A Study On Causal Relationship Between Macro Economic Variables And Indian Stock Market

Abstract

This study explores into the intricate relationship between macroeconomic variables and the Nifty indices in India from 2018 to 2022.The study aims to determine how variables like interest rate, consumer price index, exchange rate, cash reserve ratio, and Treasury bill affect Nifty indices by using analytical research methods like correlation analysis, linear regression, augmented Dickey Fuller test, lag determination, and Granger causality test. Through a comprehensive review of literature, the research establishes a foundation for understanding the dynamics between macroeconomic indicators and stock market performance. The consumer price index has the largest impact on the Nifty indexes, which show strong relationships with important macroeconomic indicators. Furthermore, linear correlations between the Nifty indexes and the consumer price index and the interest rate are found via Granger causality tests. These findings have significance for investors and policymakers alike, emphasizing how crucial it is to take macroeconomic factors into account when making investments and formulating policies. As a result, this study helps stakeholders to navigate the complexities of the Indian stock market by providing insightful information about the relationship between macroeconomic conditions and stock market performance.