Impact of Macroeconomic Variables on Stock Market Returns: An ARDL Analysis of the Indian Market
Keywords:
Insurance Returns; Time-Series Trend; Volatility; Negative Shocks; Recovery; Performance Stability
Abstract
This paper explores how the key macroeconomic variables affect stock market returns on investment (ROI) in the Indian setting with special focus to inflation, exchange rates movement, and foreign direct investment (FDI). Using time-series data related to the Indian economy and its capital markets, the study explores both short and long run processes that correspond to macroeconomic variables and market returns. Augmented DickeyFuller (ADF) test is used to determine the stationarity, and an Autoregressive Distributed Lag (ARDL) error-correction model is applied to determine the relationship among the variables. The results affirm the presence of the long-run equilibrium relationship between stock markets returns and the macroeconomic factors under study. Inflation did not have a statistically significant impact on returns either in the long or short term whereas exchange rate movements have a significant impact on returns especially in the short term where currency depreciation adversely impacts market performance. The approximate error -correction value is negative and high, which signifies a prompt adaptation to long-run equilibrium after short-run shocks. These findings highlight the significance of exchange rate stability in the performance of the market and provide valuable information to the policy makers and investors, particularly younger and long-term market participants on the macroeconomic risks that determine investment returns in India.
References
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Bunjaku, F. (2024). Decoding the Stock Market and GDP Relationship Over the Long Term: Implications for Index Fund Investments. Studies in Business and Economics, 19(2), 49–59. https://doi.org/10.2478/sbe-2024-0024
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Fernandez, P. (2015). How Inflation Destroys Value. Social Science Research Network. https://doi.org/10.2139/SSRN.2215796
Ghazanvi, A. I., & Akram, M. U. (2025). Impact of Interest Rate on Stock Market Returns: A Study of the Karachi Stock Exchange. https://doi.org/10.20944/preprints202507.1270.v1
Güryel, A., & Kula, V. (2023). Exploring the Causal Linkage Between Foreign Equity Investments and BIST 100 Index. Journal of Corporate Governance, Insurance and Risk Management. https://doi.org/10.56578/jcgirm100206
Hsu, J., Ritter, J. R., Wool, P. S., & Zhao, Y. (2022). What Matters More for Emerging Markets Investors: Economic Growth or EPS Growth? The Journal of Portfolio Management, 48(8), 11–19. https://doi.org/10.3905/jpm.2022.1.368
Ikpesu, F., & Abass, S. A. (2022). Private Capital Inflows and Stock Market Development: An Empirical Insight. Indonesian Journal of Business and Economics, 5(1). https://doi.org/10.25134/ijbe.v5i1.5793
Impact of Exchange Rate and Inflation Rate on Stock Market Return Volatility In India. (2022). Academy of Marketing Studies Journal, 26.
Jacob, T., Mrs Malavika, & Raphael, R. (2025). The Impact of Inflation on Stock Market Return: Evidence from China. https://doi.org/10.1177/09728686241304850
Jaya, D. S. (2024). Impact of Macroeconomics Factors on Stok Market Performance “A Panel Data Analysis.” Indian Scientific Journal Of Research In Engineering And Management, 08(12), 1–5. https://doi.org/10.55041/ijsrem40086
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Klement, J. (2015). What’s Growth Got to Do With It? Equity Returns and Economic Growth. The Journal of Investing, 24(2), 74–78. https://doi.org/10.3905/JOI.2015.24.2.074
Kumar, S. R., & Banu, N. (2023). Macroeconomic factors affecting stock price volatility – a study on indian stock market. https://doi.org/10.47715/jpc.b.978-93-91303-81-5
Mehta, R. A., & Daka, N. (2025). Decoding Nifty 50: Impact of Macro Economic Factors on the Indian Stock Market. Journal of Informatics Education and Research, 5(2). https://doi.org/10.52783/jier.v5i2.3041
Mohanty, D. R., Mohapatra, A. K., Tripathy, S., & Matta, R. (2023). Nexus between foreign exchange rate and stock market: evidence from India. Investment Management & Financial Innovations. https://doi.org/10.21511/imfi.20(3).2023.07
Muktadir-Al-Mukit, D. (2013). The Effects of Interest Rates Volatility on Stock Returns: Evidence from Bangladesh. International Journal of Management and Business Research, 3(3), 269–279. https://ijmbr.srbiau.ac.ir/article_2004.html
Murphy, A., & Alsalman, Z. (2023). Relationships between stock returns and real earnings yields over the last 150 years. Finance Research Letters, 57, 104243. https://doi.org/10.1016/j.frl.2023.104243
Nabil, M. (2024). The Impact of Foreign Direct Investments on the Performance of Egyptian Stock Market Sectors Using Machine Learning Techniques. International Journal of Economics and Finance. https://doi.org/10.5539/ijef.v16n10p92
Pamba, D. (2025). Asymmetric Impact of Interest Rates on Stock Market Returns: Empirical Evidence from South Africa. Studies in Business and Economics, 20(2), 200–217. https://doi.org/10.2478/sbe-2025-0031
Park, S. (2023). Stocks as a Hedge against Inflation: Does Corporate Profitability Keep Up with Inflation? The Journal of Investing, 32(6), 43–60. https://doi.org/10.3905/joi.2023.1.284
Pham, H. T., Gan, C., & Hu, B. (2022). Causality between Financial Development and Foreign Direct Investment in Asian Developing Countries. Journal of Risk and Financial Management, 15(5), 195. https://doi.org/10.3390/jrfm15050195
Rohman, A. (2024). Korelasi Antara Inflasi, Suku Bunga, dan Risiko Investasi Terhadap Return Saham. Deleted Journal, 3(1), 76–85. https://doi.org/10.37481/jmoi.v3i1.123
Sami, J. (n.d.). Stock Returns and Inflation in Fiji. https://doi.org/10.33736/ijbs.7587.2024
Shenoy H, S., Desai, M., & Kamath, K. R. (2024). Impact of Inflation Stock Market Returns. Indian Scientific Journal Of Research In Engineering And Management, 08(11), 1–5. https://doi.org/10.55041/ijsrem38413
Sopi, S. (2024). Pengaruh inflasi, nilai kurs dan suku bunga terhadap return saham pada perusahaan perbankan yang terdaftar di bursa efek indonesia. https://doi.org/10.33747/capital.v5i2.194
Sreenivasan, V. P., Kolli, H., & Sialm, C. (2022). Does the Stock Market Anticipate Economic Growth? Empirical Evidence Based on the U.S. Stock Market. Journal of Student Research, 11(3). https://doi.org/10.47611/jsrhs.v11i3.3316
Sreenivasan, V. P., Kolli, H., & Sialm, C. (2022). Does the Stock Market Anticipate Economic Growth? Empirical Evidence Based on the U.S. Stock Market. Journal of Student Research, 11(3). https://doi.org/10.47611/jsrhs.v11i3.3316
Suriani, S., Kumar, M. D., Jamil, F., & Muneer, S. (2015). Impact of Exchange Rate on Stock Market. International Journal of Economics and Financial Issues, 5(1), 385–388. http://www.econjournals.com/index.php/ijefi/article/download/1510/pdf
The EFFECT Of Foreign Portfolio Investment (FPI) On The Performance Indicators: A Standard Analytical Study Of The Qatar Stock Exchange For The Period (2010-2020). (2022). Central European Management Journal. https://doi.org/10.57030/23364890.cemj.30.4.60
Umlauft, T. S. (2020). The Market Value of Equity-to-Gross Domestic Product Ratio as a Predictor of Long-term Equity Returns: Evidence from the U.S. Market, 1951-2019. Social Science Research Network. https://doi.org/10.2139/SSRN.3551661
Wong, H. T. (2017). Real exchange rate returns and real stock price returns. International Review of Economics & Finance, 49, 340–352. https://doi.org/10.1016/J.IREF.2017.02.004
Yalla, B. O., & Othieno, F. O. (2023). Modelling delayed correlation between interest rates and equity market returns. SN Business & Economics, 3(2), 1–24. https://doi.org/10.1007/s43546-022-00397-x
Akyol, H. (2021). Türk Bankacilik Sektöründeki Getiri ve Risk Oranları ile Doğrudan Yabancı Sermaye Yatırımları İlişkisi. 12(3), 742–761. https://doi.org/10.36362/GUMUS.853873
Ananda, W., & Santoso, A. B. (2022). Pengaruh Inflasi, Suku Bunga, dan Nilai Tukar Rupiah terhadap Return Saham pada Perusahaan Perbankan yang Terdaftar Di Bursa Efek Indonesia (2018-2020). Jurnal Manajemen Dan Sains, 7(2), 726. https://doi.org/10.33087/jmas.v7i2.559
Azar, S. A. (2022). Canada: The Inflation Irrelevance Proposition. International Journal of Economics and Financial Research, 84, 104–111. https://doi.org/10.32861/ijefr.84.104.111
Bhargava, V., & Konku, D. (2023). Impact of exchange rate fluctuations on US stock market returns. Managerial Finance. https://doi.org/10.1108/mf-08-2022-0387
Bulsara, H. P., Dhingra, V. S., & Gandhi, S. (2015). Dynamic interactions between foreign institutional investment flows and stock market returns: The case of India. Contemporary Economics, 9(3), 271–298. https://doi.org/10.5709/CE.1897-9254.170
Bunjaku, F. (2024). Decoding the Stock Market and GDP Relationship Over the Long Term: Implications for Index Fund Investments. Studies in Business and Economics, 19(2), 49–59. https://doi.org/10.2478/sbe-2024-0024
Chiang, T. C., & Chen, P.-Y. (2023). Inflation risk and stock returns: Evidence from US aggregate and sectoral markets. The North American Journal of Economics and Finance. https://doi.org/10.1016/j.najef.2023.101986
Fernandez, P. (2015). How Inflation Destroys Value. Social Science Research Network. https://doi.org/10.2139/SSRN.2215796
Ghazanvi, A. I., & Akram, M. U. (2025). Impact of Interest Rate on Stock Market Returns: A Study of the Karachi Stock Exchange. https://doi.org/10.20944/preprints202507.1270.v1
Güryel, A., & Kula, V. (2023). Exploring the Causal Linkage Between Foreign Equity Investments and BIST 100 Index. Journal of Corporate Governance, Insurance and Risk Management. https://doi.org/10.56578/jcgirm100206
Hsu, J., Ritter, J. R., Wool, P. S., & Zhao, Y. (2022). What Matters More for Emerging Markets Investors: Economic Growth or EPS Growth? The Journal of Portfolio Management, 48(8), 11–19. https://doi.org/10.3905/jpm.2022.1.368
Ikpesu, F., & Abass, S. A. (2022). Private Capital Inflows and Stock Market Development: An Empirical Insight. Indonesian Journal of Business and Economics, 5(1). https://doi.org/10.25134/ijbe.v5i1.5793
Impact of Exchange Rate and Inflation Rate on Stock Market Return Volatility In India. (2022). Academy of Marketing Studies Journal, 26.
Jacob, T., Mrs Malavika, & Raphael, R. (2025). The Impact of Inflation on Stock Market Return: Evidence from China. https://doi.org/10.1177/09728686241304850
Jaya, D. S. (2024). Impact of Macroeconomics Factors on Stok Market Performance “A Panel Data Analysis.” Indian Scientific Journal Of Research In Engineering And Management, 08(12), 1–5. https://doi.org/10.55041/ijsrem40086
Katechos, G. (2011). On the relationship between exchange rates and equity returns: A new approach. Journal of International Financial Markets, Institutions and Money, 21(4), 550–559. https://doi.org/10.1016/J.INTFIN.2011.03.001
Kaushik, M., & Kumar, N. (2023). GDP’S (Gross Domestic Product) impact on stock market movement in India: A study on BSE SENSEX. International Journal of Research in Finance and Management, 6(1), 152–156. https://doi.org/10.33545/26175754.2023.v6.i1b.207
Keswani, S., Puri, V., & Jha, R. (2024). Relationship among macroeconomic factors and stock prices: cointegration approach from the Indian stock market. Cogent Economics & Finance, 12(1). https://doi.org/10.1080/23322039.2024.2355017
Klement, J. (2015). What’s Growth Got to Do With It? Equity Returns and Economic Growth. The Journal of Investing, 24(2), 74–78. https://doi.org/10.3905/JOI.2015.24.2.074
Kumar, S. R., & Banu, N. (2023). Macroeconomic factors affecting stock price volatility – a study on indian stock market. https://doi.org/10.47715/jpc.b.978-93-91303-81-5
Mehta, R. A., & Daka, N. (2025). Decoding Nifty 50: Impact of Macro Economic Factors on the Indian Stock Market. Journal of Informatics Education and Research, 5(2). https://doi.org/10.52783/jier.v5i2.3041
Mohanty, D. R., Mohapatra, A. K., Tripathy, S., & Matta, R. (2023). Nexus between foreign exchange rate and stock market: evidence from India. Investment Management & Financial Innovations. https://doi.org/10.21511/imfi.20(3).2023.07
Muktadir-Al-Mukit, D. (2013). The Effects of Interest Rates Volatility on Stock Returns: Evidence from Bangladesh. International Journal of Management and Business Research, 3(3), 269–279. https://ijmbr.srbiau.ac.ir/article_2004.html
Murphy, A., & Alsalman, Z. (2023). Relationships between stock returns and real earnings yields over the last 150 years. Finance Research Letters, 57, 104243. https://doi.org/10.1016/j.frl.2023.104243
Nabil, M. (2024). The Impact of Foreign Direct Investments on the Performance of Egyptian Stock Market Sectors Using Machine Learning Techniques. International Journal of Economics and Finance. https://doi.org/10.5539/ijef.v16n10p92
Pamba, D. (2025). Asymmetric Impact of Interest Rates on Stock Market Returns: Empirical Evidence from South Africa. Studies in Business and Economics, 20(2), 200–217. https://doi.org/10.2478/sbe-2025-0031
Park, S. (2023). Stocks as a Hedge against Inflation: Does Corporate Profitability Keep Up with Inflation? The Journal of Investing, 32(6), 43–60. https://doi.org/10.3905/joi.2023.1.284
Pham, H. T., Gan, C., & Hu, B. (2022). Causality between Financial Development and Foreign Direct Investment in Asian Developing Countries. Journal of Risk and Financial Management, 15(5), 195. https://doi.org/10.3390/jrfm15050195
Rohman, A. (2024). Korelasi Antara Inflasi, Suku Bunga, dan Risiko Investasi Terhadap Return Saham. Deleted Journal, 3(1), 76–85. https://doi.org/10.37481/jmoi.v3i1.123
Sami, J. (n.d.). Stock Returns and Inflation in Fiji. https://doi.org/10.33736/ijbs.7587.2024
Shenoy H, S., Desai, M., & Kamath, K. R. (2024). Impact of Inflation Stock Market Returns. Indian Scientific Journal Of Research In Engineering And Management, 08(11), 1–5. https://doi.org/10.55041/ijsrem38413
Sopi, S. (2024). Pengaruh inflasi, nilai kurs dan suku bunga terhadap return saham pada perusahaan perbankan yang terdaftar di bursa efek indonesia. https://doi.org/10.33747/capital.v5i2.194
Sreenivasan, V. P., Kolli, H., & Sialm, C. (2022). Does the Stock Market Anticipate Economic Growth? Empirical Evidence Based on the U.S. Stock Market. Journal of Student Research, 11(3). https://doi.org/10.47611/jsrhs.v11i3.3316
Sreenivasan, V. P., Kolli, H., & Sialm, C. (2022). Does the Stock Market Anticipate Economic Growth? Empirical Evidence Based on the U.S. Stock Market. Journal of Student Research, 11(3). https://doi.org/10.47611/jsrhs.v11i3.3316
Suriani, S., Kumar, M. D., Jamil, F., & Muneer, S. (2015). Impact of Exchange Rate on Stock Market. International Journal of Economics and Financial Issues, 5(1), 385–388. http://www.econjournals.com/index.php/ijefi/article/download/1510/pdf
The EFFECT Of Foreign Portfolio Investment (FPI) On The Performance Indicators: A Standard Analytical Study Of The Qatar Stock Exchange For The Period (2010-2020). (2022). Central European Management Journal. https://doi.org/10.57030/23364890.cemj.30.4.60
Umlauft, T. S. (2020). The Market Value of Equity-to-Gross Domestic Product Ratio as a Predictor of Long-term Equity Returns: Evidence from the U.S. Market, 1951-2019. Social Science Research Network. https://doi.org/10.2139/SSRN.3551661
Wong, H. T. (2017). Real exchange rate returns and real stock price returns. International Review of Economics & Finance, 49, 340–352. https://doi.org/10.1016/J.IREF.2017.02.004
Yalla, B. O., & Othieno, F. O. (2023). Modelling delayed correlation between interest rates and equity market returns. SN Business & Economics, 3(2), 1–24. https://doi.org/10.1007/s43546-022-00397-x
Published
2026-03-26
How to Cite
Chopra, A. (2026). Impact of Macroeconomic Variables on Stock Market Returns: An ARDL Analysis of the Indian Market. International Journal of Social Science Research and Review, 9(4), 43-55. https://doi.org/10.47814/ijssrr.v9i4.3324
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