Interconnected Dynamics: Mutual Relationship of Macroeconomic Variables and BSE 200 Index Prices in the Indian Stock Market

Abstract

This research delves into the intricate relationship between the Bombay Stock Exchange (BSE) 200 index and selected macroeconomic factors in the context of the Indian economy. Employing a systematic approach, the study utilizes regression analysis to examine the influence of macroeconomic variables on BSE 200 index prices. The research adheres to fundamental assumptions of regression modelling, employing diagnostic tests to ensure the reliability of the findings. The independent variables in the research include foreign exchange rates (Pound Sterling, Japanese Yen, Deutsche Mark/Euro, US Dollar), gold price, crude oil price, foreign exchange reserves, and inflation rate. The study covers the period from April 2018 to March 2023. The research findings indicate that the inflation rate, foreign exchange reserves, and the Japanese Yen exchange rate significantly impact the BSE 200 index price. Higher inflation is associated with a decrease in the index, emphasizing the negative influence of rising prices. Conversely, increasing foreign exchange reserves correlate with index price appreciation, emphasizing the role of reserves in fostering confidence and stability.