Estimation, Comparison and Correlation of Realized Returns with Capital Asset Pricing Model Returns (Calculated Returns) : A Case of Mining Sector in India

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

Abstract


The mining industry is a key industry in the Indian economy. India is the 3rd largest producer of coal, coal production in the country stood at 576 million tonnes between April 2018-March 2019. India ranks 4th in terms of iron ore production globally, India has the 7th largest bauxite reserves. The paper is organized in four segments: The first segment covers the introduction, the second review of literature, the third analysis, and the last conclusion. The period of study is 19 years (2000-2019). A total of 10 mining companies that are traded on the Bombay Stock Exchange of India are considered. The review of literature on these types of studies suggested the usage of the CAPM model arrive at expected returns of these 10 mining companies for 19 years. From CAPM computations it is found that 6 of the companies are undervalued rest of the 3 are overvalued. Coal India has the expected values closer to market values which conclude that empirical results support asset pricing models. The risk-return relationship along with the beta values of the individual companies is shown in the graphs, regression and correlation of the realised returns with CAPM returns are done which showed a negative correlation except for one scrip.
Keywords: CAPM, Stock return, Mining Industry.

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ISSN : 2251-1571