| Keywords [eng] |
Financial ratios, stock price forecasting, banking sector, profitability ratios, leverage, liquidity ratios, panel data analysis, investment valuation, India, Lithuania |
| Abstract [eng] |
This Master’s thesis examines the impact of financial ratios on stock price forecasting in the banking sector through a comparative analysis of India and Lithuania over the period 2020–2024. The relevance of the study is driven by increasing volatility in global financial markets and the growing demand for reliable quantitative tools that support investment decision-making and financial performance assessment across different economic environments. India represents a large and rapidly developing financial market, while Lithuania reflects a smaller yet mature and highly regulated banking system within the European Union. This contrast provides a valuable framework for assessing how structural and institutional differences influence the predictive power of financial ratios. The primary objective of the research is to identify and evaluate the relationship between key financial ratios and stock price movements in the banking sectors of India and Lithuania. The study focuses on profitability indicators such as Return on Assets (ROA) and Earnings per Share (EPS), leverage indicators including the Debt-to-Equity Ratio (DER), liquidity measures, bank size, and macroeconomic factors, particularly interest rates. These variables are widely used in financial analysis and investment valuation, yet their forecasting effectiveness varies across markets. The research adopts a quantitative methodology based on panel data analysis, covering 10 listed banks from each country. Multiple Linear Regression (MLR), Fixed Effects (FE), Random Effects (RE), and Pooled Mean Group (PMG) estimation techniques are employed to capture both short-run dynamics and long-run equilibrium relationships between financial ratios and stock prices. Data were collected from audited financial statements, stock exchanges (NSE, BSE, Nasdaq Vilnius), and central bank databases to ensure reliability and consistency. The empirical findings indicate that profitability ratios, particularly EPS and ROA, are the strongest and most consistent predictors of stock prices in both India and Lithuania. In contrast, leverage and liquidity indicators exhibit weaker or inconsistent effects, especially within the Lithuanian banking sector, where lower market capitalization and the dominance of foreign-owned banks reduce sensitivity to firm-level financial indicators. The PMG model confirms the existence of long-run equilibrium relationships in both markets, although short-run adjustments differ significantly between the two countries. The conclusions of the study emphasize that financial ratio-based stock price forecasting should be adapted to local market conditions. While ratio-based predictability is more pronounced in large emerging markets such as India, it is moderated in smaller, developed banking systems like Lithuania. The research contributes to academic literature by providing comparative insights into banking sector valuation and offers practical implications for investors, financial analysts, and policymakers by highlighting the importance of localized forecasting models that integrate financial and macroeconomic indicators. |
