DELHI TECHNOLOGICAL UNIVERSITY

(Formerly Delhi College of Engineering)

Shahbad Daulatpur, Bawana Road, Delhi -110042

HU305

Topic : Effects of Various Macroeconomic Variables on Indian

Securities Market

Submitted To: Submitted By:

Prof. Aparna Gupta Chhavi Sehrawat 2K20/EN/26

Lakshay Aggarwal 2K20/EN/39
Sarthak Sanwal
Samarth Srivastava
Dhruv Singh Rajput
 DELHI TECHNOLOGICAL UNIVERSITY
(Formerly Delhi College of Engineering)
Bawana Road, Delhi-110042

ACKNOWLEDGEMENT

In performing our project, we had to take the help and guidelines of

some respected persons, who deserve our greatest gratitude. The

completion of this assignment gives us much pleasure. We would like to

show our gratitude to Prof. Aparna Gupta, Mentor for our subject. Giving

us good guidelines for reports throughout numerous consultations. We

would also like to extend our deepest gratitude to all those who have

directly and indirectly guided us in making this project.

 Macroeconomic Variables and
Indian Securities Market :
Mapping the effects of macroeconomic Variables on
Indian Securities Market

Abstract
Impact of macroeconomic conditions on the Indian Securities Market
is the subject of this study. The study's goal is to examine the
connection between certain macroeconomic variables and the price
of Indian stocks. This research could also help investors in

Purchasing and selling choices of securities are analyzed in the study

together with the impact of the chosen macroeconomic variables on
Securities Market price returns. By examining the correlation between
the dependent (Sensex) and independent variables, this study may
also enable investors to make wiser decisions (Macroeconomic
Variables).
To determine the link between the dependent and independent
variables, Pearson correlation is utilized as part of the study's
descriptive technique.

Data over the period of 1991 to 2017 is used for the study. The result
shows that there is a positive relationship between the sensex and
macroeconomic Variables except avg. inflation and unemployment
rate as they show a negative relationship.
 Introduction

Since 1991, when the government began implementing the Liberalization,

Privatization, and Globalization Model in India, the Securities Market has
experienced numerous ups and downs. This concept has linked every
nation with every other nation, creating a single market. And so, from an
economic perspective, the Securities Market is becoming more and more
significant because it facilitates the flow of capital between developing and
emerging economies, which in turn stimulates the growth of an economy.
The expansion of the Indian economy is significantly influenced by the
country's capital market.

The performance of the economy is impacted by even the smallest

Securities Market fluctuation. Investors can provide or take the assets
(funds) for capital appreciation in the capital market, whether they are
Indian or foreigners. Before and during the time that he invests his money
in the Securities Market, an investor takes into account a number of things.
The previous performance of a company, return on index or by company,
return on assets or equity, free cash flow, internal management, and
numerous macroeconomic indicators, such as GDP, inflation, interest rate,
unemployment rate, etc., are just a few of the many variables that may be
considered.

It is thought that changes or volatility in macroeconomic conditions affect

Securities Market return. The return on stock is impacted by some
macroeconomic Variables more than others, some of which have a minor
impact. Primary market and secondary market are two ways to categorize
the market. As the primary market generates the secondary market, the
two markets are interconnected. The primary market is where different
businesses and the government sell securities for the first time; the
secondary market is where these assets are later sold.
The SENSEX, launched in 1986, consists of 30 of the market's most
actively traded equities. In actuality, they account for a sizable chunk of
the BSE's market capitalization. They are innovators in their respective
businesses and speak to 13 economic sectors. One of the benchmarks in
India is the SENSEX.
Because the BSE is the primary exchange for the Indian resold market,
the SENSEX is regarded as a crucial indicator of the Indian securities
exchange. It is the indicator that is used the most frequently when
reporting on the state of the market.

Trends in the Indian Securities Market :-

The Indian Securities Market plays a significant role both in Asia and
the rest of the world. The National Stock Exchange is regarded as the
best in terms of technological innovation and sophistication, but the
Bombay Stock Exchange (Sensex) is one of the oldest exchanges
globally. Following globalization, the pace of the Indian Securities
Market accelerated too quickly, making it a global investment magnet.
The entire decade of the 1990s was used to investigate and improve
a successful and productive framework, and starting around the time
of globalization, the Securities Market started to function effectively
and showed off its new rules at various stages of its development.
The Indian Securities Market has experienced many ups and downs;
there have been periods when it breaks records and sets new
milestones, and there have also been times when it plunges to
absurd levels. Securities Market index is an essential piece of the
economy, these ups and downs cannot be ignored as an economy is
affected by the several policies and other unavoidable situations
created in an economy.
 Literature Review

R. Mookerjee and Q. Yu (1997) examined the correlation

between macroeconomic variables and Singapore stock
returns using monthly data for four macroeconomic variables:
broad money supply, foreign reserve, narrow money supply,
and exchange rate. Their research revealed that while
exchange rates did not exhibit a long-term relationship with
Securities Market returns, foreign reserves, broad and narrow
money supplies did.

In 2005, Sangeeta Chakravarty carried out research to

determine the relationship between macroeconomic Variables
and Securities Market prices in India from 1991 to 2005. The
study made use of secondary monthly data. Using Granger
Causality, she demonstrated the beneficial effects of inflation,
money supply, and the index of industrial production on
Indian stock return. However, it was discovered that there was
no connection between the Indian Securities Market and the
exchange rate or gold prices.

K. Pal and R. Mittal (2011) used Johansen's cointegration

framework to conduct a study on the relationship between the
Indian Securities Market and macroeconomic Variables. They
used quarterly data covering the period from Jan 1995 to Dec
2008. Their research revealed a long-term connection
between macroeconomic variables and the Indian Securities
Market. The results also showed that while interest rate and
gross domestic savings were not significant, exchange rate
and inflation rate had a significant impact on the BSE Sensex.
Using an error correction model and cointegration, A.Pethe
and A.Karnik (2000) conducted a study on the link between the
Indian Securities Market and macroeconomic parameters
using monthly data from the period of April 1992 to December
1997. Their research revealed no long-term correlation
between Securities Market values and economic conditions.
Menike (2006) examined a study on the impact of
macroeconomic Variables on stock prices in Sri Lanka's
growing Securities Market. From 1991 to 2002, secondary data
were used. They performed multivariate regression on each
stock's individual Variables. The study finds a link between
macroeconomic variables and the Securities Market on the
Colombo Stock Exchange. Additionally, it is shown that there
is a bad correlation between Colombo Stock Exchange
macroeconomic variables such as the inflation rate, exchange
rate, and Securities Market. Zhao (1999) did a study to
determine how elements like inflation and the index of
industrial production relate to the Chinese financial markets.
secondary for the investigation from 1993 to 1998. The
findings demonstrate that inflation and anticipated increases
in industrial production have a negative correlation with
Securities Market values.

Using the Granger causality test, Impulse and Response

functions analysis, unit root test, and variance decomposition
analysis, Pimenta Junior and Hironobu Higuchi (2008)
conducted a study on the relationship between Ibovespa and
macroeconomic Variables such as inflation rate, interest rate,
and exchange rate. In spite of the fact that this result is
factually satisfactory and outstanding, the study discovered
that the Exchange Rate was variable with a more advanced
level of causality in the Ibovespa. Accordingly, none of the
parameters selected introduced causality connection to the
index. A study by Maku and Atanda (2009) sought to examine
the macroeconomic capital market in Nigeria's short- and
long-term effects. From 1984 to 2007, secondary data were
used. The macroeconomic Variables (dependent variable) used
for the study were real output, exchange rate, inflation rate
and money supply.
The study, acquired utilizing Error Correction Model and
ADF,revealed that the share index is more receptive to chosen
Variables and along these lines have noteworthy effects on
share index. Sezgin Acikalin,Rafet Aktas,and Seyfettin Unal
(2008) have taken quarterly data over the period of 1991 to
2006 to analyze the relationship between the macroeconomic
Variables and the Securities MarketofTurkeynamed
asIstanbulStock Exchange. To find the relationship they used
the secondary data. They selected four macroeconomic
Variables ie. foreign exchange rate, production level, current
account deficit, andinterestrateofTurkey. They used the vector
error correction model and cointegration test and founded the
long run stable relationship.With the help of casualty test,
they found unidirectional relationship between Turkey
Securities Market and macroeconomic variables and change
the current account deficit, production level, and foreign
exchange rate also affect the Istanbul Stock Exchange.
 Research Methodology

Objective :- To measure the relationship

between the Securities Market and selected
macroeconomic variables.

➔ Variables Selected
➔ Dependent Variable :
➔ Sensex
➔ Independent Variables :
➔ Unemployment Rate
➔ Exchange Rate
➔ Average Inflation
➔ Gold Prices
➔ Foreign Exchange Rate
➔ Gross Domestic Product

Limitations of the Study :-

This study is conducted on the Securities Market indicator’s sensex

using the macroeconomic Variables.This Study covers only six
macroeconomic Variables to measure the relationship. The study is
prepared within a limited time.

Secondary data is used to analyze the relation between the sensex

and selected macroeconomic Variables over the period of Jan 1991
toDec 2017. Data was collected from the Reserve Bank of India,
World Bank, Bombay Stock Exchange.
A Securities Market is affected by several Variables so it is necessary
to analyze those Variables.In this study it is tried To Analyze how the
different macroeconomic Variables affect Securities Market indicator
‘Sensex’ and how it impacts the investors’ decision and their
investment. To analyze the relationship Sensex as a dependent
variable and all macroeconomic Variables as an independent variable
are selected.
 THEORY
Macroeconomic Variables
● Inflation is an ascension cost or price of a few things over a
period of time. It is estimated through different indices and each
gives particular data about the costs of things that it shows. The
index could be the Consumer Price Index (CPI) or Wholesale
Price Index (WPI) for indicated classes of individuals like
farming laborers or urban non-manual workers. Every one of the
index is made in a particular way with a specific year as the
base year and they consider the value change over a year.

● The Unemployment Rate is described as the level of

unemployed workers in the aggregate work force.Workers are
viewed as jobless the event that they as of now don’t work, in
spite of the way that they are capable and willing to do as
such.The aggregate workforce comprises of all employed and
jobless individuals inside an economy

● An exchange rate is the cost of a country’s cash as far as

money. In this way, an exchange rate has two segments, the
country’s own money and foreign currency, and can be cited
either straight forwardly or in a roundabout way. In an
immediate citation, the cost of a unit of remote cash is
communicated as far as the country’s own money. In a
roundabout citation, the cost of a unit of country’s own is
communicated regarding the foreign currency. The whole
procedure of sending out and bringing the procedure of
animation is entirely subject to the exchange rate of money
value of the country.
 ● Gold is a substitute speculation road forIndian financial
specialists. The significance of gold has been expanded in the
present world because of monetary emergency in the present
financial world. The financial specialists are putting resources
into Gold.Gold is dealt with as an elective speculation road. It's
Frequently expressed that gold is the best protecting acquiring
power over the long haul.

● Foreign Exchange Reserve or Forex Reserves is the reserves

of different currencies like Japanese Yen, United States Dollar,
pound, Euro etc., controlled and kept by the financial
organization i.e Reserve Bank of India and numerous alternative
financial authorities as affirmed by the govt. The reason behind
keeping up this sort of reserves is to manage unexpected
financial stuns and crises.

● Gross Domestic Product (GDP) is the quantitative life of the

overall financial movement in an economy. More specifically,
GDP speaks to the money related estimation of the
considerable number of products and services created or
produced in an economy inside a timeframe and inside a
country's land limit. Gross domestic product is measures that
help in estimating the execution of an economy

Securities and Exchange Board of India

On 12 April, 1988 a board was set up by the Govt. of India named as

“Securities andExchange Board of India” (SEBI), as a between time
administrative body to progress, arrange and sound advancement of
securities and for saving and protecting the interest of investors and
shareholders. Before getting a statutory status through an
announcement as on January 30, 1992 the Securities and Exchange
Board of India was to work inside the general definitive control of the
Ministry of Finance, Government ofIndia. The declaration was later
changed by a law in Parliament known as the Securities and
Exchange Board of India Act, 1992. Objectives were in concurrence
with the formation of SEBI, which were for the improvement of the
capital market.The Capital market had seen an immense
advancement in the midst of 1980’s was depicted particularly by the
growing help of general society. This regularly assists the investors in
the market and market itself. Capitalisation Incited Different Types Of
Acts of neglect concerning associations, experts in the
market,shareholders or investors, and others related with the
securities displaying.The Powerful Instances Of These acts of neglect
in corporate segment by the self – styled exchange lenders, casual
private game plans, device of expenses and casual premium on new
issues and non-adherence of game plans of the CompaniesAct and
encroachment of rules and controls of stock exchanges and posting
essentials delay in movement with the offers et cetera.These
demonstrations of disregard and out of the line exchanging phones
have divided theorist soreness and copiedmoney related pro
grievances

Role of SEBI

The fundamental reason behind the Securities and Exchange Board

of India was created is to provide a platform to support better
exchange of securities through the securities markets. It similarly
means to reinforce competition and bolster headway. This state joins
the rules and controls associations, their interrelationships,
establishments, practices, instruments and approach framework.This
State goes for tending to the fundamental necessity of the three
social events which essentially constitutes the market, viz., the
patrons of securities (Companies), the monetary pros and the
marketmiddle people

Findings
● Positive correlation between the Sensex and GDP indicates that
GDP has an impact on the movement of the Sensex. There is
no doubt that an increase in GDP causes an increase in the
sensex and vice versa.

● The relationship between the independent variable, average

inflation, and the dependent variable, the sensex, is inverse.
That indicates a downward trend for both variables. Increases in
the independent variable cause the dependent variable to
behave in the opposite way.

● With a correlation of -0.734, it is determined that there is a

negative relationship between the Sensex and the
unemployment rate. It means that a rise in the unemployment
rate results in a fall in sensex or Securities Market values.

● The relation between the exchange rate and the sensex is

0.794, and this indicates a positive relationship in two variables.
As there is a positive correlation between the variables, an
increase in the exchange rate lead to an increase in the sensex.

● The correlation coefficient between the two variables, the

sensex and foreign reserve, is 0.959, indicating a favorable
relationship. The sensex or Securities Market prices will rise as
the foreign reserve increases.

● The correlation coefficient between the Sensex and gold prices

is 0.918, indicating a positive relationship. Therefore, as gold
 prices rise, Securities Market prices will follow suit or the sensex
will move higher.
Conclusions
The government and policy makers must develop strategies and
policies that strengthen the macroeconomic framework and support
the Indian stock market in order to support the macroeconomic
variables.

In the report, I examine the impact of the six macroeconomic

variables—unemployment rate, average inflation rate, gold prices,
gross domestic product, exchange rate, and forex reserve—on the
Indian stock market.

Conclusion: The macroeconomic variables used in the study have a

relationship with the Indian stock market, and both positive and
negative effects on the stock market prices can be attributed to these
variables.

In contrast to all other Variables, the sensex has an inverse

relationship with the unemployment rate and average inflation. In the
report, it was also discovered that the early 2000s global recession
and the 2008 financial crisis both negatively impacted the Indian
stock market. This was caused by macroeconomic Variables, as
variables like the GDP experienced a sharp decline and other
Variables were also impacted.

Government officials and other policy makers must implement

measures that complement macroeconomic Variables in order to
improve stock market returns and keep both domestic and foreign
investors.
 References
● Higuchi, R. H.; Pimenta Junior, T. relationship between
Ibovespa and macroeconomic Variables. Revista Eletrônica
deAdministração, v.14, n. 2. Joseph Tagne Talla (2013),
Impact of Macroeconomic Variables on the Stock Market
Prices of the Stockholm Stock Exchange (OMXS30),
Jonkoping International Business School
● Maku, O.E. and Atanda, A.A. (2009), “Does macroeconomic
variables exert shock on the Nigerian Stock Exchange”,
Munich Personal RePEc Archive, Paper No. 17917. Menike.
(2006). The Effect of Macroeconomic Variables on Stock
Prices in the Emerging Sri Lankan Stock Market.
● Sabaragamuwa University Journal, 2, 50- 67. Mgammal, M. H.
(2012). The Effect of Inflation, Interest Rates and Exchange
Rates on Stock Prices Comparative Study AmongTwo Gulf
Countries. International Journal of Finance and Accounting,
1(6), 179 to 189. Mookerjee, R. and Yu, Q. (1997).
● Macroeconomic Variables and Stock Prices in a Small Open
Economy:The case of Singapore, Pacific-Basin Finance
Journal, 5: 377-788. Ngoc, K. H. (2009). The impact of
macroeconomic indicators on Vietnamese stock prices.The
Journal of Risk Finance, 10, 321-332.

Thank You !