318 0.031444 0.015076 0.501226 0.758623 0.4872

2010 0.0052346 0.00031 0.520949 0.408929 0.522073 0.542049 0.569103 0.534659

2011 0.0059734 0.00052 -0.08105 0.082833 0.537768 0.550331 0.394201 0.539617

2012 0.0027797 0.00042 0.559718 0.590454 -0.42714 0.554778 0.596938 0.502702

2013 0.0041671 0.00063 0.143447 0.14622 0.475623 0.570776 0.535948 0.524192

2014 0.0027733 0.00014 0.553197 0.129606 4.210698 1.146739 0.312427 0.519481

2015 0.0003532 0.00041 0.155997 0.236444 -0.39439 0.761381 0.484682 0.503283

2016 0.0002911 0.00042 0.04587 0.09919 0.224898 0.408635 1.297015 0.487863

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The table indicates the S&P BSE Power Index returns performance for the period of 2009 year to 2016 year. The Sharpe returns average performance is found to be greater than the market Sharpe average returns performance i.e., 0.00269 > 0.00037. The Treynor performance measure result reveals that stock returns performance (0.2374) is superior to the market Treynor average returns performance (0.21564). The Jensen alpha returns performance found to be slightly greater than the Sharpe differential returns. The Eugene Fama returns performance (0.618617) than the capital asset pricing method performance (0.512375).

S&P BSE Healthcare

Year Sharpe

Market Sharpe

Treynor Index

Market Treynor Index

Jensen Alpha

Sharpe Differential Returns

Total

Return CAPM

2009 0.000564 0.00008 -0.01754 0.024897 -0.2262 0.516768 0.758623 0.50512

2010 -0.00345 0.00031 0.305464 0.304233 0.461784 0.539666 0.569103 0.503499

2011 0.002235 0.00052 0.123639 0.169339 0.467827 0.57492 0.394201 0.515771

2012 0.00466 0.00042 0.123437 0.093548 0.514908 0.563316 0.596938 0.500435

2013 0.003165 0.00063 0.176016 0.179366 0.475702 0.588319 0.535948 0.487458

2014 -0.00201 0.00014 0.108183 0.082506 -0.53953 0.584164 0.312427 0.49524

2015 0.002355 0.00041 0.188488 0.1824 0.5152 0.596209 0.484682 0.483542

2016 0.00264 0.00042 0.631346 0.096876 0.65025 -1.50095 1.297015 0.51086

0.00127 0.00037 0.204879 0.141646 0.289993 0.307801 0.618617 0.500241

The table shows the S&P BSE Healthcare returns performance measure for the period of eight years i.e., 2009 to 2016. The Sharpe average returns had over performed than the market Sharpe average returns performance (0.00127 > 0.00037). The S&P BSE Healthcare Treynor had given efficient returns performance than the market Treynor average returns performance (0.204879 > 0.141646). The Sharpe differential returns had given superior performance than the stock Jensen alpha returns (0.307801 > 0.289993). The Eugene Fama market total returns performance had crossed the capital asset pricing method (0.61862 > 0.500241).

2. To measure the relationship between the performances of the select Indices of Bombay Stock Exchange.

Indices Sharpe Rank Treynor Rank Jensen Rank Eugene Rank CAPM Rank

S&P BSE TECK 0.0089 2 0.23 23 3 1.242 5 0.61862 1 0.5003 3

S&P BSE AUTO -0.001 23 5 0.299198 1 0.407254 3 0 .618617 2 0.49946 5

S&P BSE Bankex 0.0 0966 1 0.05921 5 0.74918 1 0.61862 1 0.50165 2

S&P BSE Power 0.0026 93 3 0.237431 2 0.645576 2 0 .618617 2 0.5 12375 1

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The above table depicts the BSE exchange six sectoral indices returns performances for the period of eight years. The performance measure returns average value indicates that the Jensen method (0.666801) return performance is high performance and followed by the Eugene fame (0.618618) and CAPM (0.502805). The Sharpe method returns performance had given least performance (0.004259).

Performance Methods Correlation

1 Sharpe Vs. Treynor -0.71591 2 Sharpe Vs. Jensen 0.802002 3 Sharpe Vs. Eugene 0.954637 4 Sharpe Vs. CAPM -0.06572 5 treynor Vs. Jensen -0.1619 6 Treynor Vs. Eugene -0.62189 7 Treynor Vs. CAPM 0.049475 8 Jensen Vs. Eugene 0.811314 9 Jensen Vs. CAPM 0.011894 10 Eugene Vs. CAPM -0.30898

The above table of the correlation between the performance methods reflecting that the Sharpe vs. Eugene fame is reflected the strong correlation (0.954637). The Sharpe vs. Jensen and Jensen vs. Eugene fame relationship is found to be positively strong (0.802 &0.811). The correlation analysis result reveals that the 50% of the performance methods are having negative relation and 50% are having positive relation between them.

Findings of the Study

1. The sharpe method result states that the S&P BSE Bankex index returns performance (0.00966) is found to be superior than other indices returns performance.

2. The Treynor performance method result indicates that the S&P BSE Auto sector index performance (0.2991) is found to be good. The Bankex index return performance according to the Treynor performed last.

3. The Jensen method result indicated the BSE bankex returns performed (0.74918) superior compared with other indices. The Jensen, Eugene (0.61862) and Sharpe method reflected the Bankex index returns.

4. The CAPM analysis results indicated that the BSE Power index returns performance (0.5123) is found to be superior to the other sectoral indices performance.

5. The correlation between the performance methods reflecting that the Sharpe vs. Eugene fame is having the strong correlation (0.954637).

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Conclusion of the Study

The study concludes the titled "The Returns Performance of the Select Sectoral Indices of BSE India" for the period of 2009 to 2016. The paper had considered the six sectoral indices from the BSE exchange and measured the returns performance with the help of five different methods of performance measures. The BSE bankex index returns are found to be superior by the majority of the performance methods comparing with other sectoral indices of the BSE. The relationship between the performance methods also found to be positive. Hence there is need to do the further research on the returns performance by considering the economic factors influence, so that the equity market investors can take inform decision.

References

1. Hamao (2009): The Earnings Game with Behavioral Investors, https://papers.ssrn.com/sol3 /papers. cfm?abstract_id=1101505

2. Omkar P. Bhat (2011): A Study on Performance Evaluation of Selected Equity Mutual Funds.

raijmr.com/wp-content/uploads/2014/11/5_34-88-Priyanka-G.-Bhatt-et-al..pdf

3. Darren Figgit (2016): Herd Behavior and Mutual Fund Performance - Informs Pubs,Online

pubsonline.informs.org/doi/abs/10.1287/mnsc.2016.2543

4. Youngoh Yoon and George Swales - (2017): Mutual fund landscape 2017 - Dimensional Fund Advisors,https://hub.dimensional.com/exLink.asp?17544000OU12W18I5026700