India Equity Risk Premium 2021

Authored by: CA Punit Khandelwal, CA Sunit Khandelwal and Prof. Divya Aggarwal (IIM, Ranchi)


We are pleased to issue the third edition of the India Equity Risk Premium (2021) study, which analyses the risk premium to be considered when determining the cost of equity using the capital asset pricing model.

The study focusses on quantitative analysis to derive the current equity risk premium under different approaches including a) historical premium, b) survey approach, c) country bond default spread approach, d) country bond default spread approach adjusted for relative country risk, e) domestic market volatility relative to a developed market, f) and implied equity risk premium.

In this issue, we have expanded the coverage of historical ERP to both Sensex and NIFTY50 indices. A detailed cross-section of the value of ERP is presented in this report, allowing a user to choose the time frame as deemed appropriate.

Continuing COVID-19 crisis has weakened a broad-based immediate recovery, and the economy’s outlook in the near term remains fragile. However, with a sharp recovery in the market, the investor return expectations have rebounded to previous levels. Accordingly, based on the current market conditions, we recommend India ERP of 7.5% ( 7% and 8% being the lower and upper limit of the range, respectively) beginning April 2021.

We hope you find the results of our study of interest and value.