Investigation of overvalued and undervalued stocks: the case of BSE Sensex

Shraddha Mishra and Raj Kumar

International Journal of Business Excellence, 2016, vol. 10, issue 2, 177-189

Abstract: Concerns with overvaluation and undervaluation in financial markets are the focus of behavioural economics and finance (Barberis and Thaler, 2003). The prime objective of the paper is to analyse the valuation of the stocks in the market. There are two giant indices in Indian stock market, i.e., Bombay Stock Exchange and National Stock Exchange (BSE % NSE). We refereed BSE index for the study because of the higher market capitalisation to gross domestic product (GDP) ratio as compared to NSE index. The period of the study is five years from 2009-2013. The top 20 companies listed at BSE on the basis market capitalisation as of 31 March 2013 have been chosen. Due to data inadequacy, two companies namely Coal India Ltd. and Cairn Ltd has not been considered. The study concludes that out of 18 companies, seven are overvalued, whereas, 11 are undervalued. It has also been observed that overvalued companies are the kings of their respective industry and they are retrieving the benefits of their leadership from the market. Finally, the study reveals that the Indian stock market is moderate and efficient in nature.

Keywords: shares valuation; stock markets; market capitalisation; overvalued stocks; undervalued stocks; case study; BSE Sensex; India; gross domestic product; GDP; market leaders. (search for similar items in EconPapers)
Date: 2016
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