The Impact of Macroeconomic Factors on Stock Market Returns in India

This study looks at how macroeconomic factors impact stock market returns in India from 2010 to 2022. It focuses on key economic indicators like GDP growth rate, inflation rate, interest rate, and exchange rate to see how they affect the stock market. The results show that GDP growth rate and interest rate have a strong influence on stock market returns, while inflation rate and exchange rate have a smaller but still noticeable effect. The Indian stock market is one of the largest and most active in the world, and its performance is closely tied to the country’s economic conditions. Changes in economic indicators often affect stock prices and how investors feel about the market. For example, GDP growth rate, which shows how well the economy is doing, plays a big role in stock market performance. When GDP growth is high, it usually means the economy is strong, companies are making more profits, and investors are more confident. This leads to higher stock market returns. On the other hand, if GDP growth slows down, investors may become less optimistic, and stock market performance may drop. The study supports this idea, showing a clear connection between GDP growth rate and stock market returns. Interest rates are another important factor. They affect how much it costs to borrow money, how much people spend, and how much businesses invest, all of which impact the stock market. When interest rates are low, borrowing is cheaper, which encourages businesses to invest and grow. This can push stock prices higher. However, when interest rates are high, borrowing becomes more expensive, people spend less, and companies may make lower profits. This can hurt stock market returns. The study shows that interest rates play a big role in shaping stock market performance, highlighting how government policies on interest rates can influence investor behaviour. Inflation rate, while having a smaller impact, is still important. Moderate inflation can be a sign of a growing economy, but high inflation can reduce people’s purchasing power and create uncertainty, leading to ups and downs in the stock market. The study finds that inflation has a moderate effect on stock market returns, meaning it matters but not as much as GDP growth or interest rates. The exchange rate, which shows the value of the Indian rupee compared to other currencies, also affects stock market returns. A weaker rupee can help companies that export goods by making their products cheaper in global markets, which can boost their stock prices. However, a weaker rupee can also make imports more expensive, increasing costs for companies and hurting their profits. The study finds that the exchange rate has a moderate impact on stock market returns, showing that its effect is not straightforward. In conclusion, this study shows that macroeconomic factors play a big role in shaping stock market returns in India. GDP growth rate and interest rate are the most important factors, while inflation rate and exchange rate have a smaller but still significant impact. These findings are useful for investors, policymakers, and analysts because they help explain what drives stock market performance. By understanding these factors, people can make better decisions and handle the challenges of the Indian stock market more effectively.