An Empirical Test of Fundamental Analysis in India

Abstract

Fundamental analysis examines the relation
between financial statement data and returns.
Previous studies show a link between fundamental
signals (which include ratios and other financial
performance measures) and returns in the US
capital markets. This study extends this line o f
research by examining the relation between
fundamental signals and returns in India. Indian
accounting standards and capital markets differ
significantly from those in the US. Using the
methodology developed by Lev and Thiagarajan
(1993), we examine the relationship between these
financial measures and returns in India. Our
results reveal a significant relationship between
fundamental signals and returns in India,
suggesting that investors in Indian stock markets
find fundamental signals relevant in making
investment decisions. Comparison o f results
obtained using Indian data to those studies based
in the US provides insight into the differences
between the two countries