there is growth in the economy.

This also leads to increase dividends and hence in

increase in the stock prices of the companies. So indirectly IIP growth leads to a n
increase in stock prices over time. Also from empirical studies and various economic
theories this is evident that IIP and stock prices shows a positive relationship.

Consumer Price Index (CPI)

Consumer Price Index is the calculation of Inflation by measuring its variation or

changes. The cost of living grows and there is a transition of resources from
investment towards consumption because of high inflation rate. As a result reduction
in demand for instruments (market) and hence fall in volume of traded stock. The rise
in inflation rate is signified by the monetary policy. Inflation rate can be interpreted
and transformed to a nominal interest rate. Discount rate is increased with increasing
nominal interest rate and can hence lead to low present value for cash flows.
Corporate profits are influenced from high inflation rate, resulting in diminishing of
dividends and less stock price. Rise in discount rates due to tight monetary policies
occur with rise in inflation .Also investment decrease in stock market is because of
rise in cost of borrowing. It can be concluded there is negative relation between
equity prices and inflation.

Crude Oil (CO)

Since Crude oil is a vital factor of production so in actual economic activity its price is
added. Because India imports crude oil, in Indian economy it plays an important role..
Investors’ investment deisions whether delay or suspension is largely influened by
fluctuations in oil prices. With rise in prices of oil, the healing cost, transportation
earnings and cost along with reduced corporate earnings. With decreasing consumer
spending fuel prices serve as an alarm too. More the fluctuation in price of oil more is
the financial risk. For countries which are importers of oil, such as India, production
costs rise with increase in prices of oil, eventually reducing future cash flow and stock
market experiences a negative effect. Further adding that increase in the oil prices
will cause lower real economic activity therefore causing stock price to reduce, but
this is good only in theory.

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Exchange Rate

Another macroeconomic indicator is Exchange rate which means the rate of

exchange of Indian rupee with respect to one unit of any foreign currency, this is a
bilateral nominal rate. Generally and in this case the rupee (Indian) is measured
against US dollar ($).The reason behind this is as American Dollar is the most
powerful and dominating foreign currency. Us dollar is used in the project for trading
and investment analysis. There is a decline in stock prices because of depreciating
currency and apprehensions of inflation. A stronger domestic currency adversely
affect export oriented companies and import oriented ones have an advantage from it.
Also, variation in exchange rate at a micro or deeper level tend to vary the value of
domestic and multinational firms’ portfolio. So we an say, a negative relationship
exists between the power and value of domestic currency with the aggregate stock
prices index.

Gold Price (GP)

An alternative investment opportunity for investors In India is the Gold . Indian

investors are willing to invest less in stocks with rising gold prices, hence the stock
prices fall. It can be estimated that , gold price and stock price have an inverse
relationship. This economic indicator is of utmost importance and hence added in this
study.

Foreign Intuitional Investment (FII)

This is a type of investing in the country where the investor or fund is from outside the
given country and called Foreign Institutional Investment. FII is basically the
investment in form of hedge funds, insurance companies, pension funds and mutual
funds. FII finds its place in Indian market as quite a common term. SEBI (Securities
and exchange board of India) is where international institutional investors register
themselves. FII is permitted to start in our country through stock exchanges maybe as
equity or debt. FII can be purchased or sold daily and hence impacts the variation in
SENSEX. More the daily transactions in FII more is the instability in the stock market
With positive flow of FIIs inside the country NIFTY rises & with outflow or negative
flow NIFTY decreases.

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Foreign Direct Investment (FDI)

Foreign direct investments is a type of investment which uses methods like notching
up of an associate company in a foreign nation, mergers or joint venture types of
partnerships and also by showing interest in an existing firm by controlling or
acquiring it. One of the main ways of sourcing money and also for economic
development is FDI(Foreign Direct Investment).India has cheap labour and good
business environment which can be taken advantage of by foreign companies. In
1991 after economic crisis economic liberalisation started and after that there has been
a steady increase in FDI which consequentially helped in raising “more than one
crore (10 million) jobs. As said by Financial Times, in 2015 India overtook China and
the United States as the major choice of market for the Foreign Direct Investment. In
first half of the 2015, India gained an investment of $31 billion compared to $28 billion
and $27 billion of China and the US respectively.”

On 18 April 2020, to protect Indian companies from "opportunistic

takeovers/acquisitions of Indian companies due to the COIV-19 pandemic", India
modified its foreign direct investment (FDI) policy as said by the Department for
Promotion of Industry and Internal Trade. The policy says that now FDI will be under
control and scrutiny of Ministry of commerce and industry but did not restricted the
financial market

Trade Balance

Trade balane is the balane maintained between a ountry’s exports and imports.
When exports are greater than the imports then it is a trade surplus otherwise trade
deficit. In previous month there was a trade deficit of 9.9 US $ and for the month of
March 2020 the deficit was stated as 9.8 US $. The data on trade balance of India is
available from Jan 1957 to March 2020 as is updated monthly. With value of -374.0
US$ mn. The lowest was -20.2$ US$ in October 2012 and highest in March 1977.
CEIC depicts history for monthly Trade Balance. Trade balance in US$ is given by
The Ministry of Commerce and Industry. Trade Balance prior to April 1990 is taken
from the International Monetary Fund. India's Total Exports reached 21.4 US$ billion
in Mar 2020, a decrease of 34.6 % year on year. Total Imports recorded 31.2 US$
billion in Mar 2020, a decrease of 28.7 % year on year.”

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3.3 “Statement of Hypothesis

The hypothesis for this study has been stated below:

Null Hypothesis:

H0: There is no significant relation between Gold price and NIFTY 50.

H0: There is no significant relation between Crude Oil price and NIFTY 50.

H0: There is no significant relation between Exchange Rate (USD) and NIFTY 50.

H0: There is no significant relation between Foreign Investment Inflows & NIFTY 50.

H0: There is no significant relation between Foreign Direct Investment and NIFTY 50.

H0: There is no significant relation between Consumer Price Index and NIFTY 50.

H0: There is no significant relation between Index of industrial production & NIFTY50.

H0: There is no significant relation between Trade Balance and NIFTY 50.

H0: There is no significant relation between all these macroeconomic variables an d

NIFTY 50.

Alternate Hypothesis:

H1: There is a significant relation between Gold price and NIFTY 50.

H1: There is a significant relation between Crude Oil price and NIFTY 50.

H1: There is a significant relation between Exchange Rate (USD) and NIFTY 50.

H1: There is a significant relation between Foreign Investment Inflows and NIFTY 50.

H1: There is a significant relation between Foreign Direct Investment and NIFTY 50.

H1: There is a significant relation between Consumer Price Index and NIFTY 50.

H1: There is a significant relation between Index of industrial production & NIFTY 50.

H1: There is a significant relation between Trade Balance and NIFTY 50.

H1: There is a significant relation between all these macroeconomic variables and
NIFTY 50.”

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3.4 Theoretical Framework of Analysis

Various tests and techniques have been implemented to achieve the goals of this
research. Two types of techniques have been deployed. The first is descriptive
statistics and second is inferential statistics. Descriptive statistics includes measures
such as mean, standard deviation, skewness, kurtosis, minimum, maximum, range,
etc. These measures help in describing the nature and characteristics of data used
for the purpose of this analysis. Inferential statistics have been used to make
judgements and inferences about the the results by way of various measures like
correlation analysis and multivariate regression analysis. Correlation analysis is used
to measure the direction and magnitude of relationship between the stock prices and
the selected macroeconomic variables whereas regression analysis dependent
variable is being predicted by way of movement in the explanatory variables
(macroeconomic variables). Regression and correlation never implies causation. F -
test is also used to know the overall goodness of fit of the model (ANOVA). Also t test
and p value are used to know the significance and reliability of the individual
variables whereas F test measures the combined effect.

3.4.1 Descriptive statistics technique

Descriptive statistics is the technique which unravels the trends and patterns in the
data. It helps in summarising the data thus provides a bird eye view to the user of the
data. It shows any historical fluctuation which may be exists in any particular variable.
It helps in providing the minimum and maximum value and range. It also averages out
the data. Deviations around the mean can be showed using standard deviation. The
square of standard deviation is variance. Standard deviation shows volatility in the
variables and stock prices over time. Skewness and Kurtosis measure helps in
describing the data and shows whether data is symmetrically distributed or not.
Various box plots and charts can also be used to show the trends in the data.
Measures used are mean (central tendency), measures of variability and skewness
and kurtosis.

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3.4.2 Inferential statistics technique

Inferential statistics is a branch of statistics which helps in analysing the data based
on the results to make valid conclusions. They are helpful in making inferences and
judgements about the nature of sample data being used. The conclusions here are
based on the concept of hypothesis testing. A hypothesis is nothing but a kind of
proposition based on past evidences and experiences which are formed for the
purpose of further investigation. There are two hypotheses: Null Hypothesis (H0) and
Alternate Hypothesis (H1). Null hypothesis states that the results are due to pure
chance or random errors whereas alternate hypothesis frames that the results a re
due the fluctuations or variations in independent (explanatory variables). In the study,
null hypothesis states that there is no significant relationship between Nifty50 and
selected macroeconomic variables while alternate hypothesis states that there i s a
significant relationship between Nifty50 and selected economic variables. Here we
have used correlation analysis and multivariate regression analysis using measures
such as R-square, t-ratio, F-test, p-value. Significance level or alpha level used is
5%. Here the analysis is being done using SPSS software.

Correlation matrix analysis

Correlation shows that a change in one variable is accompanied by a change in other

variable. It only shows the strength and direction of relationship and not the causality .
Coefficient of correlation has value ranges from -1 to +1. The value +1 shows perfect
positive relationship between the variables and -1 shows a perfect negative
relationship. The absolute value shows the magnitude of change and sign shows the
direction. A + sign means an increase in one variable leads to increase in other
variable whereas a – sign shows that an increase in one variable leads to decrease in
another variable. A correlation coefficient of zero shows that there is no linear
relationship between two variables however a non-linear relationship can exist in
such situations. Here partial correlation coefficient is used for study. This means
studying the relationship between two variables keeping all the other variables as
constant. The correlation is Karl Pearson correlation coefficient also known as
product moment correlation. The formula for correlation coefficient is:

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where Cov (x,y) is the covariance between the two variables and denominator shows
the product of standard deviations of respective variables. Here it is used to measure
the association between Nifty50 and macroeconomic variables.

Econometric Regression Model

“Francis Galton proposed the term regression. Regression analysis is concerned with
the study of the dependence of one variable, the dependent variable, on one or more
other variables, the explanatory variables, with a view to estimating and/or predicting the
(population) mean or average value of the former in terms of the known or fixed (in
repeated sampling) values of the latter. When only one explanatory variable is considered
then the analysis is called as bivariate regression analysis or simple regression. The
regression equation is as follows:

Yi = β0 + β1 X1 + β2 X2+…..+ βn Xn + ui”

where Yi is dependent variable and variable X represents explanatory variables, β0 is

the interept or onstant term and β1 ( or β2 or βn) represents slope oeffiient of the
regression line with of respective explanatory variable. The slope coefficient
represents the direction and strength of relation between independent and dependent
variables. ui is a random error term that is the error which is not explained by the
explanatory variables. In our study the dependent variable is the stock market index
and macroeconomic variables are the independent or explanatory variables.

Statistic test

R-square: It is also known as the coefficient of determination which tells how the
regression line best fits the data. It measures the %age change in dependent variable
that is explained by the explanatory variables.

Sign-F: It tells whether the model as a whole is significant. It shows the combined
impact of all the explanatory variables on the dependent variable.

T-ratios: It measures the reliability or the impact of individual variable on the

dependent variable. The decision to accept or reject the null hypothesis is based on
the corresponding p-value. When p value is less than the alpha value we reject null
hypothesis. In case of rejection of null hypothesis we say that the findings are
statistically significant.

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 4. Empirical Analysis

4.1. Descriptive Statistics

“Table 4.1 presents a summary of descriptive statistics of all the variables. Sample
mean, standard deviation, maximum, minimum, skewness and kurtosis have been
reported. The variables are NIFTY 50, Index of Industrial Production, CPI, exchange
rate, FII, FDI, trade balance, gold price and crude oil price.

In the group of 107 observations, the mean of share price (NIFTY 50) is 8201.08,
while its maximum price is 12168.45 for our data series and the standard deviation is
2227.47 which is considered to be high. It reflects significant variability in stock prices
(NIFTY 50).

Crude oil and gold price mean are 4525.82 and 27234.10 and its standard deviation
is 1227.40 and 3097.53 respectively. There is moderate-high variability in oil and gold
prices. The maximum price of gold is 38163.29 for our data series and minimum is
27234.10.

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Exchange rate mean is 62.42 and standard deviation is 7.27. So, there is a significant
variability in dollar price form its mean. The maximum and minimum values of dollar
price are 74.35 and 44.37 respectively.

FII mean is 71.95 and its standard deviation is 200.98 which imply that there is a
greater degree and even more variability of standard deviation from FII mean.

FDI has a mean value of 46.60 with a standard deviation of 45.73. This shows a
moderate variability in Foreign Direct Investment in India.

Consumer price index mean is 123.30 and standard deviation is 15.45 implying that
there is moderate variability in consumer price index. Maximum value of CPI is
150.40 and minimum is 97.8.”

IIP mean is 115.53 with a standard deviation of 11.67. This shows that IIP has low to
moderate variability from its mean. Its min value is 98.30 and max value is 144.10.

Trade Balance mean is -782.82 with a standard deviation of 224.94. This shows
greater variability from mean values. Value of trade balance is negative which implies
that imports are always greater than exports in past 9 years (which is depicted by 0
as max value).

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Coefficient of Variation
Coefficient of Variation shows that among the above mentioned variables FII shows
greatest variability while the least variability is shown in IIP.

Skewness
“It is the degree of distortion from the symmetrical bell curve or the normal
distribution. It measures the lack of symmetry in data distribution.”
In the data, NIFTY 50, crude oil, FII, CPI, IIP, Trade balance are fairly symmetrical
because their skewness values lies between -0.5 to 0.5.
Gold rate and FDI have skewness of greater than one (>1).This implies that data are
highly positive skewed (skewed at the right tail).

Kurtosis
Kurtosis is the degree of peakedness of a distribution. The higher kurtosis, the more
peaked is the distribution. Such distribution is called leptokurtic and has value greater
than 3. Here in the data only FDI has peaked distribution with a value of 3.761. So it
exhibits a leptokurtic distribution. A distribution that is less peaked has value less
than 3 and is called platykurtic distribution. Here all the variables other than FDI
exhibit platykurtic distribution because their value is less than 3. Distribution with a
value equal to 3 is mesokurtic distribution (normal distribution).

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