Long Run Relationship between Macroeconomic Indicators and Indian Sectoral Indices

R. Naveen Kumara and Dr.S. Arockia Baskaran

Investors and fund managers continuously strive to find new ways to diversify their portfolio and minimise risk exposure. The study aims to find out whether the macroeconomic indicators exert the same influence on stock prices across the entire stock market or varies across different sectors. The impact of macroeconomic indicators would not be the same on all the sectors. This paper provides empirical evidence of macroeconomic indicators such as crude oil prices, interest rates, foreign currency rates, money supply and inflation rates having a varied impact on Nifty50 index and each of the select sectoral stock indices namely, Nifty Bank, Nifty IT and Nifty financial services. The sample period runs from Jan 2009 to Jan 2019. The study employs the Error Correction Mechanism to study whether the macroeconomic indicators have the same impact across sectoral stock indices in the long run. The findings show that variations in macroeconomic variables do not trigger the same response from all the sectoral stock indices. While most of the variables chosen have a significant influence on Nifty50 index and NiftyIT; Nifty financial services and Nifty Bank remain unaffected by changes in few major macroeconomic variables or show opposite reaction than the other sectors. The findings of the study have significant implications for long term investors and investment managers for building a diversified portfolio and thereby protecting themselves from financial losses during adverse market conditions.

Volume 11 | 09-Special Issue

Pages: 1126-1132

DOI: 10.5373/JARDCS/V11/20192681