Effect of Macroeconomic Determinant on Indian Stock Market

The effect of macroeconomic determinants on the Indian stock market was examined through an analysis spanning from 2002 to 2022. Utilizing vector error correction modeling (VECM) techniques, the study revealed significant insights into the relationship between various macroeconomic variables and stock market indices. Cointegration tests indicated stable, long-term relationships among these variables, suggesting that changes in certain macroeconomic factors have lasting impacts on the stock market. Notably, GDP growth rate exhibited a negative association with gold prices, inflation rate, and the NIFTY 50 index, indicating that higher GDP growth tends to coincide with lower gold prices, inflation, and stock market performance. Conversely, it displayed a positive relationship with oil prices and the USD/INR exchange rate, implying potential positive impacts on GDP growth from higher oil prices and a weaker domestic currency. Moreover, gold prices and inflation showed negative relationships with GDP growth and stock market indices, suggesting adverse effects on economic growth and market performance in the long run. The findings underscore the importance of considering macroeconomic fundamentals when analyzing the Indian stock market, offering valuable insights for investors, policymakers, and analysts to make informed decisions aligned with prevailing economic conditions.