Abstract

The factors to which stock market reacts are many, such as economic, political and socio-cultural. In the Indian context, we identified three major factors on which further examination was necessary. These factors were economic, political and corruption.

The commerce and industry of an economy are affected by its stock market to a boundless extent and in determination of the performance of the stock market economic environment plays a crucial role. A large number of studies till date have evaluated the impact of macroeconomic factors on the stock market performance. The findings were found to be highly sensitive to the selection of period. Economic liberalisation of 1991 was the event which transformed the Indian stock market forever. But we found no study which tried to evaluate the impact of economic liberalisation on the stock market performance by evaluating the connection between macroeconomic factors and stock market performance in different phases after the economic liberalisation. This study took three different periods after 1991 and evaluated the link between domestic macroeconomic factors and stock market. These three different periods were also necessary to be studied because in all three of them the stock market of India behaved very differently. In this phase analysis, money supply and foreign institutional investments were found to be connected with the stock market in the long-run and short-run link of the stock market was found with industrial production, exchange rate, inflation rate, interest rate, crude oil prices and gold prices. Further to the phase analysis, the impact of macroeconomic factors were studied on the sectoral stock returns in India. We found no study which tried to evaluate the impact of macroeconomic factors on the sectoral stock returns of India and this part of the study was the stepping stone in this area in the context of India. Unlike the findings of other countries, in the Indian context we found similar macroeconomic factors affecting the stock returns of most of the sectors in the long-run and the short-run. Different macroeconomic factors affect the stock returns of different sectors differently according to the peculiar features of the sectors, this hypothesis was rejected to a large extent in the context of India. In this globalised world where economies and financial markets are all interconnected with each other, the macroeconomic factors of other countries are also expected to affect the domestic stock market. The studies which tried to evaluate the impact of macroeconomic factors of other countries on the Indian stock market were largely concentrated on evaluating the role of US economic factors only. This study took the economic factors of neighbouring economies, major oil exporting economies and major economies of the world and evaluated the impact of their macroeconomic factors on the stock market returns of India. The macroeconomic factors of the US and Pakistan were found to be most connected with the stock market returns of India. Moreover, as compared to the global macroeconomic factors, domestic macroeconomic factors were found to be more influential in affecting the stock market returns of India.

The actions and policies of the government play an important role in determination of the performance of the economy and the financial markets. Thus, the political environment is expected to make a significant impact on the performance of the stock market. In the context of India, the studies done in this area were largely concentrated on analysing the impact of political favouritism on the stock returns and examining the behaviour of the stock market during election times. This study evaluated on the stock market performance the impact of governments of different political parties at the centre and at the states, the impact of domestic and global political events and the impact of domestic political environment. As compared to the governments of Congress and other parties, the governments of Bhartiya Janta Party, the right-wing party of the country found to be more beneficial for the performance of the stock market of the country. The domestic events that escalated the potential of tensions with Pakistan made a bad impact on the stock market and the domestic events of elections and government changes were highly significant in affecting the stock market returns. The domestic events of major decisions taken by the government and establishment failed to show significant impact on the stock market of India. The international events concerned with terrorism, violence and civil unrest made a negative impact and the international events concerned with major financial decisions were found to be highly significant in affecting the stock market of India. Further, improved domestic political conditions were found to be helpful for improvement in the performance of the stock market.
There is widespread corruption in India, all the economic activities of the country are said to be affected by corruption and it is said to be a major deterrent for the economic growth of India. Many studies are there which studied the impact of corruption on the performance of the economy in India but no study evaluated the impact of corruption on the performance of the financial markets in India. Increase in domestic corruption levels and the news of major corruption scandals left a bad impact on the performance of the stock market.

Additional Notes

Title page has the incorrect qualification listed, PhD instead of MPhil.

Course: Master of Philosophy - MPhil

Date Deposited: 2020-12-16

URI/permalink: https://library.port.ac.uk/dissert/dis13630.html