Co-integration and Fundamentals in Indian FMCG Sector: A Time Series Econometric Analysis

Abstract

This study investigates the long-run equilibrium relationship between the volume of shares traded and key fundamentals of companies in the Fast-Moving Consumer Goods (FMCG) sector of the Indian economy using time series econometric analysis. Monthly data from January 2012 to March 2017 was collected from the National Stock Exchange (NSE) for the volume of shares traded (VOL) and its determinants, including current market price (C.M.P.), earning per share (EPS), price-earnings ratio (P/E), price-to-book ratio (P/B), and dividend yield (YIELD). The stationarity of the data variables was tested, and after confirming co-integration, the short-run relations were examined using the vector error correction (V.E.C.M.) model. Both the Trace and Lmax tests revealed the existence of one co-integrating equation in the system, indicating a long-run equilibrium relationship between the volume of shares traded in the FMCG sector and the price, EPS, P/E, P/B, and yield variables. The findings suggest that FMCG investors should consider long-term investments or aim for short-term gains of at least one year, depending on the quarterly EPS, P/E, and P/B dynamics, as these factors drive the market in the long run. This study is unique in exploring the long-run equilibrium relationship between the volume of shares traded and key fundamentals of companies in the Indian FMCG sector.