Investigating Stock Market Indices of India - Empirical Analysis

Jaspal Singh, Sidharath Seth


Purpose: This paper examines the long run performance of all the broad market stock indexes operational at NSE (National Stock Exchange, India) to determine the best performing index amongst them, thereby, recommending the best index for a passive investor to invest in for long term.

Design/methodology/approach: The performance of all broad market stock indexes has been evaluated from 1stJanuary 2004 till 31st March 2014 using daily total return index values. The annualized return, annualized standard deviation, Sharpe ratio, Jensen alpha and Cahart four factor alpha have been used for performance evaluation.

Findings: CNX Nifty, the flagship index of NSE, is successful in generating superior return over risk free rate, while, CNX Nifty Junior was found to be most profitable due to its highest annualized return. CNX Midcap was found to be least risky. On risk adjusted basis, using CAPM model, CNX Midcap was found to be most profitable. So, an investor planning to invest in broad based indexes, should consider CNX Midcap Index for investing. The positive Jensen alpha has been reduced to a negative Carhart alpha, when exposed to additional variables (i.e. size, value and momentum), showing that the excess returns evidenced by positive Jensen alpha were attributed to these factors and not due to superior index composition criteria.

Research implications: The results of the test of joint hypothesis using CAPM revealed that CNX Nifty cannot be used to replicate most of the other broad market indexes namely CNX 200, CNX 500, CNX Midcap, CNX Small cap and CNX 100 Equal Weight.

Practical implications: It shall help a passive investor in choosing the best index for investment.

Originality/value: To the authors’ knowledge, this is the first study that comprehensively investigates performance of all the broad market stock indexes at national stock exchange, India.

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