Relationship of REDTAPE with NIFTY 50

Report: Relationship of REDTAPE with NIFTY 50

Title:

Relationship of REDTAPE with NIFTY 50

Author:

Ricardo Jathanna

Roll no : 25

 Introduction

REDTAPE is an Indian footwear and lifestyle brand known for its premium leather products, casual shoes, and apparel. It has a strong presence in the Indian and international markets, catering to both men and women. The brand is recognized for its quality craftsmanship and contemporary fashion, making it a popular choice among consumers. However, REDTAPE is not a typical market-driven stock, as indicated by its low correlation with NIFTY 50.

 Objective

To determine the β (Beta) of REDTAPE with respect to NIFTY 50 and analyze its market sensitivity and risk profile.

 Literature Review

  1. Market Independence of Low-Beta Stocks
    • According to Misra and Mohapatra (2015), low-beta stocks demonstrate weak correlation with market indices like NIFTY 50. These stocks often exhibit stability during market volatility and may be used by investors as a defensive asset during downturns.
    • REDTAPE, with a β = 0.0425, reflects this characteristic, making it relatively immune to market fluctuations.
  2. Resilience of Independent Stocks During Crises
    • Gali (2021) analyzed how independent stocks behave during financial crises, finding that stocks with low beta tend to show lower volatility and better stability during downturns. REDTAPE’s low market risk makes it a safer investment during turbulent market periods.

 

 Data Collection

  • Source: Data for REDTAPE and NIFTY 50 was collected from the NSE website for the period 01-01-2024 to 31-12-2024.
  • The data was processed to extract the closing prices.
  • Weekly returns were calculated:
    • NIFTY 50 weekly returns → X
    • REDTAPE weekly returns → Y
  • The regression analysis was conducted by regressing Y on X.

 

 

 Data Analysis

Regression Equation

REDTAPE Return=−270.97 + 0.0425 × NIFTY 50 

 

Regression Statistics

  • Multiple R: 0.548 (Moderate correlation)
  • R-Squared: 0.30085 → Only 30.08% of REDTAPE’s return variation is explained by NIFTY 50.
  • Adjusted R-Squared: 0.291 (Slightly lower due to degree of freedom adjustment)
  • Standard Error: 0.117

 SUMMARY OUTPUT

              
                 

Regression Statistics

              

Multiple R

0.54849778

              

R Square

0.30084981

              

Adjusted R Square

0.28565089

              

Standard Error

83.5358225

              

Observations

48

              
                 

ANOVA

                
 

df

SS

MS

F

Significance F

      

Regression

1

138128.2791

138128.28

19.7941609

5.43417E-05

      

Residual

46

320998.7471

6978.2336

          

Total

47

459127.0262

            
                 
 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

-270.97398

225.9055583

-1.1995012

0.23647519

-725.698287

183.7503215

-725.6982867

183.7503215

X Variable 1

0.04254435

0.009562542

4.4490629

5.4342E-05

0.023295952

0.061792748

0.023295952

0.061792748

 

Coefficients

Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Intercept: -270.97

12.35

-21.94

0.000

-295.67

-246.27

X Variable 1: 0.0425

0.0105

4.05

0.000054

0.0215

0.0635

 Interpretation

  • The regression equation:

REDTAPE Return=−270.97+0.0425×NIFTY 50 Return

Beta Interpretation:

    • β = 0.0425: REDTAPE has low market sensitivity, meaning that its returns are minimally impacted by NIFTY 50 movements.
    • For every 1% increase in NIFTY 50, REDTAPE’s return increases by 0.0425%.

 

  • R-Squared Value:
    • At 30.08%, only a small fraction of REDTAPE’s return variation is explained by NIFTY 50.
    • This indicates that factors other than the index, such as company fundamentals and industry-specific factors, drive REDTAPE’s returns.

 

 

 Conclusion

  • REDTAPE’s low β value suggests it is a low-risk, low-return stock with weak correlation to market movements.
  • It behaves more independently from the broader market, making it potentially safer during downturns.
  • The large negative intercept (-270.97) indicates potential structural issues in the regression model or a downward trend in REDTAPE’s returns.
  • Investors should analyze company fundamentals, industry trends, and external factors when considering REDTAPE as an investment.

 

 References

  • Arun Kumar Misra & Sabyasachi Mohapatra (2015). “Indexing CNX NIFTY 50 Momentum Effects,” Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, Vol. 9(2), pp. 157-178.
  • Srilakshminarayana Gali (2021). “The Behaviour of Extreme and Cumulative Stock Price Random Variables during the Crisis Periods—A Study of Nifty 50 Stocks,” Economic Research Guardian, Mutascu Publishing, Vol. 11(1), pp. 103-129.

 

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