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

P. Srinivasan
Publication date: 
JEL codes: 
C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series, G30 - General, G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill.
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.
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