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Impact of Inflation and Gdp on Cnx Nifty IMPACT OF INFLATION AND GDP ON CNX NIFTY *Dr. J K Raju **Mr. Manjunath B R ***Mr. Pradeep Kumar S Abstract : Inflation and GDP are the two main important macro-economic variables. GDP is an economic indicator of the market value of all finished goods and services produced over a period (Quarterly or yearly) of time. There has been a decline in the GDP growth rate in the year 2017 compared to previous year. Several factors including global situation are responsible for the decline in GDP growth rate. Inflation is a continual growth in the universal worth of goods and services in an economy over a period of time. When the price level increases, each component of currency buys fewer goods and services. This paper mainly deals with the impact of Inflation and GDP on Indian market that is National stock exchange (NSE). For this we have collected 10 years quarterly data and also applied E-views statistical package. Unit root test for stationary, co-integration test, vector error correction model, and granger causality test, were conducted. Keywords: Inflation, Gross domestic product, National stock exchange, E-views. Introduction Gross domestic product (GDP) is an Economic indicator of the market value of all The National stock exchange (NSE) was finished goods and services produced over a established in 1992 as a tax-paying company period (Quarterly or yearly) of time. Gross and was recognized as a stock exchange in domestic product includes all private and 1993 under the Securities Contracts public consumption, government outlays, and (Regulation) Act, 1956. NSE commenced investments. There has been a decline in the operations in the Wholesale Debt Market GDP growth rate in the year 2017 compared to (WDM) segment in June 1994. NSE is world’s previous year. Several factors including global 10th largest stock exchange as of march 2017. situation are responsible for the decline in GDP But only 4% of Indian economy is actually growth rate. Demonetization, introduction of imitative from the stock exchanges in India. As goods and service tax at the same time are one of 2016, there are more than 7,000 companies of the main reasons for the decline in our listed in stock market in which about 4,500 economic growth rate. To increase the GDP companies are traded in both the exchanges growth rate, there should be an increase in that is BSE and NSE. Both Equity and consumer spending, investment levels, derivatives are traded in the NSE. government spending, imports and exports. By *Dr. J K Raju **Mr. Manjunath B R Professor & Chairman Research Scholar & Faculty Institute of Management Studies BIET-MBA Programme Davangere University Davangere [email protected] [email protected] Adarsh Journal of Management Research (ISSN 0974‐7028) ‐ Vol. : 11 Issue : 1 March 2018 26 improving in these areas, we can see better • S h a r m a ( 2 0 0 7 ) h a s e x a m i n e d t h e number in economic growth. Generally, there relationship between the Nifty (NSE) and should be high GDP. If GDP numbers are rising macroeconomic variables using quarterly year by year, it means Indian economy has data for the period of 1975 to 1999. good control and our nation is moving forward. Employing Johansen’s co-integration If GDP numbers are falling, it means our technique and vector error correction economy is in trouble and the nation is losing. model (VECM) he found that the stock Therefore, the growth rate should be higher. prices positively relates to industrial production, inflation, money supply, short Inflation is when the price level increases, term interest rate and also with the each component of currency buys fewer goods exchange rate, but, negatively related to and services; therefore, inflation reflects a long term interest rate. Their causality decrease in price. A chief measure of price analysis revealed that every macro- inflation is the inflation rate, the annualized economic variable considered caused the proportion change in an overall cost, usually Nifty (NSE) in the long run. the CPI, over time. The opposite of inflation is deflation. Continuously, inflation moves either • Ahmed (2008) employed the Johansen’s in positive or negative way. approach of co-integration and Toda – Yamamoto Granger causality test to Nowadays, most economists favor a low investigate the relationship between stock and steady rate of inflation. Low (as similar to prices and the macroeconomic variables zero or negative) inflation moderates the using quarterly data for the period of severity of economic recessions qualifying the March, 1995 to March 2007. The results labor market to regulate more rapidly in a indicated that there was an existence of a decline, and reduces the risk. The task of long-run relationship between stock price keeping the rate of inflation low and stable is and FDI, money supply, index of industrial usually given to the monetary authorities. production. His study also revealed that Normally, these monetary authorities are the movement in stock price caused World Bank that controls monetary policy movement in industrial production. through the setting of interest rates. From the data we can say that CNX nifty contributes • Sharma &Mahendru (2010)analyse long 38% for macro-economic variables. term relationship between BSE and macroeconomic variables, vis-à-vis, Literature Review change in exchange rate, foreign exchange • Chen et al. (1986) observed a few reserve, inflation rate and gold price. The macroeconomic variables and their study period ranges between January 2008 influence on stock market returns. They and January 2009. The multiple regression modeled equity return as a function of model was applied and the results reveal macro variables and non-equity assets that exchange rate and gold prices highly returns. It was found that the macro- effect the stock prices, while FOREX and economic variables such as industrial inflation have limited influence on stock production, anticipated and unanticipated prices. inflation, yield spread between the long and short term government bonds • Ghosh et al. (2010) found that dollar price, explained the stock returns. oil price, gold price and CRR have a Adarsh Journal of Management Research (ISSN 0974‐7028) ‐ Vol. : 11 Issue : 1 March 2018 27 significant impact on stock market returns. supply, exchange rate, interest rate, However, food price inflation and call consumer price index and the US stock money rate do not affect stock market price index were used. The study found return. Srivastava (2010) concluded that in that the NSE-Nifty price index has a long- the long term, stock market was more run positive relationship with money affected by domestic macroeconomic supply, index of industrial production, factors like industrial production, interest rate, and the US stock market wholesale price index and interest rate than index and negative relationship with global factors. exchange rate and the NSE-Nifty price index in long run. • Naresh Chandra Sahu and Deepinder H. Dhiman (2011) felt there is no causal • Pal and Mittal (2011) investigated the relationship between the stock market relationship between the Indian stock indicator (BSE) and Real GDP. These two markets and macroeconomic variables are co-related to each other highly. The using quarterly data for the period January boom of the stock market is not helping 1995 to December 2008 with the the real economy growth. The method Johansen’s co-integration framework and used is correlation and Ganger Causality the analysis revealed that there was a long- Regression Technique. Augmented Dickey run relationship exists between the stock Fuller unit Root test is used to verify the market index and set of macroeconomic stationary of the series and data from 1981 variables. to 2006 annual data. • Kiran Kumar Kotha (2016) and a set of six • Karam Pal and Ruhee Mittal (2011)has macroeconomic variables such as studied 56 quarterly data from 1995 to exchange rate, inflation, money supply, 2008 of BSE sensex and inflation, industrial production index, the long-term Treasury bill rate, Exchange rate and S&P government bond rate and call money rate. CNX Nifty data. By using Root Test, It was found that the stock market was co- Cointegration Test and Error Correction integrated with these set of variables Mechanism (ECM), they said that the implying a long-run equilibrium Skewness and Kurtosis shows that there is relationship between the stock market a lack of symmetry in the distribution. return and the selected macroeconomic Inflation is affecting the stocks of the both. variables. GDS will not have considerable effect on Objectives: the stock markets. The main objective of this study is to • Shrinivasm p (2011) studied the long-run explore the causal link between Indian Nifty relationships between NSE-Nifty share (NSE) and macro-economic variables. p r i c e i n d e x a n d o t h e r c r u c i a l macroeconomic variables and also • To assess the dynamics of short-term examined the short-run causal nexus linkages between CNX Nifty (NSE) and between NSE Nifty price index and the macro-economic variables. selected macro-economic variables in • To explore the presence of long-term India. The macro economic variables such equilibrium relationship between Indian as index of industrial production, money Nifty (NSE) and Inflation rate and GDP. Adarsh Journal of Management Research (ISSN 0974‐7028) ‐ Vol. : 11 Issue : 1 March 2018 28 • To capture the linear inter-dependence integrated. Data visualization by way of among the variables under study. line graphing provided an initial clue regarding the likely nature of the series. Methodology Nifty returns (NSE), Gross domestic Hypotheses product (GDP) and Inflation are the main The following hypotheses were developed to variables for the causality analysis. The study meet the objectives of the present study.
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