EFFECT OF MACROECONOMIC VARIABLES ON STOCK MARKET : INDIAN PERSPECTIVE

Abstract

Macroeconomic variables are interlinked with each other and their interaction provides synergy and has a significant impact on the investment sentiments in the market. This interplay among them helps in bringing steadiness in the economy. Indian economy in the recent past had experienced a volatile situation in its financial markets. Given the current time when the international crude oil prices are touching skies and INR is very volatile with respect to $ counterpart, the study about effect of various macro-economic variables on Indian stock indices have become more significant. Also foreign exchange markets are quite volatile these days and show a continual weakening of rupee against dollar which is followed by an increase in gold rate, crude oil rate etc. The key objective of this study is to examine the impact of selected external macroeconomic variables on Indian Stock Market and relationship between them. For the purpose of this study eight macro-economic variables such as Exchange Rate (USD), Crude Oil prices, Gold Prices, Foreign Institutional Investments (FIIs), Foreign Direct Investment (FDIs), Consumer Price Index (CPI), Index for Industrial Production (IIP), Trade Balance have been used to magnify the impact of external macroeconomic variables on Indian Stock Market (Nifty 50). The study investigates effect of macroeconomic factors on the performance of the Indian Stock Market using monthly time series data over the period April 2011 to March 2020 for eight variables taken into study, and one stock market index namely Nifty50. In order to examine the relationship among these variables various statistical techniques are used like the Descriptive Statistics, Correlation analysis and Multivariate Regression analysis using SPSS. Result of this study help in exploring whether the movement of NIFTY 50 index is the result of some selected macroeconomic variables. The result of this research project shows that crude oil rate, FII, CPI and IIP have positive relation with NIFTY 50 while other variables have negative relation with NIFTY 50. Also exchange rate, FII, CPI and trade balance have statistically significant impact on NIFTY 50 while other variables impact is not statistically significant. This implies that major variation in NIFTY 50 price is explained by exchange rate, FII, CPI and trade balance.