An Analytical Study of the Impact of Macroeconomic Variables on the Performance of the Indian Stock Market with Special Reference to NSE and BSE

Abstract

Click Here:Access Full Text

The present study investigates the impact of macroeconomic variables on the Indian stock market returns using the ARIMA model. The study of four macroeconomic variables, namely FDI, FIIs, exchange rate, and foreign exchange reserve has been undertaken; the macroeconomic variables and stock market price was taken for the period 2017-18 to 2021-22 on monthly data. The study reveals that all the variables are stationary at first order difference, except FDI and FIIs, which are stationary at level. The correlogram defines that the autocorrelation (q) and partial autocorrelation (p) are not more than the significance level, either in BSE or in NSE. With the help of the correlogram, lag values of p and q are selected; so, the model (0,1,0) and (0,1,0) have been selected for further analysis. The estimation of the ARIMA model parameters found that FDI and exchange rate have a negative relation with the Indian stock market, whereas FIIs and foreign exchange reserve are positively related to BSE and NSE, and the p-values (0.0321 and 0.0368, respectively) are less than 0.05, which defines the significant impact of FIIs on the Indian stock market returns. We can say that FIIs play a major role in the growth of the Indian stock market, compared to other variables. Based on the experiment’s results, the best ARIMA model can predict market prices effectively. Investors could use that information to make successful investment decisions.

Keywords: Macroeconomic Variables, NSE, BSE, ADF Unit Root Test, ARIMA Model

View PDF