An empirical analysis of impact of macroeconomic variables on Indian stock market

Abstract

This research paper, using monthly returns of macroeconomic variables, Nifty, and stock price from 3 sectors, examines the impact of macroeconomic determinants on Nifty and banking sector stocks from May 2009 to July 2018. The paper also analyses the granger cause between macroeconomic variables and Nifty; macroeconomic variables and Indian banking sector stocks. This paper also extends the research work in finding out the impact before and during Narendra Modi government. Johansen’s co-integration and granger causality tests were applied for this research work. The results of Johansen’s co-integration proved that there is a long relation between selected macroeconomic factors, i.e. bank rate, repo rate, and reverse repo rate, and Indian stock market and also on banking sector share price. There is granger cause before Modi Government and during Modi Government. It is concluded that, a positive significant relationship exists between macroeconomic determinants and Indian stock market.