A multi-criteria decision-making approach to rank the sectoral stock indices of national stock exchange of India based on their performances

Dev Gupta; Akanksha Parikh; Tapan Kumar Datta; Dev Gupta; Akanksha Parikh; Tapan Kumar Datta

doi:10.3934/NAR.2021014

National Accounting Review

2021, Volume 3, Issue 3: 272-292. doi: 10.3934/NAR.2021014

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Research article

A multi-criteria decision-making approach to rank the sectoral stock indices of national stock exchange of India based on their performances

1.
Department of Electrical and Electronics Engineering, BITS Pilani, Dubai Campus, Dubai International Academic City, P.O. Box 345055, UAE
2.
Department of Biotechnology, BITS Pilani, Dubai Campus, Dubai International Academic City, P.O. Box 345055, UAE
3.
Associate Professor of Mathematics, BITS Pilani, Dubai Campus, Dubai International Academic City, P.O. Box 345055, UAE
^# BITS Pilani, Dubai Campus Alumni. Major portion of this research was done by these authors at BITS Pilani, Dubai Campus

Received: 18 March 2021 Accepted: 13 July 2021 Published: 15 July 2021
JEL Codes: C02, C61, G11

The ideal sector for an investment is a challenge for any capital market investor. This complexity is primarily attributed to the dynamic and volatile nature of public policies and macroeconomic factors that indirectly impact a sector's growth. In recent years, India in particular, has witnessed dynamic policies being implemented by the Government, such as Demonetization and Goods and Services Tax (GST), which led to sudden changes in the market forces. Thus, it is imperative that researchers focus on developing new scientific techniques for selecting the ideal sector to invest in capital markets. Understanding and analyzing a sector's behaviour is of prime importance to investors in any emerging capital market. This task appears to be complex as an investor needs to decide from a diverse set of sectors, where performance ranking can conflict with another for different variables. A volatile sector might be ranked higher on pure returns but would be ranked lower if risk-adjusted performance was considered. This is commonly referred to as a multiple criteria decision-making (MCDM) problem. In this paper, we consider the data of eleven Nifty sectoral indices from the National Stock Exchange (NSE) of India from January 2017 to December 2018. We apply three MCDM methods—COPRAS, SAW, and TOPSIS to rank the sectors and provide a holistic overview of their performance. Additionally, we propose a hybrid-ranking approach to solve the issue of divergent rankings from different MCDM techniques. We conclude that Nifty Financial service is the best performer in this volatile period. Once the rankings were obtained, we confirmed our results with actual fundamental events that took place in the economy. Through our research, potential investors can utilize our technique to rank the performance of sectoral indices for their specific region at any given time period.
- Indian stock market,
- multiple criteria decision-making (MCDM),
- TOPSIS,
- SAW,
- COPRAS,
- spearman's rank correlation coefficient,
- GST,
- demonetization
Citation: Dev Gupta, Akanksha Parikh, Tapan Kumar Datta. A multi-criteria decision-making approach to rank the sectoral stock indices of national stock exchange of India based on their performances[J]. National Accounting Review, 2021, 3(3): 272-292. doi: 10.3934/NAR.2021014

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Abstract

The ideal sector for an investment is a challenge for any capital market investor. This complexity is primarily attributed to the dynamic and volatile nature of public policies and macroeconomic factors that indirectly impact a sector's growth. In recent years, India in particular, has witnessed dynamic policies being implemented by the Government, such as Demonetization and Goods and Services Tax (GST), which led to sudden changes in the market forces. Thus, it is imperative that researchers focus on developing new scientific techniques for selecting the ideal sector to invest in capital markets. Understanding and analyzing a sector's behaviour is of prime importance to investors in any emerging capital market. This task appears to be complex as an investor needs to decide from a diverse set of sectors, where performance ranking can conflict with another for different variables. A volatile sector might be ranked higher on pure returns but would be ranked lower if risk-adjusted performance was considered. This is commonly referred to as a multiple criteria decision-making (MCDM) problem. In this paper, we consider the data of eleven Nifty sectoral indices from the National Stock Exchange (NSE) of India from January 2017 to December 2018. We apply three MCDM methods—COPRAS, SAW, and TOPSIS to rank the sectors and provide a holistic overview of their performance. Additionally, we propose a hybrid-ranking approach to solve the issue of divergent rankings from different MCDM techniques. We conclude that Nifty Financial service is the best performer in this volatile period. Once the rankings were obtained, we confirmed our results with actual fundamental events that took place in the economy. Through our research, potential investors can utilize our technique to rank the performance of sectoral indices for their specific region at any given time period.

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