Stock Market’s Reaction to Macroeconomic Variables:

Evidence from Indian Stock Market

Synopsis

Submitted for the Registration of

Doctor of Philosophy

In

Accountancy & Law

SUBMITTED BY
AYUSHMAN

UNDER THE SUPERVISION OF

DR. RAKESH KUMAR
Assistant Professor
Department of Accountancy & Law
Faculty of Commerce

DEPARTMENT OF ACCOUNTANCY & LAW, FACULTY OF COMMERCE

DAYALBAGH EDUCATIONAL INSTITUTE (DEEMED UNIVERSITY)
DAYALBAGH, AGRA-282005
2020
 CONTENTS OF SYNOPSIS
SR. NO. PARTICULARS PAGE NO.

1. INTRODUCTION 1-3

2. REVIEW OF LITERATURE 3-15

3. NEED OF THE STUDY 15

4. OBJECTIVES OF THE STUDY 16

5. RESEARCH HYPOTHESES 16

6. RESEARCH METHODOLOGY 17-18

7. OBJECTIVE WISE RESEARCH METHODOLOGY 19

8. PROPOSED CHAPTER PLAN OF THE STUDY 19

REFERENCES & BIBLIOGRAPHY 20-24

 INTRODUCTION

“Stock exchange in an association, organization or body of individuals whether incorporated or not,

establish for the purpose of assisting, regulating and controlling business in buying, selling and

dealing securities.”

-Securities Contracts (Regulations) Act, 1956

The Indian economy is characterized as a developing market economy. It is the fifth largest economy

in the world in terms of nominal Gross Domestic Product (GDP) ($ 2.936 Trillion) and ranked third

largest in terms of GDP Purchasing Power Parity (PPP) ($ 11.326 Trillion). As per International

Monetary Fund (IMF) data and reports published in 2018, Indian economy ranked 142nd by GDP

(Nominal) and 119th by GDP (PPP) on per capita income. According to Ministry of Commerce and

Industry (India), India’s export is $ 330 billion and import is $ 514 billion in the financial year 2018-

19. According to NITI Aayog, India need a nominal growth rate of 12.5 % to achieve a target of $ 5

trillion GDP by 2024.

Indian economy is considered as a growth engine of the world’s economy with the ever increasing and

expanding economy. Stock market of such robust economy is the face of the growing market and

companies in it. India has one of the oldest and the fastest stock market platform i.e. Bombay Stock

Exchange (BSE). Stock market is basically an electronic platform where the companies are listed and

stock is traded. The stock market avail long-term capital to the listed firms by pooling funds from

different investors and allow them to expand their businesses and also offer investors alternative

investment avenues to put their surplus funds in. Investors carefully watch the performance of stock

markets by observing the composite market index, before investing funds. Because of this advanced

platform it is possible for companies to raise capital from public efficiently and effectively. Indian

capital market has undergone a series of radical changes after the waves of economic reform since

1991 in Indian economy. This resulted in remarkable improvement in Indian stock market in terms of

its size and depth. With the economic reforms in the country, stock exchanges have grown

exponentially in terms of foreign institutional investment and transaction turnover. However, unlike

mature stock markets of developed economics, the stock markets of emerging economy like India are

characterized as most volatile stock markets. Day to day happenings and news are reflected in the

1
stock market, some of them may be relevant while others may be irrelevant. Moreover, the stock

market of emerging economics including India are likely to be sensitive to factors such as changes in

the level of economic activities, changes in political and international economic environment and also

related to the macroeconomic factors. Stock market is one of the most sensitive assets to economic

condition.

Several systematic and unsystematic variables have an impact on the business houses and vice versa.

The profitability of the business houses reflect in the market prices of the stocks which in turn affect

the benchmark indexes. An economic indicator is a statistic about an economic activity and allow

analysis of economic performance and predictions of future performance. Economic indicators include

various indices, earnings reports and economic summaries such as unemployment rate, Consumer

Price Index (a measure for inflation), industrial production, Gross Domestic Product, money supply

changes, etc.

STOCK EXCHANGES IN INDIA

Indian stock market is the oldest among all in Asia. The Bombay Stock Exchange (BSE) is known as

the largest and oldest stock exchange of India, established in 1875, it facilitates growth to the Indian

corporate sector by providing it an efficient capital-raising platform. National Stock Exchange (NSE)

is the 11th largest stock exchange in the world in terms of market capitalization. NSE’s key index is

NIFTY50, an index of fifty major stocks weighted by market capitalization. In India, there are six

main Stock Exchanges registered under Securities and Exchange Board of India (SEBI) such as BSE

Ltd., Calcutta Stock Exchange Ltd., India International Exchange (India INX), Metropolitan

Stock Exchange of India Ltd., NSE Ltd., NSE IFSC Ltd., out of these BSE and NSE are the two

main Stock Exchanges. Most of the trading in Indian Stock Market takes place on these two stock

exchanges. Both the exchanges follow the same trading hours, trading mechanism, settlement process,

etc.In India from last three decades stock market performed in many ways. Stock market has seen all

time high and big crisis also during the period.

The conventional method to estimate stock price is through econometric model and various statistical

tools. With the rapid growth in technological sector, soft computing technique has become one of the

2
emerging techniques of stock market prediction, such as fuzzy systems, neural networks and machine

learning, etc. These methods are collectively known as soft computing techniques.

REVIEW OF LITERATURE

The dynamic relationships between macroeconomic variables and stock returns have been widely

discussed and debated. Many researchers tried to show reliable associations between macroeconomic

variables and stock returns worldwide. Some of the relevant reviews in this relation are provided,

which are classified into two categories such as international and national.

INTERNATIONAL REVIEW OF LITERATURE

TITLE AND
S.No AUTHOR YEAR OBJECTIVES FINDINGS
JOURNALNAME
1 Assagaf, 2019 The Effect of This study aims This study found that
A., Macro Economic to analysis the macroeconomic variables
Murwanin Variables on Stock effect of consisting of inflation rates,
gsari, E., Return of macroeconomic interest rates, money supply,
Gunawan, Companies That variables on the and foreign exchange rates,
j. and Listed in Stock overall return of stock returns have a
Mayangsa Exchange: company shares significant effect on
ri,S. Empirical Evidence which is a proxy companies on the Indonesia
from Indonesia with changes in Stock Exchange.
the composite
International stock price
Journal of Business index.
and Management
2 Celebi, K. 2019 The Impact of To investigates Researcher found evidence
and Macroeconomic the impact of that across most subsamples,
Hönig, M. Factors on the macroeconomic the Composite Leading
German Stock factors, GermanIndicator (OECD), the
Market: Evidence government Institute for Economic
for the Crisis, Pre- bond yields,
Research (ifo) Export
and Post-Crisis sentiment and Expectations index, the ifo
Periods other leading
Export Climate index,
indicators on the
exports, the Consumer Price
International main GermanIndex CPI, as well as 3 year
Journal of stock index German government bonds
Financial Studies yields show delayed impacts
on stock returns. Further
found that the delayed
impact of the constituents of
the monetary aggregate M2
on stock returns changed
direction between the crisis
and post-crisis periods.
3 Ndlovu, 2018 The Impact of The study The researcher found that
B., Faisal, Macroeconomic assessed the long run, interest rates,
F., Variables on Stock association of money supply and inflation
Resatoglu, Returns: A Case of macroeconomic have a positive relationship
N.G. and the Johannesburg variables: with the share price while

3
 Türsoy, T. Stock Exchange inflation (INF), the exchange rate have a
Money supply negative effect to the stock
Romanian growth (M3), prices. Unidirectional
Statistical Review Interest rates causality was found running
(IR) and USD from exchange rates and
ZAR exchange interest rates to the share
rate (EX) on price and also the interest
stock price for rates and the exchange rates
the have a causality to the
Johannesburg money supply. The variance
Stock Exchange decompositions established
South Africa. that shocks to the share price
account for majority of the
changes in itself for all
periods during the short run
and long-run while also
cementing results of the
causality shocks in the stock
price and exchange rate
shocks have an impact on
changes in themselves, also
the impulse response
function further confirmed
causal Relationships
between the variables and
the stock price.
4 Epaphra, 2018 The impact of
This paper The empirical analysis
M. and macroeconomic examines the reveals that macroeconomic
Salema, E. variables on stock relationship variables and the stock
prices in Tanzania between stock prices are co-integrated
prices and across all models and, hence,
Journal of macroeconomic a long-run equilibrium
Economics Library variables relationship exists between
namely, them. Equally important, all
inflation rate, regression models pass the
Treasury bill specification tests of
rate, exchange heteroscedasticity, serial
rate and money correlation, Ramsey RESET
supply in test of specification and
Tanzania. Jacque-Bera Normality test.
The overall model regression
results show that money
supply and exchange rate
have a positive effect on
stock prices. By contrast,
Treasury bill rate tends to
have a negative effect on
stock prices. Inconsistent
with the a priori expectation,
inflation rate seems to exert
no impact on overall stock
prices. However, individual
firms’ regressions show that
the coefficient on inflation is
negative and statistically

4
 significant in 6 models but
weakly significant in 2
models, and positive and
statistically significant in 1
model.
5. Megaraval 2018 Macroeconomic The objective of The findings of pooled
li, A.V. indicators and their this paper is to estimated results of ASIAN
and impact on stock examine the 3 countries show that
Sampagna markets in ASIAN long-run and the exchange rate has a positive
ro G. 3: A pooled mean short-run and significant long-run
group relationship effect on stock markets
Approach between India, while the inflation has a
China and negative and insignificant
Cogent Economics Japanese stock long-run effect. In the short
& Finance markets and key run, there is no statistically
macroeconomic significant relationship
Variables such between macroeconomic
as exchange variables and stock markets.
rates and This study emphasizes on
inflation the impact of
(provided by macroeconomic variables on
consumer price the
Index) of stock market performance of
ASIAN 3 a developing economy (India
economies and China) and developed
(India, China economy (Japan).
and Japan).
6 Barakat, 2016 Impact of The key Results indicated that there
M.R. , Macroeconomic objective of this is a causal relationship in
Elgazzar, Variables on Stock study is to shed Egypt between market index
S.H. and Markets: Evidence light on the and consumer price index
Hanafy, from Emerging relationship (CPI), exchange rate, money
K.M. Markets between the supply, and interest rate. The
stock market same goes for Tunisia except
International and for CPI, which had no causal
Journal of macroeconomic relationship with the market
Economics and factors in two index. Results also revealed
Finance emerging that the four macroeconomic
economies are co-integrated with the
(Egypt and stock market in both
Tunisia) for the countries.
period from
January 1998 to
January 2014.
7 Czapkiewi 2016 The long-run The Objective The results indicated the
cz, A. and relationship of the study is to existence of one
Stachowic between the stock investigate the cointegrating relationship
z, M. market and main long-run between the WIG20 price,
macroeconomic relationship EUR/PLN exchange rate,
variables in Poland between stock export volume, and rate of
market and inflation CPI. However, the
Managerial macro-economic export variable had a
Economics variables in neglected impact on the
Poland stock stock
exchange market in the long-term

5
 relationship. The biggest
impact on the stock market
had the EUR/PLN exchange
rate. The impact of CPI on
the stock market is rather
moderate. We also
concluded that CPI moves
away from the equilibrium
state with a rather-slow rate,
whereas the EUR/PLN
comes to the equilibrium
state
At a similar pace.
8 Moghadda 2016 Stock market index In this study the The model outputs show that
m, A.H., prediction using ability of there is no distinct difference
Moghadda artificial neural artificial neural between the prediction
m, M.H. network network (ANN) ability of the four and nine
and in forecasting prior working days as input
Esfandyari Journal of the daily parameters.
, M. Economics, NASDAQ stock
Finance and exchange rate
Administrative was
Science investigated.
9 Ali, M. 2015 Impact of The aim of this The study showed that there
and Macroeconomic paper is to is weak connection between
Jamil, Variables on Stock investigate the macroeconomic variables
R.A. Market Returns: A linkage between and stock market returns.
Case of Karachi macroeconomic The research validates the
Stock Exchange variables findings of earlier studies as
(inflation rate, well as conclusions and
SSRN Electronic exchange rate recommendations are
Journal and interest rate) discussed.
on stock market
returns in
Pakistan.
10 Gurlovele 2015 An Impact of The study It was found that Foreign
en, K. and Macroeconomic investigated the Institutional Investors
Bhatia, Variables on the impact of became stationary at level,
B.S. functioning of macroeconomic Call Money Rate, Crude Oil
Indian Stock variables on the Price, Exchange Rate,
Market: A Study of functioning of Foreign Exchange Reserve,
Manufacturing Indian Stock Gross Fiscal Deficit,
Firms of BSE 500 Market. Inflation Rate and Trade
Balance at Its difference and
Journal of Stock Broad Money and Index of
&Forex Trading Industrial Production at IInd
difference. The two
macroeconomic variables
Foreign Institutional
Investors and Exchange Rate
were found significant. It has
been observed that these
variables have no
relationship with closing
prices of BSE 500

6
 Manufacturing firms. The
study also revealed that the
Indian Stock Market was a
weak form efficient because
no relationship was found
amongst the variables during
the study period.
11 Kibria, U. 2014 The Impact of The specific The consequences of
, Macroeconomic purpose of this Granger Causality test shows
Mehmood, Variables on Stock research is to that the GDP savings and
Y. , Market Returns: A search out effect Exchange rate does
Kamran, Case of Pakistan of unidirectional Granger
M. , macroeconomic Cause Money supply. On
Arshad, Research Journal of variables other side GDP savings also
M.S. , Management including money unidirectional Granger
Perveen, supply, discount Cause the KSE. The results
R. and rate, gross of Regression Analysis show
Sajid, M. domestic that the Inflation, Exchange
savings, rate, Money supply, GDP
inflation, and per capita and GDP savings
GDP per capita has positive significant
on stock returns. impact on KSE 100 index.
12 Ouma, 2014 The Impact Of This study According to the findings of
W.N. and Macroeconomic investigates the the study, Money Supply,
Muriu, P. Variables On Stock impact of the exchange rates and inflation
Market Returns In macroeconomic affect the stock market
Kenya variables on returns in Kenya. Money
stock returns in supply and inflation are
International Kenya found to be significant
Journal of Business determinants of the returns at
and Commerce Nairobi Securities Exchange.
Exchange rates is however,
found to have a negative
impact on stock returns,
while interest rates is not
important in determining
long rung run returns in the
NSE.
13 Makan, C. 2012 A Study of the The main On the basis of overall
, Abuja , Effect of
objective is to analysis and sectoral
AvneetKa Macroeconomic investigate the analysis it can be concluded
ur and Variables on Stock
relationship that three out of seven
ChauhanS. Market: Indian between Indian variables are relatively more
Perspective stock market significant and likely to
and seven influence Indian stock
Munich Personal macroeconomic market. These factors are
RePEc Archive variables exchange rate, foreign
namely Index of institutional investment and
Industrial call rate. There is a positive
production (IIP), relation between FII and
Consumer price Sensex, call rate and Sensex
Index (CPI), whereas exchange rate and
Call Money Sensex shows a negative
Rate (CMR), relation.
Dollar Price

7
 (DP), Foreign
Institutional
Investment
(FII), Crude Oil
Prices (CO),
Gold Price (GP).
14 Naik, P.K. 2012 The Impact of The study The analysis reveals that
and Padhi, Macroeconomic investigates the macroeconomic variables
P. Fundamentals on relationships and the stock market index
Stock Prices between the are co-integrated and, hence,
Revisited: Evidence Indian stock a long-run equilibrium
from Indian Data market index relationship exists between
(BSE Sensex) them. It is observed that the
Eurasian Journal of and five stock prices positively relate
Business and macroeconomic to the money supply and
Economics variables, industrial production but
namely, negatively relate to inflation.
industrial The exchange rate and the
production short-term interest rate are
index, wholesale found to be insignificant in
price index, determining stock prices. In
money supply, the Granger causality sense,
treasury bills macroeconomic variable
rates and causes the stock prices in the
exchange rates long-run but not in the short-
over the period run. There is bidirectional
1994–2011. causality exists between
industrial production and
stock prices whereas,
unidirectional causality from
money supply to stock price,
stock price to inflation and
interest rates to stock prices
are found.
15 Pal, K. 2011 Impact ofThe objective of The findings of the study
and Mittal, Macroeconomic this paper is to establish that there is co-
R. indicators on Indianexamine the integration between
capital markets long-run macroeconomic variables
relationship and Indian stock indices
The Journal of Risk between the which is indicative of a long-
Finance Indian capital run relationship. The ECM
markets and key shows that the rate of
macroeconomic inflation has a significant
variables such impact on both the BSE
as interest rates, Sensex and the S&P CNX
inflation rate, Nifty. Interest rates on the
exchange rates other hand, have a
and gross significant impact on S&P
domestic CNX Nifty only. However,
savings (GDS) in case of foreign exchange
of Indian rate, significant impact is
economy. seen only on BSE Sensex.
The changing GDS is
observed as insignificantly
associated with both the BSE

8
 Sensex and the S&P CNX
Nifty. The paper, on the
whole, conclusively
establishes that the capital
markets indices are
dependent on
macroeconomic variables
even though the same may
not be statistically
significant in all the cases.
16 Abu- 2011 Testing for This study aims The results of the regression
Libdeh, H. correlation and at investigating analysis as a whole indicate
and causality the correlation a significant relationship
Harasheh, relationships and causality between the macroeconomic
M. between stock relationships variables used and stock
prices and between stock prices. Nevertheless, some
macroeconomic prices in macroeconomic variables’
variables The case Palestine and coefficients (although having
of Palestine some a significant relationship
Securities macroeconomic with stock prices) weren’t
Exchange variables. consistent with the results of
other researches. Moreover,
International the causality analysis
Review of Business negated any kind of causal
Research Papers relationships between each
particular macroeconomic
variable and stock prices.
17 Ali, M.B. 2011 Impact of Micro This paper Based on regression
and investigates the coefficient, it was found that
Macroeconomic impact of inflation and foreign
Variables on changes in remittance have negative
Emerging Stock selected influence and industrial
Market Return: A microeconomic production index; market
Case on Dhaka and P/Es and monthly percent
Stock Exchange macroeconomic average growth in market
(DSE) variables on capitalization have positive
stock returns at influence on stock returns.
Interdisciplinary Dhaka Stock All the independent
Journal of Research Exchange. variables can jointly explain
in Business 44.48 percent variation in
DSE all-share price index.
No unidirectional Granger
Causality is found between
stock prices and all the
predictor variables under
study except one
unidirectional causal relation
from stock price and market
P/Es’’. In a nut shell, lack of
Granger causality between
stock price and selected
micro and macro variables
ultimately reveals the
evidence of informationally
inefficient market.

9
18 Ahmed, S. 2008 Aggregate The objective of The results of the study
Economic the study is to reveal differential causal
Variables and investigates the links between aggregate
Stock Markets in nature of the macro-economic variables
India causal and Stock indices in the long
relationships run. However, the revealed
International between stock causal pattern is similar in
Research Journal of prices both
Finance and and the key Markets in the short run. The
Economics macro-economic study indicates that stock
variables prices in India lead
representing real economic Activity except
and financial movement in interest rate.
sector of the Interest rate seems to lead
Indian. the stock prices. The study
indicates that Indian stock
market seems to be driven
not only by actual
performance
but also by expected
potential performances. The
study reveals that the
movement of stock
prices is not only the
outcome of behavior of key
macro-economic variables
but it is also One of the
causes of movement in other
macro dimension in the
economy.
19 Bhattachar 2003 Causal Relationship This paper The results suggest that there
ya B and Between Stock investigates the is no causal linkage between
Mukherjee Market And nature of the stock prices and exchange
J. Exchange Rate, causal rate, foreign exchange
Foreign Exchange relationship reserves and value of trade
Reserves And between stock balance
Value Of Trade prices and
Balance: A Case macroeconomic
Study For India aggregates in
the foreign
Scientific Research sector in India.
Publishing
20 Adrangi, 2002 Inflation, Output, Research in The researcher shows that
B., And Stock Prices: economics and the negative relationship
Chatrath, Evidence From finance between the real stock
A. and Brazil documents a returns and unexpected
Sanvicente puzzling inflation persists after
, A.Z. The Journal of negative purging inflation of the
Applied Business relationship effects of the real economic
Research between stock activity. The Johansen and
re-turns and Juseliuscointegration tests
inflation rates in verify a long-run equilibrium
markets of between stock prices,
industrialized general price levels, and the
economies. The real economic activity.

10
 present study Furthermore, stock prices
investigates this and general price levels also
relationship for show a strong long-run
Brazil. equilibrium with the real
economic activity and each
other. The findings lend
support to Fama’s proxy
hypothesis in the long-run.

NATIONAL REVIEW OF LITERATURE

TITLE &
AUTHO
S. No YEAR JOURNAL OBJECTIVES FINDINGS
R
NAME
1 Keswani, 2019 An Empirical 1. To know the The results showed that the
S. and Analysis on association residues are normally
Wadhwa, Association between distributed and that there is no
B. Between Disposable problem of multicollinearity,
Selected income, heteroskedasticity and serial
Macroeconomic Government correlation. The results of the
Variables and policies, IR, cointegration showed a strong
Stock Market in exchange rate, long-term relationship among
the Context of inflation and DI, GP, the inflation rate, the
BSE stock returns in exchange rate and the IR on the
BSE stock price in Bombay Stock
The Indian 2. To know the Exchange of India. Results of
Economic cointegration vector error correction model
Journal between DI, GP, revealed that in the short run,
IR, exchange there was a negative and
rate, inflation significant relationship between
and stock inflation rate and stock returns;
returns in BSE. therefore, it can be implied that
an increase in the inflation rate
eroded the prospect of positive
performance among the Sensex
but was not significant.
2 Garg, K. 2018 Impact Of The aim of the The result shows that there is a
and Macroeconomic study is to positive relationship between
Kalra, R. Factors On analyze the the Sensex and macroeconomic
Indian Stock relationship factors except avg. inflation and
Market between unemployment rate as they
selected show negative relationship.
Parikalpana – macroeconomic
KIIT Journal of factors and
Management Indian stock
market price.
3 Rehman, 2017 Dynamics of To examines the The presence of a
M. Co-movements dynamic heterogeneous pattern during
among Implied correlation the financial crises period
Volatility, among policy indicated significant dynamic
Policy uncertainty, correlation values with
Uncertainty and stock returns persistence. Extraneous
Market and implied variables, that is, exchange rate
Performance volatility. changes and oil prices, also
influenced the dynamic

11
 Global Business correlation pattern between
Review implied volatility index and
stock market returns. Findings
of this article suggest that the
time-varying property exists
among correlations and is
sensitive to the financial turmoil
and exchange rate changes.
4 Giri, A. 2017 The Impact Of The purpose of The results confirm a long run
K. and Macroeconomic the present relationship among the
Joshi, P. Indicators On study is to variables. Evidence suggests
Indian Stock
examine the that Economic growth, inflation
Prices: An
long run and the and exchange rate influence
Empirical short run stock prices positively.
Analysis relationship However, crude oil price
between stock influences the stock price
Studies in price and a set negatively. This implies that the
Business and of increase in oil price induces
Economics macroeconomic inflationary expectation in the
variables for mind of investors and hence
Indian economy stock prices are adversely
using annual affected. The VECM result
data from 1979 indicates that short run and long
to 2014. run unidirectional causality
running from economic growth
and FDI to stock prices in India.
The result of the variance
composition shows that stock
market development in India is
mostly explained by its own
shocks.
5 Kotha, 2016 Macroeconomic This paper aims The study reveals the presence
K.K. and Factors and the to examine long of long run relation between the
Sahu, B. Indian Stock and short run BSE Sensex and select
Market: relations macroeconomic indicators viz.,
Exploring Long between Exchange Rate, wholesale price
and Short Run selected index, T-bill rates and M3.
Relationships macroeconomic
indicators and
International stock market
Journal of returns with
Economics and reference to
Financial Issues India.
6 Mohanam 2014 Indian Stock This study The analysis reveals that Indian
ani, P. market and investigates the stock market is positively whole
Aggregate impact of sale price index, money supply
macroeconomic macroeconomic and industrial productivity. The
variables: Time variables on the exchange rate and inflow of
Series Analysis behavior of foreign institutional investment
Indian Stock are found to be insignificant to
IOSR Journal of market. Indian Stock market. In the
Economics and Granger Causality sense, whole
Finance sale price index and industrial
productivity influence the stock
market to a great extent.

12
7 Venkatraj 2014 Impact Of The study The regression model summary
a, B. Macroeconomic investigates the endorses a very strong
Variables On relationship combined influence of
Stock Market between the independent variables on the
Performance In Indian stock Sensex. From the results, it
India: An market appears that 82 per cent of
Empirical performance variation in Sensex is explained
Analysis (BSE Sensex) by the five selected
and five macroeconomic factors.
International macroeconomic Wholesale price index, index of
Journal of variables, industrial production, foreign
Business namely, index of institutional investment and real
Quantitative industrial effective exchange rate have
Economics and production, high degree of positive
Applied wholesale price influence on Sensex. It is also
Management index, gold found that Sensex is inversely
Research price, foreign influenced by changes in gold
institutional price. Further, of the five
investment and variables, the coefficients of all
real effective the variables except index of
exchange. industrial production are
statistically significant. This
leads to the conclusion that
inflation, inflow of foreign
institutional
investment,exchange rate and
gold price significantly impact
the Indian stock market
performance.
8 Tripathi, 2014 Stock Market The objective is Researcher found five co-
V. and Performance to explore the integrating relationships
Seth, R. and relation between stock market and
Macroeconomic especially the macroeconomic variables.
Factors: The short- and long- These results suggest that the
Study of Indian run causal stock prices movement is not
Equity Market relation between only the result of behaviour of
stock market key macroeconomic variables
Global Business performance and but it is also one of the
Review six important important reasons of movement
macroeconomic in other macro dimension in the
economy.
9 Kumar, 2013 The Effect of The objective of It has been found that industrial
R. Macroeconomic this paper is to performance play significant
Factors on find the role in influencing the stock
Indian Stock influence of market. Though some impact of
Market macroeconomic policy rates cannot be denied
Performance: A variables on the but it does not seem sustainable.
Factor Analysis Indian stock Market rely more on optimistic
Approach market through macroeconomic environment
the data call for state’s prudent efforts to
IOSR Journal of reduction maintain macro stability.
Economics and technique of Besides, stock market responds
Finance factor analysis. to performance of the firm
specific factors and unforeseen
events in the economy.

13
10 Sangmi, 2013 Macroeconomic To study the The result of this paper
M. and Variables on relationship indicates that significant
Hassan, Stock Market between stock relationship is occurred between
M. Interactions: prices and macroeconomics variables and
The Indian macro-economic stock price in India.
Experience variables in
India.
IOSR Journal of
Business and
Management
11 Patel, S. 2012 The effect of The study The study found the long run
Macroeconomic investigates the relationship between
Determinants on effect of macroeconomic variables and
the Performance macroeconomic stock market indices. The study
of the Indian determinants on also revealed the causality run
Stock Market the performance from exchange rate to stock
of the Indian market indices to IIP and Oil
NMIMS Stock Market. Price.
Management
Review
12 Saxena, S 2012 Causal analysis 1. To examine The empirical analysis that
and of Oil Prices the stationarity covers data series of 10
Bhadauriy and Macro in the Indian financial years from April 2000
a, S. economic macroeconomic to
Performance: indicators and March 2010 is done by using
Evidence from international Unit Root Test and Granger
India crude oil prices, Causality Test in Vector
and Autoregressive (VAR)
Asia-Pacific 2. To analyse framework. The findings of
Journal of the causal the study indicate that inflation
Management relationship in India has bidirectional causal
Research and between relationship with international
Innovation international crude oil prices..
crude oil prices
and selected
Indian
macroeconomic
Indicators.
13 Bhunia, 2012 A Causal This paper
The results of empirical study
A. Relationship examines the
indicate that there is
between Stock causal Bidirectional causal relationship
Indices and relationship
between exchange rate and all
Exchange between stock
stock market indices. While the
Rates-Empirical prices and
negative causality exists from
Evidence from exchange rates
national, services, financials
India and industrials indices to
exchange rate, there is a
Research positive causal relationship
Journal of from technology indices to
Finance and exchange rate. On the other
Accounting hand, negative causal
relationship from exchange rate
to all stock market indices is
determined.
14. Geetha 2011 The This study aims The study revealed that there is

14
 ,C. , Relationship to find the long run relationship between
Mohidin, Between relationship expected and unexpected
R. and Inflation And between inflation with stock returns but
Chandran Stock Market: inflation and there is no short run relationship
, V.V. Evidence From stock Return. between these variables for
Malaysia, Malaysia and US but it exists
United States for China.
And China.

International
Journal of
Economics and
Management
Science
15 Gunaseka 2004 Macroeconomic This study The VECM analyses provide
rage A. Influence on the examines the some support for the argument
and Stock Market: influence of that the lagged values of
Pisedtasal Evidence from macroeconomic Macroeconomic variables such
asai A. an Emerging variables on as the consumer price index, the
Market in South stock market money supply and the treasury
Asia equity values in bill rate have a significant
Sri Lanka influence on the stock market.
Journal Of The treasury bill rate
Emerging demonstrates the strongest
Market Finance influence on price changes
compared to other variables.
However, the share price index
does not have any influence on
Macroeconomic variables
except for the treasury bill rate.

NEED OF THE STUDY

It has been observed that most of the researchers have focused on limited number of macroeconomic

variables. So, there is a need to examine more number of macroeconomic variables which may help in

estimating Indian stock market more accurately. Majority of the research work has been conducted

either on BSE SENSEX index or on NSE NIFTY 50 Index. So a need arises to study both the indices

at the same time to identify which one is more affected by the macroeconomic variables. Secondly,

majority of the researchers used secondary data to conduct their studies and no primary data is used.

So, there is need to examine investors’ perception regarding impact of macroeconomic variables on

stock market and identify the macroeconomic variables considered by the investors which affect their

investing decision in stock market. Additionally, all the researchers have used econometrics and

various statistical tools to analyse the impact of macroeconomic variables on stock market. And Very

few researchers have used soft computing technique to predict the impact of macroeconomic variables

15
on performance of stock market. Soft computing technique is one of the emerging techniques for stock

market prediction, so it is great need to use soft computing techniques as well as econometrics and

various statistical tools for predicting the impact of macroeconomic variables on performance of stock

market. This study will help the professionals, investors and various other people in their investment

decision making process. In addition, comparison which will be done in the study between various

statistical methods, econometrics methods and soft computing techniques used for predicting stock

market will help the investors to know the most accurate and reliable method for predicting the stock

market.

OBJECTIVES OF THE STUDY

1. To study the impact of selected macroeconomic variables on the performance of BSE

SENSEXIndex and NSE NIFTY 50 Index.

2. To predict the impact of macroeconomic variables on the performanceof BSE SENSEX Index

and NSE NIFTY 50 Index by Econometrics Model.

3. To predict the impact of macroeconomic variables on theperformance of BSE SENSEX Index

and NSE NIFTY 50 Index by Soft Computing Model.

4. To identify the more reliable and accurate method in between Econometrics Model and Soft

Computing Model to predict the impact of macroeconomic variables on the performance of BSE

SENSEX Index and NSE NIFTY 50 Index.

5. To know Investors’ perception regarding the impact of macroeconomic variables on stock

market.

RESEARCH HYPOTHESES

H01 : There is no significant impact of macroeconomic variables on BSE SENSEX Index.

H02 : There is no significant impact of macroeconomic variables on NSE NIFTY 50 Index.

H03 : Macroeconomic variables do not Granger Cause BSE SENSEX Index.

H04 : Macroeconomic variables do not Granger Cause NSE NIFTY 50 Index.

(Same Hypotheses will be framed for different macroeconomic variables)

16
H05 : There is no significant difference in perception of investors regarding impact of

macroeconomic variables on stock market.

RESEARCH METHODOLOGY

This study will consider both primary and secondary data; accordingly research methodology is also

divided into two parts:

FOR SECONDARY DATA

Sample Size and Selection Criteria

Bombay Stock Exchange SENSEX index and National Stock Exchange NIFTY 50 index will be taken

for the purpose for the study. The selection of BSE SENSEX index and NSE NIFTY 50 index is based

on the review of literature, as most of the researchers have selected the major index of the country for

their studies. At present there are six main Stock Exchanges registered under Securities and Exchange

Board of India such as BSE Ltd., Calcutta Stock Exchange Ltd., India International Exchange

(India INX), Metropolitan Stock Exchange of India Ltd., NSE Ltd. andNSE IFSC Ltd., out of

these BSE Ltd. and NSE Ltd. are two main stock exchanges of India. In terms of market capitalization,

BSE Ltd. ranked 10th and NSE Ltd. ranked 11th in the worldas on May 2019 (Source: Statista.com).

BSE SENSEX Index and NSE NIFTY 50 Index are the main indices of these two stock exchanges.

The macroeconomic variables will be selected on the basis of previous research papers, theses,

research articles and reports, etc.

Duration of the Study

For achieving the different objectives of the study researcher will consider fifteen financial yearsi.e.,

2006-07 to 2020-21.

Collection of Data

Selected indices data will be collected from official website of the BSE Ltd. and NSE Ltd.

Macroeconomic variables data will be collected from the official website of Reserve Bank of India,

Government reports, publications and other related sources.

17
Data Analysis Tools

For achieving the different objectives, various statistical, econometrics and soft computing methods

will be used. Average, Standard Deviation, Kurtosis, Skewness, Correlation, Regression, Unit Root

Test, Granger Causality Test, OLS Model, ARCH and GARCH Model, etc. will be used. The expected

software which is going to be used is MATLAB and language Python for developing soft computing

models. Regime shift technique will also be used.

FOR PRIMARY DATA

Sample Size and Selection Criteria

Researcher will consider the sample ofat least 200 investors. Investors will be selected on the basis

judgmental sampling (investors will be considered on the basis of share market 3 years’ experience).

Collection of Data

Primary data for the research will be collected through the Questionnaire which will be collected

from200 investors of the stock market.

Data Analysis and Presentation Tools

Collected data will be analyzed by using various statistical tools like Percentages, Average, Chi-square

test, etc. The researcher is intended to use different software to analyze the data. For the presentation

of data various presentation tools will be used like Tables, Bar Diagrams, Graphs, etc.

OBJECTIVE WISE RESEARCH METHODOLOGY

S. NO. OBJECTIVES METHODOLOGY

1. To study the impact of selected Researcher will collect the data of macroeconomic
macroeconomic variables on the variables and both the selected stock market indices
performance of BSE SENSEX and to study the impact researcher will use different
Index and NSE NIFTY 50 Index. tools like correlation and regression, Granger
Causality Test, etc.
2. To predict the impact of To achieve this objective, researcher will use ARCH
macroeconomic variables on the and GARCH to develop a model for predicting the
performance of BSE SENSEX impact on BSE SENSEX index and NSE NIFTY 50
Index and NSE NIFTY 50 Index index performance on the basis of macroeconomic
by Econometrics Model. variables.
3. To predict the impact of On the basis on available data researcher will develop
macroeconomic variables on the efficient and accurate soft computing model in virtual
performance of BSE SENSEX environment and predict the impact on BSE SENSEX
Index and NSE NIFTY 50 Index index and NSE NIFTY 50 index performance on the
by Soft Computing Model. basis of macroeconomic variables.MATLAB and
Python language will be used for developing soft
computing model.
4. To identify the more reliable and This objective will be achieved by testing, validating

18
 accurate method in between and comparingthe data by the developed models
Econometrics Model and Soft under objective 2nd and 3rd.
Computing Model to predict the
impact of macroeconomic
variables on the performance of
BSE SENSEX Index and NSE
NIFTY 50 Index.
5. To know Investors’ perception For achieving this objective, the researcher will serve
regarding the impact of the questionnaire to appropriate number of investors
macroeconomic variables on stock in order to select at least 200 investors. For analysis
market. of the questionnaire mean, weighted average and chi-
square test etc. will be used.

PROPOSED CHAPTER PLAN OF THE STUDY

Chapter 1 Introduction
Chapter 2 Review of Literature
Chapter 3 Overview of Stock Market and Macroeconomic variables
Impact of Macroeconomic variables on performance of BSE SENSEX Index and
Chapter 4
NSE NIFTY 50 Index
Prediction of impact of macroeconomic variables on the performance of BSE
Chapter 5
SENSEX Index and NSE NIFTY 50 Index byEconometrics Model
Prediction of impact of macroeconomic variables on the performance of BSE
Chapter 6
SENSEX Index and NSE NIFTY 50 Index by Soft Computing Model
Testing, Validating and Comparison of econometrics model and soft computing
Chapter 7
model.
Analysis of Investors’ Perceptions regarding impact of macroeconomic variables
Chapter 8
on stock market
Findings, Suggestions & Conclusion
References
Bibliography
Appendix

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BIBLIOGRAPHY

Websites:

 www.scholar.google.com

 www.niftyindices.com

 www.nseindia.com

22
  www.google.com

 www.researchgate.net

 www.statista.com

 www.wikipedia.org

 www.scribendi.com

 www.ssrn.com

Journals:

 International Journal of Business and Management

 International Journal of Financial Studies

 Romanian Statistical Review

 Journal of Economics Library

 Cogent Economics & Finance

 International Journal of Economics and Finance

 Managerial Economics

 Journal of Economics, Finance and Administrative Science SSRN Electronic Journal

 Journal of Stock & Forex Trading

 Research Journal of Management Sciences

 International Journal of Business and Commerce

 Munich Personal RePEc Archive

 Eurasian Journal of Business and Economics

 The Journal of Risk Finance

 International Review of Business Research Paper

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