The Influence of Macroeconomic Factors on NSE Performance: A Causality Approach

Abstract

The present study investigates the impact of selected macroeconomic variables — namely Consumer Price Index (CPI), Repo Rate (RR), Fiscal Deficit (FD), Foreign Exchange Reserves (FER), and Brent Crude Oil Price (BCOP) — on stock price movements in the National Stock Exchange (NSE) during the period from January 1, 2020, to December 31, 2024. Employing weekly time series data, the study applies descriptive statistics, Granger causality tests to determine the relationship between macroeconomic factors and stock returns. The Correlation Analysis further highlighted the negative relationship between CPI, RR, and BCOP with the NSE, while FER showed a positive relationship. The Granger Causality Test confirmed that CPI, RR, FER, and BCOP Granger-cause NSE returns, implying that changes in these macroeconomic factors have predictive power over the stock market’s performance. These findings provide crucial insights for investors, policymakers, and corporate strategists aiming to understand the evolving dynamics of the Indian financial market amid global uncertainties. The study suggests that macroeconomic stability plays a pivotal role in fostering stock market resilience and long-term investment growth.