4. Stock Indices and Inflation Through Industry Prisms

The relationship between macroeconomic variables and stock price is a widely discussed and investigated topic both in developed and developing countries. But, so far industry specific studies are limited in Indian context. Among various macroeconomic variables, rate of inflation is considered to be a prominent economic indicator. The current study examined the long run association between Industry specific indices and inflation rate. Inflation rate measured in terms of CPI and four major sector indices of Bombay Stock Exchange such as S&P BSE Fast Moving Consumer Goods, S&P BSE Healthcare, S&P BSE Information Technology and S&P BSE Bankex were taken for industry specific analysis. In view of the fact that CPI numbers are measured monthly, the study used monthly data of inflation rate and BSE Sectoral Indices from January 2012 to October 2017. Econometric techniques such as Augmented Dickey Fuller test, Johansen Co-integration test, VECM and VAR models were applied to the time series data. The results established negative long run causality running from inflation rate towards FMCG and Banking indices, but no relationship was established with Pharmaceutical and IT indices.