Exploring the Inter-Linkages of Macroeconomic Variables and Stock Performance: The Case of Indian Post Financial Reforms

The last wave of financial reforms introduced in the Indian economy in the early 90s was effective and growth-oriented, but the current economic constraints require another wave of reforms. Accordingly, there is a need to undertake impact assessment of financial liberalizations at various levels. The present research fills this gap by examining the relationships between various macroeconomic variables and Indian stock market performance. Secondary data based analysis was conducted to assess the financial impact and volatility consequences on two leading Indian stock indices - Sensex & NIFTY. Seven most used macroeconomic variables - GDP, Interest rate, Inflation rate, Foreign exchange, Gold price, FDI, FIIs were collected for the past two decades to undertake the analysis. ADF unit root, Johnson co-integration, VAR model, Granger casualty, ARCH and GARCH models were utilized. The findings of this study offer clear insights into the relationship between selected variables and stock market performance. Implications of this research for theory and practice are discussed.