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International Journal of Advanced Scientific

Research & Development e-ISSN: 2395-6089
p-ISSN: 2394-8906
Vol. 02, Spl. Iss. 02, Ver. II, Aug’ 2015, pp. 282 – 287

Impact of Select Macroeconomic Variables on the Movement

of Indian Stock Market – A Study with Reference to Sensex
and Nifty
Dr. L. GANESAMOORTHY
Assistant Professor in Commerce, Annamalai University, Annamalai Nagar, Chidambaram.

Dr. G. UPPILI SRINIVASAN

Assistant Professor – II, Examination Wing, Sastra University, Thanjavur.

ARTICLE INFO ABSTRACT

Article History: Change is an important nature of stock market, several
Received: 13 Jul 2015; macroeconomic factors cause the movement of stock
Accepted: 14 Jul 2015; market. In order to examine the influence of
Published online: 10 Aug 2015.
macroeconomic factors on the movement of Indian stock
market six variables were selected namely gold price, oil
Key words:
price, exchange rate, wholesale price index, the index of
Stock Market,
FII, industrial products and net investment of FIIs as
Exchange Rate, independent variables and the return on Sensex and return
WPI, on Nifty were taken as dependent variables for the study.
IIP, The study used monthly data of Sensex, Nifty, Gold price,
Sensex,
Nifty,
Oil price, Exchange rate, Wholesale Price Index, Index of
Return. Industrial Products and Net investment of FIIs. The data
were collected for a period of ten years from April, 2005 to
March, 2015 and it came 120 observations. It used
correlation and regression analysis as statistical tools. The
results of correlation analysis showed that gold price and
exchange rate had significant negative relationship on the
movement of Indian stock market and net investment of
FIIs had positive and significant relationship. The results
of regression analysis showed that exchange rate had
significant negative impact and net investment of FIIs had
significant positive impact on the return on both Sensex
and Nifty during the study period.
Copyright © 2015 IJASRD. This is an open access article distributed under the Creative Common Attribution
License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original
work is properly cited.

How to cite this article: Ganesamoorthy, L., & Srinivasan, U. G., (2015). “Impact of Select Macroeconomic Variables on
the Movement of Indian Stock Market – A Study with Reference to Sensex and Nifty”. International Journal of Advanced
Scientific Research & Development (IJASRD), 02 (02/II), [Special Issue – Aug’ 2015], pp. 282 – 287.
International Conference on Innovation in Commerce and Management (ICONICM – 2015) |
Organized by Department of Commerce, A.V.C. College (Autonomous), Mannampandal,
Mayiladuthurai – 609 305, Tamil Nadu, India.

INTRODUCTION
Finance sector is backbone of an economy. Stock markets are rendering the
service of channelizing the capital towards industries. Indian stock market is one the
fastest growing stock markets in the world. India stock market is pioneer in stock
markets in Asia. BSE is one of the oldest stock exchanges in Asia. The growth rate of
stock markets in India was found to be normal until 1990’s. On account of major
economic reforms undertaken by the Government of India, the growth rate of stock
markets was considerable and it was found high since 2000. Indices are parameters of
measuring the movement of stock market. In India Bombay Stock Exchange (BSE) and
National Stock Exchange (NSE) are national stock exchanges, 99.5 per cent of share
trading are taken place in these two stock exchanges. Sensex and Nifty are the major
indices of these two stock exchanges respectively. Change is an important nature of
stock market, several macroeconomic factors cause the movement of stock market. Gold
price is one of the major factor which influence the movement of stock market, because
investors go for investment in gold when unfavourable situation in stock market. Oil
price is affecting majority of businesses and their impact will reflect in stock market,
hence change in oil price may affect the movement of stock market. Exchange rate is
general parameter of measuring economic conditions, hence exchange rate is one of the
major variables in affecting the movement of stock market. Wholesale price index and
the index of industrial products are also major variables which affect the movement of
stock market. Institutional investors are major investors, among them foreign
institutional investors are imparting more amount in Indian stock market, hence FIIs
investment is considered as major factor which affect the movement of Indian stock
market. Hence the paper has considered these six macroeconomic variables namely gold
price, oil price, exchange rate, wholesale price index, the index of industrial products
and net investment of foreign Institutional Investors as independent variables and the
return on Sensex and return on Nifty were taken as dependent variables for the study.

1.1 Literature Review

Al-Sharkas, Adel (2004) in his study found that the stock prices and
macroeconomics variables have a long-term equilibrium relationship. Raman K.
Agrawalla and S. K. Tuteja (2008) in their study reported causality running from
economic growth proxied by industrial production to share price index and not the other
way round. Samveg Patel (2012) in his study evidenced long run relationship between
macroeconomic variables and stock market indices and the causality run from exchange
rate to stock market indices to IIP and Oil Price. Rakesh Kumar (2013) evidenced that
industrial performance played significant role in influencing the stock market and some
impact was found by policy rates but it did not seem sustainable. Pooja Sing (2014) in
her study found significant impact of macroeconomic variables on Indian stock market.
The gold prices have its negative impact on the stock market. The Indian Stock market
improves with the increase in the inflow of foreign investment. Muazu Ibrahim and
Alhassan Musah (2014) in their study found that among the macroeconomic variables,
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 Impact of Select Macroeconomic Variables on the Movement of Indian Stock Market – A Study
with Reference to Sensex and Nifty

shocks to inflation, money supply and exchange rate do not only explain a significant
proportion of the variance error of stock returns but their effects persist over a long
period.

1.2 Statement of the Problem

Studying the movement of stock market is difficult one. Behavior of stock market
is determined by numerous factors, which includes macro and micro economic factors.
Previous studies indicate that macro-economic factors determine the movement of stock
market to considerable extent. Even though there are number of macroeconomic factors,
all the factors are not closely related to stock market. The factors such as gold price, oil
price, exchange rate, wholesale price index, index of industrial products and net
investment of FIIs are most considerable factors which determine the movement of
Indian stock market. Hence this paper has attempted to study the nature of
relationship and impact of macroeconomic variables on the movement of Indian stock
market.

1.3 Objectives of the Study

1. To study the nature of relationship between selected macroeconomic variables
and stock market performance and
2. To study the effect of macroeconomic variables on the movement of Indian stock
market.

METHODOLOGY
The study required secondary data namely monthly data of Sensex, Nifty, Gold
price, Oil price, Exchange rate, Wholesale Price Index, Index of Industrial Products and
Net investment of FIIs. The data were collected for a period of ten years from April,
2005 to March, 2015 and it came 120 observations. They were collected from various
reports of SEBI, official websites of BSE, NSE, Government websites and other financial
websites. It used correlation and regression analysis as statistical tools. For this
purpose the study calculated return on Sensex and Nifty as proxy for market movement
and change of other variables over the previous period also calculated. The models used
for the study are presented below.

2.1 For Sensex:

𝑆𝑖𝑡 − 𝑆𝑖𝑡 −1 = 𝛼 + 𝛽1 𝐺𝑂 + 𝛽2 𝑂𝐼 + 𝛽3 𝐸𝑋 + 𝛽4 WPI + 𝛽5 IIP + 𝛽6 FII + εt

2.2 For Nifty:

𝑁𝑖𝑡 − 𝑁𝑖𝑡 −1 = 𝛼 + 𝛽1 𝐺𝑂 + 𝛽2 𝑂𝐼 + 𝛽3 𝐸𝑋 + 𝛽4 WPI + 𝛽5 IIP + 𝛽6 FII + εt
Here S - Sensex; N - Nifty; GO – Gold price; OI – Oil price; Ex – Exchange rate;
WPI – Wholesale Price Index; IIP – Index of Industrial Products; FII – Net investment
of Foreign Institutional Investors; it – current period; it–1 – previous period; 𝛼 -
Constant and εt - Error term.
Volume 02, Special Issue 02, Version II | 10th & 11th August’ 2015 284
International Conference on Innovation in Commerce and Management (ICONICM – 2015) |
Organized by Department of Commerce, A.V.C. College (Autonomous), Mannampandal,
Mayiladuthurai – 609 305, Tamil Nadu, India.

RESULTS AND DISCUSSION

This study is intended to analyze the nature of relationship and impact of
selected macro-economic variables on the movement of Indian stock market in current
scenario. Gold is considered by the investors as alternate for their investment next to
share market, hence it may has considerable influence on the movement of stock
market. Generally gold should have negative relationship with stock market, because
whenever the market is not favour, people go for gold for their investment. Oil price is
another variable to influence the movement of stock market, change of oil price will
effect most of the sectors in the economy, hence it may reflect in stock market
movements. Exchange rate refers to exchange rate of Indian rupee against US$.
Exchange influences in all aspects of the economy, hence the study has taken this
variable also. Whole sale price index and the index of industrial products are also the
variables which may have their impact on the movement of Indian stock market.
Foreign institutional investors are one of the major investors in Indian stock market.
Many studies have proved that they influence the market to some extent. Hence the
study also taken this variable also to examine they have any impact on the movement of
Indian stock market. The results of correlation analysis are presented in table 1.

Table – 1: Correlation Matrix

Variables Sensex Nifty Gold Oil Exchange WPI IIP FII
Sensex 1 .992** -.198* -.001 -.397** -.046 .001 .398**
Nifty 1 -.201* -.015 -.408** -.067 .022 .407**
Gold 1 .129 .289** .164 .006 -.118
Oil 1 -.048 .541** -.026 -.081
Exchange 1 .082 .025 -.211*
WPI 1 -.279** -.050
IIP 1 .148
FII 1
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
Source: Computed from Secondary Data
It could be known from table 1 that among the macro economic variables selected
for the study gold price, exchange rate and net investment of foreign institutional
investors had significant relationship with the movement of Indian stock market.
Exchange rate and gold price had negative relationship with movement of Indian stock
market, it was proved both with return on Sensex and Nifty, but the correlation co-
efficient of exchange rate was found higher (-0.397) than gold price (-0.198). The net
investment of FIIs had positive relationship with the movement of Indian stock market
(0.398). Other selected variables namely oil price, wholesale price index and index of
industrial products did not have significant relationship with the movement of Indian
stock market. Similar results were found with the movement of Nifty also.
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 Impact of Select Macroeconomic Variables on the Movement of Indian Stock Market – A Study
with Reference to Sensex and Nifty

Table – 2: Regression Analysis on Return on Sensex

Unstandardized Standardized
Coefficients Coefficients Adj. P-
Model T Sig. F-Stat
R2 Value
B Std. Error Beta
(Constant) 257.757 107.313 2.402 .018
Gold -.032 .038 -.071 -.832 .407
Oil .108 .338 .032 .319 .750
Exchange -291.868 84.363 -.302 -3.460 .001 0.229 6.837 0.000
WPI -22.571 102.596 -.023 -.220 .826
IIP -5.155 9.786 -.046 -.527 .599
FII .025 .006 .334 3.959 .000
Dependent Variable: Sensex
Source: Computed from Secondary Data
Table 2 shows that the regression model used for the study was significant at one
per cent level. The value of adjusted R2 was 0.229, which means all the selected
variables explained the movement of Indian stock market in terms of return on Sensex
to the extent of 23 per cent. The results of beta value showed that exchange rate and
net investment of FIIs had significant impact on the movement of Indian stock market
during the study period, of which exchange rate had negative impact and FIIs net
investment had positive impact on the movement of Indian stock market. Gold price,
wholesale price index and the index of industrial products had negative impact on the
movement of Indian stock market, but they were not statistically significant. Oil price
had positive impact on the movement of Indian stock market, but it was not significant.
Table 3 gives the results of regression analysis on return on Nifty.

Table – 3: Regression Analysis on Return on Nifty

Standardize
Unstandardized
d Adj. F- P-
Model Coefficients T Sig.
Coefficients R2 Stat Value
B Std. Error Beta
(Constant) 91.132 31.730 2.872 .005
Gold -.011 .012 -.077 -.907 .366
Oil .030 .089 .029 .338 .736
Exchange -96.252 25.786 -.323 -3.733 .000 0.249 7.520 0.000
WPI -24.779 26.635 -.081 -.930 .354
IIP -2.662 3.026 -.076 -.879 .381
FII .008 .002 .323 3.851 .000
Dependent Variable: Nifty
Source: Computed from Secondary Data
It could be noted from table 3 that the selected macroeconomic variables had
given similar results as on return on Sensex also. It showed that gold price, exchange
rate, wholesale price index and the index of industrial products had negative impact on
Volume 02, Special Issue 02, Version II | 10th & 11th August’ 2015 286
International Conference on Innovation in Commerce and Management (ICONICM – 2015) |
Organized by Department of Commerce, A.V.C. College (Autonomous), Mannampandal,
Mayiladuthurai – 609 305, Tamil Nadu, India.

the return on Nifty, but the result of exchange rate only was significant at one per cent
level. Oil price and net investment of FIIs had positive impact on the movement of
Indian stock market in terms of return Nifty, but the result of FIIs net investment was
significant at one per cent level. The result of adjusted R2 was 0.249, which means the
selected macroeconomic variables explained the movement of Indian stock market in
terms of return on Nifty to the extent of 25 per cent. The calculated value of F-statistics
was 7.520 and it was significant at one per cent level.

CONCLUSION
The movement of stock market is not predictable. Numerous micro and macro-
economic factors are determining the behaviour of stock market. Macro-economic
factors are influencing the market to larger extent than micro economic factors. The
study considered six macroeconomic factors namely gold price, oil price, exchange rate,
wholesale price index, the index of industrial production and net investment of FIIs.
The study applied correlation analysis and regression analysis in order to examine the
relationship and impact of the macro economic variables on the movement of Indian
stock market. The results of correlation analysis showed that gold price and exchange
rate had significant negative relationship on the movement of Indian stock market and
net investment of FIIs had positive and significant relationship. The results of
regression analysis showed that exchange rate had significant negative impact and net
investment of FIIs had significant positive impact on the return on both Sensex and
Nifty during the study period.

REFERENCE
[1] Al-Sharkas, Adel (2004), The Dynamic Relationship Between Macroeconomic Factors
and the Jordanian Stock Market, International Journal of Applied Econometrics
and Quantitative Studies, Vol.1, No.1, pp.97-114.
[2] Muazu Ibrahim and Alhassan Musah (2014), An Econometric Analysis of the Impact
of Macroeconomic Fundamentals on Stock Market Returns in Ghana, Research
in Applied Economics, Vol.6, No.2, pp.47-72.
[3] Pooja Sing (2014), Indian Stock Market and Macroeconomic Factors in Current
Scenario, International Journal of Research in Business Management, Vol.2,
No.11, pp.43-54.
[4] Rakesh Kumar (2013), The Effect of macroeconomic Factors on Indian Stock Market
Performance: A Factor Analysis Approach, IOSR Journal of Economics and
Finance, Vol.1, No.3, pp.14-21.
[5] Raman K. Agrawalla and S. K. Tuteja (2008), Share Price and Macroeconomic
Variables in India, Journal of Management Research, Vol.8, No.3, pp.136-146.
[6] Samveg Patel (2012), The Effects of Macroeconomic Determinants on the
Performance of the Indian Stock Market, NMIMS Management Review,
Vol.XXII, pp.117-127.

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