Estimation, Comparison, and Association of Realized Return with Calculated Returns (Capital Asset Pricing Model): A Case of Pharmaceutical Sector in India.

Jammalamadaka K M K Sai Srinivas, Pingale Murali Manish, Pawan Kumar Avadhanam

Abstract


Pharmaceutical Industry is one of the key industry in the Indian economy and it is ranked 4th in the world in regards with the volume of the sales and is considered as one of the biggest producers of API (Active Pharmaceutical Ingredients) in the international arena. The growth rate of the industry is also increasing at a remarkable rate. A set of 9 companies from the pharmaceutical sector that is traded on the Bombay Stock Exchange of India are considered. Daily closing prices of the scrips are collected across the period of study of 19 years i.e. (2000-2019). The review of literature on these types of studies suggested the usage of the CAPM model to arrive at the expected returns. From the CAPM computations, it is found that all the selected companies are overvalued in the market. The risks and returns are calculated and the beta values of the individual companies is shown in the graph. Regression and Correlation of the Realized return with CAPM returns is done which showed a positive correlation for all the scrips. To examine the relation between beta value and market returns, correlation and regression is done. The returns of the company are then expressed as a function of individual factors like Current Ratio, Quick Ratio, Debt-Equity Ratio, Price - Earnings Ratio, Price to Book Ratio, EPS, Market Capitalization, Sales and Profit after Tax. The most significant factors for this study are found to be Debt-Equity Ratio, Price-Book Ratio, Market Capitalization, Sales and Profit after Tax.

Keywords: CAPM return, Correlation, Indian Pharma Sector, Realized return.


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ISSN : 2251-1555