Abstract
Stock price movements are used extensively by investors and researchers as a general indicator of the macroeconomic condition of the economy. During the past few years Indian capital Market has undergone metamorphic reforms and every segment of the market viz primary and secondary markets, derivatives, institutional investment and market intermediation has experienced impact of these changes. Our market, today, is being recognized as one of the most transparent, efficient and clean markets. Several techniques/instruments are used by academicians, policy markers, practitioners and investors to test the extent of efficiency of the market. In the present study, we try to study the correlation between actual financial performance and the stock market performance by focusing on Indian banking sector as a case study. We try to look at how has the continuous robust banking sector performance in the last few years has reflected itself in the stock markets in terms of prices, ROE etc. we have selected few general financial indicators like Profit After Tax, PAT/Total Assets, PAT/Operating Income, Return on Net Worth and some indictors specific to banking industry like Profit/Employee, Non Interest Income/Total Funds, NPA/Total Advances and try to study their correlation with stock prices for selected banks. The study clearly indicates that the overall banking sector performance is fundamental in nature. Most of the chosen indicators like PAT, PAT/Total Assets, Profit/Employee, RoNW, and PAT/Operating Income all show positive correlation results as expected. NPA/Net Advances also demonstrate a negative coefficient as expected. The only deviation from the expected is the correlation of NII/Total Funds.
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