FACTORS AFFECTING BEHAVIOR OF INDIAN STOCK MARKET

ABSTRACT

This paper presents a systematic analysis of monthly return data for studying the influence of macroeconomic fundamentals in explaining variations in Indian stock returns namely BSE Sensex. All possible relevant macro variables were considered in the context of our study of the relation between stock returns and macro variables, and the following variables viz., real economic activity, growth in money supply (broad money, M3), wholesale price index, index of industrial production, exchange rate, world crude oil prices, world gold prices, domestic gold prices, domestic silver prices, LIBOR, foreign capital market like S&P, FTSE-UK, NASDAQ, DJI activity and foreign institutional investment were finally found to have significant effects on monthly returns in the period. Statistical analysis mainly Factor and Regression analysis suggests that linear dependence in the form of model is adequate. In the period taken for study world gold prices and broad money were found to have significant effect in explaining variation in stock return. While if consider the foreign stock market then DJIA and FTSE-UK has the major impact on the returns of the Indian stock market. 

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