Project report

PROJECT REPORT
ON
IMPACT OF MACROECONOMIC VARIABLES ON INDIAN STOCK
MARKET
(A project report submitted in partial fulfillment of the requirement for the
degree of Masters of Business Administration)
Under the guidance of
Dr. Narinder Kaur
(Assistant Professor)
Submitted By:
Kishu Bansal
MBA 2nd
Year
Roll No:2620
UUNNIIVVEERRSSIITTYY SSCCHHOOOOLL OOFF BBUUSSIINNEESSSS SSTTUUDDIIEESS
PPUUNNJJAABBII UUNNIIVVEERRSSIITTYY,, GGUURRUU KKAASSHHII CCAAMMPPUUSS
TTAALLWWAANNDDII SSAABBOO..

CERTIFICATE
This is to certify that the following project report entitled “Impact of macroeconomic variables
on Indian stock market”, submitted to “University School of Business Studies”, a Regional
campus of Punjabi University, Patiala in the partial fulfillment of MBA (Finance) has been
carried out by Mr. Kishu Bansal under my guidance and supervision.
Date: Dr. Narinder Kaur
Assistant Professor
USBS, Talwandi Sabo

ACKNOWLEDGEMENT
Endeavors have borne fruit and as I prepare to get ahead I stop for a moment in the track to
acknowledge my sincere gratitude for the assistance, efforts and patronage I have received in
course of completing the project report.
I would gracefully acknowledge the inspiration, encouragement and valuable suggestions
that I had got from my project guide Dr. Narinder Kaur for completing our research.
My overriding debt is to my parents who provided me with the time and financial
assistance and inspiration needed to prepare this project report in congenial manner. Last but not
the least I would like to thank the almighty that gave me the courage and endurance to complete
the endeavor.
Kishu Bansal

DECLARATION
I am Kishu Bansal; hereby declare that this project titled “Impact of macroeconomic variables
on Indian stock market” is based on study conducted by me under the guidance of Dr.
Narinder Kaur. This project has not been submitted earlier for the award of any other
degree/diploma to any other institute or university.
Kishu Bansal

CONTENTS
SerialNo. Particulars Page No.
1. Introduction
2. Review of Literature
3. Research Methodology
 3.1 Scopeof the study
 3.2 Objectives of the study
 3.3 Sources of data
 3.4 Model specification
 3.5 Hypothesis of the study
 3.6 Statistical Tools
4. Empirical Analysis
5. Conclusion
Recommendations
Bibliography

Chapter 1
INTRODUCTION
The financial market refer to the institutional arrangements for dealing in financial assets
and credit instrument of different type, such as cheques, bank deposit bills, etc. These are
mechanism enabling the participants to deal in financial claims market also proud
facilities, where demand and requirement to set the price for such financial claims.
Feature of financial market:
1. Large volume of transaction & high speed which source move from one market to
another market.
2. These markets are very much volatize.
3. These markets are dominated by financial intermediaries who take investment decision
as well as risk on the behalf of the depositor.
4. There are various segment of market such as stock market, bond market etc, which
provide the investors& lenders with platform to decide where they should invest.
Functions of financial market:
1. To facilitate creation and allocation of credit and liquidity;
2. To serve as intermediaries for mobilization of savings;
3. To assist the process of balanced economic growth;
4. To provide financial convenience and
5. To cater to the various credits needs of the business houses.

Structure of Indian Stock Market
FINANCIAL MARKET
1. Commercial Debt
2. Govt. securities market
1. Public issue 1. NSE 1. Exchange Traded (future and option)
2. Private Placement 2.BSE 2. OTC
(Domestic Foreign) 3. Regional
Stock
Exchanges
In general, the financial market divided into two parts, capital market and money market.
Securities market is an important, organized capital market where transaction of capital is
facilitated by means of direct financing using securities as a commodity. Capital market can be
divided into two categories equity and debt. Further Equity has three types like primary market,
secondary market, and derivatives market.
Money MarketCapital Market
T- Bills Call
Money
Commerci-
al paper
Commerci
-al Bills
Equity
Debt
DerivativesSecondaryPrimary

Equity: Equity has two types like Primary Market and Secondary Market.
Primary Market
The primary market is an intermittent and discrete market where the initially listed shares are
traded first time, changing hands from the listed company to the investors. It refers to the process
through which the companies, the issuers of stocks, acquire capital by offering their stocks to
investors who supply the capital. In other words primary market is that part of the capital
markets that deals with the issuance of new securities. Companies, governments or public sector
institutions can obtain funding through the sale of a new stock or bond issue. This is typically
done through a syndicate of securities dealers. The process of selling new issues to investors is
called underwriting. In the case of a new stock issue, this sale is called an initial public offering
(IPO). Dealers earn a commission that is built into the price of the security offering, though it
can be found in the prospectus.
Secondary Market
The secondary market is an on-going market, which is equipped and organized with a place,
facilities and other resources required for trading securities after their initial offering. It refers to
a specific place where securities transaction among many and unspecified persons is carried out
through intermediation of the securities firms, i.e., a licensed broker, and the exchanges, a
specialized trading organization, in accordance with the rules and regulations established by the
exchanges. A bit about history of stock exchange they say it was under a tree that it all started in
1875.Bombay Stock Exchange (BSE) was the major exchange in India till 1994.National Stock
Exchange (NSE) started operations in 1994. NSE was floated by major banks and financial
institutions. The old methods of trading in BSE were people assembling on what as called a ring
in the BSE building. They had a unique sign language to communicate apart from all the
shouting. NSE was the first to introduce electronic screen based trading. BSE was forced to
follow suit.

Money Market: The term money market is used in composite sense to mean financial
institutions which deal with short- term funds in the economy. It refers to the institutional
arrangements facilitating borrowing and lending of short term funds. The money market brings
together the lenders who have surplus short term investible funds and the borrowers who are in
need of short term funds. In money market, funds can be borrowed for a short period varying
from a day, a week, a month or 3 to 6 months and against different types of instrument, such as
bill of exchange, banker’s acceptance, bonds, etc. called near money.
Constituents of the Money Market:
1. Treasury bill: The Treasury bill is a short term government security, usually of the duration
of 91 days, sold by the central bank on behalf of the government. There is no fixed rate of
interest payable on the Treasury bill. These are sold by the central bank on the basis of
competitive bidding. The treasury bills are allotted to the person who is satisfied with the lowest
rate of interest on the security.
2. Call Money Market: The call money market refers to the market for extremely short period
loans. Bill brokers and dealers in the stock exchange usually borrow money for short periods
from commercial banks. The money is advanced by the commercial banks to bill brokers and
dealers in the stock exchange for a very short period of one day, or overnight or maximum seven
days.
3. Bill Market: The bill of exchange, popularly known as bill, is a written instrument containing
a conditional order, signed by the drawer, directing a certain person to pay a certain person to
pay a certain sum of money only to or order of certain person. Bill of exchange is very important
document in commercial transactions. When the buyer is unable to make the payment
immediately the seller may draw a bill upon him payable after certain period. The buyer accepts
the bill and returns to the seller. The seller may either retain the bill till the due date or get it
discounted from some banker and get immediate cash.

Origin of Indian Stock Market
The origin of the stock market in India goes back to the end of the eighteenth century when long-
term negotiable securities were first issued. However, for all practical purposes, the real
beginning occurred in the middle of the nineteenth century after the enactment of the companies
Act in 1850, which introduced the features of limited liability and generated investor interest in
corporate securities. An important event in the development of the stock market in India was the
formation of the native share and stock brokers 'Association at Bombay in 1875, the precursor of
the present day Bombay Stock Exchange. This was followed by the formation of
associations/exchanges in Ahmadabad (1894), Calcutta (1908), and Madras (1937). Stock
exchanges are intricacy inter-woven in the fabric of a nation's economic life. Without a stock
exchange, the saving of the community- the sinews of economic progress and productive
efficiency- would remain underutilized. The task of mobilization and allocation of savings could
be attempted in the old days by a much less specialized institution than the stock exchanges. But
as business and industry expanded and the economy assumed more complex nature, the need for
'permanent finance' arose. Entrepreneurs needed money for long term whereas investors
demanded liquidity – the facility to convert their investment into cash at any given time.
The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are
the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges.
However, the BSE and NSE have established themselves as the two leading exchanges and
account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal
in size in terms of daily traded volume.
Securities & Exchange Board of India
Under the SEBI Act, 1992, the SEBI has been empowered to conduct inspection of stock
exchanges. The SEBI has been inspecting the stock exchanges once every year since 1995-96.
During these inspections, a review of the market operations, organizational structure and
administrative control of the exchange is made to ascertain whether:
1. The exchange provides a fair, equitable and growing market to investors.

2. The exchange's organization, systems and practices are in accordance with the Securities,
Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there under.
3. The exchange has implemented the directions, guidelines and instructions issued by the SEBI
from time to time.
Powers:
1. Power to control and regulate Stock Exchanges.
2. Power to compel listing of securities by public companies.
3. Power to call for any information or explanation from recognized stock exchanges or its
members.
4. Power to make or amend bye laws of recognized stock exchange.
Functions:
1. Regulate business in Stock Exchanges and other securities markets.
2. Promoting and regulating self-regulatory organization.
3. Registering and regulating working of depositories, custodians of securities. Foreign
institutional investor, credit rating agencies, and such other intermediaries as board may, by
notification, specify.
4. Calling for information from, undertaking inspection, conducting enquiries and audit of stock
exchanges, mutual funds and intermediaries and self-regulatory organization in the securities
market.

Macro-Economic variables
Inflation (INF)
Inflation is the rate at which the price of goods and services increases. It is the result of several
factors, including a rise in the cost of manufacturing, transporting and selling goods. High
inflation causes investors to think that companies may hold back on spending, this causes an
across the board decrease in revenue and the higher cost of goods coupled with the drop in
revenue causes the stock market to drop.
Interest Rates (IR)
Interest rates as established by the Federal Reserve Board and individual banks. Higher interest
rates mean that money becomes more expensive to borrow. To compensate for the higher interest
costs, companies may have to cut back spending or lay off workers. Higher interest rates also
mean that company money cannot borrow as much as it used to, and this has an adverse effect on
company earnings.
Gross Domestic Product (GDP)
The monetary value of all the finished goods and services produced within a country’s borders in
a specific time period, though GDP is usually calculated on an annual basis. It includes all of
private and public consumption, govt. outlays, investment and exports less imports that occur
within a defined territory. GDP is commonly used as an indicator of the economic health of a
country as well as to gauge a country’s standard of living. The behavior of GDP growth needs to
be considered alongside changes in inflation and monetary policy.
Foreign Exchange (FX)
The foreign exchange market (forex,) is a global decentralized market for the trading
of currencies. In terms of volume of trading, it is by far the largest market in the world. The main
participants in this market are the larger international banks. The foreign exchange market
determines the relative values of different currencies. The foreign exchange market assists
international trade and investments by enabling currency conversion.

Foreign direct investment (FDI)
An investment made by a company or entity based in one country, into a company or entity
based in another country. Foreign direct investments differ substantially from indirect
investments such as portfolio flows, wherein overseas institutions invest in equities listed on a
nation's stock exchange.
Foreign Institutional Investor (FII)
Institutional investors are organizations which pool large sums of money and invest those sums
in securities, real property and other investment assets. An institutional investor can have some
influence in the management of corporations because it will be entitled to exercise the voting
rights in a company. Thus, it can actively engage incorporate governance. Furthermore, because
institutional investors have the freedom to buy and sell shares, they can play a large part in which
companies stay solvent, and which go under. Influencing the conduct of listed companies, and
providing them with capital are all part of the job of investment management.
Index of Industrial Production (IIP)
The Index of Industrial Production (IIP) is an index for India which details out the growth of
various sectors in an economy such as mining, electricity and manufacturing. The all India IIP is
a composite indicator that measures the short-term changes in the volume of production of a
basket of industrial products during a given period with respect to that in a chosen base period.
Reverse Repo Rate (RRR)
Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in
case of India) borrows money from commercial banks within the country. It is a monetary policy
instrument which can be used to control the money supply in the country. An increase in the
reverse repo rate will decrease the money supply and vice-versa, other things remaining constant.
An increase in reverse repo rate means that commercial banks will get more incentives to park
their funds with the RBI, thereby decreasing the supply of money in the market.

Chapter 2
REVIEW OF LITERATURE
In recent times, studies on the impact of macroeconomic variables on stock market have been the
existence of most economic literature. Various researchers have worked on stock market and
macroeconomic variables on various aspects. Various studies related to this, help to know the
impact of macroeconomic variables on Indian stock market. The brief description of some of the
studies has been given below.
Naka (1990) investigated the presence of co integration among these factors and analyzed a
negative relationship between interest rates or inflation and stock prices and a positive relation
between output growth and stock prices.
Ray (1993) attempted to reveal the relationship between the real economic variables and the
capital market in Indian context by using modern non-linear technique like VAR and Artificial
Neural Network researcher found that certain variables like the interest rate, output, money
supply, inflation rate and the exchange rate has considerable influence in the stock market
movement in the considered period, while the other variables have very negligible impact on the
stock market.
Abdalla (1996) investigated interactions between exchange rates and stock prices in the
emerging financial markets of India, Korea, Pakistan and the Philippines. The results of the
granger causality tests results show uni-directional causality from exchange rates to stock prices
in all the sample countries. He found that rising (declining) stock prices would lead to an
appreciation (depreciation) in exchange rates.
Naka (2001) analysed long-term equilibrium relationship among selected macroeconomic
variables and the Bombay Stock Exchange index. The results of the study suggested that
domestic inflation was the most severe deterrent to Indian stock market performance, and
domestic output growth as its predominant driving force.

Bhattacharya (2002) investigated the nature of the causal relationship between stock prices and
macroeconomic aggregates in the foreign sector in India. By applying the techniques of unit–root
tests, co-integration and the long–run Granger non–causality test finds out that that there is no
causal linkage between stock prices and the variables.
Wongbangpo and Sharma (2002) showed that in the ASEAN-5 countries, high inflation in
Indonesia and Philippine leads to a long run negative relationship between stock prices and the
money supply, while the money growth in Malaysia, Singapore and Thailand causes a positive
effect on their stock market indices. Our prior expectation was that the effect of increase in
money supply on stock market index in China and India was positive. In the case of the impact
of industrial production, theory states that corporate cash flows are correlated to a dimension of
aggregate output such as Gross Domestic Product (GDP) or industrial production and many.
Mishra (2004) examined the relationship between stock market and foreign exchange markets
using Granger causality test and Vector Auto Regression technique study suggested that there is
no Granger causality between the exchange rate return and stock return.
Basabi (2006) investigated the nature of the causal relationship between stock returns, net
foreign institutional investment (FII) and exchange rate in India and finds out that that (a) a bi-
directional causality exists between stock return and the FII, (b) unidirectional causality runs
from change in exchange rate to stock returns (at 10% level of significance), not vice versa, and
(c) no causal relationship exist between exchange rate and net investment by FIIs.
Ewing and Thompson (2007) explored the cyclical correlation between industrial production,
consumer prices, unemployment, and stock prices using time series filtering methods. The study
found that industrial production had positive impact on China and India. They suggested
unexpected inflation may also directly affect the stock market index negatively through
unexpected innovations in the price level.

Ahmed (2008) investigated the causal relationship between Indian macroeconomic factors like
Industrial Production, Exports, Foreign direct investment, Money supply, exchange rate, interest
rate and stock market indices NSE Nifty Index and BSE Sensex. For analyzed the Impulse
response and variance decomposition he uses bivariate VAR. His findings revealed that stock
prices in India lead macroeconomic activity except movement in interest rate. Interest rate seems
to lead the stock price. The study also revealed that movement of stock prices is not only the
outcome of behaviour of key macro-economic variables but it was also one of the causes of
movement in other macro dimensions in the economy.
Sadorsky (2008) showed that increases in firm size or oil prices reduce stock market price
returns, and increases in oil prices have more impact on stock market returns than decreases in
oil prices. This study was expectation that the effect of increase in crude oil price on stock
market index in China and India is negative.
Gay (2008) studied the effect of macroeconomic variables on stock market returns on four
emerging countries namely Brazil, Russia, India and China (BRIC). The independent variables
under study included exchange rates and oil prices whereas stock market returns was the
dependent variable. The study found no significant relationship between exchange rates and oil
prices on stock market returns. This may be due to the ignorance of domestic and international
macroeconomic factors such as inflation, production, dividend yield, interest rates, etc. The
revealed that there was no significant relationship between present and past stock returns
indicating that BRIC have weak form of market efficiency.
Sharma and Mahendru (2010) studied the impact of macroeconomic variables i.e., inflation
rate, foreign exchange reserves, exchange rates and gold prices on BSE. Results of the study
revealed that exchange rates had high negative correlation with stock prices; inflation rate had
low negative correlation with stock prices and does not affect the stock prices. Foreign exchange
reserves had positive correlation while the gold prices have moderate correlation with stock
prices.

Hosseini, Ahmad and Lai (2011) examined the impact of variables on stock markets indices of
China and India. The selected macroeconomic variables in the study were crude oil price, money
supply, industrial production and inflation rate of China and India. The findings revealed that in
long run, crude oil price, money supply and industrial production had positive impact on China
stock market index but negative in case of India. However, rise in inflation rate negatively affect
the stock market index in case of both countries. On other hand, in short run, crude oil price has
positive impact on Bombay stock market (India) while it is negative but also insignificant when
considered the Shanghai stock market (China). Money supply has positive impact on Chinese
stock market index and negative on Indian stock market index, however, in both countries, these
effects are insignificant. Inflation has positive significant effect on Chinese stock market but has
negative insignificant relation with index of Indian market.
Ali (2011) this study showed that impact of macro and micro factors on stock returns reveals that
inflation and foreign remittance have negative influence and industrial production index has been
positive impact on stock markets with the uses a multivariate regression analysis for estimating
the relationship.

Chapter 3
RESEARCH METHODOLOGY
This chapter highlights the scope, objectives, sources of data, model specification, hypothesis
and statistical tool. It also provides the brief description of the macroeconomic variables selected
for this study.
Scope of the study:
This study is an attempt to examine the impact of macro-economic variables on Indian stock
market, on the basis of review of literature, GDP, inflation, exchange rate and interest rate has
been selected as macroeconomic variables.
Objectives of the study:
The main objectives of the study are:
1. To understand the structure of stock market in India.
2. To explore the major macroeconomic variables.
3. To examine the impact of macroeconomic variables on stock market.
Sources of data:
The study is based on secondary data for the period of five year 2009-10 to 2013-14. Annual
economic data for BSE Sensex has been collected from BSE website. For GDP, Inflation,
Exchange rate and Interest Rate, data has been retrieved from exchange control & BSE website.
Statistical Tool
To know the impact of selected variables on BSE Sensex, multiple regression analysis has been
used. In the study, log values of dependent and independent variables have been taken.

Model Specification
To analyses the data, following model has been applied.
BSE Sensex = a+b1 ER +b2 IR + b3 INF. + b4 GDP +e
BSE Sensex: Bombay Stock Exchange
ER= Exchange Rate
IR= Interest rate
INF. = Inflation
GDP= Gross Domestic product
e = Error Term
Hypothesis of the study:
To test the significance of impact, following hypothesis has been tested at 5% level of
significance.
Null Hypothesis (Ho): Macroeconomic variables have no significant impact on BSE Sensex.
Alternate Hypothesis (H1): Macroeconomic variables have significant impact on BSE Sensex.
In addition to this following method has been applied to check different aspects:
(1) Karl Pearson Coefficient of Correlation: Karl Pearson’s coefficient of correlation is a
quantative measure of the degree of relationship between two variables.
ⁿ∑ xy – (∑ x) (∑y)
n (∑x
2
) – (∑x
2
) n (∑y
2
) – (∑y
2
)

2. VIF: The variance inflation factor quantifies the severity of multicollinerity in an ordinary
least squares regression analysis. It provides an index that measures how much the variance of an
estimated regression coefficient is increased because of collinerity. VIF factor for with the
following formula:
3. Durbin Watson: The Durbin Watson statistic is a test statistic used to detect the presence of
autocorrelation in the residuals from a regression analysis.
4. T-Test: A t- test statistical significance indicates whether or not the difference between two
groups’ averages most likely reflects a real difference in the population from which the groups
were sampled.
T= b1– β1
Sb
5. ANOVA: analysis of variance or ANOVA is a technique of testing hypothesis about the
significant difference in several population means. The main purpose of analysis of variance is to
detect the difference among various populations.
H0: µ1= µ2= µ3= …..
= µk
H1 : Not all µjs are equal

Chapter No 4
EMPIRICAL ANALYSIS
This chapter examines the impact of macroeconomic variables on Indian stock market with the
help of multiple regression analysis. We try to interpret the observation taking BSE Sensex as
dependent variable and macroeconomic variables as independent.
Independent Variables:
Exchange Rate: The foreign exchange market determines the relative values of different
currencies. The foreign exchange market assists international trade and investments by enabling
currency conversion. Sharma and Mahendru (2010) they revealed that exchange rate have high
negative correlation with BSE Sensex or Indian Stock market.
Interest Rate: Interest rates as established by the Federal Reserve Board and individual banks.
Higher interest rates mean that money becomes more expensive to borrow. Gan, Lee, Yong and
Zhang (2006) they showed that there is a significant relationship between macroeconomic
variables and stock market.
Inflation: Inflation is the rate at which the price of goods and services increases. It is the result
of several factors, including a rise in the cost of manufacturing and transporting etc. Ewing and
Thompson (2007) they revealed that unexpected inflation may also directly affect the stock
market index negatively through unexpected innovations in the price level.
GDP: The monetary value of all the finished goods and services produced within a country’s
borders in a specific time period, though GDP is usually calculated on an annual basis.
Emmanuel and Samuel (2009) they showed that GDP have significant relationship with stock
market.

Descriptive Statistics: With the help of regression analysis we try to interpret the
observation taking BSE Sensex as Dependent variable and macro-economic variables as
independent
Table No 4.1
Table no 4.1 shows that BSE Sensex standard deviation is high. Exchange rate mean is 1.726112
and standard deviation is .0632928 implying that there is moderate variability in exchange rate.
Interest mean is .878782 and standard deviation is .123643. There is moderate variability in
interest rate. Inflation mean is .919718 and standard deviation is .1081825. There is high
moderate variability in inflation. GDP mean is .789175 and standard deviation is .1395236.
There is also high moderate variability in GDP.
Descriptive Statistics
Mean Std. Deviation N
BSE Sensex 4.310894E0 .0895313 5
Exchange
rate
1.726112E0 .0632928 5
Interest .878782 .1231643 5
Inflation .919718 .1081825 5
GDP .789175 .1395236 5

Correlation Analysis: The coefficient of correlation is a quantitative measure of the
degree of relationship between two variables.
Table No: 4.2
Table no 4.2 shows correlation of the BSE Sensex with the Exchange Rate, interest, inflation and
GDP. Exchange rate correlation is .668 showing that exchange rate has positive correlation with
BSE Sensex. Interest rate correlation is -.132, which reflects that interest rate has a negative
moderate correlation with BSE Sensex. Inflation correlation is -.072 showing low negative
correlation with BSE Sensex. GDP correlation with BSE Sensex is -.565 implying the GDP has a
high negative correlation with BSE Sensex. Correlation Analysis reveals high degree of negative
correlation between independent variables i.e. GDP & Exchange Rate. Therefore, two models
have been applied for the analysis to avoid the problem of Multicollinearity.
Model 1: In this model, exchange rate has been excluded for the regression analysis.
BSE Sensex = a+ b2 IR + b3 INF. + b4 GDP +e
CORRELATIONS
BSE Sensex
Exchange
rate Interest Inflation GDP
Pearson Correlation BSE Sensex 1.000
Exchange rate .668 1.000
Interest -.132 .628 1.000
Inflation -.072 -.153 -.079 1.000
GDP -.565 -.821 -.509 -.432 1.000

Table No 4.3
On the basis of model no 1, table no 4.3 shows the result of regression analysis. This model is
possess 89.7 % change in stock market due to the GDP, Inflation and Interest.
Table No 4.4
MODEL SUMMARYb
Mo
del R
R
Squar
e
Adjuste
d R
Square
Std.
Error of
the
Estimate
Change Statistics
Durbin-
Watson
R Square
Change
F
Change df1 df2
Sig. F
Chang
e
1
.94
7a
.897 .589
.057391
8
.897 2.911 3 1 .401 3.242
a. Predictors:(Constant), GDP,
Inflation, Interest
b. Dependent Variable:
BSE Sensex
ANOVAb
Model
Sum of
Squares Df Mean Square F Sig.
1 Regression
.029 3 .010 2.911 .401a
Residual .003 1 .003
Total .032 4
a. Predictors:(Constant), GDP, Inflation, Interest rate
b. Dependent Variable: BSE Sensex

ANOVA table no 4.4 examined the difference in the mean value of the dependent variable i.e.
BSE Sensex associated with the effect of the controlled independent variable. Result showed that
there was a negative relation between GDP, inflation, Interest rate and BSE Sensex.
Table No 4.5
Table No 4.5 shows that, it has been found that GDP, Inflation and interest have negative impact
on the BSE Sensex but this impact is insignificant at 5 % level of significance. Then HO has been
accepted.
Model 2: To this model, GDP has been excluded as independent variable.
BSE Sensex = a+b1 ER +b2 IR + b3 INF. +e
COEFFICIENTS
Model
Unstandardized
Coefficients
Standar
dized
Coeffici
ents
T Sig.
Collinearity
Statistics
B
Std.
Error Beta
Toleran
ce VIF
1 (Consta
nt)
6.045 .636 9.497 .067
Interest -.617 .293 -.848 -2.104 .282 .632 1.583
Inflation -.580 .319 -.701 -1.820 .320 .693 1.444
GDP -.834 .286 -1.300 -2.915 .210 .517 1.935
a. Dependent Variable: BSE
Sensex

Table No 4.6
On the basis of Table no 4.6 shows the result of regression analysis. This model was posses that
97.5 % change stock market due to the Exchange rate, Inflation and Interest.
Table No 4.7
MODEL SUMMARYb
Mod
el R
R
Squar
e
Adjusted
R Square
Std.
Error of
the
Estimate
Change Statistics Durbi
n-
Wats
on
R
Square
Change
F
Change df1 df2
Sig. F
Change
1
.975a .952 .806 .0393987 .952 6.552 3 1 .278 3.184
a. Predictors:(Constant), Inflation,
Interest, Exchange rate
b. Dependent Variable: BSE
Sensex
ANOVA
Model Sum of Squares Df Mean Square F Sig.
1 Regression
.031 3 .010 6.552 .278a
Residual .002 1 .002
Total .032 4
a. Predictors:(Constant), Inflation, Interest, Exchange rate
b. Dependent Variable: BSE Sensex

ANOVA table no 4.7 examine the difference in the mean value of the dependent variable i.e.
BSE Sensex associated with the effect of the controlled independent variable. Result showed that
there was a negative relation between Exchange rate, inflation, Interest rate and BSE Sensex.
Table No: 4.8
Table No 4.8 shows that, it has been found that exchange rate, interest and inflation have
negative impact on the BSE Sensex but this impact was insignificant at 5 % level of significance.
Then Ho has been rejected.
COEFFICIENTSA
Model
Unstandardized
Coefficients
Standardiz
ed
Coefficient
s
T Sig.
Collinearity
Statistics
B Std. Error Beta
Toleranc
e VIF
1 (Constant) 1.810 .648 2.793 .219
Exchange
rate
1.766 .403 1.248 4.376 .143 .595 1.680
Interest -.663 .206 -.912 -3.226 .191 .606 1.651
Inflation .039 .184 .047 .213 .867 .976 1.025
a. Dependent Variable: BSE Sensex

Chapter 5
CONCLUSION
The main objective of the study was to determined impact of macro-economic variables on
stock market. A number of studies have found that there was an impact of macro-economic
variables on stock market. The Impact of macroeconomic variables on stock market was well
documented for developed countries. [Naka (1990); Ray (1993); Abdalla (1996); Naka (2001);
Bhattacharya (2002); Wongbangpo and Sharma (2002); Mishra (2004); Basabi (2006); Ewing
and Thompson (2007); Ahmed (2008); Gay (2008); Sharma and Mahendru (2010) and
Hosseini, Ahmed and Lai (2011)]. These studies had provided different results. This study
extends the literature by considering the impact of macroeconomic variables on stock market.
In this study, a multiple regression model was employed to test for the
impact of macroeconomic variables on stock market for the period 2009-2010 to 2013- 2014.
Macro-economic variable used in this study are, exchange rate, GDP, inflation and interest rate.
In the regression models, BSE Sensex was used as dependent variables, while the
macroeconomic variables are used as independent variables. Empirical result revealed that
GDP, inflation, exchange rate and interest rate have negative impact on BSE Sensex. In Model
no 1 showed 89.7 % change in stock market due to inflation, GDP and interest rate. On the
other hand, in Model 2 showed that 97.5 % change in stock market due to inflation, interest rate
and exchange rate. They all have negative impact on stock market. So, null hypothesis has been
accepted.

RECOMMENDATIONS
This study provides not only in- depth analysis of BSE Sensex but also gives the suggestion for
the policy makers. Some of key recommendations are:
If policy makers control the inflation & interest rate in the economy, they boost the BSE
Sensex toward defined target. Increase the stock exchange or stock market willingness to invest
in the stock market which is very helpful for monetary and fiscal purposes of the government.
Stock market is very sensitive to the movements in inflation. Findings of this study indicate that
negative relationship exists between BSE Sensex and inflation. Higher inflation lead to higher
interest rate and subsequently investors require higher rate of return on their equity investment
and it lowers the value of the equity stock. Rational investors avoid investing in a bear market
and those who invest require to be compensated for extra risk. Consequently, stock market down.
Government should take measure to control inflation through infrastructural development. There
should be stable and low inflationary environment. Also the study indicates negative relationship
between interest and BSE Sensex There should be balance between extremely high and low
interest rate. Higher interest rates also mean that company money cannot borrow as much as it
used to, and this has an adverse effect on company earnings.
On the other hand exchange rate has positive relationship between BSE Sensex. The exchange
market determines the relative values of different currencies. Therefore, Reserve Bank of India
should try to maintain a healthy exchange rate.
On the other hand, GDP has been also negative relationship with BSE Sensex. If GDP increase,
this is an indicator of the economic health of a country as well as to gauge a country’s standard
of living. The behavior of GDP growth needs to be considered alongside changes in inflation and
monetary policy.

BIBLIOGRAPHY
Books:
1. Bajpai, Naval. (2010) “Business Statistics” Pearson Publisher.
2. Gordon. E, Natarajan. K (2014) “Financial markets and Services” Himalaya Publisher
House, Mumbai.
3. Khan, Y.M (2011) “Indian Financial System” Tata McGraw Hill Education Private
Limited, New Delhi.
4. Kohn.Meir (1999) “Financial Institution and Markets” Tata McGraw Hill Education
Private Limited, New Delhi.
5. Pandian, Punitvathy (2013) “Security Analysis and Portfolio Management”, Vikas
Publishing House Pvt.ltd, New Delhi.
6. Srivastva, M.R, Nigam.Divya (2013) “Management of Indian Financial Institutions”
Himalaya Publisher House, Mumbai.
Research Papers:
(1) Ali, B. M. (2011) “impact of Micro and Macroeconomic Variables on emerging stock
market returns: A case on Dhaka stock exchange. Interdisciplinary Journal of
Research in business. Vol. 1, No. 5
(2) Gay, D. R. (2008). “Effect of Macroeconomic variables on stock market returns for
four emerging economies: Brazil, Russia, India and China.” International Business &
Economics Research Journal, Vol. 2, No. 3.
(3) Hosseini, S.M (2011) “The role of macroeconomic variables on stock market index in
China and India”. International Journal of Economics and finance, Vol. 3, No. 6. pp.
233-243.
(4) Parmer, Chetna.Dr. (2013) “Emprical relationship among various macroeconomic
variables on Indian stock market’’ .International Journal of Advance Research in
Computer Science and Management Studies. Vol. 1, No. 6. pp. 190-199.
(5) Patel, Samveg. (2012) “The effect of macroeconomic determinants on the
performance of the Indian stock market’’. NMIMS Management Review, Vol. 22. pp.
117-127.

(6) Pethe. Abhay and Karnik. Ajit (2000) “Do Indian stock markets Matter? Stock market
indices and macroeconomic variables”. Economic and political Weekly. Vol. 35, No.
5, pp. 349-356.
(7) Robert, D.Gay, Jr (2008) “Effect of macroeconomic variables on stock market returns
for four emerging economy: Brazil, Russia, India and China”. International Business
& Economics Research Journal, Vol. 7, No. 3, pp. 1-8.
(8) Sadorsky, P. (2008). “Assessing the impact of oil prices on firms of different sizes: its
tough being in the middle”. Energy Policy, Vol. 36 No. 10,
(9) Sharma, G.D & Mahendru (2010) “Impact of macroeconomic variables on stock
prices in India”. Global Journal of Management and Business Research”. Vol.10,
No. 7. pp. 19-26.
(10) Singh, Pooja (2014) “Emprical relationship between selected Indian stock Market and
macroeconomic indicators” International journal of Research in Business &
Management. Vol. 2, No. 9. pp.
Websites:
(1) www.bseindia.com
(2) www.rbi.org.in
(3) www.economiccontrol.com
(4) www.tradingeconomics.com
(5) www.fx-exchange.com
(6) www.inflation.eu
(7) www.cbec.gov.in

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