Title: Relationship of NTPC Limited with NIFTY
Author: Nayan Vijay Padole
Introduction: NTPC Limited, formerly known as National Thermal Power Corporation, is an Indian Public sector undertaking, which is engaged in generation of electricity and allied activities. It is the largest power company in India with an electric power generating capacity of 53,651 MW. Although the company has approx. 16% of the total national capacity it contributes to over 25% of total power generation due to its focus on operating its power plants at higher efficiency levels.
Objective: Calculation of Beta of NTPC Limited and its significance
Literature Review:
Trend analysis of share prices for the period 2015 – 2017 revealed that for NTPC, increased profit affected its average share prices in a positive manner. Income and profit for this company were higher in 2016-17 than the previous year. Average share prices were also found to be higher in 2016-17. Hypothesis testing of the effect of profit on share prices for NTPC for the period 2005 – 2017 revealed that profit had a significant effect on share prices for NTPC. (Bakshi,2018)
Beta appears to be a relevant risk factor only for short-term and more active investors. Over longer horizons, high beta portfolio’s significant losses during volatile periods offset their outperformance in low volatility environments. These losses s cause the long-run beta-return relationship to break down due to the simple mathematics of compounding. Although the long-term empirical relationship between beta and returns appears to be non-existent, part of the reason could be due to beta drift after creating portfolios. (Trainor, 2012)
Data Collection: Data was collected from Yahoo Finance Historical Data from 31st March 2022 to 1st April 2023, then Data was manipulated by Friday closing price. After that weekly return for Nifty and NTPC Ltd. Was calculated which was written as X &Y respectively. By doing regression through data analysis.
Data Analysis:
NTPC Return (Y) = 0.472 + 0.616 Nifty Return (X)
(2.818)
N = 50, R^2 = 0.142, F = 7.944, Significance F = 0.0069, Beta = 0.616
The above equation shows the relationship between Nifty return and NTPC. Positive sign (+) means there is a direct relationship which mean if X rises, Y also rises & vice versa.
In this equation b = 0.616 if X rises by 1 unit, demand Y will rise by 0.616 units. T-stat for b is more than table value so, b is statistically significant at 5% level.
R^2 = 0.142 which means 14.2% of Y explained by X, similarly F is 0.0069 which is also more than table value means overall value is statistically significant at 5% level.
Conclusion: Since it can be seen that value of b (Beta ) is less than 1 which implies that NTPC Ltd. is stable. So, NTPC Ltd. is good for long term investment.
Reference:
Ravi Kumar Bakshi, 2018. “Impact of Profitability on Share Prices”, International Journal of Research and Analytical Reviews, Volume 5, Issue 4, October 2018, Meerut
William J. Trainor, 2012. “Volatility and Compounding Effects on Beta and Returns,” The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(4), pages 1-11.