Page 97 - IMDR JOURNAL 2023-24

IMDR’s Journal of Management Development & Research 2023-24

Exploring the Sensitivity of S&P BSE Sensex to Foreign Institutional

Investment, Gold Prices, Consumer Price Index, and Repo Rates

Nima Gandhi*

*Assistant Professor, Department of Management, D.Y. Patil Vidyapeeth Centre for Online Learning,

Pune, Maharashtra, India (E-mail: nima2289@gmail.com)

Abstract:

This paper investigates the complex relationship between the Consumer Price Index (CPI), Gold Prices,

Foreign Institutional Investment (FII), and Repo Rates—four important macroeconomic and financial
indicators—and the S&P BSE Sensex stock index. The BSE Sensex is a crucial area of study for

investors, policymakers, and financial analysts. Through an extensive empirical analysis of historical
data, this study endeavours to uncover the extent to which these variables influence the S&P BSE

Sensex, with the primary goal of providing valuable insights into the index's behavior and its sensitivity

to external economic factors. Employing multiple regression analysis, we quantify the relationships
between S&P BSE Sensex movements and changes in FII flows, gold prices, CPI inflation, and repo

rates. The Granger causality test is employed to confirm whether each variable’s lag values can be used

for the prediction of S&P BSE Sensex. Our research findings reveal that CPI does not impact
significantly in this regression model. Other variables FII, gold price and repo rate have an influence on

the Sensex value. Further the result of Granger causality test reveals that past values of any of variables
(lags in time series) under study cannot be used individually for the prediction of the BSE Sensex.

Key Words: S&P BSE Sensex, Multiple regression analysis, macroeconomic variables, VIF (variance

inflation factor), Granger-causality test

1. Introduction

The BSE Sensex is a prominent stock index in the Indian equity market. It has been regarded as a
barometer of India's economic health. Sensex provides a significant benchmark for investors and

financial analysts. Sensex is the country’s oldest and most actively traded stocks. The Sensex reflects

the performance of diverse sectors within the Indian economy. Understanding the factors that drive the
movements of Sensex is very important for investors, financial institutions, and policymakers.

This research paper investigates the sensitivity of S&P BSE Sensex to different macroeconomic
variables. The key macroeconomic and financial variables are Foreign Institutional Investment, Gold

Prices, Consumer Price Index, and Repo Rates. These economic variables have impact on the Indian
financial landscape. It is interesting to find how much impact these variables show on Sensex. Sensex is