Factors Affecting Movement of Indian Stock Market: A Study with Special Reference to CNX Nifty

Abstract

Stock markets are often referred to as barometer of an economy. Stock market indices not only tell us about the condition of stock markets but in a way they also reflect the health of an economy. Stock prices do not move in vacuum rather they are affected by a large number of factors. The objective of the study is to identify the factors affecting the movement of Indian stock market and the impact of these factors on the same. For the purpose of this study, CNX Nifty has been used to represent the movement of Indian stock markets. CNX Nifty is a well-diversified index consisting of 50 large cap companies representing most of the important sectors of Indian economy. The study deals with the time series data and consists of eleven variables i.e. Oil Prices, S&P 500, Nikkei, FTSE, NASDAQ, Wholesale Price Index as a proxy for inflation. Index of Industrial Production, Foreign Exchange Rate, Current Account Deficit, FII Investment and CNX Nifty. The study has been conducted over a period of 32 quarters from financial year 2005-06 to 2012-13. Researchers have used Principal Component Analysis and Regression Analysis for conducting the study and drawing the conclusions. All these variables have been clubbed into two factors namely Macroeconomic Factors and International Factors. The study revealed that both these factors i.e. macroeconomic factors as well as international factors have significant impact on movement of CNX Nifty.