Impact of Macroeconomic Variables on the BSE Sensex: An Empirical Analysis

Abstract

Purpose – This study aims to conduct an empirical analysis of the influence of key macroeconomic variables on the BSE Sensex, a benchmark index of the Indian stock market. While existing literature has explored various external factors affecting stock prices, this research specifically focuses on how macroeconomic indicators such as WPI, inflation, IIP, Gold Price, Crude oil, and Exchange rates growth shape the behaviour and volatility of the BSE Sensex. The findings of this study seek to provide valuable insights for investors, policymakers, and researchers, enhancing their understanding of the interplay between macroeconomic conditions and stock market movements in India.

Design/methodology/approach – For analysis, six macro economic variables such as and WPI, inflation, IIP, Gold Price, Crude oil, Exchange rates with S & P BSE Sensex were selected covering the study period from 01 January 2008 to 31 December 2023. The data collected for this study are month data of the variables. The tools used in this study is Hierarchical regression

Findings-The empirical findings of the study reveal that WPI and Inflation negatively affect the BSE Sensex, while IIP, Gold Prices, Crude Oil Prices, and the Exchange Rate have a positive influence. Rising IIP, Gold, and Oil prices indicate economic growth and investor optimism, while a favorable Exchange Rate boosts export competitiveness and foreign investment. These macroeconomic variables demonstrate a mix of negative and positive impacts on stock market performance.

Research Limitations/Implications – This study's findings highlight several avenues for future research. A key implication is the need for further exploration into the mechanisms behind the negative relationship between WPI and Inflation with the BSE Sensex, as well as the positive impacts of IIP, Gold Prices, Crude Oil Prices, and the Exchange Rate. Future studies could also delve into the potential lag effects of these macroeconomic variables on the stock market and investigate the influence of other economic factors. Additionally, examining the bidirectional relationship between the Exchange Rate and the BSE Sensex offers an interesting area for deeper analysis.

Originality/Value – This study offers valuable insights into the relationship between macroeconomic variables such as WPI, Inflation, IIP, Gold Prices, Crude Oil Prices, and the Exchange Rate with the BSE Sensex. It highlights the significant impact of these variables on the Indian stock market and provides a foundation for further exploration of their dynamic interactions.