IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The Behavior of Price Multiples in India (1990-2007)

Listed author(s):
  • Sanjay Sehgal


    (Department of Financial Studies, University of Delhi,South Campus, ESC-PAU, France)

  • Asheesh Pandey

    (Department of Financial Studies, University of Delhi,South Campus, ESC-PAU, France)

Registered author(s):

    In this paper, we examine the behaviour of price multiples in India from 1990–2007. The distributions of price multiples tend to be normal over our study period, thus making the mean and standard deviation of these multiples relevant parameters for equity analysis in the Indian context. Further, sectors with high price multiples exhibit greater volatility in these multiples. This may result in greater price forecast errors for these sectors. We also find a very weak relationship between price multiples and their fundamental determinants. The cross-sectional linear models do not seem to be good descriptors of price multiples. However, price-to-book value (P/BV) and price-to-sales (P/S) ratios do reflect corporate fundamentals in the case of the Bombay Stock Exchange Sensitive Index,which tracks 30 stocks that are large in size and account for a major part of trading activity. In contrast, the fundamental determinants do not seem to drive price-to-earnings (P/E) and price-to-cash flow (P/CF) ratios, even for our limited universe of index stocks.This may be owing to the fact that earnings multiples are more driven by sentiments due to the actions of noise traders than by fundamentals, which influence the behaviour of value traders. Further, earnings are a bottom line number and thus are severely affected by accounting biases and judgments. The price multiples also seem to be sensitive to market conditions and therefore are generally greater in upturns, with the exception of infrastructure-related sectors. Our results are relevant for market stakeholders, who use price-multiple information for strategy building and policy decision making.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Article provided by Penerbit Universiti Sains Malaysia in its journal Asian Academy of Management Journal of Accounting and Finance.

    Volume (Year): 5 (2009)
    Issue (Month): 1 ()
    Pages: 31-65

    in new window

    Handle: RePEc:usm:journl:aamjaf00501_31-65
    Contact details of provider: Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:usm:journl:aamjaf00501_31-65. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journal Division, Penerbit Universiti Sains Malaysia)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.