Macroeconomic Factors and Stock Market Performance in India: A Cointegration Analysis

Abstract

This study focuses on relation between macroeconomic variables and the Indian stock market (NIFTY 50) under long-term and short-term through the application of cointegration and vector error correction models (VECM). This study opted Monthly data from January 2003 to December 2024which is being analysed by R studio analyzed to assess the impact of disposable income (DI), foreign institutional investment (FII), Gross development products GDP, inflation, interest rates, exchange rates, and government policies (GP) on stock market performance. Results confirm significant cointegration, indicating a stable long-run equilibrium. Short-term dynamics are driven by FII inflows, GDP growth, and interest rate fluctuations. The error correction term reveals a 32% monthly adjustment to equilibrium. These findings provide actionable insights for investors and policymakers to enhance market efficiency and macroeconomic stability.