Fundamental analysis and stock returns: An Indian evidence

Abstract

This paper investigates the relationship between accounting information and stock returns of selected
Indian stocks pertaining to Information Technology, Banking and Pharmacy sectors over the past ten
years starting from 2001 to 2010. In this research work a simple financial score is designed to capture
short term changes in firm’s operating efficiency, Profitability and Financial policy. Investigating
accounting information and stock returns is a method adopted in Fundamental analysis, which is
helpful in predicting future stock returns and for explaining the momentum phenomenon in stock
prices. For the purpose of this research work were chosen from Banking, Pharmacy and Information
Technology. For a period of ten years the data pertaining to operating efficiency, profitability and
financial policy was ascertained. All this data is then put into F SCORE as developed by Piotroski in the
year 2000. The score values and market returns as provided by the companies were correlated to
investigate the relationship between the score and the market adjusted returns. The goal of this paper
is to show that investors can create a stronger value portfolio by using simple historical financial
performance.