Examining the Effect of Foreign Direct Investment and Exports on Stock Market Performance: Evidence from India Based Bound Testing to Cointegration ARDL Approach

Abstract

This article looks at the major macroeconomic factors that affect the performance of the Indian stock market, including exports, industrial value added, money supply (M2), inflation, and foreign direct investment. Statistical dynamics, both short- and long-term, have been determined using the unit root test, co-integration test, and autoregressive distributed lag (ARDL) using yearly time series data (1988 to 2022). The study's conclusions establish co-integration, which is indicative of a long-term relationship, between macroeconomic variables and the performance of the Indian stock market. The ARDL attests to the substantial and favorable effects that exports, industrial value addition, and foreign direct investment have on market capitalization. The importance of macroeconomic factors on a developing economy's stock market performance is emphasized in this study. This aids in providing these economies' policy makers with a set of guidelines.