Decoding the determinants Influencing Market Capitalization in Non-Banking Financial Companies: Fixed Effect Analysis

Abstract

With a focus on the years 2019–20 to 2023–24, this study examines the factors that influence the market capitalisation of Non-Banking Financial Companies (NBFCs) in India. The study examines how the market capitalisation of five chosen NBFCs is affected by important financial variables, such as Non-Performing Assets (NPA), Enterprise Value, Earnings Per Share (EPS), Price-to-Earnings (P/E) Ratio, Net Profit, Total Assets, and Book Value, using a fixed-effects regression model. The results show that market capitalisation is highly influenced by Enterprise Value, EPS, Total Assets, and Book Value, with Enterprise Value exhibiting the largest positive association. Book value has a positive correlation with increased market valuation, however EPS and total assets show negative associations with market capitalisation, indicating complicated dynamics in the NBFC sector. Net profit and non-performing assets exhibit some degree of importance. highlighting the significance of profitability and credit quality. However, in this case, market capitalisation is not greatly impacted by the P/E ratio. The robustness of the model is highlighted by the fact that it accounts for about 98.56% of the variation in market capitalisation. These findings offer insightful information to investors and financial managers working in the NBFC industry, advancing knowledge of the elements influencing market value and emphasising the intricate relationships among asset management, investor confidence, and financial health in the Indian NBFC environment.