The Impact of Macroeconomic Determinants on the S&P Energy, S&P Industrial, S&P IPO, and S&P Telecom Indexes of the 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 foreign institutional investors [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 • Macroeconomic variables have a significant impact on stock returns. Inflation rate and money supply have an impact on all 4 indexes under study, whereas exchange rate has a significant impact on stock returns of all the indexes except S&P BSE Telecom. NET FII and interest rate do not have a significant impact on all indexes, except S&P BSE Industrial Index and S&P BSE Telecom, respectively. • There exists a long-term relationship between the macroeconomic variables and the selected index, but not all macroeconomic variables affect the stock performance in the short run. • From the analysis, it is evident that the macroeconomic variables contain information that can be used to predict the stock returns. Thus, they can be used in forecasting stock market volatility and help investors to make informed decisions and hedge their risk effectively.