An Empirical Investigation Of The Macro Determinants Affecting India’s Stock Market : Evidences from NSE

Management

This study investigates the impact of six macroeconomic variables, such, exchange rates, inflation rates, interest rates, money supply, industrial production index and international oil price on stock market Index in India NSE(NIFTY 50). The period covered in this study is between April 2000 to March 2018. Using the Augmented Dickey-Fuller unit root test, the series are tested as non-stationary at the level but stationary in first difference. The use of the Johansen cointegration test, indicates that macroeconomic variables and stock market index are co-integrated. This implies that a long run relationship exists between the specified macroeconomic variables and stock market index in India. The multivariate Ordinary Least Square (OLS) and the Error Correction Model (ECM) also shows that inflation rate, interest rate, money supply, industrial production index and oil price do influence stock market index either in the short-run or the long-run. The Granger causality test unveils both unidirectional and bidirectional relationships. There is a bidirectional causality between oil price and stock market index; money supply and stock market index while a unidirectional causality running from industrial production to stock market index; interest rates to stock market index are found. Therefore, predicting stock price via changes in macroeconomic variables becomes possible and this can aid economic forecast, planning and growth. The major conclusion of this study is that macroeconomic variables cannot be ignored in accounting for the dynamics of stock market behavior in India. The adoption of appropriate macroeconomic policies that are favorable to stock market index (proxy for stock prices) and this in turn will stimulate the growth of the stock market in India.

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