Int. J. Accounting and Finance, Vol. 1, No. 3, 2009 323 Copyright © 2009 Inderscience Enterprises Ltd. Analysis of the fundamental factors affecting the market price of shares constituting the Indian index: a study of SENSEX Niladri Das* and J.K. Pattanayak Department of Management Studies Indian School of Mines Dhanbad-826004, India Fax: +913262206858 E-mail: niladri_pnu2003@yahoo.co.in E-mail: jkpattanayak@yahoo.co.in *Corresponding author Abstract: This paper examines the various research studies undertaken in the Indian and international context highlighting the effect of various fundamental factors on the behaviour of the stock market. This paper tries to identify the critical variables which have a significant effect on stock price movements and influence the entire market’s movement. The 30 shares constituting the Bombay Stock Exchange-Sensitivity Index (BSE-SENSEX or SENSEX) are used as proxies to capture the entire stock market’s movement. Appropriate statistical techniques have been used to establish a meaningful relationship among various explanatory variables identified through the empirical analysis considering the available research studies. The explanatory variables, which act as major determinants of stock price movements, are condensed into a few critical factors by factor analysis and the relevance of these factors in influencing stock market movements is explained in detail. The analysis shows that higher earning power, Returns on Investment (ROIs), growth possibility and favourable valuation have a positive impact on the share price and stock market movement, while higher risk and volatility have a negative impact. These factors can be used as major analytical tools by investors, corporations and brokers to make rational and intelligent investment decisions. Keywords: fundamental factors; stock market movement; sensitivity index; SENSEX. Reference to this paper should be made as follows: Das, N. and Pattanayak, J.K. (2009) ‘Analysis of the fundamental factors affecting the market price of shares constituting the Indian index: a study of SENSEX’, Int. J. Accounting and Finance, Vol. 1, No. 3, pp.323–355. Biographical notes: Niladri Das is a Senior Lecturer at the Department of Management Studies, ISM University, Dhanbad, India. He is actively engaged in teaching various post-graduate and undergraduate courses at the school. He has ten publications in national and international refereed journals of repute. His areas of research includes capital markets, environmental reporting practices and international business. Dr. J.K. Pattanayak is an Associate Professor at the Department of Management Studies, ISM University, Dhanbad, India, has more than 24 years of teaching experience and is actively engaged in consultancy and research in the areas of financial accounting and corporate finance. He has over