Title: Relationship of South Indian Bank Limited with NIFTY
Author: Suman Katkuri (010011)
Introduction: South Indian Bank Limited (SIB) is a major private sector bank headquartered at Thrissur in Kerala, India. It provides retail and corporate banking, Para banking activities, such as debit card, third-party product distribution, in addition to Treasury and Foreign Exchange Business. The financial performance is average as price return has been average, also valuation and growth is low but the profitability is high.
Objective: Calculation of beta of South Indian Bank and significance
Literature Review:
1) Regression Analysis with NIFTY 50 index.
The study found that inflation rate and money supply have a significant impact on the Nifty 50 index. Specifically, an increase in inflation rate and money supply led to an increase in the Nifty 50 index. The study also found that the exchange rate has a negative impact on the Nifty 50 index, meaning that an increase in the exchange rate led to a decrease in the Nifty 50 index. However, the interest rate was found to have an insignificant impact on the Nifty 50 index. Overall, the research suggests that macroeconomic variables such as inflation rate, money supply, and exchange rate can affect the Nifty 50 index. These findings may be useful for investors and policymakers who want to understand the factors that drive the movement of the Nifty 50 index. (Misra & Chakraborty, 2020)
2) The beta in regression analysis
The study aimed to provide an explanation of the concept of beta in regression analysis and to examine its interpretation and usefulness in the context of financial markets. The study found that beta is a useful tool for investors to assess the risk of a particular stock and to construct an efficient portfolio. The authors emphasized that beta measures the systematic risk of a stock, which is the risk that cannot be diversified away through portfolio diversification. The study also noted that beta is sensitive to the selection of the market index and the time period used for estimation. Therefore, investors need to carefully choose the appropriate benchmark index and time period when estimating beta. Overall, the research suggests that beta is a useful measure of systematic risk for investors and can help in constructing efficient portfolios. However, investors need to be aware of the limitations of beta and take them into consideration when using it to assess the risk of a stock. (Jemielniak & Welc, 2014)
Data Collection: Data was collected from yahoo finance site from 1st April 2022 to 31st March 2023, then data was manipulated from Friday closing price and weekly returns were calculated. Weekly return of NIFTY is considered X, weekly return of South Indian bank limited is considered Y, Y was regressed on X
Data Analysis: South Indian bank limited = 1.5+1.16 Nifty Returns
(2.27)
Bracket value = t stat = 2.27
N = 50, R^2 = 0.14, F=5.19, Significance = 0.007
Result – The above equation shows us the relation between Y and X i.e. Nifty and South bank . It is positive means there is a direct relationship which means if X rises Y also rises.
In this equation b = 1.16 , if X rises by 1 units then Y would increase by 1.16 units. As t stat value for b =2.27 which is more than the table value so b is statistically significant at 5 % level. R2 = 0.14 which means 14% Y is explained by X similarly F = 5.19 which is also more than the table value which means overall model is statistically significant at 5% SL.
Conclusion: Beta value is more than 1 it is good for short investment.
References:
Jemielniak, D., & Welc, J. (2014). Beta in Regression Analysis: What Does It Measure. Journal of Applied Finance & Banking, 4(1), 129-143.
Misra, A., & Chakraborty, K. (2020). A Regression Analysis of Nifty 50 Index with Selected Macroeconomic Variables. Journal of Commerce and Accounting Research, 9(3), 6-16. doi: 10.5281/zenodo.4241579