India Size Premium Study 2021

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

Supported by: CA Nikhil Goel & CA Allen Vincent

Corrigendum - Column headers of Sales/Operating profits in Table no. 6,7,8 and 9 had inadvertently been presented in crore as against million. This has been updated in the revised version.

We regret the errata in the earlier publication.

Incwert Size Premium Study is a comprehensive study of past market data of the companies listed on the National Stock Exchange (NSE) of India from 1995 through to December 2020 to analyse the returns that mid-cap, small-cap and micro-cap stocks have generated over the return as predicted by capital asset pricing model (CAPM).

Valuation practitioners in India typically assign size premium in the assessment of the discount rate derived using the capital asset pricing model (“CAPM”) by benchmarking with US-based studies. While the premium across various periods and sizes may be appropriate as a benchmark for a developed economy, the same may not hold for the Indian market which is in the developing category. Our effort in compiling this study is primarily for bridging the gap by gathering and analysing the data for companies in India, which is our premise for us commissioning this study.

Our study finds that the size premium in India is more than that prevalent in the US. Several market disruptions arising from intermittent large scale scams in the historical period, global meltdown and economic slowdown have marked the stock returns with high volatility. While these factors result in annual variation over the time series, it does not restrict us from drawing reasonable conclusions by smoothening the output over a longer duration.

We hope you find the results of our study of interest and value. Click on the button provided above to access the report.