TITLE: Relationship Between Nifty & COAL India Equity
AUTHOR: Chaitra Swadi
INTRODUCTION OF THE COMPANY
Coal India Limited (CIL) is an Indian central public sector undertaking under the ownership of the Ministry of Coal, Government of India. It is headquartered at Kolkata. It is the largest government-owned-coal-producer in the world. It is also the ninth largest employer in India with nearly 272,000 employees.
The PSU contributes around 82% to the total coal production in India. It produced 554.14 million tons of raw coal in 2016–17, an increase from its earlier production of 494.24 million tons of coal during FY 2014–15 and earned revenues of ₹95,435 crore (US$12 billion) from sale of coal in the same financial year. In April 2011, CIL was conferred the Maharatna status by the Government of India, making it one of the seven with that status. As of 14 October 2015, CIL is a PSU owned by the Central Government of India which controls its operations through the Ministry of Coal. As of 14 October 2015, CIL’s market capitalisation stood at ₹2.11 lakh crore (US$26 billion) making it India’s 8th most valuable company.
CIL ranks 8th among the top 20 firms responsible for a third of all global carbon emissions.
OBJECTIVE: To Calculate Beta and its Significance
VIEWS/REVIEWS:
Brokerage analysts are turning more bullish on Coal India on the back of continued power demand, capital investments and lack of renewable energy.
According to Moneycontrol’s Analyst Tracker as of January 1, out of the total of 23 analysts tracking Coal India, the number of ‘Buy’ calls has increased quarter-on-quarter to 18 from the previous 15. ‘Sell’ and ‘Hold’ calls on the coal stock have reduced to 1 and 4 ( from a previous 2 and 5), respectively. The average 12-month target price is Rs 355.68..
Another reason for the rising analyst confidence in Coal India stock has been the Q2 financials. In Q2 FY24, Coal India reported a 13 percent year-on-year increase in consolidated net profit at Rs 6,814 crore, mainly due to power demand and output boost, along with a weak monsoon. Revenue for the same period also grew 10 percent year-on-year to Rs 32,776 crore.
DATA COLLECTION:
- Firstly, I visited the NSE website.
- Then I clicked on the Historical data option under the Data and Reports section.
- I downloaded the data of COAL India and nifty 50 index from 1st November,2022 to 31st October 2023 in excel format.
In the end, I sorted the data in excel for Analysis.
DATA ANALYSIS:
The regression equation has the form.
Y= a+ b*x
Where, Y is the dependent variable, X is the independent variable, a is the intercept and b is the slope.
In our case, COAL India is the dependent variable and Nifty 50 is the independent variable.
Intercept, a = 0.002997298
Slope, b = 1.091779708
So, the regression equation is given by-
Y (COAL India) = 0.002997298 +1.091779708 *X (Nifty50)
The above equation shows us the relationship between COAL India and Nifty. Positive sign indicates that if the Nifty rises then the price of COAL India will also rise and vice versa. If Nifty rises by 100 Points, then COAL India shares will rise by 109.
T-stat for b(Co-efficient of Nifty) is 2.787498869 and the P value is 0.007640833 which means that the coefficient of Nifty is significant at the 0.05 level, as the p-value is less than 0.05. This implies that Nifty has significant effect on COAL India and the relationship between them is strong.
The number of observations is 49. R^2 is 0.141868334 which indicates that the model explains 141% of the variation in the price of COAL India. This means that the model is very good for the data, and there are no other factors that affect the price of COAL India.
Conclusion:
Beta(β): for our case is 1.091
A beta of 1.091 for the above Nifty and COAL India regression model indicates that the price of COAL India is more Volatile than the price of Nifty 50. It means that for every 1% change in Price of Nifty 50, the price of COAL India will change by 1.091%. It also means that COAL India has lower risk and expected higher return. So, an investor can invest in COAL India for short term and long term as well.
