Analysis of the fundamental factors affecting the market price of shares constituting the Indian index: a study of SENSEX

This paper examines the various research studies undertaken in the Indian and international context highlighting the effect of various fundamental factors on the behaviour of the stock market. This paper tries to identify the critical variables which have a significant effect on stock price movements and influence the entire market's movement. The 30 shares constituting the Bombay Stock Exchange-Sensitivity Index (BSE-SENSEX or SENSEX) are used as proxies to capture the entire stock market's movement. Appropriate statistical techniques have been used to establish a meaningful relationship among various explanatory variables identified through the empirical analysis considering the available research studies. The explanatory variables, which act as major determinants of stock price movements, are condensed into a few critical factors by factor analysis and the relevance of these factors in influencing stock market movements is explained in detail. The analysis shows that higher earning power, Returns on Investment (ROIs), growth possibility and favourable valuation have a positive impact on the share price and stock market movement, while higher risk and volatility have a negative impact. These factors can be used as major analytical tools by investors, corporations and brokers to make rational and intelligent investment decisions.