Stock Efficiency Analysis : An Application of DEA Modelling to Indian Automobile Sector

Present study tries to explore the efficiency concerns in auto industry, once considered to be the fourth largest industry in India, facing its worst crisis of the decade, through the analysis of the stock related information of representative sample of the 10 top market capitalised auto sector stocks of NIFTY Auto Index. The study adopted a two-stage approach to assess the efficiency of auto industry in India. First stage employs data envelopment analysis (DEA) model using both accounting and market driven inputs(Price Earning Ratio, Beta and Standard deviation)and outputs(Average annual Stock Returns, Earning Per Share)followed by second stage of regression analysis to analyze how far stock returns can be used to assess the efficiency of the concern. The observations of the study conclude sizeable inefficiencies in the automobile firms in India. The average efficiency score of auto stocks has decreased from 71.72% in 2014-15 to 31.52% in 2018-19. Of the stocks evaluated only two are found to be DEA-efficient in 2018-19. MRF Ltd. appearing in the sample set for auto stocks is the best stock in the sample as efficiency score of 1 is persistently maintained throughout the research period. Among the bottom ranked stocks in the sample, Hero Motors Corporation and Mahindra & Mahindra are worst hit and appeared to be the most inefficient stocks in the sample. Regression results confirm the significant effect of Stock Returns in assessing efficiency of a concern