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The IUP Journal of Financial Risk Management :
Return and Risk Analysis of Indian Information Technology Sector Stocks
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The Indian capital market has been witnessing an unprecedented growth with the back of soaring Sensex and also the magnificent performance of India Inc. Stock market has become the most desirable investment option for both the Indian and foreign investors. Return and risk are inseparable in most of the investments, and it is important to determine how much risk is appropriate to attain the required rate of return from investing in any stock under consideration. In this paper, an attempt has been made to study the return and risk element of investing in the shares of Indian Information Technology Industry. The Information Technology industry stocks constitute around 14% of Nifty, and play a vital role in the movement of the market indices. India is now emerging as a major credible information technology outsourcing center creating huge opportunities as well as challenges to the investors. Although the stock markets are positive towards the IT stocks, they are also affected by the national and international events. The average daily returns of the six companies studied in this paper were lower than the daily mean return of the indices. The volatilities of the stock returns over the study period were much higher than that of the indices. The b values of the securities show that except CMC and Moser Baer, the other four securities were very aggressive. The unsystematic risks of the IT stocks were much higher than the systematic risk.

 
 
 

Return and risk are inseparable in most of the investments, and it is importantto determine how much risk is appropriate to attain the required rate of return by investing in any stock that an investor might be considering. Even though every investment involves risk, it is higher in equity investments. Every investor in stock market puts his money in anticipation of returns, in terms of price appreciation and dividend with minimized risk. The risk is composed of systematic risk (market risk) and unsystematic risk (company-specific). Systematic risk includes currency, inflation, foreign investment, political and regulatory measures, interest rate, economic, and terrorist risks. Even bad weather risk can affect certain market sectors such as retailers, agriculture, forest products, insurance, airlines and tourism. Systematic risk can not be eliminated by diversification within a given market. It captures the reaction of individual stocks or portfolios to general market swings. In case of unsystematic risks, the factors are specific, unique and related to a particular industry or company.

The daily open, close, high and low prices of NSE Nifty, Nifty Junior and their IT sector components Infosys Technologies, Wipro, Satyam Computers, CMC, Moser Baer and Polaris and NSE IT index for the period 1999-00 to 2006-07 have been used in the study. The daily open, high, low and close prices of stocks and indices were taken from the official website of National Stock Exchange of India Limited. The Company Polaris was listed only on November 24, 1999 and the prices were taken for the study only from that date.

 
 
 

Return and Risk Analysis, Information Technology Sector, ITES, Foreign Direct Investment, FDI, Infosys Technologies, Wipro, Satyam Computers, CMC, National Stock Exchange of India Limited, National stock exchange, NSE, Fast Moving Consumer Goods, FMCG, Behavior of Stock Market Prices, Security Analysis and Portfolio Management, Indian capital market.