STUTI BALID
Introduction
State Bank of India (SBI) is India’s largest public sector bank and a key constituent of the NIFTY 50 index. Due to its size, market capitalization, and systemic importance, SBI’s stock performance is often closely linked with overall market movements. Studying the relationship between SBI and the NIFTY 50 helps investors understand how SBI responds to market fluctuations.
Objective
To study the relationship between SBI stock returns and NIFTY 50 returns.
To calculate the beta of SBI.
To examine whether SBI’s returns are significantly influenced by market movements.
Literature Review
Article 1:
Fama and French (1992) emphasized the role of market risk in explaining stock returns. Their study shows that stocks with higher exposure to market movements tend to exhibit higher volatility. This supports the use of beta as a key measure to understand how individual stocks, such as SBI, move in relation to the overall market.
Article 2:
Sharpe (1964) introduced the Capital Asset Pricing Model (CAPM), which establishes a linear relationship between stock returns and market returns. According to the model, beta measures a stock’s sensitivity to market changes. This framework is widely used to analyze the relationship between stocks like SBI and market indices such as the NIFTY 50.
Data Analysis
Weekly closing prices of SBI and the NIFTY 50 were collected from the NSE website for the study period. Weekly returns were calculated using percentage change in prices. NIFTY 50 weekly returns were taken as the independent variable (X) and SBI weekly returns were taken as the dependent variable (Y). A linear regression model was applied where Y was regressed on X.
Regression Statistics:
Multiple R: 0.589028
R Square (R²): 0.346953
Adjusted R Square: 0.332441
Standard Error: 2.561673
Observations: 47
ANOVA Results:
Regression: df = 1, SS = 156.887, MS = 156.887
Residual: df = 45, SS = 295.2976, MS = 6.56217
Total: df = 46, SS = 452.1847
F-statistic: 23.9078
Significance F: 1.33E-05
Coefficients:
Intercept = 0.562415 (Std. Error = 0.374175, t = 1.50308, p-value = 0.139804)
Beta (X) = 0.97234 (Std. Error = 0.19886, t = 4.88956, p-value = 1.33E-05)
Regression Equation:
Y = 0.562415 + 0.97234X
The beta value of 0.97234 indicates a strong positive relationship between SBI returns and NIFTY 50 returns. The p-value for beta (1.33E-05) is less than 0.01, indicating that the relationship is statistically significant at the 1% level. The R² value of 0.346953 implies that approximately 34.7% of the variation in SBI returns is explained by movements in the NIFTY 50.
Conclusion
The study concludes that SBI has a positive and statistically significant relationship with the NIFTY 50. The beta value of 0.97234 indicates that SBI’s stock returns move almost in proportion to market movements, showing high sensitivity to changes in the NIFTY 50. The regression model is significant, as reflected by the F-statistic of 23.9078 and a p-value of 1.33E-05, which is significant at the 1% level. The R² value of 0.346953 implies that about 34.7% of the variation in SBI’s returns is explained by market movements, while the remaining variation is due to other firm-specific and economic factors. Overall, SBI can be considered a market-linked stock and is suitable for investors who expect favourable market conditions, particularly for short-term investment decisions.