STUDY ON THE RELATIONSHIP BETWEEN FIRMS’ PERFORMANCE AND STOCK MARKET RETURNS IN SELECT NSE LISTED COMPANIES

Abstract

Purpose: An investor considers lot of factors while investing his money into the Stocks. Money is majorly invested in BSE or NSE in India. BSE is established in the year 1875 and NSE established in the year 1992. Apart from this some stocks are traded in local exchange market in each city. Earlier we had manual trading. However, it is more organized and digitalized now. Every investor does some survey prior to investing their hard-earned money. The reason behind investment is to earn profits over the invested money. The returns over the stock market are dependent on various micro and macro-economic factors. Panel data analysis was conducted using data from the top 50 companies listed on the National Stock Exchange (NSE) over a 10-year period. The analysis explored the impact of various financial ratios on stock market returns, considering individual-specific effects and time variations. The study found that certain financial ratios, including Earnings per Share (EPS), Earning Yield, Debt to Equity ratio, and Market Capitalization to Sales ratio, significantly influenced stock market returns.
 
 Method: Panel data analysis, also known as longitudinal data analysis or panel regression, is a statistical method used to analyze data collected from a group of individuals, entities, or subjects over time. In panel data analysis, observations are made on the same subjects or entities repeatedly at multiple time points, creating a panel or panel dataset. Panel data analysis is particularly useful in social sciences, economics, and other fields where researchers are interested in studying the dynamics of individual units over time and accounting for both cross-sectional and time-series variations.
 
 Results and Conclusion: The findings from this study provide valuable guidance for individual investors, financial advisors, and policymakers in optimizing investment strategies. However, it is essential to acknowledge the limitations of this research, including the static nature of data collection and the focus on the Indian stock market. Future research should explore longitudinal effects and consider macroeconomic factors to deepen our understanding of the complex relationship between financial ratios, risks, and stock returns. The random effects model shows that the independent variables have a significant relationship with the dependent variable, meaning they are related to each other. The regression models confirm that certain financial ratios, like EPS, Price_To_Cash_Flow, and Cash_Flow_TO_Assets, have a significant impact on stock returns. The model considers the influence of time-specific factors, and the fixed effects model better captures the differences between entities, suggesting that each entity behaves differently in the analysis. In conclusion, this study highlights the multifaceted nature of the Indian stock market and the diverse factors that influence investors' decision-making processes. Enhancing financial literacy, promoting risk management, and understanding investor sentiment are crucial for building a robust and informed investor community. By addressing these aspects, investors and policymakers can contribute to the overall growth, stability, and efficiency of the Indian stock market.
 
 Implications of research: The key advantage of panel data analysis is that it allows researchers to control for individual heterogeneity and unobserved time-invariant factors, which can lead to more accurate and efficient estimates of the relationships between variables. By incorporating both within-unit and between-unit variations, panel data analysis provides a more comprehensive understanding of the data and can help identify causal relationships. Originality/value: the current paper aims to study the relationship between firms’ performance and stock market returns in select NSE listed companies.