Industry-wise Study of Fundamental Determinants of Share Prices of BSE Stock Prices in India

Abstract

The stock market is playing an important role in the global economy. It helps in the growth of commerce and industry of a global community and hence, affects the economy to a greater extent. That is reason that the government, industry and even the central banks of the country keep a close watch on the happenings of the stock market. The stock market is important from both the industry’s point of view as well as the investor’s point of view. The objective of this paper is to examine inter industry differences with regard to the impact of fundamental factors on stock prices. The study employs panel data consisting of annual time series data over the period 1998-2013 and cross-section data pertaining to 6 major sectors of the Indian economy. The panel data techniques, viz. Fixed Effects model and Random Effects model have been employed to investigate the objective. The study concludes that Book Value, Dividend Per Share and Growth are main determinants of share prices of banking and financial companies. PER, Book Value, COVER and Growth are the important determinants of share prices of Petroleum and Mining companies. Book Value, ROCE and Earning Per Share are the chief determinants of share prices of IT and communication Companies. DPR, ROCE and dividend per share are important determinants of share prices of FMCG and Miscellaneous Companies. Book Value, earning per share and Growth are significant determinants of share prices of auto and ancillary sector. However Book Value, dividend per share and COVER are being the important determinants of share prices of Drugs and Pharmaceuticals Companies.

Key words: Fundamental, Stock Prices, Book Value, DPS, PER, COVER, IT.