In the post-liberalization era, India’s stock market has seen a renewed life. With the creation of SEBI, opening it up to foreign investors, establishment of NSE, initation of screen-based trading, dematerialization and presentation of derivatives instruments, it has undergone a structural transformation. In all aspects, the market’s activities have increased. The market capitalization has risen dramatically. There has been an increase in the number of companies that are listed. The most remarkable phenomenon is the movement in secondary market share prices. This can be reflected in the up- or downtrend in major share price indexes. The performance of an economy is reflected in the stock market.
People are tempted to invest in stocks when the economy is doing well and companies make a profit. They expect a higher return on their stockholdings. The most important decision-making process involves risk and return analysis.
The study shows that investors choose ICICI and SBI to invest their money because they have lower capital costs and are less likely to experience losses. Jenson’s Alpha data shows that these companies have earned more than 7 percent above the expected return. Because the market is less volatile, long-term investors can take advantage of it. The market is more volatile than the shares, and long-term investors can predict when the share will rise.
Cost of Equity: The return stockholders need to invest in a company’s business is called the price of equity. It can be difficult to calculate the price of equity because share capital has no explicit cost. Equity is not like debt which the company must pay in predetermined interest. However, it does not have an exact price. But that doesn’t mean equity has no costs. Common stockholders hope to receive a certain return on equity investments in companies. Investors can use the risk-return analysis to establish the balance between portfolio risk and return. The required return rate for equity holders is a price. If the company fails to deliver the expected return, shareholders will sell their shares and the price will drop. The cost of equity simply refers to the amount it costs for the company to maintain an share price that is theoretically acceptable to investors. This is the basis for the Nobel Prize-winning capital-asset pricing model (CAPM). The cost of equity can be calculated using the following formula: Cost of Equity = Beta x Risk Premium + Risk-Free Rate
Investors are also helping to determine market trends because of the current economic excesses and stock market run.
