ESG index is Good for Socially Responsible Investor in India

At present time sustainable development is a most concerning phenomenon in almost all parts of the world, mostly in developing countries like India and China. Since almost every country is facing the sustainability challenges distressed with environmental, social, governance and financial crisis, sustainable development has become a universal goal. This paper examines whether ESG(Environment Socially Governance)stocks portfolio (represented by S&P ESG) outperforms the blue chip stocks portfolios and the market portfolio in the Indian stock market, by using absolute rate of return and the risk adjusted measures viz Sharpe ratio and Treynor ratio, Jensen ratio and the CAPM. During the period 30th jan2008 to 30th September 2013, we find that ESG stocks portfolios has outperformed the blue chip and market portfolios .ESG stocks portfolios is found to be highly correlated with blue chip and market portfolios in India stock market. By Using absolute rate of return we find that the ESG stocks portfolio generated higher return than the blue chip and the market portfolio. Monthly mean return on ESG stocks portfolios is found to be higher than the other two stocks portfolios though not significant. Using risk adjusted measures – Sharpe ratio and Treynor and Jensen ratio, we find that ESG stocks portfolio outperform the market. Moreover, ESG stocks portfolio is most aggressive portfolio as it is found to have high systematic risk and the total risk than the other two portfolios. Further regression results shows that high ESG stocks portfolio is providing higher abnormal returns as compared to blue chip stocks portfolio and market portfolio. Daily results are also found to be consistent with the monthly returns. The findings have important implications for the investors who are socially responsible as they can start investing in such stocks to reap higher return as compared to that of the market.