Global dollar tightening, market liquidity, and business resilience: evidence from India’s NIFTY-50

Abstract This paper examines whether tighter global dollar conditions weaken firm-level market liquidity in India’s benchmark equity segment and whether that relationship varies with baseline structural fragility. We use a balanced firm-day panel of 50 NIFTY-50 firms covering 30 January 2018 to 31 December 2024. To capture the external tightening environment, we construct a Global Dollar Tightening (GDT) index from standardised daily changes in the US 10-year Treasury yield, the VIX, and the USD-INR exchange rate. We also construct a Firm Fragility Index (FFI) from pre-2020 liquidity and risk characteristics in order to distinguish structural vulnerability from contemporaneous market stress. The estimates show that a one-standard-deviation tightening shock is associated with an immediate increase of about 0.26% in firm-level illiquidity. Although that short-run effect is modest, its economic significance becomes more visible once liquidity persistence is taken into account, with the implied longer-run effect rising to roughly 5.6%. Firms with higher baseline fragility display moderately stronger liquidity sensitivity, whereas evidence of additional amplification during market-wide stress becomes weaker under conservative two-way clustered inference. Overall, the findings suggest that external tightening affects trading depth even within India’s most liquid benchmark segment, but the cross-sectional amplification should be interpreted cautiously. These findings should be read within the paper’s empirical scope, which is limited to India’s benchmark large-cap equity segment and a reduced-form proxy for external tightening rather than a structural identification of monetary-policy surprises.