An empirical study on Stock Market Index (BSE) and Macro Economic Variables

The movement of stock indices is highly sensitive to the changes in fundamentals of the economy and to the changes in expectations about future prospects. In the decade of 1990s in India, a large number of measures have been taken for economic liberalization. At the same time, vast number of steps has been taken to strengthen the stock market such as opening of the stock markets to international investors, regulatory power of SEBI, trading in derivatives, etc. These measures have resulted in significant improvements in the size and depth of stock markets in India and they are beginning to play their due role. Presently, the movement in stock market in India is viewed and analyzed carefully by large number of global players. Understanding macro dynamics of Indian stock market may be useful for policy makers, traders and investors. In this paper, an attempt has been made to explore the influential relationship between BSE Sensex and selected macro-economic variables of India by using Regression Analysis Technique. The period of study is April 2003 to March 2013. The results show that changes in Wholesale Price Index (aproxy for Inflation) and Index of Industrial Production has a strong influence on the BSE Index.