Impact of Inflation Rate on the Performance of the Stock Market: With Special Reference to India

Abstract

The stock market is a reflection of a country’s economic activities. As the stock market represents every segment of the industrial sector and by finding out the impact of the inflation rate on the performance of the stock market, we can estimate the impact of inflation on the economic condition. This study analyses the impact of the inflation rate on the performance of the Stock Market in India. The time series data is to be analysed with the help of various statistical tests i.e., ADF Test, Co-integration Test, VECM, and Granger Causality Test. The results show that there is a long-run co-integration between inflation and NSE sectoral indices and most of the sectoral indices (Bank, CDI, FMCG, FS, IT, Metal, O&G, Pharma, and Reality) exhibit a positive relationship with inflation except Auto Sector and PSUB (negative correlation) during the period of the study. There is a one-directional Granger Causality that exists between the inflation rate and CDI, FMCG, and FS.

Keywords: Inflation Rate, Stock Market, Co-Integration, Granger Causality

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