Title: Relationship of NIFTY 50 with Siemens Limited
Author: Savita Singh
Introduction:
This study examines the relationship between the NIFTY 50 index and Siemens Limited, focusing on the systematic risk associated with Siemens’ stock returns. As Siemens Limited is a prominent engineering and technology company in India, its performance is expected to reflect broader market movements to some extent. The research applies the Capital Asset Pricing Model (CAPM) framework to analyze how Siemens’ returns respond to changes in the market index. By estimating beta through regression analysis, the study evaluates whether Siemens Limited behaves as an aggressive, defensive, or market-aligned stock and assesses the significance of market risk in explaining its return movements.
Objective:
Calculation of beta of Siemens Limited and observe its significance
Literature Review:
View 1: Saniya Marwah (2022) – Relationship between Firm’s Financial Performance and Share Prices: Evidence from Oil and Gas Sector India
The study examined the relationship between share prices and financial performance of major listed firms using secondary data over a twelve-year period. A descriptive research design was adopted, and correlation analysis was applied to examine the association between share prices and financial indicators such as EPS, ROCE, RONW, and Net Profit Ratio. The findings revealed both positive and negative relationships, with varying degrees of statistical significance. The study highlighted that efficient financial management plays a crucial role in enhancing shareholder value and influencing stock price movements.
View 2: Daniel Casado Ginard (2024) – Econometric Analysis of the Evolution of Market Risk Premium
This research applied econometric techniques to examine the evolution of risk premiums using the CAPM framework. The study demonstrated that individual stock returns are significantly influenced by overall market movements, though the degree of sensitivity varies across firms. Regression analysis confirmed that beta serves as a key indicator of systematic risk, while intervention analysis and residual diagnostics ensured the robustness of the model. The study concluded that stocks with higher beta values tend to be more volatile and responsive to market fluctuations.
Data Collection:
The data for NIFTY 50 and Siemens Limited were obtained from secondary sources. Weekly closing prices were used to calculate weekly returns. The period covered includes 48 weekly observations. Weekly returns were calculated using the formula:
Weekly
Return=Yt+1–YtYt×100
The weekly returns of the NIFTY 50 were taken as the independent variable (X), and the weekly returns of Siemens Limited were taken as the dependent variable (Y). A linear regression model was applied by regressing Y on X.
Data Analysis:
Siemens Returns=2.5646+2.0145(NIFTY 50)
o The regression analysis is based on 48 weekly observations. The beta coefficient (β) of Siemens Limited is 2.0145, which indicates a strong positive relationship between Siemens’ stock returns and market returns.
o The beta value greater than 1 signifies that Siemens Limited is an aggressive stock, meaning its returns are more volatile than the market. A 1% change in NIFTY 50 returns leads to an average change of approximately 2.01% in Siemens’ returns.
o The t-statistic (2.16) and p-value (0.036) indicate that the beta coefficient is statistically significant at the 5% level. This confirms that market movements have a meaningful impact on Siemens’ stock returns.
o The R-square value of 0.092 suggests that approximately 9.2% of the variation in Siemens’ returns is explained by movements in the NIFTY 50 index. Although the explanatory power is moderate, the F-statistic (4.664) with a significance value of 0.036 confirms that the regression model is statistically significant.
Conclusion:
o The study reveals a positive and statistically significant relationship between Siemens Limited’s returns and the NIFTY 50 index. The estimated beta coefficient of 2.0145 indicates that Siemens Limited is highly sensitive to market movements and carries higher systematic risk compared to the market. This aggressive nature implies that Siemens’ stock is likely to outperform the market during bullish phases but may underperform during market downturns.
o Despite a relatively modest R² value, the significant beta and F-statistic validate the applicability of the CAPM framework for Siemens Limited. Overall, Siemens Limited demonstrates strong market dependence, making it suitable for investors with higher risk appetite seeking amplified returns in favorable market conditions.
References:
o Saniya Marwah. (2022). Relationship between Firm’s Financial Performance and Share Prices: Evidence from Oil and Gas Sector. Book: A Flourishing Digital Era: Innovations in Industry, Education, Management and Society, Volume I – 2022.
o Daniel Casado Ginard. (2024). Econometric Analysis of the Evolution of Market Risk Premium. Revista de Economia y Finanzas (REyF), Vol. 2, No. 4 (January–April 2024).