5. Can the FMCG Stock Market Investors Hedge the Risk in Agricultural Commodity Markets? Empirical Evidence from India

The emerging economy of India counts agriculture as its top priority, suggesting that the prices of these commodities affect the stock market and domestic inflation. This paper investigates the long-run and short-run interactions between the select agricultural commodities and Fast-Moving Consumer Goods (FMCG) stock index by applying daily data using the Autoregressive Distributive Lag (ARDL) bound test to investigate the cointegration relationship. The findings indicate the absence of cointegration between National Commodity and Derivative Exchange (NCDEX) agricultural commodities and Bombay Stock Exchange (BSE) FMCG index. Additionally, this study uses the Toda and Yamamoto approach of Granger causality test to analyze the causal relationship between variables under study. The evidence reveals absence of causal relationship between FMCG index and agricultural commodities except for cottonseed, rape mustard seed and jeera. Furthermore, this test confirms only unidirectional causal relationship from these commodities to FMCG index. Finally, our analysis provides an opportunity for investors to hedge their risk due to the absence of causality and cointegration between FMCG index and agricultural commodities by diversifying their portfolio in both the markets.