Macroeconomic variables, COVID-19 and the Indian stock market performance


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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.

The infrastructural support provided by the FORE School of Management, New Delhi in completing this paper is gratefully acknowledged.

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    • 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
    • Conceptualization
      Vandana Bhama
    • Data curation
      Vandana Bhama
    • Formal Analysis
      Vandana Bhama
    • Methodology
      Vandana Bhama
    • Project administration
      Vandana Bhama
    • Validation
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    • Visualization
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    • Writing – original draft
      Vandana Bhama
    • Writing – review & editing
      Vandana Bhama