A study on the impact of macroeconomic factors on S&P BSE Bankex returns

Abstract

Macro environment plays a major role along with the micro environment in making an impact over the performance of stock market in India. This study attempts to research whether Money Supply, Foreign Direct Investments (FDI), Inflation Rate, Index of Industrial Production (IIP), Foreign Exchange Reserves and Foreign Portfolio Investments (FPI) are making any significant impact on the BSE Bankex returns. The previous studies have taken different variables as macroeconomic factors in order to measure their impact on Bankex. This study is focusing on different macroeconomic factors that have not yet taken earlier in order to understand their impact on Bankex. For that monthly data was collected over a period of 10 years ranging from April 2005 to March 2015 from the websites of Bombay Stock Exchange, Reserve Bank of India etc. Unit root test, multiple regression and multicollinearity test were conducted for making the analysis. The analysis revealed that FDI and Foreign Exchange Reserves have a significant impact on the BSE Bankex returns and there is no multicollinearity exists between the variables in the model.