Impact of GDP, Macro Economic Factors on Equity Markets

Abstract

This is a study on behavior of Equity Market or Stock Market in connection with GDP growth, inflation rate and change in the foreign currency rate. The study is based on the share market where sale purchase of public listed companies’ shares takes place and this type of market is used to refer to an organized exchange. During this study we observed the movement of stock market. Normally market trend depends upon different factors some of them are external and other are internal. Here political & socio economic situation of the country, 5 -10 years economic plans policies, climate changes, agriculture growth, and industrial reforms are normally considered long terms factors which impact the economy of the country its growth and eventually equity market. However the political constancy and long term economic plans of Government play a vital role in the stability of economic market. Resultantly the investor and fund managers gain confidence about that market and start investing more or bringing new projects. The short term business plans, interest rate, currency value, local market conditions, demand of a specific commodity, increase in per capita income, purchasing power of an individual, ratio of savings, change in bank rates are the short term factors, market growth is based on the both short term and long term factors and when the investor has full liberty to enter and exit the market whenever he wants. The growth and behavior of stock market can change due to micro economic factors like profits, business growth, Price to earnings ratio P/E, dividend announced and the policies or plans announced which are pertaining to a particular company. Macro-economic factors like inflation, GDP would also affect the overall returns of market. We evaluated these factors during our study using regression analysis learning these aspect with help of previous data keeping in view the overall geopolitical, social and many other factors in mind.