Abstract
Indian private sector banking stocks have been rebounding from a massive selloff. Private sector banks which have traditionally maintained their asset quality and profitability when compared to their public-sector counterparts, have recently seen their asset quality erode. Given that private sector banks play an influential role in the Indian economy it would be helpful to understand the key drivers of private bank stock prices. This paper studied the influence of some key micro and macro determinants on the stock prices of all listed private sector banks in India over the 12 years from 2008-2019. Panel regression models were fit to study the relationship between the variables. Liquidity, profitability, growth, inflation and exchange rate indicators proved to be important influencers of the stock prices of private sector banks in India. The study provides evidence for the Fisher effect suggesting that private bank stocks can provide good inflation-adjusted returns over time. Stakeholders of these banks can focus on these determinants which contribute to shareholder value over time.
Highlights
Indian banking stocks have been bouncing back after a major rout following the COVID 19 crisis
While public sector banks are majority owned by the government and cater to vast segments of the society that includes marginalized and priority segments, private sector banks are more focused in targeting fewer segments, focusing more on asset quality and profitability
Given that banks in the private sector in India play an influential role in propelling the economy forward it would be useful to ascertain the drivers of stock prices of banks in this sector
Summary
Indian banking stocks have been bouncing back after a major rout following the COVID 19 crisis This is on the back of severely deteriorating asset quality in the Indian banking landscape over the last decade. Given that banks in the private sector in India play an influential role in propelling the economy forward it would be useful to ascertain the drivers of stock prices of banks in this sector. This in turn can throw light on key performance measures such as shareholder value creation, market value added and valuation ratios
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