Impact of qualitative factors on valuation in the Indian Context and their relevance

Abstract

Equity valuations across the world are known to be largely driven by quantitativefactors such as Price-to-Earnings Ratio, future cash flows, expected growth rate and thelike. However, the list of quantitative factors that impact the valuation of a companyhave been widely found to be not comprehensive enough so as to explain the currentstock price of a company. We believe that there are certain qualitative factors whichaffect the valuation of a company. The aim of this paper is to determine whether thereexists a relationship between such qualitative factors and company valuations.This paper aims to study such relationships and not determine the extent of the causaleffect that these factors have on valuations. Further, the study focuses on the impact ofthese qualitative factors on valuations in the context of Indian companies only. Webelieve that these factors affect Indian firms uniquely and hence, the specified focus.