Trend analysis of stocks performance listed in BSE (2011-2020)

By Riya Jain and Priya Chetty on January 4, 2021

Stock markets react instantly to dynamic changes in the external environment. Global markets crashed after the 2008 recession is one of the best examples. In such a scenario, trend analysis of stocks using a comparison of average returns and market returns provides an investor with information to make optimal investment decisions. Ideally, average annual returns should be higher than market returns for the investor to earn a profit on his investment.

The previous article examined the variation in the performance of 303 stocks of the Bombay Stock Exchange (BSE) during the global recession of 2008. They were divided into three categories:

  1. income,
  2. growth and
  3. value.

The analysis identified that income stocks are a secure source of investment as they provided investors with good returns even in the presence of a financial crisis. This article examines the performance after the recession, i.e. for the period April 1, 2010 – March 31, 2015, and after BSE market crashes (April 1, 2015 – March 31, 2020).

The trend from the period April 1, 2010, to March 31, 2015

  • Growth stocks: Average return is greater than the market return from 2010 to 2012, after which its performance degraded. In 2013, the average returns stood at -0.001 compared to 0.028 market return. It rebounded in 2014. Hence, majorly, despite the financial crisis, they have witnessed the good performance.
  • Income stocks: For the period 2010-2012, the average return has been less than the market return. It improved drastically in 2013 (average return of 0.097 compared to a market return of 0.028) when the effects of recession started waning. This helped stabilize the income of investors. It improved much more in 2014. Hence, income stocks despite having the existence of high volatility in market outperformed the market return.
  • Value stocks: For the period 2010-2015, the performance deteriorated as the average return was consistently lower than market returns. Hence, value stocks have borne the major influence of financial and economic market fluctuation. This led to diminishing returns for investors of this stock.

The trend of stocks from the period April 1, 2015, to March 31, 2020

  • Growth stocks: For the years 2015, 2016 and 2017, they have shown higher average annual returns than market returns, giving their investors a profit. However, in 2018 and 2019, its performance degraded due to the BSE market crash in 2018 and 2020, thus causing a loss for investors.
  • Income stocks: This category performed well, as average returns exceeded market returns during 2015, 2016 and 2017. However, due to consecutive BSE market crashes in 2015, 2016, and 2018; the average return value reduced to -0.138 against market returns of -0.032 in 2018. The performance further deteriorated in 2019.
  • Value stocks: the performance of this category was varied; average returns exceeded market returns for only two years out of five (2016 & 2017). Therefore, investors earned a profit only during these two years. Thus, they have exhibited a high degree of volatility.

The trend of stocks from the period April 1, 2000, to March 31, 2020

The graph below depicts the trend of average returns and market returns for the entire period (2001-2020).

  • Growth stocks: An examination of the trend for the entire period 2001-2020 depicts high variability in annual average return. However, during most years, the average returns have exceeded market returns, yielding a profit.
  • Income stocks: They have provided steady returns to investors for the period 2001-2020. During all years in which the overall market performance was positive, the average returns exceeded market returns. Income stocks only suffered a setback during the years 2004, 2009, 2010, 2011, 2015 and 2019 due to the poor overall performance of the market owing to different economic crises.
  • Value stocks: They are undervalued, therefore while they are traded at low prices, the returns yielded are also low. The annual average return is higher than the market return until 2005. Thereafter the average returns started falling, leading to lower or negative profits for investors. The presence of volatility in the market and the variation in the financial market condition tends to have a severe influence on the return earned by the investors.

The opportunity of earning profit with the reduction in the variability of annual average returns

A comparison of trends for the period 2001-2020 reveals that:

  • 1st April 2000 – 31st March 2005: Before the global financial crisis of 2008, the variation in the economy reduced the returns on growth stocks. On the other hand, income stocks being the secured source of investment provided higher returns. However, the best performing was value stocks during this period.
  • April 1, 2005 – March 31, 2010: The global financial crisis reduced the return earning possibility for investors. Income stocks were the best-performing during this period and provided the best earning opportunity to investors.
  • April 1, 2010 – March 31, 2015: Growth stocks are considered to be a risky investment but also provide higher than normal returns. During this period, they outperformed income and value stocks.
  • 1st April 2015- 31st March 2020: Similar to the global recession of 2008, during the period of BSE crash (i.e. April 1, 2015 – March 31, 2020), income stocks has overcome the risk induced due to rapid decrease in prices by providing a secure return.
  • April 1, 2000 – March 31, 2020: Cumulative years’ data shows that growth stocks performed best with higher return generating opportunity but in presence of risks, income stocks are the secured investment source. A value stock is the worst-performing one with return generating capacity almost similar to the market return.

Thus, this article shows that for having more earning growth stock is effective investment source but during a crisis or crashes, the investors should opt for a secured source of investment in order to compare performance more descriptively.

Riya Jain
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