Movements in SENSEX are the result of a complex interplay of a host of factors. Hence, it is not easy to make a correct assessment of its movement, and the task becomes all the more difficult when SENSEX witnesses a lot of volatility. Macroeconomic factors do have a lot of influence on the SENSEX movements. The objective of this study is to investigate several key macroeconomic factors and their influence on SENSEX variations. For this purpose, key macroeconomic parameters like Balance of Trade, Index of Industrial Production, Money Supply (M3), MIBOR Rates, FOREX Reserves, Wholesale Price Index based inflation and exchange rates between Rupee-Dollar and Rupee-Euro were considered to investigate the key factors amongest them which are influencing most the SENSEX variations. The study uses monthly data for past ten years (i.e. from 2001 to 2010), analyzed using Vector Auto regressive techniques.
The findings of the research identified three macroeconomic indicators, viz. MIBOR, FOREX reserves and INR/USD exchange rates, as having a significant impact on the SENSEX returns. Other macroeconomic indicators considered in our study were found to have no significant impact on the SENSEX returns. These findings are expected to help fundamental analysts and other market players to watch out for these variables while making investment decisions.
The findings of the research identified three macroeconomic indicators, viz. MIBOR, FOREX reserves and INR/USD exchange rates, as having a significant impact on the SENSEX returns. Other macroeconomic indicators considered in our study were found to have no significant impact on the SENSEX returns. These findings are expected to help fundamental analysts and other market players to watch out for these variables while making investment decisions.
Stock market indices are the barometers of the stock market. They mirror the stock market behavior and the broad trends in the market. There are large number of companies listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and it is not possible to look at the prices of every stock to find out whether the market movement is upward or downward. The indices like BSE Sensex (Sensitivity Index) and S&P CNX Nifty (NSE 50 Index) give a broad outline of the market movement and represent the market. The main criteria for selection of the scrips to be included in the indices are: market capitalization, liquidity, and proper representation of all industries in the economy. The base year for BSE Sensex is 1978-79 while for S&P CNX Nifty it is November 1995.
There are several fundamental, non-fundamental, and technical factors, which influence the market price of the scrips constituting the index and thereby have a bearing on the behavior of the entire market. There are different variables, which assume greater significance in different years depending on the prevailing economic and stock market conditions. The main problem is to identify the major variables in the form of factors, which have significant bearing on the movement of the Sensex, which is the most comprehensive representative of the Indian stock market.
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