Regression Analysis of weekly Returns between NIFTY50 and Piramal Enterprises Limited (PEL).
Title: Regression Relationship of Piramal Enterprises Limited (PEL) with NIFTY50.
Author: Palak Agrawal
Introduction:
Piramal Enterprises Limited is a diversified conglomerate headquartered in Mumbai, India. It was founded in 1984 by Ajay Piramal and has operations in various sectors, including pharmaceuticals, financial services, real estate, and healthcare information management. Piramal Enterprises Limited is known for its strong presence in the pharmaceutical industry, with a focus on research and development, manufacturing, and marketing of pharmaceuticals globally. The company has also made significant acquisitions and partnerships in the financial services and real estate sectors, expanding its portfolio and market presence. Piramal Enterprises Limited is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India.
Objective: To understand the regression relationship between average weekly returns of NIFTY50 and Piramal Enterprises Limited (PEL).
Literature Review:
1. The pharmaceutical industry – The substantial amount of research on the economics of the pharmaceutical sector is surveyed in this Handbook chapter (with peripheral attention paid also to regulated medical devices). The pharmaceutical industry is one of the most research-intensive in the world, producing a steady stream of innovative medications that improve quality of life and save lives. Over time, the method of finding new medications has changed from being largely empirical to being heavily reliant on basic scientific understanding. Profit-driven manufacturers and providers of basic research, such universities and government laboratories, have developed strong connections. Most industrialised countries have strict regulations governing the safety and effectiveness of new pharmaceutical medicines, which raises the price of clinical testing. Patent protection is extremely significant due to the considerable costs associated with research, development, and clinical testing, as well as the risk of product imitation once it has been proven effective. Intense policy disagreements have resulted from the Uruguay Round Treaty obligations that extend patent protection to third-world countries. Patents, first-mover advantages, and the absence of suitable alternatives for important new pharmaceuticals frequently result in enormous monopolistic power, to which many national governments have responded with a variety of price control strategies. Yet, generic alternatives frequently bring up fierce price competition when patents expire. The extent to which generic pharmaceuticals displace branded original drugs on the market is influenced by government regulatory laws, health insurers’ payment plans, and the structure of organisations that deliver healthcare. (F.M. Scherer, 2005)
2. We give a summary of the most recent findings in operations research for the financial services industry. Beginning with a few key operational characteristics that set financial services apart from other service sectors, we next analyse how these characteristics impact financial services modelling. Then, we go into greater detail about the various financial services research fields, including system design, productivity analysis, forecasting, inventory management, cash management, waiting line analysis for capacity planning, staffing, operational risk management, pricing and revenue management. The most exciting areas for future research are discussed in the final section. (Emmanuel D. (Manos) Hatzakis, 2010)
Data Collection:
The closing price data of Nifty50 and Piramal Enterprises Limited (PEL) was taken from www.nseindia.com (National Stock Exchange) for the time period 1ST APRIL 2022 to 31ST MARCH 2023.
From the available data, the closing rates of all the Fridays in the year was sorted to find out weekly returns for both Nifty as well as Polycab then the weekly returns were calculated for both by using formula – Weekly return = (C3-C2)/C2 *(100) Where C3 represent week closing price and C2 is previous week closing price. Once the data is calculated, weekly return column for NIFTY50 is considered as “X” variable and the weekly returns column for Polycab India Limited (PEL) is considered as “Y” variable.
Data Analysis:
We can write the equation in the form of Y= a+b(X)
Where, Y= Piramal Enterprises Limited Returns
X=Nifty-50 Returns
a=intercept and b=Slope
Hence, the equation become,
Y= (-1.805070405) + 1.766239871*X
Piramal Enterprises Limited returns = (-1.805070405) +1.766239871*(Nifty-50 Return)
(t-stat =3.167039)
N=51 R2=0.169915531 and F=10.03014
The above equation shows the relationship between X and Y (As b is positive) means there is a direct relationship which implies that is X rises, Y also rises and vice versa. In this equation b =1.76, that is if X rises by 1 unit, Y will rise by 1.76-unit, t-stat for b is greater than critical value, so b is statistically significant at 5% significance level.
R^2 = 0.169915531 which means only 16.9% of Y i.e., Piramal Enterprises Limited weekly returns is explained by X i.e., Nifty returns.
Similarly, F = 10.03014, which is also greater than table value.
And p-value is greater than 0.05, so the model is statistically significant at 5% level of significance.
Conclusion:
As, beta (b) is more than 1, which implies Piramal Enterprises Limited is good for short term investment.
References:
F.M. Scherer, 2005. Handbook of Health Economics, The pharmaceuticals Industry, Volume 1, Part B, 2000, Pages 1297-1336, April 2005, Harvard University.
Emmanuel D. (Manos) Hatzakis, Suresh K. Nair, Michael Pinedo (2010), Production and Operations management, Operations in Financial Services, Volume 19, Issue 6, Novemeber/December 2010, pages 633-644.