Impact of Macroeconomic Variables on BSE Indices

Abstract

Movements of stock indices are highly influential and volatile. Any changes in factors having an impact on these indices are important in recording sensitive data regarding changes in the market conditions and the fundamentals of the economy. Stock market changes are influenced by micro and macroeconomic variables as well as certain other unpredictable subjective factors. This paper conducts a study to investigate about the nexus between a few selected macroeconomic variables and Bombay Stock Exchange (BSE) returns in India. The objective is to make the investors aware of the factors that affect their investment in stock indices. Data for the study were collected from secondary sources like government publications, newspaper, and magazines, reports of committee and commissions and various other private publications. Data were analyzed using “unit root test”, “Granger causality test” and “multiple regression analysis”. The finding of the study shows a negative relationship between gold growth rate, silver growth, and BSE returns. The relativity between inflation rate and the exchange rate is favourable when compared with BSE returns. Granger Causality test and the Regression analysis concludes that exchange growth rate and the inflation growth rate are the two variables which affect BSE returns.