The Impact of Macro-Economic Determinants on the S&P Energy, S&P Industrial, S&P IPO, and S&P Telecom Index of BSE

Abstract

This article examines the effect of macroeconomic determinants on the sectorial indexes of the Bombay Stock Exchange. It considers five macroeconomic variables (exchange rate, inflation rate, interest rate, money supply, and net FII) and four sectorial indexes of the Bombay Stock exchange (S&P BSE Energy, S&P BSE Industrials, S&P BSE IPO, S&P BSE Telecom).

TOPICS: Emerging markets, exchanges/markets/clearinghouses, wealth management

Key Findings

• • The Macro-Economic variables have an significant impact on the stock returns. Inflation rate and money supply has impact on all 4 Indexes under study. Whereas Exchange rate has significant impact on stock returns of all the indexes except S&P BSE Telecom. NET FII and Interest rate does not have significant impact of all Indexes except S&P BSE Industrial Index and S&P BSE Telecom respectively.

• • There exists a long term relation between the Macro-Economic variables and the selected Index. Whereas not all Macro-Economic variables affect the stock performance in Short run.

• • From the analysis it is evident that the Macro-economic variables contain information that can be used to predict the stock returns. Thus they can be used in forecasting the stock market volatility and help the investors to make informed decisions and hedge their risk effectively.