Testing the Accuracy of Relative Valuation Method: An Empirical Study Based on Select Companies in Indian Cement Industry

Abstract

The purpose of this study is to examine empirically the accuracy of relative valuation model for Indian cement industry. The study considers ten years’ financial data of nine companies of Indian cement industry starting from the year 2013-14 to 2022-2023. All the financial information has been collected from CMIE Prowess Database. Closing share prices of the respective stocks for the select period have been obtained from Bombay stock exchange. In this study, the accuracy of the relative valuation model is checked by analysing prediction errors and by using Wilcoxon Signed Rank test. The findings of the study reveal that relative valuation measures reflect overvaluation of securities. The P/E ratio is better that any other measure for estimating the value of share as per prediction error criteria.