Dynamic connection between macroeconomic variables and sectoral stock returns: Evidence from India

Abstract

The present study attempts to assess the impact of institutional investments, foreign direct investment, index of industrial production, interest rate, inflation rate, exchange rate, gold rates and oil prices on the sectoral indices of NSE using monthly data from 01/01/2009 to 30/12/2019. The study is covering four sectoral indices financial services, FMCG, IT and oil and gas which cover almost 78% of market capitalisation of NSE. An autoregressive distributed lag (ARDL) model is used to examine the short run and long run method co-integration between macroeconomic variables and stock market performance as the variables are integrated of different order. The outcomes of the study find that in the long run institutional investment and index of industrial production are the major determinants and in the short run, the major determinants are index of industrial production, wholesale price index and exchange rate. Government must focus on these areas to efficiently run the stock market.

Keywords

• co-integration
• ardl
• financial services
• fmcg
• it
• oil and gas