Determinants of share prices in India: A study of BSE Sensex

The focus of this study is to identify the determinants of share prices in the Indian market. The study uses panel data pertaining to thirty firms comprising BSE SENSEX over the period 2010–2014 and employs the fully modified ordinary least squares method. The results indicate that the variables leverage followed by Price-Earnings Ratio, Profitability and DPS respectively are the major determinants of share prices in Indian stock market. The inverse relationship of Leverage with the share prices indicates that raising capital via debt involves periodic interest payments on part of firms; increased use of debt by a firm would therefore result in higher interest payments and this lowers the earnings available to equity shareholders. Investors therefore generally prefer firms with lower debt.