Risk and Return Trade off: A Study of Indian Pharmaceutical Sector's Stocks

Abstract

The Pharmaceutical sector experienced major shifts and obstacles as a result of
the COVID-19 pandemic. In the post-pandemic era, the industry's continued
significance and prominence can be attributed to a multitude of factors. The
market prices of Pharma equities have risen substantially as a result of the
expansion of the Pharmaceutical industry, which has also garnered the interest
of numerous investors. Policies and efforts taken by the government include
increasing foreign direct investment, research and development, and a focus on
healthcare infrastructure has led to the tremendous growth of Pharmaceutical
businesses in India. In order to make well-informed investment decisions,
investors, financial analysts, and decision-makers rely heavily on the risk and
return characteristics of businesses. The utilisation of risk and return profiles
enables stakeholders and investors to assess the long-term financial
performance of a company. 17 Pharmaceutical companies out of 20
Pharmaceutical companies in India's Indexed Nifty Pharma Index are included in
the sample. The daily returns of a subset of companies were evaluated for the
years 2013 to 2023. The retrieved data was used to compute the daily average
return, standard deviation, variance, and beta for each selected company, in
addition to the Nifty Pharma Index. The correlation coefficient was also computed
for each individual stock and the NSE Nifty Pharma Index. Utilising the Sharpe
ratio, Treynor, Jensen Alpha, and M square formulas, the most volatile stocks
were determined in the Pharmaceutical sector.