Green is Good in Indian Stock Market

Vanita Tripathi, Varun Bhandari

 Over the past few years the concept of green investing has received considerable attention and has led to the formation of different forms of green investment avenues / portfolios, mutual funds, index, etc. This paper examines whether green stocks portfolio outperforms non-green stocks portfolios and market portfolio in Indian stock market. We use absolute rate of return as well as risk adjusted measures viz Sharpe ratio, Treynor ratio and Jensen’s Alpha to evaluate the performance of green and non-green stocks portfolios. The study period spans from 1stApril 2000 to 31st march 2012 and is further divided into three sub periods – before financial crisis (2004 – 2007), during financial crisis (2007 – 2009), and after financial crisis (2009 – 2012). We find that although green stocks portfolio underperformed (but not significantly) non-green stocks portfolios during pre-crisis period; it significantly outperformed non green stocks portfolio as well as market portfolio during crisis period. Green stocks portfolio provided an average monthly return of 0.14% as compared to -0.59% on market portfolio during the recent financial crisis. Moreover, green stocks portfolio is also found to have lower systematic risk as well as total risk than other portfolios. Green non blue chip stocks portfolio has shown the highest return per unit of total risk as well as systematic risk in the post crisis period. This lends support to the case of green investing in Indian stock market. These findings have important implications for companies, regulators, policy makers and investors at large. It proves that green stocks can be used to build up defensive and better performing portfolios by socially responsible investors in India. The regulators and policy makers can take steps to ensure socially responsible allocation of scarce resources and companies can very well understand the positive effects of being green, especially in times of crisis.

Keywords: Socially Responsible Investing, Green Investing, Indian Stock Market, GREENEX, Sharpe Ratio, Treynor Ratio, Performance Evaluation