Author: Tejas Patil
Introduction:
Torrent Pharmaceuticals is a leading Indian pharmaceutical company headquartered in Ahmedabad, Gujarat. Established in 1959, the company is part of the Torrent Group and has a strong presence in branded generic medicines. Torrent Pharmaceuticals operates across key therapeutic areas such as cardiovascular, central nervous system, gastro-intestinal, diabetology, and women’s healthcare. It has a significant footprint in both domestic and international markets, including the US, Europe, and emerging economies. The company is known for its focus on research-driven growth, quality manufacturing, and strong marketing capabilities.
Objective: Calculation of Beta of Torrent Pharmaceutical 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 Torrent Pharmaceutical group in the context of the , 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 Torrent Pharmaceutical while analyzing its relationship with broader market movements.
Data Collection:
Historical data of Torrent Pharmaceutical 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 Torrent Pharmaceutical were taken as Y. Y was regressed on X.
Data Analysis:
Torrent Pharmaceutical Returns = −241.368 + 0.1480 (NIFTY 50 Returns)
N = 49 | R² = 0.5086 | F = 48.65 | P-value = 8.92E−09
The above equation explains the relationship between the returns of Torrent Pharmaceutical and the returns of the NIFTY 50. The positive coefficient of the NIFTY 50 returns (0.1480) indicates a positive relationship between market movements and Torrent Pharmaceutical returns. This implies that when the NIFTY 50 return increases by one unit, the return of Torrent Pharmaceutical increases by approximately 0.148 units, suggesting that Torrent Pharmaceutical moves in the same direction as the market.
The t-statistic for the beta coefficient is 6.98, with a corresponding p-value of 8.92E−09. Since the p-value is significantly lower than both the 1% and 5% levels of significance, the beta coefficient is statistically significant. This confirms that NIFTY 50 returns have a strong and significant impact on Torrent Pharmaceutical returns.
The R-square value of 0.5086 indicates that approximately 50.86% of the variation in Torrent Pharmaceutical returns is explained by movements in the NIFTY 50, while the remaining variation is attributable to firm-specific and other external factors. The F-statistic value of 48.65, along with its significance value of 8.92E−09, indicates that the overall regression model is statistically significant at both the 1% and 5% levels. This confirms the reliability and explanatory power of the regression model.
Conclusion:
β = 0.148
Since β is less than 1, Torrent Pharmaceutical is less volatile than the market (NIFTY 50). This indicates that the stock carries lower systematic risk compared to the overall market and tends to show relatively smaller price movements in response to market fluctuations. As a result, Torrent Pharmaceutical can be considered a defensive stock, making it more suitable for risk-averse and long-term investors who prefer stability over aggressive returns. However, investors should still consider firm-specific and external factors before making investment decisions.
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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