Inflation and Stock Market Returns: An Empirical Study of Sectoral Indices with Special Reference to India

Abstract

In this study an attempt has been undertaken so as to establish the relationship between sectoral indices returns and inflation numbers. In order to achieve the objective of the study, all the sectoral indices have been taken in the study except two (02) indices because they were introduced in the National Stock Exchange in the recent past and, therefore, their data is not available for the whole reference period of the study. The indices that are in the study are, (CNX Auto Index, CNX Bank Index, CNX Energy Index, CNX Finance Index, CNX FMCG Index, CNX IT Index, CNX Metal Index, CNX MNC Index, CNX Pharma Index, CNX PSU Bank Index). The study took eight years of reference period throughout which all the indices that are included in the sample were available. The researchers have employed Pearson correlation method so as to establish the relationship between inflation and sectoral indices returns. The findings of the study put forth that most of the indices do possess statistically significant relationship with inflation numbers.