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The Impact of Financial Ratios on Stock Price Prediction in Emerging Markets

 Ajith Sharma¹, Dr. Pradeep Asthana²

^{Amity University Chhattisgarh, Raipur India}

^{Assistant Professor Dr. Pradeep Asthana, Amity Business School,}

^{Amity University Chhattisgarh, Raipur India}

Abstract - This research explores the relationship between key financial ratios and stock price movements within the context of emerging markets, with a particular focus on companies listed on the National Stock Exchange (NSE) of India. Although financial ratios such as Earnings Per Share (EPS), Return on Equity (ROE), and the Price-to-Earnings (P/E) ratio are commonly used indicators for evaluating company performance and estimating intrinsic value, their effectiveness in predicting stock prices in less developed and more volatile markets remains questionable. The structural characteristics of emerging economies—such as information asymmetry, lower investor sophistication, regulatory inconsistencies, and sectoral diversity—may weaken the predictive reliability of these financial metrics.

To address this concern, the study employs a quantitative research design, analyzing five years of financial data and stock prices from a diversified sample of 30 publicly traded firms across various industry sectors. Using statistical tools such as correlation analysis and regression modelling, the research aims to assess the strength and nature of the relationship between selected financial ratios and stock price behavior over time.

The findings of this study seek to provide empirical insights into the extent to which these traditional ratios maintain their relevance in emerging market contexts. By doing so, the research contributes to the enhancement of investment analysis frameworks, potentially enabling investors, portfolio managers, and analysts to make more informed and context-sensitive decisions. Ultimately, the study aims to bridge the gap between established financial theory and its practical application in dynamic and evolving capital markets like India.

Key Words:  Financial Ratios, Stock Price Prediction, Emerging Markets, Price-to-Earnings Ratio, Return on Equity, Regression Analysis.