Exploring the Interlinkage between Dividend Policy and Stock Performance: Analytical Study of NIFTY IT Sector in India

Abstract

India is a developing economy aiming to become US$ 5 Trillion by 2030. There is a great deal of contribution of IT sector in shaping the Indian economy. This study critically examines the intricate relationship between dividend policy and stock performance within the NIFTY IT sector, a high-growth segment of India’s capital markets. Leveraging a robust analytical framework, the research investigates firm-level data from top IT companies listed in the NIFTY IT index over the past decade, employing panel data analysis, correlation matrices, and regression models to assess the influence of dividend payout ratios, dividend yields, and related policy variables on stock price volatility and returns. The findings reveal nuanced sector-specific dynamics that deviate from the classical dividend irrelevance theory, uncovering significant, albeit variable, associations between dividend policy metrics and market performance of IT stocks. While some IT firms showcase high dividend yields acting as valuation support during market downturns, structural shifts and cyclical sector trends also shape investor responses to dividend announcements. This paper contributes original insights into the strategic financial management of IT sector firms and informs institutional and individual investment decisions, with implications for policy makers and corporate boards navigating the evolving landscape of India’s technology-driven equity markets.