Equity Risk Premium Puzzle: The Case of Indian Stock Market
Article Details
Pub. Date
:
Jul, 2015
Product Name
:
The IUP Journal of Applied
Finance
Product Type
:
Article
Product Code
:
IJAF41507
Author Name
:
Rajni Kant Rajhans
Availability
:
YES
Subject/Domain
:
Finance
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:
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No.
of Pages
:
7
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Abstract
Equity has always remained an instrument of long-term wealth creation. India being a developing nation with low average age group and rising per capita income, investment in equity may provide a significant wealth creation opportunity, provided Equity Risk Premium (ERP) is significant enough. ERP also helps in identifying the cost of equity and cost of capital of the business, and hence provides valuable insights for project appraisal decisions. This paper answers the question, “Is the ERP offered by Indian stock market justifiable?”
Description
Indian stock market has witnessed a very high growth rate in the last one decade. India being
one of the fastest growing economies, both domestic as well as foreign investors are infusing
a lot of money into Indian equity market. The growth story of Indian stock markets can be
understood from the graph in Figure 1. The Foreign Institutional Investor (FII) inflows had
tripled in the last eight years and reached 92,000 cr in the month of November 2014.
Similarly, Domestic Institutional Investor (DII) participation has also tripled and reached a
maximum investment of 35,000 cr in the month of September 2014.
