South Asian Journal of Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

A Study of Rates of Return from Investors’ Perspective:Empirical Evidence from India


Affiliations
1 Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi-110016, India
2 Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi- 110016, India
     

   Subscribe/Renew Journal


This paper assesses equity returns from the investors’ point of view, factoring both sources of income—viz., dividends and capital gains. The sample for the study comprises of the NSE 500 companies which represented 96.76% of the free-float market capitalization and 97.01% of the traded value of the stocks listed on the NSE as on December 31, 2013, and the period under study, is spread over the past two decades (1993-2014). Hence, virtually, the chosen sample presents a census on equity market returns in India. Comparisons with an earlier study have been made to provide the readers with a larger perspective on the evolution and behaviour of equity returns in India, for a period of nearly three decades (1985-2014). Further, a brief comparison with the alternative investment choice, viz., debt instruments, has also been made for a more complete analysis of returns from the investors’ point of view. To the best of the authors’ knowledge, such a comprehensive analysis of equity returns in India, has not been undertaken so far. It appears safe to assume that the Indian stock markets offer attractive returns in the short-run as well as the long-run. But, it would be prudent to stay invested for a longer period if the investor is risk-averse, as the volatility present in the short-run may eat away into short-run returns. Further, in terms of after-tax returns and liquidity, equity returns in India fare better than debt returns. However, in terms of risk (volatility), debt returns provide a safer option.

Keywords

Capital Gains, Debt Instruments, Indian Equity Market, Holding Periods, Volatility.
User
Subscription Login to verify subscription
Notifications
Font Size

  • Accounting Simplified. (2015). Earnings per Share calculation involving issue & redemption of share capital. Retrieved from http://accounting-simplified.com/ifrs/ias-33-eps/basic/share-issue-redemption.html

  • Alti, A. & Sulaeman, J. (2011). When do high stock returns trigger equity issues? Journal of Financial Economics, 103(1), 61-87.

  • Annaert, J., Buelens, F., & De Ceuster, M. J. K. (2012). New Belgian stock market returns: 1832–1914. Explorations in Economic History, 49(2), 189-204.

  • Beaver, W. (1966). Financial ratios as predictors of failure; Empirical research in accounting. Selected studies. Journal of Accounting Research, 5, 71-111.

  • Belter, K., Engsted, T., & Tanggaard, C. (2005). A new daily dividend-adjusted index for the danish stock market, 1985-2002: Construction, statistical properties, & return predictability. Research in International Business and Finance, 19(1), 53-70.

  • Benzion, U., & Shalit, S. S. (1975). Size leverage and dividend performance as determinants of corporate risk. Journal of Finance, 30, 1015-1026.

  • Berger, P. G. (2003). Discussion of ‘anomalous stock returns around internet firms’ earnings announcements. Journal of Accounting and Economics, 34(1-3), 273-281.

  • Benartzi, S., Michaely, R., & Thaler, R. H. (1997). Do changes in dividends signal the future or the past? Journal of Finance, 52(3), 1007-1034.

  • Bernheim, B. D., & Wantz, A. (1995). A tax based test of the dividend signaling hypothesis. The American Economic Review, 85(3), 532-551.

  • Black, F., & Scholes, M. S. (1974). The effects of dividend yield and dividend policy on common stock prices and returns. Journal of Financial Economics, 1(1), 1-22.

  • Blume, M., MacKinlay, A., & Terker, B. (1989). Order imbalances and stock price movements on october 19 and 20, 1987. Journal of Finance, 44(4) 827-848.

  • Capitalmind website (2014). Retrieved from http://capitalmind.in/2012/01/chart-of-the-day-bank-fd-rates-from-1976/.

  • Collins, J. H., & Kemsley, D. (2000). Capital gains and dividend taxes in firm valuation: Evidence of triple taxation. The Accounting Review, 75(4), 405-427.

  • DeAngelo, H., DeAngelo, L., & Skinner, D. J. (1996). Reversal of fortune: Dividend signaling and the disappearance of sustained earnings growth. Journal of Financial Economics, 40(1), 341-371.

  • Dichev, I. D., & Yu, G. (2011). Higher risk, lower returns: What hedge fund investors really earn. Journal of Financial Economics, 100(2), 248-263.

  • Ernst & Young. (2014). India’s cost of capital: A survey. Kolkata, India: Ernst & Young LLP. Retrieved February 3, 2015, from http://www.ey.com/Publication/vwLUAssets/EY-india-cost-of-capital-a-survey/%24FILE/EY-india-cost-of-capital-a-survey.pdf

  • Francis, J., Olsson, P., & Oswald, D. (2000). Comparing the accuracy and explainability of dividend, free cash flow, and abnormal earnings equity value estimates. Journal of Accounting Research, 38(1), 45-70.

  • Frank, M., & Jagannathan, R. (1998). Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes. Journal of Financial Economics, 47(3), 161-188.

  • Giri, V., Sivala, S., Wadhawan, R. & Bhasin, R. (2013). Dissecting India’s equity risk premium: How much to expect on your equity investments. Bengaluru, India: PricewaterhouseCoopers Pvt. Ltd. Retrieved February 3, 2015, from http:// www.pwc.in/assets/pdfs/publications/2013/dissecting-indias-risk- equity-premium.pdf

  • Golez, B. (2012). Expected returns and dividend growth rates implied by derivative markets. Review of Financial Studies, 27(3), 790-822.

  • Gopinath, G., Itskhoki, O. & Rigobon, R. (2010). Currency choice and exchange rate pass-through. American Economic Review, 100(1), pp. 334-336.

  • Gordon, M. J. (1959). Dividends, earnings and stock prices. The Review of Economics and Statistics, 41(2), 99-105.

  • Goyal, A., & Welch, I. (2003). Predicting the equity premium with dividend ratios. Management Science, 49(5), 639-654.

  • Greig, A. (1992). Fundamental analysis and subsequent stock returns. Journal of Accounting and Economics, 15(2-3), 413 -422.

  • Grullon, G. & Michaely, R. (2002). Dividends, share repurchases, and the substitution hypothesis. The Journal of Finance, 57(4), 1649-1684.

  • Gupta, L. C. (1981). Rates of return on equities: The Indian experience. New Delhi, India: Oxford University Press.

  • Gupta, L. C., & Choudhary, U. K. (2000). Returns on Indian Equity Shares. Sponsored by Bombay Stock Exchange in Collaboration with The Society for Capital Market Research and Development, New Delhi.

  • Handa, P., Kothari, S. P., & Wasley, C. (1989). The relation between the return intervals and betas: Implications for the size effect. Journal of Financial Economics, 23(1), 79-100.

  • Harris, T. S., Hubbard, R. G., & Kemsley, D. (2001). The share price effects of dividend taxes and tax imputation credits. Journal of Public Economics, 79(3), 569-596.

  • Holthausen, R., & Larcker, D. (1992). The prediction of stock returns using financial statement information. Journal of Accounting and Economics, 15(2-3), 373-411.

  • Investopedia. (2013). Standard and Poor’s CNX Nifty. Retrieved December 31, 2013, from http://www.investopedia.com/terms/i/india_etf.asp

  • Jain, P. K., Singh, S., & Yadav, S. S. (2013). Financial Management Practices: An Empirical Study of Indian Corporates. Springer, New Delhi/New York, ISBN 978-81-322-0989-8.

  • Johnson, T. L., & So, E. C. (2012). The option to stock volume ratio and future returns. Journal of Financial Economics, 106(2), 262-286.

  • Lynch, A. W., & Mendenhall, R. R. (1997). New evidence on stock price effects associated with changes in the S&P 500 index. Journal of Business, 70(3), 351-383.

  • Maniar, H., Bhatt, R., & Maniyar, D. (2009). Expiration hour effect of futures and options markets on stock market - A case study on NSE (National Stock Exchange of India). International Review of Economics and Finance, 18(3), 381-391.

  • Marisetty, V., Marsden, A., & Veeraraghavan, M. (2008). Price reaction to rights issues in the Indian capital market. Pacific-Basin Finance Journal, 16(3), 316-340.

  • Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 34(4), 411-433.

  • Money Control. (2014). State Bank of India (SBI) fixed deposit rates. Retrieved December 23, 2014, from http://www.moneycontrol.com/fixed-income/banks-deposits/state-bank-of-india-sbi-rates-BSB001.html

  • National Stock Exchange of India Ltd. (NSE). (2014). NIFTY 500 Index. Retrieved March 10, 2014, from http://www.nseindia.com/products/content/equities/indices/cnx_500.htm

  • Ou, J., & Penman, S. (1989). Accounting measurement, price–earnings ratios, and the information content of security prices. Journal of Accounting Research, 27, 111-152.

  • Penman, S. H., & Sougiannis, T. (1997). The dividend displacement property and the substitution of anticipated earnings for dividends in equity valuation. The Accounting Review, 70(1), 1-21.

  • Pethe, A., & Karnik, A. (2000). Do Indian stock markets matter? Stock market indices and macro-economic variables. Economic and Political Weekly, 35(5), 349-356.

  • Praetz, P. D. (1972). The distribution of share price changes. Journal of Business, 45(1), 49-55.

  • Saatcioglu, K., & Starks, L. (1998). The stock price-volume relationship in emerging stock markets: The case of Latin America. International Journal of Forecasting, 14(2), 215-225.

  • Savor, P. (2012). Stock returns after major price shocks: The impact of information. Journal of Financial Economics, 106(3), 635-659.

  • Schipper, K., & Smith, A. (1986). A comparison of equity carve-outs and seasoned equity offering: Share price effects and corporate restructuring. Journal of Financial Economics, 15(1-2), 153-186.

  • Shenoy, D. (2012. January 26). Chart of the Day: Bank FD Rates from 1976. Retrieved from https://capitalmind.in/2012/01/chart-of-the-day-bank-fd-rates-from-1976/

  • Shrivastav, A. (2013). A study of influence of FII flows on Indian stock market. Gyanpratha – ACCMAN Journal of Management, 5(1), 1-31.

  • Trueman, B., Wong, M., & Zhang, X. (2003). Anomalous stock returns around internet firms’ earnings announcements. Journal of Accounting and Economics, 34(1-3), 249-271.

  • Wahal, S., & Yavuz, D. (2013). Style investing, co-movement, and return predictability. Journal of Financial Economics, 107(1), 146-154.

  • Wikipedia. (2014). S&P CNX 500. Retrieved March 10, 2014, from https://en.wikipedia.org/wiki/S%26P_CNX_500


Abstract Views: 198

PDF Views: 0




  • A Study of Rates of Return from Investors’ Perspective:Empirical Evidence from India

Abstract Views: 198  |  PDF Views: 0

Authors

Shveta Singh
Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi-110016, India
P. K. Jain
Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi-110016, India
Surendra S. Yadav
Department of Management Studies, Indian Institute of Technology Delhi, Hauz Khas, New Delhi- 110016, India

Abstract


This paper assesses equity returns from the investors’ point of view, factoring both sources of income—viz., dividends and capital gains. The sample for the study comprises of the NSE 500 companies which represented 96.76% of the free-float market capitalization and 97.01% of the traded value of the stocks listed on the NSE as on December 31, 2013, and the period under study, is spread over the past two decades (1993-2014). Hence, virtually, the chosen sample presents a census on equity market returns in India. Comparisons with an earlier study have been made to provide the readers with a larger perspective on the evolution and behaviour of equity returns in India, for a period of nearly three decades (1985-2014). Further, a brief comparison with the alternative investment choice, viz., debt instruments, has also been made for a more complete analysis of returns from the investors’ point of view. To the best of the authors’ knowledge, such a comprehensive analysis of equity returns in India, has not been undertaken so far. It appears safe to assume that the Indian stock markets offer attractive returns in the short-run as well as the long-run. But, it would be prudent to stay invested for a longer period if the investor is risk-averse, as the volatility present in the short-run may eat away into short-run returns. Further, in terms of after-tax returns and liquidity, equity returns in India fare better than debt returns. However, in terms of risk (volatility), debt returns provide a safer option.

Keywords


Capital Gains, Debt Instruments, Indian Equity Market, Holding Periods, Volatility.

References