Multifaceted Relationship between Macroeconomic Variables and Capital Market in India with special reference to Bombay Stock Exchange

Abstract

The study aims at examining how macroeconomic indicators affect the performance of stock markets by using the Indian Stock Exchange. This paper strikes up correlation among the variable and its relationship with each other with the help of ADF, Akaike Information criterion and Schwarz Bayesian criterion contemporaneous cross correlation analysis, and path analysis. It show that changes in Indian stock market index ( Sensex) do perform a relationship between flow of money supply (M1 and M2), interest rate, exchange rate, reserve and industrial production index (PPI and PMI), Inflation (CPI), GDP, Unemployment rate, FDI and Balance of payment. With the help of analysis conclude that Indian stock market is partially fluctuate with macroeconomic variable. Furthermore, based on the variance decomposition analysis, this paper highlights that BSE has stronger dynamic interaction with M1, M2, Exchange rate and consumer price index.

Keywords: Macroeconomic variable, Stock Market – BSE, Path Analysis

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