Factors that Determine the Market Prices of NIFTY 200 Manufacturing Companies: A Literature Review

Author(s)

KRISHNA JYOTREDDY MAGULURI

Affiliations

Symbiosis Institute of Business Management(SIBM), Hyderabad

Abstract

This is a paper to determine which factors have an impact on equity share prices of NIFTY 200 manufacturing companies and also to study the effects of such factors on equity share prices. This paper attempts to determine which factors play a significant role in equity share price determination. These factors will be analysed from a company, industry and macroeconomic perspective. A wide variety of databases and journals in fields such as business management, finance and economics were surveyed to acquire the desired literature for the current study. The conceptual paper findings identify the various factors that have an influence on perceptions (values, environmental factors, and media) and also whether investor’s unique characteristics has bearing on their investment decisions towards equity shares. Conclusions from the literature state that certain factors play a key role in how prices of equity shares are determined and that the investor’s understanding of the currently available information should be considered. The final sections provide the methodology to be used for carrying out the present study on the effects of fundamental variables on equity share price determination and the investor’s attitudes and perceptions towards equity investments are provided.

Keywords

NIFTY 200; Firm Specific Factors; Industry Specific Factors; Macroeconomic Factors; Investor Perception

References

1. Ahmed, S. (2008). Aggregate economic variables and stock markets in India. International Research Journal of Finance and Economics, (14), 141-164.
2. Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross‐section of stock returns. The journal of Finance, 61(4), 1645-1680.
3. Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of economic perspectives, 21(2), 129-152.
4. Balke, N.S., & Wohar, M.E. (2006). What drives stock prices? Identifying the determinants of stock price movements. southern Economic Journal, 73(1), 55–78.
5. Banerjee, A., & De, A. (2014). Determinants of corporate financial performance relating to capital structure decisions in Indian iron and steel industry: An empirical study. Paradigm, 18(1), 35- 50.
6. Bhole, L. M. (1980). Retained Earnings, Dividends and Share Prices of Indian Joint-Stock Companies. Economic and political weekly, M93- M100.
7. Bilson, C. M., Brailsford, T. J., & Hooper, V. J. (2001). Selecting macroeconomic variables as explanatory factors of emerging stock market returns. Pacific-Basin Finance Journal, 9(4), 401- 426.
8. Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of empirical finance, 11(1), 1-27.
9. Butt, B. Z., ur Rehman, K., Khan, M. A., & Safwan, N. (2010). Do economic factors influence stock returns? A firm and industry level analysis. African Journal of Business Management, 4(5), 583-593.
10. Chughtai, A. R., Azeem, A., & Ali, S. (2014). Determining the Impact of Dividends, Earnings, Invested Capital and Retained Earnings on Stock Prices in Pakistan: An Empirical Study. International Journal of Financial Management, 4(1).
11. Chung, S. L., Hung, C. H., & Yeh, C. Y. (2012). When does investor sentiment predict stock returns? Journal of Empirical Finance, 19(2), 217- 240.
12. Das, N., & Pattanayak, J. K. (2007). Factors affecting market price of SENSEX shares. The Icfai Journal of Applied Finance, 13(8), 33-51.
13. Dash, S. R., & Mahakud, J. (2013). Investor sentiment and stock return: Do industries matter? Margin: The Journal of Applied Economic Research, 7(3), 315-349.
14. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427- 431.
15. Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: journal of the Econometric Society, 1057-1072.
16. Engle, R. F., & Granger, C. W. (1987). Co- integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 251-276.
17. Fauzi, R., & Wahyudi, I. (2016). The effect of firm and stock characteristics on stock returns: Stock market crash analysis. The Journal of Finance and Data Science, 2(2), 112-124.
18. Fisher, K. L., & Statman, M. (2000). Investor sentiment and stock returns. Financial Analysts Journal, 56(2), 16-23.
19. Flannery, M. J., & Protopapadakis, A. A. (2002). Macroeconomic factors do influence aggregate stock returns. The review of financial studies, 15(3), 751-782.
20. Frydman, R., Mangee, N., & Stillwagon, J. (2020). How Market Sentiment Drives Forecasts of Stock Returns. Journal of Behavioral Finance, 1-17.
21. Gao, X., Gu, C., & Koedijk, K. (2020). Institutional investor sentiment and aggregate stock returns. European Financial Management.
22. He, Z., He, L., & Wen, F. (2019). Risk compensation and market returns: The role of investor sentiment in the stock market. Emerging Markets Finance and Trade, 55(3), 704-718.
23. Hoffmann, A. O., Post, T., & Pennings, J. M. (2013). Individual investor perceptions and behavior during the financial crisis. Journal of Banking & Finance, 37(1), 60-74.
24. Hou, K., & Robinson, D. T. (2006). Industry concentration and average stock returns. The Journal of Finance, 61(4), 1927-1956.
25. Hou, K., Karolyi, G. A., & Kho, B. C. (2011). What factors drive global stock returns? The Review of Financial Studies, 24(8), 2527-2574.
26. Huber, J., Palan, S., & Zeisberger, S. (2019). Does investor risk perception drive asset prices in markets? Experimental evidence. Journal of banking & Finance, 108, 105635.
27. Humpe, A., & Macmillan, P. (2009). Can macroeconomic variables explain long-term stock market movements? A comparison of the US and Japan. Applied financial economics, 19(2), 111- 119.
28. Hussain, A., Lal, I., & Mubeen, M. (2009). Short run and long run dynamics of macroeconomics variables and stock prices: Case study of KSE (Karachi stock exchange). Kashmir Economic Review, 18(1).
29. Ikizlerli, D., Holmes, P., & Anderson, K. (2019). The response of different investor types to macroeconomic news. Journal of Multinational Financial Management, 50, 13-28.
30. Jadhav, J.G., & Badade, K.S. (2012). Determinants of share prices: An empirical study on the service sector in India. Indian Journal of Finance, 6(8), 12–24.
31. Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—with appucations to the demand for money. Oxford Bulletin of Economics and statistics, 52(2), 169-210.
32. Keswani, S., & Wadhwa, B. (2018). An Empirical Analysis on Association Between Selected Macroeconomic Variables and Stock Market in the Context of BSE. The Indian Economic Journal, 66(1-2), 170-189.
33. Kim, M., & Park, J. (2015). Individual investor sentiment and stock returns: Evidence from the Korean stock market. Emerging Markets Finance and Trade, 51(sup5), S1-S20.
34. Kogan, L., & Papanikolaou, D. (2013). Firm characteristics and stock returns: The role of investment-specific shocks. The Review of Financial Studies, 26(11), 2718-2759.
35. Liu, Y. H., Dai, S. R., Chang, F. M., Lin, Y. B., & Lee, N. R. (2020). Does the Investor Sentiment Affect the Stock Returns in Taiwan's Stock Market under Different Market States? Journal of Applied Finance and Banking, 10(5), 41-59.
36. Mahapatra, R.P., & Sahu, P.K. (1993). Behaviour of equity share prices in India: A micro time series study. Finance India, 7(3), 573–586.
37. Malhotra, N., & Tandon, K. (2013). Determinants of stock prices: Empirical evidence from NSE 100 Companies. IRACsT- International Journal of Research in Management & Technology (IJRMT), 3(3), 86–95.
38. Maji, S. K., Laha, A., & Sur, D. (2020). Dynamic Nexuses between Macroeconomic Variables and Sectoral Stock Indices: Reflection from Indian Manufacturing Industry. Management and Labour Studies, 0258042X20922076.
39. Mukherji, S., Dhatt, M. S., & Kim, Y. H. (1997). A fundamental analysis of Korean stock returns. Financial Analysts Journal, 53(3), 75-80.
40. Nagy, R. A., & Obenberger, R. W. (1994). Factors influencing individual investor behavior. Financial Analysts Journal, 50(4), 63-68.
41. Naka, A., Mukherjee, T., & Tufte, D. (1998). Macroeconomic variables and the performance of the Indian Stock Market.
42. Nanda, S., & Panda, A. K. (2018). The determinants of corporate profitability: an investigation of Indian manufacturing firms. International Journal of Emerging Markets.
43. Nautiyal, N., & Kavidayal, P. C. (2018). Analysis of institutional factors affecting share prices: The case of national stock exchange. Global Business Review, 19(3), 707-721.
44. Nguyen, G. X., & Swanson, P. E. (2009). Firm characteristics, relative efficiency, and equity returns. Journal of Financial and Quantitative Analysis, 213-236.
45. Pal, K., & Mittal, R. (2011). Impact of macroeconomic indicators on Indian capital markets. The journal of risk finance.
46. Pandey, I. M., & Chee, H. K. (2002). Predictors of variation in stock returns: evidence from Malaysian company panel data. Global Business and Finance Review, 7, 61-74.
47. Prombutr, W., & Phengpis, C. (2019). Behavioral- related firm characteristics, risks and determinants of stock returns. Review of Accounting and Finance.
48. Raithatha, M., & Bapat, V. (2007). A panel data analysis of corporate attributes and stock prices for Indian manufacturing sector. Journal of Modern Accounting and Auditing, 9(11), 1519-1525.
49. Rasiah, V., & Ratneswary, R. (2010). Macroeconomic activity and the Malaysian stock market: Empirical evidence of dynamic relations. The International Journal of Business and Finance Research, 4(2), 59-69.
50. Ryu, D., Ryu, D., & Yang, H. (2020). Investor sentiment, market competition, and financial crisis: Evidence from the Korean stock market. Emerging Markets Finance and Trade, 56(8), 1804-1816.
51. Schmeling, M. (2009). Investor sentiment and stock returns: Some international evidence. Journal of empirical finance, 16(3), 394-408.
52. Shapovalova, K., & Subbotin, A. (2009). Predicting Stock Returns in a Cross-Section: Do Individual Firm Characteristics Matter? Financial Markets: RISK, Volatility And Future, F. Columbus, ed., New York: Nova Science Publishers, Forthcoming.
53. Sharma, S. (2011). Determinants of equity share prices in India. Journal of Arts, science and Commerce, 2(4), 51–60.
54. Shefrin, H., & Statman, M. (2000). Behavioral portfolio theory. Journal of financial and quantitative analysis, 127-151.
55. Simlai, P. (2014). Firm characteristics, distress risk and average stock returns. Accounting Research Journal.
56. Srivastava, S. C. (1968). Share prices, dividends and earnings. Economic and Political Weekly, M89-M95.
57. Thaler, R. H. (1993). Advances in behavioral finance (Vol. 1). R. H. Thaler (Ed.). New York: Russell Sage Foundation.
58. Tripathi, V., & Seth, R. (2014). Stock market performance and macroeconomic factors: the study of Indian equity market. Global Business Review, 15(2), 291-316.