Pragmatic Approach to Constructing Optimal Portfolio: Application of Sharpe’s Single Index Model on Nifty 50

R.r Abhijith and K.s Syama
Additional contact information
R.r Abhijith: CET School of Management, College of Engineering, Trivandrum, India.
K.s Syama: CET School of Management, College of Engineering, Trivandrum, India.

Post-Print from HAL

Abstract: This study examines the practical application of Sharpe's Single Index Model in constructing an optimal portfolio from Nifty 50 stocks. The study used secondary stock-market data for Nifty 50 constituent companies for 2019–2024. Return, alpha, beta, variance, systematic risk, unsystematic risk, excess return-to-beta ratio, cut-off rate and portfolio weights were estimated using the model. The Mumbai Inter Bank Offer Rate of 7.225% was used as the risk-free rate for computation. The analysis showed that Adani Enterprises recorded the highest average return of 104.22%, while Eicher Motors recorded the lowest return of -23.04%. Infosys showed the highest alpha of 51.92%, whereas Tata Steel recorded the lowest alpha of -70.43%. The market return of the Nifty 50 index during the study period was 13.66%, and the market variance was 212.46%. Based on the excess return-to-beta ratio and the calculated cut-off point of 13.4097, 12 stocks were selected for inclusion in the optimal portfolio: Hero MotoCorp, Tata Consumer Products, BPCL, Divi's Laboratories, Cipla, Eicher Motors, Bajaj Auto, SBI Life Insurance, Asian Paints, Adani Enterprises, Titan and IndusInd Bank. Tata Consumer Products received the highest portfolio allocation of 29.38%, while IndusInd Bank received the lowest allocation of 0.24%. The constructed portfolio produced an expected return of 18.57%, a portfolio beta of 0.3768, alpha of 13.42%, unsystematic risk of 101.52%, systematic risk of 30.16% and total risk of 131.68%. The findings indicate that Sharpe's Single Index Model provides a structured method for selecting securities and allocating portfolio weights; however, the results should be interpreted within the assumptions and limitations of the model.

Date: 2026-07-10
References: Add references at CitEc
Citations:

Published in Asian Journal of Economics, Finance and Management , 2026, 8 (1), pp.615-633

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05689508

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().