Macroeconomic Variables Vs. Stock Prices: An Analytical Study Of The BSE Sensex

Abstract

Over the past few years, a multitude of investors have suffered significant financial losses due to erroneous stock market predictions. The inherent difficulty in forecasting market trends establishes the core objective of this research. Investor risk can be mitigated, and predictive accuracy enhanced, if market participants are equipped with comprehensive data regarding the fundamental determinants of equity pricing. Accordingly, this study aims to identify and analyze the critical factors driving stock price fluctuations. Specifically, this research examines the impact of selected macroeconomic indicators—namely foreign exchange rates, money supply, and foreign exchange reserves—on the Bombay Stock Exchange (BSE) Sensex. The empirical analysis utilizes monthly data sourced from authoritative repositories, spanning the period from April 2021 to March 2026. Following a comprehensive review of existing literature, the dataset was subjected to unit root testing to evaluate its stationarity. Furthermore, the widely accepted Johansen co-integration technique was employed to establish long-term relationships between the dependent and independent variables, while the Granger causality test was applied to assess the direction of causal linkages among these factors.