ANALYSIS OF POWER AND

ENERGY SECTOR
CORPORATE FINANCE PROJECT

Nakul Agarwal (10FN-065)

Nitin Sharda (10IB-044)
Puneet Aggarwal (10DM-108)
Rahul Kumar (10IB-049)
Rahul Verma (10DM-115)
Rabindra Chakraborty (10DM-111)
Executive Summary
This study analyses the risk and return pattern in the Indian power and energy
sector. For this purpose, 3 BSE listed companies were chosen, namely, NTPC Ltd.,
ONGC Ltd. and Tata Power Ltd. Various Risk and Return analysis have been done
based on the data taken.

Monthly data is taken for the three companies and also for the BSE index.

The risk free rate is assumed to be equal to the reverse repo rate.

Standard Deviation
Standard Deviation is a measure of the dispersion of a set of data from its mean. The more
spread apart the data, the higher the deviation. Standard deviation is calculated as the square
root of variance. 

In finance, standard deviation is applied to the annual rate of return of an investment to

measure the investment's volatility. Standard deviation is also known as historical volatility
and is used by investors as a gauge for the amount of expected volatility. For example, a
volatile stock will have a high standard deviation while the deviation of a stable blue chip
stock will be lower. A large dispersion tells us how much the return on the fund is deviating
from the expected normal returns.

The mathematical formula is as follows:

where: σ = standard deviation

X = Stock’s return
Xbar = Stock’s avg return
N = number of values taken

The historical data for three companies in power & energy sector were taken and standard
deviation was calculated for them based on the closing stock prices and also on the monthly
returns.

NTPC Ltd.

Standard deviation based on stock’s closing price.

Date Close (X) X-Xbar (X-Xbar)2
01/11/201
0 187.9 -7.81389 61.05685957
01/10/201
0 194.95 -0.76389 0.583526235
01/09/201
0 216.9 21.18611 448.851304
02/08/201
0 195.75 0.036111 0.001304012
01/07/201
0 198.6 2.886111 8.329637346
01/06/201
0 199.15 3.436111 11.80685957
03/05/201
0 202 6.286111 39.5151929
01/04/201
0 206.95 11.23611 126.2501929
02/03/201
0 207 11.28611 127.376304
01/02/201
0 203 7.286111 53.08741512
04/01/201
0 214.25 18.53611 343.5874151
01/12/200
9 235.7 39.98611 1598.889082
03/11/200
9 209.75 14.03611 197.0124151
01/10/200
9 211.4 15.68611 246.0540818
01/09/200
9 213.7 17.98611 323.5001929
03/08/200
9 212.65 16.93611 286.8318596
01/07/200
9 215.6 19.88611 395.4574151
01/06/200
9 195.05 -0.66389 0.440748457
04/05/200
9 215.45 19.73611 389.5140818
01/04/200
9 190.15 -5.56389 30.95685957
02/03/200
9 180.2 -15.5139 240.6807485
02/02/200
9 184.2 -11.5139 132.5696373
01/01/200
9 189.5 -6.21389 38.61241512
01/12/200
8 181 -14.7139 216.4985262
03/11/200
8 159.6 -36.1139 1304.212971
 01/10/200
8 140.55 -55.1639 3043.054637
01/09/200
8 171.75 -23.9639 574.2679707
01/08/200
8 175.2 -20.5139 420.8196373
01/07/200
8 170.45 -25.2639 638.2640818
02/06/200
8 151.65 -44.0639 1941.626304
02/05/200
8 172.25 -23.4639 550.5540818
01/04/200
8 196.75 1.036111 1.073526235
03/03/200
8 197 1.286111 1.65408179
01/02/200
8 201.75 6.036111 36.43463735
01/01/200
8 197.9 2.186111 4.77908179
03/12/200
7 250.05 54.33611 2952.412971
05/11/200
7 236.65

Total 7045.7 Total 16786.61806

Xbar 195.7139 Variance 479.6176587
St Dev 21.90017486

Standard deviation based on stock’s monthly returns

Date Close Returns Returns(%) (X) X-Xbar (X-Xbar)2

01/11/201
0 187.9 -0.036163119 -3.616311875 -3.346359264 11.19812032
01/10/201
0 194.95 -0.101198709 -10.11987091 -9.849918297 97.02089046
01/09/201
0 216.9 0.108045977 10.8045977 11.07455031 122.6456646
02/08/201
0 195.75 -0.014350453 -1.435045317 -1.165092706 1.357441013
01/07/201
0 198.6 -0.002761737 -0.276173738 -0.006221127 3.87024E-05
01/06/201
0 199.15 -0.014108911 -1.410891089 -1.140938478 1.30174061
03/05/201
0 202 -0.023918821 -2.391882097 -2.121929486 4.502584743
01/04/201
0 206.95 -0.000241546 -0.024154589 0.245798022 0.060416668
02/03/201 207 0.019704433 1.97044335 2.240395961 5.019374062
0
01/02/201
0 203 -0.052508751 -5.250875146 -4.980922535 24.8095893
04/01/201
0 214.25 -0.091005515 -9.100551549 -8.830598937 77.97947759
01/12/200
9 235.7 0.123718713 12.37187128 12.64182389 159.8157112
03/11/200
9 209.75 -0.007805109 -0.78051088 -0.510558269 0.260669746
01/10/200
9 211.4 -0.010762752 -1.076275152 -0.806322541 0.65015604
01/09/200
9 213.7 0.004937691 0.493769104 0.763721715 0.583270859
03/08/200
9 212.65 -0.013682746 -1.368274583 -1.098321971 1.206311153
01/07/200
9 215.6 0.105357601 10.53576006 10.80571267 116.7634264
01/06/200
9 195.05 -0.094685542 -9.468554189 -9.198601578 84.61427098
04/05/200
9 215.45 0.133052853 13.3052853 13.57523791 184.2870844
01/04/200
9 190.15 0.055216426 5.521642619 5.791595231 33.54257531
02/03/200
9 180.2 -0.021715527 -2.17155266 -1.901600049 3.616082746
02/02/200
9 184.2 -0.027968338 -2.796833773 -2.526881162 6.385128406
01/01/200
9 189.5 0.046961326 4.696132597 4.966085208 24.66200229
01/12/200
8 181 0.134085213 13.4085213 13.67847391 187.1006486
03/11/200
8 159.6 0.135538954 13.55389541 13.82384802 191.0987741
01/10/200
8 140.55 -0.181659389 -18.16593886 -17.89598625 320.266324
01/09/200
8 171.75 -0.019691781 -1.969178082 -1.699225471 2.887367201
01/08/200
8 175.2 0.02786741 2.78674098 3.056693591 9.343375709
01/07/200
8 170.45 0.123969667 12.3969667 12.66691931 160.4508448
02/06/200
8 151.65 -0.119593614 -11.95936139 -11.68940878 136.6422777
02/05/200
8 172.25 -0.124523507 -12.4523507 -12.18239809 148.4108232
01/04/200
8 196.75 -0.001269036 -0.126903553 0.143049058 0.020463033
03/03/200
8 197 -0.02354399 -2.354399009 -2.084446397 4.344916784
01/02/200 201.75 0.01945427 1.945426983 2.215379595 4.907906748
 8
01/01/200
8 197.9 -0.208558288 -20.85582883 -20.58587622 423.7782999
03/12/200
7 250.05 0.056623706 5.662370589 5.932323201 35.19245856
05/11/200
7 236.65
Total -9.718294005 Total 2586.726508
Xbar -0.269952611 Variance 73.90647165
St Dev 8.596887324

ONGC Ltd.

Standard deviation based on stock’s closing price.

Date Close (X) X-Xbar (X-Xbar)2

01/11/201
0 1277.7 230.2444 53012.5
01/10/201
0 1303.25 255.7944 65430.8
01/09/201
0 1401.55 354.0944 125382.9
02/08/201
0 1338.75 291.2944 84852.45
01/07/201
0 1242.55 195.0944 38061.84
01/06/201
0 1320.4 272.9444 74498.67
03/05/201
0 1167.2 119.7444 14338.73
01/04/201
0 1055.1 7.644444 58.43753
02/03/201
0 1098.5 51.04444 2605.535
01/02/201
0 1117.05 69.59444 4843.387
04/01/201
0 1099.8 52.34444 2739.941
01/12/200
9 1177.55 130.0944 16924.56
02/11/200
9 1199.05 151.5944 22980.88
01/10/200
9 1132.7 85.24444 7266.615
01/09/200
9 1171.3 123.8444 15337.45
03/08/200
9 1185.2 137.7444 18973.53
01/07/200 1164.5 117.0444 13699.4
 9
01/06/200
9 1067.1 19.64444 385.9042
01/05/200
9 1175.9 128.4444 16497.98
01/04/200
9 865.5 -181.956 33107.82
02/03/200
9 779.7 -267.756 71693.04
02/02/200
9 691.15 -356.306 126953.6
01/01/200
9 658.2 -389.256 151519.9
01/12/200
8 667.65 -379.806 144252.3
03/11/200
8 695.35 -352.106 123978.3
01/10/200
8 669.8 -377.656 142623.7
01/09/200
8 1035.55 -11.9056 141.7423
01/08/200
8 1023.3 -24.1556 583.4909
01/07/200
8 996.05 -51.4056 2642.531
02/06/200
8 814.7 -232.756 54175.15
01/05/200
8 864.3 -183.156 33545.96
01/04/200
8 1033.4 -14.0556 197.5586
03/03/200
8 981.35 -66.1056 4369.944
01/02/200
8 1012.35 -35.1056 1232.4
01/01/200
8 988.4 -59.0556 3487.559
03/12/200
7 1236.5 189.0444 35737.8
05/11/200
7 1170.75
Total 37708.4 Total 1508134
Xbar 1047.456 Variance 43089.55
St Dev 207.5802
Standard deviation based on stock’s monthly returns

Date Close Returns Returns(%) (X) X-Xbar (X-Xbar)2

01/11/201
0 1277.7 -0.019604834 -1.960483407 -2.905067494 8.439417146
01/10/201 1303.25 -0.070136634 -7.013663444 -7.958247531 63.33370377
 0
01/09/201
0 1401.55 0.04690943 4.690943044 3.746358956 14.03520543
02/08/201
0 1338.75 0.077421432 7.742143173 6.797559086 46.20680953
01/07/201
0 1242.55 -0.058959406 -5.895940624 -6.840524711 46.79277833
01/06/201
0 1320.4 0.131254284 13.12542838 12.18084429 148.3729676
03/05/201
0 1167.2 0.106245853 10.62458535 9.68000126 93.70242439
01/04/201
0 1055.1 -0.039508421 -3.950842057 -4.895426145 23.96519714
02/03/201
0 1098.5 -0.01660624 -1.660623965 -2.605208052 6.787108996
01/02/201
0 1117.05 0.01568467 1.568466994 0.623882907 0.389229881
04/01/201
0 1099.8 -0.06602692 -6.60269203 -7.547276117 56.96137679
01/12/200
9 1177.55 -0.017930862 -1.793086193 -2.737670281 7.494838565
02/11/200
9 1199.05 0.058576852 5.857685177 4.91310109 24.13856232
01/10/200
9 1132.7 -0.032954837 -3.295483651 -4.240067738 17.97817442
01/09/200
9 1171.3 -0.011727978 -1.17279784 -2.117381927 4.483306227
03/08/200
9 1185.2 0.017775869 1.777586947 0.83300286 0.693893764
01/07/200
9 1164.5 0.091275419 9.127541936 8.182957849 66.96079915
01/06/200
9 1067.1 -0.092524875 -9.252487456 -10.19707154 103.9802681
01/05/200
9 1175.9 0.358636626 35.86366262 34.91907854 1219.342046
01/04/200
9 865.5 0.110042324 11.0042324 10.05964831 101.1965241
02/03/200
9 779.7 0.1281198 12.81198003 11.86739595 140.8350865
02/02/200
9 691.15 0.050060772 5.00607718 4.061493093 16.49572614
01/01/200
9 658.2 -0.014154123 -1.415412267 -2.359996354 5.569582792
01/12/200
8 667.65 -0.039836054 -3.983605379 -4.928189466 24.28705141
03/11/200
8 695.35 0.038145715 3.814571514 2.869987426 8.236827828
01/10/200
8 669.8 -0.353193955 -35.31939549 -36.26397958 1315.076215
01/09/200 1035.55 0.011971074 1.197107398 0.25252331 0.063768022
 8
01/08/200
8 1023.3 0.027358064 2.735806435 1.791222348 3.2084775
01/07/200
8 996.05 0.222597275 22.25972751 21.31514342 454.335339
02/06/200
8 814.7 -0.057387481 -5.73874812 -6.683332207 44.66692939
01/05/200
8 864.3 -0.163634604 -16.36346042 -17.30804451 299.5684047
01/04/200
8 1033.4 0.053039181 5.303918072 4.359333985 19.00379279
03/03/200
8 981.35 -0.030621821 -3.062182052 -4.006766139 16.05417489
01/02/200
8 1012.35 0.024231081 2.423108053 1.478523966 2.186033118
01/01/200
8 988.4 -0.200646987 -20.06469875 -21.00928283 441.3899652
03/12/200
7 1236.5 0.056160581 5.616058082 4.671473995 21.82266929
05/11/200
7 1170.75
Total 34.00502715 Total 4868.054675
Xbar 0.944584087 Variance 139.0872764
St Dev 11.79352689

TATA POWER Ltd

Standard deviation based on stock’s closing price

Date Close (X) X-Xbar (X-Xbar)2

01/11/201
0 1328.1 157.0389 24661.21262
01/10/201
0 1394.6 223.5389 49969.63485
01/09/201
0 1354.3 183.2389 33576.4904
02/08/201
0 1224.45 53.38889 2850.373457
01/07/201
0 1319.8 148.7389 22123.25707
01/06/201
0 1305.55 134.4889 18087.26123
03/05/201
0 1272.1 101.0389 10208.85707
01/04/201
0 1350 178.9389 32019.12596
02/03/201
0 1372.6 201.5389 40617.92373
01/02/201 1212.95 41.88889 1754.679012
 0
04/01/201
0 1305.8 134.7389 18154.56818
01/12/200
9 1377.95 206.8889 42803.01235
03/11/200
9 1348.95 177.8889 31644.45679
01/10/200
9 1343.2 172.1389 29631.79707
01/09/200
9 1319.45 148.3889 22019.26235
03/08/200
9 1308.8 137.7389 18972.00151
01/07/200
9 1302.05 130.9889 17158.08901
01/06/200
9 1149.7 -21.3611 456.2970679
04/05/200
9 1070.3 -100.761 10152.80151
01/04/200
9 893.95 -277.111 76790.5679
02/03/200
9 765.3 -405.761 164642.0793
02/02/200
9 726.4 -444.661 197723.5037
01/01/200
9 761.45 -409.611 167781.2623
01/12/200
8 748.35 -422.711 178684.6835
03/11/200
8 669.15 -501.911 251914.7635
01/10/200
8 689.65 -481.411 231756.6579
01/09/200
8 906.05 -265.011 70230.88901
01/08/200
8 1051 -120.061 14414.6704
01/07/200
8 1160.1 -10.9611 120.1459568
02/06/200
8 1053.25 -117.811 13879.4579
02/05/200
8 1356.65 185.5889 34443.23568
01/04/200
8 1392.3 221.2389 48946.64596
03/03/200
8 1171.9 0.838889 0.703734568
01/02/200
8 1401.1 230.0389 52917.8904
01/01/200 1280 108.9389 11867.68151
 8
03/12/200
7 1470.95 299.8889 89933.34568
05/11/200
7 1172.3
Total 42158.2 Total 2032909.286
Xbar 1171.061 Variance 58083.12244
St Dev 241.0044034
Standard deviation based on stock’s monthly returns

Date Close Returns Returns(%) (X) X-Xbar (X-Xbar)2

01/11/201
0 1328.1 -0.047683924 -4.768392371 -5.75546 33.12533
01/10/201
0 1394.6 0.02975707 2.975707007 1.988639 3.954683
01/09/201
0 1354.3 0.106047613 10.60476132 9.617693 92.50002
02/08/201
0 1224.45 -0.072245795 -7.224579482 -8.21165 67.43116
01/07/201
0 1319.8 0.01091494 1.091494006 0.104426 0.010905
01/06/201
0 1305.55 0.026295103 2.629510259 1.642442 2.697615
03/05/201
0 1272.1 -0.057703704 -5.77037037 -6.75744 45.66298
01/04/201
0 1350 -0.016465103 -1.646510272 -2.63358 6.935737
02/03/201
0 1372.6 0.131621254 13.1621254 12.17506 148.232
01/02/201
0 1212.95 -0.071105836 -7.11058355 -8.09765 65.57197
04/01/201
0 1305.8 -0.05236039 -5.236039044 -6.22311 38.72707
01/12/200
9 1377.95 0.021498202 2.149820231 1.162752 1.351992
03/11/200
9 1348.95 0.004280822 0.428082192 -0.55899 0.312466
01/10/200
9 1343.2 0.017999924 1.799992421 0.812924 0.660845
01/09/200
9 1319.45 0.008137225 0.813722494 -0.17335 0.030049
03/08/200
9 1308.8 0.005184133 0.518413271 -0.46866 0.219638
01/07/200
9 1302.05 0.132512829 13.25128294 12.26421 150.411
01/06/200
9 1149.7 0.074184808 7.4184808 6.431412 41.36306
04/05/200
9 1070.3 0.197270541 19.72705409 18.73999 351.1871
01/04/200 893.95 0.168104011 16.81040115 15.82333 250.3779
 9
02/03/200
9 765.3 0.053551762 5.355176211 4.368108 19.08037
02/02/200
9 726.4 -0.0460306 -4.603059951 -5.59013 31.24954
01/01/200
9 761.45 0.017505178 1.750517806 0.763449 0.582855
01/12/200
8 748.35 0.118359112 11.83591123 10.84884 117.6974
03/11/200
8 669.15 -0.029725223 -2.972522294 -3.95959 15.67836
01/10/200
8 689.65 -0.238838916 -23.88389162 -24.871 618.5647
01/09/200
8 906.05 -0.13791627 -13.79162702 -14.7787 218.4098
01/08/200
8 1051 -0.094043617 -9.404361693 -10.3914 107.9818
01/07/200
8 1160.1 0.101447899 10.14478994 9.157721 83.86386
02/06/200
8 1053.25 -0.223639111 -22.3639111 -23.351 545.2682
02/05/200
8 1356.65 -0.025605114 -2.560511384 -3.54758 12.58532
01/04/200
8 1392.3 0.188070654 18.80706545 17.82 317.5523
03/03/200
8 1171.9 -0.163585754 -16.35857541 -17.3456 300.8714
01/02/200
8 1401.1 0.094609375 9.4609375 8.473869 71.80646
01/01/200
8 1280 -0.129814066 -12.98140657 -13.9685 195.1183
03/12/200
7 1470.95 0.254755609 25.47556086 24.48849 599.6863
05/11/200
7 1172.3
Toal 35.53446444 Total 4556.76
Xbar 0.987068457 Variance 130.1932
St Dev 11.41022

Variance
A measure of the dispersion of a set of data points around their mean value. Variance is a
mathematical expectation of the average squared deviations from the mean.

Variance measures the variability (volatility) from an average. Volatility is a measure of risk,
so this statistic can help determine the risk an investor might take on when purchasing a
specific security.
Since variance is square of the standard deviation, we obtain the values directly.

NTPC Ltd.

Variance based on stock’s closing price = 479.6176587

Variance based on stock’s returns = 73.90647165

ONGC Ltd.

Variance based on stock’s closing price = 43089.55

Variance based on stock’s returns = 139.0872764

TATA POWER Ltd.

Variance based on stock’s closing price = 58083.12244

Variance based on stock’s returns = 130.1932

Covariance
Covariance is a measure of the degree to which returns on two risky assets move in tandem.
A positive covariance means that asset returns move together. A negative covariance means
returns move inversely. Possessing financial assets that provide returns and have a high
covariance with each other will not provide very much diversification.

For example, if stock A's return is high whenever stock B's return is high and the same can be
said for low returns, then these stocks are said to have a positive covariance. If an investor
wants a portfolio whose assets have diversified earnings, he or she should pick financial
assets that have low covariance to each other.

The covariance as calculated in excel is:

NTPC Ltd.
Covariance = 44239.08707

Stock's Close Market

Date (X) X-Xbar Close (Y) Y-Ybar Covariance
01/11/201
0 187.9 -7.81389 19957.59 4559.036944 -35623.8081
01/10/201
0 194.95 -0.76389 20032.34 4633.786944 -3539.69836
01/09/201
0 216.9 21.18611 20069.12 4670.566944 98951.15024
02/08/201
0 195.75 0.036111 17971.12 2572.566944 92.89825077
01/07/201
0 198.6 2.886111 17868.29 2469.736944 7127.935237
01/06/201
0 199.15 3.436111 17700.9 2302.346944 7911.119917
03/05/201
0 202 6.286111 16944.63 1546.076944 9718.811459
01/04/201
0 206.95 11.23611 17558.71 2160.156944 24271.76345
02/03/201
0 207 11.28611 17527.77 2129.216944 24030.57901
01/02/201
0 203 7.286111 16429.55 1030.996944 7511.958292
04/01/201
0 214.25 18.53611 16357.96 959.4069444 17783.67372
01/12/200
9 235.7 39.98611 17464.81 2066.256944 82621.57976
03/11/200
9 209.75 14.03611 16926.22 1527.666944 21442.50297
01/10/200
9 211.4 15.68611 15896.28 497.7269444 7807.400154
01/09/200
9 213.7 17.98611 17126.84 1728.286944 31085.16101
03/08/200
9 212.65 16.93611 15666.64 268.0869444 4540.350279
01/07/200
9 215.6 19.88611 15670.31 271.7569444 5404.188792
01/06/200
9 195.05 -0.66389 14493.84 -904.7130556 600.6289452
04/05/200
9 215.45 19.73611 14625.25 -773.3030556 -15261.995
01/04/200
9 190.15 -5.56389 11403.25 -3995.303056 22229.42228
02/03/200
9 180.2 -15.5139 9708.5 -5690.053056 88274.85088
02/02/200
9 184.2 -11.5139 8891.61 -6506.943056 74920.21935
01/01/200
9 189.5 -6.21389 9424.24 -5974.313056 37123.71751
01/12/200
8 181 -14.7139 9647.31 -5751.243056 84623.15129
03/11/200
8 159.6 -36.1139 9092.72 -6305.833056 227728.1543
01/10/200
8 140.55 -55.1639 9788.06 -5610.493056 309496.6155
01/09/200
8 171.75 -23.9639 12860.43 -2538.123056 60823.29889
01/08/200
8 175.2 -20.5139 14564.53 -834.0230556 17109.05629
 01/07/200
8 170.45 -25.2639 14355.75 -1042.803056 26345.26053
02/06/200
8 151.65 -44.0639 13461.6 -1936.953056 85349.68422
02/05/200
8 172.25 -23.4639 16415.57 1017.016944 -23863.1726
01/04/200
8 196.75 1.036111 17287.31 1888.756944 1956.962056
03/03/200
8 197 1.286111 15644.44 245.8869444 316.2379313
01/02/200
8 201.75 6.036111 17578.72 2180.166944 13159.72992
01/01/200
8 197.9 2.186111 17648.71 2250.156944 4919.093098
03/12/200
7 250.05 54.33611 20286.99 4888.436944 265618.653
05/11/200
7 236.65 19363.19
7045.7 554347.91 1592607.134
195.7138889 15398.55306
Xbar Ybar Covariance 44239.08707
ONGC Ltd.
Covariance = 592991.3288

Stock's Close Market Close

Date (X) X-Xbar (Y) Y-Ybar Covariance
01/11/201
0 1277.7 230.2444 19957.59 4559.036944 1049692.928
01/10/201
0 1303.25 255.7944 20032.34 4633.786944 1185296.957
01/09/201
0 1401.55 354.0944 20069.12 4670.566944 1653821.807
02/08/201
0 1338.75 291.2944 17971.12 2572.566944 749374.4589
01/07/201
0 1242.55 195.0944 17868.29 2469.736944 481831.9571
01/06/201
0 1320.4 272.9444 17700.9 2302.346944 628412.8077
03/05/201
0 1167.2 119.7444 16944.63 1546.076944 185134.1248
01/04/201
0 1055.1 7.644444 17558.71 2160.156944 16513.19975
02/03/201
0 1098.5 51.04444 17527.77 2129.216944 108684.696
01/02/201
0 1117.05 69.59444 16429.55 1030.996944 71751.65957
04/01/201
0 1099.8 52.34444 16357.96 959.4069444 50219.6235
01/12/200
9 1177.55 130.0944 17464.81 2066.256944 268808.5493
02/11/200
9 1199.05 151.5944 16926.22 1527.666944 231585.8217
01/10/200
9 1132.7 85.24444 15896.28 497.7269444 42428.45686
01/09/200
9 1171.3 123.8444 17126.84 1728.286944 214038.7365
03/08/200
9 1185.2 137.7444 15666.64 268.0869444 36927.48723
01/07/200
9 1164.5 117.0444 15670.31 271.7569444 31807.64059
01/06/200
9 1067.1 19.64444 14493.84 -904.7130556 -17772.58536
01/05/200
9 1175.9 128.4444 14625.25 -773.3030556 -99326.48136
01/04/200
9 865.5 -181.956 11403.25 -3995.303056 726967.5871
02/03/200
9 779.7 -267.756 9708.5 -5690.053056 1523543.317
02/02/200
9 691.15 -356.306 8891.61 -6506.943056 2318459.96
01/01/200
9 658.2 -389.256 9424.24 -5974.313056 2325534.548
01/12/200
8 667.65 -379.806 9647.31 -5751.243056 2184354.064
03/11/200
8 695.35 -352.106 9092.72 -6305.833056 2220318.851
01/10/200
8 669.8 -377.656 9788.06 -5610.493056 2118833.872
01/09/200
8 1035.55 -11.9056 12860.43 -2538.123056 30217.76504
01/08/200
8 1023.3 -24.1556 14564.53 -834.0230556 20146.29025
01/07/200
8 996.05 -51.4056 14355.75 -1042.803056 53605.87041
02/06/200
8 814.7 -232.756 13461.6 -1936.953056 450836.5845
01/05/200
8 864.3 -183.156 16415.57 1017.016944 -186272.3035
01/04/200
8 1033.4 -14.0556 17287.31 1888.756944 -26547.52816
03/03/200
8 981.35 -66.1056 15644.44 245.8869444 -16254.49307
01/02/200
8 1012.35 -35.1056 17578.72 2180.166944 -76535.97179
01/01/200
8 988.4 -59.0556 17648.71 2250.156944 -132884.2684
03/12/200
7 1236.5 189.0444 20286.99 4888.436944 924131.8464
05/11/200
7 1170.75 19363.19
 37708.4 554347.91 21347687.84
Xbar 1047.455556 Ybar 15398.55306 Covariance 592991.3288

TATA POWER Ltd.

Covariance = 740632.5479

Market
Date Close (X) X-Xbar Close (Y) Y-Ybar Covariance
01/11/201
0 1328.1 157.0389 19957.59 4559.036944 715946.0962
01/10/201
0 1394.6 223.5389 20032.34 4633.786944 1035831.585
01/09/201
0 1354.3 183.2389 20069.12 4670.566944 855829.4974
02/08/201
0 1224.45 53.38889 17971.12 2572.566944 137346.4908
01/07/201
0 1319.8 148.7389 17868.29 2469.736944 367345.929
01/06/201
0 1305.55 134.4889 17700.9 2302.346944 309640.0824
03/05/201
0 1272.1 101.0389 16944.63 1546.076944 156213.8966
01/04/201
0 1350 178.9389 17558.71 2160.156944 386536.0835
02/03/201
0 1372.6 201.5389 17527.77 2129.216944 429120.0172
01/02/201
0 1212.95 41.88889 16429.55 1030.996944 43187.31645
04/01/201
0 1305.8 134.7389 16357.96 959.4069444 129269.4257
01/12/200
9 1377.95 206.8889 17464.81 2066.256944 427485.6034
03/11/200
9 1348.95 177.8889 16926.22 1527.666944 271754.9753
01/10/200
9 1343.2 172.1389 15896.28 497.7269444 85678.16319
01/09/200
9 1319.45 148.3889 17126.84 1728.286944 256458.5794
03/08/200
9 1308.8 137.7389 15666.64 268.0869444 36925.99785
01/07/200
9 1302.05 130.9889 15670.31 271.7569444 35597.1402
01/06/200
9 1149.7 -21.3611 14493.84 -904.7130556 19325.6761
04/05/200
9 1070.3 -100.761 14625.25 -773.3030556 77918.8751
01/04/200
9 893.95 -277.111 11403.25 -3995.303056 1107142.869
02/03/200 765.3 -405.761 9708.5 -5690.053056 2308802.25
 9
02/02/200
9 726.4 -444.661 8891.61 -6506.943056 2893384.529
01/01/200
9 761.45 -409.611 9424.24 -5974.313056 2447145.009
01/12/200
8 748.35 -422.711 9647.31 -5751.243056 2431114.342
03/11/200
8 669.15 -501.911 9092.72 -6305.833056 3164967.675
01/10/200
8 689.65 -481.411 9788.06 -5610.493056 2700953.696
01/09/200
8 906.05 -265.011 12860.43 -2538.123056 672630.8111
01/08/200
8 1051 -120.061 14564.53 -834.0230556 100133.7347
01/07/200
8 1160.1 -10.9611 14355.75 -1042.803056 11430.28016
02/06/200
8 1053.25 -117.811 13461.6 -1936.953056 228194.5916
02/05/200
8 1356.65 185.5889 16415.57 1017.016944 188747.0447
01/04/200
8 1392.3 221.2389 17287.31 1888.756944 417866.4878
03/03/200
8 1171.9 0.838889 15644.44 245.8869444 206.2718256
01/02/200
8 1401.1 230.0389 17578.72 2180.166944 501523.1815
01/01/200
8 1280 108.9389 17648.71 2250.156944 245129.5974
03/12/200
7 1470.95 299.8889 20286.99 4888.436944 1465987.924
05/11/200
7 1172.3 19363.19
42158.2 554347.91 26662771.73
Xbar 1171.061 Ybar 15398.55306 Covariance 740632.5479

Correlation
Correlation is a statistical measure of how two securities move in relation to each other.
Correlations are used in advanced portfolio management. It is computed into what is known
as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a
correlation co-efficient of +1) implies that as one security moves, either up or down, the other
security will move in lockstep, in the same direction. Alternatively, perfect negative
correlation means that if one security moves in either direction the security that is perfectly
negatively correlated will move by an equal amount in the opposite direction. If the
correlation is 0, the movements of the securities are said to have no correlation; they
are completely random.
Here we calculate beta. The Beta (β) of a stock or portfolio is a number describing the
relation of its returns with that of the financial market as a whole.

NTPC Ltd.

Beta = 0.7466

SUMMARY
OUTPUT

Regression Statistics
0.65700098
Multiple R 8
0.43165029
R Square 8
Adjusted R
Square 0.41493413
0.07472342
Standard Error 7
Observations 36

ANOVA
Significance
  df SS MS F F
0.14418128 25.8223239
Regression 1 0.144181284 4 6 1.34649E-05
0.00558359
Residual 34 0.189842079 1
Total 35 0.334023364      

Standard
  Coefficients Error t Stat P-value
0.00752193 0.60367579 0.55006590
Intercept 2 0.012460218 5 2
0.74658487 5.08156707 1.34649E-
Monthly Returns 7 0.146920205 7 05

ONGC Ltd.

Beta = 0.6176

SUMMARY
OUTPUT
 Regression Statistics
0.74563603
Multiple R 3
0.55597309
R Square 4
Adjusted R
Square 0.54291348
0.06604707
Standard Error 8
Observations 36

ANOVA
Significance
  df SS MS F F
0.18570800 42.5719364
Regression 1 0.185708003 3 5 1.80826E-07
0.00436221
Residual 34 0.148315361 6
Total 35 0.334023364      

Standard
  Coefficients Error t Stat P-value
- -
0.00032765 0.02966755 0.97650565
Intercept 1 0.011044103 1 7
0.61764308 6.52471734
Monthly Returns 9 0.094662045 7 1.80826E-07

TATA POWER Ltd.

Beta = 0.7105

SUMMARY
OUTPUT

Regression Statistics
0.82986519
Multiple R 9
0.68867624
R Square 8
Adjusted R 0.67951966
Square 7
0.05530381
Standard Error 5
Observations 36

ANOVA
 Significance
  df SS MS F F
0.23003395 75.2110698
Regression 1 0.230033957 7 2 3.92019E-10
0.00305851
Residual 34 0.103989407 2
Total 35 0.334023364      

Standard
  Coefficients Error t Stat P-value
- -
0.00150667 0.16283619 0.87161140
Intercept 6 0.009252709 3 1
0.71050621 8.67243159
Monthly Returns 6 0.08192699 8 3.92019E-10

Coefficient of Variation
It is a statistical measure of the dispersion of data points in a data series around the mean.
The coefficient of variation represents the ratio of the standard deviation to the mean, and it
is  a useful statistic for comparing the degree of variation from one data series to another,
even if the means are drastically different from each other.

The coefficient of variation represents the ratio of the standard deviation to the mean, and it
is  a useful statistic for comparing the degree of variation from one data series to another,
even if the means are drastically different from each other.

It is calculated as follows:

NTPC Ltd.

Coefficient of Variation = 0.111898931

ONGC Ltd.

Coefficient of Variation = 0.198175693

TATA POWER Ltd.

Coefficient of Variation = 0.205800023

Range
It is a stock's low price and high price for a particular trading period, such as the close of a
day's trading, the opening of a day's trading, a day, a month, or a year. Range is the difference
between the low price and the high price.

NTPC Ltd.

Min = 140.55

Max = 250.05

Range = 109.5

ONGC Ltd.

Min = 658.2

Max = 1401.55

Range = 743.35

TATA POWER Ltd.

Min = 669.15

Max = 1470.95

Range = 801.8

Mean
Mean is simple mathematical average of a set of two or more numbers. The mean for a given
set of numbers can be computed in more than one way, including the arithmetic mean
method, which uses the sum of the numbers in the series, and the geometric mean method.
However, all of the primary methods for computing a simple average of a normal number
series produce the same approximate result most of the time.

If stock XYZ closed at $50, $51 and $54 over the past three days, the arithmetic mean would
be the sum of those numbers divided by three, which is $51.67.

In contrast, the geometric mean would be computed as third root of the numbers' product, or
the third root of 137,700, which approximately equals $51.64. While the two numbers are not
exactly equal, they can be considered equivalent for everyday purposes.

NTPC Ltd.

Arithmetic Mean = 195.7138889

Geometric Mean = 194.4780526

ONGC Ltd.

Arithmetic Mean = 1047.455556

Geometric Mean = 1025.324321

TATA POWER Ltd.

Arithmetic Mean = 1171.061

Geometric Mean = 1142.548

Security Market Line

Security market line (SML) is the graphical representation of the Capital asset pricing model.
It displays the expected rate of return of an individual security as a function of systematic,
non-diversifiable risk (its beta).

The Y-intercept (beta=0) of the SML is equal to the risk-free interest rate. The slope of the
SML is equal to the market risk premium and reflects the risk return trade off at a given time:

When used in portfolio management, the SML represents the investment's opportunity cost
(investing in a combination of the market portfolio and the risk-free asset). All the correctly
priced securities are plotted on the SML. The assets above the line are undervalued because
for a given amount of risk (beta), they yield a higher return. The assets below the line are
overvalued because for a given amount of risk, they yield a lower return.

Market Risk premium used in India is 6.1. The source of this information is
http://www.scribd.com/doc/32121177/Market-Risk-Premium-Used-in-2010-by-Analysts-and-Companies

The risk free rate is equivalent to the reverse repo rate of India. Hence, the risk free rate is
taken as 5.25%.

SML
16.00%

14.00%

12.00%

10.00%
SML
8.00%

6.00%

4.00%

2.00%

0.00%
0 0.5 1 1.5 2 2.5 3

WACC
WACC is a calculation of a firm's cost of capital in which each category of capital is
proportionately weighted. All capital sources - common stock, preferred stock, bonds and any
other long-term debt - are included in a WACC calculation. All else equal, the WACC of a
firm increases as the beta and rate of return on equity increases, as an increase in WACC
notes a decrease in valuation and a higher risk.

The WACC equation is the cost of each capital component multiplied by its proportional
weight and then summing:

Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V=E+D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate

Broadly speaking, a company’s assets are financed by either debt or equity. WACC is the
average of the costs of these sources of financing, each of which is weighted by its respective
use in the given situation. By taking a weighted average, we can see how much interest the
company has to pay for every dollar it finances.

A firm's WACC is the overall required return on the firm as a whole and, as such, it is often
used internally by company directors to determine the economic feasibility of expansionary
opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk
that is similar to that of the overall firm.

Tax rate is assumed to be 35%

NTPC Ltd.

WACC = 7.74% (2009-10)

Rs. Millions
2009-10 2008-09 2007-08
PAT 87282 82013 74148
Dividend 31332 29683 28859
Equity 1021156 945362 814581
g 0.0556 0.0286 0.0938

0.0862828 0.05999 0.1292280

Co Equity (Re) 7 9 3

Debt 377970 345678 271906

Tax Rate 35% 35% 35%
Co Debt (Rd) 0.0534 0.0545 0.0511

Preferred Stock 0 0 0

0.7298527 0.73224 0.7497383

We 8 8 8
0.2701472 0.26775 0.2502616
Wd 2 2 2

0.0773996 0.05852 0.1096755

WACC 6 6 8

cash flow 113783 105658 95533

NPV 343,262.19
ONGC Ltd.

WACC = 9.39% (2009-10)

Rs. Millions
2009-10 2008-09 2007-08
PAT 167675.69 161263.15 167016.47
Dividend 70582.8 68443.93 68443.93
1126064.5
Equity 8 1025733.5 904709.07
g 0.0312 0 0.0321

0.0938809 0.0667268
Co Equity (Re) 5 2 0.10775297

Debt 49.75 267.35 369.42

Tax Rate 35% 35% 35%
Co Debt (Rd) 0.0562 0.0543 0.5543

Preferred Stock 0 0 0

0.9999558 0.9997394
We 2 3 0.99959184
0.0002605
Wd 4.4178E-05 7 0.00040816

0.0938792 0.0667235
WACC 9 8 0.10793524

cash flow 314407.44 280805.12 265212.21

NPV 939,502.30

TATA POWER Ltd.

WACC = 9.08% (2009-10)

Rs. Crores
2009-10 2008-09 2007-08
PAT 947.65 967.5 811.31
Dividend 253.46 233.21 197.29
14004.9
Equity 16703.56 9 11155.12
g 0.0868 0.1821 0.1768

0.1019740 0.19875
Co Equity (Re) 1 2 0.194486

Debt 5872.01 5198.2 3037.27

 Tax Rate 35% 35% 35%
Co Debt (Rd) 0.0591 0.0593 0.05

Preferred Stock 0 0 0

0.7398953 0.72930
We 8 5 0.785993
0.2601046 0.27069
Wd 2 5 0.214007

0.0908222 0.16100
WACC 8 3 0.163565

cash flow 1425.59 1296.35 1101.81

NPV 4,422.38

NPV
The difference between the present value of cash inflows and the present value of cash
outflows. NPV is used in capital budgeting to analyze the profitability of an investment or
project. 

NPV analysis is sensitive to the reliability of future cash inflows that an investment or project

will yield.

NPV compares the value of a dollar today to the value of that same dollar in the future, taking
inflation and returns into account. If the NPV of a prospective project is positive, it should be
accepted. However, if NPV is negative, the project should probably be rejected because cash
flows will also be negative.

For example, if a retail clothing business wants to purchase an existing store, it would first
estimate the future cash flows that store would generate, and then discount those cash flows
into one lump-sum present value amount, say $565,000. If the owner of the store was willing
to sell his business for less than $565,000, the purchasing company would likely accept the
offer as it presents a positive NPV investment. Conversely, if the owner would not sell for
less than $565,000, the purchaser would not buy the store, as the investment would present a
negative NPV at that time and would, therefore, reduce the overall value of the clothing
company.

NPV calculation is shown in the solution of WACC.

NTPC Ltd.

NPV = 343262.19 Million Rs.

ONGC Ltd.
NPV = 939502.30 Million Rs.

TATA POWER Ltd.

NPV = 4422.38 Crore Rs.