Factors influencing pricing multiples: Evidence from India

The study attempts to understand the influence of fundamental factors on popular pricing multiples in the Indian market. For which the fundamental factors are divided into four parameters, namely accounting fundamentals, market risk, growth parameters, and return parameters. Both static and dynamic panel data approaches are applied for analysis. The empirical findings based on static models reveal that growth parameters and ROCE consistently show a positive and statistically significant impact on P/B ratio. Over half of the fundamental factors significantly affect the P/E ratio in the pooled OLS and random effect models, and the P/S ratio in the OLS model. The results from the dynamic models reveal that almost all the fundamental factors are significant variables in explaining the pricing multiples. These results are partly in line with the fundamental drivers discussed by Damodaran (2007). This study is expected to contributes to the emerging market literature on equity valuation by employing a panel data approach to compare valuations.