Study of macro economic parameters on Indian stock market

Abstract

In the world today, with abundance of data available about various indices, stock markets and macroparameters, there is great value for the managers and investors to understand more from this dataand more meaningfully know about trends and investment strategies. This study plans to make efforts to analyze possible trends and provide a hint for the questions around whether performance of the stock market is impacted by movement of macro-economic variables. Stock price is determined using discounted cash flow which is dependent on both cash flow and discount rate. Both are affected by these macro-economic parameters. Numerous empirical studies on this issue with respect to advanced countries exist, not enough researches are available in the field of emerging stock markets. We have used regression analysis used to understand the impact of macroeconomic factors on Indian stock market. Regression analysis usually fails to predict the returns as the macroeconomic parameters has a lag and prices are sometimes news based which are already factored in much before the event, or quite quickly absorbed or gets ignored in boundary conditions. Along with regression and correlation matrix (to understand issue of multicollinearity) , we have analyzed certain key dates which are event/action based and help investor/ fund manager to decide whether to invest or not.