Analysis of risk and returns: a study of Indian industrial sectors

This study aims at analysing risk and returns of different sectors of the Indian economy using both the market and accounting based information. The results based on market information show that Fast Moving Consumer Goods (FMCG), healthcare and oil and gas sectors are the most defensive sectors of the Indian economy whereas metal and Information Technology (IT) sectors are the most aggressive sectors of the Indian economy. They further show that macroeconomic factors explain the highest percentage of total absolute risk of metal, auto and capital goods sectors whereas sector specific factors explain the highest percentage of total risk of the FMCG sector. Moreover, the results indicate that market risk for different sectors of the Indian economy has not been stable over time. The results based on accounting information suggest that FMCG, metal and IT sectors are having the highest business risk whereas sectors like technology, auto and public sector units are having the least business risk. The results based on accounting information further prove that consumer durables and metal sectors are having the highest financial risk whereas FMCG, healthcare, IT and oil and gas sectors are having the least financial risk. Regarding the association of market and accounting based measures of risk, the results demonstrate that the entire risk computed on the basis of accounting information is not significantly captured by the market. It is only the financial risk which is significantly captured by the market.