TITLE: Relationship of Nifty and Steel Authority of India Limited (SAIL)
AUTHOR: Shreya Jain
Introduction
Steel Authority of India Limited (SAIL) is one of the largest steel-making companies in India and one of the Maharatnas of the country’s Central Public Sector Enterprises.
SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials. SAIL manufactures and sells a broad range of steel products.
The government of India owns 65% of SAIL’S equity and retains voting control of the company. However, SAIL, by virtue of its ‘Maharatna’ status, enjoys significant operational and financial autonomy.
OBJECTIVE: To calculate Beta Value of SAIL and find its significance.
VIEWS BY MOTILAL OSWAL FINANCIAL SERVICES :
SAIL has, since the beginning of FY22, reduced its debt by INR162b. However, its market cap has increased by only INR102b. Thus, the market has not rewarded the company even to the extent of debt reduction. We are positive on the steel cycle. We expect China to start stimulating the economy post Olympics. In addition, extending the peak carbon deadline from 2025 to 2030 implies steel production should pick up in China. However, if China refrains from flooding the world with its steel supply, we believe the steel industry is here for another round of price hikes/EBITDA growth. However, coking coal prices have impacted steel margins with all time high coal prices continuing despite softening in steel prices and demand. We note that coking coal price hike is driven by (a) Covid related issues at Australia and (b) prevalence of La Nina for the second consecutive year in Australia which will likely extend till Mar-22 this time (a month more than usual) and can impact coal supplies further, but should ease post Mar-22.
DATA COLLECTION: The data of NIFTY and SAIL was collected through NSE Website and was downloaded from 1-March-2021 to 28-February-2022 in an excel sheet. The closing prices were found out. The data was filtered on weekly basis and then weekly returns of both NIFTY and SAIL was calculated. The company returns have been regressed on nifty’s returns.
DATA ANALYSIS:
Predicted Y = 0.001803+ 0.096034 X
N=47, R Square= 0.135527, F= 6.898041
Tstat(beta)= 2.62641
Tstat (0.05,45)= 2.0141
The above regression equation tells us the relationship between X and Y. Where X is NIFTY’s weekly returns and Y is SAIL’s weekly returns.
The positive sign of Beta tells us the that there is a positive relationship between NIFTY and SAIL’s weekly returns.
From the equation, it can be seen that if X rises by 1 unit, Y will rise by 0.096034 units.
T calculated is more that T tabulated which means, β is statistically significant at 5% confidence level.
R^2 is 0.13353 which means 13% of Y (SAIL) is explained by X. And the balance is explained by error.
F is 6.89 which is more than table value which means model is statistically significant at 5% level.
CONCLUSION:
β is statistically significant in case of NIFTY and SAIL. Also, it can be concluded that SAIL is a low beta share.Since it is less than 1.