You can get the desired result with lettrine:
\documentclass{article}
\usepackage{yfonts,color,lettrine}
\usepackage{setspace}
\doublespacing
\renewcommand{\LettrineFont}{\initfamily\color{red}}
\setcounter{DefaultLines}{3}
\AtBeginDocument{\setlength{\DefaultFindent}{0.5em}}
\setlength{\DefaultNindent}{0pt}
\renewcommand{\DefaultLraise}{0.15}
\begin{document}
\lettrine{P}{hysical} properties and
text text text text text text text text text text text text
text text text text text text text text text text text text
text text text text text text text text text text text text
text text text text text text text text text text text text
text text text text text text text text text
\end{document}

With \onehalfspacing change the value of \DefaultLraise:
\documentclass{article}
\usepackage{yfonts,color,lettrine}
\usepackage{setspace}
\onehalfspacing
\renewcommand{\LettrineFont}{\initfamily\color{red}}
\setcounter{DefaultLines}{3}
\AtBeginDocument{\setlength{\DefaultFindent}{0.5em}}
\setlength{\DefaultNindent}{0pt}
\renewcommand{\DefaultLraise}{-0.1}
\begin{document}
\lettrine{P}{hysical} properties and
text text text text text text text text text text text text
text text text text text text text text text text text text
text text text text text text text text text text text text
text text text text text text text text text text text text
text text text text text text text text text
\end{document}

\yiniparcannot handle any spacing other than\singlespacing. – kvaibhav Jun 25 '15 at 13:26