International Journal of Accounting and Taxation

Comparing Stock Valuation Models for Indian Bank Stocks Dr. B. Charumathi, Suraj . E. S.


Abstract
The aim of investors of bank stocks is to earn reasonable returns. This paper presents the framework for valuing bank stocks using different valuation models and investigates the explanatory power of each valuation model in Indian stock market. This study is also trying to compare the performance of different valuation models in determining bank stocks price. We selected a sample of 14 banks which constitute the BSE Bankex. The period of the study is from 2000-01 to 2010-11. The methodology used is based on the implications of the theory of financial markets and fundamental analysis. The results show that adjusted R-squares of Ohlson model and P/B Model are higher than adjusted R-squares of other valuation models such as CAPM Model, DDM Model, P/E model and Excess return Model. The results of empirical analysis support that Ohlson valuation model, P/B model and P/E Model are more informative with high predictive power providing better and more accurate estimations of equity market values for bank stocks. This study also concluded that CAPM model and Dividend discount model are not reliable ones for the valuation of bank stocks in India.

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