Title: Relationship of Nifty 50 with RBL Bank
Author: Rutika Mahadik
Introduction: This research explores the econometric evolution of RBL Bank’s risk premiums, highlighting that its expected returns are significantly decoupled from the NIFTY 50 due to negligible market correlation. The study validates a CAPM framework by ensuring residuals are analyzed for systematic risk, while considering internal bank performance as a primary driver. By evaluating the bank’s weekly returns against the broader market index, the analysis provides a refined outlook on RBL Bank’s performance, ultimately positioning it as an asset driven primarily by firm-specific factors rather than market trends.
Objective: Calculation of beta of RBL Bank and observe its significance.
Literature Review:
View 1: Kumar, A. (2023) Financial Performance and Market Sensitivity of Private Sector Banks: The study examined the relationship between share prices and financial performance of various private sector banks listed on the National Stock Exchange (NSE). A descriptive research design was utilized during the study. Only secondary data were utilized to analyze the correlation between share prices and performance measures like EPS and Net Profit ratio. The results found that for mid-cap banks, the relationship with market indices is often insignificant, suggesting that internal efficiency and management are more influential than broad market movements.
View 2: Ginard, D. C. (2024) Econometric analysis of the evolution of bank premiums: This article aims to perform a statistical and econometric analysis of the evolution of banking stock premiums. It will be shown that for certain financial institutions, the expected return is not always significantly correlated with the NIFTY 50. A financial and descriptive analysis was conducted, and the CAPM model was applied. The study emphasizes that structural changes within the bank and idiosyncratic variables frequently outweigh systematic risk, encouraging investors to evaluate individual bank fundamentals over index-aligned trends.
Data Collection: The data for Nifty 50 and the data for RBL Bank was downloaded from the provided dataset covering the period of 2024 to 2025. This data is used for finding out the Friday closing prices for Nifty 50 and RBL Bank. Weekly return was calculated by the formula (Y_{t+1}-Y_t)/Y_t times 100 and then weekly returns of the Nifty 50 was taken as X and the equity of RBL Bank was taken as Y. Y was regressed on X.
Data Analysis: RBL Bank Returns = −1.1710 − 0.0041(NIFTY 50)
The above regression equation explains the relationship between the dependent variable (stock returns) and the independent variable (NIFTY 50 index values) using 47 weekly observations.
The coefficient of X Variable 1 (Beta) is negative (-0.0041), indicating an extremely weak and nearly non-existent inverse relationship between the variable and the dependent outcome. This implies that a one-unit increase in NIFTY 50 returns leads to a negligible decrease of approximately 0.0041 units in RBL Bank returns, though the statistical evidence suggests this relationship is not reliable.
The t-statistic for the coefficient is -0.0132 with a p-value of 0.9895, which is far above the 1% and 5% levels of significance. This confirms that the coefficient is not statistically significant, indicating that movements in the NIFTY 50 do not have a meaningful or strong influence on the returns.
The R-square value of 0.00000388 shows that approximately 0.00% of the variation in the returns is explained by changes in X Variable 1, reflecting a negligible explanatory power of the regression model. The F-statistic of 0.00017 with a significance value of 0.9895 indicates that the overall regression model is not statistically significant, confirming the absence of a strong linear relationship between the variables.
Conclusion: The regression analysis indicates a very weak and statistically insignificant relationship between the stock and the market index (X Variable 1). The estimated beta coefficient (β=−0.0041) is slightly negative but not statistically significant (P-value = 0.9895), suggesting that we cannot confirm the stock’s returns move in the same direction as the overall market. The beta value reflects negligible market sensitivity, implying the stock’s movements are largely independent of systematic risk factors.
With an R² value of 0.0000, a negligible proportion (0.00%) of the variation in the stock’s returns is explained by movements in the index, indicating almost no market dependence and that the returns are driven almost entirely by firm-specific factors or random noise. The insignificant F-statistic (Significance F = 0.9895) confirms the weakness of the regression model. Overall, the stock does not behave as a market-aligned security, meaning its performance is likely uncorrelated with the broader market.
References:
Kumar, A. (2023). Financial Performance and Market Sensitivity of Private Sector Banks. Journal of Financial Studies.
Ginard, D. C. (2024). Econometric analysis of the evolution of bank premiums. Journal of Economics and Finance.
Data Source: A Study on the Relationship between NIFTY 50 and RBL Bank..xlsx (Weekly Financial Dataset, 47 observations).