Observational analysis uncovers significant influences on the BSE Sensex from various macroeconomic indicators, suggesting policy implications.
The purpose of the study is to examine the impact of macroeconomic indicators on the closing prices of the BSE Sensex 30, a key benchmark index in India known for its volatility in response to economic conditions. This research is particularly relevant in the context of economic shocks, as it aims to recommend the adoption of appropriate economic policies that could benefit the stock market index, ultimately advancing growth in the capital market. Using the ordinary least squares (OLS) method, the study analyzes the effect of various macroeconomic variables on the BSE Sensex. Additionally, the complex relationship between these variables is explored using the Johansen Cointegration test and evidenced through the Vector Error Correction (VECM) model. The findings reveal that GDP, the Index of Industrial Production (IIP), India’s foreign trade, gold prices, Foreign Direct Investment (FDI), and money supply significantly influence the BSE Sensex. However, External Commercial Borrowing, the Consumer Price Index (CPI), exchange rates, and foreign exchange, which showed the highest Variance Inflation Factors (VIF), were excluded from the study based on OLS results. In conclusion, the study advocates for the implementation of suitable economic policies that support the stock market, thereby aligning with investors’ interests and promoting capital market growth.
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Vishweswarsastry et al. (2025) studied this question.
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