India Size Premium Study 2022

Authored by: CA Punit Khandelwal, CA Sunit Khandelwal and Prof. Divya Aggarwal (EMLV, France; ex-professor IIM, Ranchi)

Supported by: CA Akshat Jain & Chahak Garg

The second edition of Incwert's India Size Premium Study 2022 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 2021 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).

We observed that valuation practitioners in India at times assign size premiums in their 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.