Examining Key Drivers of Stock Prices of Public Sector Banks in India
Posted: 20 Sep 2021
Date Written: September 15, 2021
Indian public sector banking stocks have been rebounding after the recent COVID 19 crisis. Public sector banks that are important to the Indian economy have seen their asset quality and profitability erode when compared to their private-sector counterparts. Given the importance of the bank’s share price from a fundraising perspective, it would be helpful to understand the key drivers of public bank stock prices. This paper studied the influence of some key micro and macro determinants on the stock prices of select public sector banks over 12 years from 2006-2017. Panel regression analysis was used to study the relationship between the variables. Models were validated with forecasts for the financial years 2018, 2019, and 2020. Asset quality, income, lending, liquidity, productivity, and exchange rate indicators proved to be important influencers of the stock prices of Indian public sector banks. Stakeholders should focus on these determinants which contribute to shareholder value over time. The study presents evidence for the goods and market hypothesis (Dornbusch & Fischer, 1980).
Keywords: Indian Banks, Stock Market capitalization, Asset Quality, Exchange rates, Panel regression
JEL Classification: G00, G20, G21, P34
Suggested Citation: Suggested Citation