Relationship of Nifty 50 with L&T Finance Ltd.

​Relationship of NIFTY 50 with L&T Finance Ltd.

Introduction

L&T Finance Limited (LTF) is a leading non-banking financial company (NBFC) in India and a part of the Larsen & Toubro Group. The company provides a wide range of financial products including rural finance, housing finance, personal loans, and investment management services. With a strong digital focus and diversified lending portfolio, L&T Finance plays a significant role in India’s financial services sector.

As a listed entity, L&T Finance’s stock performance is influenced by both company-specific factors and broader market movements such as the NIFTY 50 index.

 

Objective

The primary objective of this study is to analyse the relationship between L&T Finance Ltd.’s stock returns and the NIFTY 50 indexin order to

• Measure the Beta coefficient of L&T Finance.
• Assess the systematic risk associated with the stock.
• Determine whether L&T Finance behaves as an Aggressive, Defensive, or Neutral stock.
• Understand how much of the stock’s movement is explained by overall market movements.

 

Literature Review

Capital Asset Pricing Model (CAPM):
CAPM explains the relationship between risk and expected return of a security. The formula is:

Ri = Rf + β (Rm – Rf)

Where:

• Ri = Expected return of the stock
• Rf = Risk-free rate
• Rm = Market return
• β (Beta) = Measure of systematic risk

Beta Interpretation:

• β = 1 → Stock moves in line with the market
• β > 1 → Aggressive stock (more volatile than the market)
• β < 1 → Defensive stock (less volatile than the market)

Regression Analysis:
Beta is estimated using linear regression, where:

• Dependent Variable (Y): L&T Finance weekly returns
• Independent Variable (X): NIFTY 50 weekly returns

 

Data Collection

Source:

• Historical weekly data taken from the Excel sheet provided.

Period:

• December 1, 2024 to November 30, 2025

Variables:

• Independent Variable (X): Weekly returns of NIFTY 50
• Dependent Variable (Y): Weekly returns of L&T Finance Ltd.

Frequency:

• Weekly data was used to reduce short-term volatility and capture a clearer trend.

 

Data Analysis

The weekly returns of both NIFTY 50 and L&T Finance were analysed using Ordinary Least Squares (OLS) regression.

Key Regression Results (from Excel):

• Beta: 0.047
• Alpha (Intercept): -0.060
• R-Squared: 0.038
• Observations: 51

Regression Equation:

Y = -0.0609 + 0.0475 X

 

Interpretation of Results

Beta (0.047):
The Beta value is significantly less than 1, indicating that L&T Finance is a highly defensive stock. This means the stock shows very low sensitivity to market movements. A 1% change in NIFTY 50 leads to only a 0.047% change in L&T Finance returns.

Alpha (-0.060):
The negative alpha suggests that L&T Finance underperformed slightly relative to its expected return based on market movements during the study period.

R-Squared (3.8%):
Only 3.8% of the variation in L&T Finance’s returns is explained by NIFTY 50 movements. This indicates that the stock is largely driven by company-specific and sector-specific factors, such as credit growth, asset quality, and interest rate changes.

 

Conclusion

Based on the analysis, L&T Finance Ltd. can be classified as a Defensive Stock.

• The extremely low Beta indicates minimal exposure to overall market risk.
• The low R-squared value shows that market movements have limited influence on the stock.
• Investors should focus more on internal financial performance, lending growth, NPAs, and policy changesrather than general market trends.

L&T Finance may be suitable for risk-averse investors seeking stability rather than aggressive market-linked returns.

 

References

• National Stock Exchange of India (NSE): Historical data for NIFTY 50
• Excel dataset provided for L&T Finance Ltd.
• Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk
• Investopedia – Concepts of Beta and CAPM

 

Leave a comment