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An
Empirical Investigation of
P/Ebased Stock Selection Strategy in the Indian Equity
Market
--Jaydeep
Dass,
Subramanian S and U S Rao
In
an efficient capital market, the market price of a stock
incorporates all the relevant information affecting the
performance of the company, thereby indicating that no particular
investment strategy can generate superior returns over a
period of time. The price ratio hypothesis states that investments
in low `PriceEarning' stocks have an upside potential,
as the earnings have not been discounted into price. The
low PriceEarning ratio of certain companies, which are
fundamentally sound, is on account of the markets neglecting
them. The validity of efficient market hypothesis, which
believes that neither a high PriceEarning nor a low PriceEarning
is indicative of future performance on a riskadjusted basis,
is directly questioned by the price ratio hypothesis. This
study aims to test the proposition that stocks with a lower
PriceEarning, as compared to the industry average, provide
higher returns than higher PriceEarning stocks. This study
examines the investment results of 76 shares of the current
BSE 100 index over the last six years, viz., 1999 to 2005.
Every year, a new portfolio was formed, based on a comparison
of the company PriceEarning with that of the industry.
The portfolio selection was also subject to different band
filters. The performance of all such portfolios were studied
on a year basis, as well as on cumulative basis; and were
compared with the BSE 100 performance. The findings of the
study substantiate the price ratio hypothesis by the low
PriceEarning portfolios compared to the industry outperforming
the market portfolio. The results suggest that an additional
return can be achieved by adhering to the strategy of investing
in scrips having low PriceEarning ratio as against the
industry average, and also that, to a certain degree, having
a bandwidth for taking investment decision may lead to a
superior performance, which may be appealing to fund managers.
2006
IUP . All Rights Reserved
Asymmetric
Information and Signaling Devices for Corporate Earnings'
Prospects
--L V L N Sarma,
L Sarada and Mohd Ismail Ahmad
The
current market value of any asset is the capitalized value
of the future stream of income. Equity share, a financial
asset, is also valued thus. But where the future earnings
are not known with certainty, and the current earnings become
unreliable in view of the widespread practice of `Earnings
Management', companies should send strong signals to the
Capital Market about their earnings potential. In a situation
of asymmetric information between investors and company
managers, the latter, who has more information, should send
strong signals to inform the less informed investors. This
paper verifies the following two hypotheses on a sample
of 82 companies drawn from the `Industrial Products' sector,
listed on the `Main' and `Second' Boards of the Bursa Malaysia
Bhd., for the years 2000, 2001 and 2002: (i) Firm's capital
structure (Debt to Total Capital) signals to the market,
the future earnings prospects of the company and (ii) Dividends
signal to the market, the future earnings prospects of the
company. The continuous crosssections carried out in this
paper has yielded results which are consistent with Hypothesis1.
The empirical results on the second hypothesis are inconclusive.
The results of the study point out the usefulness of Debt
Capital in signaling the future earnings potential of the
company.
2006
IUP . All Rights Reserved
Contents
of Environmental Accounting
Disclosure What Users Require from Annual Reports?
-- M
S V Prasad
There
have been numerous studies, both in India and around the
world, on environmental disclosure policies of corporations
and other forms of reporting entities. A number of environmental
disclosure studies have been critical of the reporting practices
adopted. This study is about the contents of environmental
accounting disclosure from the users' point of view .'Users
survey' in this domain is a still a novel approach in India.
A sample of 500 different categories of shareholders, stockbrokers,
accounting academics, financial institutions and banks,
employees and research s, has been chosen for this
study. Chisquare techniques have been applied for testing
significant variations in opinions, and ranking by the different
categories on disclosure, and content of environmental accounting
information in the annual reports. Among the respondents,
about 65.77% believe that environmental issues are material
and as much as 73.27% seek disclosure of environmental information
in the annual report.
2006
IUP . All Rights Reserved
Service
Tax in India: Prospects
and Challenges
--J
P Singh and A R Prasad
The
contribution of the service sector to the Indian economy
is very prominent. This study attempts to find out the contribution
of the service sector to the Indian economy and issues involved
in the service tax structure. It is found that the service
sector has experienced higher growth in a more uniform and
consistent manner. With sectors like `financing, insurance,
real estate and business services' experiencing high compound
growth rates, there could be an upsurge in industryrelated
services in recent years. The study reveals that the collection
of service tax in India has increased phenomenally because
of the addition of more and more services every year. It
is also found that the government needs to plan a fast transition
from the present system of inefficient indirect taxation
to an integrated goods and services tax (GST) system, which
subsumes all forms of indirect taxation at all levels of
the polity, which in turn will ensure transparent accounting
of taxes and would make sure that the exporters are neither
burdened by taxation nor are cosseted by subsidies, while
giving the local producers a level playing field visàvis
imports.
2006
IUP . All Rights Reserved
Research
and Development Expenditure in India: Trends and Progress
--Prashanta Athma and J Ravi Kumar
Scientific
research in India has not been in the same magnitude as
it has been in the developed and advanced countries. But,
in the prevailing competitive conditions, Research and Development
(R&D) is essential not only for the growth of a business
but sometimes even for its survival. Therefore, continuous
R&D activities are being carried on in a large number
of business enterprises, which are spending large sums on
it. Various policy measures have been introduced from time
to time to meet the changing industrial and technological
requirements of the industry. The Government has been giving
special attention to promotion and support to industrial
research in industry. Several tax incentives have also been
provided, which encourage and make it financially attractive
for industrial units to establish their inhouse R&D
units. The main purpose of the study is to examine the trends
and growth of R&D activities in India. The secondary
objective is to study the growth of R&D expenditure
on the basis of sectorwise distribution, regionwise distribution,
etc. Simple percentages and trend percentages are used for
the analysis of the data. The total R&D expenditure
showed an increasing trend throughout the period of study
and the same trend is shown in the case of private sector
R&D expenditure. Though there is a decline in the share
of Public sector in R&D units over a period of time,
its share in total R&D expenditure is higher than its
share in the number of R&D units. Chemical and allied
industries ranked first in the number of R&D units,
and Agro and Processing units ranked last. the Government
should try to reduce the regional imbalance in the distribution
of inhouse R&D units and R&D expenditure in the
country. Industries should be aware of the fact that it
is only through research and development, that Indian companies
can compete with their foreign counterparts.
2006
IUP . All Rights Reserved
Book
Review
Corporate
Integrity and Accountability
--George G Brenkert
2004
Sage Publications, Inc. All Rights Reserved. IUP holds the copyright for the review |
