Determinants of Equity Share Prices in India: A Panel Data Approach

Srinivasan P

Romanian Economic Journal, 2012, vol. 15, issue 45, 205-228

Abstract: The present study examines the fundamental determinants of share price in India. The study employs panel data consisting of annual time series data over the period 2006-2011 and cross-section data pertaining to 6 major sectors of the Indian economy, namely, Heavy and Manufacturing, Pharmaceutical, Energy, IT and ITES, Infrastructure and Banking. The panel data techniques, viz. Fixed Effects model and Random Effects model have been employed to investigate the objective. The empirical results reveal that the dividend per share has a negative and significant impact on the share price of manufacturing, pharmaceutical, energy and infrastructure sectors. These results are consistent with findings of Zahir and Khanna (1982), Malhotra (1987) and Sharma (2011), that dividend has influenced market price of share significantly in negative direction. The evidences show that earning per share and price-earnings ratio are being the crucial determinants of share prices of manufacturing, pharmaceutical sector, energy, infrastructure and commercial banking sectors. The findings indicate that size is being a significant factor in determining the share prices of all sectors under consideration except manufacturing. Moreover, the book value per share positively influences the share prices of pharmaceutical, energy, IT & ITES and Infrastructure. The present study confirms that performance of the fundamental ratios of the industry will be essential and immense helpful to investors and analysts in assessing the better stocks that belong to different industry groups.

Keywords: Fixed Effects Model; Random Effects Model; Fundamental Determinants; Equity Share Prices. (search for similar items in EconPapers)
JEL-codes: C23 G30 G32 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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