Author: Amitava Ashok Sharma
Introduction
Aarti Pharmalab Limited is an Indian pharmaceutical company engaged in the manufacture of active pharmaceutical ingredients (APIs) and specialty chemicals. The company caters to both domestic and international markets and plays an important role in the pharmaceutical supply chain. Like other listed companies, the return of Aarti Pharmalab Limited is influenced by overall market movements. Therefore, it is important to study the relationship between the company’s stock returns and market returns in order to understand its risk and return characteristics.
Objectives
· To calculate beta and observe its statistical significance
Literature Review
Literature Review 1
Sharpe (1964) developed the Capital Asset Pricing Model (CAPM) to explain the relationship between expected return and systematic risk measured by beta. The study concluded that stock returns are linearly related to market returns and that beta plays a crucial role in determining the risk premium of a security. This model has been widely used in empirical research to analyse the sensitivity of individual stock returns to market movements and remains a foundation for risk-return analysis in financial markets.
Literature Review 2
Fama and French (1992) examined the explanatory power of beta in predicting stock returns and found that market beta alone may not fully explain variations in stock returns. Their study suggested that firm-specific factors and other market variables also influence stock performance. The findings highlight that in some cases, individual stock returns show weak or insignificant relationships with market returns, indicating the importance of non-market factors in return determination.
Data collection:
Data for the company and Nifty 50 was downloaded from NSE india.com for the period first December 2024 to 30th November 2025. Friday closing price were found out, weekly returns of nifty 50 and company were calculated weakly returns of nifty were taken as X and weekly return of your company was taken as Y. Y was regressed on X.
Data analysis:
Return of Aarti Pharmalab Limited = 671.7568 + 0.4036 (Market Return) n = 49, R square = 0.00003, F = 0.0013, p value = 0.9713.
The above equation shows the relationship between return of Aarti Pharmalab Limited and market return. The positive beta value indicates a weak positive relationship between market returns and the return of Aarti Pharmalab Limited. If market return rises by 1 unit, the return of Aarti Pharmalab Limited will rise by 0.4036 units. The t-statistic for market return is 0.036 and the p-value is 0.9713, which indicates that the market return is statistically insignificant. The number of observations is 49. The R-square value is 0.00003, which means only 0.003% of the variation in the return of Aarti Pharmalab Limited is explained by market returns. The remaining variation is due to factors not included in the model. The F value is 0.0013 with a high significance value, indicating that the overall model is statistically insignificant.
Conclusion:
Beta is less than 1, indicating that Aarti Pharmalab Limited is less volatile than the market and is suitable for long-term investment if the market rises.
Reference:
1. NSE India Historical Index Data
2. Equity Data Aarti Pharmalab Limited