Turkish Journal of Computer and Mathematics Education Vol.12 No.2 (2021), 191 - 194
191 Research Article
Comparative Study of Return and Risk of stocks of State Bank of India and HDFC Bank
during Covid Era
Hood and Associate Professor, University School of Business-Industry Collaborated Program, Chandigarh University, Mohali, Punjab
Article History: Received: 11 January 2021; Accepted: 27 February 2021; Published online: 5 April 2021 _____________________________________________________________________________________________________ Abstract: The study focuses on the comparison of Risk and Return profile of the two largest banks in India, State Bank of India
and HDFC Bank. The study, using various statistical tools like standard deviation and Value at Risk, analyzes and compares the return and risk underlying the stocks of two giant banks during the challenging times of the Covid.
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1. Introduction
Indian Banking sector has been the backbone of Indian economy. The challenging times of Covid era have affected all the sectors of the economy in varied manner. State Bank of India is the largest bank of India and HDFC Bank has recently made huge stride and has become largest private sector bank in India.
HDFC Bank has a market capitalization of 8.443 T in BSE, whereas; State Bank of India has a market capitalization of 3.483 T in BSE (as on 28/02/2021).
The challenging times of Covid Era led to hit on the Indian Economy in various forms and banking sector is not an exception to this. The financial market is characterized by the trade-off between risk and return. Also, it becomes imperative for investors to study the movement of stock prices and trends analyzing the movement of risk and return.
2. Literature Review
Krishnaprabhaet .al. (2015) study stated that the risk and return analysis are the key factors in most of the individual investments decision making. It is risk aversion of the investors which compels them to go for maximum return for the stated level of risk and minimum risk for stated level of return.
Poornimaet.al. (2017) study investigated the relationship between risk and return between selected stocks on National Stock Exchange. It has used Capital Asset Pricing Model for the comparison of risk and return.
MuthuGopalakrishnanet.al. (2017) stated that every individual attempts to park his/her hard earned savings in various investment avenues depending upon his/her objectives. Among the various investment alternatives, stock market is considered to be one of the most rewarding avenues of investment. This study helps the potential investors to make informed and ratinal investment decision.
Sunil Rashinkaret.al. (2014), found that banking sector is the backbone of country’s economy. This sector has given very good return to the investors in the past. But the recent financial crisis, has proved, that the Banking stocks tend to be more volatile than other stocks.
3. Objective
• To measure and compare the average return of the stocks of State Bank of India and HDFC Bank during Covid period.
• To measure and compare the risk related to stock prices of State Bank of India and HDFC Bank during Covid period
4. Research Methodology
i. The time period has been divided into 4 quarters, Jan-March 2020, April – June 2020, July – September 2020, October – December 2020.
ii. The historical stock price data of State Bank of India and HDFC Bank have been taken as sample. iii. Daily Return on the basis of historical stock price data is calculated.
iv. Risk due to the volatility in the stock prices in these five banks using the “Value at Risk” (VaR) method using historical prices.
5. Hypothesis
1. Average daily Return
2. Ho: The average daily return of State Bank of India is more than that of HDFC Bank.
3. H1: The average daily return of HDFC Bank is more than that of State Bank of India.
4. Average Total Return
5. Ho: The total average return of State Bank of India is more than that of HDFC Bank.
6. H1: The total average return of HDFC Bank is more than that of State Bank of India.
192 during period 7. Range of
Return
8. Ho: The Range of Return is not significantly different for two banks. 9. H1: The Range of Return is significantly different for two banks. 10. Value at
Risk
11. Ho: The probability of loss with 95% confidence level is higher for HDFC Bank as compared to State Bank of India
12. H1: The probability of loss with 95% confidence level is higher for State Bank of India as compared to HDFC Bank.
13. Standard Deviation
14. Ho: The risk associated with HDFC Bank stock price is higher than State Bank of India.
15. H1: The risk associated with State Bank of India stock price is higher than HDFC Bank.
16. Return to Risk Ratio
17. H0: Overall Return to Risk Ratio of SBI is better than HDFC Bank 18. H1: Overall Return to Risk Ratio of HDFC Bank is better than SBI.
Average Return and Variability HDFC Bank
Period of Study Average Daily Return Average Return during period of study Maximum Return on any day Minimum Return on any day Range of Variation of Return Jan-March 2020 -0.71% -43.59% 12.16% -16.27% 28.42% April – June 2020 0.44% 27.59% 9.97% -7.93% 17.90% July – September 2020 0.09% 5.38% 8.95% -3.71% 12.65% October 2020 – December 2020 0.55% 33.85% 5.22% -2.97% 8.18% Overall (Yearly) 0.10% 26.06% 12.16% -16.27% 28.42%
State Bank of India Period of Study Average
Daily Return Average Return during period of study Maximum Return on any day
Minimum Return on any day Range of Variation of Return Jan-March 2020 -0.76% -47.36% 13.87% -13.38% 27.25% April – June 2020 -0.03% -1.80% 7.90% -6.61% 14.51% July – September 2020 0.03% 1.90% 4.23% -5.65% 9.88% October 2020 – December 2020 0.65% 39.23% 5.63% -6.19% 11.82% Overall (Yearly) -0.03% -7.04% 13.87% -13.38% 27.25% Risk Measurement HDFC Bank
Period of Study Standard Deviation “Value at Risk” (VaR)
Jan-March 2020 4.66% 10.03% April – June 2020 3.80% 6.74% July – September 2020 2.01% 3.39% October 2020 – December 2020 1.62% 3.21% Overall (Yearly) 3.31% 5.25%
State Bank of India
Period of Study Standard Deviation “Value at Risk” (VaR)
Jan-March 2020 4.13% 3.60% April – June 2020 3.07% 6.09% July – September 2020 2.21% 3.61% October 2020 – December 2020 2.37% 4.93% Overall (Yearly) 3.07% 4.35% Analysis of Data
Comparative Study of Return and Risk of stocks of State Bank of India and HDFC Bank during Covid Era
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Period Return Risk
Jan-March 2020
Negative average return for both but State Bank of India has return worse of the two.
HDFC Bank returns had more standard deviation and value at risk, showing higher risk and variability in return as compares to SBI.
April – June 2020
Average Return of SBI remained negative, though it improved as compared to previous quarter. Whereas, HDFC Bank has achieved positive average return.
HDFC Bank has more standard deviation and value at risk, which shows that the stock of HDFC bank has shown more variability in the return as compared to SBI.
July –
September 2020
HDFC Bank shows higher average return as compared to SBI Bank. However, the average return for HDFC Bank fell as compared to the previous quarter.
In this quarter, the stock of SBI has shown more variability in return as compared to HDFC Bank.
October 2020 – December 2020
In this quarter, return on SBI stocks has taken lead.
In this quarter, the stocks of SBI have shown more variability in return and hence higher risk.
Overall (Yearly)
Overall, HDFC Bank has had positive average return for the whole year, whereas SBI has negative return.
Overall, HDFC stocks have shows higher risk (variability in return) but risk to return ratio is better for HDFC bank.
Return to Risk Ratio:
Period of Study State Bank of India HDFC Bank
Jan-March 2020 -11.47 -9.36 April – June 2020 -0.59 7.26 July – September 2020 0.86 2.68 October 2020 – December 2020 16.55 20.90 Overall (Yearly) -2.29 7.87 Hypothesis Testing Parameters Ho H1
Average daily Return Rejected Accepted
Average Total Return during period Rejected Accepted
Range of Return Accepted Rejected
Value at Risk Accepted Rejected
Standard Deviation Accepted Rejected
Return to Risk Ratio Rejected Accepted
6. Conclusion
From the analysis it can be concluded that during Covid Era, though HDFC Bank has shown more variability in return and had more Value at Risk but the average return on its stock have surpassed that of State Bank of India. State Bank of India has given negative returns during the period of consideration.
Also, according to Return-Risk Ratio, HDFC Bank stock had been a better investment alternative during covid era as compared to the stocks of State Bank of India.
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References
1. Krishnaprabhaet .al. “A Study on Risk and Return Analysis of Selected Stocks in India”,International Journal of scientific research and management (IJSRM), Volume (3), April 2015.
2. Poornimaet. al. “A study on relationship between risk and return analysis of selected stocks on NSE using capital asset pricing model”, ISSN: 2394-7500, IJAR March 2017.
3. MuthuGopalakrishnanet. al. “A Study on Risk Return Analysis of Pharmaceutical Industries in Indian Stock Market”, Imperial Journal of Interdisciplinary Research (IJIR), Vol (3), ISSN: 2454-1362, May 2017.
4. Sunil Rashinkaret. al. “A Study on Market Risk Analyses of selected Banking Stocks (Nationalized Banks) in Indian Context”, Reforms through Research, Volume (7), ISSN 2320 – 2939, July 2014. 5. https://in.finance.yahoo.com/
