ECONOMIC VALUE ADDED VALUATION IN INDIAN OIL AND NATURAL GAS SECTOR.

The Economic Value Added technique popularly known as EVA estimates the excess returns or residual wealth created by a firm over its cost of capital. It relects the true value creation that an entity creates based on its operating after tax profits and forms an edifice of fundamental analysis. The paper in its assessment of EVA for the BSE Oil and Natural Gas constituent companies between 2017 and 2021, evaluates the risk existing in the Oil and Natural Gas sector with the computation of beta using the CAPM approach. The beta has been unlevered and levered in the measurement of cost of equity and the cost of debt has been estimated with the Synthetic Default spread method. The paper provides consideration to India’s risk free rates and equity risk premium for the cost of capital assessment. The overall cost of capital has been computed and utilised for the measurement of EVAs for the period of five years chosen. Further the paper also estimates the abnormal returns of the stock with monthly prices durng the period and attempts to find any relationship existing between the returns with EVAs. The paper finally converts the EVA values into a DCF valuation to estimate the intrinsic value of the share and compares it with the average closing monthly share price of the year.The results disclose proximity to the market prices and reveal the success of the method in reflecting true values. This proximity would also illustrate evidence of the market efficiency as the markets understand all information to reflect market prices close to its the real intrinsic prices. The EVA has revealed a statistically insignificant relationship between EVA and AAR for all the sample companies. The negative t value -2.816 indicates that the relationship between EVA and stock return is negative which means negative EVAs have produced positive abnormal returns but the significance value of t 0.007 is closer to proving the association between them, EVA could be taken as a valid indicator of stock performance. [ABSTRACT FROM AUTHOR]