Published Online:January 2026
Product Name:The IUP Journal of Accounting Research & Audit Practices
Product Type:Article
Product Code:IJARAP050126
DOI:10.71329/IUPJARAP/2026.25.1.84-95
Author Name:Bhargav Pandya
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:84-95
The paper examines the influence of multiples on stock price and stock returns in the context of the Indian banking sector. A sample of 12 banks included in the Nifty Bankex was used. Price-to-earnings (PE) ratio, price-to-book value (PBV) ratio, price-to-sales (PS) ratio, and earnings yield were the independent variables used to examine their impact on stock price; besides, the effect of PBV ratio, PS ratio, and earnings yield on stock return was examined. Panel data models were tested to examine the relationship between dependent and independent variables. The results show that PS ratio is the only significant predictor of stock price. PBV ratio emerges as the only significant predictor of stock return. Earnings yield is not a significant predictor of either stock price or stock return. Investors may find it useful to consider PS ratio while estimating the stock price of banks. Similarly, they may find the PBV ratio as the most important factor driving stock return while gauging the stock return they expect to earn from the bank stocks. The paper provides fresh insights regarding the influence of multiples on stock price and stock return in the context of the Indian banking sector.
Relative valuation is widely used as a valuation approach to estimate the fair value of an asset. It is based on the premise that markets on average will correctly price securities. Investors, equity researchers, and fund managers all usually prefer multiples to screen the securities while identifying the probable investment candidates and developing their portfolios. The price-to-earnings (PE) multiple is perhaps the widely used multiple to screen the securities while making investment decisions. There have been other multiples like price-to-book value (PBV), price-to-sales (PS), and price-to-cash flow (PCF) to ascertain the price of a stock.