Impact of Selected Macro Economic Variables on Indian Stock Market: A Study with Reference to BSE Sensex

Abstract

Stock markets are considered to be important part of financial markets. They provide the investors with a wide range of alternatives to choose from for the purpose of investment and generating returns. At the same time, they also provide a platform to corporates for issuing various securities and arranging funds. Stock market indices not only reflect the situation of stock markets but they also reveal health of the economy. In fact, they are referred to as barometer of an economy. Share prices do not move in vacuum rather their movement is affected by a large number of macroeconomic as well as industry specific and company specific factors. This study has been undertaken with the objective of measuring the impact of two important macroeconomic factors i.e. Index of Industrial Production (IIP) and Foreign Exchange Rate (US Dollar-INR) on the movement of share prices in Indian Stock Market. For conducting this study, BSE Sensex has been used to represent the movement of stock prices in India. BSE Sensex is one of the most popular Indian stock market indices. It is a well-diversified index of Bombay Stock Exchange consisting of 30 large cap companies representing most of the important sectors of Indian economy. The study has been conducted over a period of 32 quarters ranging from financial year 2011-12 to 2018-19. Researchers have used Correlation and Regression Analysis for conducting the study and drawing the conclusions. The study reveals that both these macroeconomic parameters i.e. IIP and Exchange Rate have an impact on Indian stock market. IIP has positive and strong impact while exchange rate has negative and relatively weak impact on Sensex