Author: Vaishnavi More
Introduction
Vedanta Limited is a diversified natural resources company engaged in exploring, extracting, and processing minerals and oil & gas. The company produces zinc, lead, silver, copper, iron ore, aluminum, and commercial energy. Vedanta operates globally, with significant operations in India, South Africa, Namibia, and Australia. Its integrated business model spans the entire value chain of exploration, asset development, extraction, and processing. Vedanta is committed to sustainable development and aims to create long-term value for its stakeholders.
Objective
To determine the beta of Vedanta Limited and assess its significance in relation to the Nifty50 index.
Literature Review
Stock Market Volatility and Beta Estimation
Fama and French (1992) studied how stock returns are related to market beta (a measure of a stock’s risk in relation to the overall market). They found that beta is important in predicting expected stock returns. In simple terms, beta helps to understand how much a stock’s price moves compared to the market. If the market goes up or down, beta shows how much the stock is likely to go up or down in response.The study emphasizes that accurately estimating beta is important for portfolio management and risk assessment. If we get beta wrong, it could affect how we manage investments or assess the risk of a stock.
Impact of Market Indices on Individual Stocks
Roll (1977) studied how market indices (like the S&P 500) affect the performance of individual stocks. He pointed out that a stock’s beta, or its sensitivity to changes in the market, is essential for understanding how risky a stock is. If a stock is highly sensitive to market movements, it could experience more volatility. In simple terms, the study shows that if you understand how a stock responds to market changes (through beta), you can better assess its risk profile—how risky or stable the stock is compared to the market.
Data Collection
Vedanta Ltd and Nifty50 data was download for period 1-1-24 to 31-12-24 and data was
manipulated to find out the Friday closing prices were calculated of Nifty50 = X and Vedanta Ltd = Y, Y was regression on X
Data Analysis
Equation
Y= 0.0120 + 0.8903X
The regression equation describes the relationship between the independent variable (X) and the dependent variable (Y), where Y is influenced by X. The positive coefficient of 0.8903 suggests that for every unit increase in X, the dependent variable is expected to increase by 0.8903 units. However, the R-squared value of 1.62% indicates that only a small portion of the variation in Y is explained by X, implying that other factors significantly influence Y. With 47 observations, the p-value for the slope is 0.3937, which is greater than the conventional threshold of 0.05. This suggests that the relationship between X and Y is not statistically significant at the 5% level. The low R-squared value and high p-value indicate that the independent variable does not have a strong explanatory power in predicting Y, making this regression model weak in establishing a meaningful relationship.
Conclusion
Since the Beta (0.890263) is less than 1, it indicates that Vedanta Limited is preferrable for Long-term investment.
References:
Fama, E. F., & French, K. R. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance, 47(2), 427-465.
Roll, R. (1977). A Critique of the Asset Pricing Theory’s Tests Part I: On Past and Potential Testability of the Theory. Journal of Financial Economics, 4(2), 129-176.