Socially Responsible Investing in India: A Study of Post- Crisis Period

Abstract

The main objective of this paper is to investigate whether the Indian Stock Market encourages the socially responsible companies or not? With an increased focus on Corporate Social Responsibility, the companies are paying more attention to their activities and their impact on society. Simultaneously, the investors have also become conscious of their actions and are investing in the companies that care about the community and environment. We expect the socially responsible companies to perform better than general companies in terms of price discovery and returns in the stock market.

We have taken GREENEX, CARBONEX, SHARIAH, ESG indices as proxies of socially responsible companies whereas SENSEX, NIFTY indices have been taken as the proxies of general companies to study the price discovery process in the indices in terms of growth rate in the post- crisis period. For this we have conducted semi– log regression analysis. Moreover, paired samples t-test has been used to check whether there is significant difference between the returns of socially responsible and generalized indices or not.

We have observed that price discovery process is better in Socially Responsible indices than generalized indices. The returns of Socially Responsible indices are also more in majority of cases. This implies that socially responsible companies are outperforming general companies both in terms of price discovery and returns in the post- crisis period. We can thus say that the investors have now become sensitized to social responsibility and have begun to absorb and internalize the behavior of socially responsible companies.