A study on the performance of Agro based stocks- An Evidence from select listed companies

 

Krishnamurthy. A¹, B. Suresha²

¹Student, Master of Business Administration Finance Management, Christ (Deemed to be University), Bengaluru, Karnataka 560029

²Associate Professor, Department of Management Studies, Christ (Deemed to be University), Bengaluru, Karnataka 560029

 

ABSTRACT:

Agriculture has a great significant value in Indian Economy. Indian agriculture sector contributes to about 18% of India’s GDP. It provides employment to over 50% of the countries’ workforce. Hence, investment in such companies is very valuable and it can help in optimal utilization of all the resources present and also in bringing in innovation into the industry. Given the potential of stock market, a study is carried out on the stock liquidity of the agro-based companies. The major determinants of stock liquidity are Current market price, Volume of shares traded, Earnings per share, Price to Earnings Ratio, Dividend, Earnings yield and Dividend yield. Data has been collected from CMIE Prowess for a period of 10 years (2007-2017) for 38 companies. Tests such as Regression and Granger Causality has been performed on these variables. It has been observed that Dividend yield, Dividend and Current Market price has a great effect on the Volume of shares trades and Dividend yield and Earnings yield are closely related.

 

 

 

1.       INTRODUCTION:

Agro processing could be characterized as set of techno-economic activities performed for preservation and treatment of agricultural materials and to make it useful as feed, fiber, fuel or industrial raw material. India is the second or third largest producer of many crops such as wheat, rice, pulses, eggs, sugarcanes and numerous numbers of vegetables. However, in India there is more untapped potential of employment in this particular sector.

 

The growth of these industries depends greatly on access to capital or finance which can be obtained from various sources. Major portion of the funding van be obtained from the equity shares sold on the stock exchange.

 

The activities of stock market are therefore of interest to both the consumers and producers in planning their decisions.

 

Market liquidity alludes to a market's capacity to enable advantages for be purchased and sold effectively and rapidly, for example, a nation's money related markets or land showcase. The market for a stock is fluid if its offers can be rapidly purchased and sold and the exchange has little effect on the stock's cost. Organization stocks exchanged on the significant trades are commonly viewed as fluid.Thus, this study attempts to give a clear view on the price, quantity and value movements of shares from selected agro based companies to determine their performance in the economy.

 

2.       REVIEW OF LITERATURE:

The objective of the study conducted by Hall, Olivera, Silva and Gimenes (2017) was to analyze the competitiveness of companies of the Brazil's publicly traded food companies by the Resource-advantage Theory. Therefore, financial indicators of sixteen food companies, listed on the BM and Fbovespa, were assessed in the period from 2011 to 2016. Resource Advantage Theory, which establishes financial performance as superior, at parity and inferior. The results revealed that about 20% of the companies had superior financial performance. Omondi and Muturi, (2013) conducted a study on the factors affecting the Financial Performance of Listed Companies at the Nairobi Securities Exchange in Kenya. The study used an explanatory research design. Findings showed that liquidity had a significant positive effect on financial performance. It indicates that liquidity plays an important role in improving company’s financial performance. The study used a single measure of financial performance (ROA). Ravichandran (2014) conducted a study to analyse the financial performance of Force motor limited. Earning capacity or profitability, solvency and the financial strength was studied by evaluating financial statement. The study also involved comparison of the financial performance and analysis of the financial changes over a period of five years. The study concludes that the financial performance is fair. The company has been maintaining good financial performance. It was found that to improve, the company has to concentrate on its operating, Administrative and selling expenses. Yanxiang Gu (2015) studied the relative performance of stocks with different features, such as value and growth. Data of daily close, price to book value (P/B) ratio and total asset for 103 semiconductor firms is collected.  This study reveals that firms within the semiconductor sector categorized by size and price/book ratios exhibit different performances during both bullish and bearish market trends. Growth stock and small stock outperformed value stock and large stock along the bullish trend from September 1998 to March 2000, but value stock and medium-size stock became outperformers along the October 2002 – January 2004 bullish trend.

 

Analysis was carried out in the internal analysis of the firm and relationship between the stock price, quantity and value movements were performed in the foreign markets, but none have explored the volatility of the stocks of the Indian stock market. So, given the potential of the stock market to provide required capital for agro-based companies, a time series analysis of the performance of major selected agricultural-based companies in India was carried out.Also, with the tremendous changes in the present market scenario, study methods need to be personalized according to the needs of the Market requirement.

 

3.       METHODOLOGY:

The objective of this study is to find the long-term relationship between the determinants of stock liquidity and to find the Causality between the different variables. Stratified Random sample was adopted and companies were chosen on the basis of whether the company was listed since before 2008 (As the period of study was 2007-2017) and also if the company followed the same reporting period April to March since before 2008. For the purpose of this study 38 companies where chosen out of the 89 companies in Food Processing, Pesticides and Agro chemicals, Rubber, Vanaspati and oil, Textile mill, tea andcoffee,Sugar, Fertilisers, Tractors companies.

 

Secondary Data was collected from financial statements of the companies (Annual Reports), CMIE Prowess, NSE Webpage for a period of 10 years is April 2007 to Mar 2017.

 

Data collected are Volume of shares traded, Current Market Price, Dividend, Earnings per share, Price to Earnings ratio, Dividend yield, Earnings yield. The hypothesis framed for this study are:

H0: There is no impact of Current Market Price, P/E, EPS, Earnings yield, Dividend yield on Volume of shares traded.

H1: There is an impact of Current Market Price, Dividend, P/E, EPS, Earnings yield, Dividend yield on Volume of shares traded.

H0: Current Market Price, Dividend, P/E, EPS, Dividend yield, Earnings yield does not Granger cause on Volume of shares traded.

H1: Current Market Price, Dividend, P/E, EPS, Dividend yield, Earnings yield Granger causes on Volume of shares traded.

 

The statistical tests used in this study are Descriptive statistics, Unit root test, Regression and Granger Causality.

 

4.       EMPIRICAL RESULTS AND DISCUSSIONS:

4.1.  Descriptive Statistics:

Table 01 Table showing Descriptive statistics of all the selected variables

Variables	Mean	Median	Std. Dev.	Jarque- Bera	Probability
Current Market Price	182.9000	73.6600	367.0700	11940.2300	0.0000
Dividend	4.5200	1.9000	12.7500	475134.2000	0.0000
Dividend Yield	4.3800	1.8300	8.2600	5152.0300	0.0000
Earnings Yield	0.1600	0.0800	0.4800	5192.4440	0.0000
EPS	46.0100	7.9400	26.6000	734.7600	0.0000
P/E	12.1600	6.1800	109.5100	139118	0.0000
Volume of shares traded	302125	72151	894605	159441.6000	0.0000

 

 

 

Table 4.1.1. Descriptive statistics:

Meanis the measure of the centre of the distribution of the data, it is obtained by adding up the series and dividing it by the number of observations. If the data are symmetric, then the mean and median are similar. The median is a robust measure of the centre of the distribution that is less sensitive to outliers than the mean. The standard deviation is the measure of dispersion. Lower the standard deviation, it indicates that most of the numbers are very close to the average. Higher the standard deviation, it indicates that the numbers are spread out.

 

 

The symbol for Standard Deviation is σ.

 

Earnings yield and dividend yield have a lower standard deviation, so it means that their values are close to the average. A greater Jarque-Bera value indicates that variables are not normally distributed. The JB value of Dividend, P/E, Current Market Price, Dividend yield, Earnings yield, EPS and Volume of shares traded are very high, it indicates that these variables are not normally distributed. Probability value is less than 0.05, significant at 1% level. So, reject the null Hypothesis. Therefore, Current Market Price, Dividend, Dividned yield, Earnings yield, EPS, P/E, VOL are not normally distributed.

 

4.2.  Unit Root Test (ADF):

Table 02 Table showing the probability values of all the variables after ADF test (at level)

Variables	Probability
Current Market Price	0.0000
Dividend	0.0004
Dividend Yield	0.0056
Earnings Yield	0.0000
EPS	0.0000
P/E	0.0000
Volume of shares traded	0.0000

 

Table 4.2.1.  ADF test:

Since p value is less than 0.05, significant at 1% level for all the variables. Reject null hypothesis. So, Current Market Price, Dividend, Dividend yield, Earnings yield, EPS, P/E, Volume of shares traded are stationary.

 

4.3.  Regression Analysis:

Table 03 Table showing the regression result

Dependent Variable- Volume of Shares traded

Variables	Co-Efficient	Probability
Current Market Price	-0.6500	0.0468
Dividend	-0.1405	0.0375
Dividend Yield	0.2281	0.0100
Earnings Yield	-1.0968	0.5100
EPS	-0.1158	0.5400
P/E	5.0100	0.9900
C	2.6000	0.0000

 

R-Squared	0.3900
Adjusted R- Squared	0.1400

 

Table 4.3.1.  Regression Analysis:

VOL = 2.6 – 0.65 current Market Price – 0.1405 Dividend – 0.11 EPS+ 5.01 P/E + 0.22 Dividend yield – 1.0968 Earnings yield + Ɛ

 

Since the p-value of P/E, EPS, Earnings yield is greater than 0.05, it is insignificant. Accept null hypotheses. So, P/E, EPS, Earnings yield has no impact on Volume of shares traded. Since the p-value of Dividend yield, Dividend and Current Market price is less than 0.05. Reject null hypotheses. So, Dividend yield, Dividend and Current Market price has an impact on Volume if shares traded. One unit increases in current market price will decrease the Volume of shares traded by 0.65 units. One unit increases in dividend will decrease the Volume of shares traded by 0.1405 units. One unit increases in dividend yield will increase the Volume of shares traded by 0.2281 units. R-squared value measures the "goodness of fit”. It is also known as the coefficient of determination. The value ‘0.39’, indicates that 39% of the variability is explained by this model.

 

4.4 Granger Causality:

Table 04 Table showing Granger causality output

Null Hypothesis:	Probability
CURRENT MARKET PRICE does not Granger cause DIVIDEND	0.0004
DIVIDEND does not Granger cause CURRENT MARKET PRICE	0.0005
DIVIDENO_YIELD does not Granger cause DIVIDEND	0.5800
DIVIDEND does not Granger cause DIVIDEND_YIELD	0.0600
EARNINGS_YIELD does not Granger cause DIVIDEND	0.5200
DIVIDEND does not Granger cause EARNINGS_YIELD	0.5900
P/E does not Granger cause DIVIDEND	0.6700
DIVIDEND does not Granger cause P/E	0.4100
EPS does not Granger cause DIVIDEND	0.0005
DIVIDEND does not Granger cause EPS	0.1400
Volume of shares traded does not Granger Cause DIVIDEND	0.8100
DIVIDEND does not Granger Cause Volume of shares traded	0.8900
DIVIDENO_YIELD does not Granger cause CURRENT MARKET PRICE	0.8100
CURRENT MARKET PRICE does not Granger cause DIVIDEND_YIELD	0.0020
EARNINGS_YIELD does not Granger cause CURRENT MARKET PRICE	0.9200
CURRENT MARKET PRICE does not Granger cause EARNINGS_YIELD	0.0100
P_E does not Granger Cause CURRENT MARKET PRICE	0.3500
CURRENT MARKET PRICE does not Granger Cause P_E	0.2400
EPS does not Granger Cause CURRENT MARKET PRICE	0.0500
CURRENT MARKET PRICE does not Granger Cause EPS	0.0002
Volume of shares traded does not Granger Cause CURRENT MARKET PRICE	0.5500
CURRENT MARKET PRICE does not Granger Cause Volume of shares traded	0.5000
EARNINGS_YIELD does not Granger cause DIVIDEND YIELD	0.1800
DIVIDEND_YIELD does not Granger cause EARNINGS YIELD	0.0400
P/E does not Granger cause DIVIOEND_YIELD	0.9700
DIVIDEND_YIELD does not Granger cause P/R	0.8600
EPS does not Granger cause DIVIDEND_YIELD	0.8400
DIVIDEND_YIELD does not Granger cause EPS	0.7500
Volume of shares traded does not Granger cause DIVIDEND_YIELD	0.8300
DIVIDEND_YIELD does not Granger cause Volume of shares traded	0.0500
P/E does not Granger cause EARNINGS_YIELD	0.8700
EARNINGS_YIELD does not Granger cause P/E	0.9800
EPS does not Granger cause EARNINGS_YIELD	0.8200
EARNINGS_YIELD does not Granger cause EPS	0.0900
Volume of shares traded does not Granger cause EARNINGS_YIELD	0.6300
EARNINGS_YIELD does not Granger cause Volume of shares traded	0.4600
EPS does not Granger Cause P_E	0.2400
P_E does not Granger Cause EPS	0.5200
Volume of shares traded does not Granger Cause P_E	0.7500
P_E does not Granger Cause Volume of shares traded	0.9900
Volume of shares traded does not Granger Cause EPS	0.7600
EPS does not Granger Cause Volume of shares traded	0.5200

 

Table 4.4.1. Granger Causality:

Current Market Price and dividend influence each other. It indicates that change in Dividend is because of Current Market Price and vice versa. EPS Granger causes Dividend. Current Market Price Granger causes Dividend Yield. Current Market Price Granger causes Dividend. Current Market Price Granger causes Earnings Yield. Dividend Yield Granger causes Earnings Yield.

 

5.       SUMMARY OF FINDINGS:

A long-run stable relationship exists between volume of shares traded and dividend, Current Market price and dividend yield. P/E, EPS, Earnings yield has no impact on Volume of shares traded. Dividend yield has an impact on Volume if shares traded. Similarly, Dividend Yield Granger causes Earnings Yield. Current Market Price and EPS influences the Dividend to be given to the shareholders.

 

The agricultural sector provides great opportunities for long-term investment. This study gives a view on the performance of the agro-based companies. In investment “Moving with the crowd” strategy is affecting the overall capital gains of the stockholders. This study will help the stockholders by making them aware and refrain them from investing more in the banking and oil sectors.

 

India has been a traditional exporter of raw agricultural products like spices. It requires correct assessment of world market, high quality of raw produce, high quality of processed product and competitive production cost. A large number of sugar mills operating in India are fairly obsolete and many of the units have gone sick in the recent past.

 

6.       CONCLUSIONS AND SUGGESTIONS:

Further research can be done by doing an internal analysis of the company also, which will provide us with an overview of the company and similar research can be performed sector-wise for all the companies listed in BSE and NSE. Some limitations faced in this study are that, some companies could not be analysed as there was change in their reporting period and data of unlisted companies was unavailable for study.

 

In the future, Indian agriculture sector will achieve an ambitious goal of doubling farm income. It is expected to attain a great height with a better speed because of the increased investments in this sector. The investment is mainly focused in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. The Indian government has taken many steps to increase the investments in Agribusiness like deregulation of the sector from license, import duties and relaxing FDI norms.

 

The adoption of food safety and quality assurance mechanisms by the food processing industry will generate greater investments into this sector. The various quality assurance standards are Total Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices (GHP).

 

7. REFERENCES:

1.      Ayinde, I. A. (2013). Analysis of the performance of agro-based companies in the Nigerian stock exchange. Journal of Agribusiness in Developing and Emerging Economies, 3(2), 119-130.

2.      Ayinde, I. A., Ayanwale, A. O. S., Shittu, M. A., and Kareem, R. O. (2013). Analysis of the performance of agro-based companies in the Nigerian stock exchange. Journal of Agribusiness in Developing and Emerging Economies, 3(2), 119–130.

3.      Dhiman, P. K., and Rani, M. S. A. (2011). Problems and Prospects of Small Scale Agro Based Industries: an Analysis of Patiala District. International Journal of Multidisciplinary Research, 1(4), 129–142.

4.      Gandhi, V., Kumar, G., and Marsh, R. (1999). Agroindustry for rural and small farmer development: Issues and lessons from India. International Food and Agribusiness Management Review, 2(3), 331–344.

5.      Generation, E., and Alleviation, P. (2016). Turkish Economic Review, 2(1). https://doi.org/10.1453/ter.v3i3.843

6.      José, R., Vilella, C., Branco, C., Bruno, T., and Silva, D. J. (n.d.). Analysis of the Competitiveness of the Brazilian Food Industry by Resource-Advantage Theory, 2024, 404–424.

7.      Khosla, R. (2013). Inter industry differences in efficiency of agro processing industries in Indian states. International journal of arts and commerce. 1(3), 1-21.

8.      Mandu, M. (2014). Effect of Working Capital Management on Financial Performance on Nonfinancial Firms Listed in the Nairobi Securities Exchange. Journal of Management Research, 2(2), 30–35.

9.      Odalo, S. K., Achoki, G., and Njuguna, A. (2016). Relating Company Size and Financial Performance in Agricultural Firms Listed in the Nairobi Securities Exchange in Kenya. International Journal of Economics and Finance, 8(9), 34. https://doi.org/10.5539/ijef.v8n9p34

10.   Puri, V. (2012). Agribusiness: A great career opportunity for talented people. International Food and Agribusiness Management Review, 15(SPECIALISSUEA), 27–30.

11.   Omondi, M. M., and Muturi, W. (2013). Factors Affecting the Financial Performance of Listed Companies at the Nairobi Securities Exchange in Kenya Research Journal of Finance and Accounting. Operations Management Journal, 12, 297-310.

12.   Shanthi.M, and Kirubadevi.J. (2018). A study on financial performance analysis of Indian bank. International Journal of Research in Pharmacy and Science, 2(11), 662–666.

 

 

 

 

 

 

Received on 26.02.2019            Modified on 18.04.2019

Accepted on 30.05.2019           ©A&V Publications All right reserved