IMPACT OF DOMESTIC MACROECONOMIC INDICATORS ON RETAIL INVESTORS’ DECISION-MAKING IN EQUITY MARKETS

Abstract

The relationship between macroeconomic indicators and individual investor behavior represents a critical intersection of economic theory and behavioral finance. This research investigates how domestic macroeconomic indicators—specifically inflation, the Reserve Bank of India’s repo rate, and GDP growth—influence the investment decision-making processes of retail investors in India’s equity markets. Through a quantitative survey of 50 retail investors administered during March-May 2026, this study employs comprehensive statistical methodologies to establish relationships between macroeconomic awareness variables and investor confidence, portfolio adjustment behavior, and information-seeking patterns. The research adopts an integrated approach combining descriptive statistics, reliability analysis, correlation analysis, multiple linear regression, analysis of variance, non-parametric testing, and chi-square analysis to provide multifaceted examination of these relationships. Key Findings: Inflation awareness emerges as the most influential macroeconomic factor affecting retail investor behavior, demonstrating a statistically significant positive relationship with investment decision confidence (β = 0.449, p = 0.002). This finding suggests that retail investors who consciously consider inflation dynamics during investment decision-making demonstrate substantially higher confidence levels and more proactive portfolio management behaviors. Repo rate awareness represents the second-most influential factor, with awareness of monetary policy changes positively correlating with investment confidence (β = 0.440, p = 0.015). This relationship reflects the tangible impact of interest rate changes on borrowing costs, savings returns, and corporate earnings, making repo rate fluctuations directly relevant to retail investor decision-making processes. GDP growth awareness demonstrates positive but non-significant influence on investment confidence (β = 0.266, p = 0.190), suggesting that while retail investors recognize GDP importance theoretically, they perceive it as insufficiently directly linked to personal investment outcomes. This indicates a comprehension gap wherein broad macroeconomic indicators receive lower integration into individual decision-making relative to micro-level indicators affecting personal financial circumstances. The comprehensive regression model explains approximately 30.5% of confidence variability (R² = 0.305), indicating that macroeconomic awareness accounts for substantial but not exclusive variance in investor confidence. Additional factors including prior investment experience, risk tolerance, financial literacy, and information source quality collectively account for approximately 69.5% of unexplained variance, underscoring the complexity of investment decision-making. Demographic analysis reveals that tracking frequency demonstrates moderate positive correlation with investment confidence (r = 0.52), suggesting that regular engagement with macroeconomic news moderately enhances investor self-assurance. However, the relationship remains imperfect, reflecting cognitive biases and information interpretation disparities among investors. The research confirms substantial heterogeneity in retail investor responses to macroeconomic information, with significant variation across age groups, income levels, and investment experience. Younger investors demonstrate greater information accessibility and engagement with digital sources, while older investors rely more heavily on traditional media and financial advisors. Contribution to Knowledge: This research contributes to behavioral finance literature by empirically quantifying the differential influence of macroeconomic indicators on retail investor behavior within emerging market contexts. The systematic application of rigorous statistical methodologies provides evidence-based insights complementing theoretical frameworks and enabling policy-level recommendations for market development and investor protection in India’s increasingly democratized equity market landscape.