CRUDE OIL PRICE VOLATILITY AND ITS IMPACT ON INDIAN FINANCIAL MARKETS: AN ECONOMETRIC ANALYSIS

Stock market indices can be used to estimate our country's economic development. The Indian economy's performance barometer is Nifty 50. A variety of factors influence a country's economic growth, one of which is Crude Oil, which impacts the Nifty 50, Nifty Auto, Nifty Energy, and USD/INR exchange rates. The study investigates the causal relationship and impact of Crude Oil on the Nifty 50, Nifty Auto, Nifty Energy, and USD/INR exchange rates. The study is based on secondary data. The study period was from January 6, 2014, to January 9, 2024. The study employs a variety of methods, including descriptive statistics, unit root, the OLS model (regression analysis), correlation, Granger causality, and the ARCH and GARCH models. The dependent variables are Nifty 50 Index, Nifty Auto Index, Nifty Energy Index and USD/INR exchange rates. Whereas the independent variable is Crude Oil. Descriptive statistics indicate that Nifty IT returns have the highest average returns, while Crude Oil returns have the highest volatility. The kurtosis and Skewness data indicate that the variables above are not normally distributed. The unit root rejected the null hypothesis, indicating that all variables are stationary at level. The study reveals that Crude Oil returns have a significant impact on Nifty 50, Nifty Auto, and Nifty Energy returns and USD/INR exchange rate returns. Crude Oil returns have a Bi-directional causal relationship between Nifty 50 and Nifty Energy returns, but there is a Uni-directional relationship between Crude Oil returns, Nifty Auto, and the USD/INR exchange rate returns. The regression study (OLS model) indicates that Crude Oil returns have a significant impact on Nifty 50, Nifty Auto, and Nifty Energy returns, as well as a negative impact on USD/INR exchange rates. While the OLS model explains a small percentage of the variation in the dependent variables (Nifty 50, Nifty Auto, Nifty Energy, and USD/INR exchange rate returns), it sheds light on the direction and size of the relationship with Crude Oil returns. The Durbin-Watson test shows that the Nifty 50 and USD/INR exchange rate returns have no Autocorrelation. However, the Nifty Auto and Nifty Energy returns have positive Autocorrelation. The study reveals that Crude Oil returns have a significant impact on Nifty 50, Nifty Auto, and Nifty Energy returns, but no significant causal relationship is found between Crude Oil returns and USD/INR exchange rate returns.

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