Author: Aditya Nath Duby
Introduction:
Adani Power Limited (APL), founded in 1996, a part of the diversified Adani Group, is the largest private thermal power producer in India. The company operates an installed thermal power capacity of 18,110 MW spread across 12 power plants in Gujarat, Maharashtra, Karnataka, Rajasthan, Chhattisgarh, Madhya Pradesh, Jharkhand, and Tamil Nadu, apart from a 40 MW solar power plant in Gujarat. The company is harnessing technology and innovation to transform India into a power-surplus nation and provide quality and affordable electricity for all.
Objective: Calculation of Beta of Adani Power and observe its significance
Literature Review:
Swathy (2016) conducted an empirical performance evaluation of NSE Nifty and BSE Sensex Exchange Traded Funds and analyzed the relationship between portfolio returns and benchmark index returns using regression analysis. The study found variations between price-based and NAV-based returns, highlighting how market mechanisms influence return sensitivity. This research supports the use of regression models to examine market linkage, which is relevant for analyzing the relationship between individual stocks and benchmark indices such as the Nifty 50.
Kumar et al. (2023) examined the Adani Group in the context of the Hindenburg report, focusing on corporate structure, sectoral exposure, and market perception. The study highlighted how external information shocks can affect investor confidence and stock performance, particularly in the energy and power sector. This provides context for understanding volatility and market sensitivity in Adani Power while analyzing its relationship with broader market movements.
Data Collection:
Historical data of Adani Power Limited (APL) and NIFTY 50 was downloaded from nseindia.com . Friday closing prices were found and weekly returns were calculated. Weekly returns of NIFTY 50 were taken as X and weekly return of Adani Power Limited (APL) were taken as Y. Y was regressed on X.
Data Analysis:
Adani Power Returns = -0.0128 + 2.4419 (NIFTY 50 Returns)
N = 48 | R square = 0.1343 | F = 7.1340 | P value = 0.010422
The above equation explains the relationship between the returns of Adani Power (dependent variable) and Nifty 50 Return (independent variable).
The positive coefficient of the Nifty 50 weekly returns indicates a positive relationship between market movements and Adani Power’s weekly returns. This implies that when the Nifty 50 weekly return increases by 1 unit, the weekly return of Adani Power increases by approximately 2.44 units, indicating that Adani Power exhibits higher volatility than the market and can be classified as an aggressive stock.
The t-statistic for Beta (β) is 2.67 and the corresponding p-value is 0.0104. Since the p-value is greater than 0.01, the beta coefficient is not statistically significant at the 1% level of significance, although it is significant at the 5% level. This suggests that while market returns influence Adani Power returns, the evidence is not strong enough to confirm this relationship at the stricter 1% significance level.
The R-square value of 0.1343 indicates that approximately 13.43% of the variation in Adani Power’s weekly returns is explained by movements in the Nifty 50, while the remaining variation is due to firm-specific and other external factors. The F-statistic value of 7.13 with a significance value of 0.0104 indicates that the overall regression model is not statistically significant at the 1% level, but is significant at the 5% level.
Conclusion:
β = 2.44
Since β > 1, Adani Power is more volatile than the market (Nifty 50), indicating that the stock carries higher systematic risk and has the potential to generate higher returns compared to the market. This makes Adani Power suitable for short-term investors who are willing to take higher risk, while long-term investors should carefully consider market and firm-specific factors before investing.
References:
Swathy, M. (2016). An empirical performance evaluation of NSE NIFTY (vs) BSE SENSEX ETFs. IPE Journal of Management, 6(1), 53-62. Retrieved from https://www.proquest.com/scholarly-journals/empirical-performance-evaluation-nse-nifty-vs-bse/docview/1828144505/se-2
Kumar, D., & Mishra, A. K. (2023). The adani-hindenburg saga: A case study. South Asian Journal of Management, 30(1), 187-196. Retrieved from https://www.proquest.com/scholarly-journals/adani-hindenburg-saga-case-study/docview/2816943500/se-2