Analysis of Sectoral Indices versus

NIFTY

Individual Assignment:
Kumar Niraj Mohan
09P149
Section B
Objective

• Study the variance of the sectoral indexes and market

index in terms of returns

• To understand the mutual influence between two

sectoral index returns and on market index return

• Sectoral Beta and relative stability/volatility for

portfolio risk management
 Scope
• Period Covered
▫ Jan 2008 – Till Date

• Sectoral Indices Analysed

▫ CNX IT Index
▫ CNX Bank Index
▫ CNX Infrastructure Index
▫ CNX Realty Index

• These 4 indices explain 99.2% variation in NIFTY

 Indices at NSE
• Major Indices • Other Indices
▫ S&P CNX Nifty ▫ CNX IT Index
▫ CNX Nifty Junior ▫ CNX Bank Index
▫ CNX 100 ▫ CNX FMCG Index
▫ S&P CNX 500 ▫ CNX PSE Index
▫ CNX Midcap * ▫ CNX MNC Index
▫ Nifty Midcap 50 ▫ CNX Service Sector Index
▫ S&P CNX Defty ▫ S&P CNX Industry Indices
▫ Customised Indices
▫ CNX Energy Index
▫ CNX Pharma Index
▫ CNX Infrastructure Index
▫ CNX PSU BANK Index
▫ CNX Realty Index
▫ S&P CNX Nifty Shariah /
S&P CNX 500 Shariah
▫ S&P ESG India Index
 Constituents list of CNX IT
Company Name Industry
CMC Ltd. COMPUTERS - HARDWARE
Core Projects & Technologies Ltd. COMPUTERS - SOFTWARE
Educomp Solutions Ltd. COMPUTERS - SOFTWARE
Financial Technologies (India) Ltd. COMPUTERS - SOFTWARE
Firstsource Solutions Ltd. COMPUTERS - SOFTWARE
GTL Ltd. TELECOMMUNICATION - SERVICES
HCL Infosystems Ltd. COMPUTERS - HARDWARE
HCL Technologies Ltd. COMPUTERS - SOFTWARE
Infosys Technologies Ltd. COMPUTERS - SOFTWARE
MindTree Ltd. COMPUTERS - SOFTWARE
Moser Baer India Ltd. COMPUTERS - HARDWARE
MphasiS Ltd. COMPUTERS - SOFTWARE
Oracle Financial Services Software Ltd. COMPUTERS - SOFTWARE
Patni Computer Systems Ltd. COMPUTERS - SOFTWARE
Polaris Software Lab Ltd. COMPUTERS - SOFTWARE
Rolta India Ltd. COMPUTERS - SOFTWARE
Tata Consultancy Services Ltd. COMPUTERS - SOFTWARE
Tech Mahindra Ltd. COMPUTERS - SOFTWARE
Tulip Telecom Ltd. TELECOMMUNICATION - SERVICES
Wipro Ltd. COMPUTERS - SOFTWARE
 Constituents list of CNX BANK

Company Name Industry

Axis Bank Ltd. BANKS
Bank of Baroda BANKS
Bank of India BANKS
Canara Bank BANKS
HDFC Bank Ltd. BANKS
ICICI Bank Ltd. BANKS
IDBI Bank Ltd. BANKS
Kotak Mahindra Bank Ltd. BANKS
Oriental Bank of Commerce BANKS
Punjab National Bank BANKS
State Bank of India BANKS
Union Bank of India BANKS
 Constituents list of CNX REALTY

Company Name Industry

Anant Raj Industries Ltd. CONSTRUCTION

DLF Ltd. CONSTRUCTION

Housing Development and Infrastructure Ltd. CONSTRUCTION

Indiabulls Real Estate Ltd. CONSTRUCTION

Mahindra Lifespace Developers Ltd. CONSTRUCTION

Parsvnath Developer Ltd. CONSTRUCTION

Peninsula Land Ltd. CONSTRUCTION

Phoenix Mills Ltd. CONSTRUCTION

Sobha Developers Ltd. CONSTRUCTION

Unitech Ltd. CONSTRUCTION

 Constituents list of CNX INFRA
Company Name Industry
ABB Ltd. ELECTRICAL EQUIPMENT
Bharat Heavy Electricals Ltd. ELECTRICAL EQUIPMENT
Bharti Airtel Ltd. TELECOMMUNICATION - SERVICES
Crompton Greaves Ltd. ELECTRICAL EQUIPMENT
DLF Ltd. CONSTRUCTION
GMR Infrastructure Ltd. CONSTRUCTION
IRB Infrastructure Developers Ltd. TRAVEL AND TRANSPORT
Idea Cellular Ltd. TELECOMMUNICATION - SERVICES
Indian Hotels Co. Ltd. HOTELS
Jaiprakash Associates Ltd. DIVERSIFIED
Lanco Infratech Ltd. CONSTRUCTION
Larsen & Toubro Ltd. ENGINEERING
Mahanagar Telephone Nigam Ltd. TELECOMMUNICATION - SERVICES
NTPC Ltd. POWER
Neyveli Lignite Corporation Ltd. POWER
Punj Lloyd Ltd. CONSTRUCTION
Reliance Communications Ltd. TELECOMMUNICATION - SERVICES
Reliance Infrastructure Ltd. POWER
Reliance Power Ltd. POWER
Shipping Corporation of India Ltd. SHIPPING
Siemens Ltd. ELECTRICAL EQUIPMENT
Suzlon Energy Ltd. ELECTRICAL EQUIPMENT
Tata Communications Ltd. TELECOMMUNICATION - SERVICES
Tata Power Co. Ltd. POWER
Unitech Ltd. CONSTRUCTION
 Sectoral Index Volatility vs NIFTY
12000

10000

8000

6000 NIFTY
IT
BANK
4000 INFRA
REALTY

2000

0
8 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0
n -0 b-0 r-0 r-0 y-0 n-0 l-0 p-0 t-0 v-0 c-0 n-0 r-0 r-0 y-0 n-0 l-0 p-0 ct-0 v-0 c-0 n-1 r-1 r-1 y-1 n-1 ul-1
a p a u Ju Se Oc o e Ja a Ap a Ju Ju Se O o e a p a
Ja Fe M A J - N D M M - - - N D Ja M - A M Ju - J
2- 5- 11- 17- 6-M 27- 31 5- 13- 18- 24- 30- 6- 17- 25- 26- 30 2 9 16- 18- 27- 3- 8 13- 16- 20
2
 Beta Analysis

Beta Calculation

Covariance

IT BANK INFRA REALTY

0.0004204 0.000566 0.000543 0.000778

VARIANCE - NIFTY

0.000505416

BETA

0.8317116 1.120605 1.075122 1.539308

 Beta Analysis
• The analysis throws some startling results

• Beta for IT is less than NIFTY and other three are more than NIFTY for the
period 01/01/2008 – Till Date

• This might seems counter-intuitive as bank stocks are relatively stable and IT is
relatively more volatile.

• However, a closer look at the next graph shows this is indeed true. The
“Normalized Indices (Index/Average)” plots the daily value divided by the
mean over the period.

• The highest variation is in REALTY showing it have moved more with respect
to its mean – variance from mean is high. This is followed by INFRA, BANK
and then IT, being the least
 Normalized Indices (Index/Average)
3.5

2.5

2
Normalized NIFTY
Normalized IT
1.5
Normalized BANK
Normalized INFRA
1 Noramalized REALTY

0.5

0
8 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0
n -0 b-0 r-0 r-0 y-0 n-0 l-0 p-0 t-0 v-0 c-0 n-0 r-0 r-0 y-0 n-0 l-0 p-0 ct-0 v-0 c-0 n-1 r-1 r-1 y-1 n-1 ul-1
a p a u Ju Se Oc o e Ja a Ap a Ju Ju Se O o e a p a
Ja F e M A J - N D M M - - - N D Ja M -A M Ju -J
2- 5- 11- 17- 6-M 27- 31 5- 13- 18- 24- 30- 6- 17- 25- 26- 30 2 9 16- 18- 27- 3- 8 13- 16- 20
2
 Regression Analysis

• Determine whether there exists relationship between indices and

NIFTY

• CNX NIFTY regressed with CNX IT, CNX BANK, CNX INFRA, CNX
REALTY

• Results show these 4 indices are correlated to a major portion of

variation in NIFTY
 Regression Analysis
SUMMARY
OUTPUT

Regression Statistics
Multiple R 0.996006506
R Square 0.992028961
Adjusted R Square 0.991979374
Standard Error 79.61902577
Observations 648

ANOVA
  df SS MS F Significance F
Regression 4 507287426.6 126821856.6 20006.00571 0
Residual 643 4076098.698 6339.189265
Total 647 511363525.3      

  Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 150.5918082 30.40511213 4.952845018 9.35906E-07 90.88650077 210.2971156 90.88650077 210.2971156
IT 0.323941202 0.005836275 55.50478647 2.0282E-247 0.312480741 0.335401662 0.312480741 0.335401662
BANK 0.083096314 0.004567562 18.19270649 5.65604E-60 0.074127175 0.092065453 0.074127175 0.092065453
INFRA 0.732832329 0.017484644 41.9129107 4.8415E-186 0.69849843 0.767166229 0.69849843 0.767166229
REALTY -0.352469623 0.032852017 -10.72901019 8.10776E-25 -0.416979819 -0.287959426 -0.416979819 -0.287959426
Regression Analysis - Results
• High R2 /Adjusted R2 of 99. 2/99.1%
▫ Most of the variation in NIFTY explained by 4 chosen sectoral
indices
▫ Significance F = 0 implies the reliability of R2 – model fits
properly and R2 is authentic
▫ Near zero p-values for intercept, IT, REALTY, INFRA, BANK
show they are significantly different from zero, giving their
coefficients credence
▫ REALTY negatively correlated. Intercept, IT, INFRA BANK
positively correlated
CNX IT versus NIFTY
 CNX IT versus NIFTY

• August 2009 shows IT index crossing over NIFTY showing

improvement in IT spending

• Signals end of the trough of business cycle

• Here, the IT index improves after the nadir of the business cycle
trough – showing the IT spending may have been delayed – should
usually start before the nadir of the trough (Around March 2009)

• Period of consolidation from August 2009 till date as the gap

between NIFTY and CNX IT seems almost stable
CNX BANK versus NIFTY
 CNX BANK versus NIFTY

• Remains consistently over NIFTY showing a high valued sector

• March 2009 shows BANK index improving – exactly at the trough –

ideally Financial Services should improve just before the trough

• Signals end of the trough of business cycle

• BANK index seems to have entered a period of expansion rather

than consolidation as the gap is ever widening since March 2009
CNX INFRA versus NIFTY
 CNX INFRA versus NIFTY

• Remains consistently below NIFTY showing a relatively low return

sector for the period 2008-till date

• March 2009 shows INFRA index improving – exactly at the trough

– little earlier than the expected for capital goods sector

• Signals end of the trough of business cycle

• INFRA index seems to have entered a period of stagnation even as

NIFTY moves steeply into the expansion phase. Infra spending is yet
to pick up
CNX REALTY versus NIFTY
 CNX REALTY versus NIFTY

• Remains consistently far below NIFTY showing investors’ lack of

confidence in the sector

• Realty caused the primary panic and the recession thereafter

• Though NIFTY is improving, Realty has virtually stagnated showing

that there is time before investor will regain confidence in the sector
and start investing
Picking up of Sectoral Index vs. NIFTY
Thank You