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Inoculating the Ailing Sector: A Proposal for FDI in the Indian Aviation Industry
Author(s) : Bejoy Joseph, Research Scholar, School of Management and Entrepreneurship, Kerala University of Fisheries and Ocean Studies. Dr. V. Ambilikumar, Professor, School of Management and Entrepreneurship, Kerala University of Fisheries and Ocean Studies. Dr. B. Hareendran, Professor and Academic Director, Bharata Mata Institute of Management.Volume & Issue : VOLUME 7 / 2019 , ISSUE 2
Page(s) : 7-18
Abstract
The outcome from the relationship between accounting variables and stock price would help the investors and managers in determining the variables that are more relevant for the valuation purposes and also they can rationalize on using these accounting variables as a tool for gauging financial performance of the firm (Smith, 2008). It is true that air travel in India is booming but the aviation sector seems to be hurtling towards bust. There are many reasons for the plunge of this sector in India. In order to revive and to bring a new life to this sector the budget of 2019 has announced plans to open up further FDI in this sector. In this context an attempt is made to determine the accounting variables that have explanatory power on stock price of the aviation sector in India. The study tries to determine the accounting variable that has explanatory power on stock price, To identify the adequacy of accounting variables taken for the study, To explore collinearity among the independent variables and examine the correlation among the residuals and to recognize the variables that comes under a linear combination in forming a factor. The study is confined to only five companies listed in the Aviation sector in BSE. The methodology adopted in the study is in line with dimension reductions followed by the Ohlson model. The dimension reduction applied in this study focuses on selection of accounting variables for the Ohlson model based on the loadings of these variables to the factor. This process is performed with the help of a factor analysis. The application of Ohlson model reveals that the explanatory power of accounting variables is only 42% of variance in the stock price. This is less than fifty per cent and is very small and irrelevant for making a prediction or valuation of share price. In this context it is indeed going to be very difficult for the FDI investors.
Keywords
Ohlson model, Factor analysis, Autocorrelation, Market based Accounting and Collinearity, EDI, Aviation
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