Relationship of NIFTY 50 with Reliance Industries Limited
Author: Rutik Hutke
Introduction:
Reliance Industries Limited (RIL) is one of India’s largest and most diversified conglomerates, with businesses spanning energy, petrochemicals, retail, and digital services. Founded in 1966 by Dhirubhai Ambani, the company is headquartered in Mumbai and plays a significant role in India’s economic growth. Reliance has a consistently high market capitalization, making it a key constituent of the NIFTY 50 index. Due to its large weight in the index, movements in Reliance Industries’ stock have a strong influence on the overall performance of NIFTY 50.
Objective: Calculation of Beta and observe its significant.
Literature Review:
Dr. G. Lakshmi et.al (2021), conducted a study titled A Study on the Financial Analysis of Reliance Industries Limited, analyzing the company’s financial performance over five years. The study primarily focuses on liquidity, profitability, and turnover rates using ratio analysis. The findings indicate that while RIL has shown consistent profitability growth and efficient asset utilization, its liquidity ratios remain below the ideal benchmarks, suggesting potential short-term financial challenges. The study highlights that RIL effectively manages inventory and receivables, contributing positively to its overall financial health. However, the authors recommend that the company should implement strategies to improve its liquidity position to ensure financial stability. They suggest optimizing working capital management and reassessing credit policies to strike a balance between liquidity and profitability. By doing so, RIL can maintain its competitive edge while strengthening its financial resilience.
Impact of Reliance Industry Stock Price on NIFTY 50 – Granger Causality Test” by Abhijit Biswas (2018): This study examines the causal relationship between RIL’s stock prices and the NIFTY 50 index using the Granger causality test. Analyzing daily closing prices from 2008 to 2018, the research indicates that changes in RIL’s stock price can predict movements in the NIFTY 50, suggesting a unidirectional influence from RIL to the index.
Data Collection:
Historical data of Reliance Industries Limited (RIL) and NIFTY 50 was downloaded from NSE India. Friday closing prices were found and weekly returns were calculated. Weekly returns of NIFTY 50 were taken as X and weekly return of Reliance Industries Limited (RIL) were taken as Y. Y was regressed on X.
Data Analysis:
Equation = 0.037 + 0.449
N = 48 | R square = 0.554 | F = 57.24 | P value = 1.30 × 10⁻⁹
The above equation explains the relationship between the returns of Reliance Industries (dependent variable) and market returns (independent variable). The positive coefficient of the market return indicates a positive relationship between market movements and Reliance returns. This implies that when market returns increase by 1 unit, the return on Reliance increases by approximately 0.45 units, and vice versa.
The t-statistic for Beta (β) is 7.57 and the corresponding p-value is 1.30 × 10⁻⁹, which is less than 0.05. Hence, Beta is statistically significant, indicating that market returns have a significant impact on the returns of Reliance Industries at the 5% level of significance.
The R-square value of 0.554 indicates that approximately 55.4% of the variation in Reliance returns is explained by market returns, while the remaining variation is due to other firm-specific and external factors. The F-statistic value of 57.24 with a p-value less than 0.05 confirms that the overall regression model is statistically significant.
Conclusion:
The regression analysis reveals a statistically significant positive relationship between market returns and the returns of Reliance Industries. Market movements explain a substantial portion of the variation in Reliance’s returns, indicating strong market dependence. The significant beta value confirms that changes in market returns have a meaningful impact on Reliance’s performance, though the stock exhibits defensive characteristics. Overall, the model is reliable and highlights the importance of market trends in influencing Reliance Industries’ stock returns.
Reference:
Lakshmi, G., Banu, et al (2021). A study on the financial analysis of Reliance Industries Limited. International Journal of Advanced Research, 9(05), 149-161.)
Biswas, A. (2018). Impact of Reliance Industry stock price on NIFTY 50 – Granger causality test. ResearchGate. https://www.researchgate.net/publication/329058963_Impact_of_Reliance_Industry_Stock_Price_on_NIFTY_50-Granger_Causality_Test