Question

Impact of macroeconomic variables on stock prices in india

Answer 1

The Indian stock market plays a pivotal role in the growth of Indian economy. Its every movement puts an impact on the performance of the economy. The stock market is a place at where investors, whether Indians or foreigners can invest or take the funds for capital appreciation. Their decision to invest or withdraw the funds depends upon the numerous factors. The various proponents opined that the macroeconomic variables are the one of them. Macroeconomics is the analysis of the nation’s economy as a whole. It scrutinizes the cyclical movements and trends exists in economy such as Gross Domestic Production, Unemployment, Inflation, Money Supply, Budget Deficits, International Trade and Exchange Rate, etc.The various schools of thoughts like Classical theory by Adam Smith, David Ricardo, Thomas Robert Malthus and John Stuart Mill, Keynes theory by John Maynard Keynes, New Classical theory, New Keynesian theory and New Growth theory developed their own views about the role of macroeconomic variables in economy by considering different assumptions. But, they accepted that macroeconomic variables are the most remarkable variables and Government’s can’t make their policies, rules and regulations without contemplating them. So, Macroeconomic variables are the key indicators to show the prevailing trends in the economy. The various researchers did a remarkable work to evaluate the association between changes in macroeconomic variables and stock market returns by using different tools and techniques. The present study selected ten macroeconomic variables, i.e. Broad Money, Call Money Rate, Crude Oi
l Price, Exchange Rate, Foreign Exchange Reserve, Foreign Institutional Investors, Gross Fiscal Deficit, Index of Industrial Production, Inflation Rate and Trade Balance to check its association with average monthly closing stock prices of BSE 500 manufacturing firms.
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