INTRODUCTION:

The National Stock Exchange (NSE) is one of the largest stock exchanges in India and the world's fourth largest stock market for trading in 2015, according to reports from the World Federation of Trade (WFE).Based on the annual report of SEBI, NSE started operation in 1986 and since 1995 has been ranked as India's largest stock market in terms of equity and average daily trading.CNX NIFTY 200 was started in July 19, 2011.The base year of NSE 200 index is January 01, 2004 with base index value fixed at 1000 points. CNX NIFTY 200 index is calculated using the method of free-float market capitalization, in which the level of the index, the total market value of shares in free float is all the shares in the index relative to particular base period. CNX NIFTY 200 Index constitutes about 85% of the free float market capitalization of the stocks listed on NSE as on March 31, 2017.

Over the past six months, ending in March 2017, the total traded value of all stocks of the index is 77.9% of the traded value of all stocks on NSEs.CNX NIFTY 200 Index is designed to reflect the behavior and performance of large cap stocks and mid cap stocks. CNX NIFTY 200 includes all companies forming part of CNX NIFTY 100 and CNX NIFTY Full Midcap 100 index. CNX NIFTY 200 is used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured products.

LITERATURE REVIEW:

EPS is considered as the most important factor (Islam, Khan, Choudhury, Adnan, and Senior Lecturer, 2014) to determine the stock price. It is also analyzed that most of the investors take decision based on EPS. Price earnings ratio, dividend yield ratio and profit book ratio are the significant factors to determine the share price (Sharif, Purohit, and Pillai, 2015) in Bahrain stock Exchange. Investors can make optimum decisions and be assured fair return if they take decision based on these factors. The study indicates (Ghosh, 2015) that majority of HNIs during 2007-08 started to have a view on P/E level of index with high earning expectation from forward earning as it has reached euphoric level. The share price is strongly affected (Dissanayake and Wickramasinghe, 2016) by the earnings on share. In order to maximize return, investors need to consider the change in earnings while making investment decisions. There is a significant relationship between earnings and the share price volatility. In their study it is analyzed that price to book value (Shittu, Che, and Zuaini, 2016) predict stock price of Nigerian listed firms. The result shows that investment analyst and other classes of investors can apply price to book to assess the future forecast of the companies listed on the Nigerian Stock Exchange. The result of this shows (Ghosh, 2016) that herding and cognitive error is negligibly present in Indian capital market during global crisis phase (2007-16).The behavioral bias has declined in the CNX Nifty despite of having a low base of retail investors. The study has analyzed (Book and Azzopardi, 2006) that there is strong relation between book values and their share prices of the companies listed on the Malta Stock Exchange. P/B ratio enables an investor to keep track of how the market is valuing a company when compared to its actual book value. (Sun, 2012) P/E (Thesis, 2011) and P/B ratios tend to show some predicting power in long-term investment return horizon. Whereas the findings also indicate that firm size is little help in predicting excess returns both in short and long-term. Market Capitalization is not directly correlated (Bikramaditya Ghosh and Padma Srinivasan, 2014) with P/E and Adjusted Closing point of the Index BSE 100. The study shows CNX Nifty has become efficient (Ghosh and Kozarevic, 2018) as the behavioral bias is negligible, there is no place of herding and cognitive error in the trading, The studies depict (Simões Vieira, 2011) (Bilal and Jamil, 2015) a strong positive relationship between a firm’s dividends and its stock price on the stock market. The researcher (Angko, 2017) has used ADF test statistic to test for the stationarity in the variables like GDP, foreign direct investment and exchange rate . The study reveals that the stock market performance exerts dominant effect on the economic growth. This paper has proposed (Zheng and Chen, 2012) a system adaptation of framework of an internal model and adaptive filter which focuses on the feedback and force in the market to identify the dynamics of the stock market. The results reveal that the system based framework is promising method for modeling financial markets. This method has successfully applied in US, China and Singapore markets. The paper has identified (Zheng and Chen, 2012) the relationship between internal factors of the firms and the performance of Egyptian stock market. The study shows positive relation between Beta and stock return and negative relation between dividend to price and stock return. The paper (fama, 1970) stated that for the purpose of investment, most of the investors uses efficient market model. This paper examines (Penman, 1996) the relationship between P/B , P/E ratio the return on equity. The result shows P/E indicates future growth on earnings which is positively related to the expected future return on equity not on current return on equity and P/B reflects only expected future return on equity. Research analyses (Nayak, Pai, and Pai, 2016) predictive model helps to understand the future market trend but it does not give accurate results. A predictive model has been built by considering various patterns like continuous up/down, volume traded per day etc, which can predict the trend for the next day. The researcher reveals that (Nayak et al., 2016) P/B ,P/E have positive impact on closing price of CNX Nifty whereas dividend yield has negative impact on it. This study suggests (Press and Review, 2009) that combination of current value and average of prior period for dividends and retained earnings provide a superior explanation for variation in the stock prices. These researchers have examined (MICHAELY, THALER, and WOMACK, 1995) the immediate and long-term effects of dividend initiation and omissions announcement. The result shows that the market reaction to dividend omission is lesser than to an initiation for a given change in dividend. This study depicts (Yatigammana, Peiris, Gerlach, and Allen, 2018) predictive model is helpful for investors in developing successful trading strategies, particularly towards minimizing risk . It also provides valuable signals towards the future directions of price movements. The study analyses (Fama and French, 1995) that in rational market profitability of firm effects the stock price and book-to-market-equity. Firm with high BE/ME tend to be distressed whereas low BE/ME is associated with sustained strong profitability. The study shows (Ghosh and Kozarevic, 2018) Reynolds number as an indicator of market volatility, if any value closer or above 10 is a significant volatile zone. Investors should stay away from the bourses during such a period. The safe zone for trading when the numbers tends to zero or near zero. In the event of black swan most of the investors lost their wallet shares. Malawi Stock Exchange’s stock price (Majanga, 2015) is an outcome of number of factors like (Wenjing, 2008) price earnings ratio, price-book ratio, EPS, dividends each one of them having significant contribution. The US fed increase the rate ,FIIs were spotted to exit the riskier market and started to enter (Ghosh and Kozarevic, 2018) US bonds and as a result market touched selling freeze a couple of times in CNX NIFTY. Then EMV became low and number of shares got increased for the companies. The findings of the study also help to understand and appreciate the impact of dividend declaration or absence of it on the psychology of the stockholders that affects the respective company’s stock prices. In this study (Ghosh and Srinivasan, 2015) the researcher has utilized Neural Network as a “Predictive Modeler” to predict CNX Nifty closing, an ideal tool for detection or prediction of Indian market as CNX Nifty is an important barometer to indicate country’s growth. The study shows (Srinivasan, 2012) that all financial factors : book value per share , dividend per share, earning per share, price earnings ratio(Gottwald, 2012),dividend yield, Dividend Policy (ALİ, Jan, and Sharif, 2015)prove to be beneficial for the investors in the India and posses strong explanatory power and hence can be used to determine the future forecast of the stock prices.

OBJECTIVE OF THE STUDY:

To analyze whether price earnings ratio, price to book ratio and dividend yield can predict closing price of CNX Nifty 200.

RESEARCH METHODOLOGY:

· The values have been taken from the NSE 200.

· This study is a secondary working group. Borders are clearly defined as NSE 200

· The Period of the study is from 1st April 2014 to 29^th June 2018.

· 1048 data points are taken as observations across 4 years.

· The work is the Multiple Regression Analysis between P/E ratio, P/B ratio and Dividend Yield of NSE 200 against closing price of NSE 200.

· The Multiple Regression Statistics has used to come to a conclusion.

Hypothesis:

Null Hypothesis- Ho- P/E ratio, P/B ratio and Dividend Yield cannot predict closing price of CNX Nifty 200.

Alternative Hypothesis-Ha- P/E ratio, P/B ratio and Dividend Yield can predict closing price of CNX Nifty 200.

Data Analysis:

Table 1.

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.981360273
R Square	0.963067986
Adjusted R Square	0.96296186
Standard Error	125.919913
Observations	1048

Table 2.

ANOVA
	Df	SS	MS	F	Significance F
Regression	3	431661468.2	1.44E+08	9074.719275	0
Residual	1044	16553480.76	15855.82
Total	1047	448214949

	Coefficients	Standard Error	t Stat	P-value
Intercept	-397.545979	165.6463437	-2.39997
P/E	157.9220164	2.090349323	75.54815	0.00
P/B	513.5840665	33.06593385	15.53212	0.00
Div Yield	-368.2134001	51.98575934	-7.08297	0.00

Interpretation:

· Multiple R is important here, as the observations are too many. It shows the correlation co-efficient of data. In this case the linear relationship is very strong. Here it shows positive relationship as it is 98% (refer Table 1).

· R² is coefficient of determination. Here R² is 96% (refer Table 1). This is an overall measure of the strength of association of independent variable with the dependent variable.96% of the values fit the model. That means the model is good fit.

· Adjusted R² indicates data point’s fitness in a curve or line. If more useless variants are added to the model, the adjusted R-value decreases. If more useful variants are added to adjusted R-square model will increase. In this study, 96% of data points (see Table 1) belong to the linear regression line.

· ANOVA shows that the test is significant as F value is high and Significance F factor is zero (refer Table 2). Significance F factor is very low, signifying that this multiple regression is sound in nature.

· All the P Values are falling within 95% of Confidence levels. In this study P/E, P/B and Dividend yield variables have a very low P Value (refer Table 2) that is good. That means independent variables falls within the confidence zone i.e. p value < .05.

· The co-efficient of P/E (157.922) is lower than the co-efficient of P/B (513.5841) (refer Table 2), it means that most of the investors in India do not consider P/E ratio for the investment purpose. Ideally investors should invest depending mostly on P/E ratio.

· The linear regression equation is: Closing Price of CNX Nifty 200=-397.546+157.922 *P/E + 513.5841 *P/B-368.213*Dividend Yield.

· Here the P- values for P/E, P/B and Divided yield are Zero (refer Table 2). Since all the 3 cases p value is less than 0.05, so we can reject the null hypothesis and accept the alternative hypothesis. Ha will be accepted and Ho will be rejected.

CONCLUSION:

The purpose of the study was to assess whether Price Earnings ratio, Price to Book ratio and Dividend Yield helps to predict the closing price of National Stock Exchange 200. Share Price prediction is a perquisite for the investors. For the investment purpose, investors should measure the share price with help of P/E, P/B and Dividend yield so that they don’t lose their invested funds. In normal sense, investing in lower P/E can give bumper return provided the company does well in future. If P/B is less than 1 indicates that the company is earning poor return on its assets and investors believe that the company’s assets are overvalued. Low P/E indicates the stock of company is undervalued and their growth potential is still unknown to the market. High P/E indicates the stock is overvalued and it suggests that investors are expecting higher earnings growth in the future as compared to overall market. Indian investors do not value the stock based on the P/E ratio, as in this study P/E has low co-efficient as compared to P/B. Ideally investors should invest based on the P/E ratio. But in this study, it shows that most of the investors invest based on P/B ratio, not the P/E ratio. This proves that the Indian stock market is a weak form of efficiency. A high P/B indicates a high return on its assets in the future and the company’s asset is undervalued. A low P/B indicates the company’s assets are overvalued and the company is earning poor return on its assets. If investors invest in higher dividend yield expects higher rate of return in the future. The empirical findings reveal that Price Earnings ratio, Price to Book ratio and Dividend Yield are strongly affected determinants in shaping the price of shares. It has been observed that the variables have a very strong correlation with closing price of NSE 200. It seems P/E, P/B and dividend yield major role in predicting the closing price. Individual Investors, Corporations and Institutional Players (both DII and FII) should be investing according to P/E, P/B and dividend yield levels. But again it has been observed that the closing price of the index also depends on the other factors like political events, general economic conditions, and trader’s expectations.

Limitations of the study:

· This study limits to the data of 4 years. Total data points are about 1048. So, it could be repeated with a longer time horizon.

· There are four variables in this study, three are independent and one is dependent. The survey can be considered on other independent variables.

· This study has done using Multiple Regression analysis. The study can be done using other data analysis methods.

· The location of the study is based in India and is limited to NSE 200. This study can be conducted on all other index in India, such as BSE Sensex, CNX Nifty 50 etc. The study can be conducted outside the geographical boundaries of India.

ACKNOWLEDGEMENT:

I would like to express my special thanks of gratitude to Dr. Bikramaditiya Ghosh, Institute of Management, Christ (Deemed to be University), Bangaluru, India for his guidance and support throughout the development of the paper.

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Received on 22.09.2018 Modified on 31.10.2018

Asian Journal of Management. 2019; 10(1): 14-18.

DOI: 10.5958/2321-5763.2019.00003.9