The Capital Asset Pricing Model also known as CAPM is a well-known financial theory which proposes a linear association between the risk and the required rate of return of an investment. The model divides risk into systematic and unsystematic components. It is based on the relationship between the beta of the assets and the equity risk premium along with the risk-free rate of return. The current study aims to investigate the applicability of CAPM in the Indian security market using selected Nifty companies. The top five companies from the Nifty financial service index have been selected based on their market capitalization The relationship between CAPM returns and actual returns is examined for the period of ten years from 2013-2022 using monthly log returns. The current study found that there was a discrepancy between the expected return based on the CAPM and the actual return generated in the market during the time period investigated, which caused the stock to be overvalued and undervalued. The study also demonstrates that for a given company over time, higher beta results in better return.

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Keywords: CAPM, Systematic Risk, Beta, SML.