Macroeconomic variables, COVID-19 and the Indian stock market performance
-
DOIhttp://dx.doi.org/10.21511/imfi.19(3).2022.03
-
Article InfoVolume 19 2022, Issue #3, pp. 28-37
- Cited by
- 930 Views
-
269 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
India witnessed the first major wave of COVID-19 in 2020. The second major wave during April 2021 caused a higher number of infected cases across the country. These waves of COVID-19, rising cases and lockdown announcements severely impacted the Indian economy. Moreover, huge volatility was observed in the prices of oil and exchange rates during the similar period. Thus, this study tests the effect of selected macroeconomic variables and the COVID-19 pandemic on the performance of the Indian stock market. Using co-integration and the vector error correction model on the NIFTY 100 firms, the findings suggest co-integration and long-term association among variables. The Indian stock market experienced an inverse connection with the exchange rate volatility; the coefficient value is 57.582. The exchange rates rose heavily (with a value of Indian rupee being 76.95 against US dollar) with the onset of COVID-19 cases. Further, these cases do hurt the sentiments of the stock market; however, the relationship is relatively infirm (the value is 0.22) as compared to that of the exchange rate. The accumulated major negative influence of COVID-19 on the economy had a weak impact on the stock market. In conclusion, it should be noted that after the first wave, businesses were more prepared and therefore incorporated the required changes that saw them through the second wave.
Acknowledgment
The infrastructural support provided by the FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.
- Keywords
-
JEL Classification (Paper profile tab)F31, E44, C32
-
References42
-
Tables4
-
Figures2
-
- Figure 1. Trend of selected variables
- Figure 2. Trend of selected variables at first difference
-
- Table 1. Descriptive statistics
- Table 2. ADF unit root test
- Table 3. Johansen’s cointegration test for cointegrating vectors
- Table 4. Vector error correction model results
-
- Aastveit, K. A., Bjørnland, H. C., & Thorsrud, L. A. (2014). What Drives Oil Prices? Emerging Versus Developed Economies. Journal of Applied Econometrics, 30(7), 1013-1028.
- Adebowale, E. A., & Akosile, A. I. (2018). Interest Rate, Foreign Exchange Rate, and Stock Market Development in Nigeria. Binus Business Review, 9(3), 247-253.
- Ahmed, S. (2008). Aggregate economic variables and stock market in India. International Research Journal of Finance and Economics, 14, 141-164.
- Alam, M. N., Alam, M. S., & Chavali, K. (2020). Stock market response during COVID-19 lockdown period in India: An event study. Journal of Asian Finance, Economics and Business, 7(7), 131-137.
- Al-Awadhi, A. M., Al-Saifi, K., Al-Awadhi, A., & Alhamadi, S. (2020). Death and contagious infectious diseases: impact of the COVID-19 virus on stock market return. Journal of Behavioral and Experimental Finance, 27, 100326.
- Alber, N. (2020). The Effect of Coronavirus Spread on Stock Markets: The Case of the Worst 6 Countries.
- Ashraf, B. N. (2020). Stock markets’ reaction to COVID-19: Cases or fatalities? Research in International Business and Finance, 54, 101249.
- Bora, D., & Basistha, D. (2021). The outbreak of COVID-19 pandemic and its impact on stock market volatility: Evidence from a worst-affected economy. Journal of Public Affairs, 21(4), 1-10.
- Camarero, M., & Tamarit, C. (2002). Oil prices and Spanish competitiveness: a cointegrated panel analysis. Journal of Policy Model, 24(6), 591-605.
- Camilleri, S. J., Scicluna, N., & Bai, Y. (2019). Do Stock Markets Lead or Lag Macroeconomic Variables? Evidence from Select European Countries. The North American Journal of Economics and Finance, 48, 170-186.
- Devpura, N., & Narayan, P. K. (2020). Hourly oil price volatility: The role of COVID-19. Energy Research Letters, 1(2), 1-5.
- Donadelli, M., Kizys, R., & Riedel, M. (2016). Dangerous infectious diseases: Bad news for Main street, good news for Wall Street? Journal of Financial Markets, 35, 84-103.
- Ibrahim, M. H., & Aziz, H. (2003). Macroeconomic variables and the Malaysian equity market. Journal of Economic Studies, 30(1), 6-27.
- Jain, A., & Biswal, P. C. (2016). Dynamic linkages among oil price, gold price, exchange rate, and stock market in India. Resources Policy, 49, 179-185.
- Jesus, D. P. D., Bezerra, B. F. L. S., & Besarria, C. D. N. (2020). The non-linear relationship between oil prices and stock prices: Evidence from oil-importing and oil-exporting countries. Research in International Business and Finance, 54, 101229.
- Ji, Q., Shahzad, S. J. H., Bouri, E., & Suleman, M. T. (2020). Dynamic structural impacts of oil shocks on exchange rates: lessons to learn. Journal of Economic Structures, 9(20), 1-19.
- Kewal. (2012). Effect of Inflation, Interest Rate, exchange rate and GDP growth Against Composite Stock Price Index. Journal Economic, 8(1), 33-64.
- Kim, K. (2003). Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model. Review of Financial Economics, 12(3), 301-313.
- Korsah, P., & Fosu, P. (2016). The Effects of Exchange Rates Movements on Stock Market Capitalisation in Ghana. Journal of Applied Economics & Business Research, 6(4), 312-327.
- Liu, H. Y., Manzoor, A., Wang, C. Y., Zhang, L., & Manzoor, Z. (2020). The COVID-19 outbreak and affected countries stock markets response. International Journal of Environmental Research and Public Health, 17(8), 1-19.
- Mazur, M., Dang, M., & Vega, M. (2020). COVID-19 and the March 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 38, 101690.
- Mishra, A. K., Rath, B. N., & Dash, A. K. (2020). Does the Indian Financial Market Nosedive because of the COVID-19 Outbreak, in Comparison to after Demonetization and the GST? Emerging Markets Finance and Trade, 56(10), 2162-2180.
- Narayan, P. K. (2021). COVID-19 research outcomes: An agenda for future research. Economic Analysis and Policy, 71, 439-445.
- Narayan, P. K., & Narayan, S. (2010). Modelling the impact of oil prices on Vietnam’s stock prices. Applied Energy, 87(1), 356-361.
- Nayak, D., & Barodawala, R. (2021). The impact of macroeconomic factors on the Indian stock market: An assessment. Arthshastra Indian Journal of Economics & Research, 10(2-3), 27-40.
- Olugbenga, A. A. (2012). Exchange rate volatility and stock market behaviour: the Nigerian experience. European Journal of Business and Management, 4(5), 31-39.
- O’Neill, T., Penm, J. H. W., & Terrell, R. (2008). The role of higher oil prices: A case of major developed countries. Research in Finance, 24, 287-299.
- Prabheesh, K. P., Padhan, R., & Garg, B. (2020). COVID-19 and the oil price–tock market nexus: Evidence from net oil-importing countries. Energy Research Letters, 1(2), 13745.
- Rahman, A. A., Sidek, N. Z. M., & Tafri, F. H. (2009). Macroeconomic Determinants of Malaysian Stock Market. African Journal of Business Management, 3(3), 95-106.
- Rautava, J. (2002). The role of oil prices and the real exchange rate in Russia’s economy (BOFIT Discussion Papers No. 3). Bank of Finland – Institute for Economies in Transition.
- Ray, S. (2012). Foreign exchange reserve and its impact on stock market capitalization: Evidence from India. Research on Humanities and Social Sciences, 2(2), 46-60.
- Ray, S. (2012). Testing Granger Causal Relationship between Macroeconomic Variables and Stock Price Behaviour: Evidence from India. Advances in Applied Economics and Finance, 3(1), 470-481.
- Reddy, Y. V., Ingalhalli, V. B., & Sahay, H. (2019). The impact of macroeconomic announcements on financial market volatility in India. IUP Journal of Applied Finance, 25(2), 65-90.
- Shankar, R., & Dubey, P. (2021). Indian stock market during the COVID-19 pandemic: Vulnerable or Resilient? Sectoral Analysis. Organizations and Markets in Emerging Economies, 12(1), 131-159.
- Sharma, A., Giri, S., Vardhan, H., Surange, S., Shetty, R., & Shetty, V. (2018). Relationship between Crude Oil Prices and Stock Market: Evidence from India. International Journal of Energy Economics and Policy, 8(4) 331-337.
- Shehzad, K., Xiaoxing, L., & Kazouz, H. (2020). COVID-19’s disasters are perilous than Global Financial Crisis: A rumor or fact? Finance Research Letters, 36, 101669.
- Suriani, S., Kumar, M. D., Jamil, F., & Muneer, S. (2015). Impact of the Exchange Rate on Stock Market. International Journal of Economics and Financial Issues, 5, 385-388.
- Topcu, M., & Gulal, O. S. (2020). The impact of COVID-19 on emerging stock markets. Finance Research Letters, 36, 101691.
- Tripathi, V., & Kumar, A. (2018). Relationship between Macroeconomic Factors and Aggregate Stock Returns in BRICS Stock Market – A Panel Data Analysis. In New Age Business Strategies in Emerging Global Markets (pp. 104-123). Excel India.
- Tsai, I. (2012). The relationship between stock price index and exchange rate in Asian markets: A quantile regression approach. Journal of International Financial Markets, Institutions and Money, 22(3), 609-621.
- Tursoy, T., & Faisal, F. (2016). Causality between stock price and GDP in Turkey: An ARDL Bounds Testing Approach. The Romanian Statistical Review, 4, 3-19.
- Yilmazkuday, H. (2020). COVID-19 effects on the S&P 500 index (Working Paper).